<PAGE> 1
[Caldwell & Orkin Logo]
THE MARKET OPPORTUNITY FUND
SEMI-ANNUAL REPORT TO SHAREHOLDERS
DEAR FELLOW SHAREHOLDER: DECEMBER 18, 1998
We are pleased to report that the Caldwell & Orkin Market Opportunity Fund
continued to achieve solid returns for its shareholders in both the 6-month and
12-month periods ended October 31, 1998. We are particularly proud of the Fund's
long-term performance.
Since its August 24, 1992 commencement of active management through October 31,
1998, the Fund has outperformed both the S&P 500 with Income and NASDAQ
Composite indices during one of the strongest bull markets of all time (see
pages 6, 9 & 10). These results are notable given the Fund's "market-risk
sensitive" investment approach.
Of course, past performance is no guarantee of future results.
SIX MONTHS IN REVIEW
The past six months have witnessed considerable market turbulence, as the "Asian
Flu" has spread from East Asia to most of the world. Your Fund has been postured
for a high-risk stock market. In the six months ended October 31, 1998, the Fund
rose 13.9%, versus -0.4% for the S&P 500 with income and -5.2% for the NASDAQ
Composite. For the twelve months ended October 31, 1998, the Fund has returned
21.0% (see page 9). We have managed sensitivity to market risk by maintaining
the Fund's short position in the 35% to 40% range (see page 5), effectively
decreasing net exposure to the market.
In late August, Russia floated a radical restructuring plan of its short-term
domestic debt. Russian bonds have always been considered "junk bonds," and like
most junk bonds their price did not adequately reflect the high amount of risk.
Meanwhile, a fixed income arbitrage strategy had been implemented by many hedge
funds on Wall Street, with leverage increasing as the spreads narrowed. When the
inherent risks in these bonds surfaced, illiquidity ensued under the weight of
the debt - the money just wasn't there - and financial crisis followed. The debt
crisis, combined with the political uncertainty of Russian President Boris
Yeltsin's government and an otherwise deteriorating global economic environment,
contributed to an August sell-off in the U.S. markets. The S&P 500 with income
fell 14.5%, and the NASDAQ Composite Index lost 20%. The Market Opportunity
Fund, by comparison, rose 3.1% in August.
The U.S. Federal Reserve stepped in to fend off the crisis with a more
accommodative interest rate policy. The excess economic liquidity created by
lower rates quickly found its way into financial assets, and prices rose. When a
second interest rate cut was announced in mid-October, the Fund was positioned
11% net short, with many financial service firms (sub-prime mortgage lenders,
sub-prime auto lenders and credit card companies) among the shorts. On the news,
we restructured the portfolio and covered certain shorts, including many in the
financial services group, and within three trading days transitioned the
portfolio to an 8% net long position. In general, when the Fund is in synch with
the market and a trend reverses, we tend to underperform. The S&P 500 gained
8.1% in October, and the Fund lost 2.7%. We
<PAGE> 2
work continually to invest in the right companies with the "correct" allocation
as determined by our perception of risk versus reward.
The Fund's net assets stood at $398.8 million on October 31, 1998. The increase
in assets has triggered a reduction in the scaled advisory fee rate paid to the
Fund Manager. For the six-month period ended October 31, the management fee rate
was .79%, down from .88% for the year ended April 30, 1998 (all figures are
stated on an annualized basis). Fund operating expenses (including legal, audit
and certain other expenses) have also decreased from .29% to .18% for the
periods referenced above. The final component of the Fund's expense ratio,
dividend expense on short sales, has increased from .05% to .33%. Because of
this increase, which is directly related to our increased exposure to short
sales, the Fund's total expense ratio (based on the six months ended October 31,
1998) has increased slightly from 1.22% to 1.30% on an annualized basis.
OUTLOOK
The deflationary nature of the Asian Flu has thus far been beneficial for U.S.
consumers, who are enjoying low prices (especially during the holiday season) on
everything from gasoline to electronics. But there is a cost: with virtually no
pricing power and cheap imports flooding our shores, U.S. companies are taking a
hard look at cost structures to maintain margin, and that means jobs. While
unemployment remains at historically low levels, a groundswell of layoff
announcements may put the brakes on the engine that has fueled the recent U.S.
economic expansion - consumer spending.
In fact, personal spending has for the past two months outpaced personal savings
- - resulting in negative personal savings rates. We view this as a red flag,
along with the heavy debt burden on U.S. households, the explosive amount of
margin debt in the stock market, high valuation levels of the U.S. market and
declining profits of U.S. corporations (see pages 6 & 7 - charts courtesy of Ned
Davis Research, Inc.) The market's long-running advance has left investors
complacent, apparently willing to stay invested through turbulent times, yet not
challenged by extended periods of flat to down performance.
In addition to the U.S. Fed, central banks around the world are lowering
interest rates to ward off global deflation and stimulate economic growth,
creating an environment of excess economic liquidity (the relationship between
liquidity or money supply and economic growth). This is generally bullish for
financial assets as money flows into stocks and bonds.
While the Fed may be able to stave off a market decline in the near term, given
the red flags discussed above we believe they are only delaying what may become
an even harsher setback.
WELCOME TO OUR NEW SHAREHOLDERS
We extend a warm welcome to all of our new shareholders, and we would like to
take this opportunity to address two of your most frequently asked questions:
"What kind of fund is the Caldwell & Orkin Market Opportunity Fund," and "what
drives your equity selections?"
