FBR FAMILY OF FUNDS, N-30D, 1999-12-30

FBR FAMILY OF FUNDS
N-30D, 1999-12-30

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FBR FAMILY OF FUNDS

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

[LOGO]

ANNUAL REPORT
OCTOBER 31, 1999

FBR FAMILY OF FUNDS

Potomac Tower
1001 Nineteenth Street North
Arlington, VA 22209

1-888-888-0025
e-mail: [email protected]
Internet: http://www.fbrfunds.com
<PAGE>
FBR FAMILY OF FUNDS
----------------

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

LETTER TO SHAREHOLDERS

December 2, 1999

Dear Shareholder:

We are pleased to bring you the annual report of the FBR Family of Funds
(the "Trust") for the fiscal year ended October 31, 1999. It has been a
difficult year by any measure. In last year's annual letter, I wrote about the
large disparity between the returns of the technology heavy NASDAQ Composite
Index compared to the Russell 2000 Index ("Russell 2000"), which is
representative of the small cap market. During 1999 this disparity not only
continued, but widened. This is evidenced by the fact that from the beginning of
1998 through November 30, 1999, the NASDAQ Composite Index was up 118.73% while
the Russell 2000 was up just 6.58%. Generally speaking, during periods of
optimism, investors are willing to bid up issues based on PROJECTIONS of
revenues and earnings that may come far in the future. During less optimistic
times, investors typically place more weight on CURRENT assets and earnings. We
have clearly been in a period of tremendous optimism. Some of this differential
is justified because of the significant growth experienced by technology
companies. However, much of this disparity is based on expectations for future
growth that may or may not materialize. Fortunately for the Trust's
shareholders, portfolio managers David Ellison, Chuck Akre and Skip Aylesworth
have experienced these cycles in the past, which we believe allows each of them
a strategic advantage in maximizing the investment opportunities which the
current market environment offers.

We believe our funds provide investors with the advantages of specialization
within growing industries, and experienced management. Although some investors
attempt to profit by timing the ups and downs of various industry sectors, the
funds are not managed toward that objective -- they are managed with the belief
that over an extended period, prudent investments in strong industry sectors
will produce better than average investment returns.

The FBR Small Cap Value Fund ("Small Cap Value Fund") continues to produce
strong shareholder value in the face of a small company market that has lacked
investor favor for some time. The Small Cap Value Fund's average annual return
from inception (01/03/97) is 14.39%, far outpacing its benchmarks, the Russell
2000 and the Lipper Small Cap Value Index which returned 7.91% and 4.84%,
respectively, for the same time period. The FBR Realty Growth Fund ("Realty
Growth Fund") also posted better results than its benchmark, the NAREIT Total
Return Index ("NAREIT"), with an average annual return from inception (07/03/95)
of 8.30% versus the NAREIT's 6.87% for the same time period.

As a result of the current sentiment favoring growth companies, financial
services funds continue to lag the broad market. The FBR Financial Services Fund
("Financial Services Fund") and FBR Small Cap Financial Fund ("Small Cap
Financial Fund") are not immune to this, for reasons David Ellison will address
in his remarks. The average annual return since inception (01/03/97) for the
Financial Services Fund and Small Cap Financial Fund were 16.17% and 11.77%,
respectively, compared to the Lipper Financial Services Fund Index which
returned 18.76% for the same time period.

2
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The annual report is a good forum for our portfolio managers to communicate
directly with shareholders. In the sections that follow, they will discuss their
approach to investing, and outline their views on the market conditions over the
past year and how they have affected the performance of their funds. Detailed
performance data for each fund can be found in the "Financial Highlights" and
line graph sections of this report.

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

The last two years have been difficult. While we believe the funds have done
well relative to comparable indices, they have not kept up with the broader
averages. A slowdown in earnings growth, which developed in 1998, continued into
1999. While there is much hope present in other sectors of the market about
earning prospects, the financial services industry continues to show that it is
human.

What are the problems? First, lending spreads (the difference between
borrowing costs and lending rates) remain under pressure. There are lots of
players in the loan and deposit business and they all want to grow. While this
business has always been competitive, it is more so today because everyone
appears to be financially healthy and to have ample capital. Second, fee income
growth appears to be slowing. After many years of entering new fee producing
businesses and improving existing ones, most of the easy growth is behind them.
Third, consolidation activity has slowed. Consolidation has generally produced
stronger and more competitive companies. Without consolidation maintaining
investor interest becomes more difficult. Finally, fear. Fear of rising interest
rates, fear of Y2K disruptions, fear of what the Internet will do to the
traditional banking business, fear of a recession and related credit troubles,
fear of missing technology stocks.

What about the future? As anyone will tell you, the future is about change.
I believe conditions that have created investor apathy towards financial stocks
will change. I believe technology will help the business get better, not destroy
it. I believe rising interest rates are better than falling interest rates,
because rising interest rates weed out weaker players. I believe current
earnings difficulties will push management to do better. I believe merger
activity will pick up again. I believe that if a recession comes, most companies
will be ready.

As always, the funds will continue to own what we believe are well managed
companies that appear capable of adapting to change while sticking to
fundamentals. Those fundamentals include keeping credit exposure in check,
keeping expenses down, building fee income, investing in the business prudently,
having ample capital and liquidity and taking advantage of consolidation
opportunities.

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

What are the expectations of my fellow investors in the Small Cap Value
Fund? On the occasions that we talk to them directly, here is what we have told
them:

Our primary goal is to compound our shareholder's capital at a rate that we
hope will be above our benchmark. In order to achieve this, we very carefully
select a small number of businesses that we believe are outstanding, operated by
shareholder-oriented management. We are particularly drawn to those companies
that we believe have an opportunity to reinvest all excess profits generated
back into their business model, and earn a high return on these reinvestments.

This past year's market has been a remarkable place to be involved. All
sorts of valuations may be found in new companies, which both stretch and test
our mental abilities to understand these businesses, as well as their market
valuations. However, we continue to believe that small cap stocks are
significantly undervalued, and that our objective is to capitalize on this
situation by making investments that are likely to deliver multi-year returns at
above average levels.

The fund has had a positive performance this year. We expect that
concentrating our assets in businesses we believe are truly outstanding will
help us to accomplish greater investment goals during the upcoming year. Our
one-year return from October 31, 1998 through October 31, 1999 was 16.24%. This
compares favorably to our

3
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benchmarks, the Lipper Small Cap Value Index and the Russell 2000, which were up
2.23% and 14.95%, respectively, for the same time period. At the end of
October we held just twenty-two companies in the portfolio, with the top five
holdings amounting to approximately 57.05% of our assets, and the top ten
holdings amounting to approximately 80.97% of the fund.

We don't try to predict in which direction the markets will head. Rather, we
spend our time identifying a handful of businesses we think are terrific where
we can invest our shareholder's money when the values are reasonable. Our goal
is to remain flexible in our outlook, focused on quality businesses and remain
dedicated with our own money as well as yours to achieve a solid, tax-efficient
return on our capital.

SKIP AYLESWORTH, PORTFOLIO MANAGER -- FBR REALTY GROWTH FUND

Although the Realty Growth Fund continued to outperform its benchmark for
the most recent fiscal year, it was still a disappointment that the return was
negative. For the fiscal year ended October 31, 1999, your fund returned -3.77%
as compared to the NAREIT which returned -8.41%. Although the exuberance of the
high-tech sector tends to overshadow investing in real estate securities, we
believe that using REITs and non-REITs as a substitute for utility stocks or
bonds as an asset class continues to hold merit.

Over the last twelve months, our universe of approximately 300 publicly
traded real estate companies (REITs and non-REITs) has been driven by several
factors. The gradual tightening of interest rates by the Federal Reserve
throughout the year was a general negative for the industry by making the cost
of borrowing money more expensive and increasing the yield demanded by
income-oriented investors. In addition, most property types and most geographic
areas of the country, with minor exceptions, were in supply equilibrium. This
kept rental increases modest and, hence, the growth of earnings for many of
these companies slowed.

I'd like to comment on two sectors of the overall real estate market that
have driven some of the investment decisions of your fund and have impacted
performance. Hotels and health care. Investors have roundly shunned the hotel
sector as a large supply of new rooms has come on the market in many areas. The
health care sector has also become highly out of favor due to health care
management companies adjusting to new reimbursement formulas of the federal
government. This has led to issuers in the two industry groups to report reduced
earnings and reduce or eliminate their dividend. Some have even filed
bankruptcy. The two groups are so out of favor with investors that their
security prices are priced at historically low multiples of cash flow coupled
with extraordinary dividend yields. In other words, they are on sale and now
offer some historic values. With the "Value" portion of your fund we have
over-weighted our investments in these two sectors. While we believe we are well
positioned for a recovery in these sectors, which we believe will certainly
come, we have also paid the price of reduced near-term performance.

We of course have had some investment successes over the last year as we
liquidated many of the large cap REITs in the spring rally, only to be able to
begin buying the same companies back this fall at 20-30% lower prices. In
addition, two of our "opportunistic investments" provided us with exceptional
returns as we liquidated them. Our position in the distressed Resort Income
Investors, Inc. (Symbol: RIIV) was liquidated as the company went out of
business at a return of 94% to our original investment. We also sold our
investment in Crescent Operating, Inc. (Symbol: COPI) after only a four month
hold with an overall return of 63%. At the time of purchase, both investments
represented approximately 1% of the fund's net assets. Upon sale, both
investments represented approximately 2% of the fund's net assets. Although we
don't perceive ourselves as market timers, we certainly appreciated these great
returns.

Looking forward, we continue to believe that the real estate sector offers
investors great income with moderate growth potential. These characteristics are
often considered defensive and are used for asset diversification purposes. Your
fund distinguishes itself from its peers by following a three-pronged investment
philosophy toward this industry group. By investing for "Quality, Value and
Opportunity," we believe your portfolio is well diversified to continue its
record of surpassing target benchmark returns. As a fellow shareholder of the
Realty Growth Fund, I look forward to our mutual success in the years ahead.

4
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IN CONCLUSION

FBR Fund Advisers, Inc.'s parent firm, Friedman, Billings, Ramsey Group,
Inc., recently announced a definitive agreement to acquire Money Management
Associates LP ("MMA") and Rushmore Trust and Savings, FSB, Bethesda, MD. MMA is
the adviser to the Rushmore Funds. This will expand the diversity of our fund
offerings and may have a positive effect on the funds' expense structures. We
expect this transaction to close in mid-2000 and will keep you apprised of how
this development will affect shareholders of the funds.

We hope you find this report helpful in evaluating your investment in the
funds. As always, we welcome the opportunity to discuss our funds with you. To
receive a free copy of the FBR Family of Funds prospectus and to address any
questions or concerns you may have, please call our marketing representatives at
1-888-888-0025. To discuss your particular account, contact our shareholder
representatives at 1-800-821-3460.

