As filed with the Securities and Exchange Commission on November 16, 1998.
File No. 33-35156
File No. 811-6113
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------------
FORM N-1A
REGISTRATION STATEMENT UNDER [X]
THE SECURITIES ACT OF 1933
Post-Effective Amendment No. 12 [X]
and/or
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940 [X]
Amendment No. 13 [X]
(Check appropriate box or boxes)
---------------------
THE CALDWELL & ORKIN FUNDS, INC.
--------------------------------------------------
(Exact Name of Registrant as Specified in Charter)
2050 Tower Place, 3340 Peachtree Road
Atlanta, Georgia 30326
------------------------------------------------------
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including Area Code: (404)239-0707
(800)237-7073
Michael B. Orkin
THE CALDWELL & ORKIN FUNDS, INC.
2050 Tower Place, 3340 Peachtree Road
Atlanta, Georgia 30326
----------------------------------------
(Name and Address of Agent for Service)
----------------------
Copies to:
Michael B. Orkin Reinaldo Pascual, Esq.
President Kilpatrick Stockton LLP
C&O Funds Advisor, Inc. 1100 Peachtree Street, N.E.
2050 Tower Place, 3340 Peachtree Road Atlanta, Georgia 30309-4530
Atlanta, Georgia 30326
-----------------------
Approximate Date of Proposed Public Offering: As soon as practicable
after the effective date of the registration statement.
It is proposed that this filing will become effective (check appropriate box)
[X] immediately upon filing pursuant to paragraph (b) of Rule 485
[ ] on [date] pursuant to paragraph (b)
[ ] 60 days after filing pursuant to paragraph (a)(1) of Rule 485
[ ] on (date) pursuant to paragraph (a)(1) of Rule 485
[ ] 75 days after filing pursuant to paragraph (a)(2) of Rule 485
[ ] on (date) pursuant to paragraph (a)(2) of Rule 485
Registrant hereby registers an indefinite number of securities
under Rule 24f-2 of the Investment Company Act of 1940.
<PAGE>
CALDWELL & ORKIN FUNDS
CROSS REFERENCE SHEET
FORM N-1A
ITEM SECTION IN PROSPECTUS
1.................. Cover Page
2.................. Expense Information
3.................. Financial Highlights
4.................. Prospectus Summary, Investment Philosophy
of the Manager, Investment Objectives,
Policies, Methods and Risks, and the Fund
5.................. Management of the Fund
5A................. Financial Highlights
6.................. Cover Page, Additional Information, and
Dividends, Distributions, and Taxes
7.................. Purchase of Shares and The Distributor
8.................. Redemption of Shares and Telephone Purchases
and Redemptions for Securities Firms
9.................. None
ITEM SECTION IN STATEMENT OF ADDITIONAL INFORMATION
10................. Cover Page
11................. Table of Contents
12................. The Fund
13................. Investment Objectives, Policies and Risk
Considerations and Investment Restrictions
Trustees and Officers
14................. Management of the Fund
15................. Management of the Fund and General Information
16................. Management of the Fund, The Distributor, and
General Information
17................. Portfolio Transactions and Brokerage Allocation
18................. General Information
19................. Determination of Net Asset Value, Purchase of
Shares, the Distributor, Redemption of Shares
and Shareholder Services
20................. Dividends, Distributions and Taxes
21................. The Distributor, Purchase of Shares, and
Redemption of Shares
22................. Performance Information
23................. Report of Independent Public Accountants,
Financial Statements
<PAGE>
CALDWELL & ORKIN MARKET OPPORTUNITY FUND
SUPPLEMENT DATED NOVEMBER 16, 1998 TO THE PROSPECTUS DATED AUGUST 28, 1998
THIS INFORMATION SUPPLEMENTS THE FUND'S PROSPECTUS DATED AUGUST 28,
1998. THIS SUPPLEMENT, TOGETHER WITH THE PROSPECTUS, CONSTITUTE A
CURRENT PROSPECTUS. TO REQUEST A COPY OF THE PROSPECTUS, PLEASE CALL
(800) 237-7073.
EFFECTIVE NOVEMBER 16, 1998, THE CALDWELL & ORKIN MARKET OPPORTUNITY
FUND MAY HOLD SHORT POSITIONS WHOSE AGGREGATE VALUE MAY EQUAL UP TO
60% OF THE FUND'S NET ASSETS.
New Language for Page 9 of the Prospectus:
- ------------------------------------------
"Effective November 16, 1998, in an effort to profit from a
deteriorating stock market, while striving to attain the Fund's
objective, the Manager may hold short positions whose aggregate value
may equal up to 60% of the Fund's net assets."
Note that this new policy represents a change from the Fund's previous
polices described in the last sentence of paragraph 2 on page 9 of the
Prospectus, which is hereby deleted in its entirety.
New Language for Page 10 of the Prospectus:
- -------------------------------------------
"Effective November 16, 1998, the Caldwell & Orkin Market Opportunity
Fund may hold short positions whose aggregate value may equal up to
60% of the Fund's net assets."
"INVESTMENT IN SHORT SALES OF SECURITIES. The Caldwell & Orkin Market
Opportunity Fund's Manager may establish short positions in an attempt
to protect against market declines and improve returns, and will
choose from among securities that are listed on a national securities
exchange or on the NASDAQ. The Manager establishes a short position
for the Fund by selling a security it does not own and makes delivery
by borrowing the security it sold. It then repays the lender of the
security by purchasing the security in the marketplace, ideally at a
lower price than that for which it sold the security, thereby taking
advantage of declining values and realizing a profit. Conversely, if
the price of the security goes up after the Manager establishes a
short position, the Fund will lose money. Effective November 16,
1998, the Fund may hold short positions whose aggregate value may
equal up to 60% of the Fund's net assets. The Fund will limit its
short sales of securities of any single issuer if the market value of
such securities that have been sold short by the Fund would exceed two
percent (2%) of the value of the Fund's net assets or if such
securities would constitute more than two percent (2%) of any class of
the issuer's securities."
"On the Fund's internal books or in a segregated account maintained at
the Fund's Custodian (or a combination of both), the Fund will
segregate liquid assets (such as cash, U.S. Government securities, or
equity securities) in an amount sufficient to cover the current value
of the securities to be replaced as well as any dividends, interest
and/or transaction costs due to the broker upon completion of any
short sale transactions. In determining the amount to be segregated,
the securities that have been sold short by the Fund are marked to
market daily. To the extent the market price of the security
increases and more assets are required to meet the Fund's short sale
obligations, additional assets will be segregated to ensure adequate
coverage of the Fund's short position obligations."
Note that this new policy represents a change from the Fund's previous
polices described in the italicized text and paragraphs 1 and 2 on
page 10 of the Prospectus, all of which are hereby deleted in their
entirety.
The Fund has filed a Statement of Additional Information for the Fund
dated August 28, 1998, as supplemented November 16, 1998, that is
hereby incorporated by reference into the Fund's Prospectus.
<PAGE>
THE CALDWELL & ORKIN
MARKET OPPORTUNITY FUND
The Caldwell & Orkin Market Opportunity Fund (the
"Fund") is a portfolio of The Caldwell & Orkin Funds,
Inc. ("Caldwell & Orkin"), an open-end diversified
management investment company. The Fund's objective is
to provide long-term capital growth with a short-term
focus on capital preservation through investment
selection and asset allocation.
This Prospectus contains information about the Fund
that a prospective investor should know before
investing. It should be retained for future reference.
A Statement of Additional Information about the Fund
has been filed with the Securities and Exchange
Commission on August 28, 1998. The Statement of
Additional Information (which is hereby incorporated in
its entirety by reference into this Prospectus)
contains more detailed information about the Fund and
may be obtained free of charge by writing the Fund or
calling (800) 237-7073.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
August 28, 1998 2050 Tower Place (800) 237-7073
3340 Peachtree Road, NE (404) 239-0707
Atlanta, Georgia 30326
<PAGE>
PROSPECTUS SUMMARY ....................................... 3
EXPENSE INFORMATION ....................................... 5
FINANCIAL HIGHLIGHTS....................................... 6
INVESTMENT PHILOSOPHY OF THE MANAGER....................... 8
INVESTMENT OBJECTIVES, POLICIES, METHODS AND RISKS......... 9
PERFORMANCE DATA .......................................... 13
MANAGEMENT OF THE FUND .................................... 13
PURCHASE OF SHARES ........................................ 14
REDEMPTION OF SHARES ...................................... 16
TELEPHONE PURCHASES AND REDEMPTIONS FOR SECURITIES FIRMS... 16
DIVIDENDS, DISTRIBUTIONS, AND TAXES ....................... 17
THE DISTRIBUTOR ........................................... 18
ADDITIONAL INFORMATION .................................... 18
THE FUND................................................... 20
No dealer, salesman or any other person has been authorized to
give any information or to make any representations, other than
those contained in this Prospectus, and if given or made, such
other information or representations must not be relied upon as
having been authorized by Caldwell & Orkin, the Manager or the
Distributor. This Prospectus does not constitute an offering in
any state in which such offering may not lawfully be made.
MUTUAL FUND SHARES ARE NEITHER INSURED NOR GUARANTEED BY THE U.
S. GOVERNMENT, THE FEDERAL DEPOSIT INSURANCE CORP. ("FDIC") OR
ANY OTHER AGENCY, AND ARE SUBJECT TO INVESTMENT RISK, INCLUDING
POSSIBLE LOSS OF PRINCIPAL.
2<PAGE>
PROSPECTUS SUMMARY
THE CALDWELL & ORKIN MARKET OPPORTUNITY FUND'S OBJECTIVE IS TO PROVIDE
CAPITAL GROWTH AND PRESERVATION THROUGH INVESTMENT SELECTION AND ASSET
ALLOCATION.
INVESTMENT OBJECTIVES. 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. The Fund seeks to outperform
the stock market over the long term, as measured by indices
such as the NASDAQ Composite ("NASDAQ") and the S&P 500 with
income ("S&P500"). Current income is only an incidental
consideration. The Manager attempts to achieve these objectives
through diversification of the Fund's portfolio between long
equity positions, short equity positions, bonds, and cash
equivalents. The Manager invests in companies of all sizes
having potential for capital appreciation. The Fund's asset
allocation is established by the Manager and will be modified
regularly based on current market conditions. The Manager
emphasizes equity investments and the Fund could have a
substantial majority of its assets invested in stocks at any
time (90-100%). See "Investment Objectives, Policies, Methods
and Risks."
THE MANAGER. C&O Funds Advisor, Inc. (the "Manager") acts as
the Fund's investment adviser. The Manager is an investment
counseling firm located in Atlanta, Georgia and a wholly-owned
subsidiary of Caldwell & Orkin, Inc., an investment management
firm with approximately $407 million in assets under
management. See "Management of the Fund."
PURCHASE AND REDEMPTION OF SHARES. Shares of the Fund are
purchased and redeemed through C&O Funds Distributor, Inc.,
the distributor and principal underwriter of the Fund
(the "Distributor") or member firms of the National Association
of Securities Dealers, Inc. ("NASD") that have dealer agreements
with the Distributor. NASD member firms may charge a reasonable
transaction fee that can be avoided by investing directly with the
Fund through the Distributor.
The Fund is generally closed to new investment, with the exception
of shareholders who are invested in the Fund directly through the
Distributor. For more information, including exceptions to this
general policy, see "Purchase of Shares."
Shares may be redeemed at any time. However, in some cases,
shareholders will be charged a 2% redemption fee as a
percentage of the amount redeemed upon the redemption of shares
where the redemption occurs within a six-month period following
the issuance of such shares. See "Redemption of Shares."
3
<PAGE>
INVESTMENT RISKS. The Fund uses aggressive investment
strategies that have the potential for yielding high returns;
however, these strategies may also result in losses. Share
prices may decline over short or even extended periods. These
fluctuations may cause your shares to be worth less than when
you originally purchased them. The Fund seeks long-term capital
growth and should not be used to meet short-term needs. Investors
should consider the Fund as a vehicle to balance their total
investment program risks.
Investors should expect that the Market Opportunity Fund may
fluctuate independently of the stock market, as represented by indices
such as the S&P 500 and the NASDAQ.
In an effort to take advantage of declining market values, the
Fund may establish short positions in securities. A short position
is established by selling borrowed shares and attempting to buy
them back at a lower price. Borrowed shares must eventually be
replaced whether or not the stock price declines. Therefore,
the Fund may purchase stock to replace borrowed shares at
higher prices than where the borrowed stock was sold thereby
incurring a loss. As with any mutual fund, there is no
assurance that the Fund will achieve its objectives. See
"Investment Objectives, Policies, Methods and Risks."
4
<PAGE>
EXPENSE INFORMATION
The investor pays the following charges when buying or
redeeming shares of the Fund (based upon expenses for the fiscal year
ended April 30, 1998):
SHAREHOLDER TRANSACTION EXPENSES:
Redemption Fees (as a percentage 2.00% *
of amount redeemed)
ANNUAL ESTIMATED FUND OPERATING EXPENSES:
(as a percentage of average net assets)
Management Fees 0.88%**
12b-1 Fees None
Other Expenses
Operating Expenses 0.29%*****
Dividend Expense on Short Sales of Securities 0.05%****
-------------
Total Fund Operating Expenses 1.22%*****
=============
* The redemption fee is charged upon any redemption of
Fund shares occurring within a six-month period
following the issuance of such shares. The redemption
fee will be imposed on shares purchased on or after
October 1, 1997. For complete information about the
redemption fee, see "Redemption of Shares."
** The Fund's Management Agreement provides for
compensation to the Manager at the annual rates of
0.90% of average daily net assets up to $100 million;
0.80% of average daily net assets in excess of $100
million but not more than $200 million; 0.70% average
daily net assets in excess of $200 million but not more
than $300 million; 0.60% of average daily net assets in
excess of $300 million but not more than $500 million;
0.50% of average daily net assets in excess of $500
million.
***The Management Agreement obligates the Fund to pay
certain expenses incurred in its operations, in
addition to the management fee, including legal and audit fees,
unaffiliated Directors' fees and expenses, and certain
other Fund operating costs.
**** SEC Regulation S-X Rule 6-03(g) requires cash
dividends declared on stocks for which the Fund
reflects a short position as of the record
date to be recognized as an expense on the ex-dividend
date.
***** Annual Fund operating expenses are paid out
of the Fund's assets. Operating expenses are factored
into the Fund's net asset value (NAV), and are not charged
directly to shareholder accounts.
EXAMPLE: You would pay the following expenses on a
$1,000 investment, assuming a 5% annual return and
redemption at the end of each time period:
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
$13 $39 $67 $148
The Fee Table is presented to assist you in understanding the
costs and expenses that a shareholder in the Fund will bear
directly or indirectly. The example above assumes the
reinvestment of all dividends and distributions. THIS EXAMPLE
IS NOT A REPRESENTATION OF ACTUAL OR EXPECTED PERFORMANCE OR
EXPENSES. WHILE THE EXAMPLE ASSUMES A 5% ANNUAL RETURN, THE
FUND'S ACTUAL PERFORMANCE WILL VARY AND THE ACTUAL RETURN MAY
BE MORE OR LESS.
5
<PAGE>
FINANCIAL HIGHLIGHTS
The following table is included in the Fund's Annual
Report for the fiscal year ended April 30, 1998. It
has been audited by Tait, Weller & Baker (1998),
PricewaterhouseCoopers LLP (1994 through 1997) and Deloitte
& Touche, LLP (1991 through 1993). The Fund began operations
on March 11, 1991. The Fund's Annual Report contains further
information about the performance of the Fund as well
as the Fund's financial statements. The Annual Report is
available without charge by calling the Fund.
<TABLE>
<CAPTION>
Years Ended April 30,
1998 1997 1996 1995 1994 1993 1992 1991+
---- ---- ---- ---- ---- ---- ---- -----
<S> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value, $15.77 $14.49 $11.35 $12.26 $12.94 $11.69 $10.49 $10.36
Beginning of Period
Income from Investment Operations: 0.25 0.22 0.27 0.54 0.06 (0.01) (0.08) (0.01)
Net Investment Income (Loss)**
Net Gains or Losses on Securities (both 3.75 2.95 3.31 (.81) 1.99 1.77 1.33 0.14
Realized and Unrealized) ------ ------ ------ ------ ------ ------ ------ ------
Total from Investment Operations 4.00 3.17 3.58 (.27) 2.05 1.76 1.25 0.13
Less Distributions:
Dividends from Net Investment Income (0.21) (0.24) (0.44) (0.41) (0.04) - - -
Distributions from Capital Gains (0.88) (1.65) - (0.23) (2.69) (0.51) (0.05) -
Total Distributions (1.09) (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 $10.49
====== ====== ====== ======= ====== ====== ====== ======
Total Return 25.77% 23.24% 31.80% (2.28)% 16.48% 15.09% 11.96% # 1.25%
Ratios and Supplemental Data:
Net Assets, End of Period (in $000's) $157,823 $60,632 $38,030 $32,261 $18,830 $15,116 $12,385 $11,552
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% 1.95% *
Expenses from dividends sold short 0.05% 0.08% 0.18% 0.45% - - - - *
----- ----- ------ ------ ------- ------ ------- ------
Total expenses (After Reimbursement) 1.22% 1.34% 1.56% 1.63% 1.21% 1.30% 1.64% 1.95% *
Total expenses (Before Reimbursement) 1.22% 1.34% 1.56% 1.79% 1.77% 2.00% 1.88% 2.18% *
Net investment income (loss) 2.54% 2.01% 1.94% 3.55% 0.44% (0.01%) (0.76%) (0.19%)*
Portfolio Turnover Rate 200% 229% 222% 331% 292% 223% 50% 3%
Average commission per share*** $0.0467 $0.0555 - - - - - -
</TABLE>
- --------------------------
* Adjusted to annual basis.
