<PAGE> 1
[CALDWELL & ORKIN MARKET OPPORTUNITY FUND LETTERHEAD]
SEMI-ANNUAL REPORT TO SHAREHOLDERS
DEAR FELLOW SHAREHOLDER: DECEMBER 17, 1999
The Caldwell & Orkin Market Opportunity Fund lost 6.1% in the 6-month period
ended October 31, 1999. Since its August 24, 1992 commencement of active
management through October 31, 1999, the Fund has not moved in step with the S&P
500 with Income, yet it has performed well (17.3% average annual return vs.
20.8% for the index) during one of the strongest bull markets of all time (see
pages 8 & 9) while maintaining a hedged exposure to market risk. Of course, past
performance is no guarantee of future results.
These results are notable given the Market Opportunity Fund's "market-risk
sensitive" investment approach. The Fund's investment objective is to provide
long-term capital growth with a short-term focus on capital preservation through
asset allocation and investment selection. When a stock is purchased, two
principal types of risk are assumed, market risk and stock risk. Market risk is
the risk that the broad market declines, taking good companies down with it.
Stock risk is the risk that a stock underperforms due to company-specific
reasons.
The Fund uses active asset allocation - the opportunistic shifting of assets
between long stock positions, short stock positions (selling borrowed stock and
then attempting to purchase it at a lower price), high quality bonds and cash
equivalents - to manage exposure to market risk. Short positions are taken with
the intent of making money when stock prices fall.
The Fund's market exposure can be anywhere from 100% net long to 60% net short.
Historically, the Fund's asset allocation has not approached those extremes, and
it is unlikely that we would be postured either fully net long or net short. The
Equity Investment Position chart on page 5 provides a graphical representation
of the Fund's historical asset allocation since commencement of active
management.
The Fund's low market risk profile is highlighted as evidence of our investment
approach (see page 7). From its August 24, 1992 commencement of active
management through the month ended October 31, 1999, the Fund has correlated
with the S&P 500 with Income only 2.7% of the time, with only 9% of its
volatility as measured by beta. (An S&P 500 index fund has a 100% correlation
with the market and a beta of 1.00. Computations by Ned Davis Research, Inc.)
SIX MONTHS IN REVIEW
The Fund's performance over the past six months has been at times encouraging,
on an absolute basis disappointing and on an emotional basis frustrating. In the
six months ended October 31, 1999, the Fund declined 6.1%, versus a gain of 2.8%
for the S&P 500 with Income and 16.7% for the NASDAQ Composite. For the twelve
months ended October 31, 1999, the
<PAGE> 2
Fund is down 1.6%, versus positive returns of 25.6% and 67.5% for the S&P and
NASDAQ indices, respectively (see page 8).
Monetary / Economic Liquidity (the relationship between liquidity or money
supply and economic growth) and Inflation are important factors because they are
causal - they directly impact the stock market. An easing in monetary policy by
the Federal Reserve (such as lowering interest rates or increasing money supply)
is generally considered positive for financial assets as it adds liquidity to
the financial system, putting upward pressure on prices. Conversely, a
tightening action is generally considered negative for financial assets as it
drains liquidity and puts downward pressure on prices.
During the fall of 1998, the Federal Reserve Board executed a series of interest
rate cuts designed to ward off a potential credit crunch in the U.S. resulting
from the spreading Asian economic crisis, a Russian debt default and the near
collapse of the Long-Term Capital Management hedge fund. The plan worked, and
the U.S. financial markets were awash in cheap money, augmented by overseas
investors looking for a safe harbor while foreign markets roiled. Money supply
growth (as measured by M2) surged. After having made money during the two
downturns last year, the Fund reversed its posture and was able to basically
break even during the fourth quarter of 1998. Equity prices rose and bond yields
fell, bringing down mortgage rates and setting the stage for a surge in
refinancing activity. The combined effects of newly created paper wealth and
cash-in-hand from refinancing sent consumers racing to the stores (the wealth
effect), and the economy grew. To a considerable extent, the pace of U.S.
economic growth was and still is determined by the stock market.
As the economy picked up steam, corporate profits surged, stock prices rose,
more jobs were created and unemployment fell to its lowest level in 30 years.
But the economy continued to grow, and in the absence of available workers,
upward pressure was put on wages as well as other costs. Since labor costs
account for 70% of a typical good's price, inflationary pressures have mounted,
putting the inflation detectors at the Fed on a heightened state of alert.
The six month period ended October 31, 1999 began with the Market Opportunity
Fund positioned 46.8% long, 44.6% short and 8.6% in cash for an effective 2.2%
net long exposure - essentially market neutral. Throughout this period equity
valuations have remained extremely high, speculation in the stock market has
increased, household portfolios are at record levels of equity ownership, debt
(both in and outside of the stock market) has gone through the roof and the
level of margin debt is at record levels (see page 6). In short, it's a
high-risk market. But there was also an upside - the economy continued to grow
without signs of inflation according to those indices published by the
government (yes, we are skeptical of how the government calculates inflation),
with the credit going to productivity gains resulting from changes in
technology.
At its end-of-June meeting the Fed began the process of reversing last fall's
easings in an attempt to slow down economic growth and ward off potential
inflation. The Fed tightened monetary policy with a 0.25% federal funds - the
overnight lending rate between banks - rate increase. The stock market took
notice (the S&P was down 3.1% in July and the Fund was up 1.7%), but the economy
didn't. As the period unfolded we moved the portfolio to a more bullish posture,
pulling back on some shorts and adding more long exposure. By August 18th, the
portfolio was 23% net long.
But the undercurrents of inflation continued to gain momentum: the Goldman Sachs
Commodity Index spiked upward and the unemployment rate remained at historically
low levels despite an expanding economy (tight labor markets invariably foretell
wage inflation). On August 24th, the Fed again raised the federal funds rate by
0.25% to 5.25%. Additionally, the Fed also raised the discount rate - the rate
it uses on loans directly to banks - by 0.25% to 4.75%. In its
2
<PAGE> 3
statements, the Fed has consistently telegraphed its resolve to slow the economy
and stymie inflation pressures. We turned more bearish, and proceeded to
transition the portfolio for a declining market.
