-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, M1ul7rJWHyhA/7fQUxUEzOA02WOtHrlHPkolAT7rE+onLgtGry8YZSWulCFdv3io abkqWvBOaabiaJ5fN7ZpkQ== 0000950123-97-001663.txt : 19970227 0000950123-97-001663.hdr.sgml : 19970227 ACCESSION NUMBER: 0000950123-97-001663 CONFORMED SUBMISSION TYPE: N-30D PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19961231 FILED AS OF DATE: 19970226 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: AMERICAN ODYSSEY FUNDS INC /MD/ CENTRAL INDEX KEY: 0000896629 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 223322854 STATE OF INCORPORATION: MD FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: N-30D SEC ACT: 1940 Act SEC FILE NUMBER: 811-07450 FILM NUMBER: 97543991 BUSINESS ADDRESS: STREET 1: TWO TOWER CENTER CITY: EAST BRUNSWICK STATE: NJ ZIP: 08816 BUSINESS PHONE: 9082142000 FORMER COMPANY: FORMER CONFORMED NAME: ODYSSEY FUNDS INC DATE OF NAME CHANGE: 19930714 N-30D 1 ANNUAL REPORT 1 [AMERICAN ODYSSEY(R) FUNDS LOGO] ANNUAL REPORT DECEMBER 31, 1996 - -------------------------------------------------------------------------------- AMERICAN ODYSSEY INTERNATIONAL EQUITY FUND - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- AMERICAN ODYSSEY EMERGING OPPORTUNITIES FUND - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- AMERICAN ODYSSEY CORE EQUITY FUND - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- AMERICAN ODYSSEY LONG-TERM BOND FUND - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- AMERICAN ODYSSEY INTERMEDIATE-TERM BOND FUND - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- AMERICAN ODYSSEY SHORT-TERM BOND FUND - -------------------------------------------------------------------------------- 2 December 31, 1996 Dear American Odyssey Funds Participant: I am pleased to present you with the American Odyssey Funds Annual Report. As you may know, the American Odyssey Funds represent a range of investment options managed with the objective of providing maximum long-term total return in the asset classes each fund represents. With this objective in mind, each portfolio is advised on a day-to-day basis by a carefully selected portfolio manager with expertise in managing investments ranging from domestic equity and debt to international equity. The tremendous growth of mutual fund assets industry-wide in 1996 is reflected in the growth of the American Odyssey Funds. The funds realized a 43% increase in assets through ongoing contributions to the funds and market appreciation. The market appreciation is in large part due to outstanding performances of the Core Equity and the International Equity Funds. The Core Equity Fund outperformed the S&P 500 with a return of 23.20% for the twelve months ended December 31, 1996, while the International Equity Fund returned 21.93%, well ahead of the MSCI EAFE Index for the year. A complete performance summary from each portfolio manager, including the outlook for 1997, follows this letter. Additionally, financial statements and portfolio holdings as of December 31, 1996 for each of the American Odyssey Funds has been provided in order to give you a complete understanding of how your retirement savings are being managed. Thank you for participating in the American Odyssey Funds. We look forward to continuing our partnership in helping you achieve your financial objectives. Very truly yours, /s/ ROBERT C. DUGHI ROBERT C. DUGHI Chairman of the Board American Odyssey Funds Management, Inc. 3 AMERICAN ODYSSEY INTERNATIONAL EQUITY FUND The American Odyssey International Equity Fund returned 21.93% for the year ended December 31, 1996. The MSCI EAFE Index returned 6.36% for the same period. 1996 as a whole was a year of strength in international equity markets with only two markets within the MSCI EAFE Index producing negative returns either in local currency or U.S. dollar terms -- Japan and Singapore. However, given the large weighting of the Japanese market in the index, 38.7% at year end, its sizable underperformance impacted heavily on the overall MSCI EAFE Index return for the year. In the U.K. strong returns in the second half of the year more than made up for a relatively poor first half. The impact of the beef crisis in the early part of the year disappeared while the political uncertainty was replaced by a belief that the Government would run its full course to May 1997. The continued strong earnings announcements, the improving domestic economy and the rise in U.S. stock values all helped to drive the market to an all-time high by year end. The local currency return was greatly enhanced by the particularly strong rise in Sterling against the U.S. dollar over the year -- an exception to the general strengthening of the dollar against most other international currencies. In continental Europe, the four largest markets, Germany, France, Netherlands and Switzerland all performed strongly with returns in excess of 20% in local currency terms. While conversion of these returns into U.S. dollar terms was impacted to different degrees by the strength of the dollar, the largest of the currency movements was for the Swiss franc, which weakened by almost 15% over the year. Among the smaller European markets, Spain and Sweden also produced very strong returns while Italy, although still in positive territory, was among the poorest performing. These performances were achieved despite the general sluggishness of the respective economies and were attributable to particularly strong gains achieved by individual stocks and sectors which were driven by a variety of circumstances. In the Far East, returns were mixed with Malaysia, Hong Kong, Indonesia and the Philippines well into positive territory. Singapore was modestly negative while Japan and Thailand were the major losers. The Japanese market continued to cause concern for both domestic and international investors and the poor local currency return was further exacerbated for U.S. investors by the sharp decline of the yen against the dollar. Thailand was beset by civil unrest in the second half of the year and a less than satisfactory outcome to the December election did little to restore confidence to the market. Hong Kong proved once again to be one of the better performers but concerns remain over a greatly overheated real estate sector and the nature of the business environment after the Chinese takeover on July 1, 1997. Indonesian political uncertainty earlier in the year subsided and the market recovered strongly in the latter stages. Modest performance in Australia was enhanced by the additional gains from the strengthening Australian dollar against its U.S. counterpart. The Fund's strong outperformance for the year came from the solid positive gains achieved in virtually all Themes. Among the better performers were Telecommunications, Positive Banking Environment, Personal Savings Products, Healthcare, Restructuring Opportunities and Leisure 2 4 Activities. The only disappointments were those directed at opportunities in the developing markets in the Pacific Basin. In Telecommunications, STET was the best performer on the ending of its holding company status following its amalgamation with Telecom Italia. The sale of some peripheral activities was also viewed positively by the market. Cable and Wireless, a new acquisition for the portfolio during the year, benefited from its announced joint ventures in the U.K. Vodafone's price responded well to its 21% profit growth. Continued low interest rates, further takeovers and increased demand for financial services supported the financially oriented themes, namely, Positive Banking Environment and Personal Savings Products. The banking stocks were also helped by their strong cashflow which led to increased dividend yields. Takeover activity included Banco de Santander's Latin American purchase and ABN-Amro Holdings' U.S. acquisition. National Australia Bank's price was helped by the performance of the local bond market and the announced new share buy-back program. Both International Nederlanden Groupe and Prudential Corporation, the two holdings in the Personal Savings Products theme both announced results in line with the market's positive