** Had the Distributor and Manager not waived a
portion of the expenses, net investment income (loss)
per share would have been $.52, ($.01), ($.09), ($.10),
and ($.03) for the periods ended April 30, 1995 through
1991, respectively. No expenses were waived for the
fiscal years ended April 30, 1998, 1997 and 1996.
# 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.
+ Commencement of operations on March 11, 1991.
*** Not applied to prior periods. Represents average
commission rate per share charged to the Fund on
purchases and sales of equity investments on which
commissions were charged during the period.
6
<PAGE>
PORTFOLIO TURNOVER. The Fund's disciplined investment style
and use of certain risk control strategies may result in higher-
than-average portfolio turnover. The rate of portfolio turnover will
not be a limiting factor when the Fund's Manager deems change
appropriate and in the best interest of the Fund's shareholders.
Portfolio turnover results from a change of the securities held by
the Fund and involves expense to the Fund in the form of brokerage
commissions and other transaction costs. Portfolio turnover may also
have an impact on the amount of taxable distributions to shareholders.
The Fund's portfolio turnover rate, as reflected in the Financial
Highlights, assumes only the portfolio securities purchased or
sold, or whose maturity is greater than one year, and excludes
all transactions for shorting as they are considered to be less
than one year to maturity. The Fund's turnover rate will generally
exceed 100% per year. The Fund's performance history is quoted after
all expenses, including those brokerage commissions and other transaction
costs associated with portfolio turnover.
INVESTMENT PHILOSOPHY OF THE MANAGER
THE MANAGER'S INVESTMENT PROCESS IS A MULTI-DIMENSIONAL
APPROACH THAT SEEKS TO OUTPERFORM THE MARKET OVER THE
LONG TERM.
INTRODUCTION. The underlying goal of the Manager's investment
philosophy is to deliver a combination of superior
long-term capital growth with a short-term focus on capital
preservation. In order to achieve these results, a
multifactor decision making process is applied to both
stock selection and asset allocation. The Manager has
developed this flexible approach which takes into
consideration the volatile nature of the markets.
Although the goal is strong performance, the Manager
believes that to achieve solid returns over time,
attention must be paid to how those returns are
attained. Thus, the Manager focuses on risk, not just on
return.
THE MANAGER FOCUSES ON "CHANGE" IN STOCK SELECTION
STOCK SELECTION. The Manager focuses on "change" when
selecting stocks. "Change" in its broadest context
leads to shifts in fundamentals and expectations. The
Manager studies a variety of factors (qualitative as
well as quantitative) to identify the best
opportunities either for a long position or short
position. Recognizing that different factors are
significant for different companies, the Manager
determines which factors are expected to impact stock
prices and acts accordingly. Examples of factors
considered in stock selection include management,
earnings growth, and industry variables.
ASSET ALLOCATION IS USED TO PURSUE THE GOAL OF
CONTROLLING RISK AND IMPROVING RETURNS.
ASSET ALLOCATION. Asset allocation is used to pursue
the goal of controlling risk and improving returns.
The Manager determines the percentage of the Fund's assets
devoted to long equity positions, short equity positions,
bonds, and cash equivalents. To help determine asset
allocation, eight major factors are used: liquidity,
inflation, economics, valuation, sentiment,
supply/demand, global currents and momentum/breadth.
Liquidity, inflation, and economics are the
7
<PAGE>
three most important in identifying trends. They
demonstrate varying degrees of cause and effect
relationships with stock price movements. The
remaining variables are more correlative in nature
and become important at extremes.
FACTOR GLOSSARY. Listed below are the major factors
used in asset allocation.
ECONOMIC LIQUIDITY - The relationship between
liquidity or money supply and economic growth. Bullish
when money supply increases faster than the economy -
excess economic liquidity flows into stocks and bonds.
Bearish when the economy grows faster than money supply
- - money is withdrawn from financial assets to purchase
plant, equipment and other products.
INFLATION - A measure of the cost of living. Bullish
for stocks when falling, yet remains positive. Bearish for
stocks when rising or if negative.
VALUATION - Various measures to determine whether
stocks are cheap or expensive based on historic norms.
Usually equities remain cheap or expensive over long
periods of time depending on the investing environment.
"Green flag" when cheap. "Red flag" when expensive.
SENTIMENT - Surveys taken to determine if investors are
feeling positive or negative about financial assets.
Bullish when too many investors are pessimistic.
Bearish when too many investors are optimistic.
SUPPLY/DEMAND - The relationship between stock supply
(increases with initial public and secondary offerings,
decreases with stock buy backs and insider
purchases) and demand. Bullish with low supply and high
demand of stock. Bearish in the reverse.
THE MANAGER'S MULTI-DIMENSIONAL APPROACH IS DYNAMIC AS
WELL AS FLEXIBLE IN TERMS OF THE CHANGING EMPHASIS OF
THE MARKETS.
MOMENTUM/BREADTH - The action (trend, speed and
breadth) of general security price movements. Bullish
when markets move in gradual uptrend (price momentum)
with most stocks moving up (broad breadth). Bearish
when the opposite occurs.
GLOBAL CURRENTS - The same broad array of factors
described above applied on a global basis to determine
their impact on domestic financial markets.
SUMMARY. The Manager's investment process is a multi-
dimensional approach that seeks to outperform the market
over the long-term, but with less exposure to market risk.
The Manager's approach is dynamic as well as flexible in terms
of responding to the changing emphasis of the markets.
8
<PAGE>
INVESTMENT OBJECTIVES, POLICIES, METHODS AND RISKS
THE UNDERLYING GOAL OF THE MANAGER'S PHILOSOPHY IS TO
DELIVER A COMBINATION OF SUPERIOR LONG- TERM CAPITAL GROWTH
WITH A SHORT- TERM FOCUS ON CAPITAL PRESERVATION.
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. The Fund
seeks to outperform the stock market over the long-
term, as measured by indices such as the NASDAQ and the S&P 500.
Current income is only an incidental
consideration. The Manager will attempt to achieve
these objectives through diversification of the Fund's
portfolio between long equity positions, short equity
positions, bonds, and cash equivalents. The Manager
invests in companies of all sizes whose shares have potential
for capital appreciation. The Fund's asset allocation is
established by the Manager and will be modified
regularly based on market conditions. The
Manager emphasizes equity investments and the Fund
could have a substantial majority of its assets
invested in stocks at any time (90-100%).
The Manager will invest in common stocks and other equity-
type securities, corporate bonds and notes, agencies
and convertibles, and U.S. government obligations and
cash equivalent securities. (For further explanation,
see "Investment in Fixed Income Securities"). The
Manager will establish asset allocation levels for the
Fund based on market conditions. When the
Manager determines that favorable market conditions
exist, asset allocation to equities can be expected to
fall in the range of 90% to 100% of total Fund assets.
When the Manager determines that unfavorable market
conditions exist, asset allocations will be modified to
include higher proportions of cash equivalents. In an
effort to profit from a deteriorating stock market
while striving to attain the Fund's objective, the
Manager may initiate short positions which cumulatively
could reach a maximum level of 40% of total Fund
assets.
Because the Fund invests primarily in common stocks,
shares of the Fund will be subject to market risk,
i.e., the possibility that stock prices could decline
over short or even extended periods. The stock market
tends to be cyclical, with periods when the prices of
stocks generally rise and periods when they generally
decline. Historically, the market has been
characterized by volatility in the short run and growth
in the long run.
In an attempt to protect assets as well as profit from
declining markets, techniques such as asset allocation
and short sales of securities may be employed by the
Manager. These techniques could cause the Fund's
performance to deviate from that of market indices such
as the S&P500 or the NASDAQ. For example, a high level
of cash or a large short position during a declining
market could result in the Fund's performance being
more favorable relative to market indices. Conversely,
due to a large cash or short
9
<PAGE>
position the Fund may not
participate in market advances and Fund performance could
possibly lag market indices. Therefore, the Fund
is intended to be a long-term investment vehicle and
should not be used to meet short-term needs.
THE FUND MAY INVEST UP TO 40% OF ITS ASSETS IN THE
SHORT SALE OF SECURITIES TO PROFIT DURING MARKET DECLINES.
INVESTMENT IN SHORT SALES OF SECURITIES. The Manager
may establish short positions in an attempt to protect
against market declines and improve returns, and will
choose from among securities that are listed on a
national securities exchange or on the NASDAQ. The
Manager establishes a short position for the Fund by selling
a security it does not own and makes delivery by
borrowing the security it sold. It then repays the
lender of the security by covering its purchase in
the marketplace, ideally at a lower price than that for
which it sold the security, thereby taking advantage
of declining values and realizing a profit. Conversely, if
the price of the security goes up after the Manager establishes
a short position, the Fund will lose money. The Fund may hold
up to 40% of its assets in short positions, and will
limit its short sales of securities of any single
issuer if the market value of the securities that have
been sold short by the Fund would exceed two percent
(2%) of the value of the Fund's net assets or if such
securities would constitute more than two percent (2%)
of any class of the issuer's securities.
In a segregated account with the custodian, the Fund
will maintain, on a daily basis, liquid assets (such as
cash, U.S. Government securities, or equity
securities) in an amount sufficient to cover the
current value of the securities to be replaced as well
as any dividends, interest and/or transaction costs due
to the broker upon completion of the transaction. In
determining the amount to be held in the segregated
account, the securities that have been sold short are
marked to market daily. To the extent the market price
of the security increases, additional assets will be
segregated to ensure adequate reserves.
Additionally, any capital gains or losses derived from
short sale activity will generally be considered short-term
capital gains or losses for income tax purposes, regardless of
how long the short position was maintained.
INVESTMENTS IN SMALL COMPANIES. Although the Fund invests
in companies of all sizes, there may be times when there is a
significant investment in small companies. Smaller growth
companies may offer greater potential for capital appreciation
than larger companies. Smaller growth companies often have new
products or technologies, new distribution methods, rapid changes
in industry conditions due to regulatory or other developments,
changes in management or similar characteristics that may result
not only in the expected growth in revenues but in an accelerated
or above average rate of earnings growth, which would usually be
reflected in share price appreciation.
10<PAGE>
In addition, because they may be less actively followed by
stock analysts and less information may be available on which
to base stock price evaluations, the market may overlook favorable
trends in particular smaller growth companies, and then adjust
its valuation more quickly once investor interest is gained.
Smaller growth companies may also be more subject to a valuation
catalyst (such as increased investor attention, takeover efforts
or change in management) than larger companies.
On the other hand, the smaller companies in which the Fund
may invest may have relatively small revenues, may have a small
share of the market for their products or services, their
businesses may be limited to regional markets, or they may
provide goods or services for a limited market. For example,
they may be developing or marketing new products or services for
which markets are not yet established and may never become
established or may have or develop only a regional market for
product or services and thus be affected by local or regional
market conditions. In addition, small companies may lack depth
of management or they may be unable to generate funds necessary
for growth or potential development, either internally or through
external financing on favorable terms. Such companies may also
be insignificant enough in their industries and become subject to
intense competition from larger companies.
Due to these and other factors, small companies may suffer
significant losses or realize substantial growth; therefore,
investments in such companies tend to be volatile and are more
speculative.
MONEY MARKET INSTRUMENTS AND FIXED INCOME SECURITIES
MAY BE HELD WHEN THE MANAGER BELIEVES THAT A PORTFOLIO
OF FIXED INCOME SECURITIES WILL OUTPERFORM THE STOCK
MARKET.
INVESTMENT IN FIXED INCOME SECURITIES. At most times,
the Fund's assets will be invested primarily in equity
securities. However, money market instruments, U.S.
Government securities and obligations, preferred stocks
or certificates of deposit of commercial banks, and
other fixed income securities may be held when a
defensive position is warranted or when the Manager
believes that a portfolio of fixed income securities
will outperform the stock market or in order for the
Fund to receive a greater return on its idle cash.
While the Fund maintains a defensive position and/or
invests in cash or fixed income securities, investment
income will increase and may constitute a larger
portion of the return. The Fund probably will not
participate in market advances or declines to the
extent that it would if it was fully invested. The
Fund's fixed income investments may consist of
corporate bonds and notes and U.S. government
obligations. The Fund will limit its investments in
corporate bonds and notes to those which have been
assigned one of the highest four ratings of either
Standard & Poor's Corporation or Moody's Investors
Service, Inc., at the time of their purchase, or
unrated bonds and notes which the
11
<PAGE>
Manager believes to be of comparable quality. For a
discussion of Standard & Poor's and Moody's ratings for
corporate bonds and notes, see Appendix A to the Statement
of Additional Information. Cash equivalent securities in
which the Fund may invest include U.S. government
obligations, U.S. government agency securities,
commercial paper, bankers' acceptances, certificates
of deposit, time deposits and other money market
instruments. The Fund will only invest in commercial
paper rated no lower than A-2 by Standard & Poor's or
Prime-2 by Moody's. For a discussion of these ratings,
see Appendix A to Statement of Additional Information.
The Fund's investments in fixed income securities will
generally be subject to both credit risk and market
risk. Credit risk relates to the ability of the issuer
to meet interest or principal payments as they become
due. Market risk relates to the fact that market values
of fixed income securities generally will be affected
by changes in the level of interest rates. Generally,
as interest rates rise, the market value of fixed
income securities will fall. Conversely, as interest
rates fall, the market value of fixed income securities
will rise. Also, yields and market values of lower-rated
securities tend to fluctuate more than highly-rated
securities. The risks of greater fluctuations in yield
and value occur because investors generally perceive
issuers of lower rated securities to be less creditworthy.
Fluctuations in market value do not affect the interest
income from the securities, but are reflected in the
Fund's net asset value.
BY INVESTING IN FOREIGN SECURITIES, THE MANAGER ATTEMPTS
TO TAKE ADVANTAGE OF DIFFERENCES BETWEEN ECONOMIC TRENDS
IN THE PERFORMANCE OF SECURITIES MARKETS IN VARIOUS COUNTRIES
INVESTMENTS IN FOREIGN SECURITIES. The Fund may invest
up to 25% of its assets in equity securities that are
issued by foreign issuers and are traded in the United
States. These securities must be issued by foreign
companies that comply with U.S. standards. The Fund may
also invest in American Depository Receipts ("ADRs").
ADRs are receipts typically issued by a U.S. bank or
trust company which show ownership of underlying
securities of foreign corporations. By investing in
these securities the Manager attempts to take advantage
of differences between economic trends and the
performance of securities markets in various countries.
Investing in foreign securities involves risks and
opportunities not typically associated with investing
in U.S. securities. The following considerations must
be taken into account: fluctuations in exchange rates
of foreign currency; possible implementation of
exchange control regulations or currency restrictions
that would prevent cash from being brought back to the
U.S.; lack of uniform accounting, auditing and
financial reporting standards; lack of uniform
settlement periods and trading practices; less
liquidity and frequently greater price volatility in
foreign markets than in the U.S.; possibility
12
<PAGE>
expropriation or nationalization of assets; and a
possible imposition of foreign taxes. Furthermore, the U.S.
government has from time to time in the past imposed restrictions
on foreign investments by U.S. investors.
PORTFOLIO TURNOVER. The Fund's disciplined investment style
and use of certain risk control strategies may result in higher-
than-average portfolio turnover. The rate of portfolio turnover will
not be a limiting factor when the Fund's Manager deems change
appropriate and in the best interest of the Fund's shareholders.
Portfolio turnover results from a change of the securities held by
the Fund and involves expense to the Fund in the form of brokerage
commissions and other transaction costs. Portfolio turnover may also
have an impact on the amount of taxable distributions to shareholders.
The Fund's portfolio turnover rate, as reflected in the Financial
Highlights, assumes only the portfolio securities purchased or
sold, or whose maturity is greater than one year, and excludes
all transactions for shorting as they are considered to be less
than one year to maturity. The Fund's turnover rate will generally
exceed 100% per year. The Fund's performance history is quoted after
all expenses, including those brokerage commissions and other transaction
costs associated with portfolio turnover.
YEAR 2000 COMPLIANCE. The investment management,
shareholder, fund accounting and administrative services
provided to the Fund by the Fund's Advisor, Distributor,
Transfer Agent, Custodian and other third party service
providers (collectively, the "Service Providers") are
largely dependent upon the smooth functioning of their
respective computer systems. Many computer hardware and
software 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. Such a failure may
negatively impact the handling of securities investments,
trades, pricing and account services, as well as the
processing of purchase and sales of shares of the Fund.