Much of the market's advance during October was concentrated in the internet
stock sector (witness the composition of the NASDAQ Composite index, which is
half internet stocks). We later participated in that advance on the long side by
investing in companies generally surrounding the internet: specialized
semiconductor chip companies, chip equipment manufacturers, fiber optic cable
companies, internet service firms, cable TV companies and telecommunications
firms. We liken the internet mania to the California gold rush of 1849. The
moneymakers sold picks, shovels and blue jeans. Very few prospectors hit the
mother lode.
Certain internet companies, we believe, have illogical business models. The
fundamentals of these electronic prospectors are deteriorating, revenues are
scarce and earnings are, generally speaking, non-existent. In fact, many are
suffering tremendous losses that continue to worsen. Nonetheless, they sport
stratospheric market valuations.
Borrowing from the axiom "the bigger they are the harder they fall," we reasoned
that should liquidity come out of the market as the Fed continued to tighten, it
would first come out of those financial assets that had run up so much in price
without a sound business strategy, namely the above-mentioned electronic
prospectors. Throughout the third quarter we built up our short exposure to
these sectors, primarily the second- and third-tier players in the groups. By
the end of September, internet-related shorts accounted for 9.5% of the Fund's
net assets. The Fund fared well during the third quarter, rising 2.1% compared
to a loss of 6.3% for the S&P.
We turned decidedly bearish going into the fourth quarter. In our last Annual
Report to shareholders covering the period ended April 30, 1999, we wrote, "We
do not fear going either heavily net short or net long, and under the right
circumstances (as we perceive them) we will. It's important to remember,
however, that even bear markets can have big rallies, and bull markets can have
significant setbacks. " This was just such a circumstance, and our level of
conviction was very high that we would see a substantial market retreat.
We increased the Fund's short exposure, with many of the short names being those
in the internet and financial services (specifically, sub-prime lending)
industries. Through the first half of October the Fund was performing well.
Based on the October 15th close, the Fund was ahead of the S&P for the calendar
year, up 2.7% versus 2.5% for the S&P, and was up .6% from its close on April
30, 1999.
During the latter half of October several events conspired to reverse the Fund's
performance. Most prominent, the market continued its advance. And of particular
note to the Fund, those gains were led by internet stocks.
The internet rally was fueled to a large degree by Wall Street analysts' hyping
the sector and the irrational exuberance of speculative traders chasing
performance. Interestingly, the same analysts who gave glowing internet
recommendations surfaced again later in the month raising the yellow flags of
caution. Apparently, the group's deteriorating fundamentals and rising expenses
were becoming too obvious to overlook. Also late in the month, Congress (after
decades of debate) took action on the Gramm-Leach-Bliley Financial Modernization
Act, which repeals the Glass-Steagall Act's restrictions on bank and securities
firm affiliations and amends the Bank Holding Company Act to permit affiliations
among banks, securities firms and insurance companies. The financial service
sector rallied sharply on the prospects of heightened merger activity, including
sub-prime lenders where the Fund has considerable short exposure (although their
rally was short-lived and has since continued its downtrend).
3
<PAGE> 4
We covered many of the internet and financial shorts that turned against us. By
the end of October, internet shorts accounted for 7.2% of the portfolio. We also
took long positions in two banks. Lastly, adhering to our discipline, we
retreated rapidly from our bearish positioning (which should not be interpreted
as a bullish move). On October 27th, the Fund was positioned 31.7% net short
(the most bearish exposure in the Fund's history). We closed the month two days
later positioned 42.4% long, 57.4% short and 0.2% in cash, effectively 15.0% net
short.
OUTLOOK
I mentioned emotional frustration. With the Fed's tightening actions, not to
mention the rebound in overseas markets which should attract liquidity away from
U.S. markets, a market pullback seemed highly likely during October. We now have
a clearer picture as to why no liquidity-induced retreat has materialized.
Although the Fed has been talking tough and has raised the federal funds rate
three times (the last increase was November 16th), it has printed money during
November in preparation for a potential Y2K-related run on banks, in effect
pumping more liquidity into the financial system. In November alone, M3 - the
Fed's broadest measure of money supply - grew almost 18% on an annualized basis,
compared with just 5.7% for the first half of the year. Ned Davis Research puts
it into perspective: "The Fed has pushed enough monetary stimulus into the
financial system that the 26-week rate of change in the mostly Fed-controlled
monetary base has surged 17.7%, the highest stimulus in 15 years!" As a result,
despite its official "tightening" actions, the Fed has engineered one of the
largest "easings" in decades (see page 6). And as we said at the outset, easings
generally put upward pressure on prices.
As we pass into the new millennium, the Fed may find that there's a lot more
than confetti and spilled champagne to be mopped up, namely a boatload of excess
liquidity. Should the economy continue growing and inflationary pressures
persist, their clean-up activity could be that much more pressing.
As of the date of this letter, the Market Opportunity Fund has 0.19% short
exposure to internet-related stocks. We still believe this sector is
tremendously overvalued and will suffer a significant pullback, providing an
unprecedented opportunity to make money on the short side. However, we clearly
recognize the downside risks represented by an irrational, highly-speculative
market and the volatile and erratic movements characteristic of internet stocks.
As such, we will closely monitor the sector, realizing that we will try but may
not catch an opportune time to short selected internet-related issues.
YEAR 2000 READINESS DISCLOSURE
Caldwell & Orkin, Inc. recognizes the many aspects of the Year 2000 (Y2K) issue,
and we are working hard to prevent any disruption in our business operations due
to Y2K-related problems caused by either our internal systems or the computer
systems of our third-party external service providers. Furthermore, we recognize
that many of the issuers of securities we invest in may also be substantially
affected by Y2K-related problems. Accordingly, we are carefully reviewing Y2K
disclosures made by the companies representing the Fund's current long
positions.
While we are taking steps to reduce the risks associated with Y2K-related
computer problems, our internal systems and/or the systems of our service
providers may still be affected. Also, it is not possible to protect against
misleading or incomplete disclosures by the companies we invest in. Any negative
affects may adversely impact long positions of the Fund. We are treating the Y2K
matter seriously. However, we cannot give assurance that Y2K-related problems
will not arise.