The Market Opportunity Fund is a dynamic fund that changes as market conditions
change. Our disciplined investment style allows us to admit our mistakes and
move on. Central to our discipline is the realization that the market is bigger
than we are and it can roll us over on a whim. It is, after all, the market. The
Fund is not contrarian in nature (it doesn't necessarily go against the grain),
rather, it is independent: at times the Fund is in sync with the market while at
other times it bears no resemblance. It is not a Micro-Cap, Small-Cap, Mid-Cap,
Large-Cap, Value, Growth, Sector - type fund. It doesn't live in a box, but
rather has the flexibility and discipline to pursue different opportunities
across the investment landscape.
2
<PAGE> 3
Our objective in managing the Market Opportunity Fund is to produce solid
returns over time while maintaining a sensitivity to market risk given varying
market environments. When a stock is purchased, two principal 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 Fund uses active asset allocation - the opportunistic shifting of assets
between long stock positions, short stock positions (selling borrowed stock and
then attempting to purchase it at a lower price), high quality bonds and cash
equivalents - to cushion against the downside market risk. Short positions are
used to manage exposure to market risk, with the intent of making money when
stock prices fall.
We employ a flexible investment style based on various forms of analysis to
manage stock risk. In equity selection we look for change, which could include
(among other things) 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. That fact, in itself, greatly expands our investment selection
universe.
We highlight the Fund's low market risk profile as evidence of our investment
approach. From its August 24, 1992 commencement of active management through the
month ended October 31, 1998, the Fund has correlated with the S&P 500 with
income only 5.1% of the time, with only 14% of its volatility as measured by
beta. (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.) Thus, during this period, the
Fund has not moved in step with the S&P, yet it has outperformed the index
(20.7% average annual return vs. 19.9% for the index) in what is generally
considered to be a bull market, while maintaining a hedged exposure to the
market's risk.
The Fund may be characterized as a moderate hedge fund. Effective November 16,
1998, short positions can comprise up to 60% of the Fund's net assets. The prior
limitation was 40%. This unique flexibility gives Fund management considerable
investment latitude in its ability to shift between correlated, market neutral
and negatively-correlated postures, and allows the Fund to participate in the
market's potential upside, while hedging against the downside. The Fund's market
exposure can be anywhere from 100% net long to 60% net short. Historically,
however, the Fund's asset allocation has not approached these extremes, nor is
it expected to do so. The Equity Investment Position chart on page 5 provides a
graphical representation of the Fund's historical asset allocation since
commencement of active management.
As an interesting testament to the Market Opportunity Fund's relative
uniqueness, Morningstar Inc.'s "best fit index" for the Fund (the market index
that shows the best monthly-returns correlation with a fund in the most recent
36 consecutive months) as of the date of this letter was the Morgan Stanley
Capital International Pacific Index. The Market Opportunity Fund invests almost
exclusively in U.S. equities, and has no direct Pacific country exposure.
Just over a year ago, in order to discourage shareholder timing of the Fund, we
began imposing a 2% redemption fee on shares purchased directly from the Fund on
or after October 1, 1997 and sold within six months of purchase. The redemption
fee is retained by the Fund for the benefit of you, the Fund's remaining
shareholders. It is not paid to the Manager.
Finally, we invite our shareholders who are invested directly with the Fund (as
opposed to through a brokerage account) to access their account information 24
hours a day, 7 days a week from any touch-tone phone by calling (800) 467-7903.
3
<PAGE> 4
YEAR 2000 READINESS
Many computer systems in use today cannot recognize, calculate or accurately
process date-related information on or after January 1, 2000, due to the manner
in which such systems encode the year 2000. Caldwell & Orkin, Inc. has
installed, or is in the process of installing, internal computer systems that
will process Year 2000 dates properly. We require Year 2000 readiness whenever
we purchase new software or hardware, and we have received assurances, or are
seeking assurances, from all of our third party external service providers that
their services to the Fund will not be affected by Year 2000-related problems.
While we are taking steps to reduce the risks associated with Year 2000 computer
problems, our internal systems, and/or the systems of our service providers, may
still be affected by Year 2000-related problems. Any such negative affect may
adversely impact the Fund. We will continue to keep you informed about our Year
2000 readiness preparations in future reports.
FUND CLOSURE
The past six months have been very eventful for the shareholders of the Market
Opportunity Fund. The Fund's continued growth led us to close the Fund in order
to preserve our investment flexibility and to protect the interests of you, the
Fund's shareholders.
On June 10, 1998, with assets having surpassed the $200 million mark, we
initiated the first stage of a multi-phase plan, closing the Fund to new
investment through omnibus accounts, which includes discount brokers. We also
raised the minimums for direct investors. In the following two weeks the Fund's
asset base grew by a third. Most of the inflow came from shareholders invested
through discount brokers making additional investments in the Fund.
Consequently, on June 25 additional investment through omnibus accounts was
halted. While we realize the inconvenience to many shareholders and Financial
Advisors alike, in the aggregate it was a necessary action to moderate volatile
cash flows, which can negatively impact portfolio management. Over the ensuing
two months the Fund's assets grew steadily, and on August 28, 1998 we closed the
Fund to new direct investment.