expectations. Within the Healthcare theme there were strong individual performers. Hoechst led the way following the announced restructuring of its operations into six independent businesses. This marked a major move towards increased shareholder value. Ciba Geigy and Sandoz both provided excellent performances following the markets' reaction to their merger under the name Novartis. Zeneca continued to report healthy earnings growth. Within Restructuring Opportunities, we began to see moves by some companies in their attempts to enhance shareholder value. Iberdrola, the best performer, had a particularly positive second half. This was supported by the sizable reduction in its debt level and the strength of the Spanish bond market. Royal Dutch announced a joint venture with Texaco covering their respective U.S. refining operations. This is expected to yield substantial cost savings and increased market penetration. Elf Aquitaine's privatization was completed following the French Government's sale of its remaining shareholding in the company. Leisure Activities also produced attractive returns. Ladbroke Group announced its joint venture with the Hilton Hotels Corporation and this will bring the Hilton name under a single roof globally. This contributed to the outstanding return on the stock. Granada's strong showing followed a 37% increase in profits, boosted by the Forte acquisition. EMI, the spin-off from the former Thorn/EMI Group, was another excellent performer with the increased growth in both the European and Far Eastern music industry. The limited hedging program, which remains in place, protected the Fund against the impact of the strengthening U.S. dollar throughout the year. The strength of the international equity markets in 1996 was achieved in a period of stable or falling interest rates, low inflation and strong earnings growth. Many of the same factors remain in place as we enter the new year. 3 5 In continental Europe, much of the focus economically will be on the decisions and impact surrounding the EMU, which is to be established in 1999. Tight fiscal constraints will be required of the countries gaining admission and this may lead to an extended period of low growth, particularly in Germany. While the outlook for earnings growth in the U.K. remains positive, the upcoming General Election and the possibility of an interest rate rise, triggered by a robust domestic economy, may influence the market. In the Pacific Rim, a number of issues may impact on markets. Japan continues to have problems, and while there is some evidence of a recovery, economic fundamentals and domestic investor confidence remain in tatters. Hong Kong is due to change to Chinese control on July 1 and the impact of this unique event will be watched eagerly. Many of the other economies continue to experience strong growth and the respective markets should reflect this. However, these markets will be susceptible to developments in other global markets. While returns in the coming year are unlikely to match those of the period just ended, we remain satisfied with the structure of the portfolio from a fundamental, value oriented prospective. We will continue with a fully invested posture, with the major emphasis on holdings in the U.K., the core continental European markets and in the Pacific Basin, except Japan. BANK OF IRELAND ASSET MANAGEMENT (U.S.) LIMITED INVESTMENT SUBADVISER TO THE AMERICAN ODYSSEY INTERNATIONAL EQUITY FUND 4 6 COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT IN THE AMERICAN ODYSSEY INTERNATIONAL EQUITY FUND AND MSCI EAFE INDEX*
MEASUREMENT PERIOD INTERNATIONAL EQUITY (FISCAL YEAR COVERED) FUND MSCI EAFE* 5/31/93 10000 10000 6/30/93 9819 9900 9/30/93 10210 10512 12/31/93 11980 10570 3/31/94 11220 10946 6/30/94 11110 11514 9/30/94 11590 11532 12/31/94 11144 11423 3/31/95 11267 11644 6/30/95 12158 11737 9/30/95 13101 12236 12/31/95 13260 12741 3/31/96 14013 13118 6/30/96 14348 13335 9/30/96 14714 13255 12/31/96 16159 13551
Average Annual Total Return for the Fund for the periods ended 12/31/96: One Year: 21.93% Since 5/17/93**: 14.59% Past performance is not predictive of future performance. Persons who invest in the Fund through a variable annuity contract should note this graph does not reflect separate account expenses deducted by the insurance company. --------------- * South Africa-Free from 5/93 - 12/93 ** Fund's inception date MORGAN STANLEY CAPITAL INTERNATIONAL -- EUROPE, AUSTRALIA, FAR EAST INDEX The arithmetic, market value-weighted average of the performance of over 900 securities listed on the stock exchanges of the following 20 countries: Australia, Austria, Belgium, Denmark, Finland, France, Germany, Hong Kong, Ireland, Italy, Japan, Malaysia, Netherlands, New Zealand, Norway, Singapore, Spain, Sweden, Switzerland, and the United Kingdom. The Index is calculated on a total return basis, which includes reinvestment of gross dividends before deduction of withholding taxes. 5 7 AMERICAN ODYSSEY EMERGING OPPORTUNITIES FUND The American Odyssey Emerging Opportunities Fund returned -3.03% for the year ended December 31, 1996. The Russell 2500 Index returned 19.03% for the same period. The Fund severely underperformed the Russell 2500 during the fourth quarter of 1996. In a year in which the big stock indices like the Dow Jones Industrials and the S&P 500 were hitting all-time highs, the Fund posted one of its weakest showings relative to its benchmark. Why is the Fund so far behind the market indices? First, and foremost, there has been absolutely no change in the investment style, philosophy and disciplines employed in managing the Fund. The same approach that has produced outstanding long-term returns is still being used to invest in growing businesses. Our approach will produce results that vary, at times widely, from the various market indices. We employ a bottom-up stock selection process focusing on a long-term, buy and hold strategy. Portfolio turnover is relatively low. This means that we will stick with our stock holdings as they undergo the inevitable periodic corrections in price, which can be severe. Obviously, with perfect foresight, we would not knowingly want to endure a severe correction, but market timing is perilous, and predicting highs and lows in stock prices nearly impossible, so our focus is on a long-term approach to stay with companies as long as we believe the fundamentals are intact. Our aim is to buy well-managed businesses that are growing, and let the stock price take care of itself. We are investing in businesses, not simply trading pieces of paper and chasing stocks whose prices are rising. Having selected solid, growing companies, we are confident that we will be rewarded in the long run. During 1996, some of our core holdings have been in "resting periods". Examples include Idexx Labs and Fastenal. Despite continued strong fundamental results, these large core holdings were flat or down for the year. In the case of Idexx, year-over-year revenues and earnings are up over 40%, yet the stock price was down 25% in 1996. In similar fashion Fastenal's revenues and earnings are up almost 25% with the stock price basically flat for the year. In some cases there are issues surrounding the companies, causing the declines, and in those cases we have been in contact with management and believe that they are taking the proper steps to ensure a return to long-term growth. In other cases, stock prices are down with no apparent reason for the decline. Relative to the Fund's benchmark, we were under-weighted in several sectors that performed extraordinarily well. In particular, energy and real estate were big winners for the index and also two areas in which the Fund is not invested. Technology, an over-weighted sector relative to the index, was the worst performing sector for the Fund. The financial services sector, which is over-weighted, performed well, but not strong enough to offset technology's weakness. Overall, the underperformance can be attributed to large core holdings, as mentioned above, that did not perform in-line with their fundamentals. Volatility in individual stock prices has been exacerbated by momentum investing in which investors simply buy stocks that are going up, and sell those that are going down. This trading causes exaggerated swings in prices and often leads to steep sell-off in stock prices, sometimes justified, but often for no reason other than momentum investors piling in to sell a stock that has started to decline in price. 