FBR FAMILY OF FUNDS, 485APOS, 1998-07-01

FBR FAMILY OF FUNDS
485APOS, 1998-07-01

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<PAGE>

REG. ICA NO. 811-07665
File No. 333-05675

AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 30, 1998

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

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

FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 /X/

Pre-Effective Amendment No. / /

Post-Effective Amendment No. 4 /X/

and

REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940 /X/

Amendment No. 6 /X/

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

FBR FAMILY OF FUNDS

(Exact Name of Registrant as Specified in Charter)
Potomac Tower
1001 Nineteenth Street North
Arlington, VA 22209
(Address of Principal Executive Office) (Zip Code)

Registrant's Telephone Number, including Area Code: (703) 312-9583

Robert S. Smith, Esq. Copy To:
Friedman, Billings, Ramsey & Co., Inc. Paul F. Roye, Esq.
Potomac Tower Dechert Price & Rhoads
1001 Nineteenth Street North 1775 Eye Street, N.W.
Arlington, VA 22209 Washington, D.C. 20006

(Name and Address of Agent for Service)

It is proposed that this filing will become effective (check appropriate box):

immediately upon filing pursuant to paragraph (b)
-----
on [date] pursuant to paragraph (b)
-----
60 days after filing pursuant to paragraph (a)
-----
X 75 days after filing pursuant to paragraph (a)(2)
-----
on [date] pursuant to paragraph (a) of Rule 485
-----

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

<PAGE>

FBR FAMILY OF FUNDS

CROSS-REFERENCE SHEET

(Pursuant to Rule 404 showing location in each form of Prospectus of
the responses to the Items in Part A and location in each form of Prospectus and
the Statement of Additional Information of the responses to the Items in Part B
of Form N-1A).

Form N-1A Part A Item Prospectus Caption
- --------------------- ------------------

1. Cover Page Cover Page

2. Synopsis Highlights; Fund Expenses

3. Condensed Financial Information Financial Highlights

4. General Description of Registrant Highlights; Investment Objectives;
Investment Policies and Risk
Factors; Additional Information
About the Funds; Fund Organization
and Fees

5. Management of the Fund Fund Organization and Fees

5A. Management's Discussion of Fund Fund Organization and Fees
Performance

6. Capital Stock and Other Securities How to Invest in the Funds; How to
Redeem Shares; Dividends,
Distributions and Taxes; Additional
Information

7. Purchase of Securities Being Offered Highlights; How to Invest in the
Funds; Shareholder Services; How
to Redeem Shares; Fund Organization
and Fees

8. Redemption or Repurchase Highlights; How to Invest in the
Funds; How to Redeem Shares

9. Pending Legal Proceedings Inapplicable

<PAGE>

Form N-1A Part B Item Prospectus Caption
- --------------------- ------------------

10. Cover Page Cover Page

11. Table of Contents Table of Contents

12. General Information and History Additional Information-Description
of Shares

13. Investment Objectives and Policies Investment Objectives and Policies

14. Management of the Fund Trustees and Officers

15. Control Persons and Principal Additional Information - Control
Holders of Securities Persons and Principal Holders of
Securities

16. Investment Advisory and Other Advisory & Other Contracts
Services

17. Brokerage Allocation and Other Advisory & Other
Practices Contracts-Portfolio Transactions

18. Capital Stock and Other Securities Valuation of Portfolio Securities;
Additional Purchase and Redemption
Information; Additional Information

19. Purchase, Redemption and Pricing Valuation of Portfolio Securities;
of Securities Being Offered Additional Purchase and Redemption
Information; Trustees and Officers

20. Tax Status Additional Purchase and Redemption
Information; Taxes

21. Underwriters Advisory & Other
Contracts-Distributors

22. Calculation of Performance Data Performance

23. Financial Statements Financial Statements

Part C
- ------

Information required to be included in Part C is set forth under the
appropriate Item, so numbered, in Part C to this Registration Statement.

-2-

<PAGE>
FBR FAMILY OF FUNDS

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

CLASS A, B AND C SHARES

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

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PROSPECTUS
SEPTEMBER , 1998

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FBR FAMILY OF FUNDS

PROSPECTUS FOR INFORMATION, CALL TOLL FREE: 1-888-888-0025
SEPTEMBER , 1998 E-MAIL: [email protected]
INTERNET: HTTP://WWW.FBRFUNDS.COM

The FBR FAMILY OF FUNDS is an open-end management investment company which
currently consists of five series: FBR Financial Services Fund ("Financial
Services Fund"), FBR Small Cap Financial Fund ("Small Cap Financial Fund"), each
of which is a diversified portfolio, FBR Small Cap Value Fund (formerly FBR
Small Cap Growth/Value Fund)("Small Cap Value Fund"), FBR Realty Growth Fund
("Realty Growth Fund") and FBR Information Technologies Fund ("Information
Technologies Fund") each of which is a non-diversified portfolio (collectively,
the portfolios are referred to as the "Funds"). This Prospectus relates to the
Financial Services Fund, the Small Cap Financial Fund, the Realty Growth Fund
and the Small Cap Value Fund only. FBR Fund Advisers, Inc. (the "Adviser") is
the investment adviser to the Funds. The Funds' shares are distributed by
Friedman, Billings, Ramsey & Co., Inc. ("FBR") and FBR Investment Services, Inc.
("FBR Services"), each of which is a registered broker-dealer, (collectively,
the "Distributor"). The Adviser and the Distributor are each affiliates of
Friedman, Billings, Ramsey Investment Management, Inc. and FBR Offshore
Management, Inc., each of which is a registered investment adviser.

The Financial Services Fund, Small Cap Financial Fund and the Small Cap
Value Fund each seeks capital appreciation. The Realty Growth Fund seeks capital
appreciation with current income as a secondary objective.

Please read this Prospectus before investing. It is designed to provide you
with information and to help you decide if a Fund's goals match your own. Retain
this document for future reference. A Statement of Additional Information (dated
September , 1998) for the Funds has been filed with the Securities and
Exchange Commission (the "Commission") and is incorporated herein by reference.
The Statement of Additional Information is available without charge upon request
by writing to FBR Family of Funds, Potomac Tower, 1001 Nineteenth Street North,
Arlington, Virginia 22209 or by calling toll free 1-888-888-0025.

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE COMMISSION OR
ANY SECURITIES REGULATORY AUTHORITY OF ANY STATE, NOR HAS THE COMMISSION OR ANY
SUCH STATE AUTHORITY PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<PAGE>
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HIGHLIGHTS

INTRODUCTION.

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 the
following investment portfolios: FBR Financial Services Fund, FBR Small Cap
Financial Fund, FBR Small Cap Value Fund, FBR Realty Growth Fund and FBR
Information Technologies Fund. Currently, shares of the FBR Information
Technologies Fund are not being offered.

FUND MANAGEMENT.

FBR Fund Advisers, Inc. serves as the investment adviser to the Funds. See
"Fund Organization and Fees".

HOW TO PURCHASE, EXCHANGE AND REDEEM SHARES.

Shares may be purchased or redeemed through FBR or FBR Services account
executives, other authorized dealers or directly through PFPC Inc. ("PFPC" or
the "Transfer Agent"). The minimum initial investment for each Fund is $1,000.
Subsequent investments must be $50 or more. The minimum initial investment for
Individual Retirement Accounts ("IRAs"), or pension, profit-sharing or other
employee benefit plans is $500 and minimum subsequent investments are $50. See
"How to Invest in the Funds".

Each Fund offers three classes of shares through this Prospectus. Shares may
be purchased at a price equal to their next determined net asset value ("NAV")
(i) plus an initial sales charge imposed at the time of purchase ("Class A
shares"), (ii) with a contingent deferred sales charge imposed on redemptions
within six years of purchase ("Class B shares") or (iii) without any initial or
contingent deferred sales charge, as long as shares are held for one year or
more ("Class C shares"). Direct purchases of $1 million or more of Class A
shares will be sold without an initial sales charge, but will be subject to a
contingent deferred sales charge if redeemed within 12 months of purchase.

<TABLE>
<CAPTION>
MAXIMUM INITIAL MAXIMUM CONTINGENT
ALL FUNDS SALES CHARGE DEFERRED SALES CHARGE
- ------------------------------- --------------- ---------------------------------------------------------------
<S> <C> <C>
Class A shares 5.5% (See above)
Class B shares N/A 5% declining to 0% after six years
Class C shares N/A 1% if shares are redeemed within 12 months
of purchase
</TABLE>

1
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Over time, the deferred sales charge and distribution fees attributable to
Class B or Class C shares will exceed the initial sales charge and the
distribution fees attributable to Class A shares. Class B shares will convert to
Class A shares, which are subject to lower distribution fees, eight years after
initial purchase. Class C shares, which are subject to the same distribution
fees as Class B shares, do not convert to Class A shares and are subject to the
higher distribution fees indefinitely. See "How to Invest in the
Funds--Alternative Purchase Arrangements".

Shares of the Funds may be exchanged for shares of the same class of other
funds advised by the Adviser and the FBR Money Market Portfolio of The RBB Fund,
Inc. at the net asset value next determined after receipt by the Transfer Agent
of an exchange request. In addition, the Funds reserve the right to impose an
administrative charge for each exchange or to reject any exchange request that
is reasonably deemed to be disruptive to efficient portfolio management. See
"Shareholder Services--Exchange Privilege".

Shares may be redeemed at the net asset value next determined after the
Transfer Agent receives a redemption request, subject to any applicable
contingent deferred sales charge. The Funds reserve the right, upon 60 days'
written notice, to redeem an account if the net asset value of the investor's
shares in that account falls below $500 and is not increased to at least such
amount within such 60-day period. See "How to Redeem Shares".

RISK FACTORS.

Investment in any of the Funds is subject to certain risks, as set forth in
detail under "Investment Policies and Risk Factors". Each Fund's net asset value
per share can be expected to fluctuate. In addition, the Financial Services
Fund, the Realty Growth Fund and the Small Cap Financial Fund each concentrate
their investments in a particular industry and therefore are designed for those
investors who are interested in actively monitoring the progress of, and can
accept the risks of, industry-focused investing. The Small Cap Financial Fund
and the Small Cap Value Fund will each, as a non-fundamental policy, invest at
least 65% of its total assets in smaller capitalization companies. The Funds may
engage in short selling. Investors should consider investment in the Funds as a
supplement to an overall investment program and should invest only if they are
willing to undertake the risks involved.

2
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FUND EXPENSES

The table below summarizes the estimated expenses associated with the Funds.
This standard format was developed for use by all mutual funds to help an
investor make investment decisions. You should consider this expense information
along with other important information in this Prospectus, including the Funds'
investment objectives, policies and risk factors.

<TABLE>
<CAPTION>
CLASS
A CLASS B CLASS C
------ -------- --------
<S> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES:
Maximum Sales Charge Imposed on
Purchases 5.5%(1) NONE NONE
Maximum Sales Charge Imposed on
Reinvested Dividends NONE NONE NONE
Maximum Deferred Sales Charges NONE(1) 5.0%(2) 1.0%(3)
Redemption Fees(4) NONE NONE NONE
Exchange Fees NONE NONE NONE
</TABLE>

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

(1) As a percentage of the offering price. No sales charge is imposed on
purchases of Class A shares by certain classes of investors. A contingent
deferred sales charge of 1.0% is imposed on certain redemptions of Class A
shares sold without an initial sales charge as part of an investment of $1
million or more. See "How to Invest in the Funds--Offering Price--Class A
Shares."

(2) As a percentage of the amount subject to charge. A contingent deferred sales
charge is imposed upon shares redeemed within six years of purchase at a
rate of 5.0% in the first year, declining to 1.0% in the sixth year, and
eliminated thereafter. See "How to Invest in the Funds--Offering
Price--Class B Shares."

(3) As a percentage of the amount subject to charge. A contingent deferred sales
charge of 1.0% is imposed on shares redeemed within 12 months of purchase.
See "How to Invest in the Funds--Offering Price--Class C Shares."

(4) A $15.00 redemption fee will be charged for all payments by wire made
through the Funds' transfer agent. Redemption fees are retained by the Fund.

<TABLE>
<CAPTION>
FINANCIAL SERVICES FUND SMALL CAP FINANCIAL FUND
---------------------------- ----------------------------
CLASS CLASS
A CLASS B CLASS C A CLASS B CLASS C
------ -------- -------- ------ -------- --------
<S> <C> <C> <C> <C> <C> <C>
ANNUAL FUND OPERATING EXPENSES (as a
percentage of average daily net
assets)
Investment Advisory Fees (after fee
waivers)* 0.71% 0.71% 0.71% 0.87% 0.87% 0.87%
Distribution (Rule 12b-1) Fees** 0.25% 1.00% 1.00% 0.25% 1.00% 1.00%
Other Expenses (after applicable
expense limitations)* 0.69% 0.69% 0.69% 0.48% 0.53% 0.53%
------ -------- -------- ------ -------- --------
TOTAL FUND OPERATING EXPENSES (after
applicable fee waivers and expense
limitations)* 1.65% 2.40% 2.40% 1.60% 2.40% 2.40%
------ -------- -------- ------ -------- --------
------ -------- -------- ------ -------- --------

SMALL CAP VALUE FUND REALTY GROWTH FUND
---------------------------- ----------------------------
CLASS CLASS
A CLASS B CLASS C A CLASS B CLASS C
------ -------- -------- ------ -------- --------
<S> <C> <C> <C> <C> <C> <C>
ANNUAL FUND OPERATING EXPENSES (as a
percentage of average daily net
assets)
Investment Advisory Fees (after fee
waivers)* 0.32% 0.32% 0.32% 0.00% 0.00% 0.00%
Distribution (Rule 12b-1) Fees** 0.25% 1.00% 1.00% 0.25% 1.00% 1.00%
Other Expenses (after applicable
expense limitations)* 1.08% 1.08% 1.08% 1.75% 1.75% 1.75%
------ -------- -------- ------ -------- --------
TOTAL FUND OPERATING EXPENSES (after
applicable fee waivers and expense
limitations)* 1.65% 2.40% 2.40% 2.00% 2.75% 2.75%
------ -------- -------- ------ -------- --------
------ -------- -------- ------ -------- --------
</TABLE>

* The Adviser has voluntarily undertaken to waive its investment advisory fees
and assume certain expenses of each Fund other than brokerage commissions,
extraordinary items, interest and taxes to the extent annual fund operating
expenses exceed 1.65% for Class A shares and 2.40% for Class B and Class C
shares of each Fund's average daily net assets for Financial Services Fund,
Small Cap Financial Fund and Small Cap Value Fund, and to the extent annual
fund operating expenses exceed 2.00% for Class A shares and 2.75% for Class
B shares and Class C shares of Realty Growth Fund's average daily net
assets. Without such fee waiver and

3
<PAGE>

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expense reimbursement, if any, investment advisory fees stated above would
be 0.90% for each of the Financial Services Fund, the Small Cap Financial
Fund and the Small Cap Value Fund, and 1.00% for the Realty Growth Fund.
Other expenses for Class A, Class B and Class C shares of Financial Services
Fund are estimated to be 0.69%, 1.20% and 1.20%, respectively. Other
expenses for Class A, Class B and Class C shares of Small Cap Financial Fund
are estimated to be 0.48%, 0.55% and 0.55%, respectively. Other expenses for
Class A, Class B and Class C shares of Small Cap Value Fund are estimated to
be 1.13%, 1.65% and 1.65%, respectively. Other expenses for Class A, Class B
and Class C shares of Realty Growth Fund are estimated to be 4.43%. Total
fund operating expenses for Financial Services Fund are estimated to be
1.84% for Class A shares and 3.10% for Class B and Class C shares. Total
fund operating expenses for Small Cap Financial Fund are estimated to be
1.63% for Class A shares and 2.45% for Class B and Class C shares. Total
fund operating expenses for Small Cap Value Fund are estimated to be 2.28%
for Class A shares and 3.55% for Class B and Class C shares. Total fund
operating expenses for Realty Growth Fund are estimated to be 5.68% for
Class A shares and 6.43% for Class B shares and Class C shares.

** As a result of Rule 12b-1 fees, a long-term investor in the Funds may pay
more than the economic equivalent of the maximum sales charge allowed by the
rules of the National Association of Securities Dealers, Inc.

EXAMPLE: You would pay the following expenses on a hypothetical $1,000
investment (including the maximum sales charge) assuming a 5% annual return:

<TABLE>
<CAPTION>
FUND 1 YEAR 3 YEARS 5 YEARS 10 YEARS
- -------------------------------------------------- --------- --------- --------- ---------
<S> <C> <C> <C> <C>
FINANCIAL SERVICES FUND
Class A shares $ 71 $104 $140 $240
Class B shares
--Assuming complete redemption at end of
period 75 118 150 255
--Assuming no redemption 24 75 128 255
Class C shares
--Assuming complete redemption at end of
period 34 75 128 274
--Assuming no redemption 24 75 128 274
SMALL CAP FINANCIAL FUND
Class A shares 70 103 137 235
Class B shares
--Assuming complete redemption at end of
period 75 118 150 255
--Assuming no redemption 24 75 128 255
Class C shares
--Assuming complete redemption at end of
period 34 75 128 274
--Assuming no redemption 24 75 128 274
SMALL CAP VALUE FUND
Class A shares 71 104 140 240
Class B shares
--Assuming complete redemption at end of
period 75 118 150 255
--Assuming no redemption 24 75 128 255
Class C shares
--Assuming complete redemption at end of
period 34 75 128 274
--Assuming no redemption 24 75 128 274
REALTY GROWTH FUND
Class A shares 74 114 157 275
Class B shares
--Assuming complete redemption at end of
period 78 128 168 290
--Assuming no redemption 28 85 145 290
Class C shares
--Assuming complete redemption at end of
period 38 85 145 308
--Assuming no redemption 28 85 145 308
</TABLE>

THE PURPOSE OF THE TABLE ABOVE IS TO ASSIST THE INVESTOR IN UNDERSTANDING
THE VARIOUS COSTS AND EXPENSES THAT AN INVESTOR IN A FUND WILL BEAR DIRECTLY OR
INDIRECTLY. See "Fund Organization and Fees" for a more complete discussion of
annual operating expenses of the Funds. The foregoing example is based upon
estimated expenses (after fee waivers and reimbursements, if any) for the
current fiscal year. The foregoing example should not be considered a
representation of past or future expenses. Actual expenses may be greater or
less than those shown.

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(This page has been left blank intentionally.)

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FINANCIAL HIGHLIGHTS
FINANCIAL SERVICES FUND, SMALL CAP FINANCIAL FUND AND VALUE FUND
(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)

Contained below is per share operating performance data for each share
outstanding, total investment return, ratios to average net assets and other
supplemental data for the period January 3, 1997 (commencement of investment
operations) through October 31, 1997 and for the six months ended April 30,
1998. The information regarding the period ended October 31, 1997 has been
audited by the Funds' independent public accountants, whose report thereon is
contained in the October 31, 1997 annual report to shareholders. The financial
data included in this table should be read in conjunction with the financial
statements and related notes incorporated by reference in the Statement of
Additional Information. During the period ended October 31, 1997, the Trust did
not offer Class A, Class B or Class C shares of any Fund. Shares offered during
this period were equivalent to current Class A shares, but were offered without
a sales charge.

<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.

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<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>

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REALTY GROWTH FUND
(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)

Contained below is per share operating performance data for each share
outstanding, total investment return, ratios to average net assets and other
supplemental data for the period July 3, 1995 (commencement of investment
operations) through March 31, 1996, and for the fiscal years ended March 31,
1997 and March 31, 1998. This information has been derived from the financial
statements for those periods. The information regarding the year ended March 31,
1998 has been audited by Deloitte & Touche LLP, whose report thereon is included
in the Fund's annual report to shareholders. The information for prior periods
was audited by other auditors. The financial data included in this table should
be read in conjunction with the financial statements and related notes
incorporated by reference in the Statement of Additional Information. The Fund
was reorganized as a series of the Trust on September , 1998. Prior to that
date, the Fund was a series of the GrandView Investment Trust, and did not offer
Class A, Class B or Class C shares. Shares reflected in the following table were
equivalent to current Class A shares, but were offered subject to a different
front end sales charge schedule.

<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED PERIOD ENDED
MARCH 31, MARCH 31, MARCH 31,
1998 1997 1996(a)
------------- ------------- ------------
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD................................. $ 12.69 $ 10.09 $ 10.00
INCOME FROM INVESTMENT OPERATIONS
Net investment income.......................................... 0.11 0.33 0.20
Net realized and unrealized gain on investments................ 3.00 4.14 0.36
------------- ------------- ------------
TOTAL FROM INVESTMENT OPERATIONS............................. 3.11 4.47 0.56
------------- ------------- ------------
DISTRIBUTIONS TO SHAREHOLDERS FROM
Net investment income.......................................... (0.11) (0.33) (0.20)
Net realized gain from investment transactions................. (1.18) (1.53) (0.22)
Tax return of capital.......................................... 0.00 (0.01) (0.05)
------------- ------------- ------------
TOTAL DISTRIBUTIONS.......................................... (1.29) (1.87) (0.47)
------------- ------------- ------------
NET ASSET VALUE, END OF PERIOD....................................... $ 14.51 $ 12.69 $ 10.09
------------- ------------- ------------
------------- ------------- ------------
TOTAL RETURN(b)...................................................... 24.80% 45.12% 5.70%
------------- ------------- ------------
------------- ------------- ------------
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period.......................................... $2,376,221 $1,158,023 $182,022
------------- ------------- ------------
------------- ------------- ------------
Ratio of expenses to average net assets
Before expense reimbursements and waived fees.................. 5.68% 9.59% 31.34%(c)
After expense reimbursements and waived fees................... 2.00% 1.89% 2.00%(c)
Ratio of net investment income (loss) to average net assets
Before expense reimbursements and waived fees.................. (3.09)% (4.58)% (25.55)%(c)
After expense reimbursements and waived fees................... 0.59% 3.12% 3.62%(c)
Portfolio turnover rate............................................ 170.19% 197.90% 44.44%
Average commission rate paid(d).................................... $0.0429 $0.0367 --
</TABLE>

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

(a) For the period from July 3, 1995 (commencement of operations) to March 31,
1996.

(b) Total return does not reflect payment of a sales charge.

(d) Represents total commissions paid on portfolio securities divided by total
portfolio shares purchased or sold on which commissions were charged. This
disclosure was not required for fiscal years of the Funds prior to March 31,
1997.

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INVESTMENT OBJECTIVES

The Financial Services Fund, Small Cap Financial Fund and Value Fund each
seeks capital appreciation. The investment objective of each of these Funds is
fundamental and may not be changed without a vote of the holders of a majority
of its outstanding voting securities (as defined in the Statement of Additional
Information). The Realty Growth Fund seeks capital appreciation, with current
income as a secondary objective. There can be no assurance that a Fund will
achieve its investment objective.

INVESTMENT POLICIES AND
RISK FACTORS

SUMMARY OF PRINCIPAL INVESTMENT POLICIES.

The FINANCIAL SERVICES FUND pursues its objective by concentrating its
investments in equity securities of companies providing financial services to
consumers and industry. As a non-fundamental policy, under normal market
conditions, the Financial Services Fund will invest at least 65% of its total
assets in such equity securities. Examples of companies in the financial
services group of industries include commercial banks, savings and loan
associations, brokerage companies, insurance companies, real estate and leasing
companies, companies that combine some or all of these businesses and holding
companies for each of the foregoing. Under Commission regulations, the Financial
Services Fund may not invest more than 5% of its total assets in the equity
securities of any company that derives more than 15% of its revenues from
brokerage or investment management activities. The Financial Services Fund's
strategy in seeking to achieve its investment objective may lead to investments
in smaller companies with less than $500 million market capitalization at the
time of purchase. Securities of smaller companies, especially those whose
business involves emerging products or concepts, may be more volatile due to
their limited product lines, markets, or financial resources; or their
susceptibility to major setbacks or downturns. The Financial Services Fund may
also invest in companies in the information technology industries which provide
products and/or services to these companies.

Financial services companies are subject to extensive governmental
regulation which may limit both the amounts and types of loans and other
financial commitments they can make, and the interest rates and fees they can
charge. Changes in governmental policies and the need for regulatory approval
may have a material effect on these companies. Profitability is largely
dependent on the availability and cost of capital funds, and can fluctuate
significantly when interest rates change. Credit losses resulting from financial
difficulties of borrowers can negatively impact the industry. Insurance
companies may be subject to severe price competition. Legislation is currently
being considered which would reduce the separation between commercial and
investment banking businesses, which if enacted, could significantly impact
financial services companies and the Financial Services Fund.

Commercial banks, savings and loan institutions and their holding companies
are especially influenced by adverse effects of volatile interest rates,
portfolio concentrations in loans to particular businesses, such as real estate
and energy, and competition from new entrants in their areas of business. These
institutions are subject to extensive federal regulation and, in some cases, to
state regulation as well. However, neither federal insurance of deposits nor
regulation of the bank and savings and loan industries ensures the solvency or
profitability of commercial banks or savings and loan institutions or their
holding companies, or insures against the risk of investing in the equity
securities issued by these institutions.

Investment banking, securities and commodities brokerage and investment
advisory companies also are subject to governmental regulation and investments
in those companies are subject to the

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risks related to securities and commodities trading and securities underwriting
activities. Insurance companies also are subject to extensive governmental
regulation, including the imposition of maximum rate levels, which may be
inadequate for some lines of business. The performance of insurance companies
will be affected by interest rates, severe competition in the pricing of
services, claims activities, marketing competition and general economic
conditions.

The SMALL CAP FINANCIAL FUND pursues its objective by investing primarily in
equity securities of companies providing financial services to consumers and
industry with an emphasis on those companies engaged in investing in real
estate, usually through mortgages and other consumer-related loans.

These companies may also offer other financial services such as discount
brokerage services, insurance products, leasing services, and joint venture
financing. This may include, for example, mortgage banking companies, banks, and
other depository institutions. As a nonfundamental policy, under normal market
conditions, the Small Cap Financial Fund will invest at least 65% of its total
assets in securities of smaller capitalization companies (companies of less than
$750 million market capitalization at the time of purchase) principally engaged
in the business of providing financial services to consumers and industry. It is
expected that the Fund will focus its investments on companies with market
capitalizations below $200 million. An issuer is considered to be principally
engaged in such business activity if at least 50% of its assets, gross income,
or net profits are committed to, or derived from, that activity. The Small Cap
Financial Fund may also invest in companies in the information technology
industries which provide products and/or services to the companies described
above and may invest in real estate investment trusts. The Small Cap Financial
Fund will invest primarily in equity securities, although it may invest in other
types of instruments as well.

The residential real estate finance industry has changed rapidly over the
last decade and is expected to continue to change. Factors expected to continue
driving change among the smaller capitalization issues include regulatory
changes, consolidation, mutual conversion activity, management changes,
residential loan demand, credit quality trends, interest rate movements and new
business development.

Although at least 65% of the Small Cap Financial Fund's total assets will be
invested in smaller capitalization companies, the Small Cap Financial Fund may
invest a portion of its assets in equity securities of companies with larger
market capitalizations. Smaller capitalization companies may have limited
product lines, markets, or financial resources. These conditions may make them
more susceptible to setbacks and reversals. Therefore, their securities may be
subject to more abrupt or erratic movements than securities of larger companies.
Small capitalization stocks as a group may not respond to general market rallies
or downturns as much as other types of equity securities. In addition, the stock
of such companies may be thinly traded and/or newly issued and not tested by
market demand. See "Illiquid Investments and Restricted Securities" below.

The Financial Services Fund and the Small Cap Financial Fund may be
appropriate for investors who want to pursue growth aggressively by
concentrating their investment on domestic and foreign securities within an
industry or group of industries. The Funds are designed for those who are
actively interested in, and can accept the risks of, industry-focused investing.
Because of their narrow industry focus, the performance of the Small Cap
Financial Fund and the Financial Services Fund is closely tied to and affected
by, its industry. Companies in an industry are often faced with the same
obstacles, issues, or regulatory burdens, and their securities may react
similarly and move in unison to these or other market conditions.

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The VALUE FUND seeks to achieve its objective of capital appreciation
primarily through equity investments in companies whose securities are believed
by the Adviser to be currently undervalued or may not yet reflect the prospect
for accelerating earnings/cash flow growth. The Value Fund invests primarily in
common stocks but may also invest in preferred stocks, convertible bonds, and
warrants of companies which in the opinion of the Adviser are expected to
achieve growth of investment principal over time. The investment strategy is to
focus on companies that have a demonstrated record of achievement and with
excellent prospects for earnings and/or cash flow growth over a 3 to 5 year
period.

As a non-fundamental policy, at least 65% of the value of the Fund's assets
will be invested in companies of less than $1 billion market capitalization at
the time of purchase, however, the Value Fund may invest a portion of its assets
in equity securities of companies with larger market capitalizations.

In general, the value of a Fund's domestic and foreign investments varies in
response to many factors. Stock values fluctuate in response to the activities
of individual companies, and general market and economic conditions. Investments
in foreign securities may involve risks in addition to those of U.S.
investments, including increased political and economic risk, as well as
exposure to currency fluctuations. This is especially true for securities of
emerging markets, such as those found in developing countries of Asia and Latin
America.

The Adviser may use various investment techniques to hedge a portion of a
Fund's risks, but there is no guarantee that these strategies will work as the
Adviser intends. Because each Fund invests primarily in equity securities, which
fluctuate in value, each Fund's shares will fluctuate in value. When you sell
your shares, they may be worth more or less than what you paid for them.

The REALTY GROWTH FUND pursues its objectives by investing primarily in
equity securities of issuers in the real estate industry which it believes
exhibit above average growth prospects. Such securities may include securities
of real estate industry companies or real estate investment trusts ("REITs")
that are large, well capitalized, and in favor; real estate industry companies
or REITs that are out of favor and/or the Adviser believes are undervalued; and
real estate industry companies or REITs that the Adviser believes have
significant "turnaround" potential. In determining whether a security meets any
of these requirements, the Adviser may take into account price-earnings ratios,
cash flows, relationships of asset value to market prices of the securities,
interest or dividend payment histories and other factors which it believes to be
relevant. The Adviser may determine that a company has "turnaround" potential
based on, for example, changes in management or financial restructurings.

Under normal circumstances, at least 65% of the total assets of the Realty
Growth Fund are invested in equity securities of REITs and other real estate
industry companies. For these purposes, a "real estate industry company" is a
company that derives at least 50% of its gross revenues or net profits from the
ownership, development construction, financing, management or sale of
commercial, industrial or residential real estate. In addition to REITs, real
estate industry companies include brokers or real estate developers, as well as
companies with substantial real estate holdings (I.E., at least 50% of their
total assets), such as paper and lumber producers and hotel and entertainment
companies.

Although the Realty Growth Fund does not invest directly in real estate, it
invests primarily in securities of real estate industry companies, and,
therefore, an investment in the Fund is subject to risks associated with the
ownership of real estate. These risks include, among others: possible declines
in the value of real estate; risks related to general and local economic
conditions; possible

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lack of availability of mortgage funds; overbuilding; extended vacancies of
properties; increases in competition, property taxes and operating expenses;
changes in zoning laws; costs resulting from the clean-up of, and liability to
third parties for damages resulting from, environmental problems; casualty or
condemnation losses; uninsured damages from floods, earthquakes or other natural
disasters; limitations on and variations in rents; and changes in interest
rates.

The Realty Growth Fund may invest without limitation in shares of REITs.
REITs are pooled investment vehicles which invest primarily in income-producing
real estate or real estate related loans or interests. REITs are generally
classified as equity REITs, mortgage REITs or a combination of equity and
mortgage REITs. Equity REITs invest the majority of their assets directly in
real property and derive income primarily from the collection of rents. Equity
REITs can also realize capital gains by selling properties that have appreciated
in value. Mortgage REITs invest the majority of their assets in real estate
mortgages and derive income from the collection of interest payments. Like
investment companies such as the Funds, REITs are not taxed on income
distributed to shareholders provided they comply with several requirements of
the Internal Revenue Code.

Investing in REITs involves certain risks in addition to those risks
associated with investing in the real estate industry in general. Equity REITs
may be affected by changes in the value of the underlying property owned by the
REITs, while mortgage REITs may be affected by the quality of any credit
extended (which may also be affected by changes in the value of the underlying
property). REITs are dependent upon management skills, often have limited
diversification, and are subject to the risks of financing projects. REITs are
subject to heavy cash flow dependency, default by borrowers, self-liquidation,
and the possibilities of failing to qualify for the exemption from tax for
distributed income under the Internal Revenue Code and failing to maintain their
exemptions from the Investment Company Act of 1940. Certain REITs have
relatively small market capitalizations, which may result in less market
liquidity and greater price volatility of their securities. When a shareholder
invests in real estate indirectly through a Fund, the shareholder's return will
be reduced not only by his or her proportionate share of the expenses of the
Fund, but also, indirectly, by similar expenses of the REITs in which the Fund
invests.

ADDITIONAL INFORMATION REGARDING THE FUNDS' INVESTMENTS.

The following paragraphs provide a brief description of some of the types of
securities in which the Funds may invest, in accordance with their investment
objectives, policies and limitations, including certain transactions they may
make and strategies they may adopt. The following also contains a brief
description of certain risk factors. Each Fund may, following notice to its
shareholders, take advantage of other investment practices which are not at
present contemplated for use by the Funds or which currently are not available
but which may be developed, to the extent such investment practices are both
consistent with a Fund's investment objective and are legally permissible for
the Fund. Such investment practices, if they arise, may involve risks which
exceed those involved in the activities described in this Prospectus. The
Adviser may not buy all of these instruments or use all of these techniques to
the full extent permitted unless it believes that doing so will help a Fund
achieve its goals.

EQUITY SECURITIES. Equity securities may include common stocks, preferred
stocks, convertible securities, warrants and limited partnership interests.
Common stocks, the most familiar type, represent an equity (ownership) interest
in a corporation. Although equity securities have a history of long-term growth
in value, their prices fluctuate based on changes in a company's financial
condition and on overall market and economic conditions. The Funds may also
invest in convertible securities which may offer higher income than the

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common stocks into which they are convertible. The convertible securities in
which the Funds may invest consist of bonds, notes, debentures and preferred
stocks which may be converted or exchanged at a stated or determinable exchange
ratio into underlying shares of common stock.

DEBT SECURITIES. Bonds and other debt instruments are used by issuers to
borrow money from investors. The issuer pays the investor a fixed or variable
rate of interest, and must repay the amount borrowed at maturity. Some debt
securities, such as zero coupon bonds, do not pay current interest, but are
purchased at a discount from their face values. In general, bond prices rise
when interest rates fall, and vice versa. Debt securities, loans, and other
direct debt have varying degrees of quality and varying levels of sensitivity to
changes in interest rates. Longer-term bonds are generally more sensitive to
interest rate changes than short-term bonds.

Investment-grade debt securities are securities rated at the time of
purchase within the four highest rating categories assigned by a nationally
recognized statistical ratings organization ("NRSRO") or, if unrated, which the
Adviser determines to be of comparable quality. The applicable securities
ratings are described in the Appendix to the Statement of Additional
Information. Some, however, may possess speculative characteristics and may be
more sensitive to economic changes and to changes in the financial condition of
issuers.

Each Fund intends to invest no more than 5% of its total assets (25% for
Realty Growth Fund) in debt securities rated lower than Baa by Moody's Investors
Service, Inc. ("Moody's") or BBB by Standard & Poor's Ratings Services
("Standard & Poor's") or Fitch Investors Service, Inc. ("Fitch") or securities
not rated by Moody's, Standard & Poor's or Fitch which the Adviser deems to be
of equivalent quality. Debt securities rated Ba or below by Moody's or BB or
below by Standard & Poor's or Fitch (or comparable unrated securities), are
commonly called "junk bonds" and are considered speculative, and payment of
principal and interest thereon may be questionable. In some cases, such
securities may be highly speculative, have poor prospects for reaching
investment grade standing and be in default. As a result, investment in such
bonds will entail greater speculative risks than those associated with
investment in investment-grade debt securities (I.E., debt securities rated Baa
or higher by Moody's or BBB or higher by Standard & Poor's or Fitch). The Funds
will not invest in debt securities rated lower than Caa by Moody's or CCC by
Standard & Poor's or Fitch or equivalent unrated securities. Debt securities
rated Caa by Moody's or CCC by Standard & Poor's or Fitch, and equivalent
unrated securities, are speculative and may be in default. These securities may
present significant elements of danger with respect to the repayment of
principal or interest. A description of the corporate debt ratings assigned by
Moody's, Standard & Poor's and Fitch is contained in Appendix A.

SHORT SALES. When the Adviser anticipates that the price of a security will
decline, it may sell the security short and borrow the same security from a
broker or other institution to complete the sale. A Fund may make a profit or
incur a loss depending upon whether the market price of the security decreases
or increases between the date of the short sale and the date on which the Fund
must replace the borrowed security.

All short sales must be fully collateralized, and a Fund will not sell
securities short if, immediately after and as a result of the sale, the value of
all securities sold short by the Fund exceeds 25% of its total assets.

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Accordingly, for temporary defensive purposes, each Fund may hold up to 100% of
its total assets in cash and/or short-term obligations. To the extent that a
Fund's assets are so invested, they will not be invested so as to meet its
investment objective. The instruments may include high grade liquid debt
securities such as variable amount master demand notes, commercial paper,
certificates of deposit, bankers' acceptances, repurchase agreements which
mature in less than seven days and obligations issued or guaranteed by the U.S.
Government, its agencies and instrumentalities. Bankers' acceptances are drafts
or bills of exchange "accepted" by a bank or trust company as an obligation to
pay on maturity.

REPURCHASE AGREEMENTS. Under the terms of a repurchase agreement, a Fund
acquires securities from financial institutions or registered broker-dealers,
subject to the seller's agreement to repurchase such securities at a mutually
agreed upon date and price. The seller is required to maintain the value of
collateral held pursuant to the agreement at not less than the repurchase price
(including accrued interest). If the seller were to default on its repurchase
obligation or become insolvent, the Fund would suffer a loss to the extent that
the proceeds from a sale of the underlying portfolio securities were less than
the repurchase price, or to the extent that the disposition of such securities
by the Fund was delayed pending court action. Repurchase agreements are
considered to be loans by the staff of the Commission.

REAL ESTATE-RELATED INVESTMENTS. Real estate-related investments include
real estate investment trusts, commercial and residential mortgage-backed
securities, and real estate financings. Real estate-related instruments are
sensitive to factors such as real estate values and property taxes, interest
rates, cash flow of underlying real estate assets, overbuilding, and the
management skill and creditworthiness of the issuer. Real estate-related
instruments may also be affected by tax and regulatory requirements, such as
those relating to the environment.

LEAPS. The Value Fund may purchase long-term exchange-traded equity options
called Long-Term Equity Anticipation Securities ("LEAPs"). LEAPs provide a
holder the opportunity to participate in the underlying securities' appreciation
in excess of a fixed dollar amount. The Value Fund will not purchase these
options with respect to more than 25% of the value of its net assets.

INVESTMENT COMPANY SECURITIES. Each Fund may invest up to 5% of its total
assets in the securities of any one investment company, but may not own more
than 3% of the securities of any one investment company or invest more than 10%
of its total assets in the securities of other investment companies.

