CALDWELL & ORKIN FUNDS INC, 497, 1999-09-07

CALDWELL & ORKIN FUNDS INC
497, 1999-09-07

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<S> <S> <C> <C>
File Nos. 33-35156 and 811-6113
Filed under Rule 497(c)
</TABLE>

THE

CALDWELL & ORKIN
MARKET OPPORTUNITY FUND

A NO-LOAD MUTUAL FUND

PROSPECTUS
September 1, 1999

Managed By:

C & O FUNDS ADVISOR, INC.
2050 Tower Place
3340 Peachtree Road, NE
Atlanta, Georgia 30326

(800) 237-7073 (404) 239-0707
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<CAPTION>

TABLE OF CONTENTS
<S> <C>

Investment Objective and Principal Investment Strategies of the Fund.........................................
Principal Risks of Investing in the Fund.....................................................................4
Past Performance.............................................................................................5
Fees and Expenses of the Fund................................................................................6
Additional Information on the Fund's Investment Objective and Strategy.......................................7
Financial Highlights.........................................................................................9
Management of the Fund......................................................................................10
Purchase of Shares..........................................................................................10
Redeeming Your Shares.......................................................................................12
Additional Information about Purchases and Sales............................................................13
Distributions...............................................................................................13
Federal Taxes...............................................................................................14
Net Asset Value.............................................................................................14
Additional Information......................................................................................15
How to Obtain More Information..............................................................................16
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- -------------------------------------------------------------------------------
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.
- -------------------------------------------------------------------------------

<PAGE>

INVESTMENT OBJECTIVE AND PRINCIPAL INVESTMENT STRATEGIES OF THE FUND

INVESTMENT OBJECTIVE. The Caldwell & Orkin Market Opportunity Fund's
investment objective is to provide long-term capital growth with a short-term
focus on capital preservation.

PRINCIPAL INVESTMENT STRATEGIES. We use a disciplined investment
process focusing on active asset allocation and stock selection to achieve our
investment objective. "Active asset allocation" refers to the way we determine
the balance of different types of assets in the Fund at any given time. "Stock
selection" refers to the way we choose the stocks we buy or short.

-------------------------------------------------------
| A LONG POSITION REPRESENTS AN ORDINARY |
| PURCHASE OF A COMMON STOCK. |
| |
| A SHORT POSITION (MAKING A SHORT SALE)IS |
| ESTABLISHED BY SELLING BORROWED SHARES |
| AND ATTEMPTING TO BUY THEM BACK AT A LOWER |
| PRICE. BORROWED SHARES MUST BE REPAID (I.E., |
| SHORT POSITIONS MUST BE "COVERED") WHETHER |
| OR NOT THE STOCK PRICE DECLINES. |
-------------------------------------------------------
We divide the Fund's portfolio among three categories of assets:
o Long Common Stock Positions
o Short Common Stock Positions
o Money Market/Fixed Income Securities

Active asset allocation involves shifting the mix of the Fund's assets between
these categories. It is used to manage our exposure to perceived market risk
and to improve returns.

To help us assess how to allocate our assets, we examine a number of
factors that we believe exercise the most influence on the price of stocks and
bonds. Among the most important of these factors are Monetary/Economic Liquidity
and Inflation (see discussion on page 7), which help us to determine trends in
the market. When these and other factors lead us to believe that the market is
moving in an upward trend (prices for stocks are generally rising), we are
"bullish" about the market and generally try to increase the percentage of long
positions in our portfolio and/or be net long. Conversely, when our research
leads us to believe the market is moving in the opposite direction, we are
"bearish" about the market and generally try to reduce our net long exposure
and/or be net short.

STOCK SELECTION

We typically invest between 50% and 100% of our net assets in U.S.
common stocks. Our investment decisions are based on a combination of bottom-up
company-specific analysis and top-down economic analysis. Our investments
include both long positions and short positions and may be made in companies of
any size. We take long positions in companies when we believe that their share
prices will rise, and we take short positions in companies when we believe that
their share prices will fall.

-------------------------------------------------------
| BOTTOM-UP COMPANY-SPECIFIC ANALYSIS LEADS US |
| TO BUY OR SHORT A COMPANY'S STOCK BASED ON |
| THAT COMPANY'S PROSPECTS AND WITHOUT REGARD TO |
| EXTERNAL VARIABLES THAT DON'T DIRECTLY IMPACT |
| THE COMPANY'S FUNDAMENTALS. TOP-DOWN ECONOMIC |
| ANALYSIS LEADS US TO BUY OR SHORT CERTAIN |
| COMPANIES DUE TO ECONOMIC VARIABLES SURROUNDING |
| THOSE COMPANIES' FUNDAMENTALS. |
-------------------------------------------------------

The Fund's total stock position (long positions plus short positions)
and the balance between long positions and short positions in the Fund's
portfolio at any given time is based on our ability to identify attractive long
and short investments and our asset allocation determinations. The Fund may hold
up to 60% of its net assets in short positions at any time.

2
<PAGE>

LONG POSITIONS. This portion of our portfolio includes all of the
---------------
common stocks we have purchased. We use long positions to grow our assets by
choosing stocks we believe will increase in price. We are "bullish" and
typically try to increase the percentage of our assets invested in long
positions when we find attractive investments and/or when we believe that the
outlook is positive and the stock market will rise.

HOW DO WE PICK OUR LONG POSITIONS? We select our long stock positions
---------------------------------
by identifying companies which we believe are experiencing positive changes that
will lead to a rise in their stock prices. Factors considered may include:

o Acceleration of earnings and/or profits
o Positive changes in management personnel or structure
o New product developments
o Positive changes in variables that indicate strengthening in a company's
industry

SHORT POSITIONS. This portion of our portfolio includes stocks we have
---------------
borrowed and sold short. If the price of a stock sold short decreases before we
close the position, we make money. If it increases, we lose money. We use short
positions to:

o Manage or hedge our exposure to perceived market risk on the long side
o Preserve capital and potentially profit during a falling stock market
o Make money when we think a particular stock's price will decline

We are "bearish" and typically try to increase the percentage of our
assets invested in short positions when we find attractive short candidates
and/or when we believe that the outlook for the stock market is negative and the
that the market will experience declines.