Many shareholders (and would-be shareholders) have asked why we closed. Our
reasoning is quite simple. During periods of market decline, the Fund has
historically performed well relative to market indices. While past performance
is no guarantee of future results, we do know that favorable performance often
brings recognition and cash inflows. We believe there is currently a high level
of risk in the market, and should the market experience a serious setback, we
could envision a scenario where cash would come in to the Fund, but our universe
of good investment opportunities would be very limited. On the long side, there
may be few good investment candidates. And on the short side, we may experience
difficulty in executing trades because of a rule that prevents shorting on
downticks (downward price movements). Thus, our flexibility in opportunistically
investing your (and our) assets could be compromised.
Finally, in answer to another often-asked question, as of this writing we do not
have any plans to re-open the Fund to new investment or additional investment
through omnibus accounts. We prefer to manage the Fund for performance rather
than for new asset growth.
A TRIBUTE
As a closing remark to all shareholders of the Caldwell & Orkin Market
Opportunity Fund, I would like to recognize and thank the man I consider my
mentor in the investment management business, Mr. H. Eugene Caldwell. Gene is
currently Chairman Emeritus of the Market Opportunity Fund's Board of Directors
and an investor in the Fund.
4
<PAGE> 5
Gene's distinguished career in investment management began back in 1948, when he
was employed at what we know today as SunTrust Company. During the next several
decades, Gene honed his investment skills while developing his own style of
managing money.
In January, 1986, Gene and I began working together in Atlanta, managing
accounts in the style founded on the belief that no one investment discipline
works all of the time; rather, different market environments require a dynamic,
yet disciplined, investment focus. Gene retired from active management at
Caldwell & Orkin, Inc. in the spring of 1992. His foresight and strategic vision
provided the genesis of our style of risk-averse investing, and to this day we
continue to use the concepts learned from this truly great investor.
I owe Gene Caldwell a heartfelt debt of gratitude.
We appreciate your investment in the Market Opportunity Fund. Your Fund's
management will strive to aggressively pursue opportunities in the marketplace,
yet remain hedged (as long as we perceive market risk is high) and poised to
react decisively to market change. We will continue to work through setbacks
(the market's and our own) as we historically have done, as we manage for risk,
not just for return. Thank you for your continued support.
Sincerely,
Michael B. Orkin, CFA
Portfolio Manager and Chief Investment Officer
[Equity Investment Position]
Chart Courtesy Ned Davis Research, Inc.
5
<PAGE> 6
[CHART 2 HOUSEHOLD DEBT AS A % OF GDP]
Quarterly Data 3/31/61-9/30/98
[CHART 3 MARGIN DEBT AS A PERCENTAGE OF GDP]
Monthly Data 1/31/46-10/31/98
Charts Courtesy Ned Davis Research, Inc.
6
<PAGE> 7
[CHART 4 STANDARD & POOR'S 500 STOCK INDEX
& S&P 500 Price/Earnings
Ratio Monthly Data 3/31/26-11/30/98
(Log Scale)]
[CHART 5 WHAT MIGHT BE THE TRIGGER TO BURST THE BUBBLE?]
Household Employment Year-to-Year Change
After-Tax Profits Year-to-Year Change
Personal Savings Rate
Monthly Data 1/31/59-11/30/98
Charts Courtesy Ned Davis Research, Inc.
7
<PAGE> 8
CALDWELL & ORKIN MARKET OPPORTUNITY FUND
STATISTICAL RISK PROFILE 9/30/92 - 10/31/98
TEN WORST S&P 500 DAYS
<TABLE>
<CAPTION>
Date C&O MOF S&P 500 Variance
- ---- ------- ------- --------
<S> <C> <C> <C> <C>
10/27/97 -1.60% -6.86% 5.26% ---------------------------
08/31/98 0.42 -6.77 7.19 The Caldwell & Orkin
08/27/98 -0.19 -3.83 3.64 Market Opportunity Fund
08/04/98 0.10 -3.62 3.72 outperformed the S&P
03/08/96 -1.30 -3.07 1.77 500 on all ten of the ten
09/30/98 0.55 -3.04 3.59 worst days, and was
10/01/98 0.82 -3.00 3.82 positive on four of the ten
01/09/98 -0.28 -2.96 2.68 days.
04/11/97 -0.44 -2.72 2.28 ---------------------------
08/15/97 -0.24 -2.58 2.34
</TABLE>
TEN WORST S&P 500 WEEKS
<TABLE>
<CAPTION>
Week Ending C&O MOF S&P 500 Variance
- ----------- ------- ------- --------
<S> <C> <C> <C> <C>
09/04/98 0.33% -5.15% 5.48% -----------------------
08/28/98 0.65 -4.98 5.63 The Caldwell & Orkin
01/09/98 -0.11 -4.83 4.72 Market Opportunity Fund
10/02/98 1.80 -4.00 5.80 outperformed the S&P
07/24/98 0.20 -3.85 4.05 500 in nine of the ten
08/15/97 -0.30 -3.47 3.17 worst weeks, and was
06/24/94 0.24 -3.36 3.60 positive six of the ten
03/31/94 -3.79 -3.16 -0.63 weeks.