ILLIQUID INVESTMENTS AND RESTRICTED SECURITIES. Each Fund may invest up to
15% of its net assets in illiquid investments (investments that cannot be
readily sold within seven days), including restricted securities which do not
meet the criteria for liquidity established by the Trust's Board of Trustees
(the "Trustees"). The Adviser, under the supervision of the Trustees, determines
the liquidity of each Fund's investments. The absence of a trading market can
make it difficult to ascertain a market value for illiquid investments.
Disposing of illiquid investments may involve time-consuming negotiation and
legal expenses. Restricted securities are securities which cannot be sold to the
public without registration under the Securities Act of 1933. Unless registered
for sale, these securities can only be sold in privately negotiated transactions
or pursuant to an exemption from registration.

The ability of the Trustees to determine the liquidity of certain restricted
securities is permitted under a position of the staff of the Commission set
forth in the adopting release for Rule 144A under the Securities Act of 1933
(the "Rule"). The Rule is a nonexclusive safe-harbor for certain secondary
market transactions involving securities subject to

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restrictions on resale under Federal securities laws. The Rule provides an
exemption from registration for resales of otherwise restricted securities to
qualified institutional buyers. The Rule was expected to further enhance the
liquidity of the secondary market for securities eligible for resale under the
Rule. The staff of the Commission has left the question of determining the
liquidity of certain restricted securities, including Rule 144A securities and
foreign securities, to the Trustees. The Trustees consider the following
criteria in determining the liquidity of certain restricted securities: the
frequency of trades and quotes for the security; the number of dealers willing
to purchase or sell the security and the number of other potential buyers;
dealer undertakings to make a market in the security; and the nature of the
security and the nature of the marketplace trades. The Trustees have delegated
to the Adviser the daily function of determining and monitoring the liquidity of
restricted securities pursuant to the above criteria and guidelines adopted by
the Trustees. The Trustees will continue to monitor and periodically review the
Adviser's selection of Rule 144A securities as well as any determinations as to
their liquidity.

SECURITIES LENDING. In order to generate additional income, each Fund may,
from time to time, lend its portfolio securities. Each Fund must receive
collateral equal to at least 100% of the securities' value in the form of cash
or U.S. Government and agency obligations, plus any interest due. The collateral
must be marked to market daily by the Adviser. Should the market value of the
loaned securities increase, the borrower must furnish additional collateral to
the Fund. During the time portfolio securities are on loan, the borrower pays
the Fund amounts equal to any dividends or interest paid on such securities plus
any interest negotiated between the parties to the lending agreement. Loans are
subject to termination by a Fund or the borrower at any time. While a Fund does
not have the right to vote securities on loan, the Fund intends to terminate any
loan and regain the right to vote if that is considered important with respect
to the Fund's investment. A Fund will only enter into loan arrangements with
broker-dealers, banks or other institutions which the Adviser has determined are
creditworthy under guidelines established by the Trustees. Each Fund will limit
its securities lending to 33 1/3% of its total assets (including the amount of
collateral received on loans).

BORROWING. Each Fund may borrow from banks, other financial institutions or
from other funds advised by the Adviser, or through reverse repurchase
agreements, subject to a limit of 33 1/3% of the Fund's total assets. Under a
reverse repurchase agreement, a Fund sells portfolio securities to a financial
institution and agrees to repurchase them at a mutually agreed-upon date and
price. If a Fund borrows money, its share price may be subject to greater
fluctuation until the borrowing is paid off. If a Fund makes additional
investments while borrowings are outstanding, this may be considered a form of
leverage. Each Fund may borrow for temporary or emergency purposes, but not in
an amount exceeding 5% of its total assets.

EACH FUND CURRENTLY INTENDS TO LIMIT ITS INVESTMENT TO NO MORE THAN 5% OF
ITS TOTAL ASSETS IN THE FOLLOWING INSTRUMENTS AND TECHNIQUES:

FOREIGN SECURITIES. The Funds may invest in equity securities of foreign
issuers, including securities traded in the form of American Depositary
Receipts. Each Fund currently intends to limit its investments in foreign
securities.

STRIPPED SECURITIES. The Funds may also purchase separately traded interest
and principal component parts of such obligations that are transferable through
the Federal book entry system, known

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as Separately Traded Registered Interest and Principal Securities ("STRIPS") and
Coupon Under Book Entry Safekeeping ("CUBES"). These instruments are issued by
banks and brokerage firms and are created by depositing U.S. Treasury notes and
U.S. Treasury bonds into a special account at a custodian bank; the custodian
holds the interest and principal payments for the benefit of the registered
owner of the certificates or receipts. The custodian arranges for the issuance
of the certificates or receipts evidencing ownership and maintains the register.
Receipts include Treasury Receipts ("TRs"), Treasury Investment Growth Receipts
("TIGRs") and Certificates of Accrual on Treasury Securities ("CATS").

ASSET-BACKED SECURITIES. Asset-backed securities include interests in pools
of mortgages, loans, receivables, or other assets. Payments of principal and
interest may be largely dependent upon the cash flows generated by the assets
backing the securities.

VARIABLE AND FLOATING RATE SECURITIES. Variable and floating rate
securities have interest rates that are periodically adjusted either at specific
intervals or whenever a benchmark rate changes. These interest rate adjustments
are designed to help stabilize the security's price.

OPTIONS AND FUTURES. 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. In addition, through the purchase and sale of futures contracts
and related options, a Fund may at times seek to hedge against fluctuations in
net asset value and to attempt to increase its investment return. A Fund may buy
and sell index futures contracts ("index futures") and options on index futures
and on indices for hedging purposes (or may purchase warrants whose value is
based on the value from time to time of one or more foreign securities indices).
An index future is a contract to buy or sell units of a particular bond or stock
index at an agreed price on a specified future date. Depending on the change in
value of the index between the time when the Fund enters into and terminates an
index futures or options transaction, the Fund realizes a gain or loss. A Fund
may also buy and sell index futures and options to increase its investment
return.

ADDITIONAL INFORMATION
ABOUT THE FUNDS

DIVERSIFICATION. Diversifying a Fund's investment portfolio may reduce the
risks of investing. This may include limiting the amount of money invested in
any one issuer or, on a broader scale, in any one industry. A fund that is not
diversified may be more sensitive to changes in the market value of a single
issuer or industry.

The Financial Services Fund and the Small Cap Financial Fund are considered
diversified. With respect to 75% of total assets, each Fund may not invest more
than 5% of its total assets in any one issuer. The Value Fund and the Realty
Growth Fund are considered non-diversified. The Value Fund and the Realty Growth
Fund may not invest more than 25% of total assets in any one issuer and, with
respect to 50% of total assets, may not invest more than 5% of total assets in
any one issuer. The Value Fund may not purchase the securities of an issuer if,
as a result, more than 25% of the Funds' total assets would be invested in the
securities of issuers whose principal business activities are in the same
industry. These limitations do not apply to U.S. Government securities.

Certain investment management techniques which the Funds may use, such as
the purchase and sale of futures and options may expose the Funds to special
risks. These products may be used to adjust

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the risk and return characteristics of a Fund's portfolio of investments. These
various products may increase or decrease exposure to fluctuation in security
prices, interest rates, or other factors that affect security values, regardless
of the issuer's credit risk. Regardless of whether the intent was to decrease
risk or increase return, if market conditions do not perform consistently with
expectations, these products may result in a loss. In addition, losses may occur
if counterparties involved in transactions do not perform as promised. These
products may expose the Funds to potentially greater risk of loss than more
traditional equity investments.

PORTFOLIO TRANSACTIONS. Each Fund may engage in the technique of short-term
trading. Such trading involves the selling of securities held for a short time,
ranging from several months to less than a day. The object of such short-term
trading is to take advantage of what the Adviser believes are changes in market,
industry or individual company conditions or outlook. Any such trading would
increase a Fund's turnover rate and its transaction costs. High turnover will
generally result in higher brokerage costs and possible tax consequences for the
Funds and their shareholders.

From time to time, each Fund, to the extent consistent with its investment
objective, policies and restrictions, may invest in securities of issuers with
which the Adviser or its affiliates have a lending relationship.

The portfolio turnover of a Fund may vary greatly from year to year as well
as within a particular year. High turnover rates will generally result in higher
transaction costs and higher levels of taxable realized gains to the Fund's
shareholders. It is expected that portfolio turnover for the Funds will not
exceed 250%. (See "Additional Tax Information" in the Statement of Additional
Information.)

BROKERAGE ALLOCATION. Subject to the supervision of the Trustees, the
Adviser is authorized to allocate brokerage to affiliated broker-dealers on an
agency basis to effect portfolio transactions. The Trustees have adopted
procedures incorporating the standards of Rule 17e-1 of the Investment Company
Act of 1940, as amended (the "1940 Act"), which require that the commission paid
to affiliated broker-dealers must be reasonable and fair compared to the
commission, fee or other remuneration received, or to be received, by other
brokers in connection with comparable transactions involving similar securities
during a comparable period of time. It is expected that brokerage will be
allocated to FBR and FBR Services, both of which are affiliates of the Adviser.
Bear, Stearns Securities Corp., an affiliate of the administrator and the
custodian, acts as clearing broker to the Distributor.

NOTE: The Statement of Additional Information contains additional information
about the investment practices of the Funds and risk factors. The investment
policies and limitations of the Funds may be changed by the Trustees without any
vote of shareholders unless (1) a policy is expressly deemed to be a fundamental
policy of a Fund or (2) a policy is expressly deemed to be changeable only by
such shareholder vote.

HOW TO INVEST IN THE FUNDS

ALTERNATIVE PURCHASE ARRANGEMENTS.

Each Fund continuously offers through this Prospectus Class A, Class B and
Class C shares, as described more fully in "How to Purchase Shares." If you do
not specify in your instructions to the Funds which class of shares you wish to
purchase, the Funds will assume that your instructions apply to Class A shares.

CLASS A SHARES. If you invest less than $1 million in Class A shares you
will pay an initial sales charge. Certain purchases may qualify for reduced
initial sales charges. If you invest $1 million or more in Class A shares of a
Fund, no sales charge will be imposed at the time of purchase, but you may incur
a deferred sales charge equal to 1.00% if

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you redeem your shares within 12 months of purchase. Class A shares are subject
to distribution fees of 0.25%, per annum, of each Fund's average daily net
assets attributable to Class A shares.

CLASS B SHARES. Class B shares are sold without an initial sales charge,
but are subject to a contingent deferred sales charge ("CDSC") of up to 5% if
redeemed within six years of purchase. Class B shares are subject to
distribution and service fees of 0.75% and 0.25%, per annum, respectively, of
each Fund's average daily net assets attributable to Class B shares. See
"Distribution and Service Plans." Class B shares will automatically convert to
Class A shares, based on their relative net asset values, eight years after the
initial purchase. Your entire investment in Class B shares is available to work
for you from the time you make your initial investment, but the distribution and
service fees paid by Class B shares will cause your Class B shares (until
conversion to Class A shares) to have a higher expense ratio and to pay lower
dividends, to the extent dividends are paid, than Class A shares.

CLASS C SHARES. Class C shares are sold without an initial sales charge,
but are subject to a CDSC of 1% if redeemed within 12 months of purchase. Class
C shares are subject to distribution and service fees of 0.75% and 0.25%, per
annum, respectively, of each Fund's average daily net assets attributable to
Class C shares. See "Distribution and Service Plans." Class C shares have no
conversion feature, and accordingly, an investor that purchases Class C shares
will be subject to the distribution and service fees imposed on Class C shares
for an indefinite period, subject to annual approval by the Fund's Board of
Trustees and certain regulatory limitations. Your entire investment in Class C
shares is available to work for you from the time you make your initial
investment, but the distribution fee paid by Class C shares will cause your
Class C shares to have a higher expense ratio and to pay lower dividends, to the
extent dividends are paid, than Class A shares (or Class B shares after
conversion to Class A shares).

FACTORS TO CONSIDER IN CHOOSING CLASS A, CLASS B OR CLASS C SHARES. The
decision as to which class to purchase depends on the amount you invest, the
intended length of the investment and your personal situation. For example, if
you plan to invest less than $250,000 for a period of approximately eight years
or less, you should probably consider Class C shares as the appropriate choice
even though the class expenses are higher, because there is no initial sales
charge and no CDSC after one year. If you plan to invest less than $250,000 for
a period of between nine and twelve years, Class B shares may be the appropriate
choice. If you plan to hold your investment for more than twelve years, then
Class A shares may be the appropriate choice, because the effect of the higher
class expenses of Class B and Class C shares might be greater than the effect of
the initial sales charge on the Class A shares. If you plan to invest more than
$250,000 but less than $500,000 for a period of five years or less, then you
should probably consider investing in Class C shares. If you plan to hold your
investment for approximately six years or more you may find Class A shares more
advantageous because the annual total expenses on Class B and Class C shares
will have a greater impact on your investment over the longer term than the
reduced front-end sales charge available for larger purchases of Class A shares.
If you plan to invest more than $500,000 but less than $1,000,000 for a period
of four years or less, then you should probably consider investing in Class C
shares. If you plan to hold your investment for approximately five years or
more, you may find Class A shares more advantageous. For investors who invest $1
million or more, Class A shares will be the most advantageous choice, no matter
how long you intend to hold your shares. Although Class C shares are subject to
a CDSC for only twelve months and a lower rate than Class B shares, Class C
shares do not have the conversion feature applicable to Class B shares, making
them subject

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to higher distribution and service fees for an indefinite period. Authorized
dealers may receive different compensation for selling Class A, Class B or Class
C shares.

HOW TO PURCHASE SHARES.

The minimum initial investment is $1,000, or $500 if the investment is for
IRAs, or pension, profit-sharing or other employee benefit plans ("Retirement
Plans"). Subsequent investments ordinarily must be at least $50. The Trust
reserves the right to reject any purchase order. The Trust reserves the right to
vary the initial and subsequent investment minimum requirements at any time.
Investments by employees of the Adviser and its affiliates are not subject to
minimum investment requirements. Each Fund, at its own discretion, reserves the
right to suspend purchases of its shares. Purchases of the Funds' shares may be
made through a brokerage account maintained with the Distributor or through
certain investment dealers who are members of the National Association of
Securities Dealers, Inc. and who have sales agreements with the Distributor (an
"Authorized Dealer"). Purchases of the Funds' shares also may be made directly
through the Transfer Agent. Purchases are effected at a Fund's net asset value,
subject to any applicable sales charge, next determined after a purchase order
is received by the Distributor, another Authorized Dealer or the Transfer Agent
(the "trade date"). Payment for Fund shares generally is due to the Distributor
or another Authorized Dealer on the third business day (the "settlement date")
after the trade date.

PURCHASES CAN BE MADE THROUGH THE TRANSFER AGENT.

Shares representing interests in the Funds are offered continuously for sale
by the Distributor and may also be purchased through PFPC, the Funds' transfer
agent. Shares may be purchased initially by completing the application (the
"Application") accompanying this Prospectus and forwarding the application and
payment to the Transfer Agent. Subsequent purchases of shares may be effected by
mailing a check or Federal Reserve Draft payable to the order of "FBR Family of
Funds" c/o PFPC Inc., P.O. Box 8994, Wilmington, Delaware 19899-8994. The name
and class of the Fund for which shares are being purchased must also appear on
the check or Federal Reserve Draft. Federal Reserve Drafts are available at
national banks or any state bank which is a member of the Federal Reserve
System.

An investor may also purchase shares by having his bank or his broker wire
Federal Funds to the Transfer Agent. An investor's bank or broker may impose a
charge for this service. In order to ensure prompt receipt of an investor's
Federal Funds wire, for an initial investment, it is important that an investor
follows these steps:

A. Telephone the Fund's Transfer Agent, toll-free 1-800-821-3460, and
provide the Transfer Agent with your name, address, telephone number, Social
Security or Tax Identification Number, the Fund selected, the class selected,
the amount being wired, and by which bank. The Transfer Agent will then provide
an investor with a Fund account number. Investors with existing accounts should
also notify the Transfer Agent prior to wiring funds.

B. Instruct your bank or broker to wire the specified amount, together with
your assigned account number, to PFPC's account with PNC Bank, N.A.:

PNC Bank, N.A.
Philadelphia, Pennsylvania
ABA-0310-0005-3
CREDITING ACCOUNT NUMBER
86-1108-2435
FROM: (name of investor)
ACCOUNT NUMBER: (investor's account
number with the Fund)
FOR PURCHASE OF: (name and class of
the Fund)
AMOUNT: (amount to be invested)

C. Fully complete and sign the Application and mail it to the address shown
thereon. The

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Transfer Agent will not process redemptions until it receives a fully completed
and signed Application.

For subsequent investments, an investor purchasing shares directly through
the Transfer Agent should follow steps A and B above.

PURCHASES CAN BE MADE THROUGH THE DISTRIBUTOR OR OTHER AUTHORIZED DEALERS.

Purchases through Distributor account executives or other Authorized Dealers
may be made by check (except that a check drawn on a foreign bank will not be
accepted), Federal Reserve Draft or by wiring Federal Funds with funds held in
brokerage accounts at the Distributor or another Authorized Dealer. Checks or
Federal Reserve Drafts should be directed to the Transfer Agent: PFPC Inc.,
Attention: FBR Family of Funds [Insert Fund Name and Class], P.O. Box 8994,
Wilmington, Delaware 19899-8994. Direct overnight deliveries to PFPC, Inc., 400
Bellevue Parkway, Suite 108, Wilmington, Delaware 19809. Payment by check or
Federal Reserve Draft must be received within three business days of receipt of
the purchase order by the Distributor or other Authorized Dealer. The
Distributor or an investor's Authorized Dealer is responsible for forwarding
payment promptly to the Trust. Checks for investment must be made payable to FBR
Family of Funds. The payment proceeds of a redemption of shares recently
purchased by check may be delayed as described under "How to Redeem Shares."

Shares of the Funds may be purchased on any Business Day. A "Business Day"
is any day that the New York Stock Exchange (the "NYSE") is open for business.
Currently, the NYSE is closed on weekends and New Year's Day, Martin Luther King
Jr. Day, Presidents' Day, Good Friday, Memorial Day, Independence Day
(observed), Labor Day, Thanksgiving Day and Christmas Day (observed). Such
shares are offered at the next determined net asset value per share, subject to
any applicable sales charge. In those cases where an investor pays for shares by
check, the purchase will be effected at the net asset value next determined
after the Transfer Agent receives payment in good order. Shareholders may not
purchase shares of the Funds with a check issued by a third party and endorsed
over to the Funds.

Purchase orders received by the Distributor, another Authorized Dealer or
the Transfer Agent prior to the close of regular trading on the New York Stock
Exchange (normally 4:00 p.m., New York time) on any day the Funds calculate
their net asset values are priced according to applicable net asset value
determined on that date, subject to any applicable sales charge. Purchase orders
received after the close of regular trading on the New York Stock Exchange are
generally priced as of the time the net asset value is next determined.

Shareholders whose shares are held in a street name account and who desire
to transfer such shares to another street name account should contact the record
holder of their current street name account.

The Funds understand that some broker-dealers (other than the Distributor),
financial institutions, securities dealers, financial planners and other
industry professionals ("Investment Professionals") may impose certain
conditions on their clients that invest in the Funds, which are in addition to
or different from those described in this Prospectus and, to the extent
permitted by applicable regulatory authority may charge their clients direct
fees. Certain features of the Funds, such as the minimum initial or subsequent
investments, may be modified in these programs, and administrative charges may
be imposed for the services rendered. Therefore, a client or customer should
contact the organization acting on his behalf concerning the fees (if any)
charged in connection with a purchase or redemption of a Fund's shares and
should read this Prospectus in light of the terms governing his accounts with
Investment Professionals. Investment Professionals will be responsible for
promptly transmitting client or customer purchase and redemption orders to the
Funds in accordance with their agreements with clients or customers. If

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payment is not received by such time, the Investment Professional could be held
liable for resulting fees or losses.

NET ASSET VALUE IS COMPUTED DAILY 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. Shares of the Funds are sold on a continuous basis. The net asset value per
share of each Fund is computed by dividing the value of each Fund's net assets
(i.e., the value of its assets less liabilities) by the total number of shares
outstanding. Each Fund's investments are valued based on market value or, where
market quotations are not readily available, based on fair value as determined
in good faith by, or in accordance with procedures established by, the Trustees.
For further information regarding the methods employed in valuing a Fund's
investments, see "Determination of Net Asset Value" in the Funds' Statement of
Additional Information.

Federal regulations require that investors provide a certified Taxpayer
Identification Number (a "TIN") upon opening or reopening an account. See
"Dividends, Distributions and Taxes." Failure to furnish a certified TIN to the
Trust could subject the investor to a $50 penalty imposed by the Internal
Revenue Service (the "IRS").

IN-KIND PURCHASES. Shares of the Funds may be purchased with "in-kind"
securities, if approved in advance by the Trust. Securities used to purchase
Fund shares must be appropriate investments for that Fund, consistent with its
investment objective, policies and limitations, as determined by the Trust, and
must have readily available market quotations. The securities will be valued in
accordance with the Trust's policy for calculating net asset value, determined
as of the close of the day on which the securities are received by the Trust in
salable form. A prospective shareholder will receive shares of the applicable
Fund next computed after such receipt. To obtain the approval of the Trust,
prospective investors are directed to call 1-888-888-0025. Investors who are
affiliated persons of the Trust (as defined in the 1940 Act) may not purchase
shares in this manner in the absence of the Commission's approval.

SYSTEMATIC INVESTMENT PLAN. The Systematic Investment Plan permits
investors to purchase shares of a Fund at regular intervals selected by the
investor. Provided the investor's bank or other financial institution allows
automatic withdrawals, Fund shares may be purchased by transferring funds from
the account designated by the investor. At the investor's option, the account
designated will be debited in the specified amount, and Fund shares will be
purchased once a month, on or about the twentieth day. Only an account
maintained at a domestic financial institution which is an Automated Clearing
House member may be so designated. Investors desiring to participate in the
Systematic Investment Plan should call the Transfer Agent at 1-800-821-3460 to
obtain the appropriate forms. The Systematic Investment Plan does not assure a
profit and does not protect against loss in declining markets. Since the
Systematic Investment Plan involves the continuous investment in a Fund
regardless of fluctuating price levels of the Fund's shares, investors should
consider their financial ability to continue to purchase through periods of low
price levels. The Trust may modify or terminate the Systematic Investment Plan
at any time or charge a service fee. No such fee currently is contemplated.

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OFFERING PRICE--CLASS A SHARES.

The offering price of Class A shares of each Fund is the next determined net
asset value per share plus a sales charge, if any, paid at the time of purchase
of shares as shown in the following table:

<TABLE>
<CAPTION>
SALES CHARGE AS MAXIMUM DEALER
SALES CHARGE AS PERCENTAGE OF ALLOWANCE AS
AMOUNT OF PURCHASE PERCENTAGE OF NET AMOUNT PERCENTAGE OF
(INCLUDING SALES CHARGE, IF ANY) OFFERING PRICE INVESTED OFFERING PRICE***
- ----------------------------------------------------- --------------- --------------- -------------------
<S> <C> <C> <C>
Less than $50,000 5.50% 5.82% 5.00%
$50,000 up to (but less than) $100,000 4.75 4.99 4.00
$100,000 up to (but less than) $250,000 3.75 3.90 3.00
$250,000 up to (but less than) $500,000 2.75 2.83 2.25
$500,000 up to (but less than) $1 million 2.00 2.04 1.75
$1 million or more 0.00* 0.00* **
</TABLE>

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

* No sales charge is payable at the time of purchase of Class A shares of $1
million or more, but a CDSC may be imposed in the event of certain
redemption transactions made within 12 months of purchase.

** The Trust pays a one-time commission to Authorized Dealers who initiate or
are responsible for purchases of $1 million or more of shares of the Funds
equal to 1.00% of the amount under $3 million, 0.50% of the next $2 million,
and 0.25% thereafter. The Trust may also pay, with respect to all or a
portion of the amount purchased, a commission in accordance with the
foregoing schedule to Authorized Dealers who initiate or are responsible for
purchases of $500,000 or more by plans or $1 million or more by "wrap"
accounts satisfying the criteria set forth in (h) or (j) below. Purchases by
such plans will be made at net asset value with no initial sales charge. In
addition, Authorized Dealers shall remit to the Trust such payments received
in connection with "wrap" accounts in the event that shares are redeemed
within 12 months after the end of the calendar month in which the purchase
was made.

*** During special promotions, the entire sales charge may be reallowed to
Authorized Dealers. Authorized Dealers to whom substantially the entire
sales charge is reallowed may be deemed to be "underwriters" under the
Securities Act of 1933.

Purchases of $1 million or more of Class A shares will be made at net asset
value with no initial sales charge, but if the shares are redeemed within 12
months after the end of the calendar month in which the purchase was made, a
CDSC of 1.00% will be imposed. Any applicable CDSC will be assessed on an amount
equal to the lesser of the current market value or the original purchase cost of
the redeemed Class A shares. Accordingly, no CDSC will be imposed on increases
in account value above the initial purchase price, including shares derived from
the reinvestment of dividends or capital gains distributions. Upon redemption of
shares subject to a CDSC, shareholders will receive that portion of the
appreciation in account value attributable to the shares actually redeemed. In
determining whether a CDSC applies to a redemption, it will be assumed that the
redemption is first made from any Class A shares in your account that are not
subject to the CDSC. The CDSC is waived on redemptions in certain circumstances.
See "Waiver or Reduction of Contingent Deferred Sales Charges" below.

Class A shares of the Funds may be sold at net asset value without payment
of any sales charge to (a) FBR or FBR Services, their affiliates or their
respective officers, partners, directors or employees (including retired
employees and former partners), any partnership of which FBR or FBR Services is
a general partner, any Trustee or officer of the Trust and designated family
members of any of the above individuals; (b) qualified retirement plans of FBR
or FBR Services; (c) trustees or directors of investment companies for which FBR
or FBR Services or an affiliate acts as sponsor; (d) any employee or registered
representative of any Authorized Dealer or their respective spouses and
children; (e) banks, trust companies or other types of depository institutions
investing for their own

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account or investing for customer accounts; (f) any institutional investment
clients including corporate sponsored pension and profit-sharing plans, other
benefit plans and insurance companies; (g) any pension funds, state and
municipal governments or funds, Taft-Hartley plans and qualified non-profit
organizations, foundations and endowments; (h) "wrap" accounts for the benefit
of clients of broker-dealers, financial institutions or financial planners,
provided that they have entered into an agreement with the Distributor
specifying aggregate minimums and certain operating policies and standards; (i)
registered investment advisers and financial planners, investing for themselves
or for accounts for which they receive asset-based fees; (j) accounts over which
FBR Fund Advisers, Inc. or its advisory affiliates have investment discretion;
(k) shareholders receiving distributions from a qualified retirement plan
invested in the FBR Family of Funds and reinvesting such proceeds in an IRA for
which the Distributor or an affiliate thereof serves as custodian or trustee
("FBR IRA"); (l) accounts that were established before April 18, 1998 and (m)
accounts that were established in connection with the reorganization of the
Grand View Realty Growth Fund and the GrandView S&P REIT Index Fund into the
Realty Growth Fund.

Class A shares of each Fund also may be purchased at net asset value with
the proceeds from the redemption of shares of an investment company not
distributed by the Distributor, on which the investor paid a sales charge or
commission. This includes shares of a mutual fund which were subject to a
contingent deferred sales charge upon redemption. The purchase must be made
within 60 days of the redemption, and the Distributor must be notified by the
investor in writing, or by the investor's investment professional, at the time
the purchase is made. However, if such investor redeems those shares within one
year after purchase, a CDSC of 1.00% will be imposed at the time of redemption.
The Distributor will offer to pay Authorized Dealers an amount up to 1.25% of
the net asset value of shares purchased by the dealers' clients or customers in
this manner.

Purchasers must certify eligibility for a purchase at net asset value on the
account Application and notify the Distributor if the shareholder is no longer
eligible. Net asset value purchases are subject to confirmation of a purchaser's
entitlement, and the Distributor reserves the right to request certification or
additional information from a purchaser in order to verify that such purchaser
is eligible. Investors purchasing shares of the Funds at net asset value without
payment of any initial sales charge may be charged a fee if they effect
transactions in shares through a broker or agent. In addition, under certain
circumstances, dividends and distributions from any of the Funds may be
reinvested in Fund shares of the same class at net asset value, as described
under "Cross-Reinvestment of Dividends and Distributions."

RIGHT OF ACCUMULATION--CLASS A SHARES.

Class A purchasers may qualify for reduced sales charges when the current
market value of holdings (shares at current offering price), plus new purchases,
reaches $50,000 or more. Class A shares of the Funds may be combined under the
Right of Accumulation. See the Statement of Additional Information for more
information about the Right of Accumulation.

LETTER OF INTENT--CLASS A SHARES.

Purchases of $50,000 or more made over a 13-month period are eligible for
reduced sales charges. Class A shares of the Funds may be combined under a
Letter of Intent. See the Statement of Additional Information for more
information about the Letter of Intent.

OFFERING PRICE--CLASS B SHARES.

Investors may purchase Class B shares of the Funds at the next determined
net asset value without the imposition of an initial sales charge. However,
Class B shares redeemed within six years of purchase will be subject to a CDSC
at the rates shown in the table that follows. At redemption, the

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charge will be assessed on the amount equal to the lesser of the current market
value or the original purchase cost of the shares being redeemed. No CDSC will
be imposed on increases in account value above the initial purchase price,
including shares derived from the reinvestment of dividends or capital gains
distributions. Upon redemption of shares subject to a CDSC, shareholders will
receive that portion of the appreciation in account value attributable to the
shares actually redeemed.

The amount of the CDSC, if any, will vary depending on the number of years
from the time of purchase until the time of redemption of Class B shares. For
the purpose of determining the number of years from the time of any purchase,
all payments during a month will be aggregated and deemed to have been made on
the first day of that month. In processing redemptions of Class B shares, the
Funds will first redeem shares not subject to any CDSC, and then shares held
longest during the six-year period.

<TABLE>
<CAPTION>
CDSC AS A
PERCENTAGE OF
DOLLAR AMOUNT
YEAR SINCE PURCHASE SUBJECT TO CDSC
- ------------------------------------- ---------------
<S> <C>
First 5.0%
Second 4.0%
Third 4.0%
Fourth 3.0%
Fifth 2.0%
Sixth 1.0%
Seventh and thereafter NONE
</TABLE>

Proceeds from the CDSC are payable to the Distributor and may be used in
whole or part to defray the Distributor's expenses related to providing
distribution-related services to the Funds in connection with the sale of Class
B shares, including the payment of compensation to Authorized Dealers. A
commission equal to 4.0% of the amount invested is paid to Authorized Dealers.

Class B shares of a Fund will automatically convert into Class A shares of
the same Fund at the end of the calendar quarter that is eight years after the
purchase date. Except as noted below, Class B shares of a Fund acquired by
exchange from Class B shares of another of the FBR Family of Funds will convert
into Class A shares of such Fund based on the date of the initial purchase.
Class B shares acquired through reinvestment of distributions will convert into
Class A shares based on the date of the initial purchase of the shares on which
the distribution was paid. The conversion of Class B shares to Class A shares
will not occur at any time the Funds are advised that such conversions may
constitute taxable events for federal tax purposes, which the Funds believe is
unlikely. If conversions do not occur as a result of possible taxability, Class
B shares would continue to be subject to higher expenses than Class A shares for
an indeterminate period.

OFFERING PRICE--CLASS C SHARES.

Investors may purchase Class C shares of the Funds at the next determined
net asset value without the imposition of an initial sales charge. However, if
Class C shares are redeemed within 12 months of purchase a CDSC of 1% will be
deducted from the redemption proceeds. At redemption, the charge will be
assessed on the amount equal to the lesser of the current market value or the
original purchase cost of the shares being redeemed. No CDSC will be imposed on
increases in account value above the initial purchase price, including shares
derived from the reinvestment of dividends or capital gains distributions. Upon
redemption of shares subject to a CDSC, shareholders will receive that portion
of the appreciation in account value attributable to the shares actually
redeemed.

For the purpose of determining the number of months from the time of any
purchase, all payments during a month will be aggregated and deemed to have been
made on the first day of that month. In processing redemptions of Class C
shares, the Funds will first redeem shares held for longer than 12 months, and
then shares held for

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the longest period during the 12-month period. Proceeds from the CDSC are
payable to the Distributor and may be used in whole or in part to defray the
Distributor's expenses related to providing distribution-related services to the
Funds in connection with the sale of Class C shares, including the payment of
compensation to Authorized Dealers. A commission equal to 1.00% of the amount
invested is paid to Authorized Dealers.

REINVESTMENT OF REDEMPTION PROCEEDS-- CLASS A, CLASS B AND CLASS C SHARES. A
shareholder who redeems Class A or Class B shares of a Fund may reinvest at net
asset value any portion or all of his redemption proceeds (plus that amount
necessary to acquire a fractional share to round off his purchase to the nearest
full share) in Class A shares of the same Fund or any other of the Trust's
Funds. A shareholder who redeems Class C shares of a Fund may reinvest at net
asset value any portion or all of his redemption proceeds (plus that amount
necessary to acquire a fractional share to round off his purchase to the nearest
full share) in Class C shares of the same Fund or any other of the Trust's
Funds. This reinvestment privilege is subject to the condition that the shares
redeemed have been held for at least thirty (30) days before the redemption and
that the reinvestment is effected within ninety (90) days after such redemption.
If you redeemed Class A or Class C shares, paid a CDSC upon a redemption and
reinvest in Class A or Class C shares subject to the conditions set forth above,
your account will be credited with the amount of the CDSC previously charged,
and the reinvested shares will continue to be subject to a CDSC. In this case,
the holding period of the Class A or Class C shares acquired through
reinvestment for purposes of computing the CDSC payable upon a subsequent
redemption will include the holding period of the redeemed shares. If you
redeemed Class B shares and paid a CDSC upon redemption, you are permitted to
reinvest the redemption proceeds in Class A shares at net asset value as
described above, but the amount of the CDSC paid upon redemption will not be
credited to your account.

A reinvesting shareholder may be subject to tax as a result of such
redemption. If the redemption occurs within ninety (90) days after the original
purchase of Class A shares, any sales charge paid on the original purchase
cannot be taken into account by a reinvesting shareholder to the extent an
otherwise applicable sales charge is not imposed pursuant to the reinvestment
privilege for purposes of determining gain or loss, if any, realized on the
redemption, but instead will be added to the tax basis of the Class A shares
received in the reinvestment. To the extent that any loss is realized and shares
of the same Fund are purchased within thirty (30) days before or after the
redemption, some or
all of the loss may not be allowed as a deduction depending upon the number of
shares purchased. Shareholders should consult their own tax advisers concerning
the tax consequences of a redemption and reinvestment. Upon receipt of a written
request, the reinvestment privilege may be exercised once annually by a
shareholder, except that there is no such time limit as to the availability of
this privilege in connection with transactions the sole purpose of which is to
reinvest the proceeds at net asset value in a tax-sheltered retirement plan.

WAIVER OR REDUCTION OF CONTINGENT DEFERRED SALES CHARGE--CLASS A, CLASS B AND
CLASS C SHARES.

The CDSC on Class B shares, Class C shares and Class A shares that are
subject to a CDSC may be waived or reduced if the redemption relates to (a)
retirement distributions or loans to participants or beneficiaries from pension
and profit sharing plans, pension funds and other company sponsored benefit
plans (each a "Plan"); (b) the death or disability (as defined in section 72 of
the Internal Revenue Code of 1986, as amended (the "IRS Code")) of a participant
or beneficiary in a Plan; (c) hardship withdrawals by a participant or
beneficiary in a Plan; (d) satisfying the minimum distribution requirements of
the IRS Code; (e) the

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establishment of "substantially equal periodic payments" as described in Section
72(t) of the IRS Code; (f) the separation from service by a participant or
beneficiary in a Plan; (g) the death or disability (as defined in section 72 of
the IRS Code) of a shareholder if the redemption is made within one year of such
event; (h) excess contributions being returned to a Plan; (i) distributions from
a qualified retirement plan invested in the Trust's Funds which are being
reinvested into an FBR IRA; (j) advisor or dealer-sponsored "wrap" accounts for
which no commission was paid on the sale of the shares; and (k) redemption
proceeds which are to be reinvested in accounts or non-registered products over
which FBR Fund Advisers, Inc. or its advisory affiliates have investment
discretion. In addition, Class A, Class B and Class C shares, subject to an
Automatic Withdrawal Plan, may be redeemed without a CDSC. However, the Trust
reserves the right to limit such redemptions, on an annual basis, to 12% each of
the value of a shareholder's Class B and Class C shares and 10% of the value of
a shareholder's Class A shares.

SHAREHOLDER SERVICES

CROSS-REINVESTMENT OF DIVIDENDS AND DISTRIBUTIONS.

A shareholder may elect to cross-reinvest dividends and capital gain
distributions paid by a Fund in shares of the same class of any other of the
funds advised by the Adviser and the FBR Money Market Portfolio of The RBB Fund,
Inc. Shares acquired through cross-reinvestment of dividends will be purchased
at net asset value and will not be subject to any initial or contingent deferred
sales charge as a result of the cross-reinvestment. Cross-reinvestments are
subject to the following conditions: (i) the value of the shareholder's
account(s) in the fund which is paying the dividend must equal or exceed $5,000
and (ii) the value of the account in the acquired fund must equal or exceed the
acquired fund's minimum initial investment requirement or the shareholder must
elect to continue cross-reinvestment until the value of acquired fund shares in
the shareholder's account equals or exceeds the acquired fund's minimum initial
investment requirement. A fund shareholder may elect cross-reinvestment into an
identical account or an account registered in a different name or with a
different address, social security or other taxpayer identification number,
provided that the account in the acquired fund has been established, appropriate
signatures have been obtained and the minimum initial investment requirement has
been satisfied.

TAX-SHELTERED RETIREMENT PLANS.

The Funds offer their shares for purchase by retirement plans, including IRA
plans for individuals and their non-employed spouses, IRA plans for employees in
connection with employer sponsored SEP, SAR-SEP and SIMPLE IRA plans, 403(b)
plans and defined contribution plans such as 401(k) Salary Reduction Plans.
Detailed information concerning these plans may be obtained from the Transfer
Agent. This information should be read carefully, and consultation with an
attorney or tax adviser may be advisable. The information sets forth the service
fee charged for retirement plans and describes the federal income tax
consequences of establishing a plan.

EXCHANGE PRIVILEGE.

The exchange privilege is available to shareholders residing in any state in
which the shares being acquired may be legally sold. Shares of a Fund may be
exchanged at net asset value without the imposition of an initial sales charge
or CDSC at the time of exchange for shares of the same class of any other fund
advised by the Adviser and the FBR Money Market Portfolio of The RBB Fund, Inc.
A shareholder needs to obtain and read the prospectus of the fund into which the
exchange is made. The shares of these other funds acquired by an exchange may
later be exchanged for shares of the same class of the original Fund at the next
determined net asset value without the imposition of an

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initial or contingent deferred sales charge if the dollar amount in the Fund
resulting from such exchanges is below the shareholder's all-time highest dollar
amount on which it has previously paid the applicable sales charge. Shares of
these other funds purchased through dividends and/or capital gains reinvestment
may be exchanged for shares of the Funds without a sales charge. The exchange
privilege may be modified or withdrawn at any time upon sixty (60) days' notice
to shareholders and is subject to certain limitations. In addition, the Funds
reserve the right to impose an administrative fee for each exchange.