6 8 Looking forward in 1997, we expect to see the trend that emerged late in 1996 to continue forward in the first part of 1997. In particular, we expect a continued flight to liquidity where larger flows of capital are going towards larger cap stocks resulting in a relative underperformance for smaller cap issues. Ultimately the market will return to rewarding companies with solid fundamentals that are posting positive returns as opposed to the current market environment. We have experienced periods of absolute and relative underperformance before. We are confident that our investment process is sound and will produce excellent long-term results. WILKE/THOMPSON CAPITAL MANAGEMENT, INC. INVESTMENT SUBADVISER TO THE AMERICAN ODYSSEY EMERGING OPPORTUNITIES FUND Russell 2500 is a registered trademark of Frank Russell Company 7 9 COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT IN THE AMERICAN ODYSSEY EMERGING OPPORTUNITIES FUND AND RUSSELL 2500 INDEX
MEASUREMENT PERIOD EMERGING OPPORTU- (FISCAL YEAR COVERED) NITIES RUSSELL 2500 5/31/93 10000 10000 6/30/93 9770 10104 9/30/93 10190 10819 12/31/93 10940 11012 3/31/94 10990 10767 6/30/94 10340 10387 9/30/94 11550 11131 12/31/94 12000 10895 3/31/95 12506 11700 6/30/95 14584 12744 9/30/95 16266 13968 12/31/95 15867 14349 3/31/96 16353 15191 6/30/96 16891 15823 9/30/96 17387 16179 12/31/96 15361 17080
Average Annual Total Return for the Fund for the periods ended 12/31/96: One Year: (3.03)% Since 5/17/93*: 12.78% Past performance is not predictive of future performance. Persons who invest in the Fund through a variable annuity contract should note this graph does not reflect separate account expenses deducted by the insurance company. --------------- * Fund's inception date RUSSELL 2500(R) INDEX The 2,500 smallest capitalization securities in the Russell 3000 Index, representing approximately 7% of the Russell 3000 total market capitalization. The Index is reconstituted annually in June, based upon the May 31 market capitalization rankings. The Index is calculated on a total return basis, which includes reinvestment of gross dividends before deduction of withholding taxes. 8 10 AMERICAN ODYSSEY CORE EQUITY FUND The American Odyssey Core Equity Fund returned 23.20% for the year ended December 31, 1996. The S&P 500 Index returned 22.96% for the same period. The past year marked yet another good performance by the equity market as measured by the S&P 500 Index. In general, the economic news during 1996 was favorable. Growth in GDP was better than originally projected, yet pressures on prices remained minor. The result was a continuation of modest inflation and little change in interest rates. The combination of corporate profit growth approaching 8%, fueled by both solid revenue increases and on-going cost reductions, plus a benign interest rate environment led to the strong market results. Stock returns also benefited from rising cash flows into the U.S. equity markets (both by foreign and domestic investors), plus a political environment that remained relatively conservative. As was the case in 1995, all economic sectors participated in the market rise, but some sectors in particular were stand out performers. By a wide margin, both technology and banks were the strongest contributors to overall market results. Technology stocks benefited from the continuing enthusiasm surrounding "surfing" on the Internet; while bank stocks did well due to the secular trends of industry deregulation and consolidation, both of which have led to improved profitability for the industry. Performance results in 1996 for the Fund exceeded the S&P 500 returns and compared favorably with the Value style index which returned only 21.6%. The positive performance comparisons against both indices (S&P 500 and Value Indices) were largely due to the impact from individual stock selections across most economic sectors. The most significant stock contributions came from technology and finance issues, such as Intel, IBM, BankAmerica and Allstate. The Fund's results were broad based with substantial positive contributions also coming from Dayton Hudson in retailing and Conrail in transportation. As we enter the new year our investment strategy continues to emphasize financial stocks. We believe this sector is benefiting from a secular uptrend that is heavily influenced by the change in demographics. As the population ages, there is a rising need for financial instruments of saving, insurance and investing. Consequently, the Fund remains overweighted in this category. The remainder of the portfolio is broadly diversified across other sectors and stresses high cash flow, plus low price-to-earnings and price-to-book. Should there be a correction in the market, these "value" characteristics will help to dampen the volatility of portfolio returns. Our expectation is for the economy in 1997 to be similar to that which existed throughout 1996. Growth should continue at an overall moderate pace. We believe that the economy has sufficient capacity and on-going productivity efficiencies to meet growth in demand without placing undue pressure on prices. Consequently, we continue to look for modest inflation. Corporate earnings growth will be driven by some volume gains, augmented by cost reductions and share repurchase activities. EQUINOX CAPITAL MANAGEMENT, INC. INVESTMENT SUBADVISER TO THE AMERICAN ODYSSEY CORE EQUITY FUND S&P 500 is a registered trademark of Standard & Poor's Corporation. 9 11 COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT IN THE AMERICAN ODYSSEY CORE EQUITY FUND AND S&P 500 INDEX
MEASUREMENT PERIOD (FISCAL YEAR COVERED) CORE EQUITY S&P 500 5/31/93 10000 10000 6/30/93 10140 10029 9/30/93 10380 10288 12/31/93 10392 10527 3/31/94 10151 10124 6/30/94 10181 10167 9/30/94 10503 10663 12/31/94 10287 10666 3/31/95 11166 11704 6/30/95 12301 12821 9/30/95 13405 13840 12/31/95 14253 14674 3/31/96 15131 15461 6/30/96 15484 16153 9/30/96 15922 16652 12/31/96 17555 18043
Average Annual Total Return for the Fund for the periods ended 12/31/96: One Year: 23.20% Since 5/17/93*: 16.73% Past performance is not predictive of future performance. Persons who invest in the Fund through a variable annuity contract should note this graph does not reflect separate account expenses deducted by the insurance company. --------------- * Fund's inception date S&P 500(R) INDEX Capitalization weighted index of 500 large stocks, representing approximately 70% of the broad U.S. equity market. Membership is decided upon by the Standard & Poor's 500 committee. The Index is calculated on a total return basis, which includes reinvestment of gross dividends before deduction of withholding taxes. 