Sincerely,

/s/ C. Eric Brugel
C. Eric Brugel
Chairman & President
FBR Family of Funds

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

An investment in the funds entail investment risks inherent in equity
investments. These risks may be enhanced by the small capitalization of the
issuers in which the funds typically invests, as these issuers may be
particularly susceptible to adverse economic developments, and the market prices
of their securities tend to be more volatile than those of larger companies.
Further, the funds' focused investment style closely ties its performance to
developments affecting a narrow market sector or a limited number of issuers.

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

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

5
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[FBR LOGO]
FBR FAMILY OF FUNDS
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FBR FINANCIAL SERVICES FUND

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

EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC

<TABLE>
<CAPTION>
FBR FINANCIAL S&P 500 LIPPER FINANCIAL
SERVICES COMPOSITE INDEX SERVICES
FUND FUND INDEX
<S> <C> <C> <C>
Jan. 3, 1997 $10,000 $10,000 $10,000
Apr. 30, 1997 $10,567 $10,936 $11,006
Oct. 31, 1997 $13,358 $12,593 $13,678
Apr. 30, 1998 $16,649 $15,425 $16,756
Oct. 31, 1998 $14,309 $15,362 $14,438
Apr. 30, 1999 $16,065 $18,971 $17,172
Oct. 31, 1999 $15,282 $19,304 $16,267
Past performance is not predictive of future performance.
</TABLE>

<TABLE>
TOTAL RETURNS
ONE YEAR ENDED AVERAGE
OCTOBER 31, 1999 ANNUAL(3)
----- -----
<S> <C> <C>
FBR Financial Services Fund(1)(2).... 6.80% 16.17%
S&P 500 Composite Index(1)........... 25.66 26.16
Lipper Financial Services Fund
Index(1)............................. 12.66 18.76
</TABLE>

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(2) FBR Fund Advisers, Inc. waived a portion of its advisory fees and agreed to
contractually reimburse a portion of the Fund's operating expenses, as
necessary, to maintain existing expense limitations, as set forth in the
notes to the financial statements. Total returns shown include fee waivers
and expense reimbursements, if any; total returns would have been lower had
there been no assumption of fees and/or expenses in excess of expense
limitations.

(3) For the period January 3, 1997 (commencement of investment operations)
through October 31, 1999.

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

FBR SMALL CAP FINANCIAL FUND

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

EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC

<TABLE>
<CAPTION>
FBR SMALL CAP RUSSELL 2000 LIPPER FINANCIAL
FINANCIAL FUND INDEX SERVICES
FUND INDEX
<S> <C> <C> <C>
Jan. 3, 1997 $10,000 $10,000 $10,000
Apr. 30, 1997 $10,617 $9,604 $11,006
Oct. 31, 1997 $14,608 $12,213 $13,678
Apr. 30, 1998 $17,081 $13,695 $16,756
Oct. 31, 1998 $13,150 $10,791 $14,438
Apr. 30, 1999 $13,662 $12,437 $17,172
Oct. 31, 1999 $13,701 $12,404 $16,267
Past performance is not predictive of future performance.
</TABLE>

<TABLE>
TOTAL RETURNS
ONE YEAR ENDED AVERAGE
OCTOBER 31, 1999 ANNUAL(3)
----- -----
<S> <C> <C>
FBR Small Cap Financial Fund(1)(2)... 4.19% 11.77%
Russell 2000 Index(1)................ 14.95 7.91
Lipper Financial Services Fund
Index(1)............................. 12.66 18.76
</TABLE>

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(3) For the period January 3, 1997 (commencement of investment operations)
through October 31, 1999.

7
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[FBR LOGO]
FBR FAMILY OF FUNDS
----------------

FBR SMALL CAP VALUE FUND

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

EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC

<TABLE>
<CAPTION>
FBR SMALL CAP RUSSELL LIPPER
VALUE FUND 2000 INDEX SMALL CAP
VALUE INDEX
<S> <C> <C> <C>
Jan. 3, 1997 $10,000 $10,000 $10,000
Apr. 30, 1997 $9,750 $9,604 $9,980
Oct. 31, 1997 $13,917 $12,213 $12,724
Apr. 30, 1998 $15,751 $13,695 $14,177
Oct. 31, 1998 $12,585 $10,791 $11,183
Apr. 30, 1999 $15,248 $12,437 $11,740
Oct. 31, 1999 $14,629 $12,404 $11,432
Past performance is not predictive of future performance.
</TABLE>

<TABLE>
TOTAL RETURNS
ONE YEAR ENDED AVERAGE
OCTOBER 31, 1999 ANNUAL(3)
----- -----
<S> <C> <C>
FBR Small Cap Value Fund(1)(2)....... 16.24% 14.39%
Russell 2000 Index(1)................ 14.95 7.91
Lipper Small Cap Value Index(1)...... 2.23 4.84
</TABLE>

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(1) The chart assumes a hypothetical $10,000 initial investment in the Fund and
reflects all Fund expenses. Investors should note that the Fund is a
professionally managed mutual fund while the indices are unmanaged, do not
incur sales charges or expenses and are not available for investment. As of
September 30, 1999, the Lipper Small Cap Fund Index was separated into
three distinct indices: the Lipper Small Cap Core Index, Lipper Small Cap
Growth Index and Lipper Small Cap Value Index. Therefore, as a result of
these changes the Fund's comparison data reflects those of the Lipper Small
Cap Value Index.

(3) For the period January 3, 1997 (commencement of investment operations)
through October 31, 1999.

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

FBR REALTY GROWTH FUND

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

EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC

<TABLE>
<CAPTION>
FBR REALTY S&P 500 NAREIT TOTAL
GROWTH FUND COMPOSITE INDEX RETURN INDEX
<S> <C> <C> <C>
Jul. 3, 1995 $10,000 $10,000 $10,000
Oct. 31, 1995 $9,664 $10,709 $10,303
Apr. 30, 1996 $10,495 $12,178 $11,294
Oct. 31, 1996 $12,657 $13,277 $12,962
Apr. 30, 1997 $14,779 $15,226 $14,601
Oct. 31, 1997 $17,781 $17,529 $17,081
Apr. 30, 1998 $18,953 $21,471 $17,050
Oct. 31, 1998 $14,684 $21,383 $14,560
Apr. 30, 1999 $15,501 $26,156 $14,971
Oct. 31,1999 $14,131 $26,871 $13,336
Past performance is not predictive of future performance.
</TABLE>

<TABLE>
TOTAL RETURNS
ONE YEAR ENDED AVERAGE
OCTOBER 31, 1999 ANNUAL(3)
------ -----
<S> <C> <C>
FBR Realty Growth Fund(1)(2)......... (3.77)% 8.30%
S&P 500 Composite Index(1)........... 25.66 25.62
NAREIT Total Return Index(1)......... (8.41) 6.87
</TABLE>

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(1) The chart assumes a hypothetical $10,000 initial investment in the Fund and
reflects all Fund expenses. Investors should note that the Fund is a
professionally managed mutual fund while the indices are unmanaged, do not
incur sales charges or expenses and are not available for investment.
Purchases made by shareholders prior to December 21, 1998, would have been
subject to an initial maximum sales charge of 5.50%. As a result, total
returns for such shareholders would have been lower. Performance
information through September 18, 1998 is represented by the GrandView(SM)
Realty Growth Fund.

(2) FBR Fund Advisers, Inc. waived its advisory fees and agreed to
contractually reimburse a portion of the Fund's operating expenses, as
necessary, to maintain existing expense limitations, as set forth in the
notes to the financial statements. Total returns shown include fee waivers
and expense reimbursements, if any; total returns would have been lower had
there been no assumption of fees and/or expenses in excess of expense
limitations. Commencing September 18, 1998, FBR Fund Advisers, Inc. assumed
the daily portfolio management responsibility for the Fund. For the period
July 3, 1995 through September 18, 1998, the Fund's investment adviser was
GrandView Advisers, Inc.

(3) For the period July 3, 1995 (commencement of investment operations) through
October 31, 1999.

9
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[FBR LOGO]
FBR FAMILY OF FUNDS
----------------

FBR FINANCIAL SERVICES FUND

PORTFOLIO OF INVESTMENTS

OCTOBER 31, 1999

<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------
<C> <S> <C>
SHARES VALUE
<CAPTION>
- ------------------------------------------------------------------------------
<C> <S> <C>
COMMON STOCKS -- 96.0%
BANKS - COMMERCIAL -- 18.9%
25,000 AmSouth Bancorporation................................ $ 643,750
14,000 Fifth Third Bancorp................................... 1,033,375
12,000 Hibernia Corporation, Class A......................... 170,250
61,000 North Fork Bancorporation, Inc........................ 1,261,937
84,000 Peoples Heritage Financial Group, Inc................. 1,596,000
15,000 Summit Bancorp........................................ 519,375
18,000 UST Corp.............................................. 558,000
-----------
5,782,687
-----------
BANKS - MONEY CENTER -- 4.4%
21,000 Bank of America Corporation........................... 1,351,875
-----------
BANKS - SUPER REGIONAL -- 19.3%
34,000 Bank One Corporation.................................. 1,277,125
26,000 Comerica Incorporated................................. 1,545,375
23,000 First Union Corporation............................... 981,812
42,000 KeyCorp............................................... 1,173,375
16,000 PNC Bank Corp......................................... 954,000
-----------
5,931,687
-----------
FINANCIAL SERVICES -- 13.0%
10,000 Citigroup Inc......................................... 541,250
13,000 Countrywide Credit Industries, Inc.................... 441,187
22,000 Fannie Mae............................................ 1,556,500
30,212 Fleet Boston Corporation.............................. 1,317,999
4,000 National City Corporation............................. 118,000
-----------
3,974,936
-----------
INSURANCE -- 0.4%
2,000 MGIC Investment Corporation........................... 119,500
-----------
SAVINGS & LOANS - SAVINGS BANKS -- 40.0%
46,000 Astoria Financial Corporation......................... 1,656,000
62,000 Charter One Financial, Inc............................ 1,522,875
</TABLE>

<TABLE>
SHARES VALUE
<C> <S> <C>
<CAPTION>
- ------------------------------------------------------------------------------
<C> <S> <C>
SAVINGS & LOANS - SAVINGS BANKS (CONTINUED)
57,500 Commercial Federal Corporation........................ $ 1,128,438
11,300 Dime Bancorp, Inc..................................... 201,988
38,000 FirstFed Financial Corp. *............................ 608,000
11,000 Golden State Bancorp Inc. *........................... 229,625
14,500 Golden West Financial Corporation..................... 1,620,375
47,000 Roslyn Bancorp, Inc................................... 910,625
62,000 Washington Federal, Inc............................... 1,414,375
48,500 Washington Mutual, Inc................................ 1,742,969
43,600 Webster Financial Corporation......................... 1,248,050
-----------
12,283,320
-----------
Total Common Stocks
(Cost $29,469,029).................................. 29,444,005
-----------
</TABLE>

<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
- ----------
<C> <S> <C>
SHORT-TERM INVESTMENT -- 3.9%
REPURCHASE AGREEMENT -- 3.9%
$1,200,000 Bear, Stearns & Co. Inc. (Agreement dated 10/29/99 to
be repurchased at $1,200,523) 5.23%, 11/01/99 (Note
6)
(Cost $1,200,000)................................... 1,200,000
-----------
Total Investments -- 99.9%
(Cost $30,669,029).................................. 30,644,005
Other Assets in Excess of Liabilities -- 0.1%......... 37,451
-----------
Net Assets -- 100.0%.................................. $30,681,456
===========
</TABLE>

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

* Non-income producing.