HOW DO WE PICK SHORT POSITIONS? We select our short positions by
identifying companies which we believe are experiencing negative changes that
will cause their stock prices to fall. We evaluate factors similar to those
evaluated for our long positions. These factors may include:

o Deceleration of earnings, profits or acceleration of losses
o Negative changes in management personnel or structure or failure to
address management problems
o New product developments by a company's competitors
o Negative changes in variables that indicate weakening in a company's
industry

HOW OFTEN DO WE TRADE OUR STOCK POSITIONS? Our disciplined investment
philosophy and active management style typically leads to higher-than-average
portfolio turnover. Generally, we take profits (or limit losses) by either
paring back a position or exiting a position in full when we see a significant
catalyst that challenges a position's upside potential. High turnover may have
an unfavorable impact on the amount of taxable distributions paid to
shareholders, as described under "Principal Risk Factors" below. The Fund's
turnover rate will generally exceed 100% per year, and will not be a limiting
factor when we deem change appropriate.

MONEY MARKET SECURITIES AND FIXED INCOME SECURITIES
---------------------------------------------------

We typically invest between 0% and 50% of our net assets in money
market securities and fixed income securities. This portion of our portfolio
includes cash equivalents (i.e., money market securities or U.S. treasury notes)
and bonds (i.e., corporate or government bonds), although we emphasize cash
equivalents more than bonds. The corporate bonds we purchase may have any
maturity, but they must be investment grade bonds rated in one of the top four
categories by Standard & Poor's or Moody's. We generally purchase bonds for
potential price appreciation, and not for current income.

3
<PAGE>

PRINCIPAL RISKS OF INVESTING IN THE FUND

An investment in the Fund carries risk, and you may lose money on your
investment. We cannot predict the Fund's future performance, but we expect our
investment strategy will cause our performance to vary from that of the S&P 500
with Income (S&P 500) and NASDAQ Composite (NASDAQ) indices. When we use short
positions, money market securities and/or fixed income securities, our returns
may be different from the stock market and may prevent the Fund from
participating in market advances. Keeping these factors in mind, the Fund should
be viewed as a long-term investment vehicle to balance your total investment
program risks, and should not be used to meet short-term needs. The principal
risks of investing in the Fund are:

o MARKET RISK - Stock prices are volatile. In a declining stock market, stock
prices for all companies may decline, regardless of any one particular
company's own unique prospects. During a recession or a bear market, all
stock mutual funds that are correlated with the markets will likely lose
money. Investors should note, however, that the Fund's use of short sales
may cause the Fund to fluctuate independently of stock market indices such
as the S&P 500 and the NASDAQ.

o SHORT SALE RISK - As described previously, a short position is established
by selling borrowed shares and attempting to buy them back at a lower price
in the future. The Fund has margin accounts for its short positions.
Borrowed shares must be repaid (i.e., short positions must be "covered")
whether or not the stock price declines. In a rising market, the Fund may
lose value on its short sales. When the price of any particular stock that
the Fund has sold short rises above the price at which the borrowed stock
was sold, the Fund's market value decreases. In addition, if the Fund's
margin account falls below the 150% asset coverage required by SEC rules or
if the broker from whom a stock was borrowed for a position requires that
stock be repaid, then the Fund could be forced to cover short positions
earlier than the Fund otherwise would.

O INTEREST RATE RISK - Increases in interest rates may lower the present
value of a company's future earnings stream. Since the market price of a
stock changes continuously based upon investors' collective perceptions of
a variety of factors, including future earnings, stock prices may decline
when investors anticipate or experience rising interest rates. Falling
short-term interest rates may also cause income from short-term money
market instruments in which the Fund is invested to decline.

o BUSINESS RISK - From time to time, a particular set of circumstances may
affect a particular industry or certain companies within the industry,
while having little or no impact on other industries or other companies
within the industry. For instance, some technology industry companies rely
heavily on one type of technology. If this technology becomes outdated, too
expensive, or is not favored in the market, companies that rely on this
technology may rapidly become unprofitable. However, companies outside of
the industry or those within the industry that do not rely on the
technology may not be affected at all.

o SMALL COMPANY RISK - Stocks of smaller companies may have more risks than
those of larger companies. In general, they have less experienced
management teams, serve smaller markets, and find it more difficult to
obtain financing for growth or potential development than do larger
companies. Due to these and other factors, small companies may have
volatile stock prices that are more susceptible to market downturns.

o MARKET VALUATION RISK - Some companies that are growing very fast have
unreasonable valuations by traditional valuation techniques. Since these
companies' stock prices do not reflect the usual relationships between
price and corporate earnings or income, their stocks tend to be
extraordinarily volatile and speculative.

o POLITICAL RISK - Regulation or deregulation of a particular industry can
have a material impact on the value of companies within the affected
industry. For example, during the past two years, the electric and gas
utility sectors of the economy have been moving towards deregulation and
open price competition. In this new environment, some companies will make a
successful transition and prosper under deregulation, while other companies
may not.

o PORTFOLIO TURNOVER RISK - Mutual funds are required to distribute their net
realized capital gains annually under federal tax laws. The Fund's
investment strategy may involve frequent trading which leads to high
portfolio turnover and potentially large amounts of net realized capital
gains in a given year. As a result, the Fund may distribute
higher-than-average amounts of taxable capital gains to its shareholders.

4
<PAGE>

PAST PERFORMANCE

The Fund began operations March 11, 1991. Its initial investment
objective and strategy was to passively invest in the 100 largest industrial
common stocks listed on the NASDAQ National Market System. The Fund changed its
investment objective to capital growth and capital preservation through active
investment selection and asset allocation on August 24, 1992. The bar chart and
performance table below provide an indication of the risks of investing in the
Fund by showing changes in the Fund's performance from year to year and by
showing how the Fund's average annual total returns compare with those of a
broad measure of market performance. We expect the Fund's performance to vary
significantly from the indices, especially over shorter periods of time. As with
all mutual funds, past performance is not necessarily an indicator of how the
Fund will perform in the future.

