Caldwell & Orkin Market Opportunity Fund
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PERFORMANCE IN REVIEW: MARCH 31, 1998
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The Caldwell & Orkin Market Opportunity Fund (COAGX) rose 3.9% in
the first quarter of 1988 and is up 26.5% for the 12-month period
ending March 31, 1998. From its August 24, 1992 commencement of
active management to 3/31/98 it has had an average annual return
of 20.1%. Notably, these results were achieved with
significantly less exposure to market risk (the risk that the
broad stock market averages decline): the Fund has correlated
with the S&P 500 with income only 9.8% of the time, with only 21%
of its volatility (as measured by beta).
The Fund opened the first quarter fully hedged with a maximum
allowable short position of 40% of net assets. The deteriorating
situation in East Asian economies raised concern vis-a-vis the
ability of U.S. corporations to maintain their earnings growth in
an environment of intense pricing pressure from cheaper imports
and less demand for those products exported to East Asia. During
the initial stages of a financial crisis (East Asia), excess
liquidity generated by Central Banks invariably finds its way
into stocks and bonds. We reduced the Fund's short position in
early February and closed the quarter 65.6% long / 33.5% short,
for an effective 32.1% net long exposure to the market.
We sold oil & gas service companies beginning late summer last
year and concluding within the first two weeks of January.
During the same period we increased the Fund's weighting in
telecommunications services and cable TV. Both moves proved
timely. With oil supply plentiful and prices at their lowest
inflation-adjusted levels ever, share prices for the group were
hit hard, with the oil service index falling 37% peak-to-trough.
The telecommunications services and cable TV companies fared well
during the first quarter, fueled by accelerating subscriber
growth, increasing cash flows and new services.
On the short side, we reduced our exposure to the low-quality
loan industry during the first quarter from 13.2% of net assets
to 9.6%. The rising tide lifted all boats and our discipline
dictated that we cover some positions. The group's fundamentals
continue to deteriorate, however, and we plan to increase the
short exposure over time.
Our goal in managing the Fund is to achieve solid results over
time with less stomach churn. Generally speaking, we expect the
Fund to underperform the S&P 500 with income during a rising
market and to outperform the index during a falling market
(although not necessarily with positive performance) while the
Fund maintains a hedged exposure. The bull's charge during the
first quarter of 1998 was reminiscent of the second quarter of
1997, when the Fund rose 3.9% vs. 17.5% for the S&P 500 (during
the first quarter of 1998 the S&P was up 14%). There are no
benchmarks specifically designed to assess mutual funds that
engage in this risk-averse investment style. However, we are
pleased that for the full quarter the Market Opportunity Fund's
performance surpassed the ten or so other mutual funds that use
some form of long-short strategy. Past performance is no
guarantee of future results, and we will continue to exercise our
disciplined investment style focusing on risk as well as return.
<PAGE>
CURRENT OUTLOOK:
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The stock market enjoys an environment characterized by solid
economic growth and low inflation. On a top-down basis the
current environment, bolstered by excess liquidity in the
financial system, looks favorable and has resulted in record
highs. Bottoms-up, however, a different picture emerges as
disappointing earnings reports signal weakness in individual
companies. The brunt of East Asia's impact may be felt soon as
we begin to see earnings reports reflecting what damage has been
done to revenues and earnings. We continue to view the market
environment as "high-risk" and manage accordingly.
PORTFOLIO SNAPSHOT AS OF MARCH 31, 1998:
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<TABLE>
<CAPTION>
FIVE LARGEST LONG HOLDINGS FIVE LARGEST INDUSTRIES ASSET ALLOCATION
- -------------------------- ----------------------- ----------------
<C> <S> <C> <S> <C> <S> <C>
1 Westpoint Stevens Inc (WPSN) 4.3% Telecommunitions - Services 7.3% Long Equities 65.6%
2 Office Depot Inc (ODP) 4.0% Media - Cable TV 6.6% Short Equities 33.5%
3 Viacom Inc. Cl-B (VIA.B) 3.7% Medical - Ethical Drugs 4.6% Bonds 0.0%
4 Comcast Corp (CMCSK) 3.3% Textile - Mill/Household 4.3% Cash 0.9%
-----
5 ICN Pharmaceuticals Inc. (ICN) 3.3% Telecommunications - Cellular 4.2% Total 100.0%
</TABLE>
The Caldwell & Orkin Market Opportunity Fund's objective is to
provide long term capital growth with a short term focus on
capital preservation through investment selection and asset
allocation. Assets are allocated among long and short stocks,
bonds and cash equivalents. The share price is available by
calling the office (after hours there is a recorded message) and
is listed daily in THE WALL STREET JOURNAL, THE NEW YORK TIMES,
INVESTOR'S BUSINESS DAILY, USA TODAY and other newspapers. This
quarterly review is submitted for the general information of the
Fund's shareholders. It is not authorized for distribution to
prospective investors unless preceded or accompanied by an
effective prospectus.
C&O Funds Distributor, Inc. Tel: (800) 237-7073 / (404) 239-0707
Fax: (404) 842-7868 E-mail: [email protected]<PAGE>
Caldwell & Orkin Market Opportunity Fund
Third-Party Performance Ratings March 31, 1998
LIPPER ANALYTICAL SERVICES, INC.
<TABLE>
<CAPTION>
1-YEAR 3-YEAR 5-YEAR
--------------------------------------
<S> <C> <C> <C>
RATING: C A A
FUNDS IN CATEGORY: 289 237 117
CATEGORY: MULTI-PURPOSE
RANKING: 1-YEAR 3-YEAR 5-YEAR
RANK/FUNDS IN CATEGORY: 133/203 16/142 9/61
INVESTMENT OBJECTIVE: FLEXIBLE PORTFOLIO
</TABLE>
Performance calculations reflect total return, which assumes
reinvestment of all distributions and the subtraction of annual
expenses. Figures don't reflect sales charges ("loads") or
redemption fees for those funds that charge fees. The rating
compares performance among funds with similar investment
objectives and then ranked for the time periods listed.
Performance is measured from either the closest Thursday or
month-end for periods of more than three years. A=top 20%; B=next
20%; C=middle 20%; D=next 20%; E=bottom 20%.
MORNINGSTAR, INC.
OVERALL RATING: * * * *
CATEGORY RATING: * * * * *
RANKING: 1-YEAR 3-YEAR 5-YEAR
RANK/FUNDS IN CATEGORY: 119/226 11/136 6/55
INVESTMENT OBJECTIVE: ASSET ALLOCATION
The Overall Rating shows the fund's performance among 2,437
Domestic Equity funds, and is weighted 60% 5-year performance,
40% 3-year performance. The Category Rating shows the fund's 3-
year performance as measured against a narrower group of more
similar funds within a single type, in this case 422 Domestic
Hybrid funds. Performance is based on total return. A rating of
5 stars is superior and a rating of 1 star is poor. The ratings
are adjusted for risk. Thus if two funds produced the same three-
year return, the one with more volatility might carry a lower
rating than the one with less volatility. The ratings are grouped
so that 35 percent of funds get 3 stars, while just 10 percent
each get ratings of 1 or 5 stars. The ratings describe past
performance and are not forecasts.
C&O Funds Distributor, Inc. Tel: (800) 237-7073 / (404) 239-0707
Fax: (404) 842-7868 E-mail: [email protected]
