<PAGE> 1
[LOGO]
THE MARKET OPPORTUNITY FUND
SEMI - ANNUAL REPORT TO SHAREHOLDERS
DEAR FELLOW SHAREHOLDER: DECEMBER 18, 1997
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, 1997. We are particularly proud of the Fund's
long-term performance.
Since its August 24, 1992 commencement of active management through October 31,
1997, the Fund has outperformed the total return of the S&P 500 with income, yet
underperformed the NASDAQ Composite Index (see page 6). 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.
The past six months have been very eventful for the markets, and for the
shareholders of the Market Opportunity Fund. On August 29, 1997 we updated the
Fund's Prospectus, incorporating several important changes, including the
flexibility to invest up to the equivalent of 40% of the Fund's assets in short
positions (an increase from 25%).
In addition, investors who invest directly through C&O Funds Distributor, Inc.
(as opposed to through a brokerage account) can now sign up for an Automatic
Investment Plan and elect Telephone Redemption Privileges. The minimum for
subsequent direct investment has been lowered from $1,000 to $100 and, in order
to discourage short-term trading, a 2% redemption fee will be imposed on shares
purchased on or after October 1, 1997 and sold within six months. The redemption
fee will be deducted from the sale proceeds and retained by the Fund for the
benefit of you, the Fund's remaining shareholders. It will not be paid to the
Manager.
The Fund's Board of Directors, which is responsible for protecting the interests
of the Fund's shareholders, recently voted to receive their Director's
compensation in Fund shares rather than in cash.
We do not advertise the Fund, yet the Fund's performance continues to attract
considerable media attention. Many of our newer shareholders were introduced to
the Fund in the July issue of Money Magazine, where the Fund was spotlighted as
"Fund of the Month." Recent articles featuring the Fund have appeared in
Individual Investor, The Atlanta Business Chronicle, The Atlanta
Journal-Constitution, The Abington Report and online at Smart Money Interactive
(http://www.smartmoney.com/smt/markets/news/index.cfm?story=199710272). The Fund
has repeatedly appeared in "Leaders" charts in newspapers and magazines around
the country, and in September Michael Orkin participated in a live chat session
on America Online's FundWorks (AOL keyword FundWorks). While the attention is
certainly welcome, we remain focused on producing returns and managing risk.
<PAGE> 2
The Fund's asset base continues to grow. After the first six months of the
Fund's current fiscal year the Fund's assets stood at $103.1 million,
representing a significant increase (148%) over the year-earlier period. On
October 30, 1997 the Market Opportunity Fund achieved a significant milestone,
closing with assets in excess of $100 million and triggering a reduction in the
scaled advisory fee rate paid to the Manager of the Fund. And, as the share base
grows, the operating expenses borne by the Fund's shareholders (including legal,
audit and certain other Fund operating expenses) decrease on a percentage basis,
thereby increasing shareholder total return.
The Fund's annual expense ratio, based on the six months ended October 31, 1997,
has fallen to an annualized rate of 1.29% from 1.34%.
Perhaps the most frequently asked questions we hear, from prospective individual
shareholders, Financial Advisors 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. Our
disciplined investment style allows us to admit our mistakes and move on. We do
not try to second guess the market, as the market is always right. 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.
Our goal in managing the Fund is 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, 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.
The Fund may be characterized as a moderate hedge fund. Short positions can
comprise up to 40% 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 positioned 60% long and 40% short it would be fully
invested (60% + 40% = 100%), yet it would have only a 20% net long exposure to
the market (60% - 40% = 20%). The Fund's market exposure can be anywhere from
100% net long to 40% net short.
The Market Opportunity Fund invests for strong, long-term performance. However,
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 24, 1992
commencement of active management through the month ended October 31, 1997, the
Fund has correlated with the S&P 500 with income only 10.7% of the time, with
only 23% of its volatility as
2
<PAGE> 3
measured by beta. (An S&P index fund has a 100% correlation with the market and
a beta of 1.00. Computations by Ned Davis Research, Inc.)
Thus, historically speaking, the Fund has not moved in step with the S&P during
this period, yet it has outperformed the index (20.7% average annual return vs.