ANNUAL TOTAL RETURNS FOR YEARS ENDED DECEMBER 31

30.00% --------------------------------------------------------------------
29.37%
27.29% |
25.00% ------------------------------------------|----------|--------------
| | 22.44%
20.00% ------------------------------------------|----------|----------|---
16.51% | | |
15.26% | | | |
15.00% -----|---------------------------|--------|----------|----------|---
| 14.91% | | | |
10.00% -----|---------|-----------------|--------|----------|----------|---
| | | | | |
5.00% ------|---------|-----------------|--------|----------|----------|---
| | | | | |
0.00% ------|---------|--------|--------|--------|----------|----------|---
1992 1993 1994 1995 1996 1997 1998
|
-0.98%
- -5.00% --------------------------------------------------------------------

YEAR-TO-DATE RETURN AS OF JUNE 30, 1999: 0.34%
--------------------------------------- -----

AVERAGE ANNUAL TOTAL RETURNS FOR YEARS ENDED DECEMBER 31
--------------------------------------------------------

BEST QUARTER WORST QUARTER
------------ -------------
4th Quarter 1992:18.45% 2nd Quarter 1992: -8.94%
(when Fund was passively managed)

1 YEAR 5 YEARS LIFE OF FUND
------ ------- ------------
MARKET OPPORTUNITY FUND 22.44% 18.39% 17.57%
S&P 500* 28.59% 24.05% 19.28%
NASDAQ COMPOSITE* 39.63% 23.06% 21.59%

The information in the table above includes returns from before the Fund changed
its investment objective and strategy to active management on August 24, 1992.
Since the commencement of active management, the Fund's worst quarter was the
First Quarter of 1995, when the Fund returned -1.20%. The Fund's overall
average annual total return since the commencement of active management is
as follows:
MARKET OPPORTUNITY FUND 20.62%
S&P 500* 21.59%
NASDAQ COMPOSITE* 24.10%
____________________________

* The table compares the Fund's performance over time to that of the S&P 500 and
the NASDAQ Composite. The S&P 500 is a widely-recognized,
capitalization-weighted, unmanaged index of 500 large U.S. companies chosen for
market size, liquidity and industry group representation and includes reinvested
dividends. The NASDAQ Composite is a market-value weighted index that includes
all of the stocks listed on the NASDAQ National Market System.

<PAGE>

FEES AND EXPENSES OF THE FUND

This table describes the fees and expenses that you may pay if you buy,
hold or sell shares of the Fund. We based the expense information on expenses
from the last fiscal year for the Fund. Actual expenses may be different from
those shown.

SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT)

Redemption fee (as a percentage of amount redeemed)........2.00% <F1>

ANNUAL FUND OPERATING EXPENSES
(expenses that are deducted from assets)

Management fees...................................... 0.78% <F2>
Distribution (12b-1) expenses........................ None
Other expenses....................................... 0.60%

Administrative expenses.......................... 0.11%
Dividend Expense on Short Sales of Securities.... 0.49% <F3>

Total Annual Fund Operating Expenses................. 1.38%
[FN]
<F1> 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 "Redeeming Your Shares."

<F2> 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.

<F3> SEC Regulation S-X Rule 6-03(g) requires cash dividends declared on stocks
in which the Fund has a short position as of the record date to be recognized as
an expense on the ex-dividend date.
</FN>

Example
- -------

This example is intended to help you compare the cost of investing in the Fund
with the cost of investing in other mutual funds. The example assumes that you
invest $10,000 in the Fund for the time periods indicated, and then redeem all
of your shares at the end of those periods. The example also assumes that your
investment has a 5% return each year, and that the Fund's fees and expenses
remain the same. Although your actual costs may be higher or lower, based on
these assumptions your costs would be:

1 year 3 years 5 years 10 years
------ ------- ------- --------

$141 $440 $760 $1666

The Fund is a no-load fund, so you do not pay any sales charge or commission
when you buy or sell shares. If you buy or sell shares through a broker,
however, you may be charged a fee by that broker. The Fund does not have a 12b-1
Plan.

6
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ADDITIONAL INFORMATION ON THE FUND'S INVESTMENT OBJECTIVE AND STRATEGY

The Fund's investment objective is to provide long-term capital growth
with a short-term focus on capital preservation. Current income is only an
incidental consideration. The Fund seeks to achieve its objective by investing
substantially all of its assets in securities listed on a national securities
exchange or quoted in the National Association of Securities Dealers Automated
Quotation ("NASDAQ") National Market System.

The Fund uses the principal investment strategy detailed on page 2 to
achieve its investment objective. As explained above, the Fund's strategy
includes active asset allocation and stock selection (including long and short
common stock positions). Asset allocation determinations are primarily based on
our perception of risk in the marketplace. To help us assess risk, we examine a
number of factors that we believe exercise the most influence on the price of
stocks and bonds. We have incorporated several of these factors into a
Mutlifactor Decision Making Process model. We use the model, along with other
research, when making our investment decisions. We make the determination
whether, and to what degree, to be "bullish" or "bearish" on the market at any
given time based on our research.

Although we weigh the factors differently, we consider Monetary/
Economic Liquidity and Inflation, which help us to determine trends in the
market, to be the most important. The factors used in the Multifactor
Decision Making Process model are described below:

o MONETARY/ECONOMIC LIQUIDITY - This factor considers the relationship
between liquidity or money supply and economic growth in the current market
environment. It influences us to be bullish when money supply increases
faster than economic growth because excess economic liquidity flows into
stocks and bonds. It influences us to be bearish when the economy grows
faster than money supply, as money is withdrawn from financial assets to
purchase plant, equipment and other products.

o INFLATION - This factor measures changes in the cost of living. It
influences us to be bullish for stocks when inflation is falling, yet
remains positive. It influences us to be bearish when inflation is
increasing, or if it indicates we are experiencing deflation (negative
inflation).

o MOMENTUM / BREADTH - This factor gauges the action (trend, speed and
breadth) of general stock price movements. It influences us to be bullish
when it indicates that the markets are moving in a gradual uptrend (price
momentum) with most stocks moving up (broad breadth). It influences us to
be bearish when the opposite occurs.

o VALUATION - This factor assesses the various measures used to determine
whether stocks are cheap or expensive based on historic norms. It
influences us to be bullish when it reflects that stocks are relatively
inexpensive based on historic norms and influences us to be bearish when it
reflects that they are expensive relative to historical norms.

o SUPPLY / DEMAND - This factor measures the relationship between stock
supply and demand in the market. Supply increases with initial public and
secondary offerings, and decreases with stock buy backs and insider
purchases. This factor influences us to be bullish when it indicates that
there is a low supply of stock and high demand. It influences us to be
bearish when the reverse is true.

o SENTIMENT - This factor assesses surveys taken to determine if investors
are feeling positive or negative about the outlook for stocks and bonds.
This factor runs contrary to conventional wisdom, influencing us to be
bullish when too many investors are pessimistic and bearish when too many
investors are optimistic.

o GLOBAL CURRENTS - This factor uses all of the factors described above and
applies them to foreign markets in assessing their bullish or bearish
impact on domestic financial markets.