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

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

FBR SMALL CAP FINANCIAL FUND

PORTFOLIO OF INVESTMENTS

OCTOBER 31, 1999

<TABLE>
- -------------------------------------------------------------------
SHARES VALUE
- -------------------------------------------------------------------
<C> <S> <C>
COMMON STOCKS -- 96.4%
SAVINGS & LOANS - SAVINGS BANKS -
CENTRAL -- 17.6%
24,500 Cameron Financial
Corporation............... $ 307,781
33,500 CFS Bancorp, Inc............ 349,656
111,200 First Place Financial
Corp...................... 1,334,400
26,200 First SecurityFed
Financial, Inc............ 301,300
18,100 Hallmark Capital Corp.*..... 181,000
69,200 Jacksonville
Bancorp, Inc.............. 1,003,400
103,400 Logansport Financial
Corp...................... 975,837
68,000 North Central
Bancshares, Inc........... 1,113,500
14,400 Union Community Bancorp..... 168,300
-----------
5,735,174
-----------
SAVINGS & LOANS - SAVINGS BANKS -
EAST -- 55.5%
80,900 BostonFed Bancorp, Inc...... 1,248,894
44,500 Brookline Bancorp, Inc...... 467,250
43,500 Catskill Financial
Corporation............... 641,625
45,000 Cohoes Bancorp, Inc......... 551,250
70,000 First Bell Bancorp, Inc..... 1,172,500
49,300 First Federal Savings & Loan
Association of East
Hartford.................. 1,540,625
67,000 First Keystone
Financial, Inc............ 762,125
37,000 First Sentinel
Bancorp, Inc.............. 302,937
8,300 FirstFed America
Bancorp, Inc.............. 104,269
102,900 Hingham Institution For
Savings................... 1,556,362
55,000 Independence Community Bank
Corp...................... 656,562
39,400 KSB Bancorp, Inc............ 723,975
18,400 Medford Bancorp, Inc........ 326,600
14,500 Northeast Pennsylvania
Financial Corp............ 149,531
86,000 OceanFirst Financial
Corp...................... 1,537,250
47,550 Parkvale Financial
Corporation............... 903,450
106,000 PennFed Financial
Services, Inc............. 1,643,000
- -------------------------------------------------------------------
SHARES VALUE
- -------------------------------------------------------------------
<C> <S> <C>
SAVINGS & LOANS - SAVINGS BANKS -
EAST (CONTINUED)
15,000 Richmond County Financial
Corp...................... $ 275,625
69,310 Seacoast Financial Services
Corporation............... 762,410
57,000 Staten Island
Bancorp, Inc.............. 1,104,375
3,000 Thistle Group Holdings,
Co........................ 21,188
19,000 Virginia Capital
Bancshares, Inc........... 280,250
79,000 Woronoco Bancorp............ 790,000
32,700 Yonkers Financial
Corporation............... 588,600
-----------
18,110,653
-----------
SAVINGS & LOANS - SAVINGS BANKS -
SOUTH -- 2.4%
11,400 GS Financial Corp........... 126,113
44,600 Pocahontas Bancorp, Inc..... 278,750
19,100 Texarkana First Financial
Corporation............... 383,194
-----------
788,057
-----------
SAVINGS & LOANS - SAVINGS BANKS -
WEST -- 20.9%
9,400 First Washington
Bancorp, Inc.............. 159,800
83,000 FirstFed Financial Corp.
*......................... 1,328,000
73,000 ITLA Capital Corporation
*......................... 1,104,125
38,000 Klamath First
Bancorp, Inc.............. 456,000
92,500 Pacific Crest
Capital, Inc.............. 1,399,063
7,000 PBOC Holdings, Inc. *....... 62,125
35,500 PFF Bancorp, Inc............ 723,313
95,000 Quaker City Bancorp, Inc.
*......................... 1,609,063
-----------
6,841,489
-----------
Total Common Stocks
(Cost $36,440,935)........ 31,475,373
-----------
</TABLE>

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

11
<PAGE>
[FBR LOGO]
FBR FAMILY OF FUNDS
----------------

FBR SMALL CAP FINANCIAL FUND

PORTFOLIO OF INVESTMENTS (CONTINUED)

OCTOBER 31, 1999

<TABLE>
<CAPTION>
- -----------------------------------------------------------------
<C> <S> <C>
PRINCIPAL
AMOUNT VALUE
<CAPTION>
- -----------------------------------------------------------------
<C> <S> <C>
SHORT-TERM INVESTMENT -- 3.4%
REPURCHASE AGREEMENT -- 3.4%
$1,115,695 Bear, Stearns & Co. Inc.
(Agreement dated 10/29/99
to be repurchased at
$1,116,181) 5.23%,
11/01/99 (Note 6)
(Cost $1,115,695)........ $ 1,115,695
-----------
Total Investments -- 99.8%
(Cost $37,556,630)....... 32,591,068
Other Assets in Excess of
Liabilities -- 0.2%...... 49,789
-----------
Net Assets -- 100.0%....... $32,640,857
===========
</TABLE>

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

* Non-income producing.

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

12
<PAGE>
[FBR LOGO]
FBR FAMILY OF FUNDS
----------------

FBR SMALL CAP VALUE FUND

PORTFOLIO OF INVESTMENTS

OCTOBER 31, 1999

<TABLE>
<CAPTION>
- ------------------------------------------------------------------
<C> <S> <C>
SHARES VALUE
<CAPTION>
- ------------------------------------------------------------------
<C> <S> <C>
COMMON STOCKS -- 98.1%
AUTO REPAIR -- 0.4%
34,000 Precision Auto Care, Inc.
*........................ $ 48,875
-----------
BUSINESS SERVICES -- 8.6%
20,000 CoStar Group Inc. *........ 492,500
18,000 Fair, Isaac and Company,
Incorporated............. 695,250
-----------
1,187,750
-----------
COMMUNICATIONS -- 9.8%
26,500 American Tower Corporation,
Class A */**............. 505,156
3,500 Emmis Communications
Corporation */**......... 252,438
5,000 Radio One, Inc. *.......... 249,375
13,000 Spanish Broadcasting
System, Inc. *........... 346,125
-----------
1,353,094
-----------
COMPUTER SERVICES -- 5.0%
15,000 MICROS Systems, Inc. *..... 694,219
-----------
DIVERSIFIED OPERATIONS -- 1.2%
80 Berkshire Hathaway, Inc.,
Class B *................ 167,200
-----------
ENTERTAINMENT -- 0.9%
5,000 World Wrestling Federation
Entertainment, Inc. *.... 120,625
-----------
GAMING -- 18.3%
18,000 Alliance Gaming
Corporation *............ 134,437
25,000 Churchill Downs, Inc. **... 650,000
200,000 Penn National Gaming, Inc.
*........................ 1,750,000
-----------
2,534,437
-----------
HEALTH CARE -- 7.9%
64,950 United Payors & United
Providers, Inc. */**..... 1,091,972
-----------
INSURANCE - PROPERTY/CASUALTY -- 17.4%
13,900 Markel Corporation *....... 2,403,831
-----------
MANUFACTURING - DIVERSIFIED -- 0.1%
490 Blount
International, Inc. */**.. 7,197
-----------
</TABLE>

<TABLE>
SHARES VALUE
<C> <S> <C>
<CAPTION>
- ------------------------------------------------------------------
<C> <S> <C>
MANUFACTURING - SPECIALTY -- 6.0%
64,700 II-VI Incorporated */**.... $ 824,925
-----------
MOTOR SPORTS -- 18.6%
48,000 Dover Downs
Entertainment, Inc....... 762,000
11,650 International Speedway
Corporation, Class A
**....................... 601,431
23,800 International Speedway
Corporation, Class B
**....................... 1,213,800
-----------
2,577,231
-----------
PUBLISHING - NEWSPAPERS -- 3.1%
10,000 Pulitzer Inc............... 428,750
-----------
TRANSPORTATION - AIR FREIGHT -- 0.6%
3,000 Eagle USA
Airfreight, Inc. *....... 88,500
-----------
TRAVEL SERVICES -- 0.2%
11,000 Global Vacation
Group, Inc. *............ 33,000
-----------
Total Common Stocks
(Cost $13,079,088)....... 13,561,606
-----------

<CAPTION>
PRINCIPAL
AMOUNT
- ---------------------
<C> <S> <C>
SHORT-TERM INVESTMENT -- 3.6%
REPURCHASE AGREEMENT -- 3.6%
$500,000 Bear, Stearns & Co. Inc.
(Agreement dated 10/29/99
to be repurchased at
$500,218) 5.23%, 11/01/99
(Note 6) (Cost
$500,000)................ 500,000
-----------
Total Investments -- 101.7%
(Cost $13,579,088)....... 14,061,606
Liabilities in Excess of
Other Assets -- (1.7)%... (238,459)
-----------
Net Assets -- 100.0%....... $13,823,147
===========
</TABLE>

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

* Non-income producing.