19.5% for the index) during a period characterized as a bull market, while
maintaining a hedged exposure to the market's risk.
As an interesting testament to the Market Opportunity Fund's relative
uniqueness, Morningstar'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 October 31, 1997 was the Wilshire REIT (Real Estate
Investment Trust) Index. Morningstar's "best fit index" as of November 30, 1997
was the First Boston High Yield Index. As of October 31 and November 30 the Fund
had neither any real estate nor any bond exposure.
SIX MONTHS IN REVIEW:
The past six months have proven to be a trying period for investors in the
market. Indeed, August and October made the "top ten" list of worst market
months for the S&P 500 since we have been actively managing the Fund (see the
Statistical Risk Profile on page 5). In fact, October's global synchronized
stock sell-off offers new evidence in the debate of whether portfolio
diversification can be achieved by allocating assets internationally. We believe
the best way to manage exposure to market risk is to employ a disciplined
long-short equity investment strategy, shorting those issues that have difficult
prospects. Simply put, the truest way to create a negative correlation to the
domestic market is to short domestic stocks.
During the month of August, 1997 the S&P 500 was off 5.6%, it's worst monthly
showing since the Market Opportunity Fund's August, 1992 commencement of active
management. The Fund rose 4%, an example of our low correlation to the market.
More recently, on October 27, 1997 the Dow Jones Industrial Average plunged 554
points, or 7.2%. The Fund was down 1.6%. The following day, October 28, the
market roared back with the Dow gaining 337 points, or 4.7%. The Fund was up
.8%.
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 with income index over a full market cycle, but with less stomach
churn.
Your Fund has been postured for a high risk, but rising stock market. In the six
months ended October 31, 1997 the Fund rose 18.5%, versus 15.2% for the S&P 500
with income and 26.4% 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 up through August 29, 1997, and between 25% and 40% through the end
of October, effectively decreasing net long exposure to the market.
Both the Fund's short positions and long positions worked well during this
period. The Market Opportunity Fund's largest short exposure continues to be to
the low-quality loan sectors, which includes sub-prime auto loan and mortgage
lenders and credit card issuers. On the long side, Oil & Gas Drilling and Oil &
Gas Field Services top the sector weightings.
We have been long the energy services area since the Spring of 1995, and have
enjoyed the industries' prolonged strength. In fact, many issues in these
sectors have appreciated 200% to 300% over this period, but the ride up hasn't
always been smooth. Industry consolidation has resulted in three setbacks
ranging from 15% to 30%, accentuating the group's volatility.
3
<PAGE> 4
It is important to highlight that we are not married to the group. In keeping
with our investment discipline, we have trimmed the Fund's energy holdings back
so that they would not represent too high a concentration of the Fund's
portfolio. The energy group comprised about 15% of the Fund's net assets on
October 31, 1997.
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.
OUTLOOK:
In the Fund's Annual Report dated May 22, 1997 we noted that the roller-coaster
ride that the market had embarked upon showed no signs of letting up. We
reiterate that statement.
Economic problems in East Asia, escalating tensions in the Middle East and, on
the domestic front, record amounts of personal debt saddled on a fully invested
consumer (how many credit card offers did you receive today?) leave little room
to handle bumps in the road. Triple-digit swings in the Dow are commonplace,
and, although they represent less on a percentage basis than when the market was
lower, they still have a disconcerting effect on the investment community.
It is noteworthy that Fed Chairman Alan Greenspan felt the "exuberance" was
"irrational" when the Dow Jones Industrial Average stood at 6437. On October 31,
1997 the Dow closed at 7442.
This is what we mean by a "high-risk" market environment, and why we employ a
disciplined long-short investment strategy. The Market Opportunity Fund is
postured for this environment. At October 31, 1997 it was 38% short. Your
Fund's management strives to aggressively pursue opportunities in the
marketplace, yet remains poised to react decisively to market change. We manage
for risk, not just for return, and work hard to earn your business.