12/12/97 1.08 -3.06 4.14 -----------------------
04/12/96 -0.01 -2.88 2.87
</TABLE>
TEN WORST S&P 500 MONTHS
<TABLE>
<CAPTION>
Month C&O MOF S&P 500 Variance
- ----- ------- ------- --------
<S> <C> <C> <C> <C>
August 1998 3.12% -14.46% 17.58% -------------------------
August 1997 4.00 -5.61 9.61 The Caldwell & Orkin
July 1996 -0.82 -4.40 3.58 Market Opportunity Fund
March 1994 -4.10 -4.35 0.25 outperformed the S&P
March 1997 4.50 -4.10 8.60 500 in all ten of the ten
November 1994 0.27 -3.72 3.99 worst months, and was
October 1997 4.21 -3.31 7.52 positive eight of the ten
February 1994 1.36 -2.79 4.15 months.
September 1994 1.18 -2.47 3.65 -------------------------
June 1994 1.22 -2.44 3.66
</TABLE>
<TABLE>
<CAPTION>
C&O MOF S&P 500
------- -------
<S> <C> <C>
Correlation Coefficient 5.1% 100.0%
Beta 0.14 1.00
Sharpe Ratio 3.74
</TABLE>
PERFORMANCE DURING THE LAST THREE MARKET DOWNTURNS
<TABLE>
<CAPTION>
C&O MOF S&P 500
------- -------
<S> <C> <C>
July 17, 1998 through August 31, 1998 4.0% -19.3%
October 7, 1997 through October 27, 1997 0.2 -10.8
March 10, 1997 through April 11, 1997 3.4 -9.2
</TABLE>
Short selling began May 2, 1994. Past performance is no guarantee of
future results. Computations by Ned Davis Research, Inc.
8
<PAGE> 9
CALDWELL & ORKIN MARKET OPPORTUNITY FUND
TOTAL RETURN PERFORMANCE SUMMARY THROUGH OCTOBER 31, 1998(1)
<TABLE>
<CAPTION>
C&O MARKET NASDAQ S&P 500
FISCAL OPPORTUNITY COMPOSITE WITH INCOME
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%
1998 25.77% 48.20% 41.07%
Six months ended 10/31/98 13.92% (5.19)% (0.41)%
Twelve months ended 10/31/98 20.96% 11.16% 21.99%
Since (08/24/92)(3) 220.77% 218.95% 207.73%
Since Inception (03/11/91) 245.59% 272.84% 252.82%
<CAPTION>
AVERAGE ANNUAL RETURN
One Year 20.96% 11.16% 21.99%
Three Years 30.04% 19.58% 25.99%
Five Years 18.31% 17.85% 21.30%
Since 08/24/92 (3) 20.71% 20.60% 19.91%
Since Inception (03/11/91) 17.58% 18.75% 17.90%
</TABLE>
NET ASSET ALLOCATION
[APRIL 30, 1998 CHART] [OCTOBER 31, 1998 CHART]
Common Stock Sold Short represents the market value, excluding margin
requirements.
- --------------------------------------------------------------------------------
(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 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) Effective August 24, 1992, the Caldwell & Orkin Market Opportunity Fund
changed its investment objectives to provide long-term capital growth with
a short-term focus on capital preservation through investment selection and
asset allocation. A prior fund passively managed and indexed to the largest
100 over-the-counter (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 mamagement of the Fund began.
9
<PAGE> 10
CALDWELL & ORKIN 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 October 31, 1998
[CHART]
CALDWELL & ORKIN OPPORTUNITY FUND VERSUS MAJOR MARKET INDICES
Results of a Hypothetical $10,000 Investment
Since Commencement of Active Style of Investment Management
August 24, 1992 through October 31, 1998
[CHART]
10
<PAGE> 11
CALDWELL & ORKIN MARKET OPPORTUNITY FUND
SCHEDULE OF INVESTMENTS (UNAUDITED)
OCTOBER 31, 1998
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Market Value
------ ------------
<S> <C> <C> <C>
COMMON STOCK (LONG POSITIONS) 44.64%
=====
BEVERAGES - ALCOHOLIC 0.35%
ANHEUSER-BUSCH CO., INC 23,300 $ 1,384,894
COMPUTER - LOCAL NETWORKS 6.92%
3COM CORP* 437,900 15,791,769
ASCEND COMMUNICATIONS, INC* 153,800 7,420,850
CISCO SYSTEMS, INC* 19,600 1,234,800
NOVELL, INC* 212,200 3,156,475
COMPUTER - MINI/MICRO 3.43%
APPLE COMPUTER, INC* 368,800 13,691,700
COMPUTER SOFTWARE - EDUC/ENTR 1.54%
ELECTRONIC ARTS* 149,600 6,152,300
FINANCE - MORTGAGE & RELATED SERV 1.02%
FEDERAL NATIONAL MORTGAGE
ASSOCIATION 57,400 4,064,638
MEDIA - CABLE TV 3.56%
CABLEVISION SYSTEMS CORP* 79,300 3,826,225
COMCAST CORPORATION 146,100 7,213,687
COX COMMUNICATIONS CL-A* 57,800 3,171,775
MEDIA - PERIODICALS 2.58%
TIME WARNER, INC 111,000 10,302,188
MEDIA - RADIO/TV 3.00%
CBS CORPORATION 141,700 3,958,744
TELE-COMM LIBERTY MEDIA* 210,100 7,996,931
MEDICAL - BIOMED/GENETICS 0.14%
PHARMOS CORP* 298,000 558,750
MEDICAL - ETHICAL DRUGS 0.93%
FOREST LABORATORIES* 88,500 3,700,406
OIL & GAS - FIELD SERVICES 0.68%
HALLIBURTON CO 75,200 2,702,500
RETAIL - MAJOR DISCOUNT CHAINS 1.91%
COSTCO COMPANIES, INC* 134,300 7,621,525
</TABLE>
The accompanying notes are an integral part of these financial statements.