SHORT POSITION PROCEEDS. Every time we establish a short position in a
stock, we borrow that stock from our brokers and sell it in the market,
receiving cash for the sales price. We typically invest these short sale
proceeds in cash equivalent securities such as money-market securities or U.S.
treasury securities maintained with the broker-dealer from whom we borrowed the
stock and/or our custodian. By taking this approach, we earn investment returns

7
<PAGE>

on our short sale proceeds while we are waiting to cover our short positions.
Additionally, we are responsible for paying interest on borrowed stock to our
brokers and dividends on any stock sold short (if there are any) to the lender
of that stock. These payments are made from the Fund's cash position.

TEMPORARY POSITIONS. Fund may, from time to time, take temporary
positions that are outside the scope of the Fund's principal investment
strategies in an attempt to respond to unusual market, economic, political or
other conditions. When the Fund takes a temporary position, the Fund may not be
able to achieve its investment objective.

PORTFOLIO TURNOVER. Our disciplined investment style and use of
certain risk control strategies (including active asset allocation and short
selling) may result in higher-than-average portfolio turnover. Portfolio
turnover results from buying and selling securities and involves expense to the
Fund in the form of brokerage commissions and other transaction costs. These
costs reduce the Fund's performance by the amount of the expense. The Manager
believes that the opportunity cost of not implementing these risk control
strategies would be higher than the cost of implementing them. Generally, we
take profits (or limit losses) by either paring back a position or exiting a
position in full when we see a significant catalyst that challenges a position's
upside potential. The Fund's turnover rate will generally exceed 100% per year,
and will not be a limiting factor when we deem change appropriate.

High portfolio turnover may have an unfavorable impact on the amount
of taxable distributions paid to shareholders. We are required to distribute to
shareholders all net investment income and net realized long-term and short-term
capital gains. Capital gains or losses derived from short sale activity will
generally be considered short-term capital gains or losses. Net investment
income and realized short-term capital gains are taxed as ordinary income.

YEAR 2000 READINESS. Many computers will not be able to process
date-related information on or after January 1, 2000, due to the manner in which
those systems encode the year 2000. The Fund recognizes the many aspects of the
Year 2000 (Y2K) issue, and it is working hard to prevent any disruption in the
Fund's business operations due to Y2K-related problems caused by either its
internal systems or the computer systems of third-party external service
providers. Further, the Fund recognizes that many of the issuers of securities
invests in may also be substantially affected by Y2K-related problems.
Accordingly, the Fund's Manager is carefully reviewing Y2K disclosures made by
the companies representing the Fund's current long positions.

While the Fund is taking steps to reduce the risks associated with
Y2K-related computer problems, the Fund's internal systems and/or the systems of
its service providers may still be affected. Also, it is not possible to protect
against misleading or incomplete disclosures by the companies the Fund invests
in. Any negative affects may adversely impact the Fund. The Fund is treating the
Y2K matter seriously, and will continue to allocate the resources necessary to
address Y2K issues. However, the Fund cannot give any assurances that
Y2K-related problems will not arise.

8
<PAGE>

FINANCIAL HIGHLIGHTS

The financial highlights table is intended to help you understand the
Fund's financial performance for the past five years. The total returns in the
table represent the rate that an investor would have earned on an investment in
the Fund (assuming reinvestment of all dividends and distributions). The
information for fiscal years ended April 30, 1999 and 1998 has been audited by
Tait, Weller & Baker, whose report, along with the Fund's financial statements,
is included in the Fund's annual report, a copy of which is available without
charge from the Fund.
<TABLE>
<CAPTION>
Years Ended April 30,

1999 1998 1997** 1996** 1995**
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Year $ 18.68 $15.77 $14.49 $11.35 $12.26

Income from Investment Operations:
Net Investment Income (Loss)* 0.53 0.25 0.22 0.27 0.54
Net Gains or Losses on Securities (both 3.08 3.75 2.95 3.31 (.81)
Realized and Unrealized)
Total from Investment Operations 3.61 4.00 3.17 3.58 (.27)

Less Distributions:
Dividends from Net Investment Income (0.42) (0.21) (0.24) (0.44) (0.41)
Distributions from Capital Gains (0.75) (0.88) (1.65) - (0.23)

Total Distributions (1.17) (1.09) (1.89) (0.44) (0.64)

Net Asset Value, End of Period $ 21.12 $ 18.68 $ 15.77 $ 14.49 $ 11.35
======= ======= ======= ======= =======

Total Return 19.43% 25.77% 23.24% 31.80% (2.28)%

Ratios and Supplemental Data:
Net Assets, End of Period (in $000's) $397,036 $157,823 $60,632 $38,030 $32,261

Ratios to average net assets:
Expenses before dividends on securities 0.89% 1.17% 1.26% 1.38% 1.18%
sold short (After Reimbursement)
Expenses from dividends sold short 0.49% 0.05% 0.08% 0.18% 0.45%
----- ----- ----- ----- -----

Total expenses (After Reimbursement) 1.38% 1.22% 1.34% 1.56% 1.63%

Total expenses (Before Reimbursement) 1.38% 1.22% 1.34% 1.56% 1.79%

Net investment income (loss) 3.21% 2.54% 2.01% 1.94% 3.55%

Portfolio Turnover Rate 378% 200% 229% 222% 331%
</TABLE>

- --------------------

* Had the Fund's distributor and Manager not waived a portion of the expenses,
net investment income (loss) per share would have been $.52 for the period ended
April 30, 1995. No expenses were waived for the fiscal years ended April 30,
1999, 1998, 1997 and 1996.