Sincerely,
Michael B. Orkin, CFA
Portfolio Manager and Chief Investment Officer
4
<PAGE> 5
CALDWELL & ORKIN MARKET OPPORTUNITY FUND
STATISTICAL RISK PROFILE 9/30/92 - 10/31/97
TEN WORST S&P 500 DAYS
<TABLE>
<CAPTION>
--------------------------------------------------
DATE C&O MOF S&P 500
--------------------------------------------------
<S> <C> <C>
10/27/97 -1.60% -6.86%
03/08/96 -1.30 -3.07
04/11/97 -0.44 -2.72
08/15/97 -0.24 -2.58
07/15/96 -0.45 -2.53
02/16/93 -3.88 -2.38
02/04/94 -1.65 -2.26
06/23/97 -0.62 -2.23
07/05/96 0.26 -2.22
03/31/97 -0.58 -2.16
</TABLE>
The Caldwell & Orkin Market Opportunity Fund outperformed the S&P 500 with
income on nine of the ten worst days, and was positive on one of the ten days.
TEN WORST S&P 500 WEEKS
---------------------------
WEEK ENDING C&O MOF S&P 500
---------------------------
<TABLE>
<S> <C> <C>
08/15/97 -0.30% -3.47%
06/24/94 0.2 -3.36
03/31/94 -3.79 -3.16
04/12/96 -0.01 -2.88
10/31/97 -0.10 -2.84
04/11/97 0.19 -2.63
04/23/93 -1.99 -2.60
08/29/97 2.63 -2.58
09/23/94 0.92 -2.39
01/12/96 1.75 -2.37
</TABLE>
The Caldwell & Orkin Market Opportunity Fund outperformed the S&P 500 with
income in nine of the ten worst weeks, and was positive five of the ten weeks.
TEN WORST S&P 500 MONTHS
<TABLE>
<CAPTION>
----------------------------------------------------
MONTH C&O MOF S&P 500
----------------------------------------------------
<S> <C> <C>
August 1997 4.00% -5.61%
July 1996 -0.82 -4.40
March 1994 -4.10 -4.35
March 1997 4.50 -4.10
November 1994 0.27 -3.72
October 1997 4.21 -3.31
February 1994 1.36 -2.79
September 1994 1.18 -2.47
June 1994 1.22 -2.44
April 1993 -3.43 -2.31
</TABLE>
The Caldwell & Orkin Market Opportunity Fund outperformed the S&P 500 with
income in nine of the ten worst months, and was positive seven of the ten
months.
<TABLE>
<CAPTION>
-----------------------------
C&O MOF S&P 500
-----------------------------
<S> <C> <C>
Correlation Coefficient 10.7% 100.0%
Beta 0.23 1.00
</TABLE>
Short selling commenced May 2, 1994. Past performance
is no guarantee of future results.
Computations by Ned Davis Research, Inc.
5
<PAGE> 6
Caldwell & Orkin Market Opportunity Fund
Total Return Performance Summary Through October 31, 19971
<TABLE>
<CAPTION>
C&O Market
Fiscal Opportunity NASDAQ S&P 500 with Income
Year Ended Fund Composite Index Index
---------- ---- --------------- -----
<S> <C> <C> <C> <C>
1991 1.25% 2.02% 0.60%
1992 11.86% 19.38% 14.07%
1993* 15.09% 14.30% 8.83%
1993** 19.16% 17.34% 7.84%
1994 16.48% 10.95% 5.27%
1995 (2.28)% 15.01% 17.47%
1996 31.80% 41.06% 30.07%
1997 23.24% 5.90% 25.12%
Six Months ended 10/31/97 18.45% 26.40% 15.17%
Year ended 10/31/97 31.79% 30.46% 32.11%
Since Inception (08/24/92)2 165.19% 186.93% 152.26%
Since Inception (03/11/92) 185.71% 235.42% 189.22%
Average Annual Return
---------------------
One Year 31.79% 30.46% 32.11%
Three Years 23.96% 27.03% 27.50%
Five Years 19.25% 21.37% 19.87%
Since Inception (08/24/92)2 20.67% 22.51% 19.51%
Since Inception (03/11/91) 17.08% 19.93% 17.30%
</TABLE>
Caldwell & Orkin Market Opportunity Fund
Net Asset Allocation
[GRAPH]
<TABLE>
<CAPTION>
10/31/97 4/30/97
<S> <C> <C> <C>
Common Stock Owned 58.16% Common Stock Owned 52.09%
Common Stock Sold Short 38.18% Common Stock Sold Short 25.65%
Short-term investments
and other Net Assets 3.66% Short-term investments
and Other Net Assets 22.26%
</TABLE>
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 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 OTC stocks began operations on March 11, 1991.
