<PAGE> 1
[Caldwell & Orkin Logo]
[Letterhead]
ANNUAL REPORT TO SHAREHOLDERS
DEAR FELLOW SHAREHOLDER: MAY 22, 1997
We are pleased to report that the Caldwell & Orkin Market Opportunity Fund
achieved solid returns for its shareholders in both the 6-month and 12-month
periods ended April 30, 1997. We are most proud of the Fund's long-term
performance. Since its August 24, 1992 inception (when active management began)
through April 30, 1997, the Fund has kept pace with the S&P 500 with income and
the NASDAQ Composite indices, in fact outperforming the total return of the S&P
500 (see page 5). These results are notable given the Fund's "market
risk-averse" investment approach (discussed below). Of course, past performance
is no guarantee of future results.
At the close of the fiscal year the Fund's assets stood at $60.6 million,
representing a significant increase over the year-earlier period, and allowing
for the Fund's expenses to be borne by a greater asset base. The Fund's annual
expense ratio has fallen to 1.34%.
Your Fund's performance continues to attract considerable media attention.
Recent articles featuring the Fund have appeared in Fortune Magazine, The New
York Times, Your Money Magazine and The Atlanta Business Chronicle. The Fund has
repeatedly appeared in "Leaders" charts which have run in newspapers and
magazines around the country, and Michael Orkin made a second guest appearance
on CNBC's "Squawk Box" in early March. While the attention is certainly welcome,
we remain focused on producing returns and managing risk.
Perhaps the most frequently asked questions we hear, from both prospective
shareholders and the media alike, are, "What kind of fund is the Caldwell &
Orkin Market Opportunity Fund," and "what drives your equity selections?"
The Fund is a dynamic fund that changes as market conditions change. And, it
seeks to maximize gain with a modest level of market risk. When a stock is
purchased, two types of risk are assumed, market risk and stock risk. Market
risk is the risk that the broad market declines, taking good companies down with
it. Stock risk is the risk that a stock underperforms due to company-specific
reasons.
The Market Opportunity Fund uses active asset allocation (the shifting of assets
between stocks, high quality bonds and cash equivalents) to cushion against the
downside market risk. In addition, short positions (selling a borrowed stock and
then attempting to purchase it at a lower price) are used to manage exposure to
market risk and make money when stock prices fall.
We employ a flexible investment style based on fundamental and technical
analysis to manage stock risk. In equity selection, we look for change. This
includes earnings acceleration or deceleration, new products, changes in
management or a change in the competitive environment. And, because of our
long-short investment style, the change can be either positive or negative.
The Fund is, in effect, a moderate hedge fund. Short positions can comprise up
to 25% of the Fund's assets. This unique flexibility gives Fund management
considerable investment latitude in its ability to shift between aggressive,
neutral and defensive postures, and allows the Fund to participate in the
market's potential upside, while hedging against the downside. For instance, if
the Fund were
<PAGE> 2
positioned 75% long and 25% short it would be fully invested (75% + 25% = 100%),
yet it would have only a 50% net exposure to the market (75% - 25% = 50%). The
Fund's market exposure can be anywhere from 100% net long to 25% net short.
Our goal is strong performance. However, we believe that to achieve solid
returns over time means attention must be paid to how those returns are
attained. We feel this multi-dimensional, "market risk-averse" investment
approach will continue to outperform the market over the long term, and
highlight the Fund's low market risk profile. From its August, 1992 inception
through the quarter ended March 31, 1997, the Fund has correlated with the S&P
500 with income only 10.6% of the time, with only 27% of its volatility (as
measured by beta).(1) Thus, historically speaking, the Fund has not moved in
step with the S&P 500, yet it has outperformed the S&P 500 during a period
characterized as a bull market, while maintaining a hedged exposure.
SIX MONTHS IN REVIEW:
On December 5, 1996, Federal Reserve Chairman Alan Greenspan spoke at a dinner
party and uttered two words that caused the world's die-hard bulls to pause:
"irrational exuberance." That set the stage for further remarks by the Fed
Chairman hinting that the economy was overheated and that the Federal Reserve's
Board of Governors was considering exercising its power by raising interest
rates, which it did on March 25, 1997.
Your Fund has been postured for a high risk, but rising stock market. In the six
months ended April 30, 1997 the Fund rose 11.3%, versus 14.7% for the S&P 500
with income and 3.2% for the NASDAQ Composite Index. We have managed sensitivity
to market risk by maintaining the Fund's short position in the 22% to 25% range,
effectively decreasing net exposure to the market.
Both the Fund's short positions and long positions worked well during this
period. The Fund's largest short exposure has been in the low-quality loan
company sector. Notably, several firms that are representative of this sector
ran into trouble in the past six months. Jayhawk Acceptance filed for bankruptcy
protection, and First Merchants reported disappointing results after its
executive officers utilized aggressive accounting techniques in accounting for
chargeoffs and were fired.
The Fund's current long positions can be characterized as more defensive in
nature, and their performance was not as negatively impacted during the recent
setback as the broad market. Rather, these issues tend to move higher over time.
During the month of March, the S&P 500 was off 4.1%, it's third worst monthly
showing since the Fund's August, 1992 inception. Your Fund rose 4.6% in March
(see the Risk Profile on page 4), an example of our low correlation to the
market. Generally speaking, we would expect the Fund to underperform during
rising equity markets and to outperform during periods of falling stock prices,
although not necessarily with positive returns. We believe we will outperform
the S&P 500 Index over a full market cycle, but with less stomach churn.
OUTLOOK:
The "irrational exuberance" Fed Chairman Greenspan was referring to can be
quantified in several ways. The dividend yield of the S&P 500 has fallen to its
lowest level this century. The value of stocks relative to Gross Domestic
Product is at it highest ever and stocks as a percentage of household financial
assets (adjusted for pension funds) is very close to its previous 1968 peak of
39.4%, after bottoming out at 12.6% in 1982.