An exchange of shares subject to a CDSC will not be subject to the
applicable CDSC at the time of exchange. Shares subject to a CDSC acquired in an
exchange will be subject to the CDSC of the shares originally held. For purposes
of determining the amount of any applicable CDSC, the length of time a
shareholder has owned shares will be measured from the date the shareholder
acquired the original shares subject to a CDSC and will not be affected by any
subsequent exchange.

A shareholder wishing to make an exchange may do so by sending a written
request to the Transfer Agent. Shareholders are automatically provided with
telephone exchange privileges when opening an account, unless they indicate on
the account application that they do not wish to use this privilege. To add a
telephone exchange feature to an existing account that previously did not
provide for this option, a Telephone Exchange Authorization Form must be filed
with the Transfer Agent. This form is available from the Transfer Agent. Once
this election has been made, the shareholder may simply contact the Transfer
Agent by telephone to request the exchange by calling 1-800-821-3460. The Trust
will employ reasonable procedures to confirm that instructions communicated by
telephone are genuine, and if the Trust does not employ such procedures, it may
be liable for any losses due to unauthorized or fraudulent telephone
instructions. Neither the Trust nor the Transfer Agent will be liable for any
loss, liability, cost or expense for following the Trust's telephone transaction
procedures described below or for following instructions communicated by
telephone that it reasonably believes to be genuine.

The Trust's telephone transaction procedures include the following measures:
(1) requiring the appropriate telephone transaction privilege forms; (2)
requiring the caller to provide the names of the account owners, the account
social security number and name of Fund, all of which must match the Trust's
records; (3) requiring the Trust's service representative to complete a
telephone transaction form, listing all of the above caller identification
information; (4) permitting exchanges only if the two account registrations are
identical; (5) requiring that redemption proceeds be sent only by check to the
account owners of record at the address of record, or by wire only to the owners
of record at the bank account of record; (6) sending a written confirmation for
each telephone transaction to the owners of record within five (5) business days
of the call; and (7) maintaining tapes of telephone transactions for six months,
if the Trust elects to record shareholder telephone transactions.

For accounts held of record by Investment Professionals, additional
documentation or information regarding the scope of a caller's authority is
required. Finally, for telephone transactions in accounts held jointly,
additional information regarding other account holders is required.

If the exchanging shareholder does not currently own shares of the fund
whose shares are being acquired, a new account will be established with the same
registration, dividend and capital gain options as the account from which shares
are exchanged, unless otherwise specified in writing by the shareholder with all
signatures guaranteed by an Eligible Guarantor Institution, as defined by rules
issued by the Commission, including banks, brokers, dealers, credit unions,
national securities exchanges and savings associations. The exchange

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privilege may be modified or terminated at any time, or from time to time, by
the Trust, upon 60 days written notice to shareholders.

For federal income tax purposes, an exchange is treated as a redemption of
the shares surrendered in the exchange, on which an investor may be subject to
tax, followed by a purchase of shares received in the exchange. If such
redemption occurs within ninety (90) days after the purchase of such shares, to
the extent a sales charge that would otherwise apply to the shares received in
the exchange is not imposed, the sales charge paid on such purchase of Class A
shares cannot be taken into account by the exchanging shareholder for purposes
of determining gain or loss, if any, realized on such redemption for federal
income tax purposes, but instead will be added to the tax basis for the shares
received in the exchange. Shareholders should consult their own tax advisers
concerning the tax consequences of an exchange.

If an exchange is to a new fund, the dollar value of shares acquired must
equal or exceed the Trust's minimum for a new account; if to an existing
account, the dollar value must equal or exceed the Trust's minimum for
subsequent investments. If any amount remains in the fund from which the
exchange is being made, such amount must not drop below the minimum account
value required by the Trust.

HOW TO REDEEM SHARES

GENERAL.

THE REDEMPTION PRICE WILL BE BASED ON THE NET ASSET VALUE, SUBJECT TO ANY
APPLICABLE CDSC, NEXT COMPUTED AFTER RECEIPT OF A REDEMPTION REQUEST.

Investors may request redemption of Fund shares at any time. Redemption
requests may be made as described below. When a request is received in proper
form, a Fund will redeem the shares at the next determined net asset value,
subject to any applicable CDSC.

Each Fund ordinarily will make payment for all shares redeemed within three
days after receipt by the Transfer Agent of a redemption request in proper form,
except as provided by the rules of the Commission. However, if an investor has
purchased Fund shares by check and subsequently submits a redemption request by
mail, the redemption proceeds will not be transmitted until the check used for
investment has cleared, which may take up to 15 days. The Trust will reject
requests to redeem shares by telephone or wire for a period of 15 days after
receipt by the Transfer Agent of the purchase check against which such
redemption is requested. This procedure does not apply to shares purchased by
wire payment.

The Trust reserves the right to redeem investor accounts, at its option,
upon not less than 60 days written notice if the account's net asset value is
$500 or less, for reasons other than market conditions, and remains so during
the notice period.

PROCEDURES.

Shareholders may redeem shares in several ways.

REDEMPTION THROUGH THE DISTRIBUTOR OR OTHER AUTHORIZED DEALERS.

Clients with a brokerage account may submit redemption requests to their
account executives or Authorized Dealers in person or by telephone, mail or
wire. As the Trust's agent, the Distributor or another Authorized Dealer may
honor a redemption request by repurchasing Trust shares from a redeeming
shareholder at the shares' net asset value next computed after receipt of the
request by the Authorized Dealer, subject to any applicable CDSC. Under normal
circumstances, redemption proceeds will be paid within three days by check or
credited to the shareholder's brokerage account at the election of the
shareholder. Distributor account executives or other Authorized Dealers are
responsible for promptly forwarding redemption requests to the Transfer Agent.

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REDEMPTION THROUGH THE TRANSFER AGENT.

REDEMPTION IN WRITING. Shareholders who are not clients with a brokerage
account and who wish to redeem shares must redeem their shares through the
Transfer Agent by mail; other shareholders also may redeem Fund shares through
the Transfer Agent. To do so, a written request in proper form must be sent
directly to: FBR Family of Funds c/o PFPC Inc., P.O. Box 8994, Wilmington,
Delaware 19899-8994. Shareholders may also place redemption requests through an
Investment Professional, but such Investment Professional might charge a fee for
this service.

A request for redemption must be signed by all persons in whose names the
shares are registered. Signatures must conform exactly to the account
registration. If the proceeds of the redemption would exceed $10,000, or if the
proceeds are not to be paid to the record owner at the address of record, or if
the shareholder is a corporation, partnership, trust or fiduciary, signatures
must be guaranteed by an Eligible Guarantor Institution. (See "Additional
Information About Redemptions.") If a redemption is effected within 30 days of a
change in the shareholder's address of record, a signature guarantee will be
required. A signature guarantee verifies your signature. You may call the
Transfer Agent at 1-800-821-3460 to determine whether the entity that will
guarantee the signature is an Eligible Guarantor Institution.

Generally, a properly signed written request with any required signature
guarantee is all that is required for a redemption. In some cases, however,
other documents may be necessary. Additional documentary evidence of authority
is also required in the event a redemption is requested by a corporation,
partnership, trust, fiduciary, executor or administrator.

REDEMPTION BY TELEPHONE. Investors may redeem shares without charge by
telephone if they have checked the appropriate box and supplied the necessary
information on the Application, or have filed a Telephone Authorization with the
Transfer Agent. An investor may obtain a Telephone Authorization from the
Transfer Agent by calling 1-800-821-3460. The Trust will employ reasonable
procedures to confirm that instructions communicated by telephone are genuine,
and if the Trust does not employ such procedures, it may be liable for any
losses due to unauthorized or fraudulent telephone instructions. The proceeds
will be mailed by check to an investor's registered address unless he has
designated in his Application or Telephone Authorization that such proceeds are
to be sent by wire transfer to a specified checking or savings account. If
proceeds are to be sent by wire transfer, a telephone redemption request
received prior to the close of regular trading on the New York Stock Exchange
(normally 4:00 p.m., New York time), will result in redemption proceeds being
wired to the investor's bank account on the next day that a wire transfer can be
effected. The minimum redemption for proceeds sent by wire transfer is $10,000.
There is no maximum for proceeds sent by wire transfer. The Funds may modify
this redemption service at any time. A transaction fee of $15.00 will be charged
for payments by wire. The Distributor and the Transfer Agent reserve the right
to refuse a telephone redemption if they deem it advisable to do so. Neither the
Trust, the Transfer Agent nor the Distributor will be liable for any loss,
liability, cost or expense for following these procedures or for following
instructions communicated by telephone that it reasonably believes to be
genuine. These procedures are set forth under "Shareholder Services--Exchange
Privilege" above.

If an investor authorizes telephone redemption, the Transfer Agent may act
on telephone instructions from any person representing himself or herself to be
a representative of the Distributor or an Authorized Dealer and reasonably
believed by the Transfer Agent to be genuine. The Trust will

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require the Transfer Agent to employ reasonable procedures, such as requiring a
form of personal identification, to confirm that instructions are genuine and,
if it does not follow such procedures, the Transfer Agent or the Trust may be
liable for any losses due to unauthorized or fraudulent instructions. Neither
the Trust nor the Transfer Agent will be liable for following telephone
instructions reasonably believed to be genuine.

OTHER INFORMATION ON REDEMPTIONS. The Funds are not responsible for the
efficiency of the Federal Wire System or a shareholder's investment adviser,
broker-dealer or bank. The shareholder is responsible for any charges imposed by
the shareholder's bank. To change the name of the single designated bank account
to receive redemptions, it is necessary to send a written request (with a
signature guaranteed by an Eligible Guarantor Institution) to The FBR Family of
Funds, c/o PFPC Inc., P.O. Box 8994, Wilmington, Delaware 19899-8994. For
Retirement Plan accounts, redemption requirements may be different; consult your
IRA plan document for further details.

PAYMENT OF REDEMPTION PROCEEDS. In all cases, the redemption price is the
net asset value per share next determined after the request for redemption is
received in proper form by the Transfer Agent, subject to any applicable CDSC.
Payment for shares redeemed is made by check mailed within three days after
acceptance by the Transfer Agent of the request and any other necessary
documents in proper order. Such payment may be postponed or the right of
redemption suspended as provided by the rules of the Commission. If the shares
to be redeemed have been recently purchased by check, the Transfer Agent may
delay mailing a redemption check, which may be a period of up to 15 days,
pending a determination that the check has cleared.

REDEMPTION IN-KIND. The Funds reserve the right, if conditions exist which
make cash payments undesirable, to honor any request for redemption of a Fund's
shares by making payment in whole or in part in securities chosen by the Fund
and valued in the same way as they would be valued for purposes of computing a
Fund's net asset value. If payment is made in securities, a shareholder may
incur transaction costs in converting these securities into cash after they have
redeemed their shares. The Funds have elected, however, to be governed by Rule
18f-1 under the 1940 Act, so that a Fund is obligated to redeem its shares
solely in cash up to the lesser of $250,000 or 1% of its net asset value during
any 90 day period for any one shareholder of a Fund.

ADDITIONAL INFORMATION ABOUT REDEMPTIONS. A shareholder may have redemption
proceeds of $10,000 or more wired to the shareholder's brokerage account or a
commercial bank account designated by the shareholder. A transaction fee of $15
will be charged for payments by wire. Questions about this option, or redemption
requirements generally, should be referred to the shareholder's Distributor
account executive, to another Authorized Dealer, or to the Transfer Agent if the
shares are not held in a brokerage account.

Written redemption instructions must be received by the Transfer Agent in
proper form and must be signed exactly as the shares are registered. If the
proceeds of the redemption would exceed $10,000, if the proceeds are not to be
paid to the record owner at the record address, if the record address has
changed within the past 30 days, or if the shareholder is a corporation,
partnership, trust or fiduciary, signatures must be guaranteed by an Eligible
Guarantor Institution. Eligible Guarantor Institutions are domestic banks,
brokers, dealers, credit unions, national securities exchanges, registered
securities associations, clearing agencies and savings associations
participating in a medallion

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program. The three recognized medallion programs are Securities Transfer Agent
Medallion Program (STAMP), Stock Exchanges Medallion Program (SEMP), and New
York Stock Exchange, Inc. Medallion Signature Program (MSP). Signature
guarantees received from institutions not participating will not be accepted.

During times of drastic economic or market conditions, investors may
experience difficulty in contacting the Distributor or Authorized Dealers by
telephone to request a redemption of Fund shares. In such cases, investors
should consider using the other redemption procedures described herein. Use of
these other redemption procedures may result in the redemption request being
processed at a later time than it would have been if telephone redemption had
been used. During the delay, a Fund's net asset value may fluctuate. The Trust
intends to pay cash for all shares redeemed, but under abnormal conditions which
make payment in cash unwise, the Trust may make payment wholly or partly in
portfolio securities at their then market value equal to the redemption price.
In such cases, an investor may incur brokerage costs in converting such
securities to cash.

AUTOMATIC WITHDRAWAL. Automatic Withdrawal permits investors to request
withdrawal of a specified dollar amount (minimum of $100) on either a monthly or
quarterly basis if the investor has a $10,000 minimum account balance. An
application for Automatic Withdrawal can be obtained from the Distributor or the
Transfer Agent. Automatic Withdrawal may be ended at any time by the investor,
the Trust or the Transfer Agent.

Withdrawals pursuant to Automatic Withdrawal concurrently with purchases of
additional Class A, Class B or Class C shares would be disadvantageous because
of the sales charge imposed on your purchase of Class A shares or the imposition
of a CDSC on your redemptions of Class A, Class B or Class C shares. The CDSC
applicable to Class A, Class B or Class C shares redeemed under Automatic
Withdrawal may be waived. See "How to Invest in the Funds--Waiver or Reduction
of Contingent Deferred Sales Charge."

DIVIDENDS, DISTRIBUTIONS AND TAXES

Each dividend from net investment income and capital gains distributions, if
any, declared by a Fund on its outstanding shares will, at the election of each
shareholder, be paid in (i) cash, (ii) additional shares of the same class of
the Fund or (iii) shares of the same class of any other fund advised by the
Adviser, or the FBR Money Market Portfolio of The RBB Fund, Inc., as described
under "Cross-Reinvestment of Dividends and Distributions." This election should
initially be made on a shareholder's account application and may be changed upon
written notice to the Transfer Agent at any time prior to the record date for a
particular dividend or distribution. If no election is made, all dividends from
net investment income and capital gains distributions will be reinvested in the
Fund. Shares issued through reinvestment of dividends and distributions are not
subject to any front-end or contingent deferred sales charges.

The Realty Growth Fund pays dividends of net investment income quarterly and
pays net realized securities gains, if any, once a year. Each of the other Funds
ordinarily pays dividends from its net investment income and distributes net
realized securities gains, if any, once a year. The Funds may make distributions
on a more frequent basis to comply with the distribution requirements of the IRS
Code, in all events in a manner consistent with the provisions of the 1940 Act.
A Fund will not make distributions from net realized securities gains unless
capital loss carryovers, if any, have been utilized or have expired. All
expenses are accrued daily and deducted before declaration of dividends to
investors.

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FEDERAL TAXES.

Each Fund intends to qualify as a regulated investment company by satisfying
the requirements under Subchapter M of the IRS Code. Each Fund contemplates the
distribution of all of its net investment income and capital gains, if any, in
accordance with the timing requirements imposed by the IRS Code, so that the
Funds will not be subject to U.S. federal income taxes or the 4% U.S. federal
excise tax on undistributed income.

Distributions by a Fund of its net investment income and the excess, if any,
of its net realized short-term capital gain over its net realized long-term
capital loss are taxable to shareholders as ordinary income. These distributions
are treated as dividends for federal income tax purposes, but only a portion
thereof may qualify for the 70% dividends-received deduction for corporate
shareholders (which portion may not exceed the aggregate amount of qualifying
dividends from domestic corporations received by a Fund and must be designated
by the Fund as so qualifying). Distributions by a Fund of the excess, if any, of
its net realized long-term capital gain over its net realized short-term capital
loss are designated as capital gain distributions and are taxable to
shareholders as long-term capital gain, regardless of the length of time
shareholders have held their shares. Such distributions are not eligible for the
dividends-received deduction. If a shareholder disposes of shares in a Fund at a
loss before holding such shares for more than six months, the loss will be
treated as a long-term capital loss to the extent that the shareholder has
received a capital gain distribution on those shares.

Distributions to shareholders of a Fund will be treated in the same manner
for U.S. federal income tax purposes whether received in cash or in additional
shares. Distributions received by shareholders of a Fund in January of a given
year will be treated as received on December 31 of the preceding year provided
that they were declared to shareholders of record on a date in October,
November, or December of such preceding year. Each Fund sends tax statements to
its shareholders (with copies to the IRS) by January 31 showing the amounts and
tax status of distributions made (or deemed made) during the preceding calendar
year.

Income from securities of foreign issuers may be subject to foreign
withholding taxes. Credit for such foreign taxes, if any, will not pass through
to the shareholders.

OTHER TAX INFORMATION.

The information above is only a summary of some of the U.S. federal income
tax consequences generally affecting each Fund and its U.S. shareholders, and no
attempt has been made to discuss individual tax consequences. A prospective
investor should also review the more detailed discussion of U.S. federal income
tax considerations in the Statement of Additional Information. In addition to
the U.S. federal income tax, a shareholder may be subject to state or local
taxes on his or her investment in a Fund, depending on the laws of the
shareholder's jurisdiction. INVESTORS CONSIDERING AN INVESTMENT IN A FUND SHOULD
CONSULT THEIR TAX ADVISERS TO DETERMINE WHETHER THE FUND IS SUITABLE TO THEIR
PARTICULAR TAX SITUATION.

When investors sign their account Application, they are asked to provide
their correct social security or taxpayer identification number and other
required certifications. If investors do not comply with IRS regulations, the
IRS requires each Fund to withhold 31% of amounts distributed to them by the
Fund as dividends or in redemption of their shares.

Because a shareholder's tax treatment depends on the shareholder's purchase
price and tax position, shareholders should keep their regular account
statements for use in determining their tax.

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PERFORMANCE

From time to time, performance information for a Fund showing total return
may be presented in advertisements, sales literature and in reports to
shareholders. Such performance figures are based on historical performance and
are not intended to indicate future performance. Average annual total return
will be calculated over a stated period of more than one year. Average annual
total return is measured by comparing the value of an investment at the
beginning of the relevant period (as adjusted for sales charges, if any) to the
redemption value of the investment at the end of the period (assuming immediate
reinvestment of any dividends or capital gains distributions) and annualizing
that figure. Total return calculations for Class B and Class C shares reflect
deduction of the applicable CDSC imposed upon redemption of Class B and Class C
shares held for the applicable period. Cumulative total return is calculated
similarly to average annual total return, except that the resulting difference
is not annualized.

Each Fund's yield, total return and distribution rate will be calculated
separately for each class of shares in existence. Because each class of shares
may be subject to different expenses, the yield, total return and distribution
rate calculations with respect to each class of shares for the same period will
differ. The investment performance of the Class A, Class B and Class C shares
will be affected by the payment of a sales charge, distribution fees and other
class specific expenses.

Investors may also judge, and the Trust may at times advertise, the
performance of a Fund by comparing it to the performance of other mutual funds
with comparable investment objectives and policies, which performance may be
contained in various unmanaged mutual fund or market indices or rankings such as
those prepared by Dow Jones & Co., Inc. and Standard & Poor's Corporation, in
publications issued by Lipper Analytical Services, Inc., and in the following
publications: IBC'S MONEY FUND REPORTS, VALUE LINE MUTUAL FUND SURVEY,
MORNINGSTAR, CDA/WIESENBERGER, MONEY MAGAZINE, FORBES, BARRON'S, THE WALL STREET
JOURNAL, THE NEW YORK TIMES, BUSINESS WEEK, AMERICAN BANKER, FORTUNE,
INSTITUTIONAL INVESTOR, U.S.A. TODAY and local newspapers. In addition, general
information about a Fund that appears in publications such as those mentioned
above may also be quoted or reproduced in advertisements, sales literature or in
reports to shareholders.

Performance is a function of the type and quality of instruments held in a
Fund's portfolio, operating expenses, and market conditions. Consequently,
performance will fluctuate and data reported are not necessarily representative
of future results. Any fees charged by service providers with respect to
customer accounts for investing in shares of a Fund will not be reflected in
performance calculations.

FUND ORGANIZATION AND FEES

The FBR Family of Funds is an open-end management investment company,
commonly known as a mutual fund, currently consisting of four series portfolios
three of which are currently offered. The FBR Family of Funds is a Delaware
business trust. The Trust's offices are located at Bellevue Corporate Center,
400 Bellevue Parkway, Wilmington, Delaware 19809.

Overall responsibility for management of the Trust rests with its Board of
Trustees.

INVESTMENT ADVISER.

FBR Fund Advisers, Inc. is the investment adviser to the Funds. The Adviser
directs the investment of each Fund's assets, subject at all times to the
supervision of the Trust's Board of Trustees. The Adviser continually conducts
investment research and supervision for the Funds and is responsible for the
purchase and sale of the Funds' investments.

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The Adviser is organized as a Delaware corporation and is registered as an
investment adviser under the Investment Advisers Act of 1940, as amended. It is
an affiliate of Friedman, Billings, Ramsey & Co., Inc., Friedman, Billings,
Ramsey Investment Management, Inc. and FBR Offshore Management, Inc. The Adviser
and its affiliates manage in excess of $700 million for numerous clients
including individuals, banks and thrift institutions, investment companies,
pension and profit sharing plans and trusts, estates and charitable
organizations. The Adviser is a new company and therefore has a short operating
history as an investment manager of mutual funds, but its officers and employees
are persons with extensive experience in managing investment portfolios. The
types of investments the Adviser's officers and employees offer advice on
include equity securities, corporate debt securities, commercial paper, U.S.
government securities and options.

For the services provided and expenses incurred pursuant to the investment
advisory agreement between the Trust and the Adviser on behalf of the Funds, the
Adviser is entitled to receive a fee, computed daily and paid monthly, at an
annual rate of 0.90% of the average daily net assets of the Financial Services
Fund, Small Cap Financial Fund and Value Fund, and 1.00% of the average daily
net assets of the Realty Growth Fund. The investment advisory fee paid by the
Funds is higher than the advisory fees paid by most mutual funds, although the
Trust's Board of Trustees believes such fees to be comparable to advisory fees
paid by many funds having similar objectives and policies. The advisory fees for
the Funds have been determined to be fair and reasonable in light of the
services provided to a Fund. The Adviser may periodically waive all or a portion
of its advisory fee with respect to a Fund. The Funds will not pay the Adviser
at a later time for any amounts it may waive.

Under the investment advisory agreement between the Trust, on behalf of each
Fund, and the Adviser (the "Investment Advisory Agreement"), the Adviser may
delegate a portion of its responsibilities to a sub-adviser. The Investment
Advisory Agreement provides that the Adviser may render services through its own
employees or the employees of one or more affiliated companies that are
qualified to act as an investment adviser of the Funds and are under common
control with the Distributor as long as all such persons are functioning as part
of an organized group of persons, managed by authorized officers of the Adviser,
and the Adviser will be as fully responsible to the Funds for the acts and
omissions of such persons as it is for its own acts and omissions.

David Ellison serves as portfolio manager for the Small Cap Financial Fund
and the Financial Services Fund and has since the commencement of operations.
Previously, Mr. Ellison was portfolio manager of the Home Finance Portfolio of
Fidelity Select Portfolios since December 1985.

Charles Thomas Akre, Jr. serves as portfolio manager for the Value Fund and
has since the commencement of operations. Mr. Akre has been a registered
representative with Friedman, Billings, Ramsey & Co., Inc. since February, 1994
and senior vice president of Friedman, Billings, Ramsey, Investment Management,
Inc. since May, 1993. Prior to that, he was president of The Akre Corporation,
an investment manager.

Winsor H. Aylesworth and Lucille C. Carlson serve as co-portfolio managers
for the Realty Growth Fund. They have served in such capacity for the Fund since
commencement of operations of the Fund on July 3, 1995. Prior to the Fund's
conversion to a series of the Trust, they managed the Fund as officers of
GrandView Advisers, Inc. They collectively have over 40 years experience in the
commercial real estate finance and management and securities businesses.

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DISTRIBUTOR.

Friedman, Billings, Ramsey & Co, Inc., and FBR Services, Inc., both located
at Potomac Tower, 1001 Nineteenth Street North, Arlington, Virginia 22209 serve
as the Funds' principal underwriters and, as distributors of the Funds' shares
pursuant to an agreement which is renewable annually. FBR and FBR Services are
entitled to receive payments under the Funds' Distribution Plan described below.

ADMINISTRATOR.

Under the terms of an Administration Agreement with the Trust on behalf of
the Funds, Bear Stearns Funds Management Inc. ("BSFM"), a wholly-owned
subsidiary of The Bear Stearns Companies Inc., generally supervises certain
operations of the Funds, subject to the overall authority of the Trust's Board
of Trustees in accordance with Delaware law.

Under the terms of the Administration Agreement, BSFM is paid a monthly fee
at the annual rate of 0.075% on the first $250 million of each Fund's average
daily net assets and 0.050% of net assets in excess of $250 million, subject to
a minimum annual fee of $75,000, payable monthly by each Fund. From time to
time, BSFM may waive receipt of its fees, which would have the effect of
lowering a Fund's expense ratio and increasing yield to investors at the time
such amounts are waived or assumed, as the case may be. The Funds will not pay
BSFM at a later time for any amounts it may waive.

Under the terms of an Administration and Accounting Services Agreement with
the Trust on behalf of the Funds, PFPC Inc. provides certain administration and
accounting services to the Funds.

CUSTODIAN AND TRANSFER AGENT.

Custodial Trust Company, a wholly-owned subsidiary of The Bear Stearns
Companies Inc., 101 Carnegie Center, Princeton, New Jersey 08540, is the Funds'
custodian. PFPC Inc., Bellevue Corporate Center, 400 Bellevue Parkway,
Wilmington, Delaware 19809, is the Funds' transfer agent, dividend disbursing
agent and registrar. The Transfer Agent also provides certain administrative
services to the Funds.

DISTRIBUTION AND SERVICE PLANS--CLASS A, CLASS B AND CLASS C SHARES.

Under Rule 12b-1 of the 1940 Act, the Funds have adopted Distribution Plans
with respect to their Class A shares and Distribution and Service Plans with
respect to their Class B and Class C shares (the "Plans"). Under the Plans, each
Fund uses its assets to finance activities relating to the distribution of its
shares to investors and the provision of certain shareholder services. FBR or
FBR Services is paid a distribution fee at an annual rate of up to 0.25% of the
value of average daily net assets of the Funds' Class A shares for which it is
the distributor of record. FBR or FBR Services is also paid a service fee at an
annual rate of 0.25% and a distribution fee at an annual rate of up to 0.75% of
the value of the average daily net assets of the Funds' Class B and Class C
shares for which it is the distributor of record. Distribution fees may be used
by the Distributor for: (a) costs of printing and distributing a Fund's
prospectus, statement of additional information and reports to prospective
investors in the Funds; (b) costs involved in preparing, printing and
distributing sales literature pertaining to a Fund; (c) an allocation of
overhead and other branch office distribution-related expenses of the
Distributor; (d) payments to persons who provide support services in connection
with the distribution of a Fund's shares, including but not limited to, office
space and equipment, telephone facilities, answering routine inquiries regarding
a Fund, processing shareholder transactions and providing any other shareholder
services not otherwise provided by a Fund's transfer agent; (e) accruals for
interest on the amount of the foregoing expenses that exceed the distribution
fee; and (f) any other

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expense primarily intended to result in the sale of a Fund's shares, including,
without limitation, payments to salesmen and selling dealers who have entered
into selected dealer agreements with the Distributor, at the time of the sale of
shares, if applicable, and continuing fees to each such salesmen and selling
dealers, which fee shall begin to accrue immediately after the sale of such
shares. The Distributor uses the service fees primarily to pay ongoing trail
commissions to securities dealers (which may include the Distributor itself) and
other financial organizations which provide shareholder services for the Funds.
These services include, among other things, processing new shareholder account
applications, reporting to the Funds' Transfer Agent all transactions by
customers and serving as the primary information source to customers concerning
the Funds.

INDEPENDENT ACCOUNTANTS.

Arthur Andersen LLP serves as independent accountants to the Funds.

YEAR 2000 PROBLEM.

Like other mutual funds, financial and business organizations and
individuals around the world, the Funds could be adversely affected if the
computer systems used by the Adviser and other service providers do not properly
process and calculate date-related information and data from and after January
1, 2000. This is commonly known as the "Year 2000 Problem." The Adviser is
taking steps that it believes are reasonably designed to address the Year 2000
Problem with respect to computer systems that it uses and to obtain reasonable
assurances that comparable steps are being taken by the Funds' other major
service providers. At this time, however, there can be no assurance that these
steps will be sufficient to avoid any adverse impact to the Funds nor can there
be any assurance that the Year 2000 Problem will not have an adverse effect on
the companies whose securities are held by the Funds or on global markets or
economies, generally.

ADDITIONAL INFORMATION

The Trust may issue an unlimited number of shares and classes of each Fund.
Shareholders are entitled to one vote for each full share owned and fractional
votes for fractional shares owned. For those investors with qualified trust
accounts, the trustee will vote the shares at meetings of a Fund's shareholders
in accordance with the shareholder's instructions or will vote in the same
percentage as shares that are not so held in trust. The trustee will forward to
these shareholders all communications received by the trustee, including proxy
statements and financial reports. The Trust and the Funds are not required to
hold annual meetings of shareholders and in ordinary circumstances do not intend
to hold such meetings. The Trustees may call special meetings of shareholders
for action by shareholder vote as may be required by the 1940 Act or the Trust
Instrument. Under certain circumstances, the Trustees may be removed by action
of the Trustees or by the shareholders. Shareholders holding 10% or more of the
Trust's outstanding shares may call a special meeting of shareholders for the
purpose of voting upon the question of removal of Trustees.

The Trust's Board of Trustees may authorize the Trust to offer other funds
which may differ in the types of securities in which their assets may be
invested.

The Adviser and the Trust have adopted a Code of Ethics (the "Code") which
requires investment personnel (a) to pre-clear all personal securities
transactions, (b) to file reports regarding such transactions, and (c) to
refrain from personally engaging in (i) short-term trading of a security, (ii)
transactions involving a security within seven days of a Fund transaction
involving the same security, and (iii) transactions involving securities being
considered for investment by the Funds. The Code also prohibits investment
personnel from purchasing securities in an initial public offering. Personal
trading reports are reviewed periodically by the Adviser and the Board of
Trustees reviews

36
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annually such reports (including information on any substantial violations of
the Code). Violations of the Code may result in censure, monetary penalties,
suspension or termination of employment.

DELAWARE LAW.

The Delaware Business Trust Act provides that a shareholder of a Delaware
business trust shall be entitled to the same limitation of personal liability
extended to stockholders of Delaware corporations and the Trust Instrument
provides that shareholders will not be personally liable for liabilities of the
Trust. In light of Delaware law, the nature of the Trust's business, and the
nature of its assets, management of the Trust believes that the risk of personal
liability to a Fund shareholder would be extremely remote.

In the unlikely event a shareholder is held personally liable for the
Trust's obligations, the Trust will be required to use its property to protect
or compensate the shareholder. On request, the Trust will defend any claim made
and pay any judgment against a shareholder for any act or obligation of the
Trust. Therefore, financial loss resulting from liability as a shareholder will
occur only if the Trust itself cannot meet its obligations to indemnify
shareholders and pay judgments against them.

Delaware law authorizes electronic or telephone communications between
shareholders and the Trust. Under Delaware law, the Trust will have the
flexibility to respond to future business contingencies. For example, the
Trustees will have the power to incorporate the Trust, to merge or consolidate
it with another entity, to cause each fund to become a separate trust, and to
change the Trust's domicile without a shareholder vote. This flexibility could
help reduce the expense and frequency of future shareholder meetings for
non-investment related issues.

MISCELLANEOUS.

As of the date of this Prospectus, each Fund offers only the classes of
shares that are offered by this Prospectus. Subsequent to the date of this
Prospectus, each Fund may offer additional classes of shares through a separate
prospectus. Any such additional classes may have different sales charges and
other expenses, which would affect investment performance. Further information
may be obtained by contacting your Authorized Dealer or by calling
1-800-821-3460.

Shareholders will receive Semi-Annual Reports, which are unaudited, and
Annual Reports, which are audited by independent public accountants ("Reports"),
describing the investment operations of each Fund. Each of these Reports, when
available for a particular fiscal year end or the end of a semi-annual period,
is incorporated herein by reference. The Trust may include information in its
Reports to shareholders that (a) describes general economic trends, (b)
describes general trends within the financial services industry or the mutual
fund industry, (c) describes past or anticipated portfolio holdings for a Fund
or (d) describes investment management strategies for a Fund. Such information
is provided to inform shareholders of the activities of the Funds for the most
recent fiscal year or semi-annual period and to provide the views of the Adviser
and/or the Trust's officers regarding expected trends and strategies.

The Trust intends to eliminate duplicate mailings of Reports to an address
at which more than one shareholder of record with the same last name has
indicated that mail is to be delivered. Shareholders may receive additional
copies of any Report at no cost by writing to the Funds at the address listed on
the cover page of this Prospectus or by calling 1-800-821-3460.

Inquiries regarding the Trust or the Funds may be directed in writing to the
Trust at PFPC Inc., Bellevue Corporate Center, P. O. Box 8994, Wilmington,
Delaware 19899-8994, or by telephone, toll-free, at 1-800-821-3460.

37
<PAGE>

APPENDIX A: DESCRIPTION OF BOND RATINGS

The following descriptions of ratings of Moody's Investors Service, Inc.,
Standard & Poor's Ratings Services and Fitch Investors Service, Inc. are based
on descriptions published by the rating agencies. Ratings are not absolute
standards of quality. Consequently, debt securities with the same maturity,
coupon and rating may have different yields while debt securities of the same
maturity and coupon with different ratings may have the same yield. Ratings are
generally given to securities at the time of issuance. While the rating agencies
may from time to time revise such ratings, they undertake no obligation to do
so.

MOODY'S INVESTORS SERVICES, INC.

AAA: Bonds which are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt edge." Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most unlikely to impair
the fundamentally strong position of such issues.

AA: Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known as
high grade bonds. They are rated lower than the best of bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of protective
elements may be of greater amplitude or there may be other elements present
which make the long-term risks appear somewhat larger than in Aaa securities.

A: Bonds which are rated A possess many favorable investment attributes and
are to be considered as upper medium grade obligations. Factors giving security
to principal and interest are considered adequate, but elements may be present
which suggest a susceptibility to impairment sometime in the future.

BAA: Bonds which are rated Baa are considered as medium grade obligations,
I.E., they are neither highly protected nor poorly secured. Interest payments
and principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.

BA: Bonds which are rated Ba are judged to have speculative elements; their
future cannot be considered as well assured. Often the protection of interest
and principal payments may be very moderate and thereby not well safeguarded
during both good and bad times over the future. Uncertainty of position
characterizes bonds in this class.

B: Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.

CAA: Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest.

CA: Bonds which are rated Ca represent obligations which are speculative in
a high degree. Such issues are often in default or have other marked
shortcomings.

C: Bonds which are rated C are the lowest rated class of bonds, and issues
so rated can be regarded as having extremely poor prospects of ever attaining
any real investment standing.

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<PAGE>

UNRATED: Where no rating has been assigned or where a rating has been
suspended or withdrawn, it may be for reasons unrelated to the quality of the
issue.

Should no rating be assigned, the reason may be one of the following:

1. An application for rating was not received or accepted.

2. The issue or issuer belongs to a group of securities or companies that are
not rated as a matter of policy.

3. There is a lack of essential data pertaining to the issue or issuer.

4. The issue was privately placed, in which case the rating is not published in
Moody's publications.

Suspension or withdrawal may occur if new and material circumstances arise, the
effects of which preclude satisfactory analysis; if there is no longer available
reasonable up-to-date data to permit a judgment to be formed; if a bond is
called for redemption; or for other reasons.

NOTE: Those bonds in the Aa, A, Baa, Ba and B groups which Moody's believe
possess the strongest investment attributes are designated by the symbols Aa1,
A1, Baa1 and B1.

STANDARD & POOR'S RATINGS SERVICES(1)

AAA: Bonds rated AAA has the highest rating assigned by Standard & Poor's.
Capacity to pay interest and repay principal is extremely strong.

AA: Bonds rated AA have a very strong capacity to pay interest and repay
principal and differ from the higher rated issues only in small degree.

A: Bonds rated A have a very strong capacity to pay interest and repay
principal although they are somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than bonds in higher rated
categories.

BBB: Bonds rated BBB are regarded as having an adequate capacity to pay
interest and repay principal. Whereas they normally exhibit adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
bonds in this category than in higher rated categories.

BB, B, CCC, CC, C: Bonds rated BB, B, CCC, CC and C are regarded, on
balance, as predominantly speculative with respect to capacity to pay interest
and repay principal in accordance with the terms of the obligation. BB indicates
the lowest degree of speculation and C the highest degree of speculation. While
such bonds will likely have some quality and protective characteristics, these
are outweighed by large uncertainties or major risk exposures to adverse
conditions.

D: Bonds rated D are in payment default. The D rating category is used when
interest payments or principal payments are not made on the date due even if the
applicable grace period has not expired, unless Standard & Poor's believes that
such payments will be made during such grace period.

PLUS (+) OR MINUS (-): The ratings from "AA" to "B" may be modified by the
addition of a plus or minus sign to show relative standing within the major
rating categories.

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

(1) Rates all governmental bodies having $1,000,000 or more of debt outstanding,
unless adequate information is not available.

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<PAGE>

UNRATED: Indicates that no public rating has been requested, that there is
insufficient information on which to base a rating, or that Standard & Poor's
does not rate a particular type of obligations as a matter of policy.

FITCH INVESTORS SERVICE, INC.

AAA: Bonds considered to be investment grade and of the highest credit
quality. The obligor has an exceptionally strong ability to pay interest and
repay principal, which is unlikely to be affected by reasonably foreseeable
events.

AA: Bonds considered to be investment grade and of very high credit
quality. The obligor's ability to pay interest and repay principal is very
strong, although not quite as strong as bonds rated AAA. Because bonds rated in
the AAA and AA categories are not significantly vulnerable to foreseeable future
developments, short-term debt of these issuers is generally rated F-1+.

A: Bonds considered to be investment grade and of high credit quality. The
obligor's ability to pay interest and repay principal is considered to be
strong, but may be more vulnerable to adverse changes in economic conditions and
circumstances than bonds with higher ratings.

BBB: Bonds considered to be investment grade and of satisfactory credit
quality. The obligor's ability to pay interest and repay principal is considered
to be adequate. Adverse changes in economic conditions and circumstances,
however, are more likely to have adverse impact on these bonds, and therefore
impair timely payment. The likelihood that the ratings of these bonds will fall
below investment grade is higher than for bonds with higher ratings.