Although the Fund has received or is seeking assurances
from its Service Providers that their computer systems
are or will be Year 2000 compliant, there can be no
assurance that such systems or any third party computer
systems upon which the Service Providers' computer systems
rely will be Year 2000 compliant on and after January 1,
2000. Failure by any of the Service Provider's computer
systems to identify and correct Year 2000 problems prior
to January 1, 2000 may have significant adverse effects
on the Fund.
GENERAL. The Fund's investment objective is a
fundamental policy and may not be changed without a
vote of a majority of the outstanding voting shares of
the Fund. No assurance can be given that the Fund will
achieve its objective.
13
<PAGE>
PERFORMANCE DATA
TOTAL RETURN FIGURES ARE BASED ON HISTORICAL PERFORMANCE
AND ARE NOT INTENDED TO INDICATE FUTURE PERFORMANCE.
Comparative performance information may be used from
time to time in advertising or marketing the Fund's
shares, including data from or regarding the S&P 500
and the NASDAQ. From time to time the Fund may also
provide its total return in advertisements, sales
literature or reports, and other communications to
shareholders. The Fund's total return for a given
period will be computed based on the Fund's change in
net asset value per share between the beginning of the
period and the end of the period shown and assumes
reinvestment of the Fund's dividend and capital gain
distributions during the period. The Fund's performance
will vary depending upon market conditions, the
composition of the portfolio, management fees and other
operating expenses. Total return figures will be based
on historical performance and will not be intended to
indicate future performance.
The Fund's performance, as well as management's
discussion of factors affecting performance, are
provided twice a year in reports to all shareholders.
For current performance, including quarterly summary
reports, please call (800) 237-7073.
MANAGEMENT OF THE FUND
THE RESPONSIBILITY FOR MAKING DECISIONS TO BUY, SELL OR
HOLD A PARTICULAR SECURITY RESTS WITH THE MANAGER,
SUBJECT TO REVIEW BY THE BOARD OF DIRECTORS.
BOARD OF DIRECTORS. The Caldwell & Orkin Market
Opportunity Fund is governed by a Board of Directors,
which is responsible for protecting the interests of
the Fund's shareholders. The Directors are experienced
executives who meet throughout the year to oversee the
Fund's activities, review contractual arrangements with
companies that provide services to the Fund, and review
performance. A majority of the Fund's Directors are not
affiliated with the Manager. For information regarding
each Director of the Fund, see "Management of the Fund"
in the Statement of Additional Information.
MANAGEMENT ARRANGEMENT. C&O Funds Advisor, Inc. (the
"Manager"), an independent investment counseling firm
with its offices located at 2050 Tower Place, 3340
Peachtree Road, NE, Atlanta, Georgia 30326, has entered
into a management agreement with the Fund pursuant to
which the Manager provides investment advisory and
management services to the Fund. The Manager was formed
in 1986 and is a wholly-owned subsidiary of Caldwell &
Orkin, Inc. ("C&O"). C&O, formed in 1982, presently
provides investment advisory services to corporations,
individual investors, and other institutions, and has
funds under management of approximately $450 million.
Michael B. Orkin is the sole shareholder of C&O. While
the Manager is at all times subject to the direction of
the Board of Directors of the Fund, the Management
Agreement provides that the Manager is responsible for
the actual management of the
14<PAGE>
Fund's portfolio. The responsibility for making decisions to
buy, sell or hold a particular security rests with the Manager,
subject to review by the Board of Directors. The Manager is
also obligated to perform certain administrative and management
services for the Fund, and is obligated to provide all the office
space facilities, equipment and personnel necessary to perform
its duties under the Management Agreement.
The Manager shall receive monthly compensation at
annual rates which vary according to the total assets
of the Fund. On an annual basis, the advisory fee is
equal to the following for the Fund:
Fee Average Daily Net Assets (in millions)
----------------------------------------------------
.90% Up to $100
.80% In excess of $100 but not greater than $200
.70% In excess of $200 but not greater than $300
.60% In excess of $300 but not greater than $500
.50% Over $500
PORTFOLIO MANAGER
MICHAEL B. ORKIN. Michael B. Orkin has been primarily
responsible for the day- to- day management of the
Fund's portfolio since August 24, 1992. Mr. Orkin is
President and Chief Executive Officer of Caldwell &
Orkin, Inc. Prior to his current position, he was an
assistant portfolio manager with Pacific Equity
Management, as well as an analyst for both Oppenheimer
Capital Corporation and Ned Davis Research. He
graduated from Vanderbilt University with a B.S. in
Economics and earned an MBA in Finance from the
University of Chicago Graduate School of Business. Mr.
Orkin is a Chartered Financial Analyst.
PURCHASE OF SHARES
SHARES MAY BE PURCHASED DIRECTLY FROM THE DISTRIBUTOR
OR FROM DEALERS WHICH HAVE ENTERED INTO DEALER
AGREEMENTS WITH THE DISTRIBUTOR.
C&O Funds Distributor, Inc. (the "Distributor) is the
principal underwriter of the Fund's shares. Eligible purchases
of Fund shares may be made directly from the Distributor or
from member firms of the NASD that have entered into dealer
agreements with the Distributor, so long as the account
is opened in the name of the investor (i.e., not opened
through an Omnibus account for the benefit of the firm's
clients) and the account satisfies any applicable minimum purchase
requirements below. See "Eligible Purchases of Fund Shares" NASD
firms may charge a reasonable transaction fee for their services.
Such transaction fees can be avoided by investing directly with the
Fund through the Distributor which acts as agent for the Fund.
Investors opening a new account must complete an application
which can be
15
<PAGE>
obtained through the Distributor or a dealer. If the purchase
is made through a dealer, the dealer will supply the Fund with
the required account information. Orders for the purchase of Fund
shares placed directly with the Fund are executed at their next
determined net asset value after receipt of the application form
by the Distributor and receipt by the Fund's Custodian of the
investment. Dealers other than the Distributor have the responsibility
for promptly transferring an investor's application and investment to
the Fund and the Fund's Custodian. Orders for the purchase of Fund
shares placed through a dealer are executed at their next determined
net asset value after receipt by the dealer.
Investors may currently purchase shares of the Fund without a
sales charge; however, the Fund reserves the right, upon sixty
(60) days written notice to shareholders, to impose a sales
load or other conditions on further purchases.
ELIGIBLE PURCHASES OF FUND SHARES. Effective with the close of
business on August 27, 1998, the Fund is generally closed to new
investment. However, shareholders who are invested in the Fund
directly through the Distributor ("Direct Shareholders") may (a)
purchase additional shares of the Fund for their accounts,
subject to a minimum additional investment of $100, (b) reinvest
dividends and capital gains in their accounts, and (c) purchase
Fund shares in another account under the same social security
number subject to the minimum investment that was required when
the Direct Shareholder's initial account was opened.
Additionally, the spouse and children of Direct Shareholders who
share a common address with such Direct Shareholder may purchase
Fund shares directly through the Distributor, subject to the
minimum investment that was required when the Direct
Shareholder's initial account was opened. With certain
exceptions, the minimum investment requirements for accounts
opened on or prior to June 10, 1998 were $10,000 for Regular
Accounts and $2,000 for an Individual Retirement Account ("IRA"),
other tax deferred retirement account or an account established
under the Uniform Gift to Minors Act, and for accounts opened
after June 10, 1998, $100,000 for Regular Accounts and $25,000
for an IRA, other tax deferred retirement account or an account
established under the Uniform Gift to Minors Act.
Notwithstanding the foregoing, persons who requested a Fund
Prospectus on or between June 10, 1998, and August 27, 1998, (as
indicated on the records of the Fund's Distributor) may open a
new account directly with the Fund on or before September 30,
1998, subject to a minimum initial purchase of $100,000 for a
Regular Account or $25,000 for an IRA, other tax deferred
retirement account or an account established under the Uniform
Gift to Minors Act. The subsequent minimum purchase for these
accounts is $100.
Employees of Caldwell & Orkin, Inc. and their spouses and
children, members
16
<PAGE>
of the Fund's Board of Directors and their spouses and children,
and clients of Caldwell & Orkin, Inc. are not subject to any
minimum initial investment requirement and may open new accounts
directly with the Fund regardless of whether they are current
shareholders.
The Fund is closed to both new and additional investment through
Omnibus accounts (which includes discount brokerage accounts).
However, shareholders of the Fund invested through Omnibus
accounts, Financial Advisors that invest their client's assets in
the Fund through Omnibus accounts and qualified defined
contribution retirement plans that invest in the Fund through
Omnibus accounts may reinvest dividends and capital gains using
existing Omnibus accounts. In addition, Caldwell & Orkin, Inc.
may invest assets of its current and future clients in the Fund
through Omnibus accounts.
Notwithstanding the foregoing restrictions, minimum purchase
requirements and exceptions set forth above, the Distributor may
determine, in its sole discretion, to accept or reject any
request to purchase shares of the Fund.
PURCHASING BY MAIL. Complete and sign your application,
make a check payable to the CALDWELL & ORKIN MARKET
OPPORTUNITY FUND and mail to:
CALDWELL & ORKIN MARKET OPPORTUNITY FUND
C/O COUNTRYWIDE FUND SERVICES, INC.
P.O. BOX 5354
CINCINNATI, OHIO 45201-5354
FOR OVERNIGHT DELIVERY:
Caldwell & Orkin Market Opportunity Fund
c/o Countrywide Fund Services, Inc.
312 Walnut Street
21st Floor
Cincinnati, Ohio 45202
(513) 629-2000
PURCHASING BY WIRE. Investors may purchase shares of
the Fund by transmitting Federal Funds by bank wire to
Countrywide Fund Services, Inc. (the "Transfer Agent").
Federal Funds should be wired as follows:
Fifth Third Bank Cincinnati
ABA #042000314
For Caldwell & Orkin FFC Acct. #713-76953
To: (Shareholder Name and Account #)
The funds received by the Transfer Agent will be
forwarded to the Fund's
17
<PAGE>
Custodian. The Fund will not be responsible for delays in
the wiring system. To purchase shares by wiring funds,
payments should be wired to Countrywide Fund Services, Inc.
Instructions for new accounts should include the name, address
and social security number or taxpayer identification
number of each person in whose name the shares are to
be registered and the name of the Fund. The required
application should be forwarded to the Transfer Agent.
Please note that your bank may impose a charge for
providing wire transfer services.
AUTOMATIC INVESTMENT PLAN. An Automatic Investment
Plan is available to shareholders of the Fund who wish
to automatically invest a specific amount of money on a
regular basis after satisfying the initial purchase requirements.
A shareholder may authorize the Transfer Agent to automatically
debit his or her bank account on a monthly basis.
Debits must be made in amounts of $100 or more
and may be made once per month on the 15th or last business day
of the month. If the 15th falls on a weekend or holiday, the
account will be debited on the previous business day. Shareholders
may participate in the Automatic Investment Plan by completing
the appropriate section of the Regular Account Application.
Requests to participate in the Automatic Investment Plan and
inquiries regarding the same should be made to C & O Funds
Distributor, Inc., 2050 Tower Place, 3340 Peachtree Road, Atlanta,
Georgia 30326, telephone (800) 237-7073. All requests to change
or discontinue the Automatic Investment Plan must be received in
writing fifteen (15) days prior to the next scheduled debit date.
REDEMPTION OF SHARES
GENERAL. Shareholders may request redemption of their
shares at any time by mail or telephone as provided below.
In order to discourage short-term trading, shareholders will
be charged a 2% redemption fee upon the redemption of Fund shares
where the redemption occurs within a six-month period following
the issuance of such shares. The redemption fee will be deducted
from redemption proceeds and retained by the Fund for the benefit
of the Fund's remaining shareholders. The redemption fee will not
be paid to the Fund's Manager. No redemption fee will be charged
upon the redemption of shares through Omnibus accounts
of member firms of the NASD. Furthermore, no redemption
fee will be charged upon the redemption of fund shares
acquired through reinvestment of dividends or distributions.
The redemption fee will be imposed on shares purchased on or
after October 1, 1997. In determining whether a redemption fee
is payable and; if so, the amount of such fee, it will be assumed
that shares held the longest period of time by a shareholder are
the first to be redeemed. This redemption fee may be waived,
modified or discontinued at any time or from time to time.
18<PAGE>
Payment will ordinarily be by check and mailed within three (3)
business days of receipt of the proper notice of redemption,
either by mail or telephone. Payment may also be wired to the
shareholder's account if the procedures set forth below are
satisfied. However, wire transfer fees will be subtracted
from the amount of the redemption.
The value of shares redeemed may be more or less
than their original cost, depending on the Fund's then
current net asset value.
REDEMPTION BY MAIL. Shareholders may redeem shares of
the Fund by submitting a written notice to the Transfer Agent.
The written notice must include signatures of all
record owners. If proceeds are to be
sent to an address other than the address of record, wired, or
sent
to another party, the signatures must be guaranteed by
a national bank, a bank that is a member of the Federal
Reserve System, or a member firm of any national or
regional securities exchange. Signature guarantees
cannot be provided by a notary public. Certificates
representing Fund shares being redeemed must be
submitted with the redemption request for it to be
honored.
Shareholders may also request to have the proceeds
wired to a predesignated bank account. You must include
with the written request the bank name, account number,
and wiring instructions. The signatures must be
guaranteed. The Fund may hold payment on the redemption
of shares of the Fund until the check used to purchase
the shares has been cleared for payment by the
shareholder's bank. This process may take up to fifteen
(15) days from the purchase date. If you opened an
account by wire, you cannot redeem shares until your
completed application is received.
REDEMPTION BY TELEPHONE. Shareholders who have elected
to establish telephone redemption privileges (see
Account Application) may redeem shares by calling
Countrywide Fund Services, Inc. (the "Transfer Agent")
at (800) 543-8721 by 4:00 p.m. eastern time on any day
the New York Stock Exchange is open for business.
If an account has more than one owner, the Transfer
Agent may rely on the instructions of any one owner.
Telephone redemption proceeds may be wired only if wiring
instructions are provided on the initial Regular Account
Application, on a Telephone Redemption Privileges form, or
if wiring instructions are provided, signature guaranteed,
at any other time.
Shareholders should be aware that a telephone
redemption may be difficult to implement during periods
of drastic economic or market changes. Should
redeeming shareholders be unable to implement a
telephone redemption during
19
<PAGE>
such periods, or for any other reason, they may give
appropriate notice of redemption by mail. The Transfer
Agent employs reasonable procedures in an effort to confirm
the authenticity of telephone instructions. The Transfer
Agent's records of telephone redemption are binding.
By establishing telephone redemption privileges, you
authorize the Transfer Agent to act upon any telephone
instructions it believes to be genuine (1) to redeem
shares from your account and (2) to mail the redemption
proceeds. By utilizing telephone redemption privileges,
the shareholder has agreed that neither the transfer
agent nor the Fund will be liable for following
instructions communicated by telephone that it
reasonably believes to be genuine. The Fund provides
written confirmation of transactions initiated by
telephone as a procedure designed to confirm that
telephone instructions are genuine. As a result of
this and other procedures, the investor may bear the
risk of any loss in the event of such a transaction.
However, if the Transfer Agent or the Fund fails to
employ this and other established procedures, the
Transfer Agent or the Fund may be liable.
Telephone redemption is not available for shares held
in IRA accounts or if proceeds are to be sent to an
address other than the address of record. Furthermore,
if any shares being redeemed are represented by
certificates, telephone redemption is not available.
The Fund may modify or terminate its telephone
redemption services at any time upon thirty (30) days' written
notice to shareholders.
Shares may also be redeemed through member firms of the
National Association of Securities Dealers, Inc. who
may charge a reasonable transaction fee. Member firms of
the NASD may telephone Countrywide Fund Services,
Inc. at (800) 543-8721 and place redemption orders on
behalf of investors who carry their Fund investments
through the member's account with the Fund.
The Board of Directors may determine, in the event that
it would be detrimental to the remaining shareholders
of the Fund to make payments in cash, that the Fund pay the
redemption price by a distribution of readily
marketable securities. For further details see
"Redemption of Shares" in the Statement of Additional
Information.
Due to the high cost of maintaining smaller accounts of
shareholders who invest directly with the Fund, the Fund reserves
the right to liquidate your account if, as a result of
redemptions or transfers (but not required IRA distributions),
your account's balance falls below the minimum investment that
was required when your account was opened. With certain
exceptions, the minimum investment requirements for accounts
opened on or prior to June 10, 1998 were $10,000 for Regular
Accounts and $2,000 for an IRA, other tax
deferred retirement account or an account established under the
Uniform Gift to Minors Act, and for accounts opened after June
10, 1998, $100,000 for Regular Accounts and $25,000 for an IRA,
other tax deferred retirement account or an account established
under the Uniform Gift to Minors Act.
In such a case, the Fund will notify you that you have sixty (60)
days to make an additional investment to bring the account
balance up to at least the minimum level of investment that was
required when the account was opened. If your account is not
increased to the required level at the end of this sixty-day cure
period then the Fund may, at its discretion, liquidate the
account.
In order to reduce the cost of account turnover to shareholders,
a redemption fee of 2% of the value of the shares to be redeemed
will be imposed on accounts of shareholders who have held their
shares for less than six months. These fees will be retained by
the Fund for the benefit of the remaining shareholders and will
not be paid to the Manager.