** INFORMATION FOR THE FISCAL YEARS ENDED APRIL 30, 1997, 1996 AND 1995 WAS
AUDITED BY COOPERS & LYBRAND.

9
<PAGE>

MANAGEMENT OF THE FUND

C&O Funds Advisor, Inc. (the "Manager") manages the Fund's investment
portfolio on a daily basis, subject to review by the Fund's Board of Directors.
The Manager was formed in 1986 and is a wholly-owned subsidiary of Caldwell &
Orkin, Inc. ("C&O, Inc."). C&O, Inc., formed in 1982, presently provides
investment advisory services to corporations, individual investors, and other
institutions, and has funds under management of approximately $550 million. The
Manager is an independent investment counsel firm with its offices located at
2050 Tower Place, 3340 Peachtree Road, NE, Atlanta, Georgia 30326.

For its services to the Fund, the Manager receives monthly compensation
at annual rates which vary in accordance with the following schedule:

ANNUALIZED PERCENTAGE OF
AVERAGE DAILY NET ASSETS ASSET LEVEL
------------------------ -----------
.90% $0 - $100,000,000
.80% $100,000,001-$200,000,000
.70% $200,000,001-$300,000,000
.60% $300,000,001-$500,000,000
.50% over $500,000,001

As a percentage of assets, the Fund paid the Adviser an aggregate fee of 0.78%
for the fiscal year ended April 30, 1999.

PORTFOLIO MANAGER
-----------------

Michael B. Orkin, the sole owner of C&O, Inc., 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

The Fund has generally been closed to new investment since August 28,
1998. Exceptions to this policy are described below:

o All shareholders, whether they are "Direct Shareholders" (shareholders who
are invested directly in the Fund) or "Indirect Shareholders" (shareholders
who purchased shares through the omnibus account of a broker-dealer), may
continue to reinvest dividends and capital gains in their accounts.

o A Direct Shareholder may purchase additional shares of the Fund for their
current account with a minimum additional investment of $100.

o A Direct Shareholder and the spouse and children who live with a Direct
Shareholder may open a new account with the Fund, subject to the minimum
initial investment that was required when the Direct Shareholder's initial
account was opened.

o An Indirect Shareholder may open a new account directly with the Fund
(becoming a Direct Shareholder in the Fund), subject to the minimum initial
investment that was required when the Indirect Shareholder first purchased
Fund shares.

o Employees of Caldwell & Orkin, Inc. and their spouses and children, members
of the Fund's Board of Directors and their spouses and children, and
clients of Caldwell & Orkin, Inc. may open new accounts directly with the
Fund with no minimum initial investment requirement.

o Caldwell & Orkin, Inc. may invest it clients' assets in the Fund through
omnibus accounts.

10
<PAGE>

o We may determine, in our sole discretion, to accept or reject any request
to purchase shares of the Fund at any given purchase level.

Generally, the minimum initial investment requirements referenced above are:
<TABLE>
<CAPTION>

Accounts opened on Accounts opened
or before June 10, 1998 after June 10, 1998
----------------------- -------------------

<S> <C> <C>
Regular Accounts $10,000 $100,000

Individual Retirement Account ("IRA"), other tax $2,000 $25,000
deferred retirement account or Uniform Gift to
Minors Act account
</TABLE>

HOW TO PURCHASE SHARES. You may purchase shares directly from the Fund
by sending a completed application and a check in the amount of your investment
to us at one of the addresses below. Your check should be made payable to the
"Caldwell & Orkin Market Opportunity Fund". Third-party checks generally are not
accepted. Eligible purchases must meet applicable minimum investment
requirements. All investments must be in U.S. dollars. All purchases of Fund
shares will be made at the next calculated Net Asset Value (NAV) after a
completed order is received.
<TABLE>
<CAPTION>
REGULAR MAIL: OVERNIGHT DELIVERY:
------------- -------------------
<S> <C>
CALDWELL & ORKIN MARKET OPPORTUNITY FUND CALDWELL & ORKIN MARKET OPPORTUNITY FUND
C/O COUNTRYWIDE FUND SERVICES, INC., C/O COUNTRYWIDE FUND SERVICES, INC.
P.O. BOX 5354 312 WALNUT STREET 21ST FLOOR
CINCINNATI, OHIO 45201-5354 CINCINNATI, OHIO 45202
(800) 467-7903
</TABLE>

You may also wire an investment to the Fund by wiring federal funds as follows:

FIFTH THIRD BANK CINCINNATI ABA #042000314
FOR CALDWELL & ORKIN FFC ACCT. #713-76953
TO: (INSERT THE SHAREHOLDER NAME AND ACCOUNT #)

If your wire investment is for a new account, you must forward your completed
account application to the Fund at its regular mailing address above. Please
note that your bank may charge a fee for wiring services, and that the Fund is
not responsible for delays in the wiring system.

PURCHASES THROUGH BROKER-DEALERS. The Fund is generally closed to both
new and additional investment through omnibus accounts (which includes discount
brokerage accounts), although indirect shareholders invested through omnibus
accounts may continue to reinvest dividends and capital gains in their accounts.

If the Fund reopens to investment through broker-dealers, then you may
also invest in the Fund through a NASD-registered broker-dealer. Since a
broker-dealer may charge you additional or different fees for purchasing or
redeeming shares than those described in this Prospectus, ask your broker-dealer
about his or her fees before investing. For purchases of shares through a
broker, orders are deemed to have been received by the Fund when the order is
received in good order by the broker, and are executed at the next determined
NAV after such receipt by the broker or the broker's authorized designee.

AUTOMATIC INVESTMENT PLAN. We offer an Automatic Investment Plan for
Direct Shareholders who wish to automatically invest a specific amount of money
on a regular basis after making their initial investment. Debits must be made
from your bank account in amounts of $100 or more, and may be made on the 15th
and/or the last business day of the month. If the 15th falls on a weekend or
holiday, your account will be debited on the previous business day. You may
participate in the Automatic Investment Plan by completing the appropriate
section of the Regular Account Application or the Automatic Investment Plan
form. All requests to change or discontinue the Automatic Investment Plan must

11
<PAGE>

be received in writing fifteen (15) days prior to the next scheduled debit date.
Please call the Fund at (800) 467-7903 if you wish to participate in the
Automatic Investment Plan.