BB: Bonds are considered speculative. The obligor's ability to pay interest
and repay principal may be affected over time by adverse economic changes.
However, business and financial alternatives can be identified which could
assist the obligor in satisfying its debt service requirements.

B: Bonds are considered highly speculative. While bonds in this class are
currently meeting debt service requirements, the probability of continued timely
payment of principal and interest reflects the obligor's limited margin of
safety and the need for reasonable business and economic activity throughout the
life of the issue.

CCC: Bonds have certain identifiable characteristics which, if not
remedied, may lead to default. The ability to meet obligations requires an
advantageous business and economic environment.

CC: Bonds are minimally protected. Default in payment of interest and/or
principal seems probable over time.

C: Bonds are in imminent default in payment of interest or principal.

PLUS (+) OR MINUS (-): Plus and minus signs are used with a rating symbol
to indicate the relative position of a credit within the rating category. Plus
and minus signs, however, are not used in the AAA category.

NR: Indicates that Fitch does not rate the specific issue.

CONDITIONAL: A conditional rating is premised on the successful completion
of a project or the occurrence of a specific event.

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<PAGE>

SUSPENDED: A rating is suspended when Fitch deems the amount of information
available from the issuer to be inadequate for rating purposes.

WITHDRAWN: A rating will be withdrawn when an issue matures or is called or
refinanced, and, at Fitch's discretion, when an issuer fails to furnish proper
and timely information.

FITCHALERT: Ratings are placed on FitchAlert to notify investors of an
occurrence that is likely to result in a rating change and the likely direction
of such change. These are designated as "Positive," indicating a potential
upgrade, "Negative," for a potential downgrade, or "Evolving," where ratings may
be raised or lowered. FitchAlert is relatively short-term, and should be
resolved within 12 months.

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<PAGE>
INVESTMENT ADVISER
FBR Fund Advisers, Inc.

DISTRIBUTORS
Friedman, Billings, Ramsey & Co., Inc.
FBR Investment Services, Inc.

ADMINISTRATOR
Bear Stearns Funds Management Inc.

ADMINISTRATION AND ACCOUNTING SERVICES/
TRANSFER AGENT
PFPC Inc.

CUSTODIAN
Custodial Trust Company

INDEPENDENT ACCOUNTANTS
Arthur Andersen LLP

COUNSEL
Dechert Price & Rhoads

<TABLE>
<CAPTION>
TABLE OF CONTENTS

PAGE
----
<S> <C>
Highlights........................................ 1
Fund Expenses..................................... 3
Financial Highlights.............................. 6
Investment Objectives............................. 9
Investment Policies and Risk Factors.............. 9
Additional Information About the Funds............ 16
How to Invest in the Funds........................ 17
Shareholder Services.............................. 26
How to Redeem Shares.............................. 28
Dividends, Distributions and Taxes................ 31
Performance....................................... 33
Fund Organization and Fees........................ 33
Additional Information............................ 36
</TABLE>

NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS IN CONNECTION WITH THE OFFERING
MADE BY THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE TRUST
OR THE DISTRIBUTORS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING BY THE
TRUST OR BY THE DISTRIBUTORS IN ANY JURISDICTION IN WHICH SUCH OFFERING MAY NOT
LAWFULLY BE MADE.

4/98FBRPROSPECT
<PAGE>

STATEMENT OF ADDITIONAL INFORMATION

FBR FAMILY OF FUNDS

FBR FINANCIAL SERVICES FUND

FBR REALTY GROWTH FUND

FBR SMALL CAP FINANCIAL FUND

FBR SMALL CAP VALUE FUND

SEPTEMBER___, 1998

This Statement of Additional Information is not a Prospectus, but should be read
in conjunction with the Prospectus of the FBR Family of Funds, dated the same
date as the date hereof (the "Prospectus"). This Statement of Additional
Information is incorporated by reference in its entirety into the Prospectus.
Copies of the Prospectus may be obtained by writing to: FBR Family of Funds,
Potomac Tower, 1001 Nineteenth Street North, Arlington, Virginia 22209, or by
telephoning toll-free 1-888-888-0025.

TABLE OF CONTENTS

INVESTMENT OBJECTIVES AND POLICIES. . . . . . . . . . . . . . . . . . . . . 2
INVESTMENT LIMITATIONS AND RESTRICTIONS . . . . . . . . . . . . . . . . . .17
VALUATION OF PORTFOLIO SECURITIES . . . . . . . . . . . . . . . . . . . . .21
PERFORMANCE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .22
ADDITIONAL REDEMPTION INFORMATION . . . . . . . . . . . . . . . . . . . . .25
DIVIDENDS AND DISTRIBUTIONS . . . . . . . . . . . . . . . . . . . . . . . .27
TAXES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .28
TRUSTEES AND OFFICERS . . . . . . . . . . . . . . . . . . . . . . . . . . .29
ADVISORY AND OTHER CONTRACTS. . . . . . . . . . . . . . . . . . . . . . . .32
ADDITIONAL INFORMATION. . . . . . . . . . . . . . . . . . . . . . . . . . .37
FINANCIAL STATEMENTS. . . . . . . . . . . . . . . . . . . . . . . . . . . .40
APPENDIX A. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .41

INVESTMENT ADVISER
FBR Fund Advisers, Inc.

DISTRIBUTORS
Friedman, Billings, Ramsey & Co., Inc.
FBR Investment Services, Inc.

ADMINISTRATOR
Bear Stearns Funds Management Inc.

ADMINISTRATION AND ACCOUNTING SERVICES/
TRANSFER AGENT
PFPC Inc.

CUSTODIAN
Custodial Trust Company
<PAGE>

STATEMENT OF ADDITIONAL INFORMATION

The FBR Family of Funds (the "Trust") is an open-end management investment
company. The Trust currently consists of five series of units of beneficial
interest ("shares"). The outstanding shares represent interests in the FBR
Financial Services Fund (the "Financial Services Fund"), FBR Realty Growth Fund
("Realty Growth Fund") FBR Small Cap Financial Fund (the "Small Cap Financial
Fund"), the FBR Information Technologies Fund (the "Information Technologies
Fund") and the FBR Small Cap Value Fund (the "Value Fund," formerly the FBR
Small Cap Growth/Value Fund) (collectively, the "Funds"). This Statement of
Additional Information relates to each fund, except the Information Technologies
Fund. Currently, shares of the Information Technologies Fund are not being
offered. Much of the information contained in this Statement of Additional
Information expands on subjects discussed in the Prospectus. Capitalized terms
not defined herein are used as defined in the Prospectus. No investment in
shares of the Funds should be made without first reading the Funds' Prospectus.

INVESTMENT OBJECTIVES AND POLICIES

ADDITIONAL FUND DESCRIPTIONS - FINANCIAL SERVICES FUND AND SMALL CAP FINANCIAL
FUND.

The Financial Services Fund and the Small Cap Financial Fund invest primarily
within the investment areas described below.

FINANCIAL SERVICES FUND. The Financial Services Fund invests in companies
providing financial services to consumers and industry. Companies in the
financial services group of industries include: commercial banks, savings and
loan associations, consumer and industrial finance companies, securities
brokerage companies, real estate-related companies, leasing companies and
holding companies for each of the foregoing, and a variety of firms in all
segments of the insurance field such as multi-line, property, casualty, and life
insurance.

The financial services area is currently undergoing relatively rapid change as
existing distinctions between financial service segments become less clear. For
instance, recent business combinations have included insurance, finance, and
securities brokerage under single ownership. Some primarily retail corporations
have expanded into securities and insurance fields. Moreover, the federal laws
generally separating commercial and investment banking are currently being
studied by Congress.

Banks, savings and loan associations, and finance companies are subject to
extensive governmental regulation which may limit both the amounts and types of
loans and other financial commitments they can make and the interest rates and
fees they can charge. The profitability of these groups is largely dependent on
the availability and cost of capital funds, and can fluctuate significantly when
interest rates change. In addition, general economic conditions are important
to the operations of these concerns, with exposure to credit losses resulting
from possible financial difficulties of borrowers potentially having an adverse
effect. Insurance companies are likewise subject to substantial governmental
regulation, predominantly at the state level, and may be subject to severe price
competition.

Commission regulations provide that the Fund may not invest more than 5% of its
assets in the securities of any one company that derives more than 15% of its
revenues from brokerage or investment management activities. These companies as
well as those deriving more than 15% of profits from brokerage and investment
management activities will be considered to be "principally engaged" in the
Fund's business activity.

<PAGE>

SMALL CAP FINANCIAL FUND. The Small Cap Financial Fund invests in companies
providing financial services to consumers and industry with an emphasis on those
companies engaged in investing in real estate, usually through mortgage and
other consumer-related loans. These companies may also offer other financial
services such as discount brokerage services, insurance products, leasing
services, and joint venture financing. Investments may include mortgage banking
companies, government-sponsored enterprises, real estate investment trusts,
consumer finance companies, and similar entities, as well as savings and loan
associations, savings banks, building and loan associations, cooperative banks,
commercial banks, and similar depository institutions. The Fund may hold
securities of U.S. depository institutions whose customer deposits are insured
by the Savings Association Insurance Fund or the Bank Insurance Fund.

The residential real estate finance industry has changed rapidly over the last
decade and is expected to continue to change. Factors expected to continue
driving change among the smaller capitalization issues include regulatory
changes, consolidation, mutual conversion activity, management changes,
residential loan demand, credit trends, interest rate movements and new business
development.

The Fund will be influenced by, among other things, potential regulatory
changes, interest rate movements, the level of home mortgage demand, and
residential delinquency trends.

ADDITIONAL INFORMATION REGARDING FUND INVESTMENTS.

The following descriptions supplement the investment policies of each Fund set
forth in the Prospectus. Each Fund's investments in the following securities
and other financial instruments are subject to the investment policies and
limitations described in the Prospectus and this Statement of Additional
Information.

SHORT-TERM OBLIGATIONS. With respect to each Fund there may be times when, in
the opinion of the Adviser, adverse market conditions exist, including any
period during which it believes that the return on certain money market type
instruments would be more favorable than that obtainable through a Fund's normal
investment programs. Accordingly, for temporary defensive purposes, each Fund
may hold up to 100% of its total assets in cash and/or short-term obligations.
To the extent that a Fund's assets are so invested, they will not be invested so
as to meet its investment objective. The short-term instruments may include
high grade liquid debt securities such as variable amount master demand notes,
commercial paper, certificates of deposit, bankers' acceptances, repurchase
agreements which mature in less than seven days and obligations issued or
guaranteed by the U.S. Government, its agencies and instrumentalities. Bankers'
acceptances are instruments of the U.S. banks which are drafts or bills of
exchange "accepted" by a bank or trust company as an obligation to pay on
maturity. Money market instruments may carry fixed, variable, or floating
interest rates. A security's credit may be enhanced by a bank, insurance
company, or other entity. Some money market securities employ a trust or other
similar structure to modify the maturity, price characteristics, or quality of
financial assets so that they are eligible investments for money market funds.
If the structure does not perform as intended, adverse tax or investment
consequences may result.

CONVERTIBLE SECURITIES. The Funds may invest in all types of common stocks and
equivalents (such as convertible debt securities and warrants) and preferred
stocks. The Funds may invest in convertible securities which may offer higher
income than the common stocks into which they are convertible. The convertible
securities in which the Funds may invest consist of bonds, notes, debentures and
preferred stocks which may be converted or exchanged at a stated or determinable
exchange ratio into underlying shares of common stock. A Fund may be required
to permit the issuer of a convertible security to redeem the security, convert
it into the underlying common stock or sell it to a third party. Thus, a Fund
may not be able to control whether the issuer of a convertible security chooses
to convert that security. If the issuer

<PAGE>

chooses to do so, this action could have an adverse effect on the Fund's ability
to achieve its investment objectives.

ASSET-BACKED SECURITIES. Asset-backed securities include pools of mortgages,
loans, receivables or other assets. Payment of principal and interest may be
largely dependent upon the cash flows generated by the assets backing the
securities, and, in certain cases, supported by letters of credit, surety bonds,
or other credit enhancements. The value of asset-backed securities may also be
affected by the creditworthiness of the servicing agent for the pool, the
originator of the loans or receivables, or the financial institution(s)
providing the credit support.

MORTGAGE-BACKED SECURITIES. The Funds may invest in securities that directly or
indirectly represent participations in, or are collateralized by the payable and
payable from, mortgage loans secured by real property. ("Mortgage-Backed
Securities").

Mortgage-Backed Securities represent pools of mortgage loans assembled for sale
to investors by various governmental agencies such as the Government National
Mortgage Association ("Ginne Mae") and government-related organizations such as
the Federal National Mortgage Association ("Fannie Mae") and the Federal Home
Loan Mortgage Corporation ("Freddie Mac"), as well as by nongovernmental issuers
such as commercial banks, savings and loan institutions, mortgage bankers, and
private mortgage insurance companies. Although certain Mortgage-Backed
Securities are guaranteed by a third party or otherwise similarly secured, the
market value of the security, which may fluctuate, is not so secured. If the
adviser purchases a Mortgage-Backed Security at a premium, that portion may be
lost if there is a decline in the market value of the security whether resulting
from changes in interest rates or prepayments in the underlying mortgage
collateral. As with other interest-bearing securities, the prices of such
securities are inversely affected by changes in interest rates. However,
though, the value of a Mortgage-Backed Security may decline when interest rates
rise, the converse is not necessarily true since in periods of declining
interest rates the mortgages underlying the securities are prone to prepayment.
For this and other reasons, a Mortgage-Backed Security's stated maturity may be
shortened by unscheduled prepayments on the underlying mortgages and, therefore,
it is not possible to predict accurately the securities' return to a Fund. In
addition, regular payments received in respect of Mortgage-Backed Securities
include both interest and principal. No assurance can be given as to the return
a Fund will receive when these amounts are reinvested.

There are a number of important differences among the agencies and
instrumentalities of the U.S. Government that issue Mortgage-Backed Securities
and among the securities that they issue. Mortgage-Backed Securities issued by
Ginnie Mae include Ginnie Mae Mortgage Pass-Through Certificates which are
guaranteed as to the timely payment of principal and interest by Ginnie Mae.
This guarantee is backed by the full faith and credit of the United States.
Ginnie Mae is a wholly-owned U.S. Government corporation within the Department
of Housing and Urban Development. Ginnie Mae certificates also are supported by
the authority of Ginnie Mae to borrow funds from the U.S. Treasury to make
payments under its guarantee. Mortgage-Backed Securities issued by Fannie Mae
include Fannie Mae Guaranteed Mortgage Pass-Through Certificates (also known as
"Fannie Maes") which are guaranteed as to timely payment of the principal and
interest by Fannie Mae. Fannie Maes are solely the obligations of Fannie Mae
and are not backed by or entitled to the full faith and credit of United States.
Fannie Mae is a government-sponsored organization owned entirely by private
stockholders. Mortgage-Backed Securities issued by Freddie Mac include Freddie
Mac Mortgage Participation Certificates (also knows as "Freddie Macs" or
"PC's"). Freddie Mac is a corporate instrumentality of the United States,
created pursuant to an Act of Congress, which is owned entirely by Federal Home
Loan Banks. Freddie Macs are not guaranteed by the United States or by any
Federal Home Loan Banks and do not constitute a debt or obligation of the United
States or any Federal Home Loan Bank. Freddie Macs entitle the holder to

<PAGE>

timely payment of interest, which is guaranteed by Freddie Mac. Freddie Mac
guarantees either ultimate collection or timely payment of all principal
payments on the underlying mortgage loans. When Freddie Mac does not guarantee
timely payment of principal, Freddie Mac may remit the amount due on account of
its guarantee of ultimate payment of principal at any time after default on an
underlying mortgage, but in no event later than one year after it become
payable.

The Funds may also invest in Mortgage-Backed Securities which are collateralized
mortgage obligations structured on pools of mortgage pass-through certificates
or mortgage loans ("CFOs" and "REMICs") and derivative multiple-class
mortgage-backed securities ("Stripped Mortgage-Backed Securities" or "SMBSs").

STRUCTURED SECURITIES. Structured securities employ a trust or other similar
structure to modify the maturity, price characteristics or quality of financial
assets. For example, structural features can be used to modify the maturity of
a security or interest rate adjustment features can be used to enhance price
stability. If the structure does not perform as intended, adverse tax or
investment consequences may result. Neither the Internal Revenue Service
("IRS") nor any other regulatory authority has ruled definitively on certain
legal issues presented by structured securities. Future tax or other regulatory
determinations could adversely affect the value, liquidity or tax treatment of
the income received from these securities or the nature and timing of
distributions made by a Fund. The payment of principal and interest on
structured securities may be largely dependent on the cash flows generated by
the underlying financial assets.

VARIABLE OR FLOATING RATE SECURITIES. Variable or floating rate securities
provide for periodic adjustments of the interest rate paid. Variable rate
securities provide for a specific periodic adjustment in the interest rate,
while floating rate securities have interest rates that change whenever there is
a change in a designated benchmark rate. Some variable or floating rate
securities have put features.

SWAP AGREEMENTS. Swap agreements can be individually negotiated and structured
to include exposure to a variety of different types of investments or market
factors. Depending on their structure, swap agreements may increase or decrease
a Fund's exposure to long- or short-term interest rates (in the United States or
abroad), foreign currency values, mortgage securities, corporate borrowing
rates, or other factors such as security prices or inflation rates. Swap
agreements can take many different forms and are known by a variety of names.
The Funds are not limited to any particular form of swap agreement if the
Adviser determines it is consistent with a Fund's investment objective and
policies.

In a typical cap or floor agreement, one party agrees to make payments only
under specified circumstances, usually in return for payment of a fee by the
other party. For example, the buyer of an interest rate cap obtains the right
to receive payments to the extent that a specific interest rate exceeds an
agreed-upon level, while the seller of an interest rate floor is obligated to
make payments to the extent that a specified interest rate falls below an
agreed-upon level. An interest rate collar combines elements of buying a cap
and selling a floor.

Swap agreements will tend to shift a Fund's investment exposure from one type of
investment to another. For example, if a Fund agreed to exchange payments in
dollars for payments in foreign currency, the swap agreement would tend to
decrease the Fund's exposure to U.S. interest rates and increase its exposure to
foreign currency and interest rates. Caps and floors have an effect similar to
buying or writing options. Depending on how they are used, swap agreements may
increase or decrease the overall volatility of a Fund's investments and its
share price.

The most significant factor in the performance of swap agreements is the change
in the specific interest rate, currency, or other factors that determine the
amounts of payments due to and from a Fund. If a swap

<PAGE>

agreement calls for payments by a Fund, the Fund must be prepared to make such
payments when due. In addition, if the counterparty's creditworthiness
declined, the value of a swap agreement would be likely to decline, potentially
resulting in losses. Each Fund expects to be able to eliminate its exposure
under swap agreements whether by assignment or other disposition, or by entering
into an offsetting swap agreement with the same party or a similarly
creditworthy party.

Each Fund will maintain appropriate liquid assets in a segregated custodial
account to cover its current obligations under swap agreements. If a Fund
enters into a swap agreement on a net basis, it will segregate assets with a
daily value at least equal to the excess, if any, of the Fund's accrued
obligations under the swap agreement over the accrued amount the Fund is
entitled to receive under the agreement. If a Fund enters into a swap agreement
on other than a net basis, it will segregate assets with a value equal to the
full amount of the Fund's accrued obligations under the agreement.

INDEXED SECURITIES. The Funds may purchase securities whose prices are indexed
to the prices of other securities, securities indices, currencies, precious
metals or other commodities, or other financial indicators. Indexed securities
typically, but not always, are debt securities or deposits whose value at
maturity or coupon rate is determined by reference to a specific instrument or
statistic. Gold-indexed securities, for example, typically provide for a
maturity value that depends on the price of gold, resulting in a security whose
price tends to rise and fall together with gold prices. Currency-indexed
securities typically are short-term to intermediate-term debt securities whose
maturity values or interest rates are determined by reference to the values of
one or more specified foreign currencies, and may offer higher yields than U.S.
dollar-denominated securities of equivalent issuers. Currency-indexed
securities may be positively or negatively indexed; that is, their maturity
value may increase when the specified currency value increases, resulting in a
security that performs similarly to a foreign-denominated instrument, or their
maturity value may decline when foreign currencies increase, resulting in a
security whose price characteristics are similar to a put on the underlying
currency. Currency-indexed securities may also have prices that depend on the
value of a number of different foreign currencies relative to each other.

The performance of indexed securities depends to a great extent on the
performance of the security, currency, or other instrument to which they are
indexed, and may also be influenced by interest rate changes in the United
States and abroad. At the same time, indexed securities are subject to the
credit risks associated with the issuer of the security, and their values may
decline substantially if the issuer's creditworthiness deteriorates. Recent
issuers of indexed securities have included banks, corporations, and certain
U.S. Government agencies. Indexed securities may be more volatile than the
underlying instruments.

STRIPPED SECURITIES. The Funds may also purchase separately traded interest and
principal component parts of such obligations that are transferable through the
Federal book entry system, known as Separately Traded Registered Interest and
Principal Securities ("STRIPS") and Coupon Under Book Entry Safekeeping
("CUBES"). These instruments are issued by banks and brokerage firms and are
created by depositing U.S. Treasury notes and U.S. Treasury bonds into a special
account at a custodian bank; the custodian holds the interest and principal
payments for the benefit of the registered owner of the certificates or
receipts. The custodian arranges for the issuance of the certificates or
receipts evidencing ownership and maintains the register. Receipts include
Treasury Receipts ("TRs"), Treasury Investment Growth Receipts ("TIGRs") and
Certificates of Accrual on Treasury Securities ("CATS").

STRIPS, CUBES, TRs, TIGRs and CATS are sold as zero coupon securities, which
means that they are sold at a substantial discount and redeemed at face value at
their maturity date without interim cash payments of interest or principal.
This discount is amortized over the life of the security, and such amortization
will constitute the income earned on the security for both accounting and tax
purposes. Because of these features, these securities may be subject to greater
interest rate volatility than interest-paying U.S. Treasury

<PAGE>

obligations. Bonds issued by the Resolution Funding Corporation (REFCORP) can
also be stripped in this fashion. REFCORP Strips are eligible investments for
the Funds.

ZERO COUPON BONDS. The Funds are permitted to purchase zero coupon bonds. Zero
coupon bonds are purchased at a discount from the face amount because the buyer
receives only the right to receive a fixed payment on a certain date in the
future and does not receive any periodic interest payments. The effect of
owning instruments which do not make current interest payments is that a fixed
yield is earned not only on the original investment but also, in effect, on all
discount accretion during the life of the obligations. This implicit
reinvestment of earnings at the same rate eliminates the risk of being unable to
reinvest distributions at a rate as high as the implicit yields on the zero
coupon bond, but at the same time eliminates the holder's ability to reinvest at
higher rates in the future. For this reason, zero coupon bonds are subject to
substantially greater price fluctuations during periods of changing market
interest rates than are comparable securities which pay interest currently,
which fluctuation increases the longer the period of maturity. Although zero
coupon bonds do not pay interest to holders prior to maturity, U.S. Federal
income tax law requires a Fund to recognize as interest income a portion of the
bond's discount each year and this income must then be distributed to
shareholders along with other income earned by the Fund. To the extent that any
shareholders in a Fund elect to receive their dividends in cash rather than
reinvest such dividends in additional shares, cash to make these distributions
will have to be provided from the assets of the Fund or other sources such as
proceeds of sales of Fund shares and/or sales of portfolio securities. In such
cases, the Fund will not be able to purchase additional income producing
securities with cash used to make such distributions and its current income may
ultimately be reduced as a result.

REAL ESTATE-RELATED INVESTMENTS. Real estate-related instruments include real
estate investment trusts, commercial and residential mortgage-backed securities,
and real estate financings. Real estate-related instruments are sensitive to
factors such as real estate values, property taxes, interest rates, cash flow of
underlying real estate assets, overbuilding, and the management skill and
creditworthiness of the issuer. Real estate-related instruments may also be
affected by tax and regulatory requirements, such as those relating to the
environment.

REVERSE REPURCHASE AGREEMENTS. As discussed in the Prospectus, each Fund may
borrow funds for temporary purposes by entering into reverse repurchase
agreements in accordance with the Fund's investment restrictions. Pursuant to
such agreements, a Fund would sell portfolio securities to financial
institutions such as banks and broker-dealers, and agree to repurchase the
securities at the mutually agreed-upon date and price. The Funds intend to
enter into reverse repurchase agreements only to avoid otherwise selling
securities during unfavorable market conditions to meet redemptions. At the
time a Fund enters into a reverse repurchase agreement, it will place in a
segregated custodial account assets consistent with the Fund's investment
restrictions having a value equal to the repurchase price (including accrued
interest), and will subsequently monitor the account to ensure that such
equivalent value is maintained. Such assets will include U.S. Government
securities or other liquid, high-grade debt securities. Reverse repurchase
agreements involve the risk that the market value of the securities sold by a
Fund may decline below the

<PAGE>

price at which the Fund is obligated to repurchase the securities. Reverse
repurchase agreements are considered to be borrowing by a Fund under the 1940
Act.

LOWER-RATED DEBT SECURITIES. The Funds may purchase lower-rated debt
securities, commonly referred to as "junk bonds" (those rated below the fourth
highest grade by a nationally recognized statistical ratings organization
("NRSRO") and unrated securities judged by the Adviser to be of equivalent
quality), that have poor protection with respect to the payment of interest and
repayment of principal, or that may be in default. These securities are often
considered to be speculative and involve greater risk of loss or price changes
due to changes in the issuer's capacity to pay. The market prices of
lower-rated debt securities may fluctuate more than those of higher-rated debt
securities and may decline significantly in periods of general economic
difficulty, which may follow periods of rising interest rates.

While the market for high-yield corporate debt securities has been in existence
for many years and has weathered previous economic downturns, the 1980s brought
a dramatic increase in the use of such securities to fund highly leveraged
corporate acquisitions and restructuring. Past experience may not provide an
accurate indication of future performance of the high-yield bond market,
especially during periods of economic recession.

The market for lower-rated debt securities may be thinner and less active than
that for higher-rated debt securities, which can adversely affect the prices at
which the former are sold. If market quotations are not available, lower-rated
debt securities will be valued in accordance with procedures established by the
Board of Trustees, including the use of outside pricing services. Judgment
plays a greater role in valuing high-yield corporate debt securities than is the
case for securities for which more external sources for quotations and last-sale
information are available. Adverse publicity and changing investor perceptions
may affect the ability of outside pricing services to value lower-rated debt
securities and the Fund's ability to sell these securities.

Since the risk of default is higher for lower-rated debt securities, the
Adviser's research and credit analysis are an especially important part of
managing securities of this type held by the Funds. In considering investments
for the Funds, the Adviser will attempt to identify those issuers of
high-yielding debt securities whose financial condition is adequate to meet
future obligations, has improved, or is expected to improve in the future. The
Adviser's analysis focuses on relative values based on such factors as interest
or dividend coverage, asset coverage, earnings prospects, and the experience and
managerial strength of the issuer.

A Fund may choose, at its expense or in conjunction with others, to pursue
litigation or otherwise exercise its right as security holder to seek to protect
the interests of security holders if it determines this to be in the best
interest of the Fund's shareholders.

ILLIQUID INVESTMENTS. Illiquid investments are investments that cannot be sold
or disposed of in the ordinary course of business, within seven days, at
approximately the prices at which they are valued. Under the supervision of the
Board of Trustees, the Adviser determines the liquidity of each Fund's
investments and, through reports from the Adviser, the Board of Trustees
monitors investments in illiquid instruments. In determining the liquidity of a
Fund's investments, the Adviser may consider various factors, including (1) the
frequency of trades and quotations, (2) the number of dealers and prospective
purchasers in the marketplace, (3) dealer undertakings to make a market, (4) the
nature of the security (including any demand or tender features), and (5) the
nature of the marketplace for trades (including the ability to assign or offset
a Fund's rights and obligations relating to the investment). Investments
currently considered by the Funds to be illiquid include repurchase agreements
not entitling the holder to payment of principal and interest within seven days.
Also, the Adviser may determine some over-the-counter options, restricted
securities and loans and other direct debt instruments, and swap agreements to
be illiquid. In the absence of market quotations,

<PAGE>

illiquid investments are priced at fair value as determined in good faith by a
committee appointed by the Board of Trustees. If through a change in values,
net assets, or other circumstances, a Fund were in a position where more than
15% of its net assets were invested in illiquid securities, it would seek to
take appropriate steps to protect liquidity.

LOANS AND OTHER DIRECT DEBT INSTRUMENTS. Loans and other direct debt
instruments are interests in amounts owed by a corporate, governmental, or other
borrower to another party. They may represent amounts owed to lenders or
lending syndicates (loans and loan participation), to suppliers of goods or
services (trade claims or other receivables), or to other parties. Direct debt
instruments involve a risk of loss in case of default or insolvency of the
borrower and may offer less legal protection to the Funds in the event of fraud
or misrepresentation. In addition, loan participations involve a risk of
insolvency of the lending bank or other financial intermediary. Direct debt
instruments may also include standby financing commitments that obligate the
Funds to supply additional cash to the borrower on demand.

FOREIGN INVESTMENT. The Funds may invest in securities issued by foreign
branches of U.S. banks, foreign banks, or other foreign issuers, including
American Depositary Receipts ("ADRs"), European Depositary Receipts ("EDRs") and
Global Depositary Receipts ("GDRs") and securities purchased on foreign
securities exchanges and over-the-counter.

Depositary receipts are not usually denominated in the same currency as the
securities into which they may be converted. Generally, ADRs, in registered
form, are designed for use in U.S. securities markets and EDRs and GDRs, in
bearer form, are designed for use in European and global securities markets.
ADRs are receipts typically issued by a U.S. bank or trust company evidencing
ownership of the underlying securities. EDRs and GDRs are European and global
receipts, respectively, evidencing a similar arrangement.

Other permissible investments include: Eurodollar Certificates of Deposit
("ECDs") which are U.S. dollar denominated certificates of deposit issued by
branches of foreign and domestic banks located outside the United States, Yankee
Certificates of Deposit ("Yankee CDs") which are certificates of deposit issued
by a U.S. branch of a foreign bank denominated in U.S. dollars and held in the
United States, Eurodollar Time Deposits ("ETDs") which are U.S.
dollar-denominated deposits in a foreign branch of a U.S. bank or a foreign
bank, and Canadian Time Deposits ("CTDs") which are U.S. dollar-denominated
certificates of deposit issued by Canadian offices of major Canadian Banks.
Such investment may subject the Funds to significant investment risks that are
different from, and additional to, those related to investments in obligations
of U.S. domestic issuers or in U.S. securities markets.

The value of securities denominated in or indexed to foreign currencies, and of
dividends and interest from such securities, can change significantly when
foreign currencies strengthen or weaken relative to the U.S. dollar. Foreign
securities markets generally have less trading volume and less liquidity than
U.S. markets, and prices on some foreign markets can be highly volatile. Many
foreign countries lack uniform accounting and disclosure standards comparable to
those applicable to U.S. companies, and it may be more difficult to obtain
reliable information regarding an issuer's financial condition and operations.
In addition, the costs of foreign investing, including withholding taxes,
brokerage commissions, and custodial costs, are generally higher than for U.S.
investments.

Foreign markets may offer less protection to investors than U.S. markets.
Foreign issuers, brokers, and securities markets may be subject to less
government supervision. Foreign branches of U.S. banks and foreign banks may be
subject to less stringent reserve requirements than those applicable to domestic
branches of U.S. banks. Foreign security trading practices, including those
involving the release of assets in advance of payment, may involve increased
risks in the event of a failed trade or the insolvency of a broker-

<PAGE>

dealer, and may involve substantial delays. It may also be difficult to enforce
legal rights in foreign countries.

Investing abroad also involves different political and economic risks. Foreign
investments may be affected by actions of foreign governments adverse to the
interests of U.S. investors, including the possibility of expropriation or
nationalization of assets, confiscatory taxation, restrictions on U.S.
investment or on the ability to repatriate assets or convert currency into U.S.
dollars, or other government intervention. There may be a greater possibility
of default by foreign governments or foreign government-sponsored enterprises.
Investments in foreign countries also involve a risk of local political,
economic, or social instability, military action or unrest, or adverse
diplomatic developments. There is no assurance that the Adviser will be able
to anticipate these potential events or counter their effects.

The considerations noted above generally are intensified for investments in
developing countries. Developing countries may have relatively unstable
governments, economies based on only a few industries, and securities markets
that trade a small number of securities.

The Funds may invest in foreign securities that impose restrictions on transfer
within the U.S. or to U.S. persons. Although securities subject to transfer
restrictions may be marketable abroad, they may be less liquid than foreign
securities of the same class that are not subject to such restrictions.

FOREIGN CURRENCY TRANSACTIONS. Each Fund may conduct foreign currency
transactions on a spot (i.e., cash) basis or by entering into forward contracts
to purchase or sell foreign currencies at a future date and price. A Fund will
convert currencies on a spot basis from time to time, and investors should be
aware of the costs of currency conversion. Although foreign exchange dealers
generally do not charge a fee for conversion, they do realize a profit based on
the difference between the prices at which they are buying and selling various
currencies. Thus, a dealer may offer to sell a foreign currency to a Fund at
one rate, while offering a lesser rate of exchange should the Fund desire to
resell that currency to the dealer. Forward contracts are generally traded in
an interbank market conducted directly between currency traders (usually large
commercial banks) and their customers. The parties to a forward contract may
agree to offset or terminate the contract before its maturity, or may hold the
contract to maturity and complete the contemplated currency exchange.

Each Fund may use currency forward contracts for any purpose consistent with its
investment objective. The following discussion summarizes the principal
currency management strategies involving forward contracts that could be used by
the Funds. The Funds may also use swap agreements, indexed securities, and
options and futures contracts relating to foreign currencies for the same
purposes.

When a Fund agrees to buy or sell a security denominated in a foreign currency,
it may desire to "lock in" the U.S. dollar price of the security. By entering
into a forward contract for the purchase or sale, for a fixed amount of U.S.
dollars, of the amount of foreign currency involved in the underlying security
transaction, a Fund will be able to protect itself against an adverse change in
foreign currency values between the date the security is purchased or sold and
the date on which payment is made or received. This technique is sometimes
referred to as a "settlement hedge" or "transaction hedge." The Funds may also
enter into forward contracts to purchase or sell a foreign currency in
anticipation of future purchases or sales of securities denominated in foreign
currency, even if the specific investments have not yet been selected by the
Adviser.

The Funds may also use forward contracts to hedge against a decline in the value
of existing investments denominated in foreign currency. For example, if a Fund
owned securities denominated in pounds sterling, it could enter into a forward
contract to sell pounds sterling in return for U.S. dollars to hedge against
possible

<PAGE>

declines in the pound's value. Such a hedge, sometimes referred to as a
"position hedge," would tend to offset both positive and negative currency
fluctuations, but would not offset changes in security values caused by other
factors. A Fund could also hedge the position by selling another currency
expected to perform similarly to the pound sterling -- for example, by entering
into a forward contract to sell Deutschemarks or European Currency Units in
return for U.S. dollars. This type of hedge, sometimes referred to as a "proxy
hedge," could offer advantages in terms of cost, yield, or efficiency, but
generally would not hedge currency exposure as effectively as a simple hedge
into U.S. dollars. Proxy hedges may result in losses if the currency used to
hedge does not perform similarly to the currency in which the hedged securities
are denominated.

A Fund may enter into forward contracts to shift its investment exposure from
one currency into another. This may include shifting exposure from U.S. dollars
to a foreign currency, or from one foreign currency to another foreign currency.
For example, if a Fund held investments denominated in Deutschemarks, the Fund
could enter into forward contracts to sell Deutschemarks and purchase Swiss
Francs. This type of strategy, sometimes known as a "cross-hedge," will tend to
reduce or eliminate exposure to the currency that is sold, and increase exposure
to the currency that is purchased, much as if the Fund had sold a security
denominated in one currency and purchased an equivalent security denominated in
another. Cross-hedges protect against losses resulting from a decline in the
hedged currency, but will cause a Fund to assume the risk of fluctuations in the
value of the currency it purchases.

Under certain conditions, Commission guidelines require mutual funds to set
aside appropriate liquid assets in a segregated custodial account to cover
currency forward contracts. As required by Commission guidelines, the Funds
will segregate assets to cover currency forward contracts, if any, whose purpose
is essentially speculative. The Funds will not segregate assets to cover
forward contracts entered into for hedging purposes, including settlement
hedges, position hedges, and proxy hedges.

Successful use of currency management strategies will depend on the Adviser's
skill in analyzing and predicting currency values. Currency management
strategies may substantially change a Fund's investment exposure to changes in
currency exchange rates, and could result in losses to the Fund if currencies do
not perform as the Adviser anticipates. For example, if a currency's value rose
at a time when the Adviser had hedged a Fund by selling that currency in
exchange for U.S. dollars, the Fund would be unable to participate in the
currency's appreciation. If the Adviser hedges currency exposure through proxy
hedges, the Fund could realize currency losses from the hedge and the security
position at the same time if the two currencies do not move in tandem.
Similarly, if the Adviser increases a Fund's exposure to a foreign currency, and
that currency's value declines, the Fund will realize a loss. There is no
assurance that the Adviser's use of currency management strategies will be
advantageous to a Fund or that it will hedge at an appropriate time.

FUTURES CONTRACTS. The Funds may enter into futures contracts, options on
futures contracts and stock index futures contracts and options thereon for the
purposes of remaining fully invested and reducing transaction costs. Futures
contracts provide for the future sale by one party and purchase by another party
of a specified amount of a specific security, class of securities, or an index
at a specified future time and at a specified price. A stock index futures
contract is a bilateral agreement pursuant to which two parties agree to take or
make delivery of an amount of cash equal to a specified dollar amount times the
difference between the stock index value at the close of trading of the
contracts and the price at which the futures contract is originally struck.
Futures contracts which are standardized as to maturity date and underlying
financial instrument are traded on national futures exchanges. Futures exchanges
and trading are regulated under the Commodity Exchange Act by the Commodity
Futures Trading Commission ("CFTC"), a U.S. Government agency.

<PAGE>

Although futures contracts by their terms call for actual delivery and
acceptance of the underlying securities, in most cases the contracts are closed
out before the settlement date without the making or taking of delivery. Closing
out an open futures position is done by taking an opposite position ("buying" a
contract which has previously been "sold," or "selling" a contract previously
"purchased") in an identical contract to terminate the position. A futures
contract on a securities index is an agreement obligating either party to pay,
and entitling the other party to receive, while the contract is outstanding,
cash payments based on the level of a specified securities index. The
acquisition of put and call options on futures contracts will, respectively,
give the Funds the right (but not the obligation), for a specified price, to
sell or to purchase the underlying futures contract, upon exercise of the
option, at any time during the option period. Brokerage commissions are incurred
when a futures contract is bought or sold.

Futures traders are required to make a good faith margin deposit in cash or U.S.
Government securities with a broker or custodian to initiate and maintain open
positions in futures contracts. A margin deposit is intended to assure
completion of the contract (delivery or acceptance of the underlying security)
if it is not terminated prior to the specified delivery date. Minimal initial
margin requirements are established by the futures exchange and may be changed.
Brokers may establish deposit requirements which are higher than the exchange
minimums. Initial margin deposits on futures contracts are customarily set at
levels much lower than the prices at which the underlying securities are
purchased and sold, typically ranging upward from less than 5% of the value of
the contract being traded.