History reminds us that when the Federal Reserve cautions of high stock prices,
investors generally remain complacent, and later regret their inaction. Only
twice before have Fed officials raised red flags regarding overvaluation. Those
warnings, in 1929 and 1965, caused temporary market declines which were followed
by new highs. Then, after a seven to eight month lag, the markets topped out and
entered bear market cycles. "Clearly, when people are exposed to long periods of
- ---------------
1 From August 24, 1992 through March 31, 1997, the Fund's R-squared or
correlation to the S&P 500 is only 10.6%. The Fund's portfolio beta or
volatility relative to the S&P 500 is only .27 or 27% of the market's
volatility. An S&P 500 index fund has a 100% correlation with the market and a
beta of 1.00. Computations by Ned Davis Research, Inc.
2
<PAGE> 3
relative tranquillity, they seem inevitably prone to complacency about the
future," Greenspan remarked in testimony before the Senate Banking Committee on
February 26, 1997.
We view Monetary/Economic Liquidity (the relationship between liquidity or money
supply and economic growth) as a key factor that influences the direction of the
equity markets. Generally speaking, markets are bullish when money supply
increases faster than the economy as the excess liquidity flows into stocks and
bonds. Conversely, bearish market conditions exist when the economy grows faster
than the money supply and money is withdrawn from financial assets to purchase
plant, equipment and other products. Therefore, by definition the Fed's action
of tightening the money supply by raising the cost of capital should cause
securities to fall.
In the past, the Fed has increased interest rates in stages to take liquidity
out of the financial system. During the last round of rate increases in 1994,
the Fed took action seven times until there was sufficient evidence that
inflation had abated.
It is noteworthy that Chairman Greenspan felt the "exuberance" was "irrational"
when the Dow Jones Industrial Average stood at 6437. On April 30, 1997 the Dow
closed at 7009.
The roller-coaster ride that the market has embarked upon over the past several
months shows no signs of letting up. Triple-digit swings in the Dow, fueled by
the constant barrage of often contradictory economic data and prognostications
of Fed policy changes, are now commonplace. The Market Opportunity Fund is
postured for this high-risk market environment. At April 30, 1997 it was at its
maximum allowable short position, with plans to remain near 25%.
Your Fund's management will strive to aggressively pursue opportunities in the
marketplace, yet remain hedged and poised to react decisively to market change.
We manage for risk, not just for return, and will work hard to earn your
business.
Sincerely,
Michael B. Orkin, CFA
Portfolio Manager and Chief Investment Officer
3
<PAGE> 4
CALDWELL & ORKIN MARKET OPPORTUNITY FUND
STATISTICAL RISK PROFILE
9/30/92 -- 03/31/97
- --------------------------------------------------------------------------------
TEN WORST S&P 500 DAYS
<TABLE>
<CAPTION>
- ------------------------------------------
DATE C&O MOF S&P 500
- ------------------------------------------
<S> <C> <C>
03/08/96 -1.30% -3.07%
07/15/96 -0.45 -2.53
02/16/93 -3.88 -2.38
02/04/94 -1.65 -2.26
07/05/96 0.26 -2.22
03/31/97 -0.57 -2.17
03/27/97 -0.06 -2.10
04/02/93 -1.05 -1.97
03/13/97 -0.39 -1.83
01/10/96 0.00 -1.79
</TABLE>
The Caldwell & Orkin Market Opportunity Fund outperformed the S&P 500 with
income on nine of the ten worst days, and was break-even or positive on two of
the ten days.
TEN WORST S&P 500 WEEKS
<TABLE>
<CAPTION>
- ------------------------------------------
WEEK ENDING C&O MOF S&P 500
- ------------------------------------------
<S> <C> <C>
06/24/94 0.24% -3.36%
03/31/94 -3.79 -3.16
04/12/96 -0.01 -2.88
04/23/93 -1.99 -2.60
09/23/94 0.92 -2.39
11/04/94 0.09 -2.37
01/12/96 1.75 -2.37
02/19/93 -2.01 -2.28
08/30/96 -0.13 -2.21
03/01/96 -0.51 -2.19
</TABLE>
The Caldwell & Orkin Market Opportunity Fund outperformed the S&P 500 with
income in nine of the ten worst weeks, and was positive four of the ten weeks.
TEN WORST S&P 500 MONTHS
<TABLE>
<CAPTION>
- ------------------------------------------
MONTH C&O MOF S&P 500
- ------------------------------------------
<S> <C> <C>
July 1996 -0.82% -4.40%
March 1994 -4.10 -4.35
March 1997 4.57 -4.12
November 1994 0.27 -3.72
February 1994 1.36 -2.79
September 1994 1.18 -2.47
June 1994 1.22 -2.44
April 1993 -3.43 -2.31
December 1996 1.31 -1.99
November 1993 -1.62 -1.07
</TABLE>
The Caldwell & Orkin Market Opportunity Fund outperformed the S&P 500 with
income in eight of the ten worst months, and was positive six of the ten months.
<TABLE>
<CAPTION>
- ------------------------------------------
C&O MOF S&P 500
- ------------------------------------------
<S> <C> <C>
Correlation Coefficient 10.6% 100.0%
Beta 0.27 1.00
</TABLE>
Computations by Ned Davis Research, Inc. Past performance is no guarantee of
future results.