REDEEMING YOUR SHARES

We will buy back (redeem) your shares at the next determined NAV on the
day we receive a valid request for redemption. In order to discourage short term
trading and to reduce the cost of account turnover to shareholders, we will
assess a redemption fee of 2% of the value of the shares being redeemed if the
shares have been held 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. No redemption fee is charged by the Fund on redemptions of shares
in Omnibus accounts, but your broker-dealer may charge additional or different
fees for redeeming shares not described in this Prospectus.

You may redeem your shares by mail by sending a letter of instruction
signed by all beneficial owners of the account to the Transfer Agent with your
name, account number and the amount you wish to redeem. Mail the redemption
request to:

CALDWELL & ORKIN MARKET OPPORTUNITY FUND
C/O COUNTRYWIDE FUND SERVICES, INC.,
P.O. BOX 5354
CINCINNATI, OHIO 45201-5354.

If you request sales proceeds via wire redemption, please note that a
signature guarantee is required and a fee for the wiring service will be
deducted from your redemption proceeds. A signature guarantee is also required
for any withdrawal which is mailed to an address or a person that is not the
address or person of record, or if you request a redemption of $25,000 or more
from your account.

If you have elected to establish telephone redemption privileges for
your account (see Regular Account Application or Telephone Redemption Privilege
Election form), then you also may redeem shares by calling the Transfer Agent at
(800) 467-7903 before 4:00 p.m. (Eastern Time) on any day the New York Stock
Exchange is open for business. Telephone redemption proceeds may be wired only
if wiring instructions have been provided on the your initial Regular Account
Application, on a Telephone Redemption Privilege Election form, or if wiring
instructions are provided, signature guaranteed, at any other time.

You should note that a telephone redemption may be difficult to
implement during periods of drastic economic or market changes. If you are
unable to implement a telephone redemption at any time, you may redeem shares by
mail as described above. 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. 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. If you use telephone
redemption privileges, you agree 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 Transfer Agent 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 or other
tax deferred 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.

12
<PAGE>

If you invested in the Fund through a broker-dealer other than the
Fund's Distributor, you will need to contact your broker-dealer to redeem your
shares. The broker-dealer may charge you additional or different fees for
redeeming shares than those described in this Prospectus.

ADDITIONAL INFORMATION ABOUT PURCHASES AND SALES

SMALL ACCOUNTS. 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. For accounts opened after June 10, 1998, the minimum investment
requirements were generally $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. The Fund will notify you if your account falls below
the required minimum. If your account is not increased to the required level
after a sixty (60) day cure period then the Fund may, at its discretion,
liquidate the account.

TELEPHONE PURCHASES BY SECURITIES FIRMS. If the Fund reopens to
investment through broker-dealers, then brokerage firms that are NASD members
may telephone the Fund at (800) 467-7903 and buy shares for investors through
the brokerage firm's account with the Fund. By electing telephone purchase
privileges, NASD member firms, on behalf of themselves and their clients, agree
that neither the Fund, the Fund's Distributor nor the Transfer Agent shall be
liable for following telephone instructions reasonably believed to be genuine.
To be sure telephone instructions are genuine, the Fund and its agents send
written confirmations of transactions to the broker that initiated the telephone
purchase. 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 a Fund fails to follow these established procedures, they may
be liable. The Fund may modify or terminate these telephone privileges at any
time.

MISCELLANEOUS. The Fund reserves the right to:

* terminate or modify any of the procedures for purchasing or redeeming
shares at any time;
* refuse to accept or determine to accept any request to purchase shares of
the Fund for any reason;
* refuse any redemption request involving recently purchased shares unti the
check for the recently purchased shares has cleared;
* delay mailing redemption proceeds for up to seven days (most redemption
proceeds are mailed within three days after receipt of a request); or
* in its sole discretion process any redemption request by paying the
redemption proceeds in portfolio securities rather than cash (typically
referred to as "redemption in kind").

DISTRIBUTIONS

The Fund distributes its net investment income and net realized long
and short-term capital gains to its shareholders at least annually, usually in
December. Absent instructions to pay distributions in cash, distributions will
be reinvested automatically in additional shares (or fractions thereof) of the
Fund.

13
<PAGE>

FEDERAL 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 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 applicability 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.

NET ASSET VALUE

The net asset value (NAV) 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 NAV once daily every day
there is sufficient trading in its portfolio of securities that the net asset
value might be materially affected.

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 NAV 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 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.

The Fund's current NAV is available 24 hours a day, 7 days a week from
any touch-tone telephone by calling (800) 467-7903.

14
<PAGE>

ADDITIONAL INFORMATION

Each shareholder who purchases shares directly from the Fund through
its Distributor, CW Fund Distributors, 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.

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.

Inquiries regarding a Direct Shareholder's investment account may be
made to the Fund's Transfer Agent using the address on the back of this
Prospectus. Additionally, shareholders who purchase Fund shares directly from
the Fund's Distributor can also obtain their account value, share balance,
recent transaction information, distribution information and request a fax of
their account statement by calling (800) 467-7903. All other inquiries should be
directed to the Fund at the address on the front of this Prospectus.

15
<PAGE>

HOW TO OBTAIN MORE INFORMATION

The Statement of Additional Information ("SAI") contains additional
information about the Fund including a more detailed discussion of its
investment policies and the risks associated with various investments. The SAI
is incorporated by reference into this Prospectus. This means that the SAI is
legally a part of this Prospectus.

Additional information about the Fund's investments is available in the
Fund's annual and semi-annual reports to shareholders. In the Fund's annual
report, you will find a discussion of the market conditions and investment
strategies that significantly affected the Fund's performance during its last
fiscal year.

If you would like additional information about the Fund or a copy of
the Fund's SAI, annual or semi-annual reports, please call us toll free at (800)
237-7073 or write us at The Caldwell & Orkin Market Opportunity Fund, 2050 Tower
Place, 3340 Peachtree Road, NE, Atlanta GA 30326.

You can also obtain these documents, and other information about the
Fund from the SEC's website at http://www.sec.gov. You may review and copy
documents at the SEC Public Reference Room in Washington, D.C. (800) SEC-0330.
You may request documents by mail from the SEC by writing to Securities and
Exchange Commission, Public Reference Section, Washington, D.C. 20549-6009. The
SEC will charge a duplicating fee for any requested materials.