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

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

13
<PAGE>
[FBR LOGO]
FBR FAMILY OF FUNDS
----------------

FBR REALTY GROWTH FUND

PORTFOLIO OF INVESTMENTS

OCTOBER 31, 1999

<TABLE>
<CAPTION>
- ------------------------------------------------------------------
<C> <S> <C>
VALUE
SHARES
- ------------------------------------------------------------------
COMMON STOCKS -- 98.1%
REAL ESTATE INVESTMENT TRUSTS -- 80.4%
APARTMENTS -- 8.2%
4,100 Boddie-Noell
Properties, Inc............ $ 38,437
4,500 Cornerstone Realty Income
Trust, Inc................. 46,687
5,500 Merry Land
Properties, Inc.*.......... 31,625
1,000 Mid-America Apartment
Communities, Inc........... 22,125
----------
138,874
----------
DIVERSIFIED -- 13.3%
3,000 Banyan Strategic Realty
Trust...................... 13,875
3,000 Crescent Real Estate Equities
Company.................... 50,063
10,000 First Union Real Estate
Equity & Mortgage
Investments................ 51,250
8,500 Meditrust Companies.......... 68,531
25,000 TIS Mortgage Investment
Company.................... 24,219
200 Vornado Realty Trust......... 6,338
700 Washington Real Estate
Investment Trust........... 10,675
----------
224,951
----------
HEALTH CARE -- 11.3%
2,000 Health Care Property
Investors, Inc............. 52,500
1,700 Healthcare Realty
Trust, Inc................. 32,725
3,000 Nationwide Health
Properties, Inc............ 49,687
2,200 Senior Housing Properties
Trust**.................... 26,950
6,000 Ventas, Inc.................. 29,250
----------
191,112
----------
HOTEL/RESTAURANT -- 24.3%
5,700 Equity Inns Inc.............. 42,750
2,600 FelCor Lodging Trust Inc..... 44,200
1,900 Hospitality Properties
Trust...................... 40,137
4,800 Host Marriott Corporation.... 43,200
</TABLE>

<TABLE>
VALUE
SHARES
- ------------------------------------------------------------------
<CAPTION>
- ------------------------------------------------------------------
<C> <S> <C>
HOTEL/RESTAURANT (CONTINUED)
5,000 Humphrey Hospitality
Trust, Inc................. $ 33,125
7,700 Innkeepers USA Trust......... 66,413
15,000 Innsuites Hospitality
Trust...................... 43,125
5,000 Interstate Hotels
Corporation*............... 15,156
4,000 Winston Hotels, Inc.......... 32,500
18,000 Wyndham
International, Inc.*....... 51,750
----------
412,356
----------
MORTGAGE -- 5.1%
1,800 Annaly Mortgage Management
Inc........................ 15,525
1,800 Apex Mortgage
Capital, Inc............... 21,713
8,000 Capstead Mortgage
Corporation................ 31,500
2,000 Thornburg Mortgage Asset
Corporation................ 18,000
----------
86,738
----------
NET LEASED -- 4.7%
2,800 Entertainment Properties
Trust...................... 39,375
2,200 Golf Trust of
America, Inc.**............ 39,462
----------
78,837
----------
OFFICE/PROPERTY -- 5.5%
500 Boston Properties, Inc....... 14,906
1,500 Cornerstone
Properties, Inc............ 21,844
600 Equity Office Properties
Trust...................... 13,275
4,700 HRPT Properties Trust........ 43,181
----------
93,206
----------
OUTLET CENTERS -- 0.4%
200 Chelsea GCA Realty, Inc...... 6,200
----------
REGIONAL MALLS -- 0.9%
100,000 EQK Realty Investors I*...... 15,625
----------
SHOPPING CENTERS -- 3.0%
2,000 Malan Realty
Investors, Inc............. 26,000
3,500 United Investors Realty
Trust...................... 24,500
----------
50,500
----------
</TABLE>

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

14
<PAGE>
[FBR LOGO]
FBR FAMILY OF FUNDS
----------------

FBR REALTY GROWTH FUND

PORTFOLIO OF INVESTMENTS (CONTINUED)

OCTOBER 31, 1999

<TABLE>
<CAPTION>
- ------------------------------------------------------------------
<C> <S> <C>
VALUE
SHARES
- ------------------------------------------------------------------
STORAGE -- 3.7%
64,242 Meridian Point Realty Trust
'83*....................... $ 40,151
800 Storage USA, Inc............. 23,300
----------
63,451
----------
Total Real Estate Investment
Trusts (Cost $1,623,805)... 1,361,850
----------
OTHER REAL ESTATE RELATED -- 17.7%
COMMERCIAL SERVICES -- 2.6%
1,900 Cendant Corporation*......... 31,350
500 Central Parking
Corporation**.............. 13,406
----------
44,756
----------
HEALTH CARE -- 0.7%
1,000 Sunrise Assisted
Living, Inc.*.............. 11,000
----------
HOTELS -- 1.1%
8,900 Host Funding, Inc.*.......... 18,913
----------
REAL ESTATE DEVELOPMENT -- 8.2%
55,000 Atlantic Gulf Communities
Corporation*............... 7,150
4,800 Catellus Development
Corporation*............... 56,400
7,700 Semele Group, Inc.*.......... 44,275
1,300 The St. Joe Company.......... 31,038
----------
138,863
----------
</TABLE>

<TABLE>
VALUE
SHARES
- ------------------------------------------------------------------
<CAPTION>
- ------------------------------------------------------------------
<C> <S> <C>
REAL ESTATE INVESTMENT/MANAGEMENT -- 3.9%
70,500 Banyan Hotel Investment
Fund*...................... $ 30,844
11,000 Liberte Investors, Inc....... 35,063
----------
65,907
----------
WATER -- 1.2%
14,000 Western Water Company*....... 21,000
----------
Total Other Real Estate
Related (Cost $397,628).... 300,439
----------
Total Common Stocks
(Cost $2,021,433).......... 1,662,289
----------
PREFERRED STOCK -- 1.0%
MORTGAGE -- 1.0%
1,800 Dynex Capital, Inc.,
Series A (Cost $15,615).... 16,425
----------
Total Investments -- 99.1%
(Cost $2,037,048).......... 1,678,714
Other Assets in Excess of
Liabilities -- 0.9%........ 15,928
----------
Net Assets -- 100.0%......... $1,694,642
==========
</TABLE>

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

* Non-income producing.

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

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

15
<PAGE>
[FBR LOGO]
FBR FAMILY OF FUNDS
----------------

STATEMENT OF ASSETS AND LIABILITIES

OCTOBER 31, 1999

<TABLE>
<CAPTION>
FBR FBR FBR FBR
FINANCIAL SMALL CAP SMALL CAP REALTY
SERVICES FUND FINANCIAL FUND VALUE FUND GROWTH FUND
------------- -------------- ---------- -----------
<S> <C> <C> <C> <C>
ASSETS
Investments, at value (Cost -- $30,669,029, $37,556,630,
$13,579,088 and $2,037,048, respectively)................ $30,644,005 $32,591,068 $14,061,606 $1,678,714
Cash...................................................... 405,029 -- 969,354 --
Collateral received for securities loaned (Note 5)........ -- -- 1,892,593 56,200
Receivable for investments sold........................... 99,872 180,258 6,875 41,177
Receivable for Fund shares sold........................... 149,304 1,750 7,574 --
Dividends and interest receivable......................... 48,636 40,927 7,737 16,931
Receivable from investment adviser........................ -- -- -- 14,826
Deferred organization costs and other assets.............. 28,813 27,176 25,449 3,686
----------- ----------- ----------- ----------
Total assets............................................ 31,375,659 32,841,179 16,971,188 1,811,534
----------- ----------- ----------- ----------
LIABILITIES
Due to custodian.......................................... -- -- -- 15,926
Payable upon return of securities loaned (Note 5)......... -- -- 1,892,593 56,200
Payable for investments purchased......................... 96,460 44,045 1,146,325 17,436
Payable for Fund shares repurchased....................... 481,506 59,138 54,933 --
Advisory fees payable..................................... 11,162 11,174 1,864 --
Distribution fees payable................................. 6,615 6,937 2,896 381
Accrued expenses and other liabilities.................... 98,460 79,028 49,430 26,949
----------- ----------- ----------- ----------
Total liabilities....................................... 694,203 200,322 3,148,041 116,892
----------- ----------- ----------- ----------
NET ASSETS
Capital stock (unlimited number of shares authorized, with
no par value)............................................ 30,553,799 40,769,390 13,469,619 2,560,087
Undistributed net investment income....................... 118,310 46,216 -- 17,450
Accumulated net realized gain/(loss) from investments and
options transactions, if any............................. 34,371 (3,209,187) (128,990) (524,561)
Net unrealized appreciation/(depreciation) on
investments.............................................. (25,024) (4,965,562) 482,518 (358,334)
----------- ----------- ----------- ----------
Net assets applicable to shares outstanding............. $30,681,456 $32,640,857 $13,823,147 $1,694,642
=========== =========== =========== ==========
Shares outstanding........................................ 1,849,581 2,289,608 835,127 191,348
----------- ----------- ----------- ----------
Net asset value, offering and redemption price per
share.................................................... $16.59 $14.26 $16.55 $8.86
=========== =========== =========== ==========
</TABLE>

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

16
<PAGE>
[FBR LOGO]
FBR FAMILY OF FUNDS
----------------

STATEMENT OF OPERATIONS

FOR THE FISCAL YEAR ENDED OCTOBER 31, 1999

<TABLE>
<CAPTION>
FBR FBR FBR FBR
FINANCIAL SMALL CAP SMALL CAP REALTY
SERVICES FUND FINANCIAL FUND VALUE FUND GROWTH FUND
------------- -------------- ---------- -----------
<S> <C> <C> <C> <C>
INVESTMENT INCOME
Dividends............................................. $ 848,284 $ 792,660 $ 26,313 $ 127,472
Interest.............................................. 64,822 36,067 43,891 6,541
---------- ---------- ---------- ---------
913,106 828,727 70,204 134,013
---------- ---------- ---------- ---------
EXPENSES
Advisory fees......................................... 356,242 370,364 138,533 20,120
Transfer agent fees and expenses...................... 144,942 158,112 86,111 33,589
Distribution fees..................................... 99,381 104,881 40,061 5,030
Audit and legal fees.................................. 99,187 77,200 30,461 7,971
Administration and accounting fees.................... 69,708 75,553 25,849 40,895
Federal and state registration fees................... 25,210 22,653 16,676 19,995
Printing.............................................. 32,606 30,199 7,700 3,506
Custodian fees and expenses........................... 20,566 20,700 5,635 10,909
Insurance............................................. 11,109 12,040 8,315 6,513
Trustees' fees and expenses........................... 6,822 7,322 4,611 8,307
Amortization of organization expenses................. 7,154 7,154 7,154 --
Other................................................. 5,305 11,717 6,888 3,008
---------- ---------- ---------- ---------
Total expenses before waivers and related
reimbursements..................................... 878,232 897,895 377,994 159,843
Less: waivers and related reimbursements............ (133,490) (119,436) (82,737) (119,768)
---------- ---------- ---------- ---------
Total expenses after waivers and related
reimbursements..................................... 744,742 778,459 295,257 40,075
---------- ---------- ---------- ---------
Net investment income/(loss).......................... 168,364 50,268 (225,053) 93,938
---------- ---------- ---------- ---------
NET REALIZED AND UNREALIZED GAIN/(LOSS) ON INVESTMENTS
Net realized gain/(loss) from:
Investments......................................... 478,246 (2,955,966) (150,450) (228,634)
Options transactions................................ -- -- 69,357 --
Short sales......................................... -- -- (17,044) --
Net change in unrealized appreciation/(depreciation)
on:
Investments......................................... 2,154,719 4,932,426 2,944,472 71,473
Options transactions................................ -- -- (150,192) --
---------- ---------- ---------- ---------
Net realized and unrealized gain/(loss) on
investments.......................................... 2,632,965 1,976,460 2,696,143 (157,161)
---------- ---------- ---------- ---------
NET INCREASE/(DECREASE) IN NET ASSETS RESULTING FROM
OPERATIONS............................................. $2,801,329 $2,026,728 $2,471,090 $ (63,223)
========== ========== ========== =========
</TABLE>