4
<PAGE> 5
CALDWELL & ORKIN MARKET OPPORTUNITY FUND
TOTAL RETURN PERFORMANCE SUMMARY THROUGH APRIL 30, 1997(1)
<TABLE>
<CAPTION>
C&O MARKET NASDAQ S&P 500
OPPORTUNITY COMPOSITE WITH INCOME
FISCAL YEAR ENDED FUND INDEX INDEX
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C>
1991 1.25% 2.02% 0.02%
- ----------------------------------------------------------------------------------------
1992 11.96%(2) 19.38% 14.03%
- ----------------------------------------------------------------------------------------
1993* 15.09% 14.30% 9.23%
- ----------------------------------------------------------------------------------------
1993** 21.09% 19.09% 8.67%
- ----------------------------------------------------------------------------------------
1994 16.48% 10.95% 5.32%
- ----------------------------------------------------------------------------------------
1995 (2.28)% 15.01% 17.47%
- ----------------------------------------------------------------------------------------
1996 31.80% 41.06% 30.21%
- ----------------------------------------------------------------------------------------
1997 23.24% 5.90% 25.12%
- ----------------------------------------------------------------------------------------
Since Inception (08/24/92)(3) 123.88% 127.00% 119.03%
- ----------------------------------------------------------------------------------------
Since Inception (03/11/91) 141.20% 165.36% 151.12%
- ----------------------------------------------------------------------------------------
AVERAGE ANNUAL RETURNS
- ----------------------------------------------------------------------------------------
Since Inception (08/24/92)(3) 18.76% 19.11% 18.21%
- ----------------------------------------------------------------------------------------
Since Inception (03/11/91) 15.38% 17.19% 16.14%
- ----------------------------------------------------------------------------------------
</TABLE>
CALDWELL & ORKIN MARKET OPPORTUNITY FUND
NET ASSET ALLOCATION
<TABLE>
<CAPTION>
April 30, 1997 April 30, 1996
<S> <C> <C> <C>
Common Stock Owned 52.09% Common Stock Owned 73.90%
Common Stock Sold 25.65% Common Stock Sold 17.04%
Short-term investments 22.26% Short-term investments 9.06%
100.00% 100.00%
</TABLE>
Common Stock Sold Short represents the market value, excluding margin
requirements.
- ---------------
<TABLE>
<C> <S>
(1) Performance figures represent past performance and do not
indicate future results. The investment return and principal
value will fluctuate so that upon redemption you may receive
more or less than the original investment. The NASDAQ and
S&P 500 with income figures do not reflect any fees or
expenses. Both are widely recognized unmanaged indices of
U.S. stocks.
(2) Total return for the fiscal year ended April 30, 1992 has
been restated to 11.96% from the previously reported 11.86%
due to mathematical rounding.
(3) The Caldwell & Orkin Market Opportunity Fund commenced
active management on August 24, 1992. A prior fund passively
managed and indexed to the largest 100 OTC stocks began
operations on March 11, 1991.
* For the full fiscal year ending April 30, 1993.
** From August 24, 1992 through April 30, 1993 -- the portion
of the year using the Caldwell & Orkin Multifactor style of
investment management.
The total return for the Caldwell & Orkin Market Opportunity
Fund for this period has been restated to 21.09% from the
previously reported 19.16% to accurately reflect the
inception NAV when active management of the Fund began.
</TABLE>
5
<PAGE> 6
CALDWELL & ORKIN MARKET OPPORTUNITY FUND VERSUS MAJOR MARKET INDICES
RESULTS OF A HYPOTHETICAL $10,000 INVESTMENT
COMBINED OLD AND ACTIVE STYLE OF INVESTMENT MANAGEMENT
MARCH 11, 1991 THROUGH APRIL 30, 1997
<TABLE>
<CAPTION>
C&O Market Opportunity Fund NASDAQ Composite S&P 500 Index
<S> <C> <C> <C>
03/11/91 $10,000 $10,000 $10,000
03/28/91 $10,415 $10,151 $9,979
04/30/91 $10,125 $10,202 $10,002
05/31/91 $10,550 $10,652 $10,434
06/28/91 $9,846 $10,017 $9,956
07/31/91 $10,357 $10,567 $10,420
08/30/91 $10,753 $11,064 $10,667
09/30/91 $10,492 $11,090 $10,488
10/31/91 $10,502 $11,429 $10,629
11/29/91 $10,077 $11,027 $10,201
12/31/91 $11,520 $12,341 $11,368
01/31/92 $12,102 $13,054 $11,156
02/28/92 $12,471 $13,333 $11,300
03/31/92 $11,821 $12,708 $11,081
04/30/92 $11,326 $12,180 $11,406
05/29/92 $11,326 $12,319 $11,462
06/30/92 $10,764 $11,863 $11,291
07/31/92 $11,297 $12,225 $11,752
08/31/92 $10,832 $11,852 $11,512
09/30/92 $11,210 $12,277 $11,647
10/30/92 $11,850 $12,737 $11,687
11/30/92 $12,907 $13,739 $12,085
12/31/92 $13,278 $14,248 $12,233
01/29/93 $13,429 $14,656 $12,336
02/26/93 $13,409 $14,118 $12,504
03/31/93 $13,510 $14,526 $12,768
04/30/93 $13,046 $13,921 $12,459
05/28/93 $13,641 $14,745 $12,792
06/30/93 $13,772 $14,817 $12,830
07/30/93 $13,722 $14,832 $12,778
08/31/93 $14,337 $15,635 $13,263
09/30/93 $14,589 $16,055 $13,161
10/29/93 $14,911 $16,402 $13,434
11/30/93 $14,669 $15,878 $13,306
12/31/93 $15,258 $16,350 $13,466
01/31/94 $15,543 $16,848 $13,924
02/28/94 $15,754 $16,680 $13,546
03/31/94 $15,110 $15,648 $12,956
04/29/94 $15,196 $15,446 $13,122
05/31/94 $15,023 $15,474 $13,337
06/30/94 $15,209 $14,859 $13,010
07/29/94 $15,147 $15,200 $13,438
08/31/94 $14,874 $16,115 $13,989
09/30/94 $15,048 $16,087 $13,647
10/31/94 $14,998 $16,364 $13,953
11/30/94 $15,035 $15,793 $13,445
12/30/94 $15,109 $15,827 $13,644
01/31/95 $14,812 $15,895 $13,998
02/28/95 $14,825 $16,706 $14,544
03/31/95 $14,928 $17,200 $14,973
04/28/95 $14,850 $17,764 $15,414
05/30/95 $14,955 $18,197 $16,030
06/30/95 $15,177 $19,647 $16,402
07/31/95 $15,387 $21,073 $16,946
08/31/95 $15,635 $21,471 $16,989
09/30/95 $15,858 $21,964 $17,706
10/31/95 $15,714 $21,807 $17,642