SEC File Number: 811-8718

BOARD OF DIRECTORS

Michael B. Orkin, Chairman
H. Eugene Caldwell, Chairman Emeritus
Frederick T. Blumer
David L. Eager
Robert H. Greenblatt
Henry H. Porter

MANAGER

C&O Funds Advisor, Inc.
2050 Tower Place
3340 Peachtree Road, NE
Atlanta, GA 30326

TRANSFER AGENT

Countrywide Fund Services, Inc.
312 Walnut Street
21st Floor
Cincinnati, OH 45202

DISTRIBUTOR

CW Fund Distributors, Inc.
312 Walnut Street
21st Floor
Cincinnati, OH 45202

CUSTODIAN

Bank One Ohio Trust Company, N.A.
235 W. Schrock Road
Westerville, OH 43081

INDEPENDENT ACCOUNTANTS

Tait, Weller & Baker
Eight Penn Center Plaza, Suite 800
Philadelphia, PA 19103

LEGAL COUNSEL

Kilpatrick Stockton LLP
1100 Peachtree Street
Suite 2800
Atlanta, GA 30309-4530

16
<PAGE>

STATEMENT OF ADDITIONAL INFORMATION

September 1, 1999

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
September 1, 1999 (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.

This Statement of Additional Information incorporates by reference
information from the Fund's Annual Report to shareholders for the fiscal year
ended April 30, 1999. The Annual Report also accompanies this Statement of
Additional Information. Additional copies are available, without charge, by
contacting the Fund at (800) 237-7073.

____________________

C & O FUNDS ADVISOR, INC. - MANAGER
<PAGE>

TABLE OF CONTENTS

Page

<S> <C>
THE FUND.....................................................................................................3
INVESTMENT OBJECTIVES, POLICIES AND RISK CONSIDERATIONS......................................................3
INVESTMENTS IN SMALL COMPANIES............................................................................3
INVESTMENT IN FIXED INCOME SECURITIES.....................................................................3
INVESTMENTS IN SHORT SALES OF SECURITIES..................................................................4
INVESTMENTS IN FOREIGN SECURITIES.........................................................................4
LENDING OF PORTFOLIO SECURITIES...........................................................................5
REPURCHASE AGREEMENTS.....................................................................................5
INVESTMENT RESTRICTIONS......................................................................................5
MANAGEMENT OF THE FUND.......................................................................................7
BOARD OF DIRECTORS........................................................................................7
OFFICERS..................................................................................................8
DIRECTORS.................................................................................................8
MANAGEMENT AND ADVISORY ARRANGEMENTS......................................................................8
PORTFOLIO TRANSACTIONS AND BROKERAGE ALLOCATION.............................................................10
DETERMINATION OF NET ASSET VALUE............................................................................10
THE DISTRIBUTOR.............................................................................................11
PURCHASE OF SHARES..........................................................................................11
REDEMPTION OF SHARES........................................................................................13
SHAREHOLDER SERVICES........................................................................................15
INVESTMENT ACCOUNT.......................................................................................15
REINVESTMENT OF DIVIDENDS AND CAPITAL GAINS DISTRIBUTION.................................................15
DIVIDENDS, DISTRIBUTIONS AND TAXES..........................................................................16
DIVIDENDS AND DISTRIBUTIONS..............................................................................16
TAXES....................................................................................................16
PERFORMANCE INFORMATION.....................................................................................17
GENERAL INFORMATION.........................................................................................19
DESCRIPTION OF SHARES....................................................................................19
INDEMNIFICATION OF OFFICERS AND DIRECTORS................................................................19
PRINCIPAL SHAREHOLDERS...................................................................................19
INDEPENDENT AUDITORS.....................................................................................19
CUSTODIAN................................................................................................19
TRANSFER, REDEMPTION, AND DIVIDEND DISBURSING AGENT......................................................19
LEGAL COUNSEL............................................................................................19
DISTRIBUTOR..............................................................................................19
REPORTS TO SHAREHOLDERS..................................................................................20
ADDITIONAL INFORMATION...................................................................................20
AUTOMATED TELEPHONE ACCESS TO FUND INFORMATION...........................................................20
FINANCIAL STATEMENTS AND INDEPENDENT ACCOUNTANTS' REPORT.................................................20
</TABLE>

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 Objective and Principal Investment Strategies
of the Fund" 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.

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.

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.

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 Manager believes to

3
<PAGE>

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.

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 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

4
<PAGE>

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.

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).

5
<PAGE>

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 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 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:

6
<PAGE>

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.

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 (See information below.)*

MICHAEL B. ORKIN, DIRECTOR, PRESIDENT, AND CHAIRMAN (See information below.)*

FREDERICK T. BLUMER, DIRECTOR

Mr. Blumer is 40 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.

DAVID L. EAGER, DIRECTOR

David L. Eager, who is 57 years old, is a Partner with Eager Manager Advisory
Services, a practice of William M. Mercer, Inc. which provides consultation and
research services to the investment management industry. The firm is located in
Louisville, Kentucky. Previously, Mr. Eager was President and Managing Director
of Eager & Associates, which he co-founded in 1984. William M. Mercer, Inc.
acquired Eager & Associates in September 1998. Mr. Eager's address is 25 Stone
Bridge, Louisville, Kentucky 40207.

ROBERT H. GREENBLATT, DIRECTOR

Robert Greenblatt, who is 38 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., 60 East 42nd St., Suite 2023, New York, New York 10165.

HENRY H. PORTER, JR., DIRECTOR

Henry Porter, who is 64 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.

7
<PAGE>

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 75 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 40 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 40 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. and C&O Funds Advisor,
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.

RONALD E. BEDWELL - Treasurer* - Mr. Bedwell is 33 years old. Mr. Bedwell has
been the Controller of Caldwell & Orkin, Inc. since July 1998. Mr. Bedwell is
also Treasurer of Caldwell & Orkin, Inc. and C&O Funds Advisor, 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 accountant 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 the fiscal year ended April 30,
1999, Mr. Eager received $6,125, Mr. Porter and Mr. Greenblatt received $6,375,
and Mr. Blumer received $7,125.