4
<PAGE> 5
IN CONCLUSION
My personal thanks go out to the many shareholders who have called us to inquire
about the Fund's performance. We always appreciate the opportunity to speak with
you directly and explain the up-to-the-minute dynamics of the Fund. To those of
you who we have not spoken to, be assured that there has been no change in our
investment style. We still look for a catalyst in equity selection, be it
negative or positive. We are not dogmatic in our investment posture, which is to
say we are tied to our discipline rather than to our views on individual stocks
or the market. I am confident that over time, real fundamentals will prove
themselves out, and thus we will continue to manage for perceived risk, as well
as return.
On behalf of myself and my associates, we appreciate your investment in the
Market Opportunity Fund, and we thank you for your continued support of our
market risk-averse investment style.
Sincerely,
Michael B. Orkin, CFA
Portfolio Manager and Chief Investment Officer
[Equity Investment Position]
Chart Courtesy of Ned Davis Research, Inc.
5
<PAGE> 6
[CHART 3 MARGIN DEBT AS A PERCENTAGE OF GDP]
[CHART 4 STANDARD & POOR'S 500 COMPOSITE INDEX]
Charts Courtesy of Ned Davis Research, Inc.
6
<PAGE> 7
CALDWELL & ORKIN MARKET OPPORTUNITY FUND
STATISTICAL RISK PROFILE 8/31/92 - 10/31/99
TEN WORST S&P 500 WITH INCOME DAYS
<TABLE>
<CAPTION>
Date C&O MOF S&P 500 Variance
- ---- ------- ------- --------
<S> <C> <C> <C>
10/27/97 -1.60% -6.86% 5.26%
08/31/98 0.42 -6.77 7.19
08/27/98 -0.19 -3.83 3.64
08/04/98 0.10 -3.62 3.72
03/08/96 -1.30 -3.07 1.77
09/30/98 0.55 -3.04 3.59
10/01/98 0.82 -3.00 3.82
01/09/98 -0.28 -2.96 2.68
10/15/99 1.53 -2.80 4.33
04/11/97 -0.44 -2.72 2.28
</TABLE>
The Caldwell & Orkin Market Opportunity Fund outperformed the S&P 500 with
Income on all ten of the ten worst days, and was positive on five of the ten
days.
TEN WORST S&P 500 WITH INCOME WEEKS
<TABLE>
<CAPTION>
Week Ending C&O MOF S&P 500 Variance
- ----------- ------- ------- --------
<S> <C> <C> <C>
10/15/99 2.86% -6.61% 9.47%
09/04/98 0.33 -5.15 5.48
08/28/98 0.65 -4.98 5.63
01/09/98 -0.11 -4.83 4.72
07/23/99 0.01 -4.34 4.35
09/24/99 -0.83 -4.32 3.49
10/02/98 1.80 -4.00 5.80
07/24/98 0.20 -3.85 4.05
08/15/97 -0.30 -3.47 3.17
06/24/94 0.24 -3.36 3.60
</TABLE>
The Caldwell & Orkin Market Opportunity Fund outperformed the S&P 500 with
Income in all ten of the ten worst weeks, and was positive seven of the ten
weeks.
TEN WORST S&P 500 WITH INCOME MONTHS
<TABLE>
<CAPTION>
Month C&O MOF S&P 500 Variance
- ----- ------- ------- --------
<S> <C> <C> <C>
August 1998 3.12% -14.46% 17.58%
August 1997 4.00 -5.61 9.61
July 1996 -0.82 -4.40 3.58
March 1994 -4.10 -4.35 0.25
March 1997 4.50 -4.10 8.60
November 1994 0.27 -3.72 3.99
October 1997 4.21 -3.31 7.52
February 1999 -1.11 -3.12 2.01
July 1999 1.74 -3.10 4.84
February 1994 1.36 -2.79 4.15
</TABLE>
The Caldwell & Orkin Market Opportunity Fund outperformed the S&P 500 with
Income in all ten of the ten worst months, and was positive seven of the ten
months.
<TABLE>
<CAPTION>
C&O MOF S&P 500
------- -------
<S> <C> <C>
Correlation Coefficient 2.67% 100.0%
Beta 0.09 1.00
Sharpe Ratio 2.51
</TABLE>
PERFORMANCE DURING THE LAST THREE MARKET DOWNTURNS
<TABLE>
<CAPTION>
C&O MOF S&P 500
------- -------
<S> <C> <C>
July 17, 1998 through August 31, 1998 4.0% -19.3%
October 7, 1997 through October 27, 1997 0.2 -10.8
March 10, 1997 through April 11, 1997 3.4 -9.2
</TABLE>
Short selling began May 2, 1994. Past performance is
no guarantee of future results.
Computations by Ned Davis Research, Inc.
7
<PAGE> 8
CALDWELL & ORKIN MARKET OPPORTUNITY FUND
TOTAL RETURN PERFORMANCE SUMMARY THROUGH OCTOBER 31, 1999(1)
<TABLE>
<CAPTION>
C&O MARKET NASDAQ S&P 500
FISCAL OPPORTUNITY COMPOSITE WITH INCOME
YEAR ENDED FUND INDEX INDEX
<S> <C> <C> <C>
1991 1.25% 2.02% 0.57%
1992 11.96%(2) 19.38% 14.07%
1993 * 15.09% 14.30% 9.23%
1993 ** 21.09% 19.09% 9.28%
1994 16.48% 10.95% 5.30%
1995 (2.28)% 15.01% 17.40%
1996 31.80% 41.06% 30.18%
1997 23.24% 5.90% 25.11%
1998 25.77% 48.20% 41.02%
1999 19.43% 36.10% 21.80%
Six months ended 10/31/99 (6.11)% 16.66% 2.75%
Twelve months ended 10/31/99 (1.56)% 67.46% 25.64%
Since (08/24/92)(3) 215.76% 434.12% 288.27%
Since Inception (03/11/91) 240.18% 524.37% 345.20%
</TABLE>
AVERAGE ANNUAL RETURN
<TABLE>
<S> <C> <C> <C>
One Year (1.56)% 67.46% 25.64%
Three Years 16.21% 34.41% 26.50%
Five Years 17.80% 30.71% 25.99%
Since 08/24/92(3) 17.34% 26.23% 20.76%
Since Inception (03/11/91) 15.19% 23.56% 18.83%
</TABLE>
NET ASSET ALLOCATION
[APRIL 30, 1999 CHART] [OCTOBER 31, 1999 CHART]
Common Stock Sold Short represents the market value, excluding margin
requirements.