20
<PAGE>
TELEPHONE PURCHASES AND REDEMPTIONS FOR SECURITIES FIRMS
The following purchase and redemption telephone
procedures have been established by the Fund for
investors who purchased Fund shares through member firms
of the NASD who have accounts with the Fund for the
benefit of their clients. Such NASD members will be
responsible for crediting the investor's account at the
NASD member with the amount of purchase or redemption.
NASD member firms may charge a reasonable transaction fee
for providing this service. Such fees are established
by each NASD member acting independently from the Fund
and neither the Fund nor the Distributor receives any
part of such fees. Such handling fees may be avoided by
investing directly with the Fund through the
Distributor. Member firms of the NASD may telephone
Countrywide Fund Services, Inc. at (800) 543-8721
and place purchase and redemption orders on behalf of
investors who carry their Fund investments through the
member's account with the Fund.
PURCHASES BY TELEPHONE. Shares shall be purchased at
the next determined net asset value. Payment for shares
purchased through an NASD member firm must be received
from the NASD member firm by the Fund's Custodian by wire no later
than the third business day following the purchase order.
If payment for any purchase order in not received on or
before the third business day, the order is subject to
cancellation by the Fund, and the NASD member firm's
account with the Fund will immediately be charged for any loss.
21
<PAGE>
REDEMPTION BY TELEPHONE. The redemption price is the
net asset value next determined after the receipt of
the redemption request by the Transfer Agent. Shares purchased by
telephone may not be redeemed until after the Fund has
received good payment.
By electing telephone purchase and redemption
privileges, NASD member firms, on behalf of themselves
and their clients, agree that neither the Fund, the
Distributor nor the Transfer Agent shall be liable for
following instructions communicated by telephone and
reasonably believed to be genuine. The Fund and its
agents provide written confirmations of transactions
initiated by telephone as a procedure designed to
confirm that telephone instructions are genuine. In
addition, all telephone transactions with the Transfer Agent
are recorded. As a result of these and other policies, the NASD
member firms may bear the risk of any loss in the event of
such a transaction. However, if the Transfer Agent or the Fund
fails to employ this and other established procedures, the
Transfer Agent or the Fund may be liable. The Fund reserves the
right to modify or terminate these telephone privileges at any
time.
DIVIDENDS, DISTRIBUTIONS, AND TAXES
THE FUND INTENDS TO DISTRIBUTE ALL OF ITS NET
INVESTMENT INCOME AND NET REALIZED LONG AND SHORT-TERM
CAPITAL GAINS TO ITS SHAREHOLDERS AT LEAST ANNUALLY.
DIVIDENDS AND DISTRIBUTIONS. The Fund intends to
distribute all of its net investment income and net
realized long and short-term capital gains to its
shareholders at least annually. Generally, net
investment income dividend payments and capital gains
distributions may be made during December and April of
each year.
Unless specific instructions are noted in the Regular
Account Application or given to the Distributor, all
dividend and capital gain distributions will
automatically be reinvested in additional shares of the
Fund. Shareholders may elect on the application to
receive dividend or capital gain distributions in cash. In both
cases, dividend and capital gain distributions are taxable as
discussed below.
TAXES. Dividends paid by the Fund from its ordinary
income and distributions of the Fund's net realized
short-term capital gains are taxable to non-tax-exempt
investors as ordinary income. Additionally, any capital gains
or losses derived from short sale activity will generally be
considered short-term capital gains or losses for income tax
purposes, regardless of how long the short position was
maintained.
Distributions made from the Fund's net realized long-term capital
gains are taxable to shareholders as long-term capital gains
regardless of how long the shareholder has owned Fund
shares. The Fund will provide its shareholders with a
written notice as to the amounts of any
22<PAGE>
dividends or capital gains distributions no later than
60 days after the close of its taxable year. If you
redeem your Fund shares you will have a short or long-term
capital gain or loss depending upon the amount of time you
owned the shares.
Shareholders are urged to consult their tax advisors as
to the particular tax consequences of the acquisition,
ownership and disposition of shares of the Fund,
including the application of state, local, and foreign
tax laws and possible future changes in federal tax
laws. Foreign investors should consider applicable
foreign taxes in their evaluation of an investment in
the Fund.
THE DISTRIBUTOR
THE DISTRIBUTOR ACTS AS THE AGENT ONCE THE ORDERS ARE
RECEIVED FROM INVESTORS.
The Fund has entered into a Distribution Agreement with
the Distributor. The Distributor acts as the agent once
the orders are received from investors. The
Distributor's main office is located at 2050 Tower
Place, 3340 Peachtree Road, NE, Atlanta, Georgia 30326.
The Distribution Agreement obligates the Distributor to
pay certain expenses in connection with the offering of
the shares of the Fund. After the prospectus, statement
of additional information and periodic reports have been
prepared, and prospectuses and periodic reports have
been mailed to current shareholders, the Distributor
pays for certain expenses of distribution of the Fund's
shares. For further information, see "Distribution
Agreement" in the Statement of Additional Information.
ADDITIONAL INFORMATION
Determination of Net Asset Value. The net asset value
of the Fund's shares is determined once daily as
of 4:00 p.m. (Eastern Standard Time) every day the New
York Stock Exchange is open for trading. The Fund will
also determine its net asset value once daily every day
there is sufficient trading in its portfolio of
securities that the net asset value might be materially
affected.
THE NET ASSET VALUE OF THE FUND'S SHARES IS DETERMINED ONCE
DAILY AT 4 P.M. EVERY DAY THE NEW YORK STOCK EXCHANGE IS
OPEN FOR TRADING.
The price of each holding in the Fund's portfolio is
based on the closing price. However, if a holding did
not trade that day, the last bid price is used for a
value instead. The net asset value per share is
computed by dividing the sum of the value of the
securities held by the Fund plus any cash or other
assets (including interest and dividends accrued but
not yet received) minus all liabilities (including
accrued expenses) by the total number of shares
outstanding at such time, rounded to the nearest cent.
Expenses, including the management fee payable to the
Manager, are accrued daily.
23
<PAGE>
Equity securities listed or traded on a national
securities exchange or quoted on the over-the-counter
market are valued at the last sale price on the day of
valuation or, if no sale is reported, at the last bid
price. Valuations of fixed income securities are
supplied by independent pricing services approved by
the Fund's Board of Directors. Money market securities
with a remaining maturity of sixty (60) days or less are valued
on an amortized cost basis if their original term to
maturity from the date of purchase was sixty (60) days or less,
or by amortizing their value on the 61st day prior to
maturity, if their term to maturity for the date of
purchase exceeded 60 days, unless the Board of
Directors determines that such valuation does not
represent fair value. Other assets and securities for
which market quotations are not readily available are
valued at fair value as determined in good faith by or
under the direction of the Fund's Board of Directors.
DIRECT SHAREHOLDERS RECEIVE QUARTERLY STATEMENTS,
PERFORMANCE SUMMARIES AND TAX INFORMATION.
INVESTMENT ACCOUNT. Each shareholder who purchases shares
directly from C&O Funds Distributor, Inc., has an investment
account and will receive quarterly statements from the
Transfer Agent as well as confirmation statements after
each transaction showing the cumulative activity in the
account since the beginning of the year. After the end
of each year, shareholders will receive Federal income
tax information regarding dividend and capital gain
distributions. Shareholder inquiries should be made to
the Fund at the address on the front of this
Prospectus.
On a semi-annual basis, the Manager will send investors
a report which will include a performance summary,
security positions in the Fund and a letter regarding the
Fund's results.
TRANSFER, REDEMPTION, AND DIVIDEND DISBURSING AGENT.
Countrywide Fund Services, Inc., 312 Walnut Street,
21st Floor, Cincinnati, Ohio 45202, acts as the Transfer,
Redemption, and Disbursing Agent for the Fund. Its
telephone number is (800) 543-8721.
24
<PAGE>
THE FUND
The Fund is a portfolio of The Caldwell & Orkin Funds,
Inc. ("Caldwell & Orkin"), an open-ended, diversified
management investment company incorporated under the
laws of the State of Maryland on August 15, 1989.
Caldwell & Orkin's address is 2050 Tower Place, 3340
Peachtree Road, NE, Atlanta, Georgia 30326, and its
telephone number is (404) 239-0707 or (800) 237-7073.
DESCRIPTION OF SHARES. The Caldwell & Orkin Funds, Inc.
has an authorized capital of 45,000,000 shares of
Common Stock, par value $0.10 per share, 30,000,000 of
which have been classified as shares for the Market
Opportunity Fund. The Board of Directors can authorize
and issue additional classes of stock by classifying or
reclassifying unissued stock without stockholder
approval. If liquidated, each share of Common Stock is
entitled to a pro rata portion of the particular Fund's
assets after payment of debts and expenses.
Shareholders of each Fund are entitled to one vote for
each share held and fractional votes for a fractional
share held on any matter submitted to a
shareholder vote. Caldwell & Orkin does not intend to
hold a meeting of shareholders in any year in which the
Investment Company Act of 1940 does not require
shareholders to act upon one or more of the following
matters: election of Directors, approval of an
investment advisory agreement, approval of a
distribution agreement, or ratification of selection of
independent accountants. Voting rights for Directors
are not cumulative. Shares issued are fully paid and
non-assessable, and have no preemptive or conversion
rights.
INDEMNIFICATION OF OFFICERS AND DIRECTORS. A Director
or Officer of Caldwell & Orkin shall not be liable to
the Fund or its shareholders for monetary damages. See
the Article of Incorporation and Bylaws on file with
the Securities and Exchange Commission for the full
text of these provisions.
25
<PAGE>
BOARD OF DIRECTORS TRANSFER AGENT
Michael B. Orkin, Chairman Countrywide Fund Services, Inc.
H. Eugene Caldwell, Chairman Emeritus 312 Walnut Street
Frederick T. Blumer 21st Floor
David L. Eager Cincinnati, OH 45202
Robert H. Greenblatt
Henry H. Porter
MANAGER INDEPENDENT ACCOUNTANTS
C&O Funds Advisor, Inc. Suite 800 Tait, Weller & Baker
2050 Tower Place Eight Penn Center Plaza
3340 Peachtree Road, NE Philadelphia, PA 19103
Atlanta, GA 30326
DISTRIBUTOR LEGAL COUNSEL
C&O Funds Distributor, Inc. Kilpatrick Stockton LLP
2050 Tower Place 1100 Peachtree Street
3340 Peachtree Road, NE Suite 2800
Atlanta, GA 30326 Atlanta, GA 30309-4530
CUSTODIAN
Bank One Ohio Trust Company, N.A.
235 W. Schrock Road
Westerville, OH 43081
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
August 28, 1998, as supplemented November 16, 1998
MARKET OPPORTUNITY FUND
OF
THE CALDWELL & ORKIN FUNDS, INC.
2050 Tower Place
3340 Peachtree Road, NE
Atlanta, Georgia 30326
Telephone No. (404) 239-0707
(800) 237-7073
_______________
The Caldwell & Orkin Market Opportunity Fund (the "Fund") is a
portfolio of the Caldwell & Orkin Funds, Inc. ("Caldwell & Orkin"), an
open-end diversified management investment company. The Fund's objective
is to provide long-term capital growth with a short-term focus on capital
preservation through investment selection and asset allocation.
This Statement of Additional Information of Caldwell & Orkin is
not a prospectus and should be read in conjunction with the Fund's
Prospectus, dated August 28, 1998, as supplemented by the Prospectus
Supplement dated November 16, 1998 (the "Prospectus"), which has been
filed with the Securities and Exchange Commission and can be obtained,
without charge, by calling or by writing Caldwell & Orkin at the above
telephone number or address. This Statement of Additional Information
has been incorporated by reference into the Prospectus.
_______________
C & O FUNDS ADVISOR, INC. - MANAGER
B-1
<PAGE>
TABLE OF CONTENTS
Page
THE FUND . . . . . . . . . . . . . . . . . . . . . . . . . . B-3
INVESTMENT OBJECTIVES, POLICIES AND RISK CONSIDERATIONS B-3
Investments in Short Sales of Securities . . . . . . B-4
Investments in Foreign Securities . . . . . . . . . . B-5
Lending of Portfolio Securities . . . . . . . . . . . B-6
Repurchase Agreements . . . . . . . . . . . . . . . . B-6
INVESTMENT RESTRICTIONS . . . . . . . . . . . . . . . . . . B-7
MANAGEMENT OF THE FUND . . . . . . . . . . . . . . . . . . B-9
Board of Directors . . . . . . . . . . . . . . . . . B-9
Officers . . . . . . . . . . . . . . . . . . . . . . B-10
Directors . . . . . . . . . . . . . . . . . . . . . . B-11
Management and Advisory Arrangements . . . . . . . . B-11
PORTFOLIO TRANSACTIONS AND BROKERAGE ALLOCATION . . . . . . B-13
DETERMINATION OF NET ASSET VALUE . . . . . . . . . . . . . B-15
PURCHASE OF SHARES . . . . . . . . . . . . . . . . . . . . B-15
Purchase by Exchange of Securities . . . . . . . . . .B-15
THE DISTRIBUTOR . . . . . . . . . . . . . . . . . . . . . . B-16
REDEMPTION OF SHARES . . . . . . . . . . . . . . . . . . . B-17
SHAREHOLDER SERVICES . . . . . . . . . . . . . . . . . . . B-17
Investment Account . . . . . . . . . . . . . . . . . B-18
Reinvestment of Dividends and Capital Gains
Distribution . . . . . . . . . . . . . . . . . . . B-18
DIVIDENDS, DISTRIBUTIONS AND TAXES . . . . . . . . . . . . B-18
Dividends and Distributions . . . . . . . . . . . . . B-18
Taxes . . . . . . . . . . . . . . . . . . . . . . . . .B-18
PERFORMANCE INFORMATION . . . . . . . . . . . . . . . . . . B-20
GENERAL INFORMATION . . . . . . . . . . . . . . . . . . . . B-22
Description of Shares . . . . . . . . . . . . . . . . B-22
Principal Shareholders . . . . . . . . . . . . . . . B-23
Independent Auditors . . . . . . . . . . . . . . . . B-23
Custodian . . . . . . . . . . . . . . . . . . . . . . B-24
Transfer, Redemption, and Dividend Disbursing Agent . B-24
Legal Counsel . . . . . . . . . . . . . . . . . . . . B-24
Reports to Shareholders . . . . . . . . . . . . . . . B-24
Additional Information . . . . . . . . . . . . . . . B-24
Financial Statements and Independent Auditors' Report B-24
B-2
<PAGE>
THE FUND
The Fund is the only series of The Caldwell & Orkin Funds,
Inc. ("Caldwell & Orkin"), an open-end, diversified management
investment company incorporated under the laws of the State of
Maryland on August 15, 1989. Prior to June, 1992, Caldwell &
Orkin's name was The OTC Select-100 Fund, Inc. and consisted of
only one portfolio (The "OTC Select-100 Fund"). The shareholders
of The OTC Select-100 Fund subsequently approved changing the
corporate name from The OTC Select-100 Fund, Inc. to The Caldwell
& Orkin Funds, Inc. and to amend the investment objective and
policies of The OTC Select-100 Fund. As a result of such
amendment, The OTC Select-100 Fund was renamed and its assets and
objectives were those of the Caldwell & Orkin Aggressive Growth
Fund. In August, 1996, the Board of Directors of Caldwell &
Orkin approved changing the name of the Aggressive Growth Fund to
the Caldwell & Orkin Market Opportunity Fund.
Caldwell & Orkin's address is: 2050 Tower Place, 3340
Peachtree Road, NE, Atlanta, Georgia 30326, and its telephone
number is (404) 239-0707 or (800) 237-7073.
INVESTMENT OBJECTIVES, POLICIES AND RISK CONSIDERATIONS
Reference is made to "Investment Objectives and Policies" in
the Prospectus for a discussion of the investment objectives and
policies of the Fund. Set forth below is certain further
information relating to the Fund generally.
B-3
<PAGE>
INVESTMENTS IN SHORT SALES OF SECURITIES. The Fund may seek
to hedge investments or realize additional gains through short
sales. The Fund may make short sales, which 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 make
delivery to the buyer. The Fund is then obliged to replace the
security borrowed by purchasing it at the market price at or
prior to the time of replacement. The price at such time may be
more or less than the price at which the security was sold by the
Fund. Until the security is replaced, the Fund is required to
pay the lender any dividends or interest that accrue during the
period of the loan. To borrow the security, the Fund may also be
required to pay a premium, which would increase the cost of the
security sold. The net proceeds of the short sale will be
retained by the broker, to the extent necessary to meet margin
requirements, until the short position is closed out. The Fund
also will incur transaction costs in effecting short sales.
The Fund will incur a loss as a result of the short sale if
the 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 price between those dates. The amount of any gain will be
decreased, and the amount of any loss increased by the amount of
the premium, dividends, interest or expenses the Fund may be
required to pay in connection with a short sale.
No securities will be sold short if, after effect is given
to any such sale, the total market value of all securities sold
short would exceed 60% of the Fund's net assets. The Fund
similarly will limit its short sales of securities of any single
issuer if the market value of the securities that have been sold
short by the Fund would exceed two percent (2%) of the value of
the Fund's net assets or if such securities would constitute more
than two percent (2%) of any class of the issuer's securities.