11
<PAGE> 12
CALDWELL & ORKIN MARKET OPPORTUNITY FUND
SCHEDULE OF INVESTMENTS (UNAUDITED)
OCTOBER 31, 1998
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Market Value
------ ------------
<S> <C> <C> <C>
RETAIL - RESTAURANTS 1.19%
TRICON GLOBAL RESTAURANTS* 108,500 $ 4,719,750
RETAIL - SUPER/MINIM MARKETS 5.45%
KROGER COMPANY* 219,800 12,198,900
SAFEWAY, INC* 199,700 9,548,156
RETAIL/WHOLESALE BUILDING PRODUCTS 2.58%
HOME DEPOT 43,200 1,879,200
LOWE'S COMPANIES, INC 249,100 8,391,556
TELECOMMUNICATIONS - CELLULAR 0.47%
CELLULAR COMM. PUERTO RICO* 143,700 1,688,475
CORECOMM LIMITED* 13,900 166,800
TELECOMMUNICATIONS - SERVICES 5.02%
CENTURY TEL. ENTERPRISE 178,200 10,123,987
MEDIAONE GROUP, INC* 234,100 9,905,356
TEXTILE - MILL/HOUSEHOLD 3.87%
SHAW INDUSTRIES, INC 398,000 6,915,250
WESTPOINT STEVENS, INC* 299,600 8,519,875
------------
TOTAL COMMON STOCKS (COST $156,738,986) 178,007,462
------------
Par Value
---------
U.S. TREASURY NOTES 1.52%
====
U.S. TREASURY NOTE 5.875% 11/15/05 5,600,000 $ 6,063,753
------------
(COST $5,746,094)
Total Investment in Securities (cost $162,485,080#): 46.16%....... 184,071,215
Other Assets less Liabilities: 53.84%............................ 214,698,686
Total Net Assets 100.00%..................................... $398,769,901
------------
* Non-income producing security
# At October 31, 1998, the cost of securities for federal tax purposes was $166,039,955.
Unrealized appreciation and depreciation of securities were as follows:
Gross Unrealized Appreciation $18,247,606
Gross Unrealized Depreciation (216,346)
-----------
Net Unrealized Appreciation $18,031,260
===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
12
<PAGE> 13
CALDWELL & ORKIN MARKET OPPORTUNITY FUND
SCHEDULE OF INVESTMENTS (UNAUDITED)
OCTOBER 31, 1998
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Market Value
------ ------------
<S> <C> <C> <C>
COMMON STOCK (SHORT POSITIONS) (39.19%)
=======
BANKS - MONEY CENTER (2.01%)
FIRST UNION CORP. (138,200) ($8,015,600)
BANKS - SUPER REGIONAL (1.27%)
BANK ONE CORP. (103,600) (5,063,450)
BEVERAGES - SOFT DRINKS (2.27%)
COCA-COLA CO. (133,600) (9,034,700)
BUILDING - HEAVY CONSTRUCTION (0.25%)
JACOBS ENGINEERING GROUP (30,100) (982,012)
BUILDING - MOBILE/MFG & RV (1.32%)
OAKWOOD HOMES CORP. (25,600) (403,200)
CLAYTON HOMES, INC. (314,100) (4,848,919)
COMMERCIAL SERVICES - MISC. (1.75%)
PROFIT RECOVERY GROUP (226,800) (6,959,925)
COMPUTER - LOCAL NETWORKS (0.19%)
DAOU SYSTEMS, INC. (167,100) (762,394)
COMPUTER - SERVICES (0.49%)
INTELLIGROUP, INC. (112,206) (1,935,553)
COMPUTER - SOFTWARE (0.25%)
BAAN COMPANY NV (92,400) (1,016,400)
COMPUTER SOFTWARE - ENTERPRISE (0.91%)
ENGINEERING ANIMATION, INC. (41,100) (1,800,694)
SOFTWARE AG SYSTEMS, INC. (121,200) (1,818,000)
COMPUTER SOFTWARE - MEDICAL (0.15%)
QUADRAMED CORP. (29,100) (596,550)
DIVERSIFIED OPERATIONS (0.08%)
MINNESOTA MINING & MFG. CO. (4,100) (328,000)
ELECTRICAL - CONTROL INSTR (0.59%)
PARKER HANNIFIN CORP. (66,200) (2,366,650)
ELECTRICAL - SEMICONDUCTOR EQUIP (0.80%)
APPLIED MATERIALS, INC. (91,500) (3,173,906)
</TABLE>
The accompanying notes are an integral part of these financial statements.