After a futures contract position is opened, the value of the contract is marked
to market daily. If the futures contract price changes to the extent that the
margin on deposit does not satisfy margin requirements, payment of additional
"variation" margin will be required. Conversely, a change in the contract value
may reduce the required margin, resulting in a repayment of excess margin to the
contract holder. Variation margin payments are made to and from the futures
broker for as long as the contract remains open. A Fund expects to earn
interest income while its margin deposits are held pending performance on the
futures contract.

When interest rates are expected to rise or market values of portfolio
securities are expected to fall, a Fund can seek, through the sale of futures,
contracts to offset a decline in the value of its portfolio securities. When
interest rates are expected to fall or market values are expected to rise, a
Fund, through the purchase of such contracts, can attempt to secure better rates
or prices for the Fund than might later be available in the market when it
effects anticipated purchases.

A Fund's ability to effectively utilize futures trading depends on several
factors. First, it is possible that there will not be a perfect price
correlation between the futures contracts and their underlying stock index.
Second, it is possible that a lack of liquidity for futures contracts could
exist in the secondary market, resulting in an inability to close a futures
position prior to its maturity date. Third, the purchase of a futures contract
involves the risk that the Fund could lose more than the original margin deposit
required to initiate a futures transaction.

RESTRICTIONS ON THE USE OF FUTURES CONTRACTS. A Fund will only sell futures
contracts to protect securities it owns against price declines or purchase
contracts to protect against an increase in the price of securities it intends
to purchase. A Fund will not enter into futures contract transactions for
purposes other than bona fide hedging purposes to the extent that, immediately
thereafter, the sum of its initial margin deposits on open contracts exceeds 5%
of the market value of the Fund's total assets. In addition, the Fund will not
enter into futures contracts to the extent that the value of the futures
contracts held would exceed one third of the Fund's total assets. Futures
transactions will be limited to the extent necessary to maintain the Fund's
qualification as a regulated investment company.

<PAGE>

The Trust, on behalf of each Fund, has undertaken to restrict its futures
contract trading as follows: first, a Fund will not engage in transactions in
futures contracts for speculative purposes; second, a Fund will not market its
funds to the public as commodity pools or otherwise as vehicles for trading in
the commodities futures or commodity options markets; third, a Fund will
disclose to all prospective shareholders the purpose of and limitations on its
commodity futures trading; fourth, a Fund will submit to the CFTC special calls
for information. Accordingly, registration as a commodities pool operator with
the CFTC is not required.

In addition to the margin restrictions discussed above, transactions in futures
contracts may involve the segregation of funds pursuant to requirements imposed
by the Commission. Under those requirements, where a Fund has a long position
in a futures contract, it may be required to establish a segregated account (not
with a futures commission merchant or broker, except as may be permitted under
Commission rules) containing cash or certain liquid assets equal to the purchase
price of the contract (less any margin on deposit). For a short position in
futures or forward contracts held by a Fund, those requirements may mandate the
establishment of a segregated account (not with a futures commission merchant or
broker, except as may be permitted under Commission rules) with cash or certain
liquid assets that, when added to the amounts deposited as margin, equal the
market value of the instruments underlying the futures contracts (but are not
less than the price at which the short positions were established). However,
segregation of assets is not required if a Fund "covers" a long position. For
example, instead of segregating assets, a Fund, when holding a long position in
a futures contract, could purchase a put option on the same futures contract
with a strike price as high or higher than the price of the contract held by the
Fund. In addition, where a Fund takes short positions, or engages in sales of
call options, it need not segregate assets if it "covers" these positions. For
example, where the Fund holds a short position in a futures contract, it may
cover by owning the instruments underlying the contract. A Fund may also cover
such a position by holding a call option permitting it to purchase the same
futures contract at a price no higher than the price at which the short position
was established. Where the Fund sells a call option on a futures contract, it
may cover either by entering into a long position in the same contract at a
price no higher than the strike price of the call option or by owning the
instruments underlying the futures contract. A Fund could also cover this
position by holding a separate call option permitting it to purchase the same
futures contract at a price no higher than the strike price of the call option
sold by the Fund.

In addition, the extent to which a Fund may enter into transactions involving
futures contracts may be limited by the Internal Revenue Code's requirements for
qualification as a registered investment company and the Fund's intention to
qualify as such.

RISK FACTORS IN FUTURES TRANSACTIONS. Positions in futures contracts may be
closed out only on an exchange which provides a secondary market for such
futures. However, there can be no assurance that a liquid secondary market will
exist for any particular futures contract at any specific time. Thus, it may
not be possible to close a futures position. In the event of adverse price
movements, a Fund would continue to be required to make daily cash payments to
maintain the required margin. In such situations, if the Fund has insufficient
cash, it may have to sell portfolio securities to meet daily margin requirements
at a time when it may be disadvantageous to do so. In addition, the Fund may be
required to make delivery of the instruments underlying futures contracts it
holds. The inability to close options and futures positions also could have an
adverse impact on the ability to effectively hedge them. A Fund will minimize
the risk that it will be unable to close out a futures contract by only entering
into futures contracts which are traded on national futures exchanges and for
which there appears to be a liquid secondary market.

The risk of loss in trading futures contracts in some strategies can be
substantial, due both to the low margin deposits required, and the extremely
high degree of leverage involved in futures pricing. Because the deposit
requirements in the futures markets are less onerous than margin requirements in
the securities market, there may be increased participation by speculators in
the futures market which may also cause

<PAGE>

temporary price distortions. A relatively small price movement in a futures
contract may result in immediate and substantial loss (as well as gain) to the
investor. For example, if at the time of purchase, 10% of the value of the
futures contract is deposited as margin, a subsequent 10% decrease in the value
of the futures contract would result in a total loss of the margin deposit,
before any deduction for the transaction costs, if the account were then closed
out. A 15% decrease would result in a loss equal to 150% of the original margin
deposit if the contract were closed out. Thus, a purchaser or sale of a futures
contract may result in losses in excess of the amount invested in the contract.
However, because the futures strategies engaged in by a Fund are only for
hedging purposes, the Adviser believes that the Fund is generally not subject to
risks of loss exceeding those that would be undertaken if, instead of the
futures contract, it had invested in the underlying financial instrument and
sold it after the decline.

Utilization of futures transactions by a Fund involves the risk of imperfect or
no correlation where the securities underlying futures contract have different
maturities than the portfolio securities being hedged. It is also possible that
a Fund could both lose money on futures contracts and also experience a decline
in value of its portfolio securities. There is also the risk of loss by a Fund
of margin deposits in the event of bankruptcy of a broker with whom the Fund has
an open position in a futures contract or related option.

OPTIONS. The Funds may purchase and sell put and call options on their
portfolio securities to enhance investment performance and to protect against
changes in market prices.

COVERED CALL OPTIONS. A Fund may write covered call options on its securities
to realize a greater current return through the receipt of premiums than it
would realize on its securities alone. Such option transactions may also be
used as a limited form of hedging against a decline in the price of securities
owned by the Fund.

A call option gives the holder the right to purchase, and obligates the writer
to sell, a security at the exercise price at any time before the expiration
date. A call option is "covered" if the writer, at all times while obligated as
a writer, either owns the underlying securities (or comparable securities
satisfying the cover requirements of the securities exchanges), or has the right
to acquire such securities through immediate conversion of securities.

In return for the premium received when it writes a covered call option, a Fund
gives up some or all of the opportunity to profit from an increase in the market
price of the securities covering the call option during the life of the option.
The Fund retains the risk of loss should the price of such securities decline.
If the option expires unexercised, the Fund realizes a gain equal to the
premium, which may be offset by a decline in price of the underlying security.
If the option is exercised, the Fund realizes a gain or loss equal to the
difference between the Fund's cost for the underlying security and the proceeds
of sale (exercise price minus commissions) plus the amount of the premium.

A Fund may terminate a call option that it has written before it expires by
entering into a closing purchase transaction. A Fund may enter into closing
purchase transactions in order to free itself to sell the underlying security or
to write another call on the security, realize a profit on a previously written
call option, or protect a security from being called in an unexpected market
rise. Any profits from a closing purchase transaction may be offset by a
decline in the value of the underlying security. Conversely, because increases
in the market price of a call option will generally reflect increases in the
market price of the underlying security, any loss resulting from a closing
purchase transaction is likely to be offset in whole or in part by unrealized
appreciation of the underlying security owned by the Fund.

COVERED PUT OPTIONS. A Fund may write covered put options in order to enhance
its current return. Such options transactions may also be used as a limited
form of hedging against an increase in the price of securities that the Fund
plans to purchase. A put option gives the holder the right to sell, and
obligates the

<PAGE>

writer to buy, a security at the exercise price at any time before the
expiration date. A put option is "covered" if the writer segregates cash and
high-grade short-term debt obligations or other permissible collateral equal to
the price to be paid if the option is exercised.

In addition to the receipt of premiums and the potential gains from terminating
such options in closing purchase transactions, a Fund also receives interest on
the cash and debt securities maintained to cover the exercise price of the
option. By writing a put option, the Fund assumes the risk that it may be
required to purchase the underlying security for an exercise price higher than
its then current market value, resulting in a potential capital loss unless the
security later appreciates in value.

A Fund may terminate a put option that it has written before it expires by a
closing purchase transaction. Any loss from this transaction may be partially
or entirely offset by the premium received on the terminated option.

PURCHASING PUT AND CALL OPTIONS. A Fund may also purchase put options to
protect portfolio holdings against a decline in market value. This protection
lasts for the life of the put option because the Fund, as a holder of the
option, may sell the underlying security at the exercise price regardless of any
decline in its market price. In order for a put option to be profitable, the
market price of the underlying security must decline sufficiently below the
exercise price to cover the premium and transaction costs that the Fund must
pay. These costs will reduce any profit the Fund might have realized had it
sold the underlying security instead of buying the put option.

A Fund may purchase call options to hedge against an increase in the price of
securities that the Fund wants ultimately to buy. Such hedge protection is
provided during the life of the call option since the Fund, as holder of the
call option, is able to buy the underlying security at the exercise price
regardless of any increase in the underlying security's market price. In order
for a call option to be profitable, the market price of the underlying security
must rise sufficiently above the exercise price to cover the premium and
transaction costs. These costs will reduce any profit the Fund might have
realized had it bought the underlying security at the time it purchased the call
option.

A Fund may also purchase put and call options to attempt to enhance its current
return.

OPTIONS ON FOREIGN SECURITIES. The Funds may purchase and sell options on
foreign securities if a Fund's Adviser believes that the investment
characteristics of such options, including the risks of investing in such
options, are consistent with the Fund's investment objectives. It is expected
that risks related to such options will not differ materially from risks related
to options on U.S. securities. However, position limits and other rules of
foreign exchanges may differ from those in the U.S. In addition, options
markets in some countries, many of which are relatively new, may be less liquid
than comparable markets in the U.S.

RISKS INVOLVED IN THE SALE OF OPTIONS. Options transactions involve certain
risks, including the risks that a Fund's Adviser will not forecast interest rate
or market movements correctly, that a Fund may be unable at times to close out
such positions, or that hedging transactions may not accomplish their purpose
because of imperfect market correlations. The successful use of these
strategies depends on the ability of a Fund's Adviser to forecast market and
interest rate movements correctly.

An exchange-listed option may be closed out only on an exchange which provides a
secondary market for an option of the same series. There is no assurance that a
liquid secondary market on an exchange will exist for any particular option or
at any particular time. If no secondary market were to exist, it would be
impossible to enter into a closing transaction to close out an option position.
As a result, a Fund may be

<PAGE>

forced to continue to hold, or to purchase at a fixed price, a security on which
it has sold an option at a time when its Adviser believes it is inadvisable to
do so.

Higher than anticipated trading activity or order flow or other unforeseen
events might cause The Options Clearing Corporation or an exchange to institute
special trading procedures or restrictions that might restrict a Fund's use of
options. The exchanges have established limitations on the maximum number of
calls and puts of each class that may be held or written by an investor or group
of investors acting in concert. It is possible that the Trust and other clients
of the Adviser may be considered such a group. These position limits may
restrict the Funds' ability to purchase or sell options on particular
securities.

Options which are not traded on national securities exchanges may be closed out
only with the other party to the option transaction. For that reason, it may be
more difficult to close out unlisted options than listed options. Furthermore,
unlisted options are not subject to the protection afforded purchasers of listed
options by The Options Clearing Corporation.

Government regulations, particularly the requirements for qualification as a
"regulated investment company" under the Internal Revenue Code, may also
restrict the Funds' use of options.

SPECIAL EXPIRATION PRICE OPTIONS. The Funds may purchase over-the-counter
("OTC") puts and calls with respect to specified securities ("special expiration
price options") pursuant to which the Funds in effect may create a custom index
relating to a particular industry or sector that the Adviser believes will
increase or decrease in value generally as a group. In exchange for a premium,
the counterparty, whose performance is guaranteed by a broker-dealer, agrees to
purchase (or sell) a specified number of shares of a particular stock at a
specified price and further agrees to cancel the option at a specified price
that decreases straight line over the term of the option. Thus, the value of the
special expiration price option is comprised of the market value of the
applicable underlying security relative to the option exercise price and the
value of the remaining premium. However, if the value of the underlying
security increases (or decreases) by a prenegotiated amount, the special
expiration price option is canceled and becomes worthless. A portion of the
dividends during the term of the option are applied to reduce the exercise price
if the options are exercised. Brokerage commissions and other transaction costs
will reduce these Funds' profits if the special expiration price options are
exercised. A Fund will not purchase special expiration price options with
respect to more than 25% of the value of its net assets, and will limit premiums
paid for such options in accordance with state securities laws.

LEAPS. The Value Fund may purchase certain long-term exchange-traded equity
options called Long-Term Equity Anticipation Securities ("LEAPs"). LEAPs
provide a holder the opportunity to participate in the underlying securities'
appreciation in excess of a fixed dollar amount. The Value Fund will not
purchase these options with respect to more than 25% of the value of its net
assets.

LEAPs are long-term call options that allow holders the opportunity to
participate in the underlying securities' appreciation in excess of a specified
strike price, without receiving payments equivalent to any cash dividends
declared on the underlying securities. A LEAP holder will be entitled to
receive a specified number of shares of the underlying stock upon payment of the
exercise price, and therefore the LEAP will be exercisable at any time the price
of the underlying stock is above the strike price. However, if at expiration
the price of the underlying stock is at or below the strike price, the LEAP will
expire worthless.

SHORT SALES. Each Fund may seek to hedge investments or realize additional
gains through the use of short sales. Short sales are transactions in which a
Fund sells a security it does not own, in anticipation of a decline in the
market value of that security. To complete such a transaction, the Fund must
borrow the security to make delivery to the buyer. The Fund then is obligated
to replace the security borrowed by

<PAGE>

purchasing it at the market price at or prior to the time of replacement. The
price at such time may be more or less than the price at which the security was
sold by the Fund. Until the security is replaced, the Fund is required to repay
the lender any dividends or interest that accrue during the period of the loan.
To borrow the security, the Fund also may be required to pay a premium, which
would increase the cost of the security sold. The net proceeds of the short
sale will be retained by the broker (or by the Fund's custodian in a special
custody account), to the extent necessary to meet margin requirements, until the
short position is closed out. A Fund also will incur transaction costs in
effecting short sales.

A Fund will incur a loss as a result of the short sale if the price of the
security increases between the date of the short sale and the date on which the
Fund replaces the borrowed security. The Fund will realize a gain if the
security declines in price between those dates. The amount of any gain will be
decreased, and the amount of any loss increased, by the amount of the premium,
dividends, interest or expenses the Fund may be required to pay in connection
with a short sale.

SECURITIES LENDING. Each Fund may lend its portfolio securities to
broker-dealers, banks or institutional borrowers of securities. A Fund must
receive a minimum of 100% collateral, plus any interest due in the form of cash
or U.S. Government securities. This collateral must be valued daily and should
the market value of the loaned securities increase, the borrower must furnish
additional collateral to the Fund. During the time portfolio securities are on
loan, the borrower will pay the Fund any dividends or interest paid on such
securities plus any interest negotiated between the parties to the lending
agreement. Loans will be subject to termination by the Fund or the borrower at
any time. While the Fund will not have the right to vote securities on loan, it
intends to terminate the loan and regain the right to vote if that is considered
important with respect to the investment. A Fund will only enter into loan
arrangements with broker-dealers, banks or other institutions which the Adviser
has determined are creditworthy under guidelines established by the Trustees.
Each Fund will limit its securities lending to 33 1/3% of total assets.

INVESTMENT COMPANY SECURITIES. Each Fund may invest up to 5% of its total
assets in the securities of any one investment company, but may not own more
than 3% of the outstanding securities of any one investment company or invest
more than 10% of its total assets in the securities of other investment
companies. The Adviser will waive its investment advisory fees as to all assets
invested in other investment companies. Because such other investment companies
employ an investment adviser, such investment by a Fund will cause shareholders
to bear duplicative fees, such as management fees, to the extent such fees are
not waived by the Adviser.

WHEN-ISSUED SECURITIES. Each Fund may purchase securities on a when-issued or
delayed delivery basis. These transactions are arrangements in which a Fund
purchases securities with payment and delivery scheduled for a future time.
When a Fund agrees to purchase securities on a when-issued basis, the Fund's
custodian must set aside cash or liquid portfolio securities equal to the amount
of that commitment in a separate account, and may be required to subsequently
place additional assets in the separate account to reflect any increase in the
Fund's commitment. Prior to delivery of when-issued securities, their value is
subject to fluctuation and no income accrues until their receipt. A Fund
engages in when-issued and delayed delivery transactions only for the purpose of
acquiring portfolio securities consistent with its investment objective and
policies, and not for investment leverage. In when-issued and delayed delivery
transactions, the Fund relies on the seller to complete the transaction; its
failure to do so may cause the Fund to miss a price or yield considered to be
advantageous.

INVESTMENT LIMITATIONS AND RESTRICTIONS

17
<PAGE>

The following investment restrictions are fundamental with respect to each Fund
other than the Realty Growth Fund and may be changed only by a vote of a
majority of the outstanding shares of the Fund as defined in "Additional
Information - Miscellaneous."

EACH FUND MAY NOT:

1. Purchase or sell physical commodities unless acquired as a result of
ownership of securities or other instruments (but this shall not prevent a Fund
from purchasing or selling options and futures contracts or from investing in
securities or other instruments backed by physical commodities).

2. Purchase or sell real estate unless acquired as a result of ownership of
securities or other instruments (but this shall not prevent a Fund from
investing in securities or other instruments backed by real estate or securities
of companies engaged in the real estate business). Investments by a Fund in
securities backed by mortgages on real estate or in marketable securities of
companies engaged in such activities are not hereby precluded.

3. Issue any senior security (as defined in the Investment Company Act of
1940, as amended (the "1940 Act")), except that (a) a Fund may engage in
transactions that may result in the issuance of senior securities to the extent
permitted under applicable regulations and interpretations of the 1940 Act or an
exemptive order; (b) a Fund may acquire other securities, the acquisition of
which may result in the issuance of a senior security, to the extent permitted
under applicable regulations or interpretations of the 1940 Act; (c) subject to
the restrictions set forth below, a Fund may borrow money as authorized by the
1940 Act.

4. Borrow money, except that (a) a Fund may enter into commitments to purchase
securities in accordance with its investment program, including when issued
securities and reverse repurchase agreements, provided that the total amount of
any such borrowing does not exceed 33 1/3% of the Fund's total assets; and (b) a
Fund may borrow money for temporary or emergency purposes in an amount not
exceeding 5% of the value of its total assets at the time when the loan is made.
Any borrowing representing more than 5% of a Fund's total assets must be repaid
before the Fund may make additional investments.

5. Lend any security or make any other loan if, as a result, more than 33 1/3%
of its total assets would be lent to other parties, but this limitation does not
apply to purchases of publicly issued debt securities or to repurchase
agreements.

6. Underwrite securities issued by others, except to the extent that a Fund
may be considered an underwriter within the meaning of the Securities Act of
1933, as amended (the "1933 Act") in the disposition of restricted securities.

7. With respect to 75% (50%, with respect to the Value Fund) of its total
assets, purchase the securities of any issuer (other than securities issued or
guaranteed by the U.S. Government or any of its agencies or instrumentalities)
if, as a result, (a) more than 5% of the Fund's total assets would be invested
in the securities of that issuer, or (b) the Fund would hold more than 10% of
the outstanding voting securities of that issuer.

8. (a) With respect to the Financial Services Fund and the Small Cap Financial
Fund, purchase the securities of any issuer if, as a result, less than 25% of a
Fund's total assets would be invested in the securities of issuers principally
engaged in the financial services group of industries; and (b) with respect to
the Value Fund, purchase the securities of an issuer if, as a result, more than
25% of its total assets would be invested in the securities of companies whose
principal business activities are in the same industry. These

<PAGE>

limitations do not apply to securities issued or guaranteed by the U.S.
government or any of its agencies or instrumentalities.

The following investment restrictions are fundamental with respect to the Realty
Growth Fund and may be changed only by a vote of a majority of that Fund's
outstanding shares as defined in "Additional Information - Miscellaneous."

THE REALTY GROWTH FUND MAY NOT:

1. Borrow money, except that as a temporary measure for extraordinary or
emergency purposes it may borrow from banks and enter into reverse repurchase
agreements in an amount not to exceed 33 1/3% of the current value of its
respective net assets, including the amount borrowed (and the Fund may purchase
any securities at any time at which borrowings exceed 5% of the total assets of
the Fund, taken at market value). It is intended that a Fund would borrow money
only from banks and only to accommodate requests for the repurchase of shares of
the Fund while effecting an orderly liquidation of portfolio securities.

2. Make short sales of securities or purchase securities on margin, except
that the Trust may purchase and sell various types of futures contracts and may
obtain short term credits as necessary for the clearance of security
transactions.

3. Underwrite securities issued by other persons, except to the extent that
the Fund may be considered an underwriter within the meaning of the Securities
Act of 1933 in the disposition of restricted securities.

4. Make loans to other persons except (a) through the lending of its portfolio
securities, but not in excess of 33 1/3% of the Fund's net assets, (b) through
the use of fixed time deposits or repurchase agreements or the purchase of
short-term obligations or (c) by purchasing all or a portion of an issue of debt
securities; for purposes of this paragraph 4 the purchase of short-term
commercial paper or a portion of an issue of debt securities which are part of
an issue to the public shall not be considered the making of a loan.

5. Purchase or sell real estate (including limited partnership interests but
excluding securities secured by real estate or interests therein), interests in
oil, gas or mineral leases, commodities or commodity contracts in the ordinary
course of business, except that the Fund may purchase and sell mortgage-related
securities and may hold and sell real estate acquired as a result of the
ownership of securities by the Fund.

6. Issue any senior security (as that term is defined in the 1940 Act) if such
issuance is specifically prohibited by the 1940 Act or the rules and regulations
promulgated thereunder, except as appropriate to evidence a debt incurred
without violating Investment Restriction (1) above.

7. Invest 25% or more of its assets in securities of issuers in any one
industry (other than securities or obligations issued or guaranteed by the
United States government or any agency or instrumentality thereof), except that
it will invest at least 25% of its assets in securities of issuers in the real
estate industry.

NON-FUNDAMENTAL RESTRICTIONS.

The following restrictions with respect to the Funds other than the Realty
Growth Fund are not fundamental and may be changed without shareholder approval:

1. No Fund will purchase or retain securities of any issuer if the officers or
Trustees of the Trust or the officers or directors of its investment adviser
owning beneficially more than one half of 1% of the securities of such issuer
together own beneficially more than 5% of such securities.

<PAGE>

2. No Fund will invest more than 10% of its total assets in the securities of
issuers which together with any predecessors have a record of less than three
years of continuous operation.

3. No Fund will invest more than 15% of its net assets in illiquid securities.
Illiquid securities are securities that are not readily marketable or cannot be
disposed of promptly within seven days and in the usual course of business at
approximately the price at which a Fund has valued them. Such securities
include, but are not limited to, time deposits and repurchase agreements with
maturities longer than seven days. Securities that may be resold under Rule
144A, securities offered pursuant to Section 4(2) of, or securities otherwise
subject to restrictions on resale under the 1933 Act ("Restricted Securities"),
shall not be deemed illiquid solely by reason of being unregistered. The Adviser
determines whether a particular security is deemed to be liquid based on the
trading markets for the specific security and other factors.

4. No Fund will purchase securities on margin except for short-term credits
necessary for clearance of portfolio transactions, provided that this
restriction will not be applied to limit the use of options, futures contracts
and related options, in the manner otherwise permitted by the investment
restrictions, policies and investment program of the Fund.

5. Each Fund may invest up to 5% of its total assets in the securities of any
one investment company, but may not own more than 3% of the securities of any
one investment company or invest more than 10% of its total assets in the
securities of other investment companies.

The following restrictions with respect to the Realty Growth Fund are not
fundamental and may be changed without shareholder approval. The Realty Growth
Fund does not as a matter of operating policy:

1. Borrow money for any purpose in excess of 10% of the net assets of the Fund
(taken at cost) (the Fund will not purchase any securities at any time at which
borrowings exceed 5% of the total assets of the Fund (taken at market value));

2. Sell any security which the Fund does not own unless by virtue of the
ownership of other securities there is at the time of sale a right to obtain
securities, without payment of further consideration, equivalent in kind and
amount to the securities sold and provided that if such right is conditional the
sale is made upon the same conditions;

3. Invest for the purpose of exercising control or management;

4. Purchase securities issued by any registered investment company, except by
purchase in the open market where no commission or profit to a sponsor or dealer
results from such purchase other than the customary broker's commission, or
except when such purchase, though not made in the open market, is part of a plan
of merger or consolidation; provided, however, that the Fund will not purchase
the securities of any registered investment company if such purchase at the time
thereof would cause more than 10% of the total assets of the Fund (taken in each
case at the greater of cost or market value) to be invested in the securities of
such issuers or would cause more than 3% of the outstanding voting securities of
any such issuer to be held for the Fund;

5. Invest more than 15% of the net assets of the Fund in securities that are
not readily marketable or which are subject to legal or contractual restrictions
on resale including debt securities for which there is no established market and
fixed time deposits and repurchase agreements maturing in more than seven days;

6. Purchase or retain any securities issued by an issuer any of whose
officers, directors, trustees or security holders is an officer or Trustee of
the Trust, or is an officer or director of the Adviser, if after the

<PAGE>

purchase of the securities of such issuer by the Fund, one or more of such
persons owns beneficially more than 1/2 of 1% of the shares or securities, or
both, all taken at market value, of such issuer, and such persons owning more
than 1/2 of 1% of such shares or securities together own beneficially more than
5% of such shares or securities, or both, all taken at market value,;

7. Make short sales of securities, except that the Fund may purchase and sell
various types of futures contracts and may obtain short term credits as
necessary for the clearance of security transactions;

8. Invest more than 5% of the Fund's net assets in warrants (valued at the
lower of cost or market), but not more than 2% of the Fund's net assets may be
invested in warrants not listed on the New York Stock Exchange or the American
Stock Exchange;

9. With respect to 50% of the Fund's total assets, invest more than 5% of its
total assets in securities of any one issuer, and as to the remaining 50% of the
Fund's total assets, invest more than 25% in the securities of any one issuer;

10. Purchase securities of any issuer if, as to 75% of the assets of the Fund
at the time of purchase, more than 10% of the voting securities of any issuer
would be held by the Fund, or;

11. Invest more than 15% of the Fund's total assets in the securities of
issuers which together with any predecessors (including public and private
predecessor operating companies) have a record of less than three years of
continuous operating or securities of issuers which are restricted as to
disposition, despite any determinations made by the Board of Trustees that such
securities are liquid.

GENERAL. The policies and limitations listed above supplement those set forth
in the Prospectus. Unless otherwise noted, whenever an investment policy or
limitation states a maximum percentage of a Fund's assets that may be invested
in any security or other asset, or sets forth a policy regarding quality
standards, such standard or percentage limitation will be determined immediately
after and as a result of the Fund's acquisition of such security or other asset
except in the case of borrowing (or other activities that may be deemed to
result in the issuance of a "senior security" under the 1940 Act). Accordingly,
any subsequent change in values, net assets, or other circumstances will not be
considered when determining whether the investment complies with the Fund's
investment policies and limitations. If the value of a Fund's holdings of
illiquid securities at any time exceeds the percentage limitation applicable at
the time of acquisition due to subsequent fluctuations in value or other
reasons, the Trustees will consider what actions, if any, are appropriate to
maintain adequate liquidity.

The investment policies of a Fund may be changed without an affirmative vote of
the holders of a majority of the Fund's outstanding voting securities unless
(1) a policy is expressly deemed to be a fundamental policy of the Fund or (2) a
policy is expressly deemed to be changeable only by such shareholder vote.

VALUATION OF PORTFOLIO SECURITIES

Portfolio 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 for which recent
market quotations are not readily available are valued at fair value as
determined in good faith by the Funds' Board of

<PAGE>

Trustees. Expenses and fees, including the management fee and distribution and
service fees, are accrued daily and taken into account for the purpose of
determining the net asset value of the Funds' shares.

In computing a class of the Fund's net asset value, all class-specific
liabilities incurred or accrued are deducted from the class' net assets. The
resulting net assets are divided by the number of shares of the class
outstanding at the time of the valuation and the result (adjusted to the nearest
cent) is the net asset value per share. The per share net asset value of Class
A shares generally will be higher than the per share net asset value of Class B
or Class C shares, reflecting daily expense accruals of the higher distribution
fees applicable to Class B and Class C shares as well as other class-specific
expenses.

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 as determined in
good faith by the Board of Trustees. The Board of Trustees will review the
method of valuation on a current basis. In making their good faith valuation of
restricted securities, the Trustees generally will take the following factors
into consideration: restricted securities which are, or are convertible into,
securities of the same class of securities for which a public market exists
usually will be valued at market value less the same percentage discount at
which purchased. This discount will be revised periodically by the Board of
Trustees if the Trustees believe that it no longer reflects the value of the
restricted securities. Restricted securities not of the same class as
securities for which a public market exists usually will be valued initially at
cost. Any subsequent adjustment from cost will be based upon considerations
deemed relevant by the Board of Trustees.

NEW YORK STOCK EXCHANGE CLOSINGS. The holidays (as observed) on which the New
York Stock Exchange is closed currently are: New Year's Day, Martin Luther King
Jr. Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor
Day, Thanksgiving and Christmas Day.

PERFORMANCE

From time to time the "standardized yield," "dividend yield," "average annual
total return," "total return," and "total return at net asset value" of an
investment in Fund shares may be advertised. An explanation of how yields and
total returns are calculated and the components of those calculations are set
forth below.

Yield and total return information may be useful to investors in reviewing a
Fund's performance. A Fund's advertisement of its performance must, under
applicable Commission rules, include the average annual total returns for the
Fund for the 1, 5 and 10 year period (or the life of the Fund, if less) as of
the most recently ended calendar quarter. This enables an investor to compare
the Fund's performance to the performance of other funds for the same periods.
However, a number of factors should be considered before using such information
as a basis for comparison with other investments. An investment in a Fund is
not insured; its yield and total return are not guaranteed and normally will
fluctuate on a daily basis. When redeemed, an investor's shares may be worth
more or less than their original cost. Yield and total return for any given
past period are not a prediction or representation by the Trust of future yields
or rates of return on its shares. The yield and total returns of the Fund are
affected by portfolio quality, portfolio maturity, the type of investments the
Fund holds and operating expenses.

STANDARDIZED YIELD. A Fund's "yield" (referred to as "standardized yield") for
a given 30 day period for a class of shares is calculated using the following
formula set forth in rules adopted by the Commission that apply to all funds
that quote yields:

<PAGE>

6
STANDARDIZED YIELD = 2 [(a-b + 1) - 1]
---
cd

The symbols above represent the following factors:

a = dividends and interest earned during the 30-day period.

b = expenses accrued for the period (net of any expense
reimbursements).

c = the average daily number of shares of that class outstanding
during the 30-day period that were entitled to receive
dividends.

d = the maximum offering price per share of the class on the
last day of the period, adjusted for undistributed net
investment income.

The standardized yield for a 30 day period may differ from its yield for any
other period. The Commission formula assumes that the standardized yield for a
30 day period occurs at a constant rate for a six month period and is annualized
at the end of the six month period. This standardized yield is not based on
actual distributions paid by a Fund to shareholders in the 30 day period, but is
a hypothetical yield based upon the net investment income from the Fund's
portfolio investments calculated for that period.

This yield figure does not reflect the deduction of any contingent deferred
sales charges which are imposed upon certain redemptions at the rates set forth
under "How to Redeem Shares" in the Prospectus.

DIVIDEND YIELD AND DISTRIBUTION RETURNS. From time to time a Fund may quote a
"dividend yield" or a "distribution return." Dividend yield is based on the
share dividends derived from net investment income during a stated period.
Distribution return includes dividends derived from net investment income and
from realized capital gains declared during a stated period. Under those
calculations, the dividends and/or distributions declared during a stated period
of one year or less (for example, 30 days) are added together, and the sum is
divided by the maximum offering price per share of Fund) on the last day of the
period.

DIVIDEND YIELD = DIVIDENDS + NUMBER OF DAYS (ACCRUAL PERIOD) X 365
-------------------
MAX. OFFERING PRICE
(LAST DAY OF PERIOD)

The maximum offering price for shares includes the maximum front-end sales
charge, if any.

From time to time similar yield or distribution return calculations may also be
made using the net asset value (instead of its respective maximum offering
price) at the end of the period.

TOTAL RETURNS. The "average annual total return" is an average annual
compounded rate of return for each year in a specified number of years. It is
the rate of return based on the change in value of a hypothetical initial
investment of $1,000 ("P" in the formula below) held for a number of years ("n")
to achieve an

Ending Redeemable Value ("ERV"), according to the following formula:

1n
(ERV) -1 = AVERAGE ANNUAL TOTAL RETURN
---
(P)

<PAGE>

The cumulative "total return" calculation measures the change in value of a
hypothetical investment of $1,000 over an entire period of years. Its
calculation uses some of the same factors as average annual total return, but it
does not average the rate of return on an annual basis. Total return is
determined as follows:

(ERV)-1 = TOTAL RETURN
---
(P)

From time to time a Fund may also quote an "average annual total return at net
asset value" or a cumulative "total return at net asset value." It is based on
the difference in net asset value per share at the beginning and the end of the
period for a hypothetical investment in that class of shares (without
considering front-end or contingent sales charges) and takes into consideration
the reinvestment of dividends and capital gains distributions.

The total returns of shares of the Funds other than the Realty Growth Fund
for the period January 3, 1997 (commencement of investment operations) through
October 31, 1997 were as follows:

<TABLE>
<CAPTION>
Total
Fund(1) Return
------- ------
<S> <C>
Financial Services Fund . . . . . . . . . . . . 33.58%
Small Cap Financial Fund. . . . . . . . . . . . 46.08%
Value Fund. . . . . . . . . . . . . . . . . . . 39.17%
</TABLE>

Prior to its reorganization as a series of the Trust on September __, 1998, the
Realty Growth Fund was a series of the GrandView Investment Trust ("GrandView").
GrandView did not offer Class A, Class B or Class C shares of the Realty Growth
Fund. Shares offered prior to the reorganization were equivalent to current
Class A shares, but were sold with a maximum 4.5% front-end sales charge. Prior
to the reorganization, the Fund was managed by portfolio management personnel of
GrandView Advisers, Inc. who continue to manage the Fund as employee of FBR Fund
Advisers, Inc., subject to the same investment objectives, policies and
restrictions that applied to the Fund prior to its reorganization.

The average annual total return for the Realty Growth Fund for the fiscal year
ended March 31, 1997, and for the period form commencement of operations (July
3, 1995) through March 31, 1997, was 38.59% and 24.45%, respectively. The
cumulative total return for such Fund from commencement of operations through
March 31, 1997, was 46.49%. These quotations assume a 4.5% sales load was
deducted from the initial investment. Without the deduction of the sales load,
the average annual total return for the fiscal year ended March 31, 1997, and
from the commencement of operations through March 31, 1997, for such Fund was
45.12% and 27.78%, respectively. The cumulative total return for such Fund from
commencement of operations to March 31, 1997, without the deduction of a sales
load, was 52.19%.

PERFORMANCE COMPARISONS.

YIELD AND TOTAL RETURN. From time to time, performance information
for a Fund showing its average annual total return and/or yield may be included
in advertisements or in information furnished to present or prospective
shareholders and the ranking of those performance figures relative to such
figures for

- ------------------------
1 During the periods shown, the Trust did not offer Class A, Class B or Class
C shares of any Fund. Shares offered during this period were equivalent to
current Class A shares, but were offered without a sales charge.

<PAGE>

groups of mutual funds categorized by Lipper Analytical Services as having the
same investment objectives may be included in advertisements.

Total return and/or yield may also be used to compare the performance
of a Fund against certain widely acknowledged standards or indices for stock and
bond market performance. The Standard & Poor's Composite Index of 500 stocks
(the "S&P 500") is a market value-weighted and unmanaged index showing the
changes in the aggregate market value of 500 stocks relative to the base period
1941-43. The S&P 500 is composed almost entirely of common stocks of companies
listed on the New York Stock Exchange, although the common stocks of a few
companies listed on the American Stock Exchange or traded over-the-counter are
included. The 500 companies represented include 400 industrial, 60
transportation and 40 financial services concerns. The S&P 500 represents about
80% of the market value of all issues traded on the New York Stock Exchange.

The NASDAQ-OTC Price Index (the "NASDAQ Index") is a market
value-weighted and unmanaged index showing the changes in the aggregate market
value of approximately 3,500 stocks relative to the base measure of 100.00 on
February 5, 1971. The NASDAQ Index is composed entirely of common stocks of
companies traded over-the-counter and often through the National Association of
Securities Dealers Automated Quotations ("NASDAQ") system. Only those
over-the-counter stocks having only one market maker or traded on exchanges are
excluded.

The Shearson Lehman Government Bond Index (the "SL Government Index")
is a measure of the market value of all public obligations of the U.S. Treasury;
all publicly issued debt of all agencies of the U.S. Government and all
quasi-federal corporations; and all corporate debt guaranteed by the U.S.
Government. Mortgage backed securities, flower bonds and foreign targeted
issues are not included in the SL Government Index.

The Shearson Lehman Government/Corporate Bond Index (the "SL
Government/Corporate Index") is a measure of the market value of approximately
5,300 bonds with a face value currently in excess of $1.3 trillion. To be
included in the SL Government/Corporate Index, an issue must have amounts
outstanding in excess of $1 million, have at least one year to maturity and be
rated "Baa" or higher ("investment grade") by a nationally recognized
statistical rating agency.

Current yields or performance will fluctuate from time to time and are
not necessarily representative of future results. Accordingly, a Fund's yield
or performance may not provide for comparison with bank deposits or other
investments that pay a fixed return for a stated period of time. Yield and
performance are functions of quality, composition, and maturity, as well as
expenses allocated to the Fund.