On the Fund's internal books or in a segregated account at the
Fund's Custodian (or a combination of both), the Fund will segregate
liquid assets (such as cash, U.S. Government securities, or equity
securities) in an amount sufficient to cover the current value of
the securities to be replaced as well as any dividends, interest
and/or transaction costs due to the broker upon completion of any
short sale transactions. In determining the amount to be segregated,
the securities that have been sold short by the Fund are marked to
market daily. To the extent the market price of the security increases
and more assets are required to meet the Fund's short sale obligations,
additional assets will be segregated to ensure adequate coverage of
the Fund's short position obligations.
In addition, the Fund may make short sales "against the box"
i.e., when the Fund sells a security short when the Fund has segregated
securities equivalent in kind and amount to the securities sold short
(or securities convertible or exchangeable into such securities) and
B-4
<PAGE>
will hold such securities while the short sale is outstanding. The
Fund will incur transaction costs, including interest, in connection
with opening, maintaining, and closing short sales against the box.
The Fund may only engage in short sale transactions in
securities listed on one or more national securities exchanges or
on NASDAQ.
INVESTMENTS IN FOREIGN SECURITIES. The Manager may invest
up to 25% of the Fund's assets in equity securities that are
issued by foreign issuers and are traded in the United States and
in American Depository Receipt of foreign companies. By doing
so, the Manager attempts to take advantage of differences between
economic trends and the performance of securities markets in
various countries. The Manager believes that it may be possible
to obtain significant appreciation from a portfolio consisting,
in part, of foreign investments and also achieve increased
diversification. Increased diversification is gained by
combining securities from various countries that offer different
investment opportunities and are affected by different economic
trends.
Generally, investments in securities of foreign companies,
except Canadian companies, involve greater risks than are present
in domestic investments. Canadian securities are not considered
by the Manager to have the same risks as other nations'
securities because Canadian and U.S. companies are generally
subject to similar auditing and accounting procedures and similar
governmental supervision and regulation. Also, Canadian
securities are normally more liquid than other non-U.S.
securities. Compared to U.S. and Canadian companies, there is
generally less publicly available information about foreign
companies and there may be less governmental regulation and
supervision of foreign stock exchanges, brokers and listed
companies.
In addition, investing in foreign securities also involves
the following considerations comprising both risks and
opportunities not typically associated with investing in U.S.
securities: fluctuations in exchange rates of foreign
currencies; possible imposition of exchange control regulation or
currency restrictions that would prevent cash from being brought
back to the U.S.; lack of uniform accounting, auditing, and
financial reporting standards; lack of uniform settlement periods
and trading practices; less liquidity and frequently greater
price volatility in foreign markets than in the U.S.; possible
expropriation or nationalization of assets; and possible
imposition of foreign taxes. Furthermore, the U.S. government
has from time to time in the past imposed restrictions, through
taxation and otherwise, on foreign investments by U.S. investors
such as the Fund.
To the extent portfolio securities are denominated in
foreign currencies, the value of the assets of the Fund as
measured in U.S. dollars may be affected favorably or unfavorably
by changes in foreign currency exchange rates and exchange
control regulations. Although the Fund values its assets daily
in terms of U.S. dollars, it does not intend to convert its
holdings of foreign securities into U.S. dollars on a daily
basis.
B-5
<PAGE>
LENDING OF PORTFOLIO SECURITIES. In order to generate
additional income, the Fund reserves authority to lend securities
from its portfolio to brokers, dealers and financial institutions
such as banks and trust companies and receive collateral in cash
or securities issued or guaranteed by the U.S. Government which
will be maintained in an amount equal to at least 100% of the
current market value of the loaned securities. The Fund may
experience a loss or delay in the recovery of securities if the
institution with which its has engaged in a portfolio loan
transaction breaches the agreement with the Fund. Income from
such lending will be invested in short-term cash equivalent
securities, which will increase the current income of the Fund.
Such loans will not be for more than 30 days and will be
terminable at any time. The Fund will have the right to regain
record ownership of loaned securities to exercise beneficial
rights such as rights to interest or other distributions. The
Fund may pay reasonable fees to persons unaffiliated with the
Fund for services in arranging such loans. With respect to
lending of portfolio securities, there is the risk of failure by
the borrower to return the securities involved in such
transactions, in which event the Fund may incur a loss. If the
Manager determines to make securities loans, the value of the
securities loaned would not exceed one third of the value of the
total assets of the Funds. The Fund does not presently intend to
lend its portfolio securities during the coming year.
REPURCHASE AGREEMENTS. The Fund may enter into repurchase
agreements with "primary dealers" in U.S. government securities
and member banks of the Federal Reserve System which furnish
collateral at least equal in value or market price to the amount
of their repurchase obligation. In a repurchase agreement, the
Fund purchases a security from a seller which undertakes to
repurchase the security at a specified resale price on an agreed
future date (ordinarily a week or less). The resale price
generally exceeds the purchase price by an amount which reflects
an agreed-upon market interest rate for the term of the
repurchase agreement. The principal risk is that, if the seller
defaults, the Fund might suffer a loss to the extent that the
proceeds from the sale of the underlying securities and other
collateral held by the Fund in connection with the related
repurchase agreement are less than the repurchase price.
Repurchase agreements maturing in more than seven days are
considered by the Fund to be illiquid.
INVESTMENT RESTRICTIONS
Caldwell & Orkin has adopted the following restrictions and
policies relating to the investment of its assets and its
activities, which are fundamental policies and may not be changed
without the approval of the holders of a majority of the Fund's
outstanding voting securities (which for this purpose and under
the Investment Company Act of 1940 means the lesser of (i) 67% of
the shares represented at a meeting at which more than 50% of the
outstanding shares are represented or (ii) more than 50% of the
outstanding shares).
Any investment restriction which involves a maximum
percentage of securities or assets shall not be considered to be
violated unless an excess over the percentage occurs immediately
B-6
<PAGE>
after, and is caused by, an acquisition of securities or assets
of, or borrowings by, the Fund.
The Market Opportunity Fund may not:
1. As to 75% of its total assets, purchase securities of any one
issuer, other than those issued or guaranteed by the United
States government, its agencies or instrumentalities, if
immediately after such purchase more than 5% of the Market
Opportunity Fund's total assets would be invested in
securities of such issuer or the Market Opportunity Fund
would own 10% or more of the outstanding voting securities
of such issuer.
2. Invest 25% or more of its total assets in the
securities of issuers in any particular industry.
3. The Fund may not issue senior securities, except as
permitted under the Investment Company Act of 1940.
4. Make investments for the purpose of exercising control
or management.
5. Purchase securities of other investment companies,
except in connection with a merger, consolidation,
acquisition or reorganization.
6. Purchase or sell real estate or interests in real
estate, including real estate limited partnerships;
provided that the Market Opportunity Fund may invest in
securities secured by real estate or interests therein
or issued by companies, including real estate
investment trusts, which invest in real estate or
interests therein.
7. Purchase or sell commodities or commodity contracts,
including future contracts.
8. Purchase any securities on margin, except that the
Market Opportunity Fund may obtain such short-term
credit as may be necessary for the clearance of
purchases and sales of portfolio securities.
9. Make loans to other persons; provided that the Market
Opportunity Fund may lend its portfolio securities, and
provided further that, for purposes of this
restriction, investment in Government obligations,
short-term commercial paper rated at least "A-2" by
Standard & Poor's Corporation or "Prime-2" by Moody's
Investors Service, Inc., certificates of deposit,
bankers' acceptances and repurchase agreements shall
not be deemed to be the making of a loan.
10. Borrow amounts in excess of 5% of its total assets,
taken at market value, and then only from banks as a
temporary measure for extraordinary or emergency
purposes such as the redemption of fund shares.
11. Mortgage, pledge, hypothecate or in any manner
transfer, as security for indebtedness, any securities
owned or held by the Market Opportunity Fund except as
may be necessary in connection with borrowings
B-7<PAGE>
mentioned in (10) above, and then such mortgaging,
pledging or hypothecating may not exceed 10% of the
Market Opportunity Fund's total assets, taken at market
value.
12. Invest more than 5% of the Market Opportunity Fund's
total assets in securities for which there are legal or
contractual restrictions on resale, securities which
are not readily marketable, securities of foreign
issuers which are not listed on a recognized domestic
or foreign securities exchange, or other illiquid
securities.
13. Underwrite securities of other issuers except insofar
as the Funds may be deemed an underwriter under the
Securities Act of 1933 in selling portfolio securities.
14. Write, purchase or sell puts, calls or combinations
thereof.
Additional investment restrictions adopted by the Directors
of the Market Opportunity Fund which may be changed by the
Directors at their discretion, provide that the Market
Opportunity Fund may not:
15. Purchase or sell interests in oil, gas or other mineral
exploration or development programs or leases. The
Market Opportunity Fund may, however, purchase or sell
securities of entities which invest in such programs.
16. Invest more than 5% of the value of its total assets in
marketable warrants to purchase common stock valued at
the lower of cost or market. Included within that
amount, but not to exceed 2% of the value of the Market
Opportunity Fund's net assets, may be warrants which
are not listed on the New York or American Stock
Exchanges. Warrants acquired by the Market Opportunity
Fund as part of a unit or attached to securities may be
deemed to be without value.
17. Engage in arbitrage transactions.
B-8
<PAGE>
MANAGEMENT OF THE FUND
Reference is made to "Management of the Fund" in the
Prospectus. Set forth below is further information about the
Funds' management.
BOARD OF DIRECTORS
Listed below are the Directors of Caldwell & Orkin with
their principal occupations during the past five years. The
Directors of Caldwell & Orkin are responsible for the overall
supervision of the operations of the Fund. The Directors
perform the various duties imposed on the directors of investment
companies by the Investment Company Act of 1940, as amended (the
"Act"), and also have the responsibilities imposed generally on
directors of business corporations by General Corporation Law of
Maryland. Each Director whose name is followed by an asterisk is
an interested person of the Funds within the meaning of the Act.
H. EUGENE CALDWELL, DIRECTOR AND CHAIRMAN EMERITUS*
Gene Caldwell is 74 years old. He is the Chairman Emeritus
of C&O Funds Advisor, Inc., has been a Director of the Fund since
its inception, and was a co-founder of the Fund. Previously, Mr. Caldwell
was Senior Vice President and Partner of Oppenheimer Capital Corporation
from 1977-1986, and prior to that was the founder and Chairman of Montag
& Caldwell. Mr. Caldwell is a Chartered Investment Counselor.
Mr. Caldwell's address is P.O. Box 53216, Atlanta, Georgia 30355.
MICHAEL B. ORKIN, DIRECTOR, PRESIDENT, AND CHAIRMAN (See
information below.)*
FREDERICK T. BLUMER, DIRECTOR
Mr. Blumer is 39 years old and resides in Atlanta, Georgia.
He is the President of Blumer International, P.C. a law firm
specializing in corporate and international law. Prior to moving
to Atlanta, Mr. Blumer was a foreign legal Consultant with the
Oh-Ebashi Law Office in Osaka, Japan from 1985-1987. Before the
formation of Blumer International, P. C., Mr. Blumer practiced
law with the Atlanta law firm of Hurt, Richardson, Garner, Todd
and Cadenhead. He serves as corporate legal counsel and advisor
for both U.S. and foreign corporations. He speaks Japanese and
French. Mr. Blumer's address is Overlook I, Suite 380, 2849
Paces Ferry Road, Atlanta, Georgia 30339.
B-9
<PAGE>
DAVID L. EAGER, DIRECTOR
David Eager, who is 56 years old, has been President and
Managing Director of Eager & Associates since July 1, 1984.
Eager &
Associates is a management and marketing consulting firm located
in Louisville, Kentucky. In addition to managing the firm, Mr.
Eager consults on marketing strategies and product development.
Mr. Eager's address is 25 Stone Bridge, Louisville, Kentucky 40207.
ROBERT H. GREENBLATT, DIRECTOR
Robert Greenblatt, who is 37 years old, has been an officer,
director and principal of Polaris Capital Management since
January, 1995. Polaris Capital Management is an investment
management firm specializing in tactical asset allocation. Mr.
Greenblatt was formerly Vice-President of Bankers Trust Global
Investment Management in New York. Mr. Greenblatt's address is
Polaris Capital Management, Inc., 317 Madison Avenue, Suite 1124,
New York, New York 10017.
HENRY H. PORTER, JR., DIRECTOR
Henry Porter, who is 63 years old, is a private investor.
He is a director of SEI Corporation, and is an officer and director
of several other private corporations. Mr. Porter's address is
5806 River Knolls Drive, Louisville, Kentucky 40222.
OFFICERS
The principal executive officers of Caldwell & Orkin and
their principal occupations for at least the past five years are
set forth below. Unless otherwise noted, the address of each
executive officer is 2050 Tower Place, 3340 Peachtree Road,
Atlanta, Georgia 30326. No officer of the Fund was paid a salary
or other compensation by the Fund.
H. EUGENE CALDWELL - Chairman Emeritus* - Gene Caldwell is
74 years old. He is the Chairman Emeritus of C&O Funds Advisor,
Inc., has been a Director of the Fund since its inception, and
was a co-founder of the Fund. Previously, Mr. Caldwell was Senior
Vice President and Partner of Oppenheimer Capital Corporation from
1977-1986, and prior to that was Founder and Chairman of Montag
& Caldwell. Mr. Caldwell is a Chartered Investment Counselor.
Mr. Caldwell's address is P.O. Box 53216, Atlanta, Georgia 30355.
MICHAEL B. ORKIN - President* - Michael Orkin is 39 years
old. Mr. Orkin is the President and sole shareholder of Caldwell
& Orkin, Inc. where he has been a portfolio manager since 1985.
He is President, Chief Executive Officer and Chairman of the
Investment Policy Committee. Prior to his current position, he
was an assistant portfolio manager with Pacific Equity
Management, as well as an analyst for both Oppenheimer Capital
Corporation and Ned Davis Research. Mr. Orkin is a Chartered
Financial Analyst and a Chartered Investment Counselor.
DANIEL K. BORDEN - Secretary* - Dan Borden is 39 years
old. Mr. Borden was the Controller for Caldwell &
Orkin, Inc. from July 1997 until July 1998, and has been
Operations and Administrative Manager for Caldwell & Orkin, Inc.
since July 1998. He is also the Secretary of Caldwell & Orkin,
Inc., C&O Funds Advisor, Inc. and C&O Funds Distributor, Inc.
Prior to his current positions, Mr. Borden was a Senior
Financial Analyst for Riverwood International from January 1995
to July 1997, and an Independent Consultant from June 1993 to
January 1995.
B-10
<PAGE>
RONALD E.BEDWELL - Treasurer* - Mr. Bedwell is 32 years old. Mr.
Bedwell has been the Controller of Caldwell & Orkin, Inc. since July
1998. Mr. Bedwell is also Treasurer of Caldwell & Orkin, Inc.,
C&O Funds Advisor, Inc. and C&O Funds Distributor, Inc. From
1997 until 1998, Mr. Bedwell was a senior accountant at Tait,
Weller & Baker in charge of the Caldwell & Orkin group. From
1996 until 1997, Mr. Bedwell was an accounting supervisor in charge of
thirty-six domestic and international mutual funds for FPS Services, Inc.
Prior to his work at FPS Services, Mr. Bedwell worked for PFPC, Inc.
where he began as a mutual fund acountant in 1993 and later
served as the investment accounting supervisor for nineteen mutual
funds.
_______________________
* Interested person of Caldwell & Orkin, as defined by the
Investment Company Act of 1940.
DIRECTORS
The Fund pays each Director who is not affiliated with the
Manager an annual fee of $7,500 per year plus $250 per meeting
attended, together with such directors' actual out-of-pocket
expenses relating to attendance at meetings. The $7,500 annual
fee is payable in four equal quarterly installments and is paid
as of the date of each quarterly Board meeting. During fiscal
year 1998, all of the directors except for Mr. Henry Porter received
$8,250. Mr. Porter received $8,000 during fiscal year 1998.
Effective June 1997, the Board of Directors agreed to
receive their compensation entirely in shares of the Fund.
Accordingly, each Director receives shares of the Fund with a
value equal to the cash compensation they would have otherwise
received. For example, if a Director is to receive $2,125
per meeting attended, he receives $2,125.00 in shares of the
Fund, with the net asset value of such shares being that which is
next determined after the Board meeting is adjourned. Although
Directors would be subject to the 2% redemption fee if they
redeem within six months, there are no other restrictions as to
their ability to redeem or otherwise dispose of the shares.
Alternatively, Directors who elect to receive their
compensation in cash have committed to promptly purchase shares
of the Fund for the amount of such compensation at the next
determined net asset value after their order is received.
MANAGEMENT AND ADVISORY ARRANGEMENTS
Reference is made to "Management of the Fund--Management
Arrangement" in the Prospectus for certain information concerning
the management and advisory arrangements of the Fund.