13
<PAGE> 14
CALDWELL & ORKIN MARKET OPPORTUNITY FUND
SCHEDULE OF INVESTMENTS (UNAUDITED)
OCTOBER 31, 1998
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Market Value
------ ------------
<S> <C> <C> <C>
ELECTRICAL - SEMICONDUCTOR MFG. (1.31%)
BURR-BROWN CORP. (196,300) (3,643,819)
INTEL CORP. (17,700) (1,578,619)
FINANCE - CONSUMER/COMMERCIAL (1.73%)
AMERICREDIT CORP. (103,800) (1,388,325)
HOUSEHOLD INTERNATIONAL (151,200) (5,528,250)
FINANCE - INVESTMENT MANAGEMENT (0.19%)
T. ROWE PRICE ASSOCIATES (21,800) (775,262)
FINANCE - MORTGAGE & RELATED SERVS (0.89%)
DORAL FINANCIAL CORP. (43,300) (757,750)
LONG BEACH FINANCIAL CORP. (46,500) (334,219)
NEW CENTURY FINANCIAL CORP. (219,800) (1,964,462)
UNITED COS. FINANCIAL CORP. (112,200) (476,850)
FINANCIAL SERVICES - MISCELLANEOUS (4.90%)
ADVANTA CORP. (335,500) (3,145,312)
AMERICAN EXPRESS COMPANY (27,600) (2,439,150)
FIRST DATA CORP. (37,900) (1,004,350)
MBNA CORPORATION (538,800) (12,291,375)
NEWCOURT CREDIT GROUP INC. (20,300) (667,362)
FOOD - MEAT PRODUCTS (0.22%)
TYSON FOODS, INC. CL-A (37,400) (860,200)
INSURANCE - ACCIDENT & HEALTH (1.09%)
AFLAC, INC. (114,300) (4,357,687)
INSURANCE - LIFE (1.19%)
CONSECO, INC. (136,600) (4,738,312)
INSURANCE - PROPERTY/CASUALTY/TITLE (0.43%)
PMI GROUP, INC. (34,300) (1,730,006)
LEISURE - PHOTO EQUIPMENT/RELATED (0.43%)
POLAROID CORP. (65,200) (1,731,875)
LEISURE - PRODUCTS (0.11%)
CALLAWAY GOLF COMPANY (38,900) (423,038)
MACHINERY - CONSTRUCTION/MINING (2.01%)
CATERPILLER, INC. (178,300) (8,023,500)
</TABLE>
The accompanying notes are an integral part of these financial statements.
14
<PAGE> 15
CALDWELL & ORKIN MARKET OPPORTUNITY FUND
SCHEDULE OF INVESTMENTS (UNAUDITED)
OCTOBER 31, 1998
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Market Value
------ ------------
<S> <C> <C> <C>
MACHINERY - FARM (2.27%)
CASE CORPORATION (145,500) (3,201,000)
DEERE & CO. (165,400) (5,851,025)
MACHINERY - GENERAL INDUSTRIAL (0.77%)
AEROQUIP-VICKERS, INC. (97,600) (3,074,400)
MEDICAL - BIOMED/GENETICS (0.11%)
EPITOPE, INC. (78,100) (424,669)
MEDICAL - HMO'S (1.27%)
PACIFICARE HEALTH SYSTEMS (64,300) (5,063,625)
MEDICAL - OUTPATIENT/HOME CARE (0.38%)
LINCARE HOLDINGS, INC. (37,500) (1,497,656)
MEDICAL - PRODUCTS (0.13%)
VIVUS, INC. (185,400) (527,231)
METAL ORES - MISC. (0.17%)
CLEVELAND-CLIFFS, INC. (17,300) (686,594)
REAL ESTATE OPERATIONS (0.05%)
FAIRFIELD COMMUNITIES, INC. (22,000) (215,875)
RETAIL - MISC./DIVERSIFIED (0.65%)
TRACTOR SUPPLY COMPANY (105,000) (2,598,750)
RETAIL - RESTAURANTS (1.27%)
APPLEBEE'S INTL., INC. (67,800) (1,381,425)
LONE STAR STEAKHOUSE (45,100) (360,800)
MCDONALD'S CORP. (45,200) (3,022,750)
PLANET HOLLYWOOD INTL, INC. (56,300) (225,200)
RAINFOREST CAFE, INC. (13,300) (88,113)
SHOES & RELATED APPAREL (0.38%)
NIKE, INC. - CLASS B (34,600) (1,511,588)
STEEL - PRODUCERS (1.55%)
NATIONAL STEEL CORP. CL-B (13,900) (89,481)
USX-US STEEL GROUP, INC. (262,600) (6,105,450)
TELECOMMUNICATIONS - SERVICES (0.62%)
SMARTALK TELESERVICES, INC. (428,600) (2,491,238)
</TABLE>
The accompanying notes are an integral part of these financial statements.
15
<PAGE> 16
CALDWELL & ORKIN MARKET OPPORTUNITY FUND
SCHEDULE OF INVESTMENTS (UNAUDITED)
OCTOBER 31, 1998
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Market Value
------ ------------
<S> <C> <C> <C>
TRANSPORTATION - AIRLINE (1.06%)
DELTA AIR LINES, INC. (39,800) (4,201,388)
TRUCK & PARTS - HEAVY DUTY (1.68%)
EATON CORPORATION (68,400) (4,629,825)
CUMMINS ENGINE COMPANY (60,300) (2,057,738)
----------
TOTAL SECURITIES SOLD SHORT (PROCEEDS $169,810,096) $(156,271,497)
=============
</TABLE>
The accompanying notes are an integral part of these financial statements.