* For 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.
6
<PAGE> 7
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 October 31, 1997
[GRAPH]
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 October 31, 1997
[GRAPH]
<PAGE> 8
CALDWELL & ORKIN MARKET OPPORTUNITY FUND
SCHEDULE OF INVESTMENTS (Unaudited)
October 31, 1997
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------
Shares Market Value
------ ------------
Common Stock (Long Positions) 58.16%
-----
<S> <C> <C> <C>
FINANCE - FINANCIAL SERVICES - MISC 3.33%
DIME BANCORP, INC. 142,900 3,429,600
FINANCE - SAVINGS & LOAN 2.49%
AFFILIATED COMMUNITY BANCORP, INC. 41,425 1,211,681
FFVA FINANCIAL, CORP, 39,400 1,349,450
FOOD - FLOUR & GRAIN 0.89%
INTERSTATE BAKERIES 14,300 913,413
HOUSEHOLD - TEXTILES 3.96%
QUAKER FABRIC, CORP. 80,700 1,538,344
WESTPOINT STEVENS, INC. 62,000 2,542,000
INSURANCE - LIFE 2.89%
TORCHMARK, CORP. 74,800 2,982,650
MEDIA - CABLE TV 2.70%
COMCAST, CORP. 101,000 2,777,500
MEDIA - NEWSPAPERS 0.57%
DOW JONES & COMPANY, INC. 12,600 585,900
MEDICAL - BIOMED/GENETICS 1.86%
AVIRON 32,200 704,375
GUILFORD PHARMACEUTICALS 30,400 741,000
PHARMOS, CORP. 213,500 469,219
MEDICAL - ETHICAL DRUGS 2.55%
ICN PHARMACEUTICALS, INC. 54,600 2,627,625
MEDICAL - PRODUCTS 0.55%
SEPRACOR, INC. 15,800 566,825
METAL - STEEL PIPE & TUBE 0.53%
N.S. GROUP, INC. 20,500 548,375
METAL ORES - GOLD/SILVER 0.66%
GREENSTONE RESERVES, LTD. 19,500 156,000
MIRAMAR MINING, CORP. 184,800 519,750
OIL & GAS - DRILLING 8.50%
GREY WOLF, INC. 427,500 3,526,876
DIAMOND OFFSHORE DRILLING 27,600 1,718,100
PATTERSON ENERGY, INC. 31,800 1,780,800
PRECISION DRILLING CORP. 56,800 1,746,600
OIL & GAS - FIELD SERVICES 4.45%
CAL DIVE INTERNATIONAL, INC. 58,900 1,840,625
VERITAS DGC, INC. 67,200 2,742,600
OIL & GAS - OIL FIELD MACHINERY & EQUIPMENT 1.34%
NATIONAL OILWELL, INC. 18,000 1,381,500
OIL & GAS - US EXPLORATION & PRODUCTION 0.70%
PIONEER NATURAL RESOURCES 18,100 725,131
OIL & GAS - US ROYALTY TRUST 1.89%
SABINE ROYALTY TRUST 118,500 1,947,844
RETAIL - MAJOR DISCOUNT CHAINS 2.66%
COSTCO COMPANIES, INC. 71,300 2,745,050
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE> 9
CALDWELL & ORKIN MARKET OPPORTUNITY FUND
SCHEDULE OF INVESTMENTS (Unaudited)
October 31, 1997
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------
Shares Market Value
------ ------------
<S> <C> <C> <C>
RETAIL - SUPER MARKETS 3.80%
AMERICAN STORES CO. 48,400 1,243,275
QUALITY FOOD CENTERS, INC. 56,100 2,671,762
RETAIL - WHOLESALE COMPUTERS 1.18%