Securities held by the Fund may also be held by other
clients of the Manager or its sole shareholder, Caldwell &
Orkin, Inc. ("C&O"). Securities may be held by or be appropriate
investments for the Fund as well as other clients of the Manager
or C&O. Because of different objectives or other factors, a
particular security may be bought for one or more clients when
one or more clients are selling the same security. If purchases
or sales of securities for the Funds or for its advisory clients
arise for consideration at or about the same time, transactions
in such securities will be made, insofar as feasible, for the
respective clients in a manner deemed equitable to all. To the
extent that transactions on behalf of more than one client of the
Manager or C&O during the same period may increase the demand for
securities being purchased or the supply of securities being
sold, there may be an adverse effect on price.
The principal executive officers of the Manager are H.
Eugene Caldwell - Chairman Emeritus, Michael B. Orkin -
President, Daniel K. Borden, Secretary, and Ronald E. Bedwell,
Treasurer. Mr. Orkin is the sole shareholder of C&O, of which
the Manager is a wholly-owned subsidiary.
B-11
<PAGE>
MANAGEMENT FEE. The Fund has entered into a Management
Agreement with the Manager. As discussed in the Prospectus, the
Manager shall receive monthly compensation at annual rates which
vary according to the total assets of the Fund.
On an annual basis, the advisory fee is equal to the following
for the Fund:
0.90% of average daily net assets up to $100 million; 0.80%
of average daily net assets in excess of $100 million but
not more than $200 million; 0.70% of average daily net
assets in excess of $200 million but not more than $300
million; 0.60% of average daily net assets in excess of $300
million but not more than $500 million; .50% in excess of
$500 million.
Certain of the states in which the shares of the Fund may be
qualified for sale impose limitations on the operating expenses
of registered investment companies. The Management Agreement
provides that the Manager will reimburse the Fund to the extent
necessary to satisfy the most restrictive expense ratio permitted
by any state in which the Fund's shares are qualified for sale.
The Manager has agreed that, if no such state limitations are
applicable, it will reimburse the Fund monthly to the extent
necessary to prevent its annual ordinary operating expenses
(excluding taxes, brokerage commissions and extraordinary charges
such as litigation costs) from exceeding 2.0% of the Fund's
average net assets.
For the years ended April 30, 1998, 1997 and 1996, the Fund
paid $975,437, $369,177 and $296,800, respectively, to the
Manager pursuant to its Management Agreement.
PAYMENT OF EXPENSES. The Management Agreement obligates the
Manager to provide management and investment advisory services
and to pay all compensation of and furnish office space for
Officers and employees of the Fund connected with investment and
economic research, trading and investment management of the Fund,
as well as the fees of all Directors for the Fund who are
affiliated persons of the Manager. (The Fund pays all other
expenses incurred in the operation of the Fund, including, among
other things, taxes, expenses for legal and auditing services,
costs of printing proxies, stock certificates, shareholder
reports, prospectuses and statements of additional information
(except to the extent paid by the Distributor), charges of the
custodian and transfer agent, expenses of redemption of shares,
Securities and Exchange Commission fees, expenses of registering
the shares under Federal and state securities laws, fees and
expenses of unaffiliated Directors, accounting and pricing costs
(including the daily calculation of net asset value), insurance,
interest, brokerage costs, litigation and other extraordinary or
non-recurring expenses, and other expenses properly payable by
the Fund. Accounting and pricing services are provided to the
Fund by the Transfer Agent and the Fund reimburses the
Transfer Agent for its costs in connection with
such services. As required by the Distribution Agreement, the
Distributor will pay the promotional expenses of the Fund
incurred
in connection with the offering of shares of the Fund.
In addition to the Management Agreement with the Manager,
B-12<PAGE>
Caldwell & Orkin has entered into an agreement with C&O pursuant
to which C&O has granted to Caldwell & Orkin and the Fund the
right to use the name "Caldwell & Orkin" in their name. C&O has
reserved the right, however, upon 30 days written notice, to
terminate the right to such use should the Manager no longer
serve as Manager to the Fund or should the Management Agreement
be terminated. Under those circumstances, C&O has also reserved
the right to grant the right to use the name "Caldwell & Orkin"
to another investment company, business or other enterprise.
DURATION AND TERMINATION. Unless earlier terminated as
described above, the Management Agreement will remain in effect
from year to year if approved annually (a) by the Board of
Directors of the Fund or by a majority of the outstanding shares
of the Fund and (b) by a majority of the Directors who are not
parties to such contract or interested persons (as defined in the
Investment Company Act of 1940) of any such party. Such contract
terminates automatically upon assignment and may be terminated
without penalty on 60 days written notice at the option of either
party thereto or by the vote of the shareholders of the Fund.
PORTFOLIO TRANSACTIONS AND BROKERAGE ALLOCATION
Subject to policy established by the Board of Directors of
the Fund, the Manager is responsible for the Fund's portfolio
decisions, the placing of the Fund's portfolio transactions and
the negotiation of the commissions to be paid on such
transactions. In executing such transactions, the Manager will
use its best efforts to obtain the execution of portfolio
transactions at prices which are advantageous to the Fund and
involving commission rates which are reasonable in relation to
the value of the transaction.
The Fund has no obligation to deal with any broker or dealer
in the execution of transactions for its portfolio securities.
The Manager will select brokers or dealers taking into account
such factors as price (including the commission or spread), size
of order, difficulty of execution and operational facilities of
the firm involved and the firm's risk in positioning a block of
securities. The Manager will also consider the research services
which the broker or dealer has provided to the Manager relating
to the security involved in the transaction and/or to other
securities. Consistent with the Rules of Fair Practice of the
NASD and such other policies as the Board of Directors may
determine, the Fund may consider sales of shares of the Fund as a
factor in the selection of brokers or dealers to execute
portfolio transactions for the Fund.
Under Section 28(e) of the Securities Exchange Act of 1934
and its Management Agreement with the Fund, the Manager is
authorized to pay a brokerage commission in excess of that which
another broker might have charged for effecting the same
transaction, in recognition of the value of brokerage and/or
research services provided by the broker. These research and
investment information services make available to the Manager for
its analysis and consideration the views and information of
individuals and research staffs of other securities firms. These
services may be useful to the Manager in connection with advisory
clients other than the Fund and not all such services may be
useful to the Manager in connection with the Fund. Although such
information may be a useful supplement to the Manager's own
investment information in rendering services to the Fund, the
value of such research and services is not expected to reduce
B-13<PAGE>
materially the expenses of the Manager in the performance of its
services under the Management Agreement and will not reduce the
management fees payable to the Manager by the Fund.
The Fund may invest in securities traded in the over-the-
counter market. Transactions in the over-the-counter market are
generally principal transactions with dealers and the costs of
such transactions involve dealer spreads rather than brokerage
commissions. The Fund, where possible, deals directly with the
dealers who make a market in the securities involved except in
those circumstances where better prices and execution are
available elsewhere. When a transaction involves exchange listed
securities, the Manager considers the advisability of effecting
the transaction with a broker which is not a member of the
securities exchange on which the security to be purchased is
listed (i.e., a third market transaction) or effecting the
transaction in the institutional or fourth market.
For the years ended April 30, 1998, 1997 and 1996, the Fund
paid $928,228, $295,564 and $181,928, respectively, in brokerage
commissions.
B-14
<PAGE>
DETERMINATION OF NET ASSET VALUE
The net asset value of the shares of the Fund is determined
as of 4:00 P.M. on each day during which The New York Stock
Exchange is open for trading. The New York Stock Exchange is not
open on New Year's Day, Martin Luther King, Jr. Day,
Presidents' Day, Good Friday, Memorial Day, Independence Day,
Labor Day, Thanksgiving Day and Christmas Day.
The Fund will also determine its net asset value once daily
on each day (other than a day during which no shares were
tendered for redemption and no order to purchase or sell shares
was received by the Fund) in which there is sufficient trading in
its portfolio securities that the net asset value might be
materially affected. The net asset value per share is computed
by dividing the sum of the value of the securities held by the
Fund plus any cash or other assets (including interest and
dividends accrued but not yet received) minus all liabilities
(including accrued expenses) by the total number of shares
outstanding at such time, rounded to the nearest cent. Expenses,
including the management fee payable to the Manager, are accrued
daily.
Equity securities listed or traded on a national securities
exchange or quoted on the over-the-counter market are valued at
the last sale price on the day the valuation is made or, if no
sale is reported, at the last bid price. Valuations of fixed
income securities are supplied by independent pricing services
approved by Caldwell & Orkin's Board of Directors. Money market
securities with a remaining maturity of 60 days or less are
valued on an amortized cost basis if their original term to
maturity from the date of purchase was 60 days or less, or by
amortizing their value on the 61st day prior to maturity, if
their term to maturity from the date of purchase exceeded 60
days, unless the Board of Directors determines that such
valuation does not represent fair value. Other assets and
securities for which market quotations are not readily available
are valued at fair value as determined in good faith by or under
the direction of Caldwell & Orkin's Board of Directors.
PURCHASE OF SHARES
Reference is made to "Purchase of Shares" in the Prospectus.
Set forth below is further information about the purchase of
shares of the Fund.
PURCHASE BY EXCHANGE OF SECURITIES. The Board of Directors
of Caldwell & Orkin has determined that it is in the best
interest of the Fund to offer its shares, in lieu of cash
payment, for securities approved by the Manager to be purchased
by the Fund. This will enable an investor to purchase shares of
the Fund by exchanging securities owned by the investor for
shares of the Fund. The Directors believe that such a
transaction can benefit the Fund by allowing it to acquire
securities for its portfolio without paying brokerage
commissions. For the same reason, the transaction may also be
beneficial to investors. Securities will be exchanged for shares
of any of the Funds all in the absolute discretion of the
Manager. Cash equivalent securities may be contributed to the
Fund in accordance with the wishes of the investor and the
consent of the Manager. The exchange of securities in an
investor's portfolio for shares of any of the Funds is treated
for federal income tax purposes as a sale of such securities and
B-15<PAGE>
the investor may, therefore, realize a taxable gain or loss.
The Fund shall not enter into such transactions, however,
unless the securities to be exchanged for Fund shares are
securities whose values are readily ascertainable and are readily
marketable, comply with the investment policies of the Fund, are
of the type and quality which would normally be purchased for the
Fund's portfolio, are securities which the Fund would otherwise
purchase, and are acquired for investment and not for immediate
resale. The value of the Fund's shares used to purchase
portfolio securities as stated herein will be determined at such
time as the Fund next determines its net asset value. Such
securities will be valued in accordance with the same procedure
used in valuing the Fund's portfolio securities. (See
"Determination of Net Asset Value.") If you wish to acquire the
Fund's shares in exchange for securities you should contact C & O
Funds Distributor, Inc. at the address or telephone number shown
on the cover page of the Prospectus. The Board of Directors of
Caldwell & Orkin reserves the right to terminate this privilege
at any time.
THE DISTRIBUTOR
Reference is made to "The Distributor" in the Prospectus.
Set forth below is further information about the Distributor and
the Fund's Distribution Agreement.
The Fund has entered into Distribution Agreement with C & O
Funds Distributor, Inc. (the "Distributor"). The Agreement
obligates the Distributor to pay certain expenses in connection
with the offering of the shares of the Fund. After the
prospectus, statement of additional information and periodic
reports have been prepared, and prospectuses and periodic reports
have been mailed to current shareholders, the Distributor
pays for the printing and distribution of copies
thereof used in connection with the offering to dealers and
prospective investors. The Distributor also pays for other
supplementary sales literature and advertising costs.
The Distribution Agreement will remain in effect from year
to year but only so long as such continuance is approved at least
annually by a vote of the Directors of Caldwell & Orkin or by
vote of a majority of the outstanding voting securities of the
Fund and of the Directors who, except for their positions as
Directors of Caldwell & Orkin, are not "interested persons" of
Caldwell & Orkin (as defined in the Investment Company Act). In
addition, either party may terminate the Agreement upon 60 days
written notice and they terminate automatically if "assigned" (as
defined in the Investment Company Act). The Distribution
Agreement is subject to the same renewal requirements and
termination provisions as the Management Agreement described
under "Management of the Fund - Management Arrangement."
REDEMPTION OF SHARES
Reference is made to "Redemption of Shares" in the
Prospectus for certain information as to the redemption of shares
of the Fund.
B-16<PAGE>
The right to redeem shares or to receive payment with
respect to any such redemptions may be suspended for more than
seven days only for periods during which trading on the New York
Stock Exchange is restricted as determined by the Securities and
Exchange Commission or such Exchange is closed (other than
customary weekend and holiday closings), or any period during
which an emergency exists, as defined by the Securities and
Exchange Commission, as a result of which disposal of portfolio
securities or determination of the net asset value of the Fund is
not reasonably practicable, and for such other periods as the
Securities and Exchange Commission may by order permit for the
protection of shareholders of the Fund.
The Fund has made an election with the Securities and
Exchange Commission to pay in cash all redemptions requested by
any shareholder of record limited in amount during any 90-day
period to the lesser of $250,000 or 1% of the net assets of the
Fund at the beginning of such period. Such commitment is
irrevocable without the prior approval of the Securities and
Exchange Commission. Redemptions in excess of the above limits
may be paid in whole or in part, in investment securities or in
cash, as the Board of Directors may deem advisable; however,
payment will be made wholly in cash unless the Board of Directors
believes that economic or market conditions exist which would
make such a practice detrimental to the best interests of the
Fund. If redemptions are paid in investment securities, such
securities will be valued as set forth in the Prospectus under
"Determination of Net Asset Value" and a redeeming shareholder
would normally incur brokerage expenses if he converted these
securities to cash.
The Fund will generally first sell any cash equivalent
securities it holds to meet redemptions and, to the extent these
proceeds are insufficient to meet redemptions, the Fund will sell
other portfolio securities at the discretion of the Manager. See
"Redemption of Shares" in the Prospectus.
The value of shares at the time of redemption may be more or
less than the shareholder's cost, depending on the market value
of the securities held by the Fund at such time.
SHAREHOLDER SERVICES
The Fund offers the following shareholder services designed
to facilitate investment in its shares.
INVESTMENT ACCOUNT. Each shareholder who purchases shares
directly from the Distributor has an Investment Account and will
receive statements from the Fund's Transfer Agent quarterly and after
each transaction showing the cumulative activity in the account since
the beginning of the year. After the end of each year, shareholders
will receive federal income tax information regarding dividends
and capital gains distributions.
REINVESTMENT OF DIVIDENDS AND CAPITAL GAINS DISTRIBUTION.
Unless specific instructions are given as to the method of
payment of dividends and capital gains distributions, dividends
and distributions will automatically be reinvested in additional
shares of the Fund. Such reinvestment will be at the net asset
value of shares of the Fund, without sales charge, as of the
close of business on the ex-dividend date of the dividend or
distribution. Shareholders may elect in writing to receive
B-17<PAGE>
either their income dividends or capital gains distributions, or
both, in cash, in which event payment will be mailed on the
payment date.
Shareholders may, at any time, notify the Transfer Agent in
writing that they no longer wish to have their dividends and/or
distributions reinvested in shares of the Funds or vice versa
and, commencing ten days after the receipt by the Transfer Agent
of such notice, those instructions will be effected.
DIVIDENDS, DISTRIBUTIONS AND TAXES
DIVIDENDS AND DISTRIBUTIONS. The Fund intends to distribute
all of its net investment income and net realized long- and short-
term capital gains, if any, to its shareholders at least annually
after the close of the Fund's fiscal year. See "Shareholder Services-
Reinvestment of Dividends and Capital Gains Distributions" for
information concerning the manner in which dividends and
distributions may be automatically reinvested in shares of the
Fund. Shareholders may elect in writing to receive any such
dividends or distributions, or both, in cash. Dividends and
distributions are taxable to shareholders as discussed below
whether they are reinvested in shares of the Fund or received in
cash.
TAXES. The Fund intends to elect to qualify for the special
tax treatment afforded regulated investment companies under the
Internal Revenue Code of 1986, as amended (the "Code"). If it so
qualifies, the Fund will not be subject to federal income tax on
the part of its net ordinary income and net realized capital
gains which it distributes to shareholders.
Dividends paid by the Fund from its ordinary income, and
distributions of the Fund's net realized short-term capital
gains, are taxable to non-tax-exempt investors as ordinary
income. Distributions made from the Fund's net realized long-
term capital gains are taxable to shareholders as long-term
capital gains regardless of the length of time the shareholder
has owned Fund shares. Ordinary income dividends may be eligible
for the 70% dividends received deduction allowed to corporations
under the Code, if certain requirements are met.
Upon redemption of Fund shares held by a non-tax-exempt
investor, such investor, generally, will realize a capital gain
or loss equal to the difference between the redemption price
received by the investor and the adjusted basis of the shares
redeemed. If the redemption by the Fund is in-kind, capital gain
or loss will be measured by the difference between the fair
market value of securities received and the adjusted basis of the
shares redeemed. With respect to individual investors, any such
capital gain generally will constitute a short-term capital gain
subject to ordinary income tax rates if the redeemed Fund shares
were held for twelve months or less and a long-term capital gain
subject to a 20% maximum federal income tax rate if the redeemed
Fund shares were held for more than twelve months.