11/30/95 $16,145 $22,294 $18,417
12/31/95 $17,603 $22,145 $18,772
01/31/96 $17,696 $22,306 $19,411
02/29/96 $18,359 $23,154 $19,590
03/31/96 $18,757 $23,182 $19,779
04/30/96 $19,572 $25,058 $20,071
05/31/96 $20,234 $26,171 $20,588
06/28/96 $20,274 $24,942 $20,667
07/31/96 $20,031 $22,744 $19,754
08/30/96 $20,517 $24,026 $20,170
09/30/96 $20,828 $25,824 $21,306
10/31/96 $21,679 $25,710 $21,893
11/30/96 $21,963 $27,207 $23,548
12/31/96 $22,407 $27,173 $23,082
01/31/97 $23,248 $29,043 $24,524
02/28/97 $22,774 $27,552 $24,716
03/31/97 $23,814 $25,714 $23,698
04/30/97 $24,120 $26,536 $25,112
141.20% 165.36% 151.12%
</TABLE>
CALDWELL & ORKIN MARKET OPPORTUNITY FUND VERSUS MAJOR MARKET INDICES
RESULTS OF A HYPOTHETICAL $10,000 INVESTMENT
SINCE INCEPTION OF ACTIVE STYLE OF INVESTMENT MANAGEMENT
AUGUST 24, 1992 THROUGH APRIL 30, 1997
<TABLE>
<CAPTION>
C&O Market Opportunity Fund NASDAQ Composite S&P 500 Index
<S> <C> <C> <C>
08/24/92 $10,000 $10,000 $10,000
08/31/92 $10,054 $10,139 $10,040
09/30/92 $10,405 $10,502 $10,158
10/30/92 $10,999 $10,896 $10,193
11/30/92 $11,980 $11,753 $10,541
12/31/92 $12,325 $12,189 $10,670
01/29/93 $12,465 $12,538 $10,759
02/26/93 $12,446 $12,077 $10,906
03/31/93 $12,540 $12,426 $11,136
04/30/93 $12,109 $11,909 $10,867
05/28/93 $12,662 $12,613 $11,157
06/30/93 $12,783 $12,675 $11,190
07/30/93 $12,736 $12,688 $11,145
08/31/93 $13,307 $13,375 $11,568
09/30/93 $13,541 $13,734 $11,479
10/29/93 $13,841 $14,031 $11,717
11/30/93 $13,616 $13,583 $11,605
12/31/93 $14,163 $13,987 $11,745
01/31/94 $14,427 $14,413 $12,145
02/28/94 $14,623 $14,269 $11,815
03/31/94 $14,025 $13,386 $11,300
04/29/94 $14,105 $13,213 $11,445
05/31/94 $13,944 $13,237 $11,633
06/30/94 $14,117 $12,711 $11,348
07/29/94 $14,059 $13,003 $11,720
08/31/94 $13,806 $13,785 $12,201
09/30/94 $13,967 $13,761 $11,902
10/31/94 $13,921 $13,999 $12,170
11/30/94 $13,956 $13,510 $11,727
12/30/94 $14,024 $13,539 $11,901
01/31/95 $13,748 $13,598 $12,209
02/28/95 $13,760 $14,291 $12,685
03/31/95 $13,856 $14,714 $13,059
04/28/95 $13,784 $15,196 $13,444
05/30/95 $13,881 $15,567 $13,981
06/30/95 $14,087 $16,807 $14,306
07/31/95 $14,282 $18,027 $14,780
08/31/95 $14,512 $18,367 $14,817
09/30/95 $14,719 $18,789 $15,443
10/31/95 $14,585 $18,655 $15,388
11/30/95 $14,986 $19,071 $16,063
12/31/95 $16,339 $18,944 $16,372
01/31/96 $16,425 $19,082 $16,930
02/29/96 $17,041 $19,807 $17,087
03/31/96 $17,410 $19,831 $17,251
04/30/96 $18,166 $21,436 $17,506
05/31/96 $18,781 $22,388 $17,957
06/28/96 $18,818 $21,337 $18,025
07/31/96 $18,593 $19,456 $17,229
08/30/96 $19,044 $20,553 $17,592
09/30/96 $19,332 $22,091 $18,583
10/31/96 $20,122 $21,994 $19,095
11/30/96 $20,386 $23,274 $20,538
12/31/96 $20,798 $23,245 $20,132
01/31/97 $21,579 $24,845 $21,389
02/28/97 $21,139 $23,569 $21,557
03/31/97 $22,104 $21,997 $20,669
04/30/97 $22,388 $22,700 $21,903
123.88% 127.00% 119.03%
</TABLE>
6
<PAGE> 7
THE CALDWELL & ORKIN MARKET OPPORTUNITY FUND
SCHEDULE OF INVESTMENTS
APRIL 30, 1997
- --------------------------------------------------------------------------------
COMMON STOCK -- 52.09%
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
COMMERCIAL SERVICES -- 1.11% Shares Market Value
- ------------------------------------------------------------------------------------------------
Physicians Specialty Corporation 115,000 $ 675,625
CONTAINERS - METAL AND GLASS -- 1.36%
- ------------------------------------------------------------------------------------------------
Crown Cork & Seal, Inc.* 15,100 826,725
FINANCE - SAVINGS & LOAN -- 3.65%
- ------------------------------------------------------------------------------------------------
FFVA Financial Corp.* 39,400 837,250
Palfed, Inc.* 82,900 1,367,850
FINANCIAL SERVICES - MISCELLANEOUS -- 1.62%
- ------------------------------------------------------------------------------------------------
Dime Bancorp, Inc. 56,000 903,000
Jayhawk Acceptance Corporation(a) 61,100 80,194
INSURANCE -- 1.99%
- ------------------------------------------------------------------------------------------------
Conseco, Inc.* 29,200 1,208,150
MEDIA - NEWSPAPERS -- 2.45%
- ------------------------------------------------------------------------------------------------
Dow Jones & Company, Inc.* 36,700 1,486,350
MEDICAL - BIOMED AND GENETICS -- 1.93%
- ------------------------------------------------------------------------------------------------
Bio Technology General Corporation 81,400 1,170,125
METAL ORES -- 4.70%
- ------------------------------------------------------------------------------------------------
Alta Gold Company 36,100 94,762
Bema Gold Corporation 108,000 735,750
Dayton Mining Corporation (ADR) 281,500 1,143,594
Miramar Mining Corporation (ADR) 241,500 875,437
OIL & GAS - ROYALTY TRUST -- 2.58%
- ------------------------------------------------------------------------------------------------
Sabine Royalty Trust* 124,000 1,565,500
OIL & GAS - FIELD SERVICES -- 1.07%
- ------------------------------------------------------------------------------------------------
Mesa, Inc. 126,700 649,337
OIL & GAS OFFSHORE DRILLING -- 6.65%
- ------------------------------------------------------------------------------------------------
Diamond Offshore 25,700 1,654,438
Ensco International, Inc. 22,900 1,087,750
Patterson Energy, Inc. 8,000 230,000
Precision Drilling Corporation (ADR) 30,400 1,056,400
OIL FIELD MACHINERY & EQUIPMENT -- 5.59%
- ------------------------------------------------------------------------------------------------
National Oilwell, Inc. 36,000 1,399,500
Seacor Holdings, Inc. 18,700 804,100
Tidewater, Inc.* 29,600 1,187,700
</TABLE>
The accompanying notes are an integral part of these financial statements.