10 12 AMERICAN ODYSSEY LONG-TERM BOND FUND The American Odyssey Long-Term Bond Fund returned 1.34% for the year ended December 31, 1996. The Salomon Core +5 Index returned 3.21% for the same period. The Fund's long duration posture throughout the period was negatively impacted by a net, though modest rise in interest rates for the period. Yield curve positioning was a significant positive factor, since the portfolio was well-positioned for each of the three major yield curve shifts which occurred during the year, i.e., a flattening of the yield curve in the first half of the year, a steepening of the yield curve during the summer, and a modest flattening in the latter part of the year. A modest underweighting to the mortgage sector detracted marginally from returns as spreads narrowed over the course of the year, but selected corporate holdings enjoyed very strong performance and on balance contributed to returns. The economy proved stronger than our expectations in the first half of the year, and this was the principal motive for higher interest rates. During the second half of the year our economic outlook was generally confirmed. As expected, the higher interest rates of the first half of the year acted to slow demand for interest-sensitive goods such as housing and consumer durables. As the economy slowed, interest rates fell, reflecting reduced inflation expectations and a reduced risk of Fed tightening. A modest rebound in economic activity towards the end of the period somewhat reversed the decline in interest rates. On balance, slower growth expectations acted to bring down short- and intermediate-term rates more than long-term rates. Going forward, we believe that the fundamentals will remain favorable for the bond market. Monetary policy appears reasonably tight, as suggested by the strong dollar, falling gold price and stable industrial commodity prices. The political climate in Washington is likely to remain conservative, and the chances of meaningful entitlement reform, budget cutting, and tax reform are significant and growing. The current rate of economic growth is about average, primarily because this business cycle expansion has not been driven by stimulus measures. Instead, the drivers have been the virtuous forces of disinflation restructuring and productivity. In our view, today's growth is the by-product of low-inflation fundamentals and is thus consistent with a secular decline in interest rates, which is why we remain long in our duration benchmark. Spreads are not particularly generous, but declining volatility and an emphasis on discount and seasoned coupons and commercial mortgages should help offset any rise in prepayment risk. The corporate sector remains only marginally attractive as well, so we are targeting a neutral duration weighting to the sector as spreads hover near relatively low levels. We still find value in longer-dated issues, as well as in the lower range of credit quality, and think the new trust-preferred issues from the banking sector are generally attractive. WESTERN ASSET MANAGEMENT COMPANY AND WLO GLOBAL MANAGEMENT INVESTMENT SUBADVISERS TO THE AMERICAN ODYSSEY LONG-TERM BOND FUND 11 13 COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT IN THE AMERICAN ODYSSEY LONG-TERM BOND FUND AND SALOMON CORE +5 BOND INDEX
MEASUREMENT PERIOD (FISCAL YEAR COVERED) LONG-TERM BOND SALOMON CORE +5 5/31/93 10000 10000 6/30/93 10370 10221 9/30/93 10960 10524 12/31/93 11072 10513 3/31/94 10655 10152 6/30/94 10365 10024 9/30/94 10375 10065 12/31/94 10433 10130 3/31/95 11055 10700 6/30/95 11868 11463 9/30/95 12124 11703 12/31/95 12773 12283 3/31/96 12179 11982 6/30/96 12203 12023 9/30/96 12434 12256 12/31/96 12947 12677
Average Annual Total Return for the Fund for the periods ended 12/31/96: One Year: 1.34% Since 5/17/93*: 7.37% Past performance is not predictive of future performance. Persons who invest in the Fund through a variable annuity contract should note this graph does not reflect separate account expenses deducted by the insurance company. --------------- * Fund's inception date SALOMON BROTHERS CORE +5 BOND INDEX This Index is composed of all domestic bonds that are investment grade (rated Baa or higher by Moody's or BBB or higher by Standard & Poor's) with the exception of government issues with less than 5 years to maturity. Total return comprises price appreciation/depreciation and income as a percentage of the original investment. Index is rebalanced monthly by market capitalization. 12 14 AMERICAN ODYSSEY INTERMEDIATE-TERM BOND FUND The American Odyssey Intermediate-Term Bond Fund returned 3.95% for the year ended December 31, 1996. The Lehman Government/Corporate Intermediate Bond Index returned 4.06% for the same period. 1996 started out with the Federal Government shut down and investor concerns about a possible recession. The bond market clearly expected the Federal Reserve to cut interest rates significantly as the two year Treasury yield was lower than the Federal Funds rate. The Federal Reserve did cut their Federal Funds rate target 25 basis points in January but then strong employment growth over the next several months sent bonds into a tailspin reminiscent of 1994. Rates hit their highest levels for the year in the June to September period as investors prepared for the Federal Reserve to raise interest rates at their September meeting. The Federal Reserve decided to hold steady at the September meeting and interest rates declined from then until December as economic growth slowed in the fourth quarter. Going into December, the markets were reflecting a best case scenario of moderate economic growth with low inflation and low unemployment coupled with a benign to positive political landscape. Rates started rising again in December as some economic indicators strengthened but ended the year well below the levels seen in the second and third quarters. U.S. bonds had their best quarter of 1996 in the fourth quarter. The Lehman Government/Corporate Intermediate Index returned 2.45% during this period. For the full year, Treasuries with maturities longer than 10 years had negative total returns. Returns for the full year were worse for longer average duration securities, with the Salomon 1 month CD index returning 5.51%, the Lehman Intermediate Government/Corporate index returning 4.06%, and the Lehman Long Government/Corporate index returning 0.14%. We expect interest rates to stay in the trading range established in 1996 (the 30 year ranged between 5.95% and 7.19%). Low unemployment creates the potential for strong consumer spending growth and for cyclical upward inflation pressure through wages, putting a lower limit on where rates can go. On the higher rate side, the 7% level has proven to be a sufficient level to draw increased interest in bonds and depress high risk asset classes and interest sensitive sectors of the economy. We feel that central bank vigilance against inflation, globalization, and productivity improvements will keep inflation under control, preventing interest rates from rising much above their 1996 high. Within the fixed income markets, demand for spread products continued to be high in 1996. Along with tight spreads against treasuries, spreads for lower quality corporates are compressed with the spreads on higher quality corporates. The mortgage backed and asset backed markets are similarly compressed, with previous opportunities in B-piece credit cards, commercial mortgage backed securities, and seasoned mortgage product squeezed by investors digging for yield. There is nothing in our economic outlook which is likely to change the tight spread environment in the near future. We are being careful, however, to weed out riskier credits and issues that don't offer enough yield premium to offset their potential for negative surprises. TRAVELERS ASSET MANAGEMENT INTERNATIONAL CORPORATION INVESTMENT SUBADVISER TO THE AMERICAN ODYSSEY INTERMEDIATE-TERM BOND FUND 13 15 COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT IN THE AMERICAN ODYSSEY INTERMEDIATE-TERM BOND FUND AND LBGC INTERMEDIATE BOND INDEX
MEASUREMENT PERIOD (FISCAL YEAR COVERED) INTERMEDIATE-TERM BOND LBGC INTERMEDIATE 5/31/93 10000 10000 6/30/93 10170 10157 9/30/93 10440 10386 12/31/93 10455 10403 3/31/94 10232 10192 6/30/94 10120 10131 9/30/94 10170 10214 12/31/94 10157 10203 3/31/95 10559 10649 6/30/95 11098 11181 9/30/95 11257 11365 12/31/95 11682 11763 3/31/96 11604 11665 6/30/96 11649 11759 9/30/96 11840 11968 12/31/96 12143 12241