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

17
<PAGE>
[FBR LOGO]
FBR FAMILY OF FUNDS
----------------
STATEMENT OF CHANGES IN NET ASSETS

<TABLE>
<CAPTION>
FBR FINANCIAL SERVICES FUND
------------------------------
FOR THE FISCAL YEARS
ENDED OCTOBER 31,
------------------------------
1999 1998
------------- -------------
<S> <C> <C>
INCREASE/(DECREASE) IN NET ASSETS FROM
OPERATIONS
Net investment income/(loss).................... $ 168,364 $ 304,554
Net realized gain/(loss) from investments....... 478,246 3,267,813
Net change in unrealized
appreciation/(depreciation) on investments..... 2,154,719 (5,133,972)
------------ ------------
Net increase/(decrease) in net assets resulting
from operations................................ 2,801,329 (1,561,605)
------------ ------------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS FROM
Net investment income........................... (341,817) (70,555)
Net realized capital gains...................... (3,690,277) (311,918)
Tax return of capital........................... -- --
------------ ------------
Total dividends and distributions to
shareholders................................... (4,032,094) (382,473)
------------ ------------
FUND SHARE TRANSACTIONS
Net proceeds from the sale of shares............ 3,409,487 50,376,443
Cost of shares repurchased...................... (26,108,166) (22,066,182)
Shares issued in reinvestment of dividends...... 3,890,730 368,559
------------ ------------
Increase/(decrease) in net assets derived from
fund share transactions........................ (18,807,949) 28,678,820
------------ ------------
Total increase/(decrease) in net assets......... (20,038,714) 26,734,742
NET ASSETS
Beginning of period............................. 50,720,170 23,985,428
------------ ------------
End of period**................................. $ 30,681,456 $ 50,720,170
============ ============
</TABLE>

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

* Reported amounts include the results of operations of the FBR Realty Growth
Fund for the period April 1, 1998 through October 31, 1998. Prior to
September 18, 1998, the FBR Realty Growth Fund operated as the
GrandView-SM- Realty Growth Fund, which had a fiscal year end of March 31,
1998. Net proceeds from the sale of shares for FBR Realty Growth Fund
includes $814,924, from the conversion of GrandView-SM-
S&P-Registered Trademark- REIT Index Fund into the FBR Realty Growth Fund
on September 18, 1998.
** Includes undistributed net investment income as follows:

<TABLE>
<CAPTION>
FOR THE FISCAL YEARS
ENDED OCTOBER 31,
---------------------
1999 1998
--------- ---------
<S> <C> <C>
FBR Financial Services Fund................................. $118,310 $291,763
FBR Small Cap Financial Fund................................ 46,216 230,598
FBR Realty Growth Fund...................................... 17,450 20,080
</TABLE>

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

18
<PAGE>
<TABLE>
<CAPTION>
FBR SMALL CAP FINANCIAL FUND FBR SMALL CAP VALUE FUND
----------------------------- ------------------------------
FOR THE FISCAL YEARS FOR THE FISCAL YEARS
ENDED OCTOBER 31, ENDED OCTOBER 31,
----------------------------- ------------------------------
1999 1998 1999 1998
------------ ------------- ------------- -------------
<S> <C> <C> <C> <C>
INCREASE/(DECREASE) IN NET ASSETS FROM
OPERATIONS
Net investment income/(loss).................... $ 50,268 $ 275,599 $ (225,053) $ (130,537)
Net realized gain/(loss) from investments....... (2,955,966) 6,209,896 (98,137) 564,052
Net change in unrealized
appreciation/(depreciation) on investments..... 4,932,426 (14,197,474) 2,794,280 (3,393,765)
------------ ------------ ----------- -----------
Net increase/(decrease) in net assets resulting
from operations................................ 2,026,728 (7,711,979) 2,471,090 (2,960,250)
------------ ------------ ----------- -----------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS FROM
Net investment income........................... (234,650) (100,673) -- --
Net realized capital gains...................... (6,461,151) (470,536) (464,197) (249,613)
Tax return of capital........................... -- -- -- --
------------ ------------ ----------- -----------
Total dividends and distributions to
shareholders................................... (6,695,801) (571,209) (464,197) (249,613)
------------ ------------ ----------- -----------
FUND SHARE TRANSACTIONS
Net proceeds from the sale of shares............ 3,677,672 105,428,314 2,554,656 18,358,863
Cost of shares repurchased...................... (28,332,723) (85,579,803) (6,838,679) (8,020,115)
Shares issued in reinvestment of dividends...... 6,489,666 548,154 454,755 248,119
------------ ------------ ----------- -----------
Increase/(decrease) in net assets derived from
fund share transactions........................ (18,165,385) 20,396,665 (3,829,268) 10,586,867
------------ ------------ ----------- -----------
Total increase/(decrease) in net assets......... (22,834,458) 12,113,477 (1,822,375) 7,377,004
NET ASSETS
Beginning of period............................. 55,475,315 43,361,838 15,645,522 8,268,518
------------ ------------ ----------- -----------
End of period**................................. $ 32,640,857 $ 55,475,315 $13,823,147 $15,645,522
============ ============ =========== ===========

<CAPTION>
FBR REALTY GROWTH FUND
----------------------------------------
FOR THE PERIOD
FOR THE FISCAL YEAR APRIL 1, 1998*
ENDED THROUGH
OCTOBER 31, 1999 OCTOBER 31, 1998
------------------- -----------------
<S> <C> <C>
INCREASE/(DECREASE) IN NET ASSETS FROM
OPERATIONS
Net investment income/(loss).................... $ 93,938 $ 43,403
Net realized gain/(loss) from investments....... (228,634) (233,287)
Net change in unrealized
appreciation/(depreciation) on investments..... 71,473 (549,393)
---------- -----------
Net increase/(decrease) in net assets resulting
from operations................................ (63,223) (739,277)
---------- -----------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS FROM
Net investment income........................... (93,299) (23,323)
Net realized capital gains...................... -- (232,383)
Tax return of capital........................... (5,559) --
---------- -----------
Total dividends and distributions to
shareholders................................... (98,858) (255,706)
---------- -----------
FUND SHARE TRANSACTIONS
Net proceeds from the sale of shares............ 438,779 1,769,579
Cost of shares repurchased...................... (954,915) (1,082,426)
Shares issued in reinvestment of dividends...... 86,206 218,262
---------- -----------
Increase/(decrease) in net assets derived from
fund share transactions........................ (429,930) 905,415
---------- -----------
Total increase/(decrease) in net assets......... (592,011) (89,568)
NET ASSETS
Beginning of period............................. 2,286,653 2,376,221
---------- -----------
End of period**................................. $1,694,642 $ 2,286,653
========== ===========
</TABLE>

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

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

19
<PAGE>
[FBR LOGO]
FBR Family of Funds
----------------

FINANCIAL HIGHLIGHTS

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

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 each period indicated. This information has been derived
from information provided in the financial statements.
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
FBR FINANCIAL SERVICES FUND
----------------------------------------------
FOR THE
FISCAL YEARS FOR THE PERIOD
ENDED JANUARY 3, 1997*
OCTOBER 31, THROUGH
-------------------------- OCTOBER 31,
1999 1998 1997
----------- ----------- ----------------
<S> <C> <C> <C>
PER SHARE OPERATING
PERFORMANCE**
Net asset value, beginning
of period................ $ 16.94 $ 16.03 $ 12.00
------- ------- -------
Net investment
income/(loss)(2)......... 0.09 0.10 0.04
Net realized and
unrealized gain/(loss) on
investments(3)........... 0.97 1.04 3.99
------- ------- -------
Net increase/(decrease) in
net assets resulting from
operations............... 1.06 1.14 4.03
------- ------- -------
DIVIDENDS AND DISTRIBUTIONS
TO SHAREHOLDERS FROM:
Net investment income..... (0.12) (0.04) --
Net realized capital
gains.................... (1.29) (0.19) --
Tax return of capital..... -- -- --
------- ------- -------
Total dividends and
distributions to
shareholders............. (1.41) (0.23) --
------- ------- -------
Net asset value, end of
period................... $ 16.59 $ 16.94 $ 16.03
======= ======= =======
Total investment
return(4)................ 6.80% 7.12% 33.58%
======= ======= =======
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period
(000's omitted).......... $30,681 $50,720 $23,985
Ratio of expenses to
average net assets(2).... 1.88% 1.65% 1.65%(5)
Ratio of net investment
income/(loss) to average
net assets(2)............ 0.43% 0.61% 0.57%(5)
Increase/(decrease)
reflected in above
expense ratios and net
investment income/(loss)
due to waivers and
related reimbursements... 0.34% 0.22% 1.42%(5)
Portfolio turnover rate... 70.25% 105.58% 49.68%
</TABLE>

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

* Commencement of investment operations.
** 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 dates of distributions.
(1) Reported amounts include the results of operations of the FBR Realty Growth
Fund for the period April 1, 1998 through October 31, 1998. Prior to
September 18, 1998, the FBR Realty Growth Fund operated as the
Grandview-SM- Realty Growth Fund, which had a fiscal year end of March 31,
1998.
(2) Reflects waivers and related reimbursements.
(3) The amounts shown for a share outstanding throughout the respective periods
are not in accordance with the changes in the aggregate gains and losses in
investments during the respective periods because of the timing of sales
and repurchases of fund shares in relation to fluctuating net asset value
during the respective periods.
(4) 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 reinvestment of dividends and distributions, if any. Total
investment return is not annualized.
(5) Annualized.