7
<PAGE> 8
THE CALDWELL & ORKIN MARKET OPPORTUNITY FUND
SCHEDULE OF INVESTMENTS
(CONTINUED)
- --------------------------------------------------------------------------------
COMMON STOCK
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
PAPER AND PAPER PRODUCTS -- 0.53% Shares Market Value
- ------------------------------------------------------------------------------------------------
Republic Group, Inc.* 19,910 $ 323,538
RETAIL - APPAREL AND SHOES -- 1.89%
- ------------------------------------------------------------------------------------------------
Payless Shoe Source, Inc. 27,000 1,147,500
RETAIL - SUPERMARKETS -- 5.53%
- ------------------------------------------------------------------------------------------------
American Stores Company, Inc. 24,200 1,101,100
Quality Food Centers, Inc. 56,100 2,251,013
RETAIL - MISCELLANEOUS -- 1.02%
- ------------------------------------------------------------------------------------------------
Consolidated Stores Corporation 15,400 616,000
RETAIL/WHOLESALE - BUILDING PRODUCTS -- 1.95%
- ------------------------------------------------------------------------------------------------
Home Depot, Inc. 20,400 1,183,200
STEEL PRODUCERS -- 2.45%
- ------------------------------------------------------------------------------------------------
Nucor Corporation* 29,800 1,486,275
TEXTILES -- 3.05%
- ------------------------------------------------------------------------------------------------
Westpoint Stevens, Inc. 47,200 1,846,700
TITANIUM -- 0.97%
- ------------------------------------------------------------------------------------------------
Oregon Metallurgical Corporation 25,700 591,100
--------------
TOTAL COMMON STOCKS (COST $29,892,379) $ 31,585,963
==============
</TABLE>
* Income producing
(ADR) - American Depository Receipts
(a) - in bankruptcy
The accompanying notes are an integral part of these financial statements.
8
<PAGE> 9
THE CALDWELL & ORKIN MARKET OPPORTUNITY FUND
SCHEDULE OF INVESTMENTS
(CONTINUED)
- --------------------------------------------------------------------------------
COMMON STOCK SOLD SHORT -- 25.65%(A)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
AUTO & TRUCK - REPLACEMENT PARTS -- 0.58% Shares Market Value
- --------------------------------------------------------------------------------------------
Exide Corporation 22,100 $ 356,363
BANKS -- 1.24%
- --------------------------------------------------------------------------------------------
Banc One, Inc. 17,700 750,038
BUILDING - MOBILE AND RV -- 1.84%
- --------------------------------------------------------------------------------------------
Champion Enterprises, Inc. 36,500 556,625
Fleetwood Enterprises, Inc. 21,100 556,513
COMPUTER SERVICES -- 1.52%
- --------------------------------------------------------------------------------------------
Shared Medical Systems Corporation 21,900 922,537
COMPUTER SOFTWARE -- 1.27%
- --------------------------------------------------------------------------------------------
McAfee Associates, Inc. 13,800 769,350
COMPUTER HARDWARE -- 1.07%
- --------------------------------------------------------------------------------------------
Compaq Computer Corporation 7,600 648,850
COSMETICS AND PERSONAL CARE -- 1.45%
- --------------------------------------------------------------------------------------------
Herbalife International, Inc. 27,100 436,988
Rexall Sundown, Inc. 22,300 443,213
FINANCE - CONSUMER LOANS -- 2.76%
- --------------------------------------------------------------------------------------------
First Merchants Acceptance Corporation 42,100 126,300
Jayhawk Acceptance Corporation(b) 61,100 80,194
National Auto Credit, Inc. 70,230 553,061
Olympic Financial, Ltd. 94,900 913,413
FINANCE - MORTGAGE AND RELATED SERVICES -- 1.59%
- --------------------------------------------------------------------------------------------
Aames Financial Corporation 22,350 343,631
Contifinancial Corporation 17,000 488,750
United Companies Financial Corporation 6,600 129,525
FINANCIAL SERVICES - MISCELLANEOUS -- 5.20%
- --------------------------------------------------------------------------------------------
Americredit Corporation 33,900 487,312
Consumer Portfolio Services, Inc. 30,800 238,700
Credit Acceptance Corporation 39,700 429,256
Dean Witter Discover, Inc. 20,600 787,950
Delta Financial Corporation 5,300 71,550
Green Tree Financial Corporation 24,800 734,700
Southern Pacific Funding Corporation 38,100 404,812
</TABLE>
The accompanying notes are an integral part of these financial statements.