Any capital gains or losses derived from short sale activity
will generally be considered short-term capital gains or losses
for income tax purposes, regardless of how long the short position
was maintained.
Capital loss arising from redemption of Fund shares will be
treated as short-term capital loss if the redeemed Fund shares
were held for twelve months or less and long-term capital loss if
the redeemed Fund shares were held for more than twelve months.
If, however, Fund shares were redeemed within six months of their
purchase by an investor, and if a capital gain dividend was paid
with respect to the Fund's shares while they were held by the
investor, then any loss realized by the investor will be treated
as long-term capital loss to the extent of the capital gain
dividend.
Under certain provisions of the Code, some shareholders may
B-18
<PAGE>
be subject to 31% withholding on reportable dividends, capital
gains distributions and redemption payments ("back-up
withholding"). Generally, shareholders subject to back-up
withholding will be those for whom a taxpayer identification
number is not on file with the Fund or who, to such Fund's
knowledge, have furnished an incorrect number. When establishing
an account, an investor must certify under penalty of perjury
that such number is correct and that he is not otherwise subject
to back-up withholding.
Dividends paid by the Fund from its ordinary income and
distributions of the Fund's net realized short-term capital gains
paid to shareholders who are non-resident aliens will be subject
to a 30% United States withholding tax under existing provisions
of the Code applicable to foreign individuals and entities unless
a reduced rate of withholding or a withholding exemption is
provided under applicable treaty law. Non-resident shareholders
are urged to consult their own tax advisers concerning the
applicability of the United States withholding tax.
The Code requires each regulated investment company to pay a
nondeductible 4% excise tax to the extent the company does not
distribute, during each calendar year, 98% of its ordinary
income, determined on a calendar year basis, and 98% of its
capital gains, determined, in general, on an October 31 year-end,
plus any undistributed amount from prior years. The Fund
anticipates that it will make sufficient timely distributions to
avoid imposition of the excise tax. If the Fund pays a dividend
in January which was declared in the previous October, November
or December to shareholders of record on a date in those months,
then such dividend or distribution will be treated for tax
purposes as being paid on December 31 and will be taxable to
shareholders as if received on December 31.
The foregoing is a general and abbreviated summary of the
applicable provisions of the Code and Treasury regulations
presently in effect. For the complete provisions, reference
should be made to the pertinent Code sections and the Treasury
regulations promulgated thereunder. The Code and these Treasury
regulations are subject to change by legislative or
administrative action.
Dividends and capital gains distributions may also be
subject to state and local taxes.
The federal income tax consequences set forth above do not
address any particular tax considerations a shareholder of the
Fund might have. Shareholders are urged to consult their tax
advisors as to the particular tax consequences of the
acquisition, ownership and disposition of shares of the Fund,
including the application of state, local and foreign tax laws
and possible future changes in federal tax laws. Foreign
investors should consider applicable foreign taxes in their
evaluation of an investment in the Fund.
PERFORMANCE INFORMATION
As stated in the Prospectus, from time to time the Fund may
provide its total return in advertisements, sales literature or
reports, and other communications to shareholders and Financial
Advisors. The Fund's total return is calculated based on the
B-19<PAGE>
Fund's change in net asset value per share between the beginning
and end of the period shown and assumes reinvestment of the Fund's
dividend and capital gains distributions during the period.
Total return figures will be computed according to a formula
prescribed by the Securities and Exchange Commission. The
formula can be expressed as follows:
P(1+T)n = ERV
Where P = a hypothetical initial payment of $10,000
T = average annual total return
N = number of years
ERV = Ending Redeemable Value of a
hypothetical $10,000 payment made
at the beginning of the 1, 5, or
10 years (or other) periods at the
end of the 1, 5, or 10 (or other)
periods (or fractional portion
thereof);
The ERV assumes complete redemption of the hypothetical
investment at the end of the measuring period. The Fund's net
investment income changes in response to fluctuations in interest
rates, dividends declared and the expenses of the Fund.
B-20
<PAGE>
The following table provides the average annual rates of
return for the Caldwell & Orkin Market Opportunity Fund from its
inception through April 30, 1998. These rates of return are net
of all expenses and assume all dividends and distributions by the
Market Opportunity Fund have been reinvested on the reinvestment
dates during each period. In addition, all recurring fees
charged to all shareholder accounts are included.
1 Year (April 30, 1997-April 30, 1998) 25.77%
3 Years (April 30, 1995-April 30, 1998) 26.89%
5 Years (April 30, 1993-April 30, 1998) 18.38%
7.1 Years (since inception)
(March 11, 1991 - April 30, 1998) 16.78%
Based on the rates of return listed above, you could have
expected the following redeemable values on a $10,000 investment
assuming reinvestment of all dividends and capital gains and redemption
at the end of each time period:
<TABLE>
<CAPTION>
Value Return
<S> <C> <C>
1 Year (April 30, 1997-April 30, 1998) $12,577.21 $ 2,577.21
3 Years (April 30, 1995-April 30, 1998) $20,428.25 $10,428.25
5 Years (April 30, 1993-April 30, 1998) $23,252.87 $13,252.87
7.1 Years (since inception)
(March 11, 1991 - April 30, 1998) $30,336.28 $20,336.28
</TABLE>
Effective August 24, 1992, the Market Opportunity Fund
changed investment objectives to capital growth and capital
preservation through active investment selection and allocation.
Prior to that time, the Fund's objective was to obtain, in a
passive way, a long-term total return (capital growth plus
income) reflecting the performance of the 100 largest industrial
common stocks listed on the NASDAQ National Market System by
investing, with limited exemptions, in those 100 stocks.
The following table provides the average annual rates of
return for the Market Opportunity Fund from August 24, 1992, the
date on which the Market Opportunity Fund changed its investment
objectives and policies, through April 30, 1998. These rates of
return are net of all expenses and assume all dividends and
distributions by the Market Opportunity Fund have been reinvested
on the reinvestment dates during each period. In addition, all
recurring fees charged to all shareholder accounts are included.
1 Year (April 30, 1997-April 30, 1998) 25.77%
3 Years (April 30, 1993-April 30, 1998) 26.89%
5 Years (April 30, 1993-April 30, 1998) 18.38%
5.7 Years (Since Commencement of Hedged Management
Style)
(August 24, 1992-April 30, 1998) 19.96%
Based on the rates of return listed above, you could
have expected
the following redeemable values on a $10,000 investment assuming
reinvestment of all dividends and capital gains and redemption at
the end of each time period:
B-21<PAGE>
<TABLE>
<CAPTION>
Value Return
<S> <C> <C>
1 Year (April 30, 1997-April 30, 1998) $12,577.21 $ 2,577.21
3 Years (April 30, 1995-April 30, 1998) $20,428.25 $10,428.25
5 Years (April 30, 1993-April 30, 1998) $23,252.87 $13,252.87
5.7 Years (Since Commencement of Hedged Management
Style)
(August 24, 1992-April 30, 1998) $28,157.89 $18,157.89
</TABLE>
There may be a time when the Fund advertises its
"yield." Yield figures are based on historical earnings and, like
the rate of return, are not intended to indicate future performance.
The yield of the Fund refers to the income generated by an investment in
the Fund over a thirty-day (or one month) period (which period will be
stated in the advertisement). The yield for any 30-day (or one month)
period is computed by dividing the net investment income per share
earned during such period by the maximum public offering price per
share on the last day of the period, and then annualizing such 30-day
(or one month) yield in accordance with a formula prescribed by the
Securities Exchange Commission. The Fund may also advertise in terms of
sales literature an "actual distribution" which is computed in the same
manner as yield except that actual income dividends declared per share
during the period in question is substituted for net investment income
per share. The Fund's yield will only be advertised when accompanied by
the Fund's total return.
The Fund's performance will vary from time to time depending upon
market conditions, the composition of its portfolio and its operating
expenses. Consequently, any given performance quotation should not be
considered representative of the Fund's performance for any specified
period in the future. In addition, because performance will fluctuate,
it may not provide a basis for comparing an investment in the Fund with
certain bank deposits or other investments that pay a fixed yield for a
stated period of time.
GENERAL INFORMATION
DESCRIPTION OF SHARES. Caldwell & Orkin Funds, Inc. was
incorporated under Maryland law on August 15, 1989. It has an authorized
capital of 45,000,000 shares of Common Stock, par value $0.10 per share,
30,000,000 shares of which have been classified as shares of Market
Opportunity Fund common stock. The Board of Directors has the power to
authorize and issue additional classes of stock, without stockholder
approval, by classifying or reclassifying unissued stock, subject to the
requirements of the Act. In the event of liquidation, each share of
Common Stock is entitled to a pro rata portion of the particular Fund's
assets after payment of debts and expenses. Shareholders of each Fund
are entitled to one vote for each share held and fractional votes for
fractional shares held and will vote on the election of Directors and any
other matter submitted to a shareholder vote. In addition, Shareholders
have the right to remove Directors. The Funds do not intend to hold
meetings of shareholders in any year in which the Act does not require
shareholders to act upon any of the following matters: (i) election of
Directors; (ii) approval of an investment advisory agreement; (iii)
approval of a distribution agreement; and (iv) ratification of selection
of independent auditors. Voting rights for Directors are not cumulative.
Shares issued are fully paid and non-assessable and have no preemptive or
conversion rights.
B-22<PAGE>
PRINCIPAL SHAREHOLDERS. As of August 31, 1998 the following entities
were known by the Market Opportunity Fund to be record and beneficial
owners of five percent or more of the outstanding stock of the Market
Opportunity Fund:
<TABLE>
<CAPTION>
Name and Address of Number of Percent
Beneficial Owner Shares of Class
- -------------------- ---------- ---------
<S> <C> <C>
Charles Schwab & Co., Inc. 5,222,653.250 34.15%
Special Custody A/C FBO Customers
101 Montgomery Street
San Francisco, California 94104
Donaldson, Lufkin and Jenrette Secs Corp 2,211,059.913 14.46%
Attn: Mutual Funds
P.O. Box 2052
Jersey City, NJ 07303
</TABLE>
As of August 31, 1998, the Officers and Directors of Caldwell &
Orkin and the Manager, as a group, own 1.71% of the outstanding
shares of the Fund.
INDEPENDENT AUDITORS. Tait, Weller & Baker has been
selected as the independent accountants of the Fund. The
independent accountants are responsible for auditing the
financial statements of the Fund.
CUSTODIAN. Bank One Ohio Trust Co., N.A., the principal
address of which is 235 W. Schlock Road, Westerville, Ohio 43081
acts as Custodian of the Fund's assets. The Custodian is
responsible
for safeguarding and controlling the Fund's cash and securities,
handling the delivery of securities and collecting interest on
the Fund's investments.
TRANSFER, REDEMPTION, AND DIVIDEND DISBURSING AGENT.
Countrywide Fund Services, Inc., 312 Walnut Street, 21st Floor,
Cincinnati, Ohio 45202, acts as the Fund's Transfer, Redemption
and Dividend Disbursing Agent. The Transfer Agent is responsible for
the issuance, transfer and redemption of shares and the operating,
maintenance and servicing of shareholder accounts.
LEGAL COUNSEL. Kilpatrick Stockton LLP has been selected
as counsel for the Fund. Kilpatrick Stockton LLP will pass on
legal matters for the Fund in connection with the offering of its
shares. Kilpatrick Stockton LLP also represents the Manager and
the Distributor and will pass on legal matters for them in
connection with the offering of the Fund's shares.
REPORTS TO SHAREHOLDERS. The fiscal year of the Fund ends
on April 30 of each year. The Fund sends to its shareholders at
least semi-annually reports showing the Fund's portfolio and
other information. An Annual Report, containing financial
statements audited by independent auditors, is sent to
shareholders each year.
B-23<PAGE>
ADDITIONAL INFORMATION. The Prospectus and this Statement
of Additional Information do not contain all the information set
forth in the Registration Statement and the exhibits relating
thereto, which Caldwell & Orkin has filed with the Securities and
Exchange Commission, Washington, D.C., under the Securities Act
of 1933 and the Investment Company Act of 1940, to which
reference is hereby made.
FINANCIAL STATEMENTS AND INDEPENDENT ACCOUNTANTS' REPORT.
The financial statements of the Market Opportunity Fund for the
fiscal year ended April 30, 1998 were audited by Tait, Weller &
Baker, the Fund's independent accountants, and are incorporated
by reference from the Market Opportunity Fund's 1998 Annual Report
to Shareholders. A copy of such report accompanies this Statement
of Additional Information. Additional copies are available, without
charge, by calling the Fund.
B-24
<PAGE>
APPENDIX A
Ratings of Corporate Debt Obligations
The characteristics of debt obligations rated by Moody's are
generally as follows:
Aaa - Bonds which are rated Aaa are judged to be of the best
quality. They carry the smallest degree of investment risk and
are generally referred to as "gilt edge." Interest payments are
protected by a large or by an exceptionally stable margin and
principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most
unlikely to impair the fundamentally strong position of such
issues.
Aa - Bonds which are rated Aa are judged to be of high
quality by all standards. Together with the Aaa group they
comprise what are generally known as high grade bonds. They are
rated lower than the best bonds because margins of protection may
not be as large as in Aaa securities of fluctuation of protective
elements may be of greater amplitude or there may be other
elements present which make the long-term risks appear somewhat
larger than in Aaa securities.
A - Bonds which are rated A possess many favorable
investment attributes and are to be considered as upper medium
grade obligations. Factors giving security to principal and
interest are considered adequate but elements may be present
which suggest a susceptibility to impairment sometime in the
future.
Baa - bonds which are rated Baa are considered as medium
grade obligations, i.e., they are neither highly protected nor
poorly secured. Interest payments and principal security appear
adequate for the present but certain protective elements may be
lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment
characteristics and in fact have speculative characteristics as
well.
Ba - Bonds which are rated Ba are judged to have speculative
elements; their future cannot be considered as well assured.
Often the protection of interest and principal payments may be
very moderate and thereby not well safeguarded during other good
and bad times over the future. Uncertainty of position
characterizes bonds in this class.
B - Bonds which are rated B generally lack characteristics
of the desirable investment. Assurance of interest and principal
payments or of maintenance of other terms of the contract over
any long period of time may be small.
Caa - Bonds which are rated Caa are of poor standing. Such
issues may be in default or there may be present elements of
danger with respect to principal or interest.
A-1
<PAGE>
Ca - Bonds which are rated Ca represent obligations which
are speculative in a high degree. Such issues are often in
default or have other marked shortcomings.
The characteristics of debt obligations rated by Standard &
Poor's are generally as follows:
AAA - This is the highest rating assigned by Standard &
Poor's to a debt obligation and indicates an extremely strong
capacity to pay principal and interest.
AA - Bonds rated AA also qualify as high quality debt
obligations. Capacity to pay principal and interest is very
strong, and in the majority of instances they differ from AAA
issues only in small degree.
A - Debt rated A has a strong capacity to pay interest and
repay principal although it is somewhat more susceptible to the
adverse effects of changes in circumstances and economic
conditions than debt in higher rated categories.
BBB - Debt rated BBB is regarded as having an adequate
capacity to pay interest and repay principal. Whereas it
normally exhibits adequate protection parameters, adverse
economic conditions or changing circumstances are more likely to
lead to a weakened capacity to pay interest and repay principal
for debt in this category than in higher rated categories.
BB, B, CCC, CC - Debt rated BB, B, CCC or CC is regarded, on
balance, as predominantly speculative with respect to capacity to
pay interest and repay principal in accordance with the terms of
the obligation. BB indicates the lowest degree of speculation
among obligations rated lower than BBB and CC the highest degree
of speculation. While such debt will likely have some quality
and protective characteristics, these are outweighed by large
uncertainties or major risk exposures to adverse conditions.
C - This rating is reserved for income bonds on which no
interest is being paid.
A bond rating is not a recommendation to purchase, sell or hold a
security, inasmuch as it does not comment as to market price or
suitability for a particular investor.
Ratings of Commercial Paper
The Funds' purchases of commercial paper are limited to
those instruments rated A-1 or A-2 by Standard & Poor's or Prime-
1 or Prime-2 by Moody's.
Commercial paper rated A-1 or A-2 by Standard & Poor's has
the following characteristics: liquidity ratios are adequate to
meet cash requirements; the issuer's long-term debt is rated "A"
or better; the issuer has access to at least two additional
channels of borrowing; and basic earnings and cash flow have an
up and down trend with allowances made for unusual circumstances.
Typically, the issuer's industry is well-established and the
issuer has a strong position within the industry. Relative
A-2
<PAGE>
strength or weakness of the above factors determines whether an
insurer's commercial paper is rated A-1 or A-2, with the relative
degree of safety of commercial paper rated A-2 not being as high
as for commercial paper rated A-1.
Commercial paper rated Prime-1 or Prime-2 by Moody's is the
highest commercial paper rating assigned by Moody's. Among the
factors considered by Moody's in assigning ratings are the
following: (1) evaluation of management of the issuer;
(2) economic evaluation of the issuer's industry or industries
and an appraisal of speculative-type risks which may be inherent
in certain areas; (3) evaluation of the issuer's products in
relation to competition and consumer acceptance; (4) liquidity;
(5) amount and quality of long-term debt; (6) trend of earnings
over a period of ten years; (7) financial strength of a parent
company and the relationships which exist with the issuer; and
(8) recognition by the management of obligations which may be
present or may arise as a result of public interest questions and
preparations to meet such obligations. Relative strength or
weakness of the above factors determine how the issuer's
commercial paper is rated within various categories.