Average Annual Total Return for the Fund for the periods ended 12/31/96: One Year: 3.95% Since 5/17/93*: 5.59% Past performance is not predictive of future performance. Persons who invest in the Fund through a variable annuity contract should note this graph does not reflect separate account expenses deducted by the insurance company. --------------- * Fund's inception date LEHMAN BROTHERS GOVERNMENT/CORPORATE INTERMEDIATE BOND INDEX This Index is composed of all domestic bonds that are investment grade (rated Baa or higher by Moody's or BBB or higher by Standard & Poor's) which are between 1 and 10 years to maturity. Issues must have amounts outstanding in excess of $25 million. Total return comprises price appreciation/depreciation and income as a percentage of the original investment. Index is rebalanced monthly by market capitalization. 14 16 AMERICAN ODYSSEY SHORT-TERM BOND FUND The American Odyssey Short-Term Bond Fund returned 3.80% for the year ended December 31, 1996. The Lehman Government/Corporate 1-5 Year Bond Index returned 4.69% for the same period. 1996 witnessed an increase in the overall level of interest rates in response to a gradually tightening labor market and an economy that exhibited above trend growth for the most part. The yield on thirty year U.S. Treasury bonds rose 69 basis points while the yield on two year notes increased 72 basis points. Bond market returns were modest, generally between 2 and 4 percent. Although disappointing relative to equity returns, the Fund performed better than long-term bond funds in this investment environment. During 1996, the bond market reacted quickly and decisively to any signs of either a slowdown or a pickup in inflation or growth trends. These rapid fire changes in bond yields increasingly acted as a stabilizing influence, steering growth toward an acceptable trend and keeping the Federal Reserve on the sidelines. In essence, the bond market "vigilantes" supplanted the Federal Reserve as the stabilizing force in the market place over the course of the past year. The dominant theme that emerged in 1996 was the tug-of-war between rising wage pressures in a tight labor market and the sustainable non-inflationary growth rate of the economy. Although headline inflation (the core CPI) was reported to be at a 31 year low of 2.6% for the year, wage inflation increased at a five year high of 3.8%. On the growth front, the economy exhibited mixed signs of growth throughout the year. Those economic indicators showing strength included employment growth, personal income growth, housing and industrial production. Those indicators suggesting that perhaps growth was vulnerable to a weakening trend included over extended consumer debt burdens, the exhaustion of consumer pent-up demand, weak foreign economic growth and continued fiscal drag. Once again the outlook for the bond market in 1997 is heavily dependent on the outcome of the race between rising wage pressures on the one hand and non-inflationary economic growth on the other. We anticipate that the bond market will continue to exhibit a high degree of volatility in response to whatever is the most recent economic indicator of the day. On balance, the bond market is likely to be in a trading range of plus and minus 50 basis points for the year. It is most likely that the market will test the upper portion of that range during the early part of the year due to early signs of faster than desired growth. Later in the year it is most likely that the bond vigilantes will once again be successful in steering the economy to a more acceptable and less inflation threatening slower growth trend. In this type of investment environment we believe the proper investment strategy is to focus on adding high quality incremental yield to the portfolio through investing in stable investment grade corporate bonds, asset-backed securities and mortgage-backed securities that offer stable cash flows and incremental yields. As always the Fund will continue to provide investors with a high quality investment vehicle that offers less price risk than longer-term bond funds. The fund provides a safe haven for investors desiring low volatility of returns during periods of volatile interest rate movements. SMITH GRAHAM & COMPANY ASSET MANAGERS, L.P. INVESTMENT SUBADVISER TO THE AMERICAN ODYSSEY SHORT-TERM BOND FUND 15 17 COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT IN THE AMERICAN ODYSSEY SHORT-TERM BOND FUND AND LBGC 1-5 YEAR BOND INDEX*
MEASUREMENT PERIOD (FISCAL YEAR COVERED) SHORT-TERM BOND LBGC 1-5 YEAR 5/31/93 10000 10000 6/30/93 10070 10074 9/30/93 10200 10219 12/31/93 10276 10279 3/31/94 10225 10160 6/30/94 10195 10130 9/30/94 10266 10222 12/31/94 10262 10204 3/31/95 10601 10599 6/30/95 10983 11023 9/30/95 11099 11192 12/31/95 11376 11518 3/31/96 11353 11508 6/30/96 11442 11622 9/30/96 11609 11823 12/31/96 11806 12058
Average Annual Total Return for the Fund for the periods ended 12/31/96: One Year: 3.80% Since 5/17/93**: 4.75% Past performance is not predictive of future performance. Persons who invest in the Fund through a variable annuity contract should note this graph does not reflect separate account expenses deducted by the insurance company. --------------- * Merrill Lynch 1-3 Year Treasury Index, 5/93 - 12/93 ** Fund's inception date LEHMAN BROTHERS GOVERNMENT/CORPORATE 1-5 YEAR BOND INDEX This Index is composed of all domestic bonds that are investment grade (rated Baa or higher by Moody's or BBB or higher by Standard & Poor's) which are between 1 and 5 years to maturity. Issues must have amounts outstanding in excess of $25 million. Total return comprises price appreciation/ depreciation and income as a percentage of the original investment. Index is rebalanced monthly by market capitalization. 16 18 (This page intentionally left blank) 17 19 Statements of Assets and Liabilities American Odyssey Funds, Inc. / December 31, 1996
Emerging Intermediate- International Opportunities Core Equity Long-Term Term Short-Term Equity Fund Fund Fund Bond Fund Bond Fund Bond Fund ------------- ------------- ------------ ------------ ------------- ----------- ASSETS Investments in securities, at cost........ $146,581,610 $158,790,825 $216,790,498 $163,518,452 $90,894,771 $49,684,540 - --------------------------------------------------------------------------------------------------------------------------------- Investments in securities, at value (see accompanying Portfolio of Investments) (Note 2)................................. $177,519,861 $178,951,995 $282,684,881 $162,673,605 $90,696,685 $49,595,185 Cash...................................... 10,723,573 11,524,754 6,582,908 20,574,437 38 349,228 Cash, denominated in foreign currency (cost $3,087,755)........................ 3,112,731 -- -- -- -- -- Receivables for: Capital stock subscriptions.............. 232,803 237,014 251,940 136,492 54,464 11,094 Investment securities sold............... -- -- -- -- 5,340 -- Delayed delivery transactions (Note 9)... -- -- -- 14,742,188 -- -- Unrealized appreciation on forward foreign currency contracts (Note 8).... 939,387 -- -- -- -- -- Interest................................. 41,916 43,426 22,528 1,677,214 772,023 566,583 Dividends................................ 361,104 36,979 817,834 -- -- -- Foreign tax reclaims..................... 107,661 -- 2,350 -- -- -- Prepaid organization expense.............. 6,873 6,739 6,674 6,729 6,776 6,853 ------------ ------------ ------------ ------------ ----------- ----------- Total assets............................. 193,045,909 190,800,907 290,369,115 199,810,665 91,535,326 50,528,943 ------------ ------------ ------------ ------------ ----------- ----------- LIABILITIES Payables for: Investment securities purchased.......... 897,743 4,810,030 -- -- -- 7,907 Distributions payable.................... 4,655,024 14,364,919 16,148,854 8,175,364 4,980,334 1,745,696 Delayed delivery transactions (Note 9)... -- -- -- 30,395,117 -- -- Variation margin on open futures contracts (Note 6)..................... -- -- -- 205,938 -- -- Options written (premiums received $197,715)(Note 7)...................... -- -- -- 78,578 -- -- Unrealized depreciation on forward foreign currency contracts (Note 8).... 63,924 -- -- -- -- -- Payable to Adviser........................ 261,671 297,073 397,717 206,966 116,480 70,589 Accrued expenses.......................... 58,299 50,669 51,018 54,186 53,438 31,835 ------------ ------------ ------------ ------------ ----------- ----------- Total liabilities........................ 5,936,661 19,522,691 16,597,589 39,116,149 5,150,252 1,856,027 ------------ ------------ ------------ ------------ ----------- ----------- NET ASSETS................................ $187,109,248 $171,278,216 $273,771,526 $160,694,516 $86,385,074 $48,672,916 ============ ============ ============ ============ =========== =========== Capital shares outstanding................ 