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

20
<PAGE>
<TABLE>
<CAPTION>
FBR SMALL CAP FINANCIAL FUND FBR SMALL CAP VALUE FUND
---------------------------------------------- ----------------------------------------------
FOR THE FOR THE
FISCAL YEARS FOR THE PERIOD FISCAL YEARS FOR THE PERIOD
ENDED JANUARY 3, 1997* ENDED JANUARY 3, 1997*
OCTOBER 31, THROUGH OCTOBER 31, THROUGH
-------------------------- OCTOBER 31, -------------------------- OCTOBER 31,
1999 1998 1997 1999 1998 1997
----------- ----------- ---------------- ----------- ----------- ----------------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING
PERFORMANCE**
Net asset value, beginning
of period................ $ 15.62 $ 17.53 $ 12.00 $ 14.67 $ 16.70 $ 12.00
------- ------- ------- ------- ------- --------
Net investment
income/(loss)(2)......... 0.02 0.08 0.02 (0.27) (0.08) (0.05)
Net realized and
unrealized gain/(loss) on
investments(3)........... 0.62 (1.81) 5.51 2.58 (1.46) 4.75
------- ------- ------- ------- ------- --------
Net increase/(decrease) in
net assets resulting from
operations............... 0.64 (1.73) 5.53 2.31 (1.54) 4.70
------- ------- ------- ------- ------- --------
DIVIDENDS AND DISTRIBUTIONS
TO SHAREHOLDERS FROM:
Net investment income..... (0.07) (0.03) -- -- -- --
Net realized capital
gains.................... (1.93) (0.15) -- (0.43) (0.49) --
Tax return of capital..... -- -- -- -- -- --
------- ------- ------- ------- ------- --------
Total dividends and
distributions to
shareholders............. (2.00) (0.18) -- (0.43) (0.49) --
------- ------- ------- ------- ------- --------
Net asset value, end of
period................... $ 14.26 $ 15.62 $ 17.53 $ 16.55 $ 14.67 $ 16.70
======= ======= ======= ======= ======= ========
Total investment
return(4)................ 4.19% (9.99)% 46.08% 16.24% (9.57)% 39.17%
======= ======= ======= ======= ======= ========
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period
(000's omitted).......... $32,641 $55,475 $43,362 $13,823 $15,646 $ 8,269
Ratio of expenses to
average net assets(2).... 1.89% 1.63% 1.65%(5) 1.92% 1.65% 1.65%(5)
Ratio of net investment
income/(loss) to average
net assets(2)............ 0.12% 0.35% 0.57%(5) (1.46)% (0.81)% (0.79)%(5)
Increase/(decrease)
reflected in above
expense ratios and net
investment income/(loss)
due to waivers and
related reimbursements... 0.29% 0.14% 1.43%(5) 0.54% 0.60% 3.84%(5)
Portfolio turnover rate... 25.00% 94.23% 35.41% 24.45% 78.26% 42.59%

<CAPTION>
FBR REALTY GROWTH FUND GRANDVIEW-SM- REALTY GROWTH FUND
--------------------------------- --------------------------------------------
FOR THE
FOR THE FOR THE PERIOD FISCAL YEARS FOR THE PERIOD
FISCAL YEAR APRIL 1, 1998(1) ENDED JULY 3, 1995*
ENDED THROUGH MARCH 31, THROUGH
OCTOBER 31, OCTOBER 31, -------------------------- MARCH 31,
1999 1998 1998 1997 1996
------------ ----------------- ----------- ----------- --------------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING
PERFORMANCE**
Net asset value, beginning
of period................ $ 9.68 $ 14.51 $ 12.69 $ 10.09 $ 10.00
-------- -------- -------- -------- --------
Net investment
income/(loss)(2)......... 0.47 0.22 0.11 0.33 0.20
Net realized and
unrealized gain/(loss) on
investments(3)........... (0.81) (3.57) 3.00 4.14 0.36
-------- -------- -------- -------- --------
Net increase/(decrease) in
net assets resulting from
operations............... (0.34) (3.35) 3.11 4.47 0.56
-------- -------- -------- -------- --------
DIVIDENDS AND DISTRIBUTIONS
TO SHAREHOLDERS FROM:
Net investment income..... (0.45) (0.13) (0.11) (0.33) (0.20)
Net realized capital
gains.................... -- (1.35) (1.18) (1.53) (0.22)
Tax return of capital..... (0.03) -- -- (0.01) (0.05)
-------- -------- -------- -------- --------
Total dividends and
distributions to
shareholders............. (0.48) (1.48) (1.29) (1.87) (0.47)
-------- -------- -------- -------- --------
Net asset value, end of
period................... $ 8.86 $ 9.68 $ 14.51 $ 12.69 $ 10.09
======== ======== ======== ======== ========
Total investment
return(4)................ (3.77)% (21.14)% 24.80% 45.12% 5.70%
======== ======== ======== ======== ========
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period
(000's omitted).......... $ 1,695 $ 2,287 $ 2,376 $ 1,158 $ 182
Ratio of expenses to
average net assets(2).... 2.00% 2.00%(5) 2.00% 1.89% 2.00%(5)
Ratio of net investment
income/(loss) to average
net assets(2)............ 4.68% 2.98%(5) 0.59% 3.12% 3.62%(5)
Increase/(decrease)
reflected in above
expense ratios and net
investment income/(loss)
due to waivers and
related reimbursements... 5.97% 3.41%(5) 3.68% 7.70% 29.34%(5)
Portfolio turnover rate... 138.65% 136.24% 170.19% 197.90% 44.44%
</TABLE>

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

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

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

NOTES TO FINANCIAL STATEMENTS

1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES

The FBR Family of Funds (the "Trust") is an open-end management investment
company organized under the laws of the State of Delaware on April 30, 1996. The
Trust currently consists of five series which represent interests in one of the
following investment portfolios: FBR Financial Services Fund ("Financial
Services Fund"), FBR Small Cap Financial Fund ("Small Cap Financial Fund"), FBR
Small Cap Value Fund ("Small Cap Value Fund"), FBR Realty Growth Fund ("Realty
Growth Fund") (each a "Fund" and collectively, the "Funds") and FBR Technology
Fund. Financial Services Fund, Small Cap Financial Fund and Realty Growth Fund
are diversified portfolios and Small Cap Value Fund and FBR Technology Fund are
non-diversified portfolios. Each Fund is treated as a separate entity for
certain matters under the Investment Company Act of 1940, as amended (the
"Investment Company Act"), and for other purposes, and a shareholder of one Fund
is not deemed to be a shareholder of any other Fund.

Prior to December 21, 1998, the Funds offered three classes of shares which were
designated as Class A, B and C shares. Effective December 21, 1998, the Funds'
Class B and C shares (except for the Realty Growth Fund) were converted to
Class A shares, which have been redesignated as fund shares. As of the date
hereof, the Funds offer one class of shares, which are offered as no-load
shares. Each Fund has an unlimited number of shares authorized with no par
value. Financial Services Fund, Small Cap Financial Fund and Small Cap Value
Fund commenced investment operations on January 3, 1997. Realty Growth Fund
commenced investment operations on September 18, 1998. Currently, shares of the
FBR Technology Fund are not being offered. However, a registration statement
relating to these securities filed with the Securities and Exchange Commission
is effective but has yet to commence its public offering.

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

Such Reorganization Plan was consummated on September 18, 1998, with each
shareholder of the GrandView Funds receiving on such date that number of shares
of the Realty Growth Fund having an aggregate net asset value equal to the
aggregate net asset value of such shareholder's shares of the GrandView Funds.
Shareholders in the GrandView Funds received Class A shares, which have been
redesignated as fund shares, of the Realty Growth Fund. The GrandView-SM- Realty
Growth Fund's historical financial data is presented as part of the Realty
Growth Fund's financial statements, as the objectives and adviser of the
GrandView-SM- Realty Growth Fund continue under the Realty Growth Fund.

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

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

ORGANIZATIONAL MATTERS -- Prior to commencing investment operations on
January 3, 1997, the Financial Services Fund, Small Cap Financial Fund and Small
Cap Value Fund did not have any transactions other than those relating to
organizational matters and the sale of 2,777, 2,778 and 2,778 fund shares,
respectively, to Friedman, Billings, Ramsey & Co., Inc. ("FBR") on December 16,
1996. Prior to commencing investment operations on September 18, 1998, the
Realty Growth Fund did not have any transactions other than those relating to
organizational matters and the sale of three fund shares to FBR Fund
Advisers, Inc. (the "Adviser") on September 15, 1998. Costs of approximately
$35,784, $35,784 and $35,785 which were incurred by Financial Services Fund,
Small Cap Financial Fund and Small Cap Value Fund, respectively, in connection
with the organization of its shares have been deferred and are being amortized
using the straight-line method over the period of benefit not exceeding sixty
months, beginning with the commencement of investment operations of each Fund.
In the event that FBR, the Adviser or any transferee thereof redeems any of its
original shares in any such Funds prior to the end of the sixty month period,
the proceeds of the redemption payable in respect of such shares shall be
reduced by the pro rata share (based on the proportionate share of the original
shares redeemed to the total number of original shares outstanding at the time
of the redemption) of the unamortized deferred organization expenses as of the
date of such redemption. In the event that any of such Funds are liquidated
prior to the end of the sixty month period, FBR, the Adviser or any transferee
thereof shall bear the unamortized deferred organization expenses. Costs
incurred in connection with the Reorganization Plan were borne by the Adviser.

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

PORTFOLIO VALUATION -- The net asset value of each Fund is determined as of the
close of regular trading on the New York Stock Exchange (normally 4:00 p.m., New
York time) on each business day. Each Fund's securities are valued at the last
sale price on the securities exchange or national securities market on which
such securities are primarily traded. Securities not listed on an exchange or
national securities market, or securities in which there were no transactions,
are valued at the average of the most recent bid and asked prices, except in the
case of open short positions where the asked price is used for valuation
purposes. Bid price is used when no asked price is available. Short-term
investments are carried at amortized cost, which approximates value. Any
securities or other assets (of which there were none as of October 31, 1999) for
which recent market quotations are not readily available are valued at fair
value as determined in good faith by the Funds' Board of Trustees. Restricted
securities, as well as securities or other assets for which market quotations
are not readily available, or are not valued by a pricing service approved by
the Board of Trustees, are valued at fair value in good faith by the Board of
Trustees. The Board of Trustees will review the method of valuations on a
current basis. Expenses and fees, including the advisory fee and distribution
fee, are accrued daily and taken into account for the purpose of determining the
net asset value of each Fund's shares.

OPTIONS -- Each Fund may buy and sell call and put options to hedge against
changes in net asset value or to attempt to realize a greater current return.
The risk associated with purchasing an option is that a Fund pays a premium

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

NOTES TO FINANCIAL STATEMENTS (CONTINUED)
whether or not the option is exercised. Additionally, a Fund bears the risk of
loss of premium and change in market value should the counterparty not perform
under the contract. Put and call options purchased are accounted for in the same
manner as portfolio securities. The cost of securities acquired through the
exercise of call options is increased by the premiums paid. The proceeds from
securities sold through the exercise of put options are decreased by the
premiums paid.