9
<PAGE> 10
THE CALDWELL & ORKIN MARKET OPPORTUNITY FUND
SCHEDULE OF INVESTMENTS
(CONTINUED)
- --------------------------------------------------------------------------------
COMMON STOCK SOLD SHORT
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
INSURANCE -- 1.47% Shares Market Value
- ------------------------------------------------------------------------------------------------
Progressive Corporation - Ohio 4,000 $ 304,500
Aflac, Inc. 13,600 584,800
LEISURE PRODUCTS -- 0.40%
- ------------------------------------------------------------------------------------------------
Coastcast Corporation 24,900 242,775
MEDICAL AND DENTAL SUPPLIES -- 1.25%
- ------------------------------------------------------------------------------------------------
Steris Corporation 23,100 759,412
POLLUTION CONTROL SERVICES -- 0.82%
- ------------------------------------------------------------------------------------------------
Republic Industries, Inc. 20,000 496,250
RETAIL - MISCELLANEOUS -- 0.44%
- ------------------------------------------------------------------------------------------------
United Auto Group, Inc. 16,100 267,663
RETAIL - RESTAURANTS -- 2.12%
- ------------------------------------------------------------------------------------------------
Outback Steakhouse, Inc. 27,600 541,650
Planet Hollywood International, Inc. 19,500 358,312
Rainforest Cafe, Inc. 16,100 384,387
TELECOMMUNICATION SERVICES -- 0.63%
- ------------------------------------------------------------------------------------------------
Excel Communications, Inc. 29,900 384,963
--------------
TOTAL COMMON STOCKS SOLD SHORT
(PROCEEDS -- $19,459,637) $ 15,554,343
==============
</TABLE>
(a) - The short positions exceed 25% as a result of market appreciation on April
30, 1997.
(b) - in bankruptcy
The accompanying notes are an integral part of these financial statements.
10
<PAGE> 11
THE CALDWELL & ORKIN MARKET OPPORTUNITY FUND
STATEMENT OF ASSETS AND LIABILITIES
APRIL 30, 1997
- --------------------------------------------------------------------------------
ASSETS:
<TABLE>
<S> <C>
Investments, at value (cost $29,892,379) $ 31,585,963
Cash 9,071,717
Segregated cash with brokers and other financial
institution 18,597,768
Deposits with brokers for securities sold short 16,116,344
Receivables:
Investment securities sold 2,018,840
Interest and dividends 124,773
Capital shares sold 603,673
Other 6,313
--------------
TOTAL ASSETS 78,125,391
--------------
LIABILITIES:
Securities sold short, not yet purchased (proceeds
$19,459,637) 15,554,343
Payables:
Investment securities purchased 1,852,985
Dividends on short securities 7,441
Accrued advisory fees 41,679
Accrued expenses 36,750
--------------
TOTAL LIABILITIES 17,493,198
--------------
TOTAL NET ASSETS $ 60,632,193
==============
NET ASSETS CONSIST OF:
Undistributed net investment income $ 838,849
Undistributed net realized gain 3,048,905
Net unrealized appreciation on investments 5,598,878
Paid-in capital applicable to 3,843,638 shares
outstanding; par value $0.10 per share; 15,000,000
shares authorized 51,145,561
--------------
$ 60,632,193
==============
NET ASSET VALUE AND OFFERING/REDEMPTION PRICE PER SHARE $ 15.77
==============
</TABLE>
The accompanying notes are an integral part of these financial statements.
11
<PAGE> 12
THE CALDWELL & ORKIN MARKET OPPORTUNITY FUND
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED APRIL 30, 1997
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest $ 1,115,551
Dividends 262,199
Other income 27,231
--------------
TOTAL INVESTMENT INCOME 1,404,981
--------------
EXPENSES:
Investment advisory fees 369,177
Transfer agent fees 33,098
Professional fees 38,333
Dividend expense on securities sold short 33,727
Directors' fees and expenses 21,489
Registration and filing fees 24,127
Custodian fees 11,706
Legal fees 21,454
Insurance 3,475
Other 4,511
--------------
TOTAL EXPENSES 561,097
--------------
NET INVESTMENT INCOME 843,884
--------------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS:
Net realized gain on investments 7,487,471
Change in unrealized appreciation 194,871
--------------
NET REALIZED GAIN AND UNREALIZED
APPRECIATION ON INVESTMENTS 7,682,342
--------------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS $ 8,526,226
==============
</TABLE>
The accompanying notes are an integral part of these financial statements.
12
<PAGE> 13
THE CALDWELL & ORKIN MARKET OPPORTUNITY FUND
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEARS ENDED APRIL 30, 1997 AND 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
APRIL 30, 1997 APRIL 30, 1996
-------------- --------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income $ 843,884 $ 638,540
Net realized gain from investments 7,487,471 3,040,435
Net unrealized appreciation on investments 194,871 5,540,943
------------- -------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS 8,526,226 9,219,918
------------- -------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income (645,545) (1,111,925)
Net realized gains on investments (4,438,128) -
------------- -------------
NET DISTRIBUTIONS TO SHAREHOLDERS (5,083,673) (1,111,925)
------------- -------------
CAPITAL SHARE TRANSACTIONS
Net proceeds from sales of shares 30,542,727 2,244,738
Distributions reinvested in shares 3,382,245 828,129
Cost of shares redeemed (14,765,526) (5,411,750)
------------- -------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM
CAPITAL SHARE TRANSACTIONS 19,159,446 (2,338,883)
------------- -------------
TOTAL INCREASE IN NET ASSETS 22,601,999 5,769,110
NET ASSETS:
Beginning of year 38,030,194 32,261,084
------------- -------------
End of year $ 60,632,193 $ 38,030,194
============= =============
</TABLE>
The accompanying notes are an integral part of these financial statements.