12,410,280 12,764,369 17,673,755 15,828,492 8,470,117 4,754,313 ============ ============ ============ ============ =========== =========== Net asset value per share................. $15.08 $13.42 $15.49 $10.15 $10.20 $10.24 ====== ====== ====== ====== ====== ====== - --------------------------------------------------------------------------------------------------------------------------------- COMPOSITION OF NET ASSETS Capital shares at par..................... $ 124,103 $ 127,644 $ 176,738 $ 158,285 $ 84,701 $ 47,543 Additional paid-in-capital................ 154,297,417 156,567,121 203,354,437 160,979,329 85,856,888 48,772,799 Undistributed net investment income (distributions in excess of net investment income)....................... (19,402) -- 47,896 242,735 165,695 45,487 Accumulated net realized gain (loss) on investments, futures contracts, option contracts and foreign currency transactions............................. 862,014 (5,577,719) 4,298,072 207,536 475,876 (103,597) Net unrealized appreciation (depreciation) on investments, translation of assets and liabilities in foreign currencies, futures contracts and option contracts... 31,845,116 20,161,170 65,894,383 (893,369) (198,086) (89,316) ------------ ------------ ------------ ------------ ----------- ----------- $187,109,248 $171,278,216 $273,771,526 $160,694,516 $86,385,074 $48,672,916 ============ ============ ============ ============ =========== ===========
The accompanying notes are an integral part of the financial statements. 18 20 Statements of Operations American Odyssey Funds, Inc. / For the year ended December 31, 1996
Emerging Intermediate- International Opportunities Core Equity Long-Term Term Short-Term Equity Fund Fund Fund Bond Fund Bond Fund Bond Fund ------------- ------------- ----------- ----------- ------------- ---------- INVESTMENT INCOME Interest................................ $ 247,119 $ 510,750 $ 272,595 $ 9,353,294 $ 5,693,888 $2,009,975 Dividends............................... 2,759,372(1) 228,948 5,964,921(2) -- -- -- ---------- ----------- ---------- ---------- ---------- --------- Total Income.......................... 3,006,491 739,698 6,237,516 9,353,294 5,693,888 2,009,975 ---------- ----------- ---------- ---------- ---------- --------- EXPENSES Management fees (Note 3)................ 823,891 1,169,885 1,362,267 718,488 442,594 161,395 Audit fees.............................. 30,297 36,510 32,694 32,349 27,489 22,947 Director's fees & expenses.............. 14,313 24,651 29,721 19,434 12,096 4,038 Custodian fees.......................... 189,937 129,983 158,113 98,806 73,927 20,466 Amortization of organization expense.... 4,989 4,926 4,860 4,908 4,934 5,011 Legal fees.............................. 5,664 9,579 11,688 7,782 4,941 1,761 Printing expense........................ 15,078 17,376 15,312 14,712 12,282 3,768 Miscellaneous expense................... 4,931 8,398 9,985 6,641 4,322 1,586 ---------- ----------- ---------- ---------- ---------- --------- Total expenses before reimbursement....................... 1,089,100 1,401,308 1,624,640 903,120 582,585 220,972 ---------- ----------- ---------- ---------- ---------- --------- Reimbursement repaid to Management Company (Note 3).................... -- -- -- -- -- 21,298 Less: Expenses paid under directed brokerage arrangements (Note 4)............... (34,598) -- (47,610) -- -- -- ---------- ----------- ---------- ---------- ---------- --------- Net expenses.......................... 1,054,502 1,401,308 1,577,030 903,120 582,585 242,270 ---------- ----------- ---------- ---------- ---------- --------- Net investment income (loss)........ 1,951,989 (661,610) 4,660,486 8,450,174 5,111,303 1,767,705 ---------- ----------- ---------- ---------- ---------- --------- REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS Net realized gain (loss) on security transactions.......................... 1,855,312 9,311,902 15,834,337 (1,771,579) 488,591 75,014 Net realized gain on option contracts... -- -- -- 477,181 -- -- Net realized gain on futures contracts............................. -- -- -- 643,953 -- -- ---------- ----------- ---------- ---------- ---------- --------- Net realized gain (loss) on security transactions, futures contracts and option contracts.................... 1,855,312 9,311,902 15,834,337 (650,445) 488,591 75,014 Net realized gain on foreign currency transactions.......................... 1,968,421 -- -- -- -- -- Net increase (decrease) in unrealized appreciation of investments, futures contracts and option contracts........ 21,313,802 (16,078,616) 30,480,771 (4,201,977) (1,945,622) (585,095) Net unrealized appreciation from translation of assets and liabilities in foreign currencies................. 758,663 -- -- -- -- -- ---------- ----------- ---------- ---------- ---------- --------- Net realized and unrealized gain/ (loss) on investments............... 25,896,198 (6,766,714) 46,315,108 (4,852,422) (1,457,031) (510,081) ---------- ----------- ---------- ---------- ---------- --------- Net increase (decrease) in net assets from operations....................... $ 27,848,187 ($7,428,324) $50,975,594 $ 3,597,752 $ 3,654,272 $1,257,624 ========== =========== ========== ========== ========== =========
(1) Net of withholding taxes of $387,510. (2) Net of withholding taxes of $24,165. The accompanying notes are an integral part of the financial statements. 19 21 Statements of Changes in Net Assets American Odyssey Funds, Inc.
International Equity Fund Emerging Opportunities Fund ----------------------------- ----------------------------- Year ended Year ended Year ended Year ended December 31, December 31, December 31, December 31, 1996 1995 1996 1995 ------------ ------------ ------------ ------------ INCREASE IN NET ASSETS FROM OPERATIONS Net investment income (loss).................................. $ 1,951,989 $ 1,150,558 $ (661,610) $ (331,697) Net realized gain (loss) on security transactions, futures contracts and option contracts............................... 1,855,312 (89,338) 9,311,902 5,474,396 Net realized gain (loss) on foreign currency transactions..... 1,968,421 51,021 -- -- Net increase (decrease) in unrealized appreciation (depreciation) of investments, translation of assets and liabilities in foreign currencies, futures contracts and option contracts............................................. 22,072,465 11,300,527 (16,078,616) 28,661,663 ------------ ----------- ------------ ------------ Net increase (decrease) in net assets resulting from operations................................................. 27,848,187 12,412,768 (7,428,324) 33,804,362 ------------ ----------- ------------ ------------ DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS From net investment income.................................... (3,751,066) (896,810) -- -- From net realized gains on investment transactions............ (903,958) -- (14,364,919) (6,102,584) In excess of net investment income or realized gains.......... -- -- -- (524,702) ------------ ----------- ------------ ------------ Total distributions to shareholders.......................... (4,655,024) (896,810) (14,364,919) (6,627,286) ------------ ----------- ------------ ------------ CAPITAL SHARE TRANSACTIONS Proceeds from sales of shares................................. 89,218,342 40,065,473 103,366,353 71,673,203 Distributions reinvested...................................... 896,810 1,844,203 6,627,286 1,184,820 Cost of shares repurchased.................................... (18,313,612) (13,023,416) (74,115,064) (31,518,544) ------------ ----------- ------------ ------------ Net increase from capital share transactions................. 71,801,540 28,886,260 35,878,575 41,339,479 ------------ ----------- ------------ ------------ Net increase in net assets.................................... 94,994,703 40,402,218 14,085,332 68,516,555 NET ASSETS Beginning of year............................................. 92,114,545 51,712,327 157,192,884 88,676,329 ------------ ----------- ------------ ------------ End of year................................................... 187,109,248 92,114,545 171,278,216 157,192,884 ============ =========== ============ ============ Undistributed (excess distribution) net investment income..... $ (19,402) $ 48,120 $ -- $ -- ============ =========== ============ ============ CAPITAL SHARES Capital shares outstanding, beginning of year................. 7,264,073 4,805,255 10,462,738 7,487,091 Capital shares issued......................................... 6,422,181 3,411,396 6,669,075 5,090,663 Capital shares from distributions reinvested.................. 70,283 171,394 443,000 101,180 Capital shares redeemed....................................... (1,346,257) (1,123,972) (4,810,444) (2,216,196) ------------ ----------- ------------ ------------ Capital shares outstanding, end of year....................... 12,410,280 7,264,073 12,764,369 10,462,738 ============ =========== ============ ============