- --------------------------------------------------------------------------------
(1) Performance figures represent past performance and do not indicate
future results. The investment return and principal value will
fluctuate so that upon redemption you may receive more or less than the
original investment. The NASDAQ and S&P 500 figures do not reflect any
fees or expenses. Both are widely recognized unmanaged indices of U.S.
stocks.
(2) Total return for the fiscal year ended April 30, 1992 has been restated
to 11.96% from the previously reported 11.86% due to mathematical
rounding.
(3) Effective August 24, 1992, the Caldwell & Orkin Market Opportunity Fund
changed its investment objectives to provide long-term capital growth
with a short-term focus on capital preservation through investment
selection and asset allocation. A prior fund passively managed and
indexed to the largest 100 over-the-counter (OTC) stocks began
operations on March 11, 1991.
* For the full fiscal year ending April 30, 1993.
** From August 24, 1992 through April 30, 1993 - the portion of the year
using the Caldwell & Orkin Multifactor style of investment management.
The total return for the Caldwell & Orkin Market Opportunity Fund for
this period has been restated to 21.09% from the previously reported
19.16% to accurately reflect the inception NAV when active management
of the Fund began.
8
<PAGE> 9
CALDWELL & ORKIN MARKET OPPORTUNITY FUND VERSUS MAJOR MARKET INDICES
Results of a Hypothetical $10,000 Investment
Combined Old and Active Style of Investment Management
March 11, 1991 through October 31, 1999
[CHART]
CALDWELL & ORKIN MARKET OPPORTUNITY FUND VERSUS MAJOR MARKET INDICES
Results of a Hypothetical $10,000 Investment
Since Commencement of Active Style of Investment Management
August 24, 1992 through October 31, 1999
[CHART]
9
<PAGE> 10
CALDWELL & ORKIN MARKET OPPORTUNITY FUND
SCHEDULE OF INVESTMENTS
OCTOBER 31, 1999 (UNAUDITED)
<TABLE>
<CAPTION>
Shares Market Value
------ ------------
<S> <C> <C> <C>
COMMON STOCK (LONG POSITIONS) 42.40%
=====
BANKS - MONEY CENTER 1.72%
CITIGROUP, INC. 93,000 $5,049,862
BANKS - SUPER REGIONAL 1.12%
WELLS FARGO & CO. 69,100 3,308,162
COMPUTER - GRAPHICS 0.57%
S3, INC.* 166,300 1,663,000
COMPUTER - SERVICES 0.25%
ELECTRONIC DATA SYSTEMS 12,500 731,250
ELECTRIC - MISC. COMPONENTS 2.59%
COMMSCOPE, INC.* 191,100 7,620,112
ELECTRIC - SEMICONDUCTOR EQUIPMENT 3.90%
AMKOR TECHNOLOGY, INC.* 154,900 3,127,044
AMTEL CORP. 92,800 3,712,000
NATIONAL SEMICONDUCTOR* 51,800 1,550,762
XILINX, INC.* 39,500 3,105,687
INSURANCE-LIFE 2.46%
RELIASTAR FINANCIAL CORP. 169,000 7,256,437
MACHINERY - FARM 4.20%
CASE CORP. 233,100 12,354,300
MEDIA - CABLE TV 4.54%
ADELPHIA COMMUNICATIONS* 129,300 7,063,012
JONES INTERCABLE, INC. CL - A* 115,200 6,292,800
MEDIA - RADIO/TV 4.47%
AT & T CORP. - LIBERTY MEDIA 109,500 4,345,781
CBS CORP.* 180,200 8,796,012
MEDICAL - GENERIC DRUGS 0.36%
TARO PHARMACEUTICAL* 61,300 1,072,750
METAL ORES - GOLD/SILVER 0.76%
BARRICK GOLD CORP. 121,700 2,228,631
METAL PRODUCTION & FABRICATION 0.39%
MAVERICK TUBE CORP.* 61,700 1,141,450
</TABLE>
The accompanying notes are an integral part of these financial statements.
10
<PAGE> 11
CALDWELL & ORKIN MARKET OPPORTUNITY FUND
SCHEDULE OF INVESTMENTS
OCTOBER 31, 1999 (UNAUDITED)
<TABLE>
<CAPTION>
Shares Market Value
------ ------------
<S> <C> <C> <C>
OIL & GAS - DRILLING 1.38%
ENSCO INTERNATIONAL 93,400 $1,809,625
GLOBAL MARINE, INC.* 44,300 672,806
PRIDE INTERNATIONAL* 115,200 1,584,000
OIL & GAS - MACHINERY/EQUIPMENT 0.62%
COOPER CAMERON CORP.* 47,300 1,829,919
POLLUTION CONTROL - SERVICES 0.25%
NEWPARK RESOURCES, INC.* 114,300 735,806
RETAIL/WHOLESALE - COMPUTER/CELL 1.11%
TANDY CORP. 51,800 3,260,163
RETAIL/WHOLESALE - JEWELRY 0.69%
TIFFANY & CO. 34,100 2,028,950
RETAIL - CONSUMER ELECTRIC 0.48%
BEST BUY COMPANY, INC.* 25,400 1,411,288
RETAIL - DEPARTMENT STORES 1.61%
FAMILY DOLLAR STORES 230,200 4,747,875
RETAIL - MAJOR DISCOUNT CHAINS 0.25%
BJ'S WHOLESALE CLUB, INC.* 23,900 736,419
RETAIL - RESTAURANTS 1.44%
BRINKER INTERNATIONAL, INC.* 121,400 2,830,138
OUTBACK STEAKHOUSE, INC.* 61,100 1,405,300
TELECOMMUNICATIONS - CELLULAR 0.54%
SPRINT PCS GROUP* 19,300 1,600,694
TELECOMMUNICATIONS - EQUIPMENT 0.54%
QUALCOMM, INC.* 7,200 1,603,800
TELECOMMUNICATIONS - SERVICES 3.18%
CABLEVISION SYSTEMS CORP.* 113,000 7,634,563
GLOBAL CROSSING LTD.* 49,700 1,720,863
TEXTILE - MILL/HOUSEHOLD 2.63%
WESTPOINT STEVENS, INC. 408,200 7,730,288
TRUCKS & PARTS - HEAVY DUTY 0.35%
NAVISTAR INTERNATIONAL* 24,900 1,038,019
</TABLE>
The accompanying notes are an integral part of these financial statements.