16
<PAGE> 17
THE CALDWELL & ORKIN MARKET OPPORTUNITY FUND
STATEMENT OF ASSETS & LIABILITIES
October 31, 1998 (Unaudited)
- -------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS:
Investments, at value (cost $162,485,080) $184,071,215
Cash 71,777,473
Segregated cash with brokers and other financial institution 120,558,361
Deposits with brokers for securities sold short 193,476,196
Receivables:
Investment securities sold 10,400,310
Interest and dividends 907,325
Capital shares sold 540,312
Other 2,702
------------
TOTAL ASSETS 581,733,894
------------
LIABILITIES:
Securities sold short, not yet purchased (proceeds $169,810,096) 156,271,497
Payables:
Investment securities purchased 26,168,364
Capital Shares Redemed 127,262
Accrued expenses 396,870
------------
TOTAL LIABILITIES 182,963,993
------------
TOTAL NET ASSETS $398,769,901
============
NET ASSETS CONSIST OF:
Undistributed net investment income $ 5,928,366
Accumulated net realized gain 12,626,967
Net unrealized appreciation on investments 35,124,734
Paid-in capital applicable to 18,743,032 shares
outstanding; par value $0.10 per share;
30,000,000 shares authorized 345,089,834
------------
$398,769,901
============
NET ASSET VALUE AND OFFERING/REDEMPTION
PRICE PER SHARE $ 21.28
============
</TABLE>
The accompanying notes are an integral part of these financial statements.
17
<PAGE> 18
THE CALDWELL & ORKIN MARKET OPPORTUNITY FUND
STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED OCTOBER 31, 1998 (UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest $ 6,569,230
Dividends 182,318
TOTAL INVESTMENT INCOME 6,751,548
------------
EXPENSES:
Investment advisory fees 1,139,449
Transfer agent fees 12,114
Professional fees 44,150
Dividend expense on securities sold short 482,321
Directors' fees and expenses 8,750
Registration and filing fees 134,146
Custodian fees 6,455
Legal fees 30,380
Insurance 6,300
Other 13,869
------------
TOTAL EXPENSES 1,877,934
------------
NET INVESTMENT INCOME 4,873,614
------------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS:
Net realized gain on investments 17,053,911
Change in unrealized appreciation 6,089,666
------------
NET REALIZED AND UNREALIZED GAIN
ON INVESTMENTS 23,143,577
------------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS $ 28,017,191
============
</TABLE>
The accompanying notes are an integral part of these financial statements.
18
<PAGE> 19
THE CALDWELL & ORKIN MARKET OPPORTUNITY FUND
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
OCTOBER 31, 1998 APRIL 30, 1998
---------------- --------------
(UNAUDITED)
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income $ 4,873,614 $ 2,817,433
Net realized gain (loss) from investments 17,053,911 (2,695,581)
Net change unrealized appreciation on investments 6,089,666 23,436,190
------------- -------------
Net increase in net assets resulting
from operations 28,017,191 23,558,042
------------- -------------
DISTRIBUTIONS TO SHAREHOLDERS:
Net investment income - (1,491,994)
Net realized gains on investments - (6,130,010)
------------- -------------
Net distributions to shareholders - (7,622,004)
------------- -------------
CAPITAL SHARE TRANSACTIONS:
Net proceeds from sales of shares 241,345,973 160,368,629
Distributions reinvested in shares 6,100,095
Cost of shares redeemed (28,416,235) (85,213,983)
------------- -------------
NET INCREASE IN NET ASSETS RESULTING
FROM CAPITAL SHARE TRANSACTIONS 212,929,738 81,254,741
------------- -------------
TOTAL INCREASE IN NET ASSETS: 240,946,929 97,190,779
NET ASSETS:
Beginning of period 157,822,972 60,632,193
------------- -------------
End of period $ 398,769,901 $ 157,822,972
============= =============
</TABLE>
The accompanying notes are an integral part of these financial statements.
19
<PAGE> 20
THE CALDWELL & ORKIN MARKET OPPORTUNITY FUND
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
Six
months Years Ended April 30,
Ended -------------------------------------------------------
10/31/98
(Unaudited) 1998 1997 1996 1995 1994
------------ -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Selected Per Share Data:
Net asset value, beginning of period $ 18.68 $ 15.77 $ 14.49 $ 11.35 $ 12.26 $ 12.94
-------- -------- -------- -------- -------- --------
Income (loss) from Investment Operations:
Net investment income (loss)* 0.20 0.25 0.22 0.27 0.54 0.06
Net realized and unrealized gain (loss)
on investments 2.40 3.75 2.95 3.31 (0.81) 1.99
-------- -------- -------- -------- -------- --------
Total from investment operations 2.60 4.00 3.17 3.58 (0.27) 2.05
-------- -------- -------- -------- -------- --------
Less Distributions:
From net investment income - (0.21) (0.24) (0.44) (0.41) (0.04)
From net realized gain on investments - (0.88) (1.65) - (0.23) (2.69)
-------- -------- -------- -------- -------- --------
Total distributions - (1.09) (1.89) (0.44) (0.64) (2.73)
-------- -------- -------- -------- -------- --------
Net asset value, end of period $ 21.28 $ 18.68 $ 15.77 $ 14.49 $ 11.35 $ 12.26
======== ======== ======== ======== ======== ========
Total Return 13.92% 25.77% 23.24% 31.80% (2.28)% 16.48%
Ratios and Supplemental Data:
Net assets, end of period (in 000's) $398,770 $157,823 $ 60,632 $ 38,030 $ 32,261 $ 18,830
Ratios to average net assets:
Expenses before dividends on securities
sold short (After Reimbursement) 0.97% # 1.17% 1.26% 1.38% 1.18% 1.21%
Expenses from dividends sold short 0.33% # 0.05% 0.08% 0.18% 0.45% -
-------- -------- -------- -------- -------- --------
Total expenses (After Reimbursement) 1.30% # 1.22% 1.34% 1.56% 1.63% 1.21%
Total expenses (Before Reimbursement) 1.30% # 1.22% 1.34% 1.56% 1.79% 1.77%
Net investment income (loss) 3.38% # 2.54% 2.01% 1.94% 3.55% 0.44%
Portfolio turnover 283% 200% 229% 222% 331% 292%
Average commission per share ** N/A $ 0.0467 $ 0.0555 N/A N/A N/A
</TABLE>
* Had the Distributor and Advisor not waived a portion of the expenses, net
investment income (loss) per share would have been $.52, ($.01), ($.09),
and ($.10) for the years ended April 30, 1995 through 1992, respectively.