A commercial paper rating is not a recommendation to
purchase, sell or hold a particular instrument, inasmuch as it
does not comment as to market price or suitability for a
particular investment.
A-3
<PAGE>
PART C. OTHER INFORMATION
Item 24. Financial Statements and Exhibits.
FINANCIAL STATEMENTS OF THE MARKET
OPPORTUNITY FUND INCORPORATED BY REFERENCE
IN PART B:
Annual Report to Shareholders for year ended
April 30, 1998:
Independent Accountants' Report
Schedule of Investments
Statement of Assets and Liabilities
Statement of Operations
Statements of Changes in Net Assets
Financial Highlights
Notes to Financial Statements
Exhibits:
Exhibit
Number
-------
1.a. Amended and Restated Articles of
Incorporation of Registrant.****
b. Articles of Amendment ********
2. By-Laws of Registrant.**
3. None.
4. Specimen certificate for shares of
common stock of Registrant.*
5. Management Agreement between the
Market Opportunity Fund of Registrant
and C & O Funds Advisor, Inc. dated
August 20, 1992.*****
6. Form of Distribution Agreement
Registrant and C & O Funds
Distributor, Inc. dated August 20,
1992.*****
7. None.
C-1
<PAGE>
8a. Custodian Agreement between
Registrant and Bank One Trust
Company, N.A. dated
September 5, 1990.***
8b. First Amendment to
Custodian Agreement between
Registrant and Bank One Trust
Company, N.A.*****
9a. Transfer Agency
Agreement between Registrant
and MGF Services Corp. (aka
Countrywide Fund Services, Inc.)
dated March 3, 1995.*****
b. Agreement between
Registrant and Caldwell &
Orkin, Inc. dated August 20,
1992.****
10. Opinion and consent of counsel, as
to legality of shares.*****
11. Consent of Tait, Weller & Baker
12. None.
13. Agreement concerning initial
capital of Registrant (Market
Opportunity Fund).*
14. None.
15a. Distribution Plan of Market
Opportunity Fund of the
Registrant.*
b. Form of Distribution Plan Sub-
Agreement.*
16. Schedule for Computation of
performance quotation.*****
18. Power of Attorney appointing H.
Eugene Caldwell and Michael B.
Orkin (see Signature Page to this
Amendment).******
C-2
<PAGE>
27. Financial Data Schedule.
_______________
*Previously filed on May 30, 1990 in connection with
Registrant's initial Registration Statement on Form N-1A.
**Previously filed on August 8, 1990 in connection with
Registrant's Pre-Effective Amendment No. 1 to its Registration
Statement on Form N-1A.
***Previously filed on December 24, 1990 in connection with
Registrant's Pre-Effective Amendment No. 2 to its Registration
Statement on Form N-1A.
****Previously filed on June 25, 1992 in connection with
Registrant's Post-Effective Amendment No. 2 to its Registration
Statement on Form N-1A.
*****Previously filed on August 21, 1992 in connection with
Registrant's Post-Effective Amendment No. 3 to its Registration
Statement on Form N-1A.
******Previously filed on August 29, 1994 in connection with
Registrant's Post-Effective Amendment No. 6 to its Registration
Statement on Form N-1A.
*******Previously filed on June 30, 1995 in connection with
Registrant's Post-Effective Amendment No. 7 to its Registration
Statement on Form N-1A.
********Previously filed on August 25, 1996 in connection
with Registrant's Post-Effective Amendment No. 8 to its
Registration Statement on Form N-1A.
Item 25. Persons Controlled by or under Common
Control with Registrant.
C & O Funds Advisor, Inc., the Funds' Manager, and
C & O Funds Distributor, Inc., the Funds' Distributor, both of
which are Georgia corporations, are wholly-owned subsidiaries of,
and may be deemed to be controlled by, Caldwell & Orkin, Inc.
C-3
<PAGE>
Item 26. Number of Holders of Securities.
Number of Direct Record
Holders at
Title of Class July 31, 1998
--------------- ---------------
Market Opportunity Fund Common Stock 929
Item 27. Indemnification.
Section 2-418 of the General Corporation Law of the State
of
Maryland, Article VI of Registrant's Charter filed as Exhibit 1,
Article VII of Registrant's By-Laws filed as Exhibit 2, and the
Distribution Agreement filed as Exhibit 6 provide, or will provide, for
indemnification.
Registrant's Articles of Incorporation (Article VI) provide that
Registrant shall indemnify its Directors and Officers to the fullest
extent permitted by law.
Registrant's By-laws (Article VII, Section 1) provide that
Registrant shall indemnify any Director and/or Officer who was or is
threatened to be made a party to any threatened, pending or completed
action, suit or proceeding, whether civil, criminal, administrative or
investigative, by reason of the fact that he is or was a Director or
Officer of Registrant, or is or was serving at the request of Registrant
as a Director or Officer of another corporation, partnership, joint
venture, trust or other enterprise, against all expenses (including
attorneys' fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred by him in connection with such action,
suit or proceeding to the maximum extent permitted by law.
With respect to indemnification of officers and directors, Section
2-418 of the Maryland General Corporation Law provides that a corporation
may indemnify any Director who is made a party to any threatened, pending
or completed action, suit or proceeding, whether civil, criminal,
administrative or investigative (other than an action by or in the right
of Registrant) by reason of service in that capacity, or is or was
serving at the request of the corporation as a director, officer,
employee or agent of another corporation, partnership, joint venture,
trust or other enterprise against expenses (including attorneys' fees),
judgments, fines and amounts paid in settlement and expenses actually and
reasonably incurred by him in connection with such action, suit or
proceeding unless (1) it is established that the act or omission of the
Director was material to the matter giving rise to the proceeding, and
(a) was committed in bad faith or (b) was the result of active and
deliberate dishonesty; or (2) the Director actually received an improper
personal benefit of money, property, or services; or (3) in the case of
any criminal action or proceeding, had reasonable cause to believe that
the act or omission was unlawful. A court of appropriate jurisdiction
may, however, except in proceedings by or in the right of Registrant or
in which liability has been adjudged by reason of the person receiving an
improper personal benefit, order such indemnification as the court shall
deem proper if it determines that the Director is fairly and reasonably
entitled to indemnification in view of all the relevant circumstances,
C-4
<PAGE>
whether or not the Director has met the requisite standard of conduct.
Under Section 2-418, Registrant may also indemnify Officers, employees
and agents of Registrant who are not Directors to the same extent that it
shall indemnify Directors and Officers, and to such further extent,
consistent with law, as may be provided by general or specific action of
the Board of Directors or contract. Pursuant to Section 2-418 of the
Maryland General Corporation Law, the termination of any proceeding by
judgment, order or settlement does not create a presumption that the
person did not meet the requisite standard of conduct required by
Section 2-418. The termination of any proceeding by conviction, or a
plea of nolo contendere or its equivalent, or an entry of an order of
probation prior to judgment, creates a rebuttable presumption that the
person did not meet the requisite standard of conduct.
Reference is also made to Section 9 of the Distribution Agreement
filed as Exhibit 6 to this Registration Statement. Section 9 of the
Distribution Agreement provides that Registrant, subject to certain
conditions and limitations, shall indemnify, defend and hold harmless the
Underwriter, its officers and directors and any person who controls the
Underwriter within the meaning of the Securities Act of 1933 from and
against any and all claims, demands, liabilities and expenses which they
may incur under the Federal securities laws, the common law or otherwise,
arising out of or based upon any alleged untrue statement of a material
fact contained in the Registration Statement or any related Prospectus
and/or Statement of Additional Information or arising out of or based
upon any alleged omission to state a material fact required to be stated
therein or necessary to make the statements therein not misleading.
Reference is also made to Article IV of the Management Agreement
filed as Exhibit 5 to this Registration Statement. Article IV provides
that the Manager shall not be liable for any error of judgment or mistake
of law or for any loss arising out of any investment or for any act or
omission in the management of the Registrant, except for willful
misfeasance, bad faith or from negligence in the performance of its
duties, or by reason of reckless disregard of its obligations and duties
under the Management Agreement.
The Registrant may purchase insurance on behalf of an Officer or
Director protecting such person to the full extent permitted under the
General Laws of the State of Maryland, from liability arising from his
activities as Officer or Director of the Registrant. The Registrant,
however, may not purchase insurance on behalf of any Officer or Director
of the Registrant that protects or purports to protect such person from
liability to the Registrant or to its shareholders to which such Officer
would otherwise be subject by reason of willful misfeasance, bad faith,
gross negligence, reckless disregard of the duties involved in the
conduct of his office, active or deliberate dishonesty, receipt of an
improper personal benefit, or in the case of a criminal proceeding that
such person had reasonable cause to believe the act or omission was
unlawful. The corporation may provide similar protection, including a
trust fund, letter of credit, or surety bond, not inconsistent with this
section. Insurance or similar protection may also be provided by a
subsidiary or affiliate of the corporation.
C-5
<PAGE>
Item 28. Business and Other Connections of Investment Adviser
None.
Item 29. Principal Underwriters.
a. None.
b. Set forth below is information concerning each director and
officer of the Distributor. The principal business address of
the Distributor and each such person is 2050 Tower Place, 3340
Peachtree Road, Atlanta, Georgia 30326.
<TABLE>
<CAPTION>
(1) (2) (3)
Position and Offices Positions and Offices
Name with Underwriter With Registrant
---- -------------------- ---------------------
<S> <C> <C>
Michael B. Orkin Director President and Director
William C. Horne President None
Daniel K. Borden Secretary Secretary
Ronald E. Bedwell Treasurer Treasurer
</TABLE>
Item 30. Location of Accounts and Records.
Registrant maintains the records required to be
maintained by it under Rules 31a-1(a), 31a-1(b) and 31a-2(a)
under the Investment Company Act of 1940 at its principal
executive offices at 2050 Tower Place, 3340 Peachtree Road,
Atlanta, Georgia, 30326, except for those records that may
be maintained pursuant to Rule 31a-3 at the offices of
Registrant's Custodian, Bank One Ohio Trust Company, N.A.,
235 W. Schrock Road, Westerville, Ohio 43081, and Transfer Agent,
Countrywide Fund Services, Inc., 312 Walnut Street, 21st Floor,
Cincinnati, Ohio 45202
C-6
<PAGE>
Item 31. Management Services.
None.
Item 32. Undertakings.
The Registrant undertakes that, whenever ten or more
stockholders of record who have been such for at least six
months, and who hold in the aggregate either shares having a net
asset value of at least $25,000 or at least 1 per centum of the
outstanding shares, whichever is less, apply in writing to the
Registrant stating their intent to obtain signatures to request a
meeting for the purpose of removing any or all of Registrant's
Directors, the Registrant will either afford to the stockholders
making such application access to a list of the names and
addresses of all stockholders as recorded on the books of the
Registrant or inform the stockholders making the application as
to the appropriate number of stockholders of record, and the
approximate cost of mailing to them any proposed solicitation
material and will, upon receipt of the solicitation material and
the reasonable expenses of mailing, mail such material to all
stockholders of record at their addresses as recorded on the
books of the Registrant, unless the Registrant's Directors find,
in their opinion, that the materials contain material untrue
statements of fact or omit to state facts necessary to make the
statements contained therein not misleading, or would be in
violation of applicable law.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers
and controlling persons of the Registrant and the principal
underwriter pursuant to the foregoing provisions or otherwise,
the Registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is
against public policy as expressed in the Act and is, therefore,
unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a Director, Officer,
or controlling person of the Registrant and the principal
underwriter in connection with the successful defense of any
action, suit or proceeding) is asserted by such Director, Officer
or controlling person or the principal underwriter in connection
with the shares being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be
governed by the final adjudication of such issue.
C-7
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933
and the Investment Company Act of 1940, the Registrant has duly
caused this Amendment to its Registration Statement to be signed
on its behalf by the undersigned, thereunto duly authorized, in
the City of Atlanta, and State of Georgia, on the 13th day of
November, 1998.
THE CALDWELL & ORKIN FUNDS, INC.
(Registrant)
By: /s/ Michael B. Orkin
Michael B. Orkin
President
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated:
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C>
/s/ H. Eugene Caldwell* Chairman
H. Eugene Caldwell Emeritus of
the Board
of Directors November 13, 1998
/s/ Michael B. Orkin Chairman,
Michael B. Orkin Director and
President November 13, 1998
/s/ David L. Eager* Director November 13, 1998
David L. Eager
/s/ Robert H. Greenblatt* Director November 13, 1998
Robert H. Greenblatt
/s/ Henry H. Porter, Jr.* Director November 13, 1998
Henry H. Porter, Jr.
/s/ Frederick T. Blumer* Director November 13, 1998
Frederick T. Blumer
/s/ Ronald E. Bedwell
Ronald E. Bedwell Treasurer November 13, 1998
* By: /s/ Michael B. Orkin November 13, 1998
Michael B. Orkin
Attorney-in-Fact
</TABLE>
C-8<PAGE>
INDEX TO EXHIBITS
Exhibit
Number
1.a. Amended and Restated Articles of
Incorporation of Registrant.****
b. Articles of Amendment ********
2. By-Laws of Registrant.**
3. None.
4. Specimen certificate for shares of common
stock of Registrant.*
5. Management Agreement between the
Market Opportunity Fund of Registrant and C & O
Funds Advisor, Inc. dated August 20, 1992.*****
6. Form of Distribution Agreement
Registrant and C & O Funds Distributor,
Inc. dated August 20, 1992.*****
7. None.
8a. Custodian Agreement between Registrant
and Bank One Trust Company, N.A. dated
September 5, 1990.***
b. First Amendment to Custodian
Agreement between Registrant and Bank
One Trust Company, N.A.*****
9a. Transfer Agency Agreement between
Registrant and MGF Service Corp. (aka
Countrywide Fund Services, Inc.)
dated March 3, 1995.*****
b. Agreement between Registrant and
Caldwell & Orkin, Inc. dated August
20, 1992.****
10. Opinion and consent of counsel, as to
legality of shares.*****
11. Consent of Tait, Weller & Baker.
12. None.
C-10
<PAGE>
13. Agreement concerning initial
capital of Registrant (Market Opportunity Fund).*
14. None.
15a. Distribution Plan of Market
Opportunity Fund of the Registrant.*
b. Form of Distribution Plan Sub-Agreement.*
16. Schedule for Computation of performance
quotation.*****
18. Power of Attorney appointing H. Eugene
Caldwell and Michael B. Orkin (see
Signature Page to this Amendment).******
27. Financial Data Schedule.
_______________
*Previously filed on May 30, 1990 in connection with Registrant's
initial Registration Statement on Form N-1A.
**Previously filed on August 8, 1990 in connection with Registrant's
Pre-Effective Amendment No. 1 to its Registration Statement on Form N-1A.
***Previously filed on December 24, 1990 in connection with
Registrant's Pre-Effective Amendment No. 2 to its Registration Statement
on Form N-1A.
****Previously filed on June 25, 1992 in connection with
Registrant's Post-Effective Amendment No. 2 to its Registration Statement
on Form N-1A.
*****Previously filed on August 21, 1992 in connection with
Registrant's Post-Effective Amendment No. 3 to its Registration Statement
on Form N-1A.
******Previously filed on August 29, 1994 in connection with
Registrant's Post-Effective Amendment No. 6 to its Registration Statement
on Form N-1A.
*******Previously filed on June 30, 1995 in connection with
Registrant's Post-Effective Amendment No. 7 to its Registration Statement
on Form N-1A.
********Previously filed on August 25, 1996 in connection with
C-11
Exhibit 11
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We consent to the use of our report dated June 3, 1998 on the
financial statements and financial highlights of Caldwell & Orkin
Market Opportunity Fund. Such financial statements and financial
highlights appear in the 1998 Annual Report to Shareholders which
is incorporated by reference in the Post-Effective Amendment No.
11 to the Registration Statement on Form N-1A of Caldwell & Orkin
Market Opportunity Fund. We also consent to the references to
our Firm in the Registration Statement and Prospectus.
/s/ Tait, Weller & Baker
TAIT, WELLER & BAKER
Philadelphia, Pennsylvania
November 13, 1998
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000864230
<NAME> CALDWELL & ORKIN FUND
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> APR-30-1998
<PERIOD-START> MAY-01-1997
<PERIOD-END> APR-30-1998
<INVESTMENTS-AT-COST> 75,859,892
<INVESTMENTS-AT-VALUE> 100,504,212
<RECEIVABLES> 3,457,394
<ASSETS-OTHER> 9,002
<OTHER-ITEMS-ASSETS> 117,506,528
<TOTAL-ASSETS> 221,477,136
<PAYABLE-FOR-SECURITIES> 4,201,788
<SENIOR-LONG-TERM-DEBT> 59,062,361
<OTHER-ITEMS-LIABILITIES> 390,015
<TOTAL-LIABILITIES> 63,654,164
<SENIOR-EQUITY> 0
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</TABLE>