13
<PAGE> 14
THE CALDWELL & ORKIN MARKET OPPORTUNITY FUND
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEARS ENDED APRIL 30,
-----------------------------------------------
1997 1996 1995 1994 1993
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
SELECTED PER SHARE DATA:
Net asset value, beginning of period $ 14.49 $ 11.35 $ 12.26 $ 12.94 $ 11.69
------- ------- ------- ------- -------
Income (loss) from Investment Operations:
Net investment income (loss)* 0.22 0.27 0.54 0.06 (0.01)
Net realized and unrealized gain (loss) on investments 2.95 3.31 (0.81) 1.99 1.77
------- ------- ------- ------- -------
Total from investment operations 3.17 3.58 (0.27) 2.05 1.76
------- ------- ------- ------- -------
Less Distributions:
From net investment income (0.24) (0.44) (0.41) (0.04) -
From net realized gain on investments (1.65) - (0.23) (2.69) (0.51)
------- ------- ------- ------- -------
Total distributions (1.89) (0.44) (0.64) (2.73) (0.51)
------- ------- ------- ------- -------
Net asset value, end of period $ 15.77 $ 14.49 $ 11.35 $ 12.26 $ 12.94
======= ======= ======= ======= =======
Total Return 23.24% 31.80% (2.28)% 16.48% 15.09%
Ratios and Supplemental Data:
Net assets, end of period (in 000's) $60,632 $38,030 $32,261 $18,830 $15,116
Ratios to average net assets:
Expenses before dividends on securities sold short (After
Reimbursement) 1.26% 1.38% 1.18% 1.21% 1.30%
Expenses from dividends sold short 0.08% 0.18% 0.45% - -
------- ------- ------- ------- -------
Total expenses (After Reimbursement) 1.34% 1.56% 1.63% 1.21% 1.30%
Total expenses (Before Reimbursement) 1.34% 1.56% 1.79% 1.77% 2.00%
Net investment income (loss) 2.01% 1.94% 3.55% 0.44% (0.01)%
Portfolio turnover 229% 222% 331% 292% 223%
Average commission per share $0.0555 ** ** ** **
</TABLE>
* Had the Distributor and Advisor not waived a portion of the expenses, net
investment income (loss) per share would have been $.52, ($.01), and ($.09)
for the years ended April 30, 1995 through 1993, respectively. No expenses
were waived for the years ended April 30, 1997 and April 30, 1996.
** Not applicable to prior periods. Represents average commission rate per share
charged to the Fund on purchases and sales of equity investments on which
commissions were charged during the period.
The accompanying notes are an integral part of these financial statements.
14
<PAGE> 15
NOTES TO FINANCIAL STATEMENTS
The Caldwell & Orkin Market Opportunity Fund, (the "Fund"), is the only active
investment portfolio of The Caldwell & Orkin Funds, Inc., an open-end,
diversified management investment company registered under the Investment
Company Act of 1940, as amended. The Fund's objectives are to provide long-term
capital growth with a short-term focus on capital preservation through
investment selection and asset allocation. The Fund seeks to outperform the
stock market over the long-term, as measured by indices such as the NASDAQ
Composite and the S&P 500 with income.
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
SECURITIES VALUATION:
Securities are stated at the closing price on the date at which the net
asset value is being determined. If the date of determination is not a
trading date, the securities are valued as of the last trading date
preceding the date of determination. Short-term investments having a
maturity of 60 days or less at the time of the purchase are stated at
amortized cost, which approximates market value.
SECURITIES TRANSACTIONS AND RELATED INVESTMENT INCOME:
Securities transactions are accounted for on the trade date. Dividend
income is recorded on the ex-dividend date and interest income is recorded
as earned. Realized gains and losses from investment transactions are
determined using the specific identification method.
CASH:
The Fund maintains cash available for the settlement of securities
transactions and capital shares reacquired. Available cash is invested
daily in money market instruments.
INCOME TAXES:
As a qualified investment company under Subchapter M of the Internal
Revenue Code, the Fund is not subject to income taxes to the extent that
it distributes all of its taxable income. It is the Fund's policy to meet
the requirements of the Internal Revenue Code applicable to regulated
investment companies and to distribute all of its taxable income to its
shareholders.
USE OF ESTIMATES:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
2. AGREEMENTS WITH THE ADVISOR AND DISTRIBUTOR:
The Fund has entered into a management agreement with C&O Funds Advisor,
Inc. (the "Advisor") pursuant to which the Advisor provides space,
facilities, equipment, and personnel necessary to perform administrative
and management services for the Fund. The management agreement provides
that the Advisor is responsible for the actual management of the Fund's
portfolio. For such services and expenses assumed by the Advisor, the Fund
pays a monthly advisory fee at incremental annual rates as follows:
<TABLE>
<CAPTION>
Advisory Fee Average Daily Net Assets
------------ ------------------------
<C> <S>
.90% Up to $100 million
.80% In excess of $100 million but not greater than $200 million
.70% In excess of $200 million but not greater than $300 million
.60% In excess of $300 million but not greater than $500 million
.50% In excess of $500 million
</TABLE>
15
<PAGE> 16
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2. AGREEMENTS WITH THE ADVISOR AND DISTRIBUTOR (CONTINUED)
The Advisor has agreed to reimburse the Fund to the extent necessary to
prevent the Fund's annual ordinary operating expenses (excluding taxes,
brokerage commissions and extraordinary charges such as litigation costs)
from exceeding 2.0% of the Fund's average daily net assets. No such
reimbursement was required for the year ended April 30, 1997.
The Fund has entered into a distribution agreement with C&O Funds
Distributor, Inc. (the "Distributor") pursuant to which the Distributor
provides broker/dealer services for the Fund. The Distributor is
responsible for the sales and redemptions of the shares of the Fund. The
Distributor does not charge the Fund for these services.
C&O Funds Advisor, Inc. and C&O Funds Distributor, Inc. are wholly-owned
subsidiaries of Caldwell & Orkin, Inc.
3. INVESTMENT PORTFOLIO TRANSACTIONS:
INVESTMENT PURCHASES AND SALES:
For the year ended April 30, 1997, purchases and proceeds from sales of
equity investments (excluding securities sold short and short-term
investments) aggregated $60,483,150 and $62,213,528, respectively.
Purchases and proceeds from sales of bonds aggregated $1,517,856 and
$1,434,125, respectively.