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" 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

8
<PAGE>

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.

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, 1999, 1998 and 1997, the Fund paid $2,628,554,
$975,437, and $369,177, 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.

In addition to the Management Agreement with the Manager, 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.

9
<PAGE>

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 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, 1999, 1998 and 1997, the Fund paid $2,820,392,
$928,228, and $295,564, respectively, in brokerage commissions.

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

10
<PAGE>

valued at fair value as determined in good faith by or under the direction of
Caldwell & Orkin's Board of Directors.

THE DISTRIBUTOR

Set forth below is further information about distribution of Fund Shares, the
Fund's Distributor and the Fund's Distribution Agreement. Reference is made to
"Purchasing Shares" and "Redeeming Your Shares" in the Prospectus.

The Fund has entered into Distribution Agreement with CW Fund Distributors, Inc.
(the "Distributor"). The Agreement obligates the Distributor to provide certain
services to the Fund in connection with the offering of the shares of the Fund.

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."

PURCHASE OF SHARES

The Distributor is also 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
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. The Fund has been generally closed to new
investment the close of business on August 27, 1998. 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. For accounts opened after June
10, 1998, the minimum investment requirements were generally $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.

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<PAGE>

Employees of Caldwell & Orkin, Inc. and their spouses and children, members 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. Shareholders invested through
Omnibus accounts may also open a direct account with the Fund.

Notwithstanding the foregoing restrictions, minimum purchase requirements and
exceptions set forth above, the Fund 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
(800) 467-7903

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
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 for
eligible purchases of Fund Shares by 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 on the
15th and/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 or the Automatic Investment Plan
form. 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.
Requests to participate in the Automatic Investment Plan may be made by calling
the Fund at (800) 467-7903.

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
12
<PAGE>

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 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 the "Fund Determination of Net Asset
Value.") If you wish to acquire the Fund's shares in exchange for securities you
should contact 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.

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.

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. The signatures must
also be guaranteed if the shareholder requests redemption of $25,000 or more
from his or her account. Certificates (if any) 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) 467-7903 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.

13
<PAGE>

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 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)
467-7903 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. For accounts opened after June 10, 1998, the minimum investment
requirements were generally $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.

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) 467-7903 and place purchase and redemption orders on
behalf of investors who carry their Fund investments through the member's
account with the Fund.

14
<PAGE>

PURCHASES BY TELEPHONE. If the Fund reopens to investment through
broker-dealers, 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.

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.

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

15
<PAGE>

may elect in writing to receive 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 Fund or vice versa and, commencing ten days after the receipt by the
Transfer Agent of such notice, those instructions will be effected.

AUTOMATED TELEPHONE ACCESS TO FUND INFORMATION. The Fund's current net asset
value (NAV) is available 24 hours a day, 7 days a week from any touch-tone
telephone by calling (800) 467-7903. Additionally, shareholders who purchase
Fund shares directly from the Distributor can also obtain their account value,
share balance, recent transaction information, distribution information and
request a fax of their account statement by calling (800) 467-7903.

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. 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.

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.

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 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

16
<PAGE>

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 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:

n
P(1+T) = ERV

Where P = a hypothetical initial payment of $10,000
T = average annual total return
N = number of years
ERV = Ending Redeemable Value of hypothetical $10,000 payment
at the beginning of the 1, 5, 10 years (or other) periods
at end of the 1, 5, or 10 (or other periods (or fractional 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.

The following table provides the average annual rates of return for the Caldwell
& Orkin Market Opportunity Fund from its inception through April 30, 1999. 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 (May 1, 1998-April 30, 1999) 19.43%
3 Years (May 1, 1996-April 30, 1999) 22.79%
5 Years (May 1, 1994-April 30, 1999) 18.98%
8.1 Years (since inception)
(March 11, 1991 - April 30, 1999) 17.10%

17
<PAGE>

Value Return

1 Year (May 1, 1998-April 30, 1999) $11,943 $1,943
3 Years (May 1, 1996-April 30, 1999) $18,512 $8,512
5 Years (May 1, 1994-April 30, 1999) $23,842 $13,842
8.1 Years (since inception)
(March 11, 1991 - April 30, 1999) $36,231 $26,231

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 exceptions, 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 (May 1, 1998-April 30, 1999) 19.43%
3 Years (May 1, 1996-April 30, 1999) 22.79%
5 Years (May 1, 1994-April 30, 1999) 18.98%
6.7 Years (Since Commencement of Hedged Management Style)
(August 24, 1992-April 30, 1999) 19.88%
------

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 (May 1, 1998-April 30, 1999) 11,943 1,943
3 Years (May 1, 1996-April 30, 1999) 18,512 8,512
5 Years (May 1, 1994-April 30, 1999) $23,842 13,842
6.7 Years (Since Commencement of Hedged Management Style)
(August 24, 1992-April 30, 1999) $33,630 $23,630
------- -------
</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.

18
<PAGE>

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.

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.

PRINCIPAL SHAREHOLDERS. As of July 31, 1999, 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:

Name and Address of
Beneficial Owner Number of Shares Percent of Class
- ---------------- ---------------- ----------------

Charles Schwab & Co., Inc.
Special Custody A/C FBO Customers 5,696,066.031 32.4%
101 Montgomery Street
San Francisco, California 94104

National Investor Services
Corporation/FBO Customers
55 Water St. 942,110.850 5.37%
New York, NY 10041

As of July 31, 1999, the Officers and Directors of Caldwell & Orkin and the
Manager, as a group, own 1.69% 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. Schrock 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 would represent the Manager in the event of a dispute
between the Manager and the Fund.

DISTRIBUTOR. CW Fund Distributors, Inc., 312 Walnut Street, 21st Floor,
Cincinnati, Ohio 45202, is the Fund's Distributor. The Distributor is primarily
responsible for the distribution of Fund shares.

19
<PAGE>

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.

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,
1999 were audited by Tait, Weller & Baker, the Fund's independent accountants,
and are incorporated by reference from the Market Opportunity Fund's 1999 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.

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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.

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.

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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 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.

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Financial Statements

FINANCIAL STATEMENTS OF THE MARKET OPPORTUNITY FUND INCORPORATED BY
REFERENCE IN PART B:

Annual Report to Shareholders for year ended April 30, 1999:

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