No expenses were waived for the years ended April 30, 1998 through April
30, 1996.
** 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.
# Annualized
N/A -Not available
The accompanying notes are an integral part of these financial statements.
20
<PAGE> 21
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
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
proceeding 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.
CAPITAL ACCOUNTS:
The Fund follows the provisions of Statement of Position 93-2,
"Determination, Disclosure and Financial Statement Presentation of
Income, Capital Gain and Return of Capital Distributions by
Investment Companies."
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.
21
<PAGE> 22
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
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
------------ ------------------------
<S> <C>
.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>
Under that management agreement, the Advisor agreed to waive 40 basis
points of its compensation for the period August, 1992, through
February, 1994, and 20 basis points for the period March, 1994,
through, February, 1995.
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 period ended October 31,1998.
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 period ended October 31,1998, purchases and proceeds from sales
of investments (excluding securities sold short and short-term
investments) aggregated $282,500,493 and $201,616,993, respectively.
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.
22
<PAGE> 23
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
3. INVESTMENT PORTFOLIO TRANSACTIONS (CONTINUED):
SHORT SALES AND SEGREGATED CASH (CONTINUED):
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.
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.
The Fund limits the value of its short positions (excluding short sales
"against the box") to 40% of the Fund's total net assets. At October
31, 1998, the Fund had 39.19% of its total net assets in short
positions.
For the period ended October 31, 1998, the cost of investments
purchased to cover short sales and proceeds from investments sold short
were $190,656,888 and $296,831,955, respectively.
4. CAPITAL SHARE TRANSACTIONS:
Capital share transactions were as follows:
<TABLE>
<CAPTION>
Six months
ended October 31, Year ended
1998 April 30, 1998
----------------- --------------
<S> <C> <C>
Shares sold 11,691,025 8,996,907
Shares issued in connections with reinvestment
of distributions - 345,810
Shares reacquired (1,397,299) (4,737,049)
---------- ----------
Net increase in shares outstanding 10,293,726 4,605,668
========== ==========
</TABLE>
5. RELATED PARTY TRANSACTIONS:
As of October 31, 1998, Caldwell & Orkin, Inc. and Michael B.
Orkin had ownership of the Fund of 0.01% and 0.70%, respectively.
23
<PAGE> 24
THE CALDWELL & ORKIN MARKET OPPORTUNITY FUND
<TABLE>
<S> <C>
BOARD OF DIRECTORS TRANSFER, REDEMPTION & DIVIDEND DISBURSING AGENT
Michael B. Orkin, President & Chairman Countrywide Fund Services, Inc.
H. Eugene Caldwell, Chairman Emeritus 312 Walnut Street, 21st Floor
Frederick T. Blumer Cincinnati, OH 45202
David L. Eager
Robert H. Greenblatt
Henry H. Porter, Jr. INDEPENDENT ACCOUNTANTS
Tait, Weller & Baker
Eight Penn Center Plaza
INVESTMENT ADVISOR Suite 800
C&O Funds Advisor, Inc. Philadelphia, PA 19103-2108
2050 Tower Place
3340 Peachtree Road, NE
Atlanta, GA 30326 LEGAL COUNSEL
Kilpatrick Stockton LLP
1100 Peachtree Street
DISTRIBUTOR Suite 2800
C&O Funds Distributor, Inc. Atlanta, GA 30309-4530
2050 Tower Place
3340 Peachtree Road, NE
Atlanta, GA 30326 CUSTODIAN
Bank One Ohio Trust Company, N.A.
(EFFECTIVE JANUARY 1, 1999) 235 West Schrock Road
CW Fund Distributors, Inc. Westerville, OH 43081
312 Walnut Street, 21st Floor
Cincinnati, OH 45202
</TABLE>
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 and many local newspapers as
C&OMKTOPP or CALDORKMO.
Its 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.
THE CALDWELL & ORKIN MARKET OPPORTUNITY FUND
2050 TOWER PLACE
3340 PEACHTREE ROAD, NE
ATLANTA, GA 30326
E-MAIL: [email protected]