TAX BASIS OF INVESTMENTS:
At April 30, 1997, the cost of investments for federal income tax purposes
was $30,023,172. Accumulated net unrealized appreciation of investments
was $1,562,790, consisting of gross unrealized appreciation and gross
unrealized depreciation of $3,118,199 and $1,555,409, respectively. The
long-term capital gains distribution paid to shareholders was $376,568 for
the year ended April 30, 1997.
SHORT SALES AND SEGREGATED CASH:
Short sales are transactions in which the Fund sells a security it does
not own, in anticipation of a decline in the market value of that
security. To complete such a transaction, the Fund must borrow the
security to deliver to the buyer upon the short sale; the Fund is then
obligated to replace the security borrowed by purchasing it in the open
market at some later date. The Fund will incur a loss if the market price
of the security increases between the date of the short sale and the date
on which the Fund replaces the borrowed security. The Fund will realize a
gain if the security declines in value between those dates. The Fund
limits the value of its short positions (excluding short sales "against
the box") to 25% of the Fund's total net assets.
All short sales must be fully collateralized. The Fund maintains the
collateral in segregated accounts consisting of cash and/or U.S.
Government securities sufficient to collateralize the market value of its
short positions. Typically, the segregated cash with brokers and other
financial institutions exceeds the minimum requirements.
The Fund may also sell short "against the box" (i.e., the Fund enters into
a short sale as described above, while holding an offsetting long position
in the security which it sold short). If the Fund enters into a short sale
against the box, it will segregate an equivalent amount of securities
owned by the Fund as collateral while the short sale is outstanding.
For the year ended April 30, 1997, the cost of investments purchased to
cover short sales and proceeds from investments sold short were
$39,332,113 and $50,961,201, respectively.
16
<PAGE> 17
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
4. CAPITAL SHARE TRANSACTIONS:
Capital share transactions for the years ended April 30, 1997 and 1996,
were as follows:
<TABLE>
<CAPTION>
1997 1996
------------------------------
<S> <C> <C>
Shares sold 1,985,885 164,910
Shares issued in connection with
reinvestment of distributions 236,852 60,400
Shares reacquired (1,003,538) (442,987)
------------------------------
Net increase (decrease) in shares
outstanding 1,219,199 (217,677)
==============================
</TABLE>
5. RELATED PARTY TRANSACTIONS:
C&O Funds Advisor, Inc. and its parent, Caldwell & Orkin, Inc., have made
investments in the Fund during the year ended April 30, 1997, in the
amounts of $30,000 and $50,000, respectively. C&O Funds Advisor, Inc. and
its parent, Caldwell & Orkin, Inc. made transfers of its shares in the
Fund to Michael B. Orkin, the sole shareholder of Caldwell & Orkin, Inc.,
during the year, in the amounts of $284,797 and $789,128, respectively.
All transactions had been settled as of April 30, 1997.
As of April 30, 1997, Caldwell & Orkin, Inc., C&O Funds Advisor, Inc., and
Michael B. Orkin had ownership of the Fund of 0.01%, 0.00%, and 3.69%,
respectively.
17
<PAGE> 18
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Board of Directors of
The Caldwell & Orkin Funds, Inc.
We have audited the accompanying statement of assets and liabilities of the
Market Opportunity Fund of the Caldwell & Orkin Funds, Inc. (the "Fund"),
including the schedules of investments and securities sold short, as of April
30, 1997, and the related statement of operations for the year then ended, the
statements of changes in net assets for each of the two years in the period then
ended and the financial highlights for each of the four years in the period then
ended. These financial statements and financial highlights are the
responsibility of the Fund'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 year ended April 30, 1993 were audited
by other auditors whose report dated May 21, 1993, expressed an unqualified
opinion on those financial highlights.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of April
30, 1997 by correspondence with the custodian and brokers. 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
Market Opportunity Fund of the Caldwell & Orkin Funds, Inc. as of April 30,
1997, the results of its operations for the year then ended, and the changes in
its net assets for each of the two years in the period then ended and its
financial highlights for each of the four years in the period then ended, in
conformity with generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
Atlanta, Georgia
May 22, 1997
18
<PAGE> 19
THE CALDWELL & ORKIN MARKET OPPORTUNITY FUND
BOARD OF DIRECTORS
Michael B. Orkin, President & Chairman
H. Eugene Caldwell, Chairman Emeritus
Frederick T. Blumer
David L. Eager
Robert H. Greenblatt
Henry H. Porter, Jr.
INVESTMENT ADVISER
C&O Funds Advisor, Inc.
2050 Tower Place
3340 Peachtree Road, NE
Atlanta, Georgia 30326
DISTRIBUTOR
C&O Funds Distributor, Inc.
2050 Tower Place
3340 Peachtree Road, NE
Atlanta, Georgia 30326
CUSTODIAN
Bank One Ohio Trust Company, N.A.
235 West Schrock Road
Westerville, Ohio 43081
TRANSFER, REDEMPTION, AND DIVIDEND
DISBURSING AGENT
Countrywide Fund Services, Inc.
312 Walnut Street
Cincinnati, Ohio 45202
INDEPENDENT ACCOUNTANTS
Coopers & Lybrand L.L.P.
1100 Campanile Building
1155 Peachtree Street, N.E.
Atlanta, Georgia 30309-3630
LEGAL COUNSEL
Kilpatrick Stockton, LLP
1100 Peachtree Street
Atlanta, Georgia 30309-4530
THE CALDWELL & ORKIN MARKET OPPORTUNITY FUND
2050 TOWER PLACE
3340 PEACHTREE ROAD, NE
ATLANTA, GEORGIA 30326
E-MAIL: [email protected]
FUND INFORMATION
For a prospectus or further information, please call (404) 239-0707 OR (800)
237-7073.
FUND LISTINGS
The Fund is listed in the Wall Street Journal, Investor's Business Daily,
The New York Times, and most local newspapers as either C&OMKTOPP or CALDORKMO.
Its computer quotation symbol is COAGX.
These financial statements are submitted for the general information of the
shareholders of The Caldwell & Orkin Market Opportunity Fund. They are not
authorized for distribution to prospective investors unless preceded or
accompanied by an effective prospectus.
19