The accompanying notes are an integral part of the financial statements. 20 22
Core Equity Fund Long-Term Bond Fund Intermediate-Term Bond Fund ----------------------------- ----------------------------- ----------------------------- Year ended Year ended Year ended Year ended Year ended Year ended December 31, December 31, December 31, December 31, December 31, December 31, 1996 1995 1996 1995 1996 1995 ------------ ------------ ------------ ------------ ------------ ------------ $ 4,660,486 $ 3,394,959 $ 8,450,174 $ 6,402,080 $ 5,111,303 $ 3,851,775 15,834,337 5,743,147 (650,445) 5,267,011 488,591 1,006,551 -- -- -- -- -- 30,480,771 37,716,285 (4,201,977) 7,628,153 (1,945,622) 3,848,473 ------------ ----------- ----------- ----------- ------------ ----------- 50,975,594 46,854,391 3,597,752 19,297,244 3,654,272 8,706,799 ------------ ----------- ----------- ----------- ------------ ----------- (4,697,100) (3,323,421) (8,175,364) (6,255,797) (4,980,334) (3,883,129) (11,536,265) (5,188,093) -- (2,903,213) -- (496,399) -- (4,829) -- (1,077,489) -- (370,385) ------------ ----------- ----------- ----------- ------------ ----------- (16,233,365) (8,516,343) (8,175,364) (10,236,499) (4,980,334) (4,749,913) ------------ ----------- ----------- ----------- ------------ ----------- 89,834,796 64,224,865 64,001,096 46,464,747 34,374,279 29,022,622 8,600,854 1,667,504 10,236,499 1,892,963 4,749,913 1,903,243 (43,141,162) (22,087,221) (23,577,889) (13,165,269) (24,893,538) (9,973,176) ------------ ----------- ----------- ----------- ------------ ----------- 55,294,488 43,805,148 50,659,706 35,192,441 14,230,654 20,952,689 ------------ ----------- ----------- ----------- ------------ ----------- 90,036,717 82,143,196 46,082,094 44,253,186 12,904,592 24,909,575 183,734,809 101,591,613 114,612,422 70,359,236 73,480,482 48,570,907 ------------ ----------- ----------- ----------- ------------ ----------- 273,771,526 183,734,809 160,694,516 114,612,422 86,385,074 73,480,482 ============ =========== =========== =========== ============ =========== $ 47,896 $ 84,510 $ 242,735 $ 1,552,790 $ 165,695 $ 2,125 ============ =========== =========== =========== ============ =========== 13,795,844 10,093,660 10,887,947 7,508,227 7,081,020 5,054,210 6,205,107 5,359,111 6,272,737 4,434,521 3,298,559 2,790,359 639,225 165,756 973,051 202,456 457,603 198,255 (2,966,421) (1,822,683) (2,305,243) (1,257,257) (2,367,065) (961,804) ------------ ----------- ----------- ----------- ------------ ----------- 17,673,755 13,795,844 15,828,492 10,887,947 8,470,117 7,081,020 ============ =========== =========== =========== ============ =========== Short-Term Bond Fund ------------------------------ Year ended Year ended December 31, December 31, 1996 1995 ------------- ------------ $ 1,767,705 $ 1,302,998 75,014 124,873 -- -- (585,095) 860,681 ------------ ------------ 1,257,624 2,288,552 ------------ ------------ (1,745,696) (1,291,083) -- -- -- -- ------------ ------------ (1,745,696) (1,291,083) ------------ ------------ 29,548,991 12,788,292 1,291,083 684,280 (7,534,399) (6,243,719) ------------ ------------ 23,305,675 7,228,853 ------------ ------------ 22,817,603 8,226,322 25,855,313 17,628,991 ------------ ------------ 48,672,916 25,855,313 ============ ============ $ 45,487 $ 18,374 ============ ============ 2,530,211 1,821,850 2,826,896 1,246,378 126,329 70,763 (729,123) (608,780) ------------ ------------ 4,754,313 2,530,211 ============ ============
21 23 - -------------------------------------------------------------------------------- Financial Highlights American Odyssey Funds, Inc. - --------------------------------------------------------------------------------
International Equity Fund --------------------------------------------------------------- May 17, 1993 (1) Year ended Year ended Year ended to December 31, December 31, December 31, December 31, 1996 1995 1994 1993 ------------ ------------ ------------ ------------ NET ASSET VALUE Beginning of period.......... $ 12.68 $ 10.76 $ 11.98 $ 10.00 ----------- ---------- ---------- ---------- OPERATIONS Net investment income (loss) (2)........................ 0.29 0.17 (0.05) 0.03 Net realized and unrealized gain (loss) on investments................ 2.48 1.87 (0.78) 1.95 ----------- ---------- ---------- ---------- Total from investment operations................. 2.77 2.04 (0.83) 1.98 ----------- ---------- ---------- ---------- DISTRIBUTIONS TO SHAREHOLDERS Dividends from net investment income..................... (0.30) (0.12) (0.03) -- Distributions from net realized gains on investments................ (0.07) -- (0.26) -- Distributions in excess of net investment income or realized gains............. -- -- (0.10) -- ----------- ---------- ---------- ---------- Total distributions.......... (0.37) (0.12) (0.39) -- ----------- ---------- ---------- ---------- NET ASSET VALUE End of period................ $ 15.08 $ 12.68 $ 10.76 $ 11.98 =========== ========== ========== ========== TOTAL RETURN (3).............. 21.93% 19.00% (6.98%) 19.80% RATIOS/SUPPLEMENTAL DATA Net assets at end of period..................... $187,109,248 $ 92,114,545 $ 51,712,327 $ 19,978,108 Ratios of expenses to average net assets: Before repayments and directed brokerage arrangements............. 0.86% 1.00% 1.36% 1.76%(4) After repayments and directed brokerage arrangements (6)......... 0.83% 1.08% 1.25% 1.25%(4) Ratios of net investment income (loss) to average net assets: Before repayments and directed brokerage arrangements............. 1.51% 1.70% 0.83% 0.34%(4) After repayments and directed brokerage arrangements............. 1.54% 1.62% 0.94% 0.85%(4) Portfolio turnover rate...... 21.54% 31.40% 50.25% 9.20% Average commission rate paid (7)........................ $ 0.0219 -- -- -- - -------------------------------------------------------------------------------------------------
(1) Commencement of operations. (2) Net of expense reimbursement, repayments and directed brokerage arrangements. (3) Total return is calculated assuming an initial investment made at net asset value at the beginning of the period, all dividends and distributions are reinvested and redemption on the last day of the period. Total Returns do not reflect charges attributable to separate account expenses deducted by the insurance company for variable annuity contract shareholders. Inclusion of these charges would reduce the total return shown. (4) Annualized (5) The Long-Term Bond Fund did not qualify in 1993 as a regulated investment company for federal income tax purposes because it had substantial short-term capital gains during this period and was not able to meet the requirement that no more than 30% of the Fund's investment income may be from realized capital gains on the sale of securities held for less than three months. While the Fund incurred a federal income tax of approximately $155,000, the investment adviser to the Long-Term Bond Fund reimbursed the Fund for the taxes and related legal expenses, so no shareholder of the Fund was affected. The ratio of expenses to average net assets would have been 2.58% had the adviser not agreed to reimburse the Fund for these expenses. The Fund qualified in 1994, 1995 and 1996 as a regulated investment company and intends to do so in future years as well. (6) The After repayments and directed brokerage arrangements figure may be greater than the Before repayments and directed brokerage arrangements figure because of repayments by the Fund to the Manager once the Fund is operating below the expense limitation. (7) Average commission rate paid is computed by dividing the total dollar amount of commissions paid during the period by the total number of shares purchased and sold during the period for which commissions were charged. The accompanying notes are an integral part of the financial statements. 22 24 - -------------------------------------------------------------------------------- - --------------------------------------------------------------------------------