ADDITIONAL PURCHASE AND REDEMPTION INFORMATION

Each Fund offers three classes of shares. Shares may be purchased at a price
equal to their next determined net asset value ("NAV") (i) plus an initial sales
charge imposed at the time of purchase ("Class A shares"), (ii) with a
contingent deferred sales charge imposed on redemptions within six years of
purchase ("Class B shares") or (iii) without any initial or contingent deferred
sales charge, as long as

<PAGE>

shares are held for one year or more ("Class C shares"). Direct purchases of $1
million or more of Class A shares will be sold without an initial sales charge,
but will be subject to a contingent deferred sales charge if redeemed within 12
months of purchase.

Over time, the deferred sales charge and distribution fees attributable to Class
B or Class C shares will exceed the initial sales charge and the distribution
fees attributable to Class A shares. Class B shares convert to Class A shares,
which are subject to lower distribution fees, eight years after initial
purchase. Class C shares, which are subject to the same distribution fees as
Class B shares, do not convert to Class A shares and are subject to the higher
distribution fees indefinitely.

LETTERS OF INTENT. If a shareholder anticipates purchasing at least $50,000 of
Class A shares of a Fund alone or in combination with Class A shares of any
other funds advised by the Adviser within a 13-month period, the shareholder may
purchase shares of the Fund at a reduced sales charge by submitting a Letter of
Intent (the "Letter of Intent" or "Letter"). Shares purchased pursuant to a
Letter will be eligible for the same sales charge discount that would have been
available if all of the purchases had been made at the same time. The
shareholder or his Authorized Dealer must inform FBR or FBR Services that the
Letter is in effect each time shares are purchased. There is no obligation to
purchase the full amount of shares indicated in the Letter. A shareholder may
include the value of all Class A shares on which a sales charge has previously
been paid as an "accumulation credit" toward the completion of the Letter, but a
price readjustment will be made only on Class A shares purchased within ninety
(90) days before submitting the Letter. The Letter authorizes the Transfer
Agent to hold in escrow a sufficient number of shares which can be redeemed to
make up any difference in the sales charge on the amount actually invested. For
purposes of satisfying the amount specified in the Letter, the gross amount
purchased, will be taken into account.

RIGHTS OF ACCUMULATION. A Class A shareholder qualifies for cumulative quantity
discounts if the current purchase price of the new investment plus the
shareholder's current holdings of existing Class A shares (acquired by purchase
or exchange) of the Funds and Class A shares of any other fund advised by the
Adviser total the requisite amount for receiving a discount. For example, if a
shareholder owns shares with a current market value of $35,000 and purchases
additional Class A shares of any Fund with a purchase price of $25,000, the
sales charge for the $25,000 purchase would be 4.75% (the rate applicable to a
single purchase of more than $50,000). Class A shares purchased without the
imposition of a sales charge may not be aggregated with Class A shares purchased
subject to a sales charge. Class A shares of the Funds and any other funds
advised by the Adviser purchased (i) by an individual, his spouse and his minor
children, and (ii) by a trustee, guardian or other fiduciary of a single trust
estate or a single fiduciary account, will be combined for the purpose of
determining whether a purchase will qualify for such right of accumulation and,
if qualifying, the applicable sales charge level. For purposes of applying the
right of accumulation, shares of the Funds and any other funds advised by the
Adviser purchased by an existing client of FBR or FBR Services will be combined
with Class A shares held by any other account over which such client or the
client's spouse exercises investment or voting power. In addition, Class A
shares of the Funds, and Class A shares of any other funds advised by the
Adviser, purchased by partners, directors, officers or employees of the same
business organization or by groups of individuals represented by and investing
on the recommendation of the same accounting firm or other similar organization
(collectively, "eligible persons") may be combined for the purpose of
determining whether a purchase will quality for the right of accumulation and,
if qualifying, the applicable sales charge level. This right of accumulation is
subject to the following conditions: (1) the business organization's or firm's
agreement to cooperate in the offering of the Funds' shares to eligible persons;
and (ii) notification to the Funds at the time of purchase that the investor is
eligible for this right of accumulation.

REDEMPTION. The value of shares on redemption or repurchase may be more or less
than the investor's cost, depending upon the market value of the portfolio
securities at the time of redemption or repurchase. Certain

<PAGE>

purchases may be subject to a CDSC or redemption fee. Shareholders will be
charged a CDSC or redemption fee if certain of those shares are redeemed within
the applicable time periods as stated in the Prospectus.

No CDSC or redemption fee is imposed on any shares subject to a CDSC or
redemption fee to the extent that those shares (i) are no longer subject to the
applicable holding period, (ii) resulted from reinvestment of distributions on
CDSC or redemption fee shares or (iii) were exchanged for shares of another fund
managed by the Investment Manager, provided that the shares acquired in such
exchange and subsequent exchanges will continue to remain subject to the CDSC,
if applicable, until the applicable holding period expires.

REDEMPTION IN KIND. Although each Fund intends to redeem shares in cash, each
Fund reserves the right under certain circumstances to pay the redemption price
in whole or in part by a distribution of securities from a Fund. To the extent
available, such securities will be readily marketable. Redemption in kind will
be made in conformity with applicable Commission rules, taking such securities
at the same value employed in determining NAV and selecting the securities in a
manner the Trustees determine to be fair and equitable. The Funds have elected
to be governed by Rule 18f-1 of the 1940 Act under which each Fund is obligated
to redeem shares for any one shareholder in cash only up to the lesser of
$250,000 or 1% of a Fund's net asset value during any 90-day period.

SUSPENSION OF REDEMPTIONS. The right of redemption may be suspended or the date
of payment postponed (a) during any period when the New York Stock Exchange is
closed (other than customary weekend and holiday closings), (b) when trading in
the markets a Fund ordinarily utilizes is restricted, or when an emergency
exists as determined by the Commission so that disposal of the Fund's
investments or determination of its net asset value is not reasonably
practicable, or (c) for such other periods as the Commission by order may permit
to protect Fund shareholders.

DIVIDENDS AND DISTRIBUTIONS

Each Fund ordinarily declares and pays dividends from its net investment income.
Each Fund distributes substantially all of its net investment income and net
capital gains, if any, to shareholders within each calendar year as well as on a
fiscal year basis to the extent required for the Fund to qualify for favorable
federal tax treatment.

The amount of distributions may vary from time to time depending on market
conditions and the composition of a Fund's portfolio.

For this purpose, the net income of a Fund, from the time of the immediately
preceding determination thereof, shall consist of all interest income accrued on
the portfolio assets of the Fund, dividend income, if any, income from
securities loans, if any, and realized capital gains and losses on the Fund's
assets, less all expenses and liabilities of the Fund chargeable against income.
Interest income shall include discount earned, including both original issue and
market discount, on discount paper accrued ratably to the date of maturity.
Expenses, including the compensation payable to the Adviser, are accrued each
day. The expenses and liabilities of a Fund shall include those appropriately
allocable to the Fund as well as a share of the general expenses and liabilities
of the Trust in proportion to the Fund's share of the total net assets of the
Trust.

<PAGE>

TAXES

It is the policy of each Fund to seek to qualify for the favorable tax treatment
accorded regulated investment companies ("RICs") under Subchapter M of the IRS
Code (the "Code") for so long as such qualification is in the best interests of
its shareholders. By following such policy and distributing its income and
gains currently with respect to each taxable year, each Fund expects to
eliminate or reduce to a nominal amount the federal income and excise taxes to
which it may otherwise be subject.

In order to qualify as a RIC, a Fund must, among other things, (1) derive at
least 90% of its gross income from dividends, interest, payments with respect to
securities loans, and gains from the sale or other disposition of stock or
securities, foreign currencies or other income (including gains from options,
futures or forward contracts) derived with respect to its business of investing
in stock, securities or currencies, (2) diversify its holdings so that at the
end of each quarter of its taxable year (a) at least 50% of the market value of
the Fund's assets is represented by cash or cash items, U.S. Government
securities, securities of other RICs and other securities limited, in respect of
any one issuer, to an amount not greater than 5% of the value of the Fund's
total assets and 10% of the outstanding voting securities of such issuer, and
(b) not more than 25% of the value of its total assets is invested in the
securities of any one issuer (other than U.S. Government securities) or of two
or more issuers that the Fund controls and that are engaged in the same,
similar, or related trades or businesses. If a Fund qualifies as a RIC, it will
not be subject to federal income tax on the part of its net investment income
and net realized capital gains, if any, that it distributes to shareholders with
respect to each taxable year within the time limits specified in the Code.

A non-deductible excise tax is imposed on RICs that do not distribute in each
calendar year an amount equal to 98% of their ordinary income for the year plus
98% of their capital gain net income for the 1-year period ending on October 31
of such calendar year. The balance of such income must be distributed during
the following calendar year. If distributions during a calendar year are less
than the required amount, the fund is subject to a non-deductible excise tax
equal to 4% of the deficiency.

Certain investment and hedging activities of a Fund, including transactions in
options, futures contracts, hedging transactions, forward contracts, straddles,
foreign currencies, and foreign securities, are subject to special tax rules.
In a given case, these rules may accelerate income to a Fund, defer losses to
the Fund, cause adjustments in the holding periods of the Fund's securities,
convert short-term capital losses into long-term capital losses, or otherwise
affect the character of the Fund's income. These rules could therefore affect
the amount, timing and character of distributions to shareholders. The Trust
will endeavor to make any available elections pertaining to such transactions in
a manner believed to be in the best interest of the Fund and its shareholders.

Each Fund will be required in certain cases to withhold and remit to the U.S.
Treasury 31% of taxable dividends paid to any shareholder who has failed to
provide a (or has provided an incorrect) tax identification number, or is
subject to withholding pursuant to a notice from the IRS for failure to properly
include on his or her income tax return payments of interest or dividends. This
"backup withholding" is not an additional tax, and any amounts withheld may be
credited against the shareholder's ultimate U.S. tax liability.

Information set forth in the Prospectus and this Statement of Additional
Information that relates to federal taxation is only a summary of certain key
federal tax considerations generally affecting purchasers of shares of the
Funds. No attempt has been made to present a complete explanation of the federal
tax treatment of a Fund or its shareholders, and this discussion is not intended
as a substitute for careful tax planning. Accordingly, potential purchasers of
shares of a Fund are urged to consult their tax advisers with specific reference
to their own tax circumstances. In addition, the tax discussion in the
Prospectus and this Statement

<PAGE>

of Additional Information is based on tax law in effect on the date of the
Prospectus and this Statement of Additional Information; such laws and
regulations may be changed by legislative, judicial or administrative action,
sometimes with retroactive effect.

TRUSTEES AND OFFICERS

BOARD OF TRUSTEES.

Overall responsibility for management of the Trust rests with the Trustees, who
are elected by the shareholders of the Trust. The Trust is managed by the
Trustees in accordance with the laws of the State of Delaware. There are
currently five Trustees, three of whom are not "interested persons" of the Trust
within the meaning of that term under the 1940 Act ("Independent Trustee"). The
Trustees, in turn, elect the officers of the Trust to actively supervise its
day-to-day operations.

The Trustees of the Trust, their addresses, ages and their principal occupations
during the past five years are as follows:

Position(s) Held Principal Occupation
Name, Address and Age With the Trust During Past 5 Years

Eric F. Billings, 45* Chairman, Vice-Chairman and Director, FBR
Potomac Tower Trustee, Fund Advisers, Inc., Friedman,
1001 Nineteenth Street Chief Financial Billings, Ramsey & Co., Inc.,
North Officer, Friedman, Billings, Ramsey,
Arlington, Virginia Treasurer and Investment Management, Inc. and
22209 Secretary FBR Offshore Management Inc.

C. Eric Brugel, 35* Trustee, Managing Director, Friedman,
Potomac Tower President and Billings, Ramsey & Co., Inc.
1001 Nineteenth Street Assistant
North Secretary
Arlington, VA 22209

Michael A. Willner, 41 Trustee President, Catalyst Advisers,
11521 Potomac Road Inc. from September 1996 to
Lorton, VA 22079 Present; President, Federal
Filings, Inc. from July 1986 to
July 1995

F. David Fowler, 64 Trustee Dean, The George Washington
9450 Newbridge Drive University School of Business
Potomac, MD 20854 and Public Management; Partner,
KPMG Peat Marwick from October
1969 to June 1992.

George W. Grosz, 60 Trustee Consultant; President and CEO,
533 S. Waterloo Road Meridian Asset Management Co.
Devon, PA 19333 from May 1994 to April 1996;
Executive Vice President and
Director, Riggs National Bank
from January 1987 to April
1994.

________________________

* Messrs. Billings and Brugel are deemed to be "interested persons" of the
Trust under the 1940 Act.

<PAGE>

The Board of Trustees presently has an audit committee, a valuation committee,
and a nominating committee. The members of each committee are Messrs. Eckert,
Keeley, Willner and Fowler. The function of the audit committee is to recommend
independent auditors and review and report on accounting and financial matters.
The function of the valuation committee is to determine and monitor the value of
the Funds' assets. The function of the nominating committee is to nominate
persons to serve as disinterested trustees and trustees to serve on committees
of the Board.

REMUNERATION OF TRUSTEES AND CERTAIN EXECUTIVE OFFICERS.

Each Independent Trustee receives an annual retainer of $5,000 and a fee of
$1,000 for each regular meeting and $500 for each committee meeting attended,
plus expenses, and $250 for each telephonic meeting. Officers of the Funds and
Directors who are interested persons of the Funds do not receive any
compensation from the Funds or any other funds managed by the Investment
Manager. The following table sets forth information regarding compensation of
Independent Trustees by the Trust for the fiscal year ended October 31, 1997.

COMPENSATION TABLE

<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------------
PENSION OR TOTAL
RETIREMENT COMPENSATION
BENEFITS ESTIMATED FROM
AGGREGATE ACCRUED ANNUAL REGISTRANT
COMPENSATION AS PART OF BENEFITS AND FUND
FROM FUND UPON COMPLEX PAID
NAME OF TRUSTEE REGISTRANT EXPENSES RETIREMENT TO TRUSTEE
--------------- ---------- -------- ---------- ----------
<S> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------------------------------
Thomas D. Eckert* . . . . . . . . . . . . . . . . . . . . . $9,387 $0 $0 $9,387
- --------------------------------------------------------------------------------------------------------------------------------
Patrick J. Keeley* . . . . . . . . . . . . . . . . . . . . $11,137 $0 $0 $11,137
- --------------------------------------------------------------------------------------------------------------------------------
Mark Ordan* . . . . . . . . . . . . . . . . . . . . . . . . $4,788 $0 $0 $4,788
- --------------------------------------------------------------------------------------------------------------------------------
Michael A. Willner . . . . . . . . . . . . . . . . . . . $5,438 $0 $0 $5,438
- --------------------------------------------------------------------------------------------------------------------------------
F. David Fowler . . . . . . . . . . . . . . . . . . . . . . $5,438 $0 $0 $5,438
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>

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

* former trustees of the Trust

The officers of the Trust, their ages, addresses and principal occupations
during the past five years, are as follows:

<TABLE>
<CAPTION>
Position(s) Held Principal Occupation
Name, Address and Age With the Trust During Past 5 Years
- --------------------- -------------- -------------------
<S> <C> <C>
Eric F. Billings, 45 Chairman, Trustee, Vice-Chairman and Director, FBR Fund Advisers,
Potomac Tower Chief Financial Officer, Treasurer Inc., Friedman, Billings, Ramsey & Co., Inc.,
1001 Nineteenth Street North and Secretary Friedman, Billings, Ramsey,

<PAGE>

Arlington, Virginia 22209 Investment Management, Inc. and FBR Offshore
Management Inc.

C. Eric Brugel, 35 Trustee, President and Assistant Managing Director, Friedman, Billings, Ramsey &
Potomac Tower Secretary Co., Inc.
1001 Nineteenth Street North
Arlington, Virginia 22209

<PAGE>

Frank J. Maresca, 39 Assistant Treasurer President and Chief Executive Officer of BSFM
245 Park Avenue since December 4, 1997; Managing Director of
New York, NY 10167 Bear, Stearns & Co. Inc. since September 1994;
Associate Director of Bear, Stearns & Co. Inc.
from September 1993 to September 1994; Executive
Vice President of BSFM from March 1992 to
December 1997; Vice President of Bear, Stearns &
Co. Inc. from March 1992 to September 1993.

Vincent L. Pereira, 32 Assistant Secretary Executive Vice President of BSFM since December
245 Park Avenue 4, 1997; Associate Director of Bear, Stearns &
New York, New York 10167 Co. Inc. since September 1995 and Vice President
of BSFM from May 1993 to December 1997; Vice
President to September 1995; Assistant Vice
President of Mitchell Hutchins from October 1992
to May 1993; Senior Relationship Manager of
Mitchell Hutchins from June 1988 to October 1992.
</TABLE>

The mailing address of each of the officers of the Trust is Potomac Tower, 1001
Nineteenth Street North, Arlington, Virginia 22209.

The officers of the Trust receive no compensation directly from the Trust for
performing the duties of their offices.

ADVISORY AND OTHER CONTRACTS

INVESTMENT ADVISER.

FBR Fund Advisers, Inc. is the investment adviser to the Funds. The Adviser
directs the investment of the Funds' assets, subject at all times to the
supervision of the Trust's Board of Trustees. The Adviser continually conducts
investment research and supervision for the Funds and is responsible for the
purchase and sale of the Funds' investments.

The Adviser was organized as a Delaware corporation on September 30, 1996 and is
registered as an investment adviser under the 1940 Act. It is an affiliate of
Friedman, Billings, Ramsey & Co., Inc., Friedman, Billings, Ramsey Investment
Management, Inc. and FBR Offshore Management, Inc. Affiliates of the Adviser
manage approximately $700 million for numerous clients including individuals,
banks and thrift institutions, investment companies, pension and profit sharing
plans and trusts, estates and charitable organizations.

<PAGE>

THE INVESTMENT ADVISORY AGREEMENT.

The Investment Advisory Agreement between the Adviser and the Trust on behalf of
the Funds (the "Investment Advisory Agreement") provides that it will continue
in effect as to each Fund for an initial two-year term and for consecutive
one-year terms thereafter, provided that such continuance is approved at least
annually by the Trustees or by vote of a majority of the outstanding shares of a
Fund (as defined under "Additional Information"), and, in either case, by a
majority of the Trustees who are not parties to the Investment Advisory
Agreement or interested persons (as defined in the 1940 Act) of any party to the
Investment Advisory Agreement, by votes cast in person at a meeting called for
such purpose. The Investment Advisory Agreement with respect to the Financial
Services Fund, Small Cap Financial Fund and Value Fund was last approved by the
Trustees on December 10, 1997. The Investment Advisory Agreement with respect
to the Realty Growth Fund was approved by the Trustees on June 16, 1998.

The Investment Advisory Agreement is terminable as to a Fund at any time on 60
days' written notice without penalty by the Trustees, by vote of a majority of
the outstanding shares of the Fund, or by the Adviser. The Investment Advisory
Agreement also terminates automatically in the event of any assignment, as
defined in the 1940 Act.

The Investment Advisory Agreement provides that the Adviser shall not be liable
for any error of judgment or mistake of law or for any loss suffered by a Fund
in connection with the performance of services pursuant to the Investment
Advisory Agreement, except a loss resulting from a breach of fiduciary duty with
respect to the receipt of compensation for services or a loss resulting from
willful misfeasance, bad faith, or gross negligence on the part of the Adviser
in the performance of its duties, or from reckless disregard by it of its duties
and obligations thereunder.

Under the Investment Advisory Agreement, the Adviser may delegate a portion of
its responsibilities to a sub-adviser. In addition, the Investment Advisory
Agreement provides that the Adviser may render services through its own
employees or the employees of one or more affiliated companies that are
qualified to act as an investment adviser of a Fund and are under common control
with FBR as long as all such persons are functioning as part of an organized
group of persons, managed by authorized officers of the Adviser.

For the period January 3, 1997 (commencement of investment operations)
through October 31, 1997, the investment advisory fees paid by each Fund, other
than the Realty Growth Fund, were as follows:

<TABLE>
<CAPTION>
Gross Advisory Net
Advisory Fee Advisory
Fees Waivers Fees
---- ------- ----
<S> <C> <C> <C>
Financial Services Fund $91,690 $(85,021) $6,669
Small Cap Financial Fund 87,174 (79,894) 7,280
Value Fund 25,311 (25,311) --
</TABLE>

Prior to its reorganization as a series of the Trust on September __, 1998,
the Realty Growth Fund was a series of GrandView Investment Trust. For the
fiscal year ended March 31, 1997, and the period from July 3, 1995 to March 31,
1996, GrandView Advisers, Inc. waived its entire advisory fee for the GrandView
Realty Growth Fund in the amount of $5,537 and $675, respectively.

____________________

<PAGE>

PORTFOLIO TRANSACTIONS.

Pursuant to the Investment Advisory Agreement, the Adviser determines, subject
to the general supervision of the Trustees of the Trust, and in accordance with
each Fund's investment objective and restrictions, which securities are to be
purchased and sold by a Fund, and which brokers are to be eligible to execute
its portfolio transactions. Purchases from underwriters and/or broker-dealers
of portfolio securities include a commission or concession paid by the issuer to
the underwriter and/or broker-dealer and purchases from dealers serving as
market makers may include the spread between the bid and asked price. While
the Adviser generally seeks competitive spreads or commissions, a Fund may not
necessarily pay the lowest spread or commission available on each transaction,
for reasons discussed below.

Allocation of transactions to dealers is determined by the Adviser in its best
judgment and in a manner deemed fair and reasonable to shareholders. The
primary consideration is prompt execution of orders in an effective manner at
the most favorable price. Subject to this consideration, dealers who provide
supplemental investment research to the Adviser may receive orders for
transactions by the Trust. Information so received is in addition to and not in
lieu of services required to be performed by the Adviser and does not reduce the
investment advisory fees payable to the Adviser by a Fund. Such information may
be useful to the Adviser in serving both the Trust and other clients and,
conversely, such supplemental research information obtained by the placement of
orders on behalf of other clients may be useful to the Adviser in carrying out
its obligations to the Trust. The Trustees have authorized the allocation of
brokerage to affiliated broker-dealers on an agency basis to effect portfolio
transactions. The Trustees have adopted procedures incorporating the standards
of Rule 17e-1 under the 1940 Act, which require that the commission paid to
affiliated broker-dealers must be "reasonable and fair compared to the
commission, fee or other remuneration received, or to be received, by other
brokers in connection with comparable transactions involving similar securities
during a comparable period of time." At times, a Fund may also purchase
portfolio securities directly from dealers acting as principals, underwriters or
market makers. As these transactions are usually conducted on a net basis, no
brokerage commissions are paid by the Fund.

Investment decisions for a Fund are made independently from those made for the
other funds of the Trust or any other investment company or account managed by
the Adviser. Such other funds, investment companies or accounts may also invest
in the same securities in which a Fund invests. When a purchase or sale of the
same security is made at substantially the same time on behalf of a Fund and
another fund, investment company or account, the transaction will be averaged as
to price, and available investments allocated as to amount, in a manner which
the Adviser believes to be equitable to the Fund and such other fund, investment
company or account. In some instances, this investment procedure may affect the
price paid or received by a Fund or the size of the position obtained by the
Fund in an adverse manner relative to the result that would have been obtained
if only the Fund had participated in or been allocated such trades. To the
extent permitted by law, the Adviser may aggregate the securities to be sold or
purchased for a Fund with those to be sold or purchased for the other funds of
the Trust or for other investment companies or accounts in order to obtain best
execution. In making investment recommendations for the Trust, the Adviser will
not inquire or take into consideration whether an issuer of securities proposed
for purchase or sale by the Fund is a customer of the Adviser, its parents or
subsidiaries or affiliates and, in dealing with their commercial customers, the
Adviser, its subsidiaries, and affiliates will not inquire or take into
consideration whether securities of such customers are held by the Trust.

For the period January 3, 1997 (commencement of investment operations) through
October 31, 1997, the Funds paid total brokerage commissions as follows:
Financial Services Fund $32,583, Small Cap Financial Fund $20,143, Value Fund
$10,555. No transactions were allocated to Friedman, Billings, Ramsey & Co.,
Inc. during the period. For the fiscal year ended March 31, 1997, and the
period from July 3, 1995 to March 31, 1996, the

<PAGE>

GrandView Realty Growth Fund (which was reorganized as the FBR Realty Growth
Fund on September __, 1998) paid total brokerage commissions of $12,994 and
$3,149, respectively.

PORTFOLIO TURNOVER.

The portfolio turnover rate is calculated by dividing the lesser of each Fund's
purchases or sales of portfolio securities for the year by the monthly average
value of the portfolio securities. The calculation excludes all securities
whose maturities, at the time of acquisition, were one year or less. The annual
rate of the Fund's portfolio turnover for the period January 3, 1997
(commencement of investment operations) through October 31, 1997, was 49.68%,
35.41% and 42.59% for the Financial Services Fund, the Small Cap Financial Fund
and the Value Fund, respectively. The annual portfolio turnover rate for the
GrandView Realty Growth Fund (which was reorganized as the FBR Realty Growth
Fund on September __, 1998) for the fiscal year ended March 31, 1998 was 170%.

DISTRIBUTORS.

Friedman, Billings, Ramsey & Co., Inc., located at Potomac Tower, 1001
Nineteenth Street North, Arlington, Virginia 22209, and FBR Investment Services,
Inc., located at the same address, each serves as a non-exclusive underwriter
and distributor (the "Distributors") of the Funds' shares pursuant to agreements
which are renewable annually. Each of the Distributors is entitled to receive
payments under the Funds' Distribution and Shareholder Servicing Plans described
below.

ADMINISTRATOR.

Under the terms of an Administration Agreement with the Trust on behalf of the
Funds, Bear Stearns Funds Management Inc. ("BSFM"), a wholly-owned subsidiary of
The Bear Stearns Companies Inc., generally supervises certain operations of the
Funds, subject to the overall authority of the Trust's Board of Trustees in
accordance with Delaware law.

From time to time, BSFM may waive receipt of its fees, which would have the
effect of lowering a Fund's expense ratio and increasing yield to investors at
the time such amounts are waived or assumed, as the case may be. The Funds will
not pay BSFM at a later time for any amounts it may waive. For the period
January 3, 1997 (commencement of investment operations) through October 31,
1997, the Funds paid the following fees to BSFM: Financial Services Fund
$7,641, Small Cap Financial Fund $7,265, Value Fund $2,109.

Under the terms of an Administration and Accounting Services Agreement with the
Trust on behalf of the Funds, PFPC Inc. provides certain administration and
accounting services to the Funds. For the period January 3, 1997 (commencement
of investment operations) through October 31, 1997, the Funds paid the following
fees to PFPC: Financial Services Fund $14,962, Small Cap Financial Fund
$15,482, Value Fund $7,907.

For the fiscal year ended March 31, 1997, and the period from July 3, 1995, to
March 31, 1996, the GrandView Realty Growth Fund (which was reorganized as the
FBR Realty Growth Fund on September __, 1998, paid registration and filing
administration fees of $1,694 and $794, respectively, Fund administration fees
of $1,661 and $186, respectively, and Fund accounting fees of $9,300 and $0,
respectively (its administrator having waived $43 of such fees for the period
from July 3, 1995 to March 31, 1996), in addition to reimbursement for various
securities pricing, registration, filing, shareholder servicing, and other Fund
expenses.

<PAGE>

CUSTODIAN AND TRANSFER AGENT.

Custodial Trust Company, 101 Carnegie Center, Princeton, New Jersey 08540, is
the Funds' custodian. PFPC Inc., Bellevue Corporate Center, 400 Bellevue
Parkway, Wilmington, Delaware 19809, is the Funds' transfer agent, dividend
disbursing agent and registrar (the "Transfer Agent"). The Transfer Agent also
provides certain administrative services to the Funds.

DISTRIBUTION PLANS.

The Trust's Board of Trustees has adopted plans on behalf of the Class A, Class
B and Class C Shares of each Fund pursuant to Rule 12b-1 under the 1940 Act (the
"Plans"). Pursuant to these plans each Fund pays each Distributor for
distributing Fund shares and for providing personal services to, and/or
maintaining accounts of, Fund shareholders a fee at the annual rate of 0.25% of
the average daily net assets of the Fund shares for which it is the distributor
of record. FBR or FBR Services is also paid a distribution fee at an annual rate
of up to 0.75% of the value of the average daily net assets of the Funds' Class
B and Class C shares for which it is the distributor of record. Under the
Plans, the Distributors may pay third parties in respect of these services such
amount as they may determine. The fees paid to the Distributors under the Plans
are payable without regard to actual expenses incurred. The Trust understands
that these third parties also may charge fees to their clients who are
beneficial owners of Fund shares in connection with their client accounts.
These fees would be in addition to any amounts which may be received by them
from the Distributors under the Plans.

In approving the Plans in accordance with the requirements of Rule 12b-1 under
the 1940 Act, the Trustees (including the Independent Trustees, being Trustees
who are not "interested persons", as defined by the 1940 Act, of the Trust and
who have no direct or indirect financial interest in the operation of the Plans
or in any agreements related to the Plans) considered various factors and
determined that there is a reasonable likelihood that each Plan will benefit the
shareholders on behalf of each class of shares. Each Plan will continue in
effect as to a Fund from year to year if specifically approved annually (a) by
the majority of such Fund's outstanding voting shares or by the Board of
Trustees and (b) by the vote of a majority of the Independent Trustees. While a
Plan remains in effect, the Trust's Principal Financial Officer shall prepare
and furnish to the Board of Trustees a written report setting forth the amounts
spent by each Fund under the Plan and the purposes for which such expenditures
were made. A Plan may not be amended to increase materially the amount to be
spent for distribution without shareholder approval and all material amendments
to the Plan must be approved by the Board of Trustees and by the Independent
Trustees cast in person at a meeting called specifically for that purpose.
While the Plans are in effect, the selection and nomination of the Independent
Trustees shall be made by those Independent Trustees then in office.

For the period January 3, 1997 (commencement of investment operations) through
October 31, 1997, the Distributor earned following distribution fees from the
Fund:

<TABLE>
<CAPTION>
Amount of Fee
-------------
<S> <C>
Financial Services Fund* $25,470
Small Cap Financial Fund* 24,215
Value Fund* 7,031
</TABLE>

_______________________
* During the period shown, the Trust did not offer Class A, Class B or Class
C shares of any Fund. Shares offered during this period were equivalent to
current Class A shares, but were sold without a sales charge.

<PAGE>

For the period January 3, 1997 (commencement of investment operations) through
October 31, 1997, it is estimated that the following amounts were spent for
distribution-related activities on behalf of the Funds:

<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
Printing And
Sales Mailing Prospectuses Compensation Approximate
Material to other than to Sale and Total Amount
and Current Distribution Spent With Respect
Advertising Shareholders Personnel Other to Each Fund
----------- ------------ --------- ------ ------------
<S> <C> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------------------
Financial Services Fund.......... $62,155 $26,750 $111,264 $57,118 $257,287

Small Cap Financial Fund......... 110,713 47,649 198,190 101,742 458,294

Value Fund....................... 21,366 9,195 38,247 19,634 88,442
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>

The GrandView Realty Growth Fund (which was reorganized as the FBR Realty Growth
Fund on September __, 1998) paid no Rule 12b-1 distribution fees during its
fiscal year ended March 31, 1998.

INDEPENDENT ACCOUNTANTS.

Arthur Andersen LLP, 8000 Tower Cresent Drive, Vienna, VA 22182, serves as
independent accountants to the Funds.

LEGAL COUNSEL.
Dechert Price & Rhoads, 1775 Eye Street, N.W., Washington, D.C. 20006 is the
counsel to the Trust.

EXPENSES.

Each Fund bears certain expenses relating to its operations; such expenses
include, but are not limited to, the following: taxes, interest, brokerage fees
and commissions, fees of the Trustees, Commission fees, state securities
qualification fees, costs of preparing and printing prospectuses for regulatory
purposes and for distribution to current shareholders, outside auditing and
legal expenses, advisory fees, fees and out-of-pocket expenses of the custodian,
administrators and transfer agent, certain insurance premiums, costs of
maintenance of the Fund's existence, costs of shareholders' reports and
meetings, and any extraordinary expenses incurred in the Fund's operation.

ADDITIONAL INFORMATION

DESCRIPTION OF SHARES.

The Trust is a Delaware business trust. The Delaware Trust Instrument
authorizes the Trustees to issue an unlimited number of shares, which are units
of beneficial interest, without par value. The Trust presently is authorized to
issue four series of shares, which represent interests in the FBR Small Cap
Financial Fund, the FBR Financial Services Fund, the FBR Information
Technologies Fund and the FBR Value Fund. Each series includes Class A shares,
Class B shares and Class C shares as described in the Prospectus. The Trust's
Trust Instrument authorizes the Trustees to divide or redivide any unissued
shares of the Trust into one or more additional series by setting or changing in
any one or more aspects their respective preferences,

37
<PAGE>

conversion or other rights, voting power, restrictions, limitations as to
dividends, qualifications, and terms and conditions of redemption.

Shares have no subscription or preemptive rights and only such conversion or
exchange rights as the Trustees may grant in their discretion. When issued for
payment as described in the Prospectus and this Statement of Additional
Information, the Trust's shares will be fully paid and non-assessable. In the
event of a liquidation or dissolution of the Trust, shares of a Fund are
entitled to receive the assets available for distribution belonging to the Fund,
and a proportionate distribution, based upon the relative asset values of the
respective funds of the Trust, of any general assets not belonging to any
particular fund which are available for distribution.

Shares of the Trust are entitled to one vote per share (with proportional voting
for fractional shares) on such matters as shareholders are entitled to vote. On
any matter submitted to a vote of the shareholders, all shares are voted
separately by individual series (funds), and whenever the Trustees determine
that the matter affects only certain series, may be submitted for a vote by only
such series, except (1) when required by the 1940 Act, shares are voted in the
aggregate and not by individual series; and (2) when the Trustees have
determined that the matter affects the interests of more than one series and
that voting by shareholders of all series would be consistent with the 1940 Act,
then the shareholders of all such series shall be entitled to vote thereon
(either by individual series or by shares voted in the aggregate, as the
Trustees in their discretion may determine). The Trustees may also determine
that a matter affects only the interests of one or more classes of a series, in
which case (or if required under the 1940 Act) such matter shall be voted on by
such class or classes. There will normally be no meetings of shareholders for
the purpose of electing Trustees unless and until such time as less than a
majority of the Trustees have been elected by the shareholders, at which time
the Trustees then in office will call a shareholders' meeting for the election
of Trustees. In addition, Trustees may be removed from office by a vote of the
holders of at least two-thirds of the outstanding shares of the Trust. A
meeting shall be held for such purpose upon the written request of the holders
of not less than 10% of the outstanding shares. Upon written request by ten or
more shareholders meeting the qualifications of Section 16(c) of the 1940 Act,
(i.e., persons who have been shareholders for at least six months, and who hold
shares having a net asset value of at least $25,000 or constituting 1% of the
outstanding shares) stating that such shareholders wish to communicate with the
other shareholders for the purpose of obtaining the signatures necessary to
demand a meeting to consider removal of a Trustee, the Trust will provide a list
of shareholders or disseminate appropriate materials (at the expense of the
requesting shareholders). Except as set forth above, the Trustees shall
continue to hold office and may appoint their successors.

Rule 18f-2 under the 1940 Act provides that any matter required to be submitted
to the holders of the outstanding voting securities of an investment company
such as the Trust shall not be deemed to have been effectively acted upon unless
approved by the holders of a majority of the outstanding shares of each Fund of
the Trust affected by the matter. For purposes of determining whether the
approval of a majority of the outstanding shares of a Fund will be required in
connection with a matter, a Fund will not be deemed to be affected by a matter
unless it is clear that the interests of each fund in the matter are identical,
or that the matter does not affect any interest of the fund. Under Rule 18f-2,
the approval of an investment advisory agreement or any change in investment
policy would be effectively acted upon with respect to a fund only if approved
by a majority of the outstanding shares of such fund. However, Rule 18f-2 also
provides that the ratification of independent public accountants, the approval
of principal underwriting contracts, and the election of Trustees may be
effectively acted upon by shareholders of the Trust voting without regard to
series.

<PAGE>

SHAREHOLDER AND TRUSTEE LIABILITY.

The Delaware Business Trust Act provides that a shareholder of a Delaware
business trust shall be entitled to the same limitation of personal liability
extended to shareholders of Delaware corporations, and the Delaware Trust
Instrument provides that shareholders of the Trust shall not be liable for the
obligations of the Trust. The Delaware Trust Instrument also provides for
indemnification out of the trust property of any shareholder held personally
liable solely by reason of his or her being or having been a shareholder. The
Delaware Trust Instrument also provides that the Trust shall, upon request,
assume the defense of any claim made against any shareholder for any act or
obligation of the Trust, and shall satisfy any judgment thereon. Thus, the risk
of a shareholder incurring financial loss on account of shareholder liability is
considered to be extremely remote.

The Delaware Trust Instrument states further that no Trustee, officer, or agent
of the Trust shall be personally liable in connection with the administration or
preservation of the assets of a Fund or the conduct of the Trust's business; nor
shall any Trustee, officer, or agent be personally liable to any person for any
action or failure to act except for his own bad faith, willful misfeasance,
gross negligence, or reckless disregard of his duties. The Declaration of Trust
also provides that all persons having any claim against the Trustees or the
Trust shall look solely to the assets of the Trust for payment.

CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES.

As of June 30, 1998, the following persons held of record 5% or more of the
outstanding shares of the Funds. [TO BE PROVIDED]

MISCELLANEOUS.

As used in the Prospectus and in this Statement of Additional Information,
"assets belonging to a fund" means the consideration received by the Trust upon
the issuance or sale of shares of a fund, together with all income, earnings,
profits, and proceeds derived from the investment thereof, including any
proceeds from the sale, exchange, or liquidation of such investments, and any
funds or payments derived from any reinvestment of such proceeds and any general
assets of the Trust, which general liabilities and expenses are not readily
identified as belonging to a particular fund that are allocated to that fund by
the Trustees. The Trustees may allocate such general assets in any manner they
deem fair and equitable. It is anticipated that the factor that will be used by
the Trustees in making allocations of general assets to a particular fund of the
Trust will be the relative net asset value of each respective fund at the time
of allocation. Assets belonging to a particular fund are charged with the
direct liabilities and expenses in respect of that fund, and with a share of the
general liabilities and expenses of each of the funds not readily identified as
belonging to a particular fund, which are allocated to each fund in accordance
with its proportionate share of the net asset values of the Trust at the time of
allocation. The timing of allocations of general assets and general liabilities
and expenses of the Trust to a particular fund will be determined by the
Trustees and will be in accordance with generally accepted accounting
principles. Determinations by the Trustees as to the timing of the allocation
of general liabilities and expenses and as to the timing and allocable portion
of any general assets with respect to a particular fund are conclusive.

As used in the Prospectus and in this Statement of Additional Information, a
"vote of a majority of the outstanding shares" of a Fund means the affirmative
vote of the lesser of (a) 67% or more of the shares of the Fund present at a
meeting at which the holders of more than 50% of the outstanding shares of the
Fund are represented in person or by proxy, or (b) more than 50% of the
outstanding shares of the Fund.

The Trust is registered with the Commission as an open-end management investment
company. Such registration does not involve supervision by the Commission of
the management or policies of the Trust.

<PAGE>

The Prospectus and this Statement of Additional Information omit certain of the
information contained in the Registration Statement filed with the Commission.
Copies of such information may be obtained from the Commission upon payment of
the prescribed fee.