11
<PAGE> 12
CALDWELL & ORKIN MARKET OPPORTUNITY FUND
SCHEDULE OF INVESTMENTS
OCTOBER 31, 1999 (UNAUDITED)
<TABLE>
<S> <C>
TOTAL INVESTMENT IN SECURITIES (COST $119,330,557): 42.40%........................................... 124,799,568
OTHER ASSETS LESS LIABILITIES: 57.60%............................................................... 169,508,904
-------------
TOTAL NET ASSETS 100.00%............................................................................. $ 294,308,472
=============
</TABLE>
* Non-income producing security
o At October 31, 1999, the cost of securities for federal tax purposes
was $119,556,558. Unrealized appreciation and depreciation of
securities were as follows:
<TABLE>
<S> <C>
Gross Unrealized Appreciation $ 11,927,901
Gross Unrealized Depreciation (6,684,891)
------------
Net Unrealized Appreciation $ 5,243,010
============
</TABLE>
The accompanying notes are an integral part of these financial statements.
12
<PAGE> 13
CALDWELL & ORKIN MARKET OPPORTUNITY FUND
SCHEDULE OF INVESTMENTS
OCTOBER 31, 1999 (UNAUDITED)
<TABLE>
<CAPTION>
Shares Market Value
------ ------------
<S> <C> <C> <C>
COMMON STOCK (SHORT POSITIONS) (57.36%)
======
BANKS - NORTHEAST (0.67%)
PEOPLE'S BANK BRIDGEPORT (78,300) $(1,981,969)
BANKS - SUPER REGIONAL (1.59%)
FIRST UNION CORP. (77,200) (3,295,475)
REGIONS FINANCIAL CORP. (46,100) (1,385,881)
BEVERAGES - SOFT DRINKS (0.97%)
COCA-COLA CO. FEMSA S.A.-ADR (88,300) (1,225,162)
PANAMERICAN BEVERAGES, INC (100,800) (1,619,100)
BUILDING - MOBILE/MFG. & RV (2.13%)
CLAYTON HOMES, INC. (234,800) (2,377,350)
FLEETWOOD ENTERPRISES (178,000) (3,882,625)
CHEMICALS - PLASTICS (0.50%)
MEDICAL MANAGER CORP. (29,200) (1,463,650)
COMMERCIAL SERVICES - MISC. (0.11%)
SNYDER COMMUNICATIONS (26,400) (336,600)
COMMERCIAL SERVICES - SCHOOLS (0.54%)
SYLVAN LEARNING SYSTEMS (123,100) (1,592,606)
COMPUTER SOFTWARE - ENTERPRISE (0.70%)
DATASTREAM SYSTEMS, INC. (87,800) (899,950)
SAGA SYSTEMS, INC. (79,800) (1,157,100)
COMPUTER SOFTWARE - FINANCIAL (4.17%)
INTUIT, INC. (190,300) (5,542,487)
TRANSACTION SYSTEMS (218,700) (6,725,025)
COMPUTER SOFTWARE - MEDICAL (0.69%)
INFOCURE CORP. (128,300) (2,020,725)
COMPUTER - LOCAL NETWORKS (0.02%)
DAOU SYSTEMS INC. (12,900) (56,437)
COMPUTER - MANUFACTURERS (1.14%)
DELL COMPUTER CORP. (83,400) (3,346,425)
COSMETICS/PERSONAL CARE (1.52%)
DIAL CORP. (156,700) (3,662,862)
ESTEE LAUDER COMPANIES (17,300) (806,612)
</TABLE>
The accompanying notes are an integral part of these financial statements.
13
<PAGE> 14
CALDWELL & ORKIN MARKET OPPORTUNITY FUND
SCHEDULE OF INVESTMENTS
OCTOBER 31, 1999 (UNAUDITED)
<TABLE>
<CAPTION>
Shares Market Value
------ ------------
<S> <C> <C> <C>
ELECTRICAL - SEMICONDUCTOR MFG. (0.35%)
INTEL CORP. (13,200) $(1,022,175)
FINANCE - CONSUMER/COMMERCIAL (2.58%)
AMERICREDIT CORP. (144,900) (2,517,637)
ASSOCIATES FIRST CAPITAL (139,300) (5,084,450)
FINANCE - INVESTMENT BANKERS (3.09%)
KNIGHT/TRIMARK GROUP CL-A (94,100) (2,452,481)
MERRILL LYNCH & COMPANY (47,800) (3,752,300)
SCHWAB (CHARLES) CORP. (73,900) (2,877,481)
FINANCE - MORTGAGE & RELATED SVS. (1.83%)
COUNTRYWIDE CREDIT IND. (105,500) (3,580,406)
ROCK FINANCIAL CORP. (92,100) (1,807,462)
FINANCE - SAVINGS & LOAN (3.86%)
GREENPOINT FINANCIAL CORP. (272,300) (7,760,550)
WASHINGTON MUTUAL, INC. (99,800) (3,586,562)
FINANCIAL SERVICES - MISC. (2.52%)
MBNA CORP. (268,900) (7,428,363)
FOOD - CANNED (0.74%)
CAMPBELL SOUP COMPANY (48,700) (2,191,500)
FOOD - CONFECTIONERY (1.13%)
HERSHEY FOODS CORP. (65,600) (3,312,800)
INSURANCE - LIFE (2.57%)
CONSECO, INC. (311,400) (7,570,913)
INTERNET - E*COMMERCE (2.89%)
AMERITRADE HOLDING CORP. (40,500) (658,125)
CHEMDEX CORP. (61,600) (2,348,500)
CIRCLE.COM, INC. (6,600) (95,700)
E*TRADE GROUP, INC. (87,700) (2,088,356)
E-LOAN, INC. (28,600) (588,088)
MORTGAGE.COM, INC. (50,500) (460,813)
NEXTCARD, INC. (28,800) (898,200)
PRICELINE.COM, INC. (22,500) (1,355,625)
</TABLE>
The accompanying notes are an integral part of these financial statements.