COMPUCOM SYSTEMS 129,100 1,218,381
RETAIL - WHOLESALE OFFICE SUPPLY 2.47%
OFFICE DEPOT, INC. 123,300 2,543,062
TELECOMMUNICATION - CELLULAR 1.19%
CORECOMM, INC. 84,000 1,228,500
TELECOMMUNICATION - EQUIPMENT 0.99%
LORAL SPACE & COMMUNUNICATION 48,600 1,020,600
TELECOMMUNICATION - SERVICES 3.91%
TELECOMMUNICATIONS, INC. 87,100 1,997,856
US WEST MEDIA GROUP 80,500 2,032,625
TEXTILE - MACHINERY & EQUIPMENT 2.10%
NATIONAL SERVICE INDUSTRIES, INC. 48,900 2,163,825
-----------
TOTAL COMMON STOCKS (Cost $48,368,910) $59,938,719
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE> 10
<TABLE>
<CAPTION>
CALDWELL & ORKIN MARKET OPPORTUNITY FUND
SCHEDULE OF INVESTMENTS (Unaudited)
October 31, 1997
- ------------------------------------------------------------------------------------------
Shares Market Value
------ ------------
<S> <C> <C> <C>
Common Stock (Short Positions) 38.18%
-----
BANKS - SUPER REGIONAL 1.49%
BANC ONE, INC. (29,700) ($1,538,278)
COMMERCIAL SERVICES - MISC 1.65%
ADVANCED HEALTH, CORP. (42,900) (756,112)
TOTAL SYSTEM SERVICES, INC. (47,800) (944,940)
COMPUTER - MINI/MICRO 1.96%
ADVANCED MICRO DEVICES, INC. (67,900) (1,533,973)
APPLE COMPUTER (29,100) (493,124)
COMPUTER - SERVICES 1.53%
SHARED MEDICAL SYSTEMS, CORP. (28,800) (1,576,800)
COMPUTER - SOFTWARE 0.97%
GT INTERACTIVE SOFTWARE, CORP. (101,500) (1,003,259)
ENTERTAINMENT 0.56%
HOLLYWOOD ENTERTAINMENT, CORP. (47,700) (584,325)
FINANCE - CONSUMER LOANS 4.99%
ARCADIA FINANCIAL, LTD. (162,100) (1,458,900)
FIRSTPLUS FINANCIAL (19,400) (1,067,000)
MBNA CORPORATION (74,050) (1,948,441)
NATIONAL AUTO CREDIT, INC. (90,030) (663,971)
FINANCE - FINANCIAL SERVICES - MISC 2.27%
CONSUMER PORTFOLIO SERVICES, INC. (36,800) (460,000)
CREDIT ACCEPTANCE, CORP. (168,500) (932,024)
SOUTHERN PACIFIC FUNDING, CORP. (72,400) (950,250)
FINANCE - INVESTMENT MANAGEMENT 1.95%
UNITED ASSET MANAGEMENT, CORP. (75,800) (2,008,700)
FINANCE - MORTGAGE & RELATED SERVICES 4.14%
AAMES FINANCIAL, CORP. (27,800) (406,575)
CONTIFINANCIAL, CORP. (46,500) (1,322,344)
IMC MORTGAGE CO. (112,000) (1,946,000)
LONG BEACH FINANCIAL, CORP. (47,300) (591,250)
FINANCE - PUBLIC INVEST. FUND 2.11%
ACTION PERFORMANCE (84,800) (2,173,000)
HOUSEHOLD - APPLIANCE 0.60%
SINGER CO., N V (45,700) (619,815)
INSURANCE - ACCIDENT & HEALTH 1.17%
AFLAC, INC. (23,900) (1,209,229)
MEDICAL - BIOMED/GENETICS 4.52%
ALPHA BETA TECHNOLOGY, INC. (154,900) (406,612)
BIO TECHNOLOGY GENERAL, CORP. (152,800) (1,877,531)
EPITOPE, INC. (78,100) (541,819)