When a Fund writes an option, an amount equal to the premium received by the
Fund is recorded as a liability and is subsequently adjusted to the current
market value of the option written. Premiums received from writing options which
expire unexercised are recorded by a Fund on the expiration date as realized
gains from options transactions. The difference between the premium and the
amount paid on effecting a closing purchase transaction, including brokerage
commissions, is also treated as a realized gain, or if the premium is less than
the amount paid for the closing purchase transaction, as a realized loss. If a
call option is exercised, the premium is added to the proceeds from the sale of
the underlying securities in determining whether a Fund has a realized gain or
loss. If a put option is exercised, the premium reduces the cost basis of the
securities purchased by a Fund. Each Fund's use of written options involves, to
varying degrees, elements of market risk in excess of the amount recognized in
the Statement of Assets and Liabilities. The contract or notional amounts
reflect the extent of a Fund's involvement in these financial instruments. In
writing an option, a Fund bears the market risk of an unfavorable change in the
price of the security underlying the written option. Exercise of an option
written by a Fund could result in a Fund selling or buying a security at a price
different from the current market value. A Fund's activities in written options
are conducted through regulated exchanges which do not result in counterparty
credit risks. The Funds did not engage in options transactions during the fiscal
year ended October 31, 1999, except for the Small Cap Value Fund, which had the
following options transactions:

<TABLE>
<CAPTION>
CALL OPTIONS PUT OPTIONS
PURCHASED WRITEN
------------------------- -------------------------
CONTRACTS PREMIUMS CONTRACTS PREMIUMS
------------ ---------- ------------ ----------
<S> <C> <C> <C> <C>
Outstanding at beginning of year....... 40 $ 81,808 -- --
Options written........................ -- -- 35 $13,895
Options sold........................... (40) (81,808) -- --
Options closed or expired.............. -- -- (35) (13,895)
----- -------- ----- -------
Outstanding at end of year............. -- -- -- --
===== ======== ===== =======
</TABLE>

SHORT SELLING -- When a Fund makes a short sale, an amount equal to the proceeds
received by the Fund is recorded as a liability and is subsequently adjusted to
the current market value of the short sale. Short sales represent obligations of
a Fund to make future delivery of specific securities and, correspondingly,
create an obligation to purchase the security at market prices prevailing at the
later delivery date (or to deliver the security if already owned by the Fund).
Upon the termination of a short sale, a Fund will recognize a gain, limited to
the price at which the Fund sold the security short, if the market price is less
than the proceeds originally received. A Fund will recognize a loss,

24
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FBR FINANCIAL SERVICES FUND
FBR SMALL CAP FINANCIAL FUND
FBR SMALL CAP VALUE FUND
FBR REALTY GROWTH FUND

NOTES TO FINANCIAL STATEMENTS (CONTINUED)
unlimited in magnitude, if the market price at termination is greater than the
proceeds originally received. As a result, short sales create the risk that a
Fund's ultimate obligation to satisfy the delivery requirements may exceed the
amount of the proceeds initially received or the liability recorded in the
financial statements. The Funds did not engage in short selling during the
fiscal year ended October 31, 1999, except for the Small Cap Value Fund. The
Funds had no open short sales at October 31, 1999.

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

INVESTMENT TRANSACTIONS AND INVESTMENT INCOME -- Transactions are accounted for
on the trade date (the day in which the order to buy or sell is executed). The
cost of investments sold is determined by use of the specific identification
method for both financial reporting and income tax purposes in determining
realized gains and losses on investments. Interest income is recorded on the
accrual basis. Dividend income is recorded on the ex-dividend date. The Funds'
record distributions received from its investments in real estate investment
trusts that represent a tax return of capital as a reduction of the cost basis
of investments. Expenses not directly attributable to a specific Fund are
allocated based on relative net assets of each Fund.

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

At October 31, 1999, the Realty Growth Fund reclassified $3,269 within the
composition of net assets from undistributed net investment income to net
unrealized appreciation/(depreciation) on investments. The Small Cap Value Fund
reclassified $225,053 of net investment loss to capital stock.

U.S. FEDERAL TAX STATUS -- Each Fund intends to distribute substantially all of
its taxable income and to comply with the other requirements of the Internal
Revenue Code of 1986, as amended, applicable to regulated investment companies.
Accordingly, no provision for U.S. federal income taxes is required. In
addition, by distributing during

25
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FBR FINANCIAL SERVICES FUND
FBR SMALL CAP FINANCIAL FUND
FBR SMALL CAP VALUE FUND
FBR REALTY GROWTH FUND

NOTES TO FINANCIAL STATEMENTS (CONTINUED)
each calendar year substantially all of its ordinary income and capital gains,
if any, each Fund intends not to be subject to a U.S. federal excise tax.

At October 31, 1999, certain of the Funds had capital loss carryforwards
available as a reduction to the extent provided in regulations of any future net
capital gains realized before the end of fiscal year 2007. To the extent that
the capital loss carryforwards are used to offset future capital gains, it is
probable that the gains so offset will not be distributed to shareholders. The
Funds had the following capital loss carryforwards at October 31, 1999:

<TABLE>
<CAPTION>
FUND
- ----
<S> <C>
Small Cap Financial Fund.................................... $3,020,811
Small Cap Value Fund........................................ 98,137
Realty Growth Fund.......................................... 462,525
</TABLE>

The capital loss carryforwards at October 31,1999 will expire in 2007, except
for the Realty Growth Fund of which $227,439 will expire in 2006 and $235,086
will expire in 2007.

2. TRANSACTIONS WITH AFFILIATES AND RELATED PARTIES

FBR Fund Advisers, Inc. serves as each Fund's investment adviser. For its
advisory services, the Adviser is entitled to receive a monthly fee equal to an
annual rate of each Fund's average daily net assets, computed daily and paid
monthly as follows:

<TABLE>
<CAPTION>
FUND
- ----
<S> <C>
Financial Services Fund..................................... 0.90%
Small Cap Financial Fund.................................... 0.90
Small Cap Value Fund........................................ 0.90
Realty Growth Fund.......................................... 1.00
</TABLE>

Prior to December 21, 1998, the Adviser had contractually undertaken to limit
Financial Services Fund, Small Cap Financial Fund and Small Cap Value Fund's
total operating expenses to the extent that such expenses exceeded 1.65% of each
Fund's average daily net assets. Effective December 21, 1998, the Adviser has
contractually undertaken to limit Financial Services Fund, Small Cap Financial
Fund and Small Cap Value Fund's total operating expenses to the extent that such
expenses exceed 1.95% of each Fund's average daily net assets, and 2.00% of
Realty Growth Fund's average daily net assets. As necessary, these limitations
were effected by waivers by the Adviser of its

26
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FBR FINANCIAL SERVICES FUND
FBR SMALL CAP FINANCIAL FUND
FBR SMALL CAP VALUE FUND
FBR REALTY GROWTH FUND

NOTES TO FINANCIAL STATEMENTS (CONTINUED)
advisory fees and reimbursements of expenses exceeding the advisory fee. For the
fiscal year ended October 31, 1999, advisory fees, waivers and reimbursements of
expenses were as follows:

<TABLE>
<CAPTION>
GROSS ADVISORY NET
ADVISORY FEE ADVISORY EXPENSE
FUND FEES WAIVERS FEES REIMBURSEMENTS
- ---- --------- ---------- --------- ----------------
<S> <C> <C> <C> <C>
Financial Services Fund.......... $356,242 $(133,490) $222,752 --
Small Cap Financial Fund......... 370,364 (119,436) 250,928 --
Small Cap Value Fund............. 138,533 (80,452) 58,081 $ (2,285)
Realty Growth Fund............... 20,120 (20,120) -- (99,648)
</TABLE>

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

The Trust, on behalf of each Fund, has adopted an amended and restated
Distribution Plan (the "Plan") pursuant to Rule 12b-1 under the Investment
Company Act. Under the Plan, each Fund pays FBR Investment Services, Inc. (the
"Distributor") a fee at an annual rate of 0.25% of each Fund's average daily net
asset. These fees paid to the Distributor under the Plan are payable without
regard to actual expenses incurred. For the fiscal year ended October 31, 1999,
the Distributor earned $99,381, $104,881, $40,061 and $5,030 for the Financial
Services Fund, Small Cap Financial Fund, Small Cap Value Fund, and Realty Growth
Fund, respectively, in distribution fees. Prior to December 21, 1998, Financial
Services Fund, Small Cap Financial Fund and Small Cap Value Fund had a
distribution and shareholder servicing plan in effect for its Class B and C
shares which were converted to Class A shares, which have been redesignated as
fund shares.

For the fiscal year ended October 31, 1999, the Financial Services Fund, Small
Cap Financial Fund, Small Cap Value Fund and Realty Growth Fund paid
approximately $14,100, $7,800, $300 and $1,000, respectively, in brokerage
commissions from portfolio transactions executed on behalf of the Funds to FBR,
an affiliate of the Adviser and the Distributor.

Prior to December 21, 1998, the Distributor collected the sales charges imposed
on sales of each Fund's Class A shares, which have been redesignated as fund
shares, and reallowed a portion of such charges to dealers through which the
sales were made. The Distributor advanced 4.00% and 1.00% in sales commissions
on the sale of its Class B and C shares, respectively, to dealers at the time of
such sales. For the period November 1, 1998 through December 20, 1998, the
Distributor has advised each Fund that they retained approximately $2,700,
$4,600 and $3,000 in front-end sales charges resulting from sales of Class A
shares of the Financial Services Fund, Small Cap Financial Fund and Small Cap
Value Fund, respectively. From these fees, the Distributor paid such sales
charges to dealers which in turn paid commissions to salespersons. In addition,
the Distributor has advised the Funds that during the period November 1, 1998
through December 20, 1998, it did not receive any contingent deferred sales
charges upon certain redemptions by its Class B and C shareholders.

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

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

3. INVESTMENT IN SECURITIES

For U.S. federal income tax purposes, the costs of securities owned, gross
appreciation, gross depreciation and net unrealized appreciation/(depreciation)
on investments for each Fund were as follows:

<TABLE>
<CAPTION>
NET
GROSS GROSS APPRECIATION/
FUND COST APPRECIATION DEPRECIATION (DEPRECIATION)
- ---- ------------ ------------- ------------- --------------
<S> <C> <C> <C> <C>
Financial Services Fund......... $30,861,776 $1,564,034 $(1,781,805) $ (217,771)
Small Cap Financial Fund........ 37,730,584 507,673 (5,647,189) (5,139,516)
Small Cap Value Fund............ 13,609,948 2,163,675 (1,712,017) 451,658
Realty Growth Fund.............. 2,170,409 9,403 (501,098) (491,695)
</TABLE>

For the fiscal year ended October 31, 1999, aggregate purchases and sales of
investment securities and options transactions, if any, (excluding short-term
investments) for each Fund were as follows:

<TABLE>
<CAPTION>
FUND PURCHASES SALES
- ---- ------------ ------------
<S> <C> <C>
Financial Services Fund..................................... $26,705,950 $39,756,272
Small Cap Financial Fund.................................... 10,195,481 30,592,480
Small Cap Value Fund........................................ 3,579,453 5,919,125
Realty Growth Fund.......................................... 2,640,546 2,851,704
</TABLE>

4. FUND SHARE TRANSACTIONS

Prior to December 21, 1998, the Funds offered three classes of shares which were
designated as Class A, B, and C shares. Effective December 21, 1998, the Funds'
Class B and C shares (except for the Realty Growth Fund) were converted to
Class A shares, which have been redesignated as fund shares. As of the date
hereof, the Funds offer one class of shares, which are offered as no-load
shares.