FINANCIAL STATEMENTS

The audited financial statements contained in the annual report to
shareholders of the Financial Services Fund, Small Cap Financial Fund and Value
Fund dated October 31, 1997 and the annual report to shareholders of the
GrandView Realty Growth Fund dated March 31, 1998, and the unaudited financial
statements in the semi-annual report to shareholders of the Financial Services
Fund, Small Cap Financial Fund and Value Fund dated April 30, 1998, are
incorporated herein by reference. Copies may be obtained without charge upon
request by writing to FBR Family of Funds, Potomac Tower, 1001 Nineteenth Street
North, Arlington, Virginia 22209 or by calling toll free 1-888-888-0025.

THE PROSPECTUS AND THIS STATEMENT OF ADDITIONAL INFORMATION ARE NOT AN OFFERING
OF THE SECURITIES HEREIN DESCRIBED IN ANY STATE IN WHICH SUCH OFFERING MAY NOT
LAWFULLY BE MADE. NO SALESMAN, DEALER, OR OTHER PERSON IS AUTHORIZED TO GIVE
ANY INFORMATION OR MAKE ANY REPRESENTATION OTHER THAN THOSE CONTAINED IN THE
PROSPECTUS AND THIS STATEMENT OF ADDITIONAL INFORMATION.

40
<PAGE>

APPENDIX A

DESCRIPTION OF SECURITY RATINGS.

The nationally recognized statistical rating organizations (individually, an
"NRSRO") that may be utilized by the Adviser with regard to portfolio
investments for the Fund include Moody's Investors Service, Inc. ("Moody's"),
Standard & Poor's Corporation ("S&P"), Duff & Phelps, Inc. ("Duff"), Fitch
Investors Service, Inc. ("Fitch"), IBCA Limited and its affiliate, IBCA Inc.
(collectively, "IBCA"), and Thompson BankWatch, Inc. ("Thompson"). Set forth
below is a description of the relevant ratings of each such NRSRO. The NRSROs
that may be utilized by the Adviser and the description of each NRSRO's ratings
is as of the date of this Statement of Additional Information, and may
subsequently change.

LONG-TERM DEBT RATINGS (may be assigned, for example, to corporate and municipal
bonds).

Description of the five highest long-term debt ratings by Moody's (Moody's
applies numerical modifiers (E.G., 1, 2, and 3) in each rating category to
indicate the security's ranking within the category):

Aaa. Bonds which are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt edged." Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective elements
are likely to change, such changes as can be visualized are most unlikely to
impair the fundamentally strong position of such issues.

Aa. Bonds which are rated Aa are judged to be of high quality by all standards.
Together with the Aaa group they comprise what are generally known as high grade
bonds. They are rated lower than the best bonds because margins of protection
may not be as large as in Aaa securities or fluctuation of protective elements
may be of greater amplitude or there may be other elements present which make
the long-term risk appear somewhat larger than in Aaa securities.

A. Bonds which are rated A possess many favorable investment attributes and are
to be considered as upper-medium-grade obligations. Factors giving security to
principal and interest are considered adequate, but elements may be present
which suggest a susceptibility to impairment some time in the future.

Baa. Bonds which are rated Baa are considered as medium grade obligations,
I.E., they are neither highly protected nor poorly secured. Interest payments
and principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.

Ba. Bonds which are rated Ba are judged to have speculative elements, I.E.,
their future cannot be considered as well assured. Often the protection of
interest and principal payments may be very moderate and thereby not well
safeguarded during both good and bad times in the future. Uncertainty of
position characterizes bonds in this class.

Description of the five highest long-term debt ratings by S&P (S&P may apply a
plus (+) or minus (-) to a particular rating classification to show relative
standing within that classification):

AAA. Debt rated AAA has the highest rating assigned by S&P. Capacity to pay
interest and repay principal is extremely strong.

AA. Debt rated AA has a very strong capacity to pay interest and repay
principal and differs from the higher rated issues only in small degree.

A. Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.

BBB. Debt rated BBB is regarded as having an adequate capacity to pay interest
and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher rated categories.

<PAGE>

BB. Debt rated BB is regarded, on balance, as predominately speculative with
respect to capacity to pay interest and repay principal in accordance with the
terms of the obligation. While such debt will likely have some quality and
protective characteristics, these are outweighed by large uncertainties or major
risk exposure to adverse conditions.

Description of the three highest long-term debt ratings by Duff:

AAA. Highest credit quality. The risk factors are negligible being only
slightly more than for risk-free U.S. Treasury debt.

AA+, AA, AA-. High credit quality protection factors are strong Risk is
modest but may vary slightly from time to time because of economic
conditions.

A+, A, A-. Protection factors are average but adequate. However, risk
factors are more variable and greater in periods of economic stress.

Description of the three highest long-term debt ratings by Fitch (plus or minus
signs are used with a rating symbol to indicate the relative position of the
credit within the rating category):

AAA. Bonds considered to be investment grade and of the highest credit
quality. The obligor has an exceptionally strong ability to pay interest
and repay principal, which is unlikely to be affected by reasonably
foreseeable events.

AA. Bonds considered to be investment grade and of very high credit
quality. The obligor's ability to pay interest and repay principal is very
strong, although not quite as strong as bonds rated "AAA." Because bonds
rated in the "AAA" and "AA" categories are not significantly vulnerable to
foreseeable future developments, short-term debt of these issues is
generally rated "[-]+."

A. Bonds considered to be investment grade and of high credit quality.
The obligor's ability to pay interest and repay principal is considered to
be strong, but may be more vulnerable to adverse changes in economic
conditions and circumstances than bonds with higher ratings.

IBCA's description of its three highest long-term debt ratings:

AAA. Obligations for which there is the lowest expectation of investment
risk. Capacity for timely repayment of principal and interest is
substantial. Adverse changes in business, economic or financial conditions
are unlikely to increase investment risk significantly.

AA. Obligations for which there is a very low expectation of investment
risk. Capacity for timely repayment of principal and interest is
substantial. Adverse changes in business, economic, or financial
conditions may increase investment risk albeit not very significantly.

A. Obligations for which there is a low expectation of investment risk.
Capacity for timely repayment of principal and interest is strong, although
adverse changes in business, economic or financial conditions may lead to
increased investment risk.

SHORT-TERM DEBT RATINGS (may be assigned, for example, to commercial paper,
master demand notes, bank instruments, and letters of credit)

Moody's description of its three highest short-term debt ratings:

Prime-1. Issuers rated Prime-1 (or supporting institutions) have a superior
capacity for repayment of senior short-term promissory obligations. Prime-1
repayment capacity will normally be evidenced by many of the following
characteristics:

- Leading market positions in well-established industries.

- High rates of return on funds employed.

- Conservative capitalization structures with moderate reliance on debt
and ample asset protection.

<PAGE>

- Broad margins in earnings coverage of fixed financial charges and high
internal cash generation.

- Well-established access to a range of financial markets and assured
sources of alternate liquidity.

Prime-2. Issuers rated Prime-2 (or supporting institutions) have a strong
capacity for repayment of senior short-term debt obligations. This will
normally be evidenced by many of the characteristics cited above but to a lesser
degree. Earnings trends and coverage ratios, while sound, may be more subject
to variation. Capitalization characteristics, while still appropriate, may be
more affected by external conditions. Ample alternate liquidity is maintained.

Prime-3. Issuers rated Prime-3 (or supporting institutions) have an acceptable
ability for repayment of senior short-term obligations. The effect of industry
characteristics and market compositions may be more pronounced. Variability in
earnings and profitability may result in changes in the level of debt protection
measurements and may require relatively high financial leverage. Adequate
alternate liquidity is maintained.

S&P's description of its three highest short-term debt ratings:

A-1. This designation indicates that the degree of safety regarding timely
payment is strong. Those issues determined to have extremely strong safety
characteristics are denoted with a plus sign (+).

A-2. Capacity for timely payment on issues with this designation is
satisfactory. However, the relative degree of safety is not as high as for
issues designated "A-1."

A-3. Issues carrying this designation have adequate capacity for timely
payment. They are, however, more vulnerable to the adverse effects of
changes in circumstances than obligations carrying the higher designations.

Duff's description of its five highest short-term debt ratings (Duff
incorporates gradations of "1+" (one plus) and "1-" (one minus) to assist
investors in recognizing quality differences within the highest rating
category):

Duff 1+. Highest certainty of timely payment. Short-term liquidity,
including internal operating factors and/or access to alternative sources
of funds, is outstanding, and safety is just below risk-free U.S. Treasury
short-term obligations.

Duff 1. Very high certainty of timely payment. Liquidity factors are
excellent and supported by good fundamental protection factors. Risk
factors are minor.

Duff 1-. High certainty of timely payment. Liquidity factors are strong
and supported by good fundamental protection factors. Risk factors are
very small.

Duff 2. Good certainty of timely payment. Liquidity factors and company
fundamentals are sound. Although ongoing funding needs may enlarge total
financing requirements, access to capital markets is good. Risk factors
are small.

Duff 3. Satisfactory liquidity and other protection factors qualify issue
as to investment grade.

Risk factors are larger and subject to more variation. Nevertheless, timely
payment is expected.

Fitch's description of its four highest short-term debt ratings:

F-1+. Exceptionally Strong Credit Quality. Issues assigned this rating
are regarded as having the strongest degree of assurance for timely
payment.

F-1. Very Strong Credit Quality. Issues assigned this rating reflect an
assurance of timely payment only slightly less in degree than issues rated
F-1+.

F-2. Good Credit Quality. Issues assigned this rating have a satisfactory
degree of assurance for timely payment, but the margin of safety is not as
great as for issues assigned F-1+ or F-1 ratings.

<PAGE>

F-3. Fair Credit Quality. Issues assigned this rating have
characteristics suggesting that the degree of assurance for timely payment
is adequate, however, near-term adverse changes could cause these
securities to be rated below investment grade.

IBCA's description of its three highest short-term debt ratings:

A+. Obligations supported by the highest capacity for timely repayment.

A1. Obligations supported by a very strong capacity for timely repayment.

A2. Obligations supported by a strong capacity for timely repayment,
although such capacity may be susceptible to adverse changes in business,
economic or financial conditions.

SHORT-TERM DEBT RATINGS. Thompson BankWatch, Inc. ("TBW") ratings are based
upon a qualitative and quantitative analysis of all segments of the organization
including, where applicable, holding company and operating subsidiaries.

TBW Ratings do not constitute a recommendation to buy or sell securities of any
of these companies. Further, TBW does not suggest specific investment criteria
for individual clients. The TBW Short-Term Ratings apply to commercial paper,
other senior short-term obligations and deposit obligations of the entities to
which the rating has been assigned. The TBW Short-Term Ratings apply only to
unsecured instruments that have a maturity of one year or less. The TBW
Short-Term Ratings specifically assess the likelihood of an untimely payment of
principal or interest.

TBW-1. The highest category; indicates a very high degree of likelihood that
principal and interest will be paid on a timely basis.

TBW-2. The second highest category; while the degree of safety regarding timely
repayment of principal and interest is strong, the relative degree of safety is
not as high as for issues rated "TBW-1."

TBW-3. The lowest investment grade category; indicates that while more
susceptible to adverse developments (both internal and external) than
obligations with higher ratings, capacity to service principal and interest in a
timely fashion is considered adequate.

TBW-4. The lowest rating category; this rating is regarded as non-investment
grade and, therefore, speculative.

DEFINITIONS OF CERTAIN MONEY MARKET INSTRUMENTS.

Commercial Paper. Commercial paper consists of unsecured promissory notes
issued by corporations. Issues of commercial paper normally have maturities of
less than nine months and fixed rates of return.

Certificates of Deposit. Certificates of Deposit are negotiable certificates
issued against funds deposited in a commercial bank or a savings and loan
association for a definite period of time and earning a specified return.

Bankers' Acceptances. Bankers' acceptances are negotiable drafts or bills of
exchange, normally drawn by an importer or exporter to pay for specific
merchandise, which are "accepted" by a bank, meaning, in effect, that the bank
unconditionally agrees to pay the face value of the instrument on maturity.

U.S. Treasury Obligations. U.S. Treasury Obligations are obligations issued or
guaranteed as to payment of principal and interest by the full faith and credit
of the U.S. Government. These obligations may include Treasury bills, notes and
bonds, and issues of agencies and instrumentalities of the U.S. Government,
provided such obligations are guaranteed as to payment of principal and interest
by the full faith and credit of the U.S. Government.

U.S. Government Agency and Instrumentality Obligations. Obligations issued by
agencies and instrumentalities of the U.S. Government include such agencies and
instrumentalities as the Government National Mortgage Association, the
Export-Import Bank of the United States, the Tennessee Valley Authority, the
Farmers Home Administration, the Federal Home Loan Banks, the Federal
Intermediate Credit Banks, the Federal Farm Credit Banks, the Federal Land
Banks, the Federal Housing Administration, the Federal National Mortgage
Association, the Federal Home Loan Mortgage Corporation, and the Student Loan
Marketing Association. Some of these obligations, such as those of the
Government National Mortgage Association are

<PAGE>

supported by the full faith and credit of the U.S. Treasury; others, such as
those of the Export-Import Bank of the United States, are supported by the right
of the issuer to borrow from the Treasury; others, such as those of the Federal
National Mortgage Association, are supported by the discretionary authority of
the U.S. Government to purchase the agency's obligations; still others, such as
those of the Student Loan Marketing Association, are supported only by the
credit of the instrumentality. No assurance can be given that the U.S.
Government would provide financial support to U.S. Government-sponsored
instrumentalities if it is not obligated to do so by law. A Fund will invest in
the obligations of such instrumentalities only when the investment adviser
believes that the credit risk with respect to the instrumentality is minimal.

45
<PAGE>

PART C. OTHER INFORMATION

ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS

(a) Financial statements:

In Part A:

Financial Highlights.

In Part B:

Incorporated by reference to the Registrant's annual report
dated October 31, 1997 and to the annual report of GrandView
Realty Growth Fund dated March 31, 1998:

Investment Portfolio
Statement of Assets and Liabilities
Statement of Operations
Statement of Changes in Net Assets
Financial Highlights
Notes to Financial Statements
Report of Independent Public Accountants

Incorporated by reference to the Registrant's semi-annual
report dated April 30, 1998:

Investment Portfolio
Statement of Assets and Liabilities
Statement of Operations
Statement of Changes in Net Assets
Financial Highlights
Notes to Financial Statements

In Part C:

None.

(b) Exhibits:

1(a) Certificate of Trust.(1)

1(b) Delaware Trust Instrument dated April 30, 1996.(1)

2 Bylaws.(1)

3 None.

4 None.

5(a) Form of Investment Advisory Agreement between the Registrant
and FBR Fund Advisers, Inc.(2)

5(b) Form of Notice to Investment Advisory Agreement with
respect to the FBR Realty Growth Fund.

6(a) Form of Amended Distribution Agreement between the
Registrant and Friedman, Billings, Ramsey & Co., Inc.

6(b) Form of Amended Distribution Agreement between the
Registrant and FBR Investment Services, Inc.

6(c) Form of Notice to Distribution Agreements with respect to
the FBR Realty Growth Fund.

6(d) Form of Selected Dealer Agreement.(2)

7 None.

8(a) Form of Custodian Agreement between the Registrant and
Custodial Trust Company.(2)

8(b) Form of Notice to Custodian Agreement with respect to the
FBR Realty Growth Fund.

8(c) Form of Sub-Custodian Agreement between Custodial Trust
Company and Citibank N.A.(2)

-1-

<PAGE>

9(a) Form of Administration Agreement between the Registrant and
Bear Stearns Funds Management Inc.(2)

9(b) Form of Notice to Administration Agreement with respect
to the FBR Realty Growth Fund.

9(c) Form of Administration and Accounting Services Agreement
between the Registrant and PFPC Inc.(2)

9(d) Form of Notice to Administration and Accounting Services
Agreement with respect to the FBR Realty Growth Fund.

9(e) Form of Transfer Agency Services Agreement between the
Registrant and PFPC Inc.(2)

9(f) Form of Notice to Transfer Agent Service Agreement with
respect to the FBR Realty Growth Fund.

10(a) Opinion of Kramer, Levin, Naftalis & Frankel.(2)

10(b) Opinion of Morris, Nichols, Arsht & Tunnell.(2)

10(c) Opinion and Consent of Dechert Price & Rhoads.

11(a) Consent of Arthur Andersen LLP.

11(b) Consent of Deloitte & Touche LLP.

12 None

13 Investment Letters.(2)

14 None.

15(a) Form of Rule 12b-1 Distribution Plan for Class A.(5)

15(b) Form of Amended Rule 12b-1 Service and Distribution Plan for
Class B

15(c) Form of Rule 12b-1 Service and Distribution Plan for
Class C.(5)

16 Forms of performance computation.(1)

18 Form of Rule 18f-3 Plan.(5)

19 Powers of Attorney.(3)

27 Financial Data Schedules.

(1) Incorporated by reference to the Registrant's Initial Registration
Statement on Form N-1A as filed on June 11, 1996.

(2) Incorporated by reference to Pre-Effective Amendment No. 2 to the
Registration Statement as filed on December 20, 1996.

(3) Incorporated by reference to Post-Effective Amendment No. 1 to the
Registration Statement as filed on June 27, 1997.

(4) Incorporated by reference to Post-Effective Amendment No. 2 to the
Registration Statement as filed on February 17, 1998.

(5) Incorporated by reference to Post-Effective Amendment No. 3 to
Registration Statement as filed on April 17, 1998.

ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT

None.

-2-
<PAGE>

ITEM 26. NUMBER OF HOLDERS OF SECURITIES

<TABLE>
<CAPTION>
Title of Class; Shares of Number of Record Holders
beneficial interest as of June 25, 1998
-----------------------------------
<S> <C>
Financial Services Fund 4,118

Small Cap Financial Fund 4,868

Small Cap Growth/Value Fund 2,311

Information Technologies Fund 1

Realty Growth Fund 0
</TABLE>

ITEM 27. INDEMNIFICATION

Article X, Section 10.02 of the Registrant's Delaware Trust
Instrument, filed as Exhibit 2 hereto, provides for the
indemnification of Registrant's Trustees and officers, as follows:

"SECTION 10.02 INDEMNIFICATION.

(a) Subject to the exceptions and limitations contained in Subsection
10.02(b):

(i) every person who is, or has been, a Trustee or officer of the
Trust (hereinafter referred to as a "Covered Person") shall be indemnified
by the Trust to the fullest extent permitted by law against liability and
against all expenses reasonably incurred or paid by him in connection with
any claim, action, suit or proceeding in which he becomes involved as a
party or otherwise by virtue of his being or having been a Trustee or
officer and against amounts paid or incurred by him in the settlement
thereof;

(ii) the words "claim," "action," "suit," or "proceeding" shall apply
to all claims, actions, suits or proceedings (civil, criminal or other,
including appeals), actual or threatened while in office or thereafter, and
the words "liability" and "expenses" shall include, without limitation,
attorneys' fees, costs, judgments, amounts paid in settlement, fines,
penalties and other liabilities.

(b) No indemnification shall be provided hereunder to a Covered Person:

(i) who shall have been adjudicated by a court or body before which
the proceeding was brought (A) to be liable to the Trust or its
Shareholders by reason of willful misfeasance, bad faith, gross negligence
or reckless disregard of the duties involved in the conduct of his office
or (B) not to have acted in good faith in the reasonable belief that his
action was in the best interest of the Trust; or

(ii) in the event of a settlement, unless there has been a
determination that such Trustee or officer did not engage in willful
misfeasance, bad faith, gross negligence or reckless disregard of the
duties involved in the conduct of his office, (A) by the court or other
body approving the settlement; (B) by at least a majority of those Trustees
who are neither Interested Persons of the Trust nor are parties to the
matter based upon a review of readily available facts (as opposed to a full
trial-type inquiry); or (C) by written opinion of independent legal counsel
based upon a review of readily available facts (as opposed to a full
trial-type inquiry).

(c) The rights of indemnification herein provided may be insured against
by policies maintained by the Trust, shall be severable, shall not be
exclusive of or affect any other rights to which any Covered Person may now
or hereafter be entitled, shall continue as to a person who

-3-
<PAGE>

has ceased to be a Covered Person and shall inure to the benefit of the
heirs, executors and administrators of such a person. Nothing contained
herein shall affect any rights to indemnification to which Trust personnel,
other than Covered Persons, and other persons may be entitled by contract
or otherwise under law.

(d) Expenses in connection with the preparation and presentation of a
defense to any claim, action, suit or proceeding of the character described
in Subsection (a) of this Section 10.02 may be paid by the Trust or Series
from time to time prior to final disposition thereof upon receipt of an
undertaking by or on behalf of such Covered Person that such amount will be
paid over by him to the Trust or Series if it is ultimately determined that
he is not entitled to indemnification under this Section 10.02; provided,
however, that either (i) such Covered Person shall have provided
appropriate security for such undertaking, (ii) the Trust is insured
against losses arising out of any such advance payments or (iii) either a
majority of the Trustees who are neither Interested Persons of the Trust
nor parties to the matter, or independent legal counsel in a written
opinion, shall have determined, based upon a review of readily available
facts (as opposed to a trial-type inquiry or full investigation), that
there is reason to believe that such Covered Person will be found entitled
to indemnification under this Section 10.02."

Insofar as indemnification for liability arising under the Securities Act
of 1933 may be permitted to trustees, officers, and controlling persons or
Registrant pursuant to the foregoing provisions, or otherwise, Registrant
has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in
the Investment Company Act of 1940, as amended, and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by Registrant of expenses incurred or
paid by a trustee, officer, or controlling person of Registrant in the
successful defense of any action, suit, or proceeding) is asserted by such
trustee, officer, or controlling person in connection with the securities
being registered, Registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question of whether such indemnification by it
is against public policy as expressed in the Act and will be governed by
the final adjudication of such issue.

ITEM 28. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER

Describe any other business, profession, vocation or employment of a
substantial nature in which each investment adviser of the Registrant, and
each director, officer or partner of any such investment adviser, is or has
been, at any time during the past two fiscal years, engaged for his own
account or in the capacity of director, officer, employee, partner, or
trustee.

FBR Fund Advisers, Inc. provides advisory services to the Registrant
and its series. The directors and officers of FBR Fund Advisers, Inc. have held
the following positions of a substantial nature:

Name Position with Adviser Other Business
- ---- --------------------- --------------

Eric F. Billings Director, Vice Chairman, Director and Vice Chairman -
Chief Operating Officer Friedman, Billings, Ramsey
and Assistant Secretary Group, Inc. and its
predecessors and affiliates

W. Russell Ramsey Secretary and Treasurer Director, President and
Secretary - Friedman,
Billings, Ramsey Group,
Inc. and its predecessors
and affiliates

-4-
<PAGE>

Emanuel J. Friedman Chairman, Chief Chairman and Chief
Executive Officer, Executive Officer -
Treasurer and Assistant Friedman, Billings, Ramsey
Secretary Group, Inc. and its
predecessors and affiliates

C. Eric Brugel Managing Director Vice President -
Friedman, Billings, Ramsey
& Co., Inc.

ITEM 29. PRINCIPAL UNDERWRITERS

(a) Not applicable.

(b) Friedman, Billings, Ramsey & Co., Inc. ("FBR") serves as
non-exclusive Distributor to the Funds. The following
information is provided with respect to each director and
officer of FBR:

Name and principal Positions and offices Positions and offices
business address (1) with FBR with Registrant
- -------------------- ---------------- ---------------

Emanuel J. Friedman Director, Chairman and None
Chief Executive Officer

Eric F. Billings Director, Vice Chairman Trustee, Treasurer
and Chief Operating Officer and Secretary

W. Russell Ramsey Director, President and Secretary None

Eric Y. Generous Chief Financial Officer and Executive None
Vice President

Nicholas J. Nichols Chief Compliance Officer None
and Executive Vice President

Karen K. Edwards Managing Director - None
Investment Banking

Howard M. Giller Managing Director - None
Investment Banking

Robert H. Hartheimer Managing Director - None
Investment Banking

James R. Kleeblatt Managing Director - Syndicate None

James D. Locke Managing Director - Real Estate None

James C. Neuhauser Managing Director None
Investment Banking

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

(1) The address of each person is Potomac Tower, 1001 Nineteenth Street,
Arlington, Virginia 22209.

-5-
<PAGE>

Suzanne N. Richardson Managing Director - None
Investment Banking

Edward Wheeler Managing Director - None
Investment Banking

William R. Swanson Managing Director - Real Estate None

J. Rock Tonkel, Jr. Managing Director - None
Investment Banking

Robert S. Smith General Counsel None

(c) FBR Investment Services, Inc. ("FBR Services") also serves as
non-exclusive Distributor to the Funds. The following
information is provided with respect to each director and officer
of FBR Services:

Name and principal Positions and offices Positions and offices
business address (1) with FBR Services with Registrant
- -------------------- ---------------- ---------------

C. Eric Brugel Chief Operating Officer Trustee and
President

Eric Y. Generous Director and Chief Executive None
Officer

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

(1) The address of each person is Potomac Tower, 1001 Nineteenth Street,
Arlington, Virginia 22209.

ITEM 30. LOCATION OF ACCOUNTS AND RECORDS

The majority of the accounts, books and other documents required to be
maintained by Section 31(a) of the Investment Company Act of 1940 (the "1940
Act") and the Rules thereunder are maintained at the offices of PFPC (the
Transfer Agent) and Bear Stearns Funds Management Inc. (the Administrator). The
records required to be maintained under Rule 31a-1(b)(1) with respect to
journals of receipts and deliveries of securities and receipts and disbursements
of cash are maintained at the offices of the Registrant's custodian, as listed
under "Advisory & Other Contracts" in Part B to this Registration Statement.

ITEM 31. MANAGEMENT SERVICES

Not applicable.

ITEM 32. UNDERTAKINGS

Registrant undertakes that, if requested to do so by the holders of at
least 10% of the Registrant's outstanding shares, a shareholder meeting will be
called for the purpose of voting upon the removal of a director or directors and
that communications with other shareholders will be assisted as provided by
Section 16(c) of the 1940 Act.

-6-
<PAGE>

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933 ("1933
Act") and the Investment Company Act of 1940, the Registrant has duly caused
this amendment to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Washington, D.C. on this 30th day of June, 1998

THE FBR FAMILY OF FUNDS

By: C. Eric Brugel*

As required by the Securities Act of 1933, this amendment to the
Registration Statement has been signed by the following persons in the
capacities indicated on the 30th day of June, 1998.

C. Eric Brugel* Trustee and President
(Chief Executive Officer)

Eric F. Billings* Chairman, Trustee
Chief Financial Officer and Treasurer

F. David Fowler* Trustee

Michael A. Willner* Trustee

George W. Grosz Trustee

*By /s/
---------------------
Paul F. Roye
attorney-in fact

-7-
<PAGE>

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C.

EXHIBITS
FILED
WITH

POST-EFFECTIVE AMENDMENT NO. 4 TO
REGISTRATION STATEMENT
ON
FORM N-1A

FBR FAMILY OF FUNDS

-8-
<PAGE>

EXHIBIT LIST

Exhibit Number Name of Exhibit
-------------- ---------------

5(b) Form of Notice to Investment Advisory Agreement
with respect to the FBR Realty Growth Fund.

6(a) Form of Amended Distribution Agreement between
the Registrant and Friedman, Billings, Ramsey &
Co., Inc.

6(b) Form of Amended Distribution Agreement between
the Registrant and FBR Investment Services, Inc.

6(c) Form of Notice to Distribution Agreements with
respect to the FBR Realty Growth Fund.

8(b) Form of Notice to Custodian Agreement with
respect to the FBR Realty Growth Fund.

9(b) Form of Notice to Administration Agreement
with respect to the FBR Realty Growth Fund.

9(d) Form of Notice to Administration and Accounting
Services Agreement with respect to the FBR Realty
Growth Fund.

9(f) Form of Notice to Transfer Agent Service
Agreement with respect to the FBR Realty Growth
Fund.

10(c) Opinion and Consent of Dechert Price & Rhoads.

11(a) Consent of Arthur Andersen LLP.

11(b) Consent of Deloitte & Touche LLP.

15(b) Form of Amended Rule 12b-1 Service and
Distribution Plan for Class B

27 Financial Data Schedules.

<PAGE>

EXHIBIT 5(b)

AMENDMENT TO INVESTMENT ADVISORY AGREEMENT

This Amendment dated as of June 16, 1998 (the "Amendment") is made to the
Investment Advisory Agreement, dated as of December 31, 1996 (the "Agreement")
between The FBR Family of Funds (the "Trust") and FBR Fund Advisers, Inc. ("Fund
Advisers").

The Trust and Fund Advisers agree that the Agreement shall, as of the date
first written above, be amended as follows:

1. Exhibit A of the Agreement shall be deleted in its entirety and the
Schedule A attached hereto shall be substituted in its place.

In all other respects, the Agreement shall remain in full force and effect.

IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed by their duly authorized officers, as of the day and year first written
above.

THE FBR FAMILY OF FUNDS

By:
-----------------------------

Title:
--------------------------

FBR Fund Advisers, Inc.

By:
-----------------------------

Title:
--------------------------

<PAGE>

Schedule A

<TABLE>
<CAPTION>
Name of Fund Fee*
------------- ----
<S> <C>
FBR Financial Services Fund 0.90%
FBR Small Cap Financial Services Fund 0.90%
FBR Small Cap Value Fund 0.90%
FBR Information Technologies Fund 0.90%
FBR Realty Growth Fund 1.00%
</TABLE>

- ---------------------
* As a percentage of average daily net assets. Note, however, that the
Adviser shall have the right, but not the obligation, to voluntarily waive
any portion of the advisory fee from time to time.

<PAGE>

EXHIBIT 6(a)

DISTRIBUTION AGREEMENT

THIS AGREEMENT is made as of December 31, 1996, amended December 10, 1997 and
amended and restated as of June 16, 1998 by and between THE FBR FAMILY OF FUNDS
(the "Trust"), a Delaware business trust, and FRIEDMAN, BILLINGS, RAMSEY & CO.,
INC. (the "Distributor").

WHEREAS, this contract has been approved by the Trustees of the Trust in
anticipation of the Distributor's transfer of its rights to receive its
Distribution Fee (as defined in the Service and Distribution Plan for Class B
Shares attached hereto as Exhibit A) and/or contingent deferred sales charges to
a financing party in order to raise funds to cover distribution expenditures:

WITNESSETH:

In consideration of the mutual covenants herein contained and other good
and valuable consideration, the receipt of which is hereby acknowledged, the
parties hereto agree as follows:

FIRST: The Trust on behalf of each of its series and any new series
to be created hereby appoints the Distributor as a non-exclusive
underwriter to promote and arrange for the sale of shares of beneficial
interest of each series of the Trust in jurisdictions wherein shares may
legally be offered for sale. The Trust shall notify the Distributor in
writing of all states in which its shares are qualified for offer and sale,
including any limitations with respect to offers or sales in such states.
In addition, the Distributor shall receive payment for certain distribution
expenses pursuant to a Rule 12b-1 distribution plan ("12b-1 Plan") adopted
by the Trust.

The Trust agrees to sell and deliver its unissued shares of each
series, as from time to time shall be effectively registered under the
Securities Act of 1933 (the "1933 Act"), upon the terms hereinafter set
forth.

SECOND: The Trust hereby authorizes the Distributor, subject to law
and the Trust Instrument of the Trust (the "Trust Instrument"), to accept,
for the account of each series of the Trust, orders for the purchase of
shares, satisfactory to the Distributor, as of the time of receipt of such
orders or as otherwise described in the then current Prospectuses and
Statements of Additional Information of the Trust.

THIRD: The price at which the shares may be sold (the "offering
price") shall be the net asset value per share plus any sales charge that
may be imposed on any class of shares. For the purpose of computing the
offering price, the net asset value per share and the sales charge, if any,
shall be determined in the manner provided in the Registration Statement of
the Trust, as amended from time to time.

FOURTH: The Distributor shall use its best efforts with reasonable
promptness to promote and sell shares of each of the series of the Trust.
The Distributor, with the consent of the Trust, may enter into agreements
with selected broker-dealers ("Selected

<PAGE>

Dealers") for the purpose of sale and redemption of shares of each of the
series of the Trust upon terms consistent with those found in this
Agreement. The Distributor shall not be obligated to sell any certain
number of shares of beneficial interest. Each series of the Trust reserves
the right to issue shares in connection with any merger or consolidation of
the Trust or any series with any other investment company or any personal
holding company or in connection with offers of exchange exempted from
Section 11(a) of the Investment Company Act of 1940 (the "Act").

FIFTH: All sales literature and advertisements used by the
Distributor in connection with sales of shares of any series of the Trust
shall be subject to the approval of the Trust. The Trust authorizes the
Distributor in connection with the sale or arranging for the sale of the
shares to give only such information and to make only such statements or
representations as are contained in the then current Prospectuses and
Statements of Additional Information of the Trust or in sales literature or
advertisements approved for any series by the Trust or in such financial
statements and reports as are furnished to the Distributor pursuant to this
Agreement. The Trust shall not be responsible in any way for any
information, statements or representations given or made by the Distributor
or its representative or agents other than such information, statements or
representations contained in the then current Prospectuses and Statements
of Additional Information or other financial statements of the Trust or any
sales literature or advertisements approved by the Trust.

SIXTH: The Distributor as agent of the Trust, and any Selected Dealer
entering into a Selected Dealer Agreement with the Distributor are
authorized, subject to the direction of the Trust, to accept shares of the
series of the Trust for redemption at their net asset value less any
applicable deferred sales charge, determined as prescribed in the then
current Prospectuses and Statements of Additional Information of the Trust.

SEVENTH: The Trust shall cause to be delivered to the Distributor all
books, records, and other documents and papers relating to the federal and
state registration of Trust shares, as well as all books, records and other
documents and papers relating in any way to the distribution of Trust
shares.

EIGHTH: The Trust shall bear:

(A) The costs and expenses incurred in connection with the
registration of the shares of each series of the Trust under the 1933
Act (including any amendment to any Registration Statement or
Prospectus or Statement of Additional Information), and all expenses
in connection with preparing, printing and distributing the
Prospectuses or Statements of Additional Information except as set
forth in Paragraph NINTH hereof;

(B) the expenses of qualification of the shares of each series of
the Trust for sale in connection with such public offerings in such
states as shall be selected by the Distributor and of continuing the
qualification therein until the Distributor notifies the Trust that it
does not wish such qualification continued; and

-2-

<PAGE>

NINTH: The Distributor shall provide certain distribution services
including:

(A) providing officers, clerical staff and office space to use as
the headquarters of the Trust;

(B) arranging for the printing, distribution and filing of
prospectuses and statements of additional information necessary for
Trust shares sold by the Distributor;

(C) preparing, filing and maintaining all Trust registrations
with the securities regulatory agencies of all states and other
jurisdictions in which the Distributor sells or attempts to sell Trust
shares;

(D) making all required filings of advertising and promotional
materials with the National Association of Securities Dealers, Inc.;
and

(E) bearing the expenses of:

(i) the printing, distribution and filing of prospectuses
and statements of additional information required for Trust
shares sold by the Distributor after such have been typeset
(other than those prospectuses and statements of additional
information required by applicable laws and regulations to be
distributed to the existing shareholders of the Trust and
pursuant to any 12b-1 Plan adopted by the Trust);

(ii) any promotional or sales literature which are used by
the Distributor or furnished by the Distributor to purchasers or
dealers in connection with the Distributor's activities pursuant
to this Agreement (unless paid for by any 12b-1 Plan adopted by
the Trust);

(iii) any advertising used by the Distributor in connection
with such public offering (unless paid for by any 12b-1 Plan
adopted by the Trust); and

(iv) all legal expenses in connection with the foregoing.

TENTH: In consideration of its services as distributor for the Class
B shares of each series of the Trust, each series shall pay to the
Distributor (or its designee or transferee) its Distribution Fee (as
defined in the Class B Service and Distribution Plan) in respect of the
Class B shares of that series.

The Distributor's Distribution Fee and the contingent deferred sales charges
arising in respect of Class B shares taken into account in computing the
Distributor's Distribution Fee shall be limited under Article III, Section 26(b)
and (d) or other applicable regulations of the National Association of
Securities Dealers, Inc. (the "NASD") as if the Class B shares taken into
account in computing the Distributor's Distribution Fee themselves constituted a
separate class of shares of that series.

-3-

<PAGE>

The services rendered by the Distributor for which the Distributor is
entitled to receive its Distribution Fee shall be deemed to have been
completed at the time of the initial purchase of the relevant Class B
shares taken into account in computing the Distributor's Distribution Fee.
Notwithstanding anything to the contrary in this Agreement, the Distributor
shall be paid its Distribution Fee notwithstanding the Distributor's
termination as distributor of the Class B shares of a series of the Trust,
or any termination of this Agreement other than in connection with a
Complete Termination (as defined in the Class B Service and Distribution
Plan) of the Class B Service and Distribution Plan as in effect on the date
of execution of this Agreement. Except as provided in the preceding
sentence, a series' obligation to pay the Distribution Fee to the
Distributor shall be absolute and unconditional and shall not be subject to
any dispute, offset, counterclaim or defense whatsoever (it being
understood that nothing in this sentence shall be deemed a waiver by the
series of its right separately to pursue any claims it may have against the
Distributor and to enforce such claims against any assets (other than its
rights to be paid its Distribution Fee and to be paid the contingent
deferred sales charges) of the Distributor).

ELEVENTH: Each series of the Trust will pay to the Distributor (or
its designee or transferee) in addition to the fees with respect to Class B
shares set forth in Article TENTH hereof any contingent deferred sales
charge imposed on repurchases of Class B shares upon the terms and
conditions set forth in the then current prospectus of that series.
Notwithstanding anything to the contrary in this Agreement, the Distributor
shall be paid such contingent deferred sales charges in respect of Class B
shares taken into account in computing the Distributor's Distribution Fee
notwithstanding the Distributor's termination as general distributor of the
Class B shares of a series or any termination of this Agreement other than
in connection with a Complete Termination of the Class B Service and
Distribution Plan as in effect on the date of execution of this Agreement.
Except as provided in the preceding sentence, each series' obligation to
remit such contingent deferred sales charges to the Distributor shall not
be subject to any dispute, offset, counterclaim or defense whatsoever (it
being understood that nothing in this sentence shall be deemed a waiver by
the Trust or a series of the Trust of its right separately to pursue any
claims it may have against the Distributor and to enforce such claims
against any assets (other than its right to be paid its Distribution Fee
and to be paid the contingent deferred sales charges) of the Distributor).
A series of the Trust will not waive any contingent deferred sales charge
except under the circumstances set forth in each series' prospectus without
the consent of the Distributor (or, if rights to payment have been
transferred, the transferee).

TWELFTH: The Distributor may transfer the right to payments hereunder
(but not its obligations hereunder) in order to raise funds to cover
distribution expenditures, and any such transfer shall be effective upon
written notice from the Distributor to the Trust. In connection with the
foregoing, each series of the Trust is authorized to pay all or a part of
the Distribution Fee and or contingent deferred sales charges in respect of
Class B shares directly to such transferee as directed by the Distributor.