ORGANOGENESIS (60,300) (1,835,381)
MEDICAL - ETHICAL DRUGS 0.35%
MEDICIS PHARMACEUTICAL (7,400) (356,125)
MEDICAL - HEALTH MAINT. ORG. 0.71%
PHP HEALTHCARE, CORP. (53,600) (728,617)
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE> 11
<TABLE>
<CAPTION>
CALDWELL & ORKIN MARKET OPPORTUNITY FUND
SCHEDULE OF INVESTMENTS (Unaudited)
October 31, 1997
- ------------------------------------------------------------------------------------------
Shares Market Value
------ ------------
<S> <C> <C> <C>
PAPER AND PAPER PRODUCTS 0.89%
POLAROID, CORP. (20,300) (912,231)
RETAIL - APPAREL/SHOES 0.45%
JUST FOR FEET, INC. (33,800) (458,936)
RETAIL - DISCOUNT & VARIETY 0.73%
KMART, CORP. (56,900) (750,369)
RETAIL - MISC/DIVERSIFIED 0.52%
UGLY DUCKLING, CORP. (45,000) (534,375)
RETAIL - RESTAURANTS 3.16%
BOSTON CHICKEN, INC. (68,600) (613,112)
LONE STAR STEAKHOUSE (90,200) (2,085,875)
PLANET HOLLYWOOD CL-A (34,800) (554,625)
SHOES & RELATED APPAREL 1.46%
NIKE, INC. (32,000) (1,504,000)
------------
TOTAL SECURITIES SOLD SHORT (Proceeds $41,627,914) ($39,347,918)
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE> 12
THE CALDWELL & ORKIN MARKET OPPORTUNITY FUND
STATEMENT OF ASSETS & LIABILITIES
October 31, 1997 (Unaudited)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------
<S> <C>
ASSETS:
Investments, at value (cost $48,368,910) $ 59,938,719
Cash 15,227,791
Segregated cash with brokers and other financial institution 27,319,832
Deposits with brokers for securities sold short 33,100,103
Receivables:
Investment securities sold 10,227,124
Interest and dividends 143,908
Capital shares sold 3,636,879
Other 1,380
------------
TOTAL ASSETS 149,595,736
============
LIABILITIES:
Securities sold short, not yet purchased (proceeds $41,627,914) 39,347,918
Payables:
Investment securities purchased 5,544,245
Redemptions 1,530,379
Accrued advisory fees 56,941
Accrued expenses 59,143
------------
TOTAL LIABILITIES 46,538,626
------------
TOTAL NET ASSETS $103,057,110
============
NET ASSETS CONSIST OF:
Undistributed net investment income $1,767,537
Undistributed net realized gain 6,729,307
Net unrealized appreciation on investments 16,095,506
Paid-in capital applicable to 5,518,417 shares
outstanding; par value $0.10 per share;
15,000,000 shares authorized 78,464,760
------------
$103,057,110
============
NET ASSET VALUE AND OFFERING /
REDEMPTION PRICE PER SHARE $18.68
============
</TABLE>
The accompanying notes are an integral part of these financial statements.