14
<PAGE> 15
CALDWELL & ORKIN MARKET OPPORTUNITY FUND
SCHEDULE OF INVESTMENTS
OCTOBER 31, 1999 (UNAUDITED)
<TABLE>
<CAPTION>
Shares Market Value
------ ------------
<S> <C> <C> <C>
INTERNET - ISP/CONTENT (4.26%)
EARTHLINK NETWORK, INC. (26,000) $(1,093,625)
GOTO.COM, INC. (56,100) (3,197,700)
HOMESTORE.COM, INC. (39,700) (1,863,419)
INSWEB CORP. (26,700) (480,600)
MINDSPRING ENTERPRISES (70,700) (1,816,106)
ONEMAIN.COM, INC. (55,500) (901,875)
STARMEDIA NETWORK, INC. (60,400) (1,736,500)
THEGLOBE.COM, INC. (133,700) (1,437,275)
INTERNET - NETWORK SEC/SOLUTIONS (0.08%)
EXODUS COMMUNICATIONS, INC. (2,800) (240,800)
LEISURE - HOTELS & MOTELS (0.61%)
FOUR SEASONS HOTELS, INC. (43,400) (1,809,238)
MEDICAL/DENTAL/SERVICES (2.67%)
QUINTILES TRANSNATIONAL (423,500) (7,861,219)
MEDICAL - BIOMEDICAL/GENETICS (5.79%)
CELGENE CORP. (260,900) (7,924,838)
IMMUNEX CORP. (144,900) (9,128,700)
MEDICAL - INSTRUMENTS (0.74%)
VENTANA MEDICAL SYSTEMS (108,300) (2,172,769)
RETAIL/WHOLESALE - BLDG. PRODUCTS (1.00%)
FASTENAL CO. (80,900) (2,932,625)
RETAIL - APPAREL/SHOE (0.15%)
JUST FOR FEET, INC. (322,400) (443,300)
RETAIL - RESTAURANTS (0.92%)
TRICON GLOBAL RESTAURANTS (67,500) (2,712,656)
TELECOMMUNICATIONS - EQUIPMENT (1.41%)
CARRIER ACCESS CORP. (23,700) (1,171,669)
LUCENT TECHNOLOGIES, INC. (46,500) (2,987,625)
TRANSPORTATION - AIR FREIGHT (2.30%)
FDX CORP. (157,400) (6,778,038)
</TABLE>
The accompanying notes are an integral part of these financial statements.
15
<PAGE> 16
CALDWELL & ORKIN MARKET OPPORTUNITY FUND
SCHEDULE OF INVESTMENTS
OCTOBER 31, 1999 (UNAUDITED)
<TABLE>
<CAPTION>
Shares Market Value
------ ------------
<S> <C> <C> <C>
TRUCK & PARTS - HEAVY DUTY (1.12%)
CUMMINS ENGINE COMPANY (50,600) $ (2,564,788)
PACCAR, INC. (15,500) (730,438)
TOTAL SECURITIES SOLD SHORT (PROCEEDS $173,130,647) $(168,802,331)
==============
</TABLE>
The accompanying notes are an integral part of these financial statements.
16
<PAGE> 17
THE CALDWELL & ORKIN MARKET OPPORTUNITY FUND
<TABLE>
<CAPTION>
STATEMENT OF ASSETS & LIABILITIES
October 31, 1999 (Unaudited)
- ----------------------------------------------------------------------------------
<S> <C>
ASSETS:
Investments, at value (cost $119,330,557) 124,799,568
Cash 90,114,356
Segregated cash with brokers and other financial institution 119,925,564
Deposits with brokers for securities sold short 205,725,019
Receivables:
Investment securities sold 2,927,010
Interest and dividends 993,292
Other 10,573
------------
TOTAL ASSETS 544,495,382
------------
LIABILITIES:
Securities sold short, not yet purchased (proceeds $173,130,647) 168,802,331
Payables:
Investment securities purchased 62,065,526
Capital Shares Redemed 19,077,119
Accrued expenses 241,934
------------
TOTAL LIABILITIES 250,186,910
------------
TOTAL NET ASSETS $294,308,472
============
NET ASSETS CONSIST OF:
Undistributed net investment income $ 11,403,901
Accumulated net realized gain 8,358,273
Net unrealized appreciation on investments 9,797,327
Paid-in capital applicable to 14,844,671 shares
outstanding; par value $0.10 per share;
30,000,000 shares authorized 264,748,971
------------
$294,308,472
============
NET ASSET VALUE AND OFFERING / REDEMPTION
PRICE PER SHARE $ 19.83
============
</TABLE>
The accompanying notes are an integral part of these financial statements.
17
<PAGE> 18
THE CALDWELL & ORKIN MARKET OPPORTUNITY FUND
<TABLE>
<CAPTION>
STATEMENT OF OPERATIONS
For the Six Months Ended October 31, 1999 (Unaudited)
- --------------------------------------------------------------
<S> <C>
INVESTMENT INCOME:
Interest $ 7,824,546
Dividends 363,393
------------
TOTAL INVESTMENT INCOME 8,187,939
------------
EXPENSES:
Investment advisory fees 1,422,396
Transfer agent fees 50,813
Professional fees 44,008
Dividend expense on securities sold short 827,038
Directors' fees and expenses 18,563
Registration and filing fees 34,608
Custodian fees 10,145
Legal fees 54,931
Insurance 7,801
Other (27,751)
------------
TOTAL EXPENSES 2,442,552
------------
NET INVESTMENT INCOME 5,745,387
------------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS:
Net realized (loss) on investments (21,951,775)
Change in unrealized appreciation (4,578,692)
------------
NET REALIZED AND UNREALIZED GAIN
ON INVESTMENTS (26,530,467)
------------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS ($20,785,080)
============
</TABLE>
The accompanying notes are an integral part of these financial statements.