THIRTEENTH: As long as the Class B Distribution and Service Plan is
in effect, each series of the Trust shall not change the manner in which
the Distribution Fee is computed (except as may be required by a change in
applicable law or a change in accounting policy adopted by the Investment
Companies Committee of the American

-4-

<PAGE>

Institute of Certified Public Accountants and approved by the Financial
Accounting Standards Board that results in a determination by the Trust's
independent accountants that any of the Sales Charges in respect of a
series, which are not Contingent Deferred Sales Charges and which are not
yet due and payable, must be accounted for by such series as a liability in
accordance with generally accepted accounting principles).

FOURTEENTH: The Distributor will accept orders for shares of a series
of the Trust only to the extent of purchase orders actually received and
not in excess of such orders, and it will not avail itself of any
opportunity of making a profit by expediting or withholding orders.

FIFTEENTH: The Trust shall keep the Distributor fully informed with
regard to its affairs and shall furnish the Distributor with a certified
copy of all financial statements and any amendments to its Registration
Statement under the 1933 Act.

SIXTEENTH: The Trust shall register, from time to time as necessary,
additional shares with the Securities and Exchange Commission, state and
other regulatory bodies and pay the related filing fees therefor and file
such amendments, reports and other documents as may be necessary in order
that there may be no untrue statement of a material fact in the
Registration Statement, Prospectuses or Statements of Additional
Information necessary in order that there may be no omission to state a
material fact therein, in light of the circumstances under which they were
made, not misleading. As used in this Agreement, the term "Registration
Statement" shall mean the Registration Statement most recently filed by he
Trust with the Securities and Exchange Commission and effective under the
1933 Act, as such Registration Statement is amended at such time, and the
term "Prospectuses" and "Statements of Additional Information" shall mean
for the purposes of this Agreement the form of the then current
prospectuses and statements of additional information for each series
authorized by the Trust for use by the Distributor and by dealers.

SEVENTEENTH:

(A) The Trust and the Distributor shall each comply with all
applicable provisions of the Act, the 1933 Act and the rules and
regulations of the National Association of Securities Dealers, Inc.
and of all other Federal and state laws, rules and regulations
governing the issuance and sale of shares of the series of Trust.

(B) The Distributor shall not be liable for any error of judgment
or mistake of law or for any loss suffered by the Trust in connection
with the matters to which this Agreement relates, except a loss
resulting from willful misfeasance, bad faith or gross negligence on
the Distributor's part in the performance of its duties or from
reckless disregard by it of its obligations and duties under this
Agreement.

(C) In the absence of willful misfeasance, bad faith, gross
negligence or reckless disregard of obligations or duties hereunder on
the part of the Distributor or any of its officers, directors or
employees, the Trust agrees to indemnify the Distributor and any
controlling person of the Distributor against any and all

-5-

<PAGE>

claims, demands, liabilities and expenses (including reasonable
attorney's fees) which the Distributor may incur (i) based on any act
or omission in the course of, or connected with, rendering services
hereunder, (ii) based on any representations made herein by the Trust;
(iii) based on any act or omission of any prior Distributor (in its
capacity as Distributor), Administrator or Adviser to the Trust,
including the registration or failure to register any shares of the
Trust in accordance with state or federal laws or resulting from or
relating to any books or records delivered to the Distributor in
connection with its responsibilities under this Agreement and
occurring prior to the date of this Agreement; and (iv) under the 1933
Act, or common law or otherwise, arising out of or based upon any
alleged untrue statement of a material fact contained in any
Registration Statement, Statements of Additional Information or
Prospectuses of the Trust, or any omission to state a material fact
therein, the omission of which makes any statement contained therein
misleading, unless such statement or omission was made in reliance
upon, and in conformity with written information furnished to the
Trust in connection therewith by or on behalf of the Distributor.

(D) The Distributor shall indemnify the Trust against any and all
claims, demands, liabilities and expenses which the Trust may incur
under the 1933 Act, or common law or otherwise, arising out of or
based upon any alleged untrue statement of material fact contained in
any Registration Statement, Statements of Additional Information or
Prospectuses of the Trust, or any omission to state a material fact
therein if such statement or omission was made in reliance upon, and
in conformity with, written information furnished to the Trust in
connection therewith by the Distributor.

EIGHTEENTH: Nothing herein contained shall require the Trust to take
any action contrary to any provision of its Declaration of Trust or to any
applicable statute or regulation.

NINETEENTH:

(A) This Agreement shall go into effect at the close of business
on the date hereof, and, unless terminated as hereinafter provided,
shall continue in effect for two years thereafter and from year to
year thereafter, but only so long as such continuance is specifically
approved at least annually by the Trust's Board of Trustees, including
the vote of a majority of the Trustees who are not parties to this
Agreement or "interested persons" (as defined in the Act) of any such
party cast in person at a meeting called for the purpose of voting on
such approval, or by the vote of the holders of a "majority" (as so
defined) of the outstanding voting securities of the applicable series
and by such vote of the Trustees.

(B) This Agreement may be terminated by the Distributor at any
time without penalty upon giving the Board of Trustees of the Trust
sixty (60) days' written notice (which notice may be waived by the
Trust) and may be terminated by the Board of Trustees of the Trust at
any time without penalty upon giving the Distributor sixty (60) days'
written notice (which may be waived by the Distributor), provided that
such termination by the Board of Trustees of the Trust shall be
directed or approved by the vote of a majority of all of its Trustees
in

-6-

<PAGE>

office at the time, including a majority of the Trustees who are not
interested persons (as defined in the Act) of the Trust, or by the
vote of the holders of a majority (as defined in the Act) of the
voting securities of each series of the Trust at the time outstanding
and entitled to vote. This Agreement shall automatically terminate in
the event of its assignment, the term "Assignment" for this purpose
having the meaning defined in Section 2(a)(4) of the Act.

TWENTIETH: The Distributor may at any time or times in its discretion
and at its own expense appoint (and may at any time remove) an agent or
agents to carry out such of the provisions of Article NINTH herein as the
Distributor may from time to time direct; PROVIDED, however, that the
appointment of any agent shall not relieve the Distributor of its
responsibilities or liabilities hereunder.

TWENTY-FIRST: The services of the Distributor to the Funds are not to
be deemed exclusive and the Distributor may render similar services to
others and engage in other activities. The Distributor and its affiliates
may enter into other agreements with the Funds and the Trust for providing
additional services to the Funds and the Trust which are not covered by
this Agreement, and to receive additional compensation for such services.

TWENTY-SECOND: A copy of the Certificate of Trust is on file with the
State of Delaware, and notice is hereby given that this instrument is
executed on behalf of the Trustees of the Trust as Trustees and not
individually, and that the obligations of this instrument are not binding
upon any of the Trustees or shareholders individually but are binding only
upon the assets and property of the Trust, and all persons dealing with any
class of shares of the Trust must look solely to the Trust property
belonging to such class for the enforcement of any claims against the
Trust.

TWENTY-THIRD: Any notice under this Agreement shall be in writing,
addressed and delivered, or mailed, postage paid, to the other party at
such address as such other party may designate for the receipt of such
notices. Until further notice to the other party, it is agreed that the
address of the Trust and the Distributor shall be Potomac Tower, 1001
Nineteenth Street North, Arlington, Virginia 22209

IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
by their duly authorized officers as of the day and year first above written.

THE FBR FAMILY OF FUNDS

By:
----------------------------

FRIEDMAN, BILLINGS, RAMSEY & CO., INC.

By:
----------------------------

<PAGE>

EXHIBIT 6(b)

DISTRIBUTION AGREEMENT

THIS AGREEMENT is made as of December 10, 1997 and amended and restated as of
June 16, 1998 by and between THE FBR FAMILY OF FUNDS (the "Trust"), a Delaware
business trust, and FBR INVESTMENT SERVICES, INC. (the "Distributor").

WITNESSETH:

In consideration of the mutual covenants herein contained and other good
and valuable consideration, the receipt of which is hereby acknowledged, the
parties hereto agree as follows:

<PAGE>

Trust upon terms consistent with those found in this Agreement. The
Distributor shall not be obligated to sell any certain number of shares of
beneficial interest. Each series of the Trust reserves the right to issue
shares in connection with any merger or consolidation of the Trust or any
series with any other investment company or any personal holding company or
in connection with offers of exchange exempted from Section 11(a) of the
Investment Company Act of 1940 (the "Act").

EIGHTH: The Trust shall bear:

-2-

<PAGE>

NINTH: The Distributor shall provide certain distribution services
including:

(A) providing officers, clerical staff and office space to use as
the headquarters of the Trust;

(B) arranging for the printing, distribution and filing of
prospectuses and statements of additional information necessary for
Trust shares sold by the Distributor;

(D) making all required filings of advertising and promotional
materials with the National Association of Securities Dealers, Inc.;
and

(E) bearing the expenses of:

(iii) any advertising used by the Distributor in connection
with such public offering (unless paid for by any 12b-1 Plan
adopted by the Trust); and

(iv) all legal expenses in connection with the foregoing.

TENTH: In consideration of its services as distributor for the
Class B shares of each series of the Trust, each series shall pay to
the Distributor (or its designee or transferee) its Distribution Fee (as
defined in the Class B Service and Distribution Plan) in respect of the
Class B shares of that series.

The Distributor's Distribution Fee and the contingent deferred
sales charges arising in respect of Class B shares taken into account in
computing the Distributor's Distribution Fee shall be limited under
Article III, Section 26(b) and (d) or other applicable regulations of
the National Association of Securities Dealers, Inc. (the "NASD") as if
the Class B shares taken into account in computing the Distributor's
Distribution Fee themselves constituted a separate class of shares of
that series.

-3-

<PAGE>

-4-

<PAGE>

SEVENTEENTH:

-5-

<PAGE>

EIGHTEENTH: Nothing herein contained shall require the Trust to take
any action contrary to any provision of its Declaration of Trust or to any
applicable statute or regulation.

NINETEENTH:

-6-

<PAGE>

IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
by their duly authorized officers as of the day and year first above written.

THE FBR FAMILY OF FUNDS

By:
----------------------------

FBR INVESTMENT SERVICES, Inc.

By:
----------------------------

<PAGE>

EXHIBIT 6(c)

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

Ladies and Gentlemen:

Reference is made to the Distribution Agreement between us dated as of
December 31, 1996, amended on December 10, 1997 and amended and restated as of
June 16, 1998 (the "Agreement").

Pursuant to the Agreement, this letter is to provide notice of the creation
of an additional investment portfolio of The FBR Family of Funds, namely the FBR
Realty Growth Fund (the "New Portfolio").

We request that you act as Distributor under the Agreement with respect to
the New Portfolio.

Please indicate your acceptance of the foregoing by executing two copies of
this Agreement, returning one to the Fund and retaining one copy for your
records.

Very truly yours,

The FBR Family of Funds

By:
---------------------------

Accepted:

Friedman, Billings, Ramsey & Co., Inc.

By:
---------------------------

Date:
---------------

<PAGE>

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

Ladies and Gentlemen:

Reference is made to the Distribution Agreement between us dated as of
December 31, 1996 and amended and restated as of June 16, 1998 (the
"Agreement").

Pursuant to the Agreement, this letter is to provide notice of the creation
of an additional investment portfolio of The FBR Family of Funds, namely the FBR
Realty Growth Fund (the "New Portfolio").

We request that you act as Distributor under the Agreement with respect to
the New Portfolio.

Please indicate your acceptance of the foregoing by executing two copies of
this Agreement, returning one to the Fund and retaining one copy for your
records.

Very truly yours,

The FBR Family of Funds

By:
---------------------------

Accepted:

FBR Investment Services , Inc.

By:
---------------------------

Date:
---------------

<PAGE>

EXHIBIT 8(b)
AMENDMENT TO CUSTODY AGREEMENT

This Amendment dated as of June 16, 1998 (the "Amendment") is made to the
Custody Agreement, dated as of December 31, 1996 (the "Agreement") between The
FBR Family of Funds (the "Trust") and Custodial Trust Company.

The Trust and Custodial Trust Company agree that the Agreement shall, as of
the date first written above, be amended as follows:

1. Exhibit A of the Agreement shall be deleted in its entirety and the
Schedule A attached hereto shall be substituted in its place.

In all other respects, the Agreement shall remain in full force and effect.

IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed by their duly authorized officers, as of the day and year first written
above.

THE FBR FAMILY OF FUNDS

By:
----------------------------

Title:
-------------------------

CUSTODIAL TRUST COMPANY

By:
----------------------------

Title:
-------------------------

<PAGE>

EXHIBIT A

PORTFOLIOS

- FBR Financial Services Fund

- FBR Small Cap Financial Services Fund

- FBR Small Cap Value Fund

- FBR Information Technologies Fund

- FBR Realty Growth Fund

<PAGE>

EXHIBIT 9(b)

AMENDMENT TO ADMINISTRATION AGREEMENT

This Amendment dated as of June 16, 1998 (the "Amendment") is made to the
Administration Agreement, dated as of December 31, 1996 (the "Agreement")
between The FBR Family of Funds (the "Trust") and Bear Stearns Funds Management,
Inc. ("Bear Stearns").

The Trust and Bear Stearns agree that the Agreement shall, as of the date
first written above, be amended as follows:

1. Schedule 1 of the Agreement shall be deleted in its entirety and the
Schedule 1 attached hereto shall be substituted in its place.

In all other respects, the Agreement shall remain in full force and effect.

IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed by their duly authorized officers, as of the day and year first written
above.

THE FBR FAMILY OF FUNDS

By:
-----------------------------

Title:
-----------------------------

BEAR STEARNS FUNDS MANAGEMENT, INC.

By:
-----------------------------

Title:
-----------------------------

<PAGE>

SCHEDULE 1

Name of Series Annual Fees* Reapproval Date Reapproval Day
--------------- ----------- --------------- --------------

FBR Financial Services Fund
FBR Small Cap Financial Services Fund
FBR Small Cap Value Fund
FBR Information Technologies Fund
FBR Realty Growth Fund

* As a Percentage of Average Daily Net Assets

<PAGE>

EXHIBIT 9(d)

AMENDMENT TO ADMINISTRATION AND ACCOUNTING
SERVICES AGREEMENT

This Amendment dated as of June 16, 1998 (the "Amendment") is made to the
Administration and Accounting Services Agreement, dated as of December 31, 1996
(the "Agreement") between The FBR Family of Funds (the "Trust") and PFPC, Inc.
("PFPC").

The Trust and PFPC agree that the Agreement shall, as of the date first
written above, be amended as follows:

1. Exhibit A of the Agreement shall be deleted in its entirety and the
Exhibit A attached hereto shall be substituted in its place.

In all other respects, the Agreement shall remain in full force and effect.

IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed by their duly authorized officers, as of the day and year first written
above.

THE FBR FAMILY OF FUNDS

By:
-----------------------------

Title:
-----------------------------

PFPC, INC.

By:
-----------------------------

Title:
-----------------------------

<PAGE>

EXHIBIT A

THIS EXHIBIT A, dated as of June 16, 1998, is Exhibit A to that certain
Administration and Accounting Services Agreement dated as of December 31, 1996
and amended as of June 16, 1998 between PFPC, Inc. and THE FBR FAMILY OF FUNDS.

PORTFOLIOS

FBR Financial Services Fund
FBR Small Cap Financial Services Fund
FBR Small Cap Value Fund
FBR Information Technologies Fund
FBR Realty Growth Fund

<PAGE>

EXHIBIT 9(f)

AMENDMENT TO TRANSFER AGENCY SERVICE AGREEMENT

This Amendment dated as of June 16, 1998 (the "Amendment") is made to the
Transfer Agency Service Agreement, dated as of December 31, 1996 (the
"Agreement") between The FBR Family of Funds (the "Trust") and PFPC, Inc.
("PFPC").

The Trust and PFPC agree that the Agreement shall, as of the date first
written above, be amended as follows:

1. Exhibit A of the Agreement shall be deleted in its entirety and the
Schedule A attached hereto shall be substituted in its place.

In all other respects, the Agreement shall remain in full force and effect.

IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed by their duly authorized officers, as of the day and year first written
above.

THE FBR FAMILY OF FUNDS

By:
-----------------------------

Title:
-----------------------------

PFPC, INC.

By:
-----------------------------

Title:
-----------------------------

<PAGE>

EXHIBIT A

THIS EXHIBIT A, dated as of June 16, 1998, is Exhibit A to that certain
Transfer Agency Services Agreement dated as of December 31, 1996 and amended as
of June 16, 1998 between PFPC, Inc. and THE FBR FAMILY OF FUNDS.

PORTFOLIOS

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

<PAGE>

Exhibit 10(c)

DECHERT PRICE & RHOADS
1775 EYE STREET, N.W.
WASHINGTON, DC 20006

July 1, 1998

FBR Family of Funds
Potomac Tower
1001 Nineteenth Street North
Arlington, VA 22209

Dear Sirs:

In connection with the registration under the Securities Act of 1933
of an indefinite number of Class A, Class B and Class C shares (the "Shares") of
the FBR Realty Growth Fund (the "Fund"), a series of the FBR Family of Funds
(the "Company"), we have examined such matters as we have deemed necessary, and
we are of the opinion that, as permitted by its Trust Instrument, and assuming
that the Company or its agent receives consideration for such Shares in
accordance with the provisions of its Trust Instrument, the Shares will be
legally and validly issued, will be fully paid, and will be non-assessable by
the Company.

We hereby consent to the use of this opinion as an exhibit to the
Company's Registration Statement on Form N-1A filed with the Securities and
Exchange Commission (File No. 333-05675) for the registration under the
Securities Act of 1933 of an indefinite number of the Funds' Shares, and to the
use of our name in the prospectus and statement of additional information
contained therein, and any amendments thereto.

Very truly yours,

/s/ Dechert Price & Rhoads

<PAGE>

CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS

As independent public accountants, we hereby consent to the incorporation by
reference in this Registration Statement of our report dated December 12,
1997, on the October 31, 1997 financial statements of The FBR Family of
Funds, incorporated by reference in Post-Effective Amendment No. 4 to the
Registration Statement on Form N1-A, and to all references to our Firm
included in or made part of this Registration Statement File No. 333-05675.

/s/ Arthur Andersen, L.L.P.
Arthur Andersen, L.L.P.

Washington, DC
July 1, 1998

<PAGE>

INDEPENDENT AUDITORS' CONSENT

To the Board of Trustees of GrandView Investment Trust
and Shareholders of GrandView Realty Growth Fund:

We consent to the incorporation by reference in Post-Effective Amendment
No. 4 to Registration Statement (No. 333-05675) of the FBR Family of Funds
(comprising the following Funds: FBR Financial Services Fund, FBR Small Cap
Financial Fund, FBR Small Cap Value Fund, FBR Realty Growth Fund and the FBR
Information Technologies Fund) of our report on the GrandView Realty Growth
Fund dated April 24, 1998, appearing in the Fund's Annual Report, which is
incorporated by reference in such Registration Statement, and to the
reference to us under the heading "Financial Highlights" in such Registration
Statement.

DELOITTE & TOUCHE LLP

Pittsburgh, Pennsylvania
July 1, 1998

<PAGE>

EXHIBIT 15(b)

THE FBR FAMILY OF FUNDS
SERVICE AND DISTRIBUTION PLAN

CLASS B SHARES

This Service and Distribution Plan (the "Plan") is adopted on March 31,
1998 and amended and restated on June 16, 1998 in accordance with Rule 12b-1
(the "Rule") under the Investment Company Act of 1940, as amended (the "1940
Act"), by The FBR Family of Funds, a business trust organized under the laws of
the State of Delaware (the "Company"), on behalf of the Class B shares of its
Funds (individually, a "Fund," and collectively, the "Funds") as set forth in
Schedule I, as amended from time to time, subject to the following terms and
conditions:

SECTION 1. ANNUAL FEES.

DISTRIBUTION FEE. Each Fund will pay to each of the distributors of its
shares, Friedman, Billings, Ramsey & Co., Inc. and FBR Investment Services, Inc.
(each a "Distributor" and collectively, the "Distributors"), a distribution fee
under the Plan at the annual rate of 0.75% of the average daily net assets of
the Fund's Class B shares sold by such Distributor or for which such Distributor
is designated the principal underwriter (the "Distribution Fee") and a service
fee under the Plan at the annual rate of 0.25% of the average daily net assets
of the Fund's Class B shares sold by such Distributor or for which such
Distributor is designated the principal underwriter (the "Service Fee"). Such
Distributor shall be paid its Distribution Fee notwithstanding such
Distributor's termination as Distributor of the Class B shares of the Fund, such
payments to be changed or terminated only as required by: (i) a change in
applicable law or a change in accounting policy adopted by the Investment
Companies Committee of the American Institute of Certified Public Accountants
and approved by the Financial Accounting Standards Board that results in a
determination by the Fund's independent accountants that any Sales Charges in
respect of such Fund, which are not Contingent Deferred Sales Charges and which
are not yet due and payable, must be accounted for by such Fund as a liability
in accordance with generally accepted accounting principles, each after the
effective date of this Plan and restatement; (ii) if in the sole discretion of
the Board of Trustees, after due consideration of the relevant factors
considered when adopting and/or amending this Plan including the transactions
contemplated in any purchase and sale agreement entered into between the
Distributor and a commission financing entity, the Board of Trustees determines,
subject to its fiduciary duty, that this Plan and the payments thereunder must
be changed or terminated notwithstanding, the effect this action might have on
the Fund's ability to offer and sell Class B shares; or (iii) in connection with
a Complete Termination of this Plan, it being understood that for this purpose a
Complete Termination of this Plan occurs only if this Plan is terminated and the
Series has discontinued the distribution of Class B shares or other back-end
load or substantially similar classes of shares. The services rendered by a
Distributor for which that Distributor is entitled to receive its Distribution
Fee shall be deemed to have been completed at the time of the initial purchase
of the relevant Class B shares taken into account in computing that
Distributor's Distribution Fee.

The obligation of the Fund to pay the Distribution Fee shall terminate upon
the termination of this Plan in accordance with the terms hereof. Except as
provided in the preceding paragraph, the Fund's obligation to pay the
Distribution Fee to a Distributor of the Class B shares of the Fund shall be
absolute and unconditional and shall not be subject to any

<PAGE>

dispute, offset, counterclaim or defense whatsoever (it being understood that
nothing in this sentence shall be deemed a waiver by the Company or a Fund of
its right separately to pursue any claims it may have against such Distributor
and enforce such claims against any assets (other than its right to be paid its
Distribution Fee and to be paid the contingent deferred sales charges) of such
Distributor).

The right of a Distributor to receive the Distribution Fee (but not the
relevant distribution agreement or that Distributor's obligations thereunder)
may be transferred by that Distributor in order to raise funds which may be
useful or necessary to perform its duties as principal underwriter, and any such
transfer shall be effective upon written notice from that Distributor to the
Company. In connection with the foregoing, each Fund is authorized to pay all
or part of the Distribution Fee directly to such transferee as directed by that
Distributor.

ADJUSTMENT TO FEES. Any Fund may pay a Distribution Fee or Service Fee to
either or both of the Distributors at a lesser rate than the fees specified in
Section 1 hereof as agreed upon by the Board of Trustees and the Distributor and
approved in the manner specified in Section 4 of this Plan.

PAYMENT OF FEES. The Distribution Fees and Service Fees will be calculated
daily and paid monthly by each Fund at the annual rate indicated above.

SECTION 2. EXPENSES COVERED BY THE PLAN.

Distribution Fees may be used by the Distributors for: (a) costs of
printing and distributing a Fund's prospectus, statement of additional
information and reports to prospective investors in the Fund; (b) costs involved
in preparing, printing and distributing sales literature pertaining to a Fund;
(c) an allocation of overhead and other branch office distribution-related
expenses of the Distributor; (d) payments to persons who provide support
services in connection with the distribution of a Fund's shares, including but
not limited to, office space and equipment, telephone facilities, answering
routine inquiries regarding a Fund, processing shareholder transactions and
providing any other shareholder services not otherwise provided by a Fund's
transfer agent; (e) accruals for interest on the amount of the foregoing
expenses that exceed the Distribution Fee; and (f) the sale of a Fund's shares,
including, without limitation, payments to salesmen and selling dealers who have
entered into selected dealer agreements with the Distributor, at the time of the
sale of shares, if applicable, and continuing fees to each such salesmen and
selling dealers, which fee shall begin to accrue immediately after the sale of
such shares. The Distributor will use the service fees primarily to pay ongoing
trail commissions to securities dealers (which may include the Distributor
itself) and other financial organizations which provide shareholder services for
the Funds. These services include, among other things, processing new
shareholder account applications, reporting all transactions by customers to the
Funds' Transfer Agent and serving as the primary information source to customers
concerning the Funds.

The amount of the Distribution Fees and Service Fees payable by any Fund
under Section 1 hereof is not related directly to expenses incurred by the
Distributors and this Section 2 does not obligate a Fund to reimburse the
Distributors for such expenses. The Distribution Fees and Service Fees set
forth in Section 1 will be paid by a Fund to the Distributors unless and until
the

<PAGE>

Plan is terminated or not renewed with respect to a Fund. Any distribution or
service expenses incurred by the Distributors on behalf of a Fund in excess of
payments of the Distribution Fees or Service Fees specified in Section 1 hereof
which the Distributors have accrued through the termination date are the sole
responsibility and liability of the Distributors and not an obligation of a
Fund.

SECTION 3. INDIRECT EXPENSES.

While each Fund is authorized to make payments under this Plan to the
Fund's Distributors for expenses described above, it is expressly recognized
that each Fund presently pays, and will continue to pay, an investment advisory
fee to its Investment Adviser and an administration fee to the Administrator.
To the extent that any payments made by any Fund to the Investment Adviser or
Administrator, including payment of fees under the Investment Advisory Agreement
or the Administration Agreement, respectively, should be deemed to be indirect
financing of any activity primarily intended to result in the sale of shares of
the Portfolio within the context of Rule 12b-1 under the 1940 Act, then such
payments shall be deemed to be authorized by this Plan.

SECTION 4. APPROVAL OF TRUSTEES.

Neither the Plan nor any related agreements will take effect until approved
by a majority of both (a) the full Board of Trustees of the Trust and (b) those
Trustees who are not interested persons of the Trust and who have no direct or
indirect financial interest in the operation of the Plan or in any agreements
related to it (the "Qualified Trustees"), cast in person at a meeting called for
the purpose of voting on the Plan.

SECTION 5. CONTINUANCE OF THE PLAN.

The Plan will continue in effect until March 31, 1999, and thereafter for
successive twelve-month periods: provided, however, that such continuance is
specifically approved at least annually by the Trustees of the Trust and by a
majority of the Qualified Trustees.

SECTION 6. TERMINATION.

The Plan may be terminated at any time with respect to a Fund (i) by the
Trust without payment of any penalty, by the vote of a majority of the
outstanding voting securities of any Fund or (ii) by a vote of the Qualified
Trustees. The Plan may remain in effect with respect to a Fund even if the Plan
has been terminated in accordance with this Section 5 with respect to any other
Fund.

SECTION 7. AMENDMENTS.

The Plan may not be amended with respect to any Fund so as to increase
materially the amounts of the fees described in Section 1 above, unless the
amendment is approved by a vote of the holders of at least a majority of the
outstanding voting securities of that Fund. No material amendment to the Plan
may be made unless approved by the Trust's Board of Trustees in the manner
described in Section 4 above.

<PAGE>

SECTION 8. SELECTION OF CERTAIN TRUSTEES.

While the Plan is in effect, the selection and nomination of the Trust's
Trustees who are not interested persons of the Trust will be committed to the
discretion of the Trustees then in office who are not interested persons of the
Trust.

SECTION 9. WRITTEN REPORTS.

In each year during which the Plan remains in effect, a person authorized
to direct the disposition of monies paid or payable by a Fund pursuant to the
Plan or any related agreement will prepare and furnish to the Trust's Board of
Trustees, and the Board will review, at least quarterly, written reports
complying with the requirements of the Rule which set out the amounts expended
under the Plan and the purposes for which those expenditures were made.

<PAGE>

SECTION 10. PRESERVATION OF MATERIALS.

The Trust will preserve copies of the Plan, any agreement relating to the
Plan and any report made pursuant to Section 8 above, for a period of not less
than six years (the first two years in an easily accessible place) from the date
of the Plan, agreement or report.

SECTION 11. MEANINGS OR CERTAIN TERMS.

As used in the Plan, the terms "interested person" and "majority of the
outstanding voting securities" will be deemed to have the same meaning that
those terms have under the 1940 Act by the Securities and Exchange Commission.

<PAGE>

SCHEDULE I

This Plan shall be adopted with respect to the Class B shares of the following
Funds of The FBR Family of Funds:

FBR Financial Services Fund
FBR Small Cap Financial Fund
FBR Small Cap Value Fund
FBR Information Technologies Fund
FBR Realty Growth Fund

<PAGE>
<ARTICLE> 6
<CIK> 0001015712
<NAME> FBR FAMILY OF FUNDS
<SERIES>
<NUMBER> 011
<NAME> FBR FINANCIAL SERVICES FUND - CLASS A

<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> OCT-31-1998
<PERIOD-END> APR-30-1998
<INVESTMENTS-AT-COST> 57071949
<INVESTMENTS-AT-VALUE> 66990123
<RECEIVABLES> 374150
<ASSETS-OTHER> 677369
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 68041642
<PAYABLE-FOR-SECURITIES> 310503
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 937233
<TOTAL-LIABILITIES> 1247736
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 55618980
<SHARES-COMMON-STOCK> 3388415
<SHARES-COMMON-PRIOR> 1495976
<ACCUMULATED-NII-CURRENT> 67409
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 1189345
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 9918174
<NET-ASSETS> 66774833
<DIVIDEND-INCOME> 309246
<INTEREST-INCOME> 95750
<OTHER-INCOME> 0
<EXPENSES-NET> 324798
<NET-INVESTMENT-INCOME> 80198
<REALIZED-GAINS-CURRENT> 1210756
<APPREC-INCREASE-CURRENT> 6963945
<NET-CHANGE-FROM-OPS> 8174701
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 70555
<DISTRIBUTIONS-OF-GAINS> 311918
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 2196173
<NUMBER-OF-SHARES-REDEEMED> 325325
<SHARES-REINVESTED> 21591
<NET-CHANGE-IN-ASSETS> 42808478
<ACCUMULATED-NII-PRIOR> 57764
<ACCUMULATED-GAINS-PRIOR> 290507
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 177161
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 362408
<AVERAGE-NET-ASSETS> 39695317
<PER-SHARE-NAV-BEGIN> 16.03
<PER-SHARE-NII> .02
<PER-SHARE-GAIN-APPREC> 3.89
<PER-SHARE-DIVIDEND> .04
<PER-SHARE-DISTRIBUTIONS> .19
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 19.71
<EXPENSE-RATIO> 1.65
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0

</TABLE>

<PAGE>
<ARTICLE> 6
<CIK> 0001015712
<NAME> FBR FAMILY OF FUNDS
<SERIES>
<NUMBER> 012
<NAME> FBR FINANCIAL SERVICES FUND - CLASS B

<S> <C>
<PERIOD-TYPE> 6-MOS
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<PERIOD-END> APR-30-1998
<INVESTMENTS-AT-COST> 57071949
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<ASSETS-OTHER> 677369
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<TOTAL-ASSETS> 68041642
<PAYABLE-FOR-SECURITIES> 310503
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 937233
<TOTAL-LIABILITIES> 1247736
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 55618980
<SHARES-COMMON-STOCK> 968
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 67409
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 1189345
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 9918174
<NET-ASSETS> 19073
<DIVIDEND-INCOME> 309246
<INTEREST-INCOME> 95750
<OTHER-INCOME> 0
<EXPENSES-NET> 324798
<NET-INVESTMENT-INCOME> 80198
<REALIZED-GAINS-CURRENT> 1210756
<APPREC-INCREASE-CURRENT> 6963945
<NET-CHANGE-FROM-OPS> 8174701
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 968
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 42808478
<ACCUMULATED-NII-PRIOR> 57764
<ACCUMULATED-GAINS-PRIOR> 290507
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 177161
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 362408
<AVERAGE-NET-ASSETS> 19082
<PER-SHARE-NAV-BEGIN> 20.12
<PER-SHARE-NII> .01
<PER-SHARE-GAIN-APPREC> (.43)
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 19.70
<EXPENSE-RATIO> 2.40
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0

</TABLE>

<PAGE>
<ARTICLE> 6
<CIK> 0001015712
<NAME> FBR FAMILY OF FUNDS
<SERIES>
<NUMBER> 021
<NAME> FBR SMALL CAP FINANCIAL FUND - CLASS A

<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> OCT-31-1998
<PERIOD-END> APR-30-1998
<INVESTMENTS-AT-COST> 100978117
<INVESTMENTS-AT-VALUE> 115439491
<RECEIVABLES> 2700790
<ASSETS-OTHER> 1714865
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 119855146
<PAYABLE-FOR-SECURITIES> 206500
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 3478477
<TOTAL-LIABILITIES> 3684977
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 98944922
<SHARES-COMMON-STOCK> 5709197
<SHARES-COMMON-PRIOR> 2473976
<ACCUMULATED-NII-CURRENT> 232761
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 2531112
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 14461374
<NET-ASSETS> 115819566
<DIVIDEND-INCOME> 622642
<INTEREST-INCOME> 312074
<OTHER-INCOME> 0
<EXPENSES-NET> 656954
<NET-INVESTMENT-INCOME> 277762
<REALIZED-GAINS-CURRENT> 2533078
<APPREC-INCREASE-CURRENT> 10161888
<NET-CHANGE-FROM-OPS> 12972728
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 100673
<DISTRIBUTIONS-OF-GAINS> 470536
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 5066083
<NUMBER-OF-SHARES-REDEEMED> 1861519
<SHARES-REINVESTED> 30657
<NET-CHANGE-IN-ASSETS> 72808331
<ACCUMULATED-NII-PRIOR> 55672
<ACCUMULATED-GAINS-PRIOR> 468570
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 369987
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 668303
<AVERAGE-NET-ASSETS> 82900690
<PER-SHARE-NAV-BEGIN> 17.53
<PER-SHARE-NII> .05
<PER-SHARE-GAIN-APPREC> 2.89
<PER-SHARE-DIVIDEND> .03
<PER-SHARE-DISTRIBUTIONS> .15
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 20.29
<EXPENSE-RATIO> 1.60
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0

</TABLE>

<PAGE>
<ARTICLE> 6
<CIK> 0001015712
<NAME> FBR FAMILY OF FUNDS
<SERIES>
<NUMBER> 022
<NAME> FBR SMALL CAP FINANCIAL FUND - CLASS B

<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> OCT-31-1998
<PERIOD-END> APR-30-1998
<INVESTMENTS-AT-COST> 100978117
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<OTHER-ITEMS-LIABILITIES> 3478477
<TOTAL-LIABILITIES> 3684977
<SENIOR-EQUITY> 0
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<SHARES-COMMON-STOCK> 15599
<SHARES-COMMON-PRIOR> 0
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<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 14461374
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<INTEREST-INCOME> 312074
<OTHER-INCOME> 0
<EXPENSES-NET> 656954
<NET-INVESTMENT-INCOME> 277762
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<DISTRIBUTIONS-OF-GAINS> 0
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<NUMBER-OF-SHARES-SOLD> 15974
<NUMBER-OF-SHARES-REDEEMED> 375
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 72808331
<ACCUMULATED-NII-PRIOR> 55672
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<OVERDIST-NET-GAINS-PRIOR> 0
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<GROSS-EXPENSE> 668303
<AVERAGE-NET-ASSETS> 202908
<PER-SHARE-NAV-BEGIN> 20.39
<PER-SHARE-NII> .01
<PER-SHARE-GAIN-APPREC> (.10)
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<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 20.30
<EXPENSE-RATIO> 2.40
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0

</TABLE>

<PAGE>
<ARTICLE> 6
<CIK> 0001015712
<NAME> FBR FAMILY OF FUNDS
<SERIES>
<NUMBER> 023
<NAME> FBR SMALL CAP FINANCIAL FUND - CLASS C

<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> OCT-31-1998
<PERIOD-END> APR-30-1998
<INVESTMENTS-AT-COST> 100978117
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<RECEIVABLES> 2700790
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<TOTAL-ASSETS> 119855146
<PAYABLE-FOR-SECURITIES> 206500
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 3478477
<TOTAL-LIABILITIES> 3684977
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 98944922
<SHARES-COMMON-STOCK> 1674
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 232761
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<ACCUMULATED-NET-GAINS> 2531112
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 14461374
<NET-ASSETS> 33952
<DIVIDEND-INCOME> 622642
<INTEREST-INCOME> 312074
<OTHER-INCOME> 0
<EXPENSES-NET> 656954
<NET-INVESTMENT-INCOME> 277762
<REALIZED-GAINS-CURRENT> 2533078
<APPREC-INCREASE-CURRENT> 10161888
<NET-CHANGE-FROM-OPS> 12972728
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1674
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 72808331
<ACCUMULATED-NII-PRIOR> 55672
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<OVERDIST-NET-GAINS-PRIOR> 0
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<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 668303
<AVERAGE-NET-ASSETS> 14452
<PER-SHARE-NAV-BEGIN> 20.53
<PER-SHARE-NII> .01
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<PER-SHARE-NAV-END> 20.28
<EXPENSE-RATIO> 2.40
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0

</TABLE>

<PAGE>
<ARTICLE> 6
<CIK> 0001015712
<NAME> FBR FAMILY OF FUNDS
<SERIES>
<NUMBER> 031
<NAME> FBR SMALL CAP VALUE FUND - CLASS A

<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> OCT-31-1998
<PERIOD-END> APR-30-1998
<INVESTMENTS-AT-COST> 21500927
<INVESTMENTS-AT-VALUE> 23591264
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<TOTAL-ASSETS> 26056551
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<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 2406323
<TOTAL-LIABILITIES> 3383472
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 20000123
<SHARES-COMMON-STOCK> 1232370
<SHARES-COMMON-PRIOR> 495069
<ACCUMULATED-NII-CURRENT> 20563
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 562056
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 2090337
<NET-ASSETS> 22673079
<DIVIDEND-INCOME> 90603
<INTEREST-INCOME> 36270
<OTHER-INCOME> 0
<EXPENSES-NET> 106310
<NET-INVESTMENT-INCOME> 20563
<REALIZED-GAINS-CURRENT> 562227
<APPREC-INCREASE-CURRENT> 1008334
<NET-CHANGE-FROM-OPS> 1591124
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 249613
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 843386
<NUMBER-OF-SHARES-REDEEMED> 121086
<SHARES-REINVESTED> 15001
<NET-CHANGE-IN-ASSETS> 14404561
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 249442
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 57985
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 146977
<AVERAGE-NET-ASSETS> 12991489
<PER-SHARE-NAV-BEGIN> 16.70
<PER-SHARE-NII> .05
<PER-SHARE-GAIN-APPREC> 2.10
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> .49
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 18.36
<EXPENSE-RATIO> 1.65
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0

</TABLE>

<PAGE>
<ARTICLE> 6
<CIK> 0001015712
<NAME> FBR FAMILY OF FUNDS
<SERIES>
<NUMBER> 032
<NAME> FBR SMALL CAP VALUE FUND - CLASS B

<S> <C>
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<PER-SHARE-NAV-BEGIN> 18.74
<PER-SHARE-NII> .02
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</TABLE>