12
<PAGE> 13
THE CALDWELL & ORKIN MARKET OPPORTUNITY FUND
<TABLE>
<CAPTION>
STATEMENT OF OPERATIONS
For the Six Months Ended October 31, 1997 (Unaudited)
- -------------------------------------------------------------------------------
INVESTMENT INCOME:
<S> <C>
Interest $1,067,875
Dividends 251,043
Other income 108,828
-----------
TOTAL INVESTMENT INCOME 1,427,746
===========
EXPENSES:
Investment advisory fees 277,943
Transfer agent fees 24,064
Professional fees 59,154
Dividend expense on securities sold short 47,102
Directors' fees and expenses 12,164
Registration and filing fees 34,742
Custodian fees 4,172
Legal fees 29,822
Insurance 4,934
Other 3,198
-----------
TOTAL EXPENSES 497,295
===========
NET INVESTMENT INCOME 930,451
===========
REALIZED AND UNREALIZED GAIN ON INVESTMENTS:
Net realized gain on investments 2,209,074
Change in unrealized appreciation 10,496,628
NET REALIZED GAIN AND UNREALIZED
APPRECIATION ON INVESTMENTS 12,705,702
-----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $13,636,153
===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
13
<PAGE> 14
THE CALDWELL & ORKIN MARKET OPPORTUNITY FUND
<TABLE>
<CAPTION>
STATEMENT OF CHANGES IN NET ASSETS
For the Six Months Ended October 31, 1997 (Unaudited)
- ---------------------------------------------------------------------------------------------------------------
Six Months Ended Year Ended
October 31, 1997 April 30, 1997
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
<S> <C> <C>
Net investment income $ 930,451 $ 843,884
Net realized gain (loss) from investments 2,209,074 7,487,471
Net unrealized appreciation (depreciation) on investments 10,496,628 194,871
------------- -------------
Net increase (decrease) in net assets resulting from operations 13,636,153 8,526,226
============= =============
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income -- (645,545)
Net realized gains on investments -- (4,438,128)
------------- -------------
Net distributions to shareholders -- (5,083,673)
============= =============
CAPITAL SHARE TRANSACTIONS
Net proceeds from sales of shares 42,477,490 30,542,727
Distributions reinvested in shares -- 3,382,245
Cost of shares redeemed (13,688,726) (14,765,526)
------------- -------------
Net increase (decrease) in net assets resulting from
capital share transactions 28,788,764 19,159,446
============= =============
TOTAL INCREASE IN NET ASSETS 42,424,917 22,601,999
NET ASSETS:
Beginning of period 60,632,193 38,030,194
------------- -------------
End of period $ 103,057,110 $ 60,632,193
============= =============
</TABLE>
The accompanying notes are an integral part of these financial statements.
14
<PAGE> 15
THE CALDWELL & ORKIN MARKET OPPORTUNITY FUND
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
Years Ended April 30,
--------------------------------------------------------------------
Six Months Ended
10/31/97 1997 1996 1995 1994 1993 1992
-------- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Selected Per Share Data:
Net asset value, beginning of period $15.77 $14.49 $11.35 $12.26 $12.94 $11.69 $10.49
------ ------ ------ ------- ------- ------- ------
Income (loss) from Investment Operations:
Net investment income (loss)* 0.10 0.22 0.27 0.54 0.06 (0.01) (0.08)
Net realized and unrealized gain (loss)
on investments 2.81 2.95 3.31 (0.81) 1.99 1.77 1.33
------ ------ ------ ------- ------- ------- ------
Total from investment operations 2.91 3.17 3.58 (0.27) 2.05 1.76 1.25
------ ------ ------ ------- ------- ------- ------
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) (0.05)
------ ------ ------ ------- ------- ------- ------
Total distributions - (1.89) (0.44) (0.64) (2.73) (0.51) (0.05)
------ ------ ------ ------- ------- ------- ------
Net asset value, end of period $18.68 $15.77 $14.49 $11.35 $12.26 $12.94 $11.69
------ ------ ------ ------- ------- ------- ------
Total Return 18.45% 23.24% 31.80 % (2.28)% 16.48 % 15.09 % 11.86 %
Ratios and Supplemental Data:
Net assets, end of period (in 000's) $103,057 $60,632 $38,030 $32,261 $18,830 $15,116 $12,385
Ratios to average net assets:
Expenses before dividends on securities
sold short (After Reimbursement) ** 1.17% 1.26% 1.38 % 1.18 % 1.21 % 1.30 % 1.64 %
Expenses from dividends sold short ** 0.12% 0.08% 0.18 % 0.45 % 0.00 % 0.00 % 0.00 %
---- ---- ----- ----- ----- ----- -----
Total expenses (After Reimbursement) ** 1.29% 1.34% 1.56 % 1.63 % 1.21 % 1.30 % 1.64 %
Total expenses (Before Reimbursement) ** 1.29% 1.34% 1.56 % 1.79 % 1.77 % 2.00 % 1.88 %
Net investment income (loss) ** 2.41% 2.01% 1.94 % 3.55 % 0.44 % (0.01)% (0.76)%
Portfolio turnover 376% 229% 222 % 331 % 292 % 223 % 50 %
</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 six months ended October 31, 1997, or for
the years ended April 30, 1997 and April 30, 1996.