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

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

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

Each Fund has an unlimited number of shares authorized with no par value, of
which FBR owned 2,777, 2,778, 2,778 and 3 fund shares of Financial Services
Fund, Small Cap Financial Fund, Small Cap Value Fund and Realty Growth Fund,
respectively. Transactions in each Fund's fund shares were as follows:

<TABLE>
<CAPTION>
FINANCIAL SERVICES FUND* SMALL CAP FINANCIAL FUND*
---------------------------------------------- -----------------------------------------------
SALES REPURCHASES REINVESTMENTS SALES REPURCHASES REINVESTMENTS
------------ ------------- --------------- ------------- ------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
FOR THE FISCAL YEAR ENDED OCTOBER 31, 1999
Shares......................... 205,789 1,595,321 245,329 251,199 1,967,951 453,578
Value.......................... $ 3,409,487 $26,108,166 $3,890,730 $ 3,677,672 $28,332,723 $6,489,666
FOR THE FISCAL YEAR ENDED OCTOBER 31, 1998
Shares......................... 2,741,726 1,265,509 21,591 5,677,018 4,628,869 30,657
Value.......................... $50,376,443 $22,066,182 $ 368,559 $105,428,314 $85,579,803 $ 548,154
</TABLE>

<TABLE>
<CAPTION>
SMALL CAP VALUE FUND* REALTY GROWTH FUND**
---------------------------------------------- ---------------------------------------------
SALES REPURCHASES REINVESTMENTS SALES REPURCHASES REINVESTMENTS
------------ ------------- --------------- ----------- ------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
FOR THE FISCAL YEAR ENDED OCTOBER 31, 1999
Shares........................... 159,802 423,286 31,805 45,274 99,305 9,040
Value............................ $ 2,554,656 $6,838,679 $454,755 $ 438,779 $ 954,915 $ 86,206
FOR THE FISCAL YEAR ENDED OCTOBER 31, 1998
Shares........................... 1,055,949 499,213 15,001 143,851 93,361 22,029
Value............................ $18,358,863 $8,020,115 $248,119 $1,769,579 $1,082,426 $218,262
</TABLE>

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

* Transactions in the Funds' Class B and C shares were converted to Class A
shares, which have been redesignated as fund shares. As a result, the Funds'
share transactions shown are inclusive of Class B and C shares transactions.

** Reported amounts include the results of the Realty Growth Fund for the
period April 1, 1998 through October 31, 1998. Prior to September 18, 1998,
the Realty Growth Fund operated as the GrandView-SM- Realty Growth Fund,
which had a fiscal year end of March 31, 1998. Sales transactions include
additional shares and their associated dollar value from the conversion of
the GrandView-SM- S&P-Registered Trademark- REIT Index Fund into the Realty
Growth Fund on September 18, 1998.

Prior to April 18, 1998 and effective December 21, 1998, there was a 1.00%
redemption fee on fund shares redeemed, which have been held 90 days or less.
For the period November 1, 1997 through April 17, 1998, these fees amounted to
$21,884, $120,180 and $5,197 for Financial Services Fund, Small Cap Financial
Fund and Small Cap Value Fund, respectively. For the period December 21, 1998
through October 31, 1999, these fees amounted to $1,531, $915, $1,303 and $88
for Financial Services Fund, Small Cap Financial Fund, Small Cap Value Fund and
Realty Growth Fund, respectively. The dollar values of the share repurchases
have been reduced for these fees. The redemption fees were collected and
retained by each Fund for the benefit of the remaining shareholders.

5. SECURITIES LENDING

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

29
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----------------

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

NOTES TO FINANCIAL STATEMENTS (CONTINUED)
the amount of the shortfall to the Funds. The Funds had no securities on loan to
brokers at October 31, 1999, except for the Small Cap Value Fund and Realty
Growth Fund, which had the following value of securities on loan and the related
collateral and indemnification received:

<TABLE>
<CAPTION>
VALUE OF SECURITIES VALUE OF COLLATERAL
FUND ON LOAN AND INDEMNIFICATION
- ---- ------------------- --------------------
<S> <C> <C>
Small Cap Value Fund...................... $1,826,996 $1,892,593
Realty Growth Fund........................ 55,320 56,200
</TABLE>

The cash collateral was reinvested into a repurchase agreement which was in turn
collateralized by United States Treasury Notes.

For the fiscal year ended October 31, 1999, income from securities lending was
$4,609, $1,971, $3,633 and $457 for the Financial Services Fund, Small Cap
Financial Fund, Small Cap Value Fund and Realty Growth Fund, respectively. Such
income from securities lending is included under the caption INTEREST in the
Statement of Operations.

6. COLLATERAL FOR REPURCHASE AGREEMENTS

Listed below is the collateral associated with the repurchase agreements with
Bear, Stearns & Co. Inc., outstanding at October 31, 1999.

FINANCIAL SERVICES FUND

<TABLE>
<CAPTION>
FACE TOTAL
ISSUER AMOUNT MATURITY VALUE
- ------ --------- --------- -----------
<S> <C> <C> <C>
United States Treasury Note, Principal Only................ 6,620,000 11/15/26 $1,224,700
==========
</TABLE>

SMALL CAP FINANCIAL FUND

SMALL CAP VALUE FUND

<TABLE>
<CAPTION>
FACE TOTAL
ISSUER AMOUNT MATURITY VALUE
- ------ --------- --------- -----------
<S> <C> <C> <C>
Freddie Mac REMIC, Series 1603, Class IG, 9.47%............ 228,500 01/15/23 $ 226,789
United States Treasury Note, Principal Only................ 1,555,000 11/15/26 287,675
----------
$ 514,464
==========
</TABLE>

30
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FBR FINANCIAL SERVICES FUND

FBR SMALL CAP FINANCIAL FUND

FBR SMALL CAP VALUE FUND

FBR REALTY GROWTH FUND

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Shareholders and Board of Trustees

of the FBR Family of Funds:

We have audited the accompanying statements of assets and liabilities, including
the portfolio of investments, of the FBR Financial Services Fund, FBR Small Cap
Financial Fund, FBR Small Cap Value Fund and FBR Realty Growth Fund of the FBR
Family of Funds (the "Trust") as of October 31, 1999, and the related statements
of operations, changes in net assets, and financial highlights for the periods
presented. These financial statements and financial highlights are the
responsibility of the Trust's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits. The financial highlights for the periods presented prior to October 31,
1998 for the FBR Realty Growth Fund were audited by other auditors whose report
dated April 24, 1998, expressed an unqualified opinion thereon.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements and financial highlights. Our procedures included confirmation of
securities owned as of October 31, 1999, by correspondence with the custodian
and the application of alternative auditing procedures with respect to unsettled
securities transactions. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.

In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of the
FBR Financial Services Fund, FBR Small Cap Financial Fund, FBR Small Cap Value
Fund and FBR Realty Growth Fund of the FBR Family of Funds as of October 31,
1999, the results of their operations, changes in their net assets, and
financial highlights for the periods presented, in conformity with generally
accepted accounting principles.

ARTHUR ANDERSEN LLP

Vienna, VA

December 22, 1999

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FBR FINANCIAL SERVICES FUND

FBR SMALL CAP FINANCIAL FUND

FBR SMALL CAP VALUE FUND

FBR REALTY GROWTH FUND

SHAREHOLDER TAX INFORMATION -- (UNAUDITED)

Each Fund is required by Subchapter M of the Internal Revenue Code of 1986, as
amended, to advise its shareholders within 60 days of each Fund's fiscal year
end (October 31, 1999) as to the U.S. federal tax status of distributions
received by each Fund's shareholders in respect of such fiscal year. During the
fiscal year ended October 31, 1999, the following dividends and distributions
per share were paid by each of the Funds:

<TABLE>
<CAPTION>
FBR FINANCIAL FBR SMALL CAP FBR SMALL CAP FBR REALTY
SERVICES FUND FINANCIAL FUND VALUE FUND GROWTH FUND
------------- -------------- ------------- -----------
<S> <C> <C> <C> <C>
Net Investment Income:
Class A................................... $0.1198 $0.0708 -- $0.4549
Class B................................... 0.1149 0.0635 -- --
Class C................................... 0.0996 0.0514 -- --
Short-Term Capital Gains:
Class A................................... 0.3206 1.3333 $0.2119 --
Class B................................... 0.3206 1.3333 0.2027 --
Class C................................... 0.3206 1.3333 0.1988 --
Long-Term Capital Gains:
Class A................................... 0.9694 0.6006 0.2224 --
Class B................................... 0.9694 0.6006 0.2224 --
Class C................................... 0.9694 0.6006 0.2224 --
Tax Return of Capital:
Class A................................... -- -- -- 0.0260
</TABLE>

Ordinary income dividends, which include short-term capital gain distributions,
should be reported as dividend income on Form 1040. Dividends from net
investment income are taxable as ordinary income, as are short-term capital gain
distributions. Tax return of capital distributions require a decrease to the
cost basis of a shareholder's fund shares.

The percentage of total ordinary income dividends qualifying for the corporate
dividends received deduction for each Fund are as follows:

<TABLE>
<CAPTION>
FUND
<S> <C>
FBR Financial Services Fund................................. 64.73%
FBR Small Cap Financial Fund................................ 16.69
FBR Small Cap Value Fund.................................... 10.04
FBR Realty Growth Fund...................................... 6.64
</TABLE>

32
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FBR FINANCIAL SERVICES FUND

FBR SMALL CAP FINANCIAL FUND

FBR SMALL CAP VALUE FUND

FBR REALTY GROWTH FUND

SHAREHOLDER TAX INFORMATION -- (UNAUDITED) (CONTINUED)

Because each Fund's fiscal year is not the calendar year, another notification
will be sent with respect to calendar year 1999. The second notification, which
will reflect the amount, if any, to be used by calendar year taxpayers on their
U.S. federal income tax returns, will be made in conjunction with Form 1099-DIV
and will be mailed in January 2000.

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

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

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

33
<PAGE>
FBR FAMILY OF FUNDS

Potomac Tower
1001 Nineteenth Street North
Arlington, VA 22209

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

<TABLE>
<S> <C> <C>
F. David Fowler Trustee
George W. Grosz Trustee
Michael A. Willner Trustee
C. Eric Brugel Chairman of the Board
and President
Winsor H. Aylesworth Vice President and
Treasurer
W. Bart Sanders Senior Vice President
Frank J. Maresca Assistant Treasurer
Vincent L. Pereira Assistant Secretary
</TABLE>

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

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

ADMINISTRATOR
Bear Stearns Funds Management Inc.
575 Lexington Avenue
New York, NY 10022

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

CUSTODIAN
Custodial Trust Company
101 Carnegie Center
Princeton, NJ 08540

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

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

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

10/99ANN