18
<PAGE> 19
THE CALDWELL & ORKIN MARKET OPPORTUNITY FUND
<TABLE>
<CAPTION>
STATEMENT OF CHANGES IN NET ASSETS
- ------------------------------------------------------------------------------------------------
Six Months Ended Year Ended
October 31, 1999 April 30, 1999
---------------- --------------
(Unaudited)
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income $ 5,745,387 $ 10,823,588
Net realized gain (loss) from investments (21,951,775) 49,324,492
Net change unrealized appreciation on investments (4,578,692) (14,659,048)
------------- -------------
Net increase (decrease) in net assets resulting
from operations (20,785,080) 45,489,032
------------- -------------
DISTRIBUTIONS TO SHAREHOLDERS:
Net investment income 0 (7,355,977)
Net realized gains on investments 0 (13,237,758)
------------- -------------
Net distributions to shareholders 0 (20,593,735)
------------- -------------
CAPITAL SHARE TRANSACTIONS:
Net proceeds from sales of shares 25,157,216 305,456,611
Distributions reinvested in shares -- 17,776,857
Cost of shares redeemed (107,099,310) (108,916,091)
------------- -------------
Net increase (decrease) in net assets resulting
from capital share transactions (81,942,094) 214,317,377
------------- -------------
TOTAL INCREASE (DECREASE) IN NET ASSETS: (102,727,174) 239,212,674
NET ASSETS:
Beginning of year 397,035,646 157,822,972
------------- -------------
End of year $ 294,308,472 $ 397,035,646
============= =============
</TABLE>
The accompanying notes are an integral part of these financial statements.
19
<PAGE> 20
THE CALDWELL & ORKIN MARKET OPPORTUNITY FUND
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
Years Ended April 30,
Six months Ended -----------------------------------------------------------------
October 31, 1999
(Unaudited) 1999 1998 1997 1996 1995
<S> <C> <C> <C> <C> <C> <C>
Selected Per Share Data:
Net asset value, beginning of year $ 21.12 $ 18.68 $ 15.77 $ 14.49 $ 11.35 $ 12.26
--------- ----------- --------- --------- --------- ---------
Income (loss) from Investment Operations:
Net investment income (loss)* 0.61 0.53 0.25 0.22 0.27 0.54
Net realized and unrealized gain (loss)
on investments (1.90) 3.08 3.75 2.95 3.31 (0.81)
--------- ----------- --------- --------- --------- ---------
Total from investment operations (1.29) 3.61 4.00 3.17 3.58 (0.27)
--------- ----------- --------- --------- --------- ---------
Less Distributions:
From net investment income -- (0.42) (0.21) (0.24) (0.44) (0.41)
From net realized gain on investments -- (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 year $ 19.83 $ 21.12 $ 18.68 $ 15.77 $ 14.49 $ 11.35
========= =========== ========= ========= ========= =========
Total Return (6.11)% 19.43% 25.77% 23.24% 31.80% (2.28)%
Ratios and Supplemental Data:
Net assets, end of period (in 000's) $ 294,308 $ 397,036 $ 157,823 $ 60,632 $ 38,030 $ 32,261
Ratios to average net assets:
Expenses before dividends on securities
sold short (After Reimbursement) 0.87% # 0.89% 1.17% 1.26% 1.38% 1.18%
Expenses from dividends sold short 0.44% # 0.49% 0.05% 0.08% 0.18% 0.45%
--------- ----------- --------- --------- --------- ---------
Total expenses (After Reimbursement) 1.31% # 1.38% 1.22% 1.34% 1.56% 1.63%
Total expenses (Before Reimbursement) 1.31% # 1.38% 1.22% 1.34% 1.56% 1.79%
Net investment income (loss) 3.09% # 3.21% 2.54% 2.01% 1.94% 3.55%
Portfolio turnover 160% 378% 200% 229% 222% 331%
</TABLE>
* Had the Distributor and Advisor not waived a portion of the expenses, net
investment income (loss) per share would have been $.52 for the year ended
April 30, 1995. No expenses were waived for the years ended April 30, 1999
through April 30, 1996.
# Annualized
The accompanying notes are an integral part of these financial statements.
20
<PAGE> 21
NOTES TO FINANCIAL STATEMENTS
The Caldwell & Orkin Market Opportunity Fund, (the "Fund"), is the only active
investment portfolio of The Caldwell & Orkin Funds, Inc., an open-end,
diversified management investment company registered under the Investment
Company Act of 1940, as amended. The Fund's objectives are to provide long-term
capital growth with a short-term focus on capital preservation through
investment selection and asset allocation. The Fund seeks to outperform the
stock market over the long-term, as measured by indices such as the NASDAQ
Composite and the S&P 500 with Income.
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
SECURITIES VALUATION:
Securities are stated at the closing price on the date at which the net
asset value is being determined. If the date of determination is not a
trading date, the securities are valued as of the last trading date
proceeding the date of determination. Short-term investments having a
maturity of 60 days or less at the time of the purchase are stated at
amortized cost, which approximates market value.
SECURITIES TRANSACTIONS AND RELATED INVESTMENT INCOME:
Securities transactions are accounted for trade date plus one day.
Dividend income is recorded on the ex-dividend date and interest income
is recorded as earned. Realized gains and losses from investment
transactions are determined using the specific identification method.
CASH:
The Fund maintains cash available for the settlement of securities
transactions and capital shares reacquired. Available cash is invested
daily in money market instruments.
INCOME TAXES:
As a qualified investment company under Subchapter M of the Internal
Revenue Code, the Fund is not subject to income taxes to the extent
that it distributes all of its taxable income. It is the Fund's policy
to meet the requirements of the Internal Revenue Code applicable to
regulated investment companies and to distribute all of its taxable
income to its shareholders.
CAPITAL ACCOUNTS:
The Fund follows the provisions of Statement of Position 93-2,
"Determination, Disclosure and Financial Statement Presentation of
Income, Capital Gain and Return of Capital Distributions by Investment
Companies."
USE OF ESTIMATES:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ
from those estimates.