** Annualized
The accompanying notes are an integral part of these financial statements.
15
<PAGE> 16
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
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.
16
<PAGE> 17
NOTES TO FINANCIAL STATEMENTS (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% Not greater than $200 million
.70% Not greater than $300 million
.60% 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 six months ended October 31,
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.
In December 1997, the Advisor made the determination that certain
adjustments needed to be made to the Fund's net asset value per share
at October 31, 1997, which was originally calculated to be $18.58 per
share. The Advisor recalculated the appropriate daily net value
calculations and made a capital contribution to the Fund of
approximately $42,000.
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 six months ended October 31, 1997, purchases and proceeds from
sales of investments (excluding securities sold short and short-term
investments) aggregated $54,680,247 and $47,801,989, 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.
17
<PAGE> 18
NOTES TO FINANCIAL STATEMENTS (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. On
October 31, 1997, the Fund exceeded its minimum margin requirements by
approximately $ 9.6 million.
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, 1997, the Fund had 36.1% of its total net assets in short
positions.
For the six months ended October 31, 1997, the cost of investments
purchased to cover short sales and proceeds from investments sold short
were $61,050,393 and $73,787,100, respectively.
4. CAPITAL SHARE TRANSACTIONS:
Capital share transactions for the six months ended October 31, 1997,
and the year ended April 30, 1997, were as follows:
<TABLE>
<CAPTION>
Six Months Year
Ended Ended
10/31/97 04/30/97
-------- --------
<S> <C> <C>
Shares sold 2,484,149 1,985,885
Shares issued in connection with
reinvestment of distributions - 236,852
Shares reacquired (809,369) (1,003,538)
--------- ----------
Net decrease in shares outstanding 1,674,780 1,219,199
========= =========
</TABLE>
5. RELATED PARTY TRANSACTIONS:
As of October 31, 1997, Caldwell & Orkin, Inc. and Michael B. Orkin had
ownership of the Fund of 0.01% and 2.39%, respectively.
18
<PAGE> 19
(This page is intentionally left blank)
19
<PAGE> 20
THE CALDWELL & ORKIN MARKET OPPORTUNITY FUND
BOARD OF DIRECTORS TRANSFER, REDEMPTION, AND DIVIDEND
DISBURSING AGENT
Michael B. Orkin, President & Chairman
H. Eugene Caldwell, Chairman Emeritus Countrywide Fund Services, Inc.
Frederick T. Blumer 312 Walnut Street
David L. Eager Cincinnati, Ohio 45202
Robert H. Greenblatt
Henry H. Porter, Jr. INDEPENDENT ACCOUNTANTS
INVESTMENT ADVISOR Coopers & Lybrand, L.L.P.
1100 Campanile Building
C&O Funds Advisor, Inc. 1155 Peachtree Street, N.E.
2050 Tower Place Atlanta, Georgia 30309-3630
3340 Peachtree Road
Atlanta, Georgia 30326 LEGAL COUNSEL
DISTRIBUTOR Kilpatrick Stockton, L.L.P.
1100 Peachtree Street
C&O Funds Distributor, Inc. Atlanta, Georgia 30309-4530
2050 Tower Place
3340 Peachtree Road
Atlanta, Georgia 30326
CUSTODIAN
Bank One Ohio Trust Company, N.A.
235 West Schrock Road
Westerville, Ohio 43081
THE CALDWELL & ORKIN MARKET OPPORTUNITY FUND
2050 TOWER PLACE
3340 PEACHTREE ROAD
ATLANTA, GEORGIA 30326
E-MAIL: [email protected]
FUND INFORMATION
For a prospectus or further information, please call 1-800-237-7073.
FUND LISTINGS
The Fund is listed in the Wall Street Journal, Investor's Business Daily, The
New York Times, and most local newspapers as C&OMKTOPP. 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.