21
<PAGE> 22
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2. AGREEMENTS WITH THE ADVISOR AND DISTRIBUTOR:
The Fund has entered into a management agreement with C&O Funds
Advisor, Inc. (the "Advisor") pursuant to which the Advisor provides
space, facilities, equipment and personnel necessary to perform
administrative and management services for the Fund. The management
agreement provides that the Advisor is responsible for the actual
management of the Fund's portfolio. For such services and expenses
assumed by the Advisor, the Fund pays a monthly advisory fee at
incremental annual rates as follows:
<TABLE>
<CAPTION>
Advisory Fee Average Daily Net Assets
------------ ------------------------
<S> <C>
.90% Up to $100 million
.80% In excess of $100 million but not greater than $200 million
.70% In excess of $200 million but not greater than $300 million
.60% In excess of $300 million but not greater than $500 million
.50% In excess of $500 million
</TABLE>
Under that management agreement, the Advisor agreed to waive 20 basis
points for the period March, 1994, through, February, 1995.
The Advisor has agreed to reimburse the Fund to the extent necessary to
prevent the Fund's annual ordinary operating expenses (excluding taxes,
brokerage commissions and extraordinary charges such as litigation
costs) from exceeding 2.0% of the Fund's average daily net assets. No
such reimbursement was required for the period ending October 31,1999.
The Fund has entered into a distribution agreement with CW Fund
Distributors, Inc. (the "Distributor") pursuant to which the
Distributor provides broker/dealer services for the Fund. The
Distributor is responsible for the sales and redemptions of the shares
of the Fund. The Distributor does not charge the Fund for these
services.
C&O Funds Advisor, Inc. is a wholly-owned subsidiary of Caldwell &
Orkin, Inc. CW Fund Distributors, Inc. is a wholly-owned subsidiary of
Countrywide Fund Services, Inc.
3. INVESTMENT PORTFOLIO TRANSACTIONS:
INVESTMENT PURCHASES AND SALES:
For the period ended October 31,1999, purchases and proceeds from sales
of investments (excluding securities sold short and short-term
investments) aggregated $270,065,921 and $311,481,664, respectively.
SHORT SALES AND SEGREGATED CASH:
Short sales are transactions in which the Fund sells a security it does
not own, in anticipation of a decline in the market value of that
security. To complete such a transaction, the Fund must borrow the
security to deliver to the buyer upon the short sale; the Fund is then
obligated to replace the security borrowed by purchasing it in the open
market at some later date.
22
<PAGE> 23
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
3. INVESTMENT PORTFOLIO TRANSACTIONS (CONTINUED):
SHORT SALES AND SEGREGATED CASH (CONTINUED):
The Fund will incur a loss if the market price of the security
increases between the date of the short sale and the date on which the
Fund replaces the borrowed security. The Fund will realize a gain if
the security declines in value between those dates.
All short sales must be fully collateralized. The Fund maintains the
collateral in segregated accounts consisting of cash and/or U.S.
Government securities sufficient to collateralize the market value of
its short positions. Typically, the segregated cash with brokers and
other financial institutions exceeds the minimum requirements.
The Fund may also sell short "against the box" (i.e. the Fund enters
into a short sale as described above, while holding an offsetting long
position in the security which it sold short). If the Fund enters into
a short sale against the box, it will segregate an equivalent amount of
securities owned by the Fund as collateral while the short sale is
outstanding.
The Fund limits the value of its short positions (excluding short sales
"against the box") to 60% of the Fund's total net assets. At October
31, 1999, the Fund had 57.36% of its total net assets in short
positions.
For the period ended October 31, 1999, the cost of investments
purchased to cover short sales and proceeds from investments sold short
were $445,792,182 and $424,909,054, respectively.
4. CAPITAL SHARE TRANSACTIONS:
Capital share transactions were as follows:
<TABLE>
<CAPTION>
Period ended Year ended
October 31, 1999 April 30, 1999
---------------- --------------
<S> <C> <C>
Shares sold 1,195,772 14,672,883
Shares issued in connections with reinvestment of distributions - 859,200
Shares reacquired (5,153,638) (5,178,851)
---------- ----------
Net increase in shares outstanding (3,957,866) 10,353,232
========== ==========
</TABLE>
5. RELATED PARTY TRANSACTIONS:
As of April 30, 1999, Caldwell & Orkin, Inc. and Michael B. Orkin had
ownership of the Fund of 0.01% and 0.95%, respectively.
23
<PAGE> 24
THE CALDWELL & ORKIN MARKET OPPORTUNITY FUND
<TABLE>
<S> <C>
BOARD OF DIRECTORS TRANSFER, REDEMPTION & DIVIDEND DISBURSING AGENT
Michael B. Orkin, President & Chairman COUNTRYWIDE FUND SERVICES, INC.
H. Eugene Caldwell, Chairman Emeritus 312 Walnut Street, 21st Floor
Frederick T. Blumer Cincinnati, OH 45202
David L. Eager
Robert H. Greenblatt
Henry H. Porter, Jr. INDEPENDENT ACCOUNTANTS
Tait, Weller & Baker
Eight Penn Center Plaza
INVESTMENT ADVISER Suite 800
C&O Funds Advisor, Inc. Philadelphia, PA 19103-2108
Suite 150
6200 The Corners Parkway
Norcross, GA 30092 LEGAL COUNSEL
Kilpatrick Stockton LLP
1100 Peachtree Street
DISTRIBUTOR Suite 2800
CW Fund Distributors, Inc. Atlanta, GA 30309-4530
312 Walnut Street, 21st Floor
Cincinnati, OH 45202
CUSTODIAN
Bank One Ohio Trust Company, N.A.
235 West Schrock Road
Westerville, OH 43081
</TABLE>
FUND INFORMATION
The Fund is closed to new investors. For information please call (678)
533-7850 or (800) 237-7073. For information about a specific Market
Opportunity Fund account, please call (800) 467-7903.
FUND LISTINGS
The Fund is listed in The Wall Street Journal, Investor's Business Daily,
The New York and many local newspapers as C&OMktOpp or CaldOrkMO.
Its quotation symbol is COAGX.
These financial statements are submitted for the general information of the
shareholders of The Caldwell & Orkin Market Opportunity Fund. They are not
authorized for distribution to prospective investors unless preceded or
accompanied by an effective prospectus.
The Caldwell & Orkin Market Opportunity Fund
Suite 150
6200 The Corners Parkway
Norcross, GA 30092
E-mail: [email protected]