Emerging Opportunities Fund --------------------------------------------------------------- May 17, 1993 (1) Year ended Year ended Year ended to December 31, December 31, December 31, December 31, 1996 1995 1994 1993 ------------ ------------ ------------ ------------ $ 15.02 $ 11.84 $ 10.94 $ 10.00 ----------- ----------- ---------- ---------- -- -- -- (0.01) (0.47) 3.81 1.06 0.95 ----------- ----------- ---------- ---------- (0.47) 3.81 1.06 0.94 ----------- ----------- ---------- ---------- -- -- -- -- (1.13) (0.58) (0.16) -- -- (0.05) -- -- ----------- ----------- ---------- ---------- (1.13) (0.63) (0.16) -- ----------- ----------- ---------- ---------- $ 13.42 $ 15.02 $ 11.84 $ 10.94 =========== =========== ========== ========== (3.03%) 32.23% 9.69% 9.40% $171,278,216 $157,192,884 $ 88,676,329 $ 29,112,652 0.72% 0.77% 0.91% 1.23%(4) 0.72% 0.77% 0.92% 1.00%(4) (0.34%) (0.26%) (0.31%) (0.60%)(4) (0.34%) (0.26%) (0.32%) (0.38%)(4) 43.00% 36.02% 27.40% 8.70% $ 0.0505 -- -- -- - ------------------------------------------------------------------- Core Equity Fund ---------------------------------------------------------------- May 17, 1993 (1) Year ended Year ended Year ended to December 31, December 31, December 31, December 31, 1996 1995 1994 1993 ------------- ------------ ------------ ------------ $ 13.32 $ 10.06 $ 10.33 $ 10.00 ----------- ----------- ----------- ---------- 0.26 0.25 0.16 0.06 2.83 3.63 (0.26) 0.33 ----------- ----------- ----------- ---------- 3.09 3.88 (0.10) 0.39 ----------- ----------- ----------- ---------- (0.27) (0.24) (0.17) (0.06) (0.65) (0.37) -- -- -- (0.01) -- -- ----------- ----------- ----------- ---------- (0.92) (0.62) (0.17) (0.06) ----------- ----------- ----------- ---------- $ 15.49 $ 13.32 $ 10.06 $ 10.33 =========== =========== =========== ========== 23.20% 38.56% (1.01%) 3.90% $ 273,771,526 $183,734,809 $101,591,613 $ 37,355,875 0.68% 0.72% 0.84% 1.12%(4) 0.66% 0.70% 0.85% 1.00%(4) 1.93% 2.32% 2.27% 1.84%(4) 1.95% 2.33% 2.27% 1.96%(4) 45.73% 38.44% 48.16% 48.00% $ 0.0594 -- -- -- - -------------------------------------------------------------------
23 25 - -------------------------------------------------------------------------------- Financial Highlights American Odyssey Funds, Inc. - --------------------------------------------------------------------------------
Long-Term Bond Fund --------------------------------------------------------------- May 17, 1993 (1) Year ended Year ended Year ended to December 31, December 31, December 31, December 31, 1996 1995 1994 1993 ------------ ------------ ------------ ------------ NET ASSET VALUE Beginning of period.......... $ 10.53 $ 9.37 $ 10.33 $ 10.00 ----------- ---------- ---------- ---------- OPERATIONS Net investment income (loss) (2)........................ 0.50 0.53 0.37 0.62 Net realized and unrealized gain (loss) on investments................ (0.36) 1.57 (0.97) 0.45 ----------- ---------- ---------- ---------- Total from investment operations................. 0.14 2.10 (0.60) 1.07 ----------- ---------- ---------- ---------- DISTRIBUTIONS TO SHAREHOLDERS Dividends from net investment income..................... (0.52) (0.57) (0.34) (0.18) Distributions from net realized gains on investments................ -- (0.27) (0.02) (0.56) Distributions in excess of net investment income or realized gains............. -- (0.10) -- -- ----------- ---------- ---------- ---------- Total distributions.......... (0.52) (0.94) (0.36) (0.74) ----------- ---------- ---------- ---------- NET ASSET VALUE End of period................ $ 10.15 $ 10.53 $ 9.37 $ 10.33 =========== ========== ========== ========== TOTAL RETURN (3).............. 1.34% 22.44% (5.79%) 10.70% RATIOS/SUPPLEMENTAL DATA Net assets at end of period..................... $160,694,516 $114,612,422 $70,359,236 $25,771,838 Ratios of expenses to average net assets: Before repayments and directed brokerage arrangements............. 0.63% 0.66% 0.73% 1.30% (4)(5) After repayments and directed brokerage arrangements (6)......... 0.63% 0.70% 0.75% 0.75% (4) Ratios of net investment income (loss) to average net assets: Before repayments and directed brokerage arrangements............. 5.88% 6.67% 7.08% 15.19% (4) After repayments and directed brokerage arrangements............. 5.88% 6.63% 7.05% 15.73% (4) Portfolio turnover rate...... 369.32% 381.53% 152.91% 589.40% Average commission rate paid (7)........................ -- -- -- -- - -------------------------------------------------------------------------------------------------
(1) Commencement of operations. (2) Net of expense reimbursement, repayments and directed brokerage arrangements. (3) Total return is calculated assuming an initial investment made at net asset value at the beginning of the period, all dividends and distributions are reinvested and redemption on the last day of the period. Total Returns do not reflect charges attributable to separate account expenses deducted by the insurance company for variable annuity contract shareholders. Inclusion of these charges would reduce the total return shown. (4) Annualized (5) The Long-Term Bond Fund did not qualify in 1993 as a regulated investment company for federal income tax purposes because it had substantial short-term capital gains during this period and was not able to meet the requirement that no more than 30% of the Fund's investment income may be from realized capital gains on the sale of securities held for less than three months. While the Fund incurred a federal income tax of approximately $155,000, the investment adviser to the Long-Term Bond Fund reimbursed the Fund for the taxes and related legal expenses, so no shareholder of the Fund was affected. The ratio of expenses to average net assets would have been 2.58% had the adviser not agreed to reimburse the Fund for these expenses. The Fund qualified in 1994, 1995 and 1996 as a regulated investment company and intends to do so in future years as well. (6) The After repayments and directed brokerage arrangements figure may be greater than the Before repayments and directed brokerage arrangements figure because of repayments by the Fund to the Manager once the Fund is operating below the expense limitation. (7) Average commission rate paid is computed by dividing the total dollar amount of commissions paid during the period by the total number of shares purchased and sold during the period for which commissions were charged. The accompanying notes are an integral part of the financial statements. 24 26 - -------------------------------------------------------------------------------- - --------------------------------------------------------------------------------
Intermediate-Term Bond Fund --------------------------------------------------------------- May 17, 1993 (1) Year ended Year ended Year ended to December 31, December 31, December 31, December 31, 1996 1995 1994 1993 ------------ ------------ ------------ ------------ $ 10.38 $ 9.61 $ 10.28 $ 10.00 ---------- ---------- ---------- ---------- 0.61 0.54 0.38 0.17 (0.20) 0.90 (0.67) 0.28 ---------- ---------- ---------- ---------- 0.41 1.44 (0.29) 0.45 ---------- ---------- ---------- ---------- (0.59) (0.55) (0.38) (0.17) -- (0.07) -- -- -- (0.05) -- -- ---------- ---------- ---------- ---------- (0.59) (0.67) (0.38) (0.17) ---------- ---------- ---------- ---------- $ 10.20 $ 10.38 $ 9.61 $ 10.28 ========== ========== ========== ========== 3.95% 15.01% (2.85%) 4.50% $ 86,385,074 $ 73,480,482 $ 48,570,907 $ 19,897,257 0.66% 0.68% 0.75% 1.37%(4) 0.66% 0.75% 0.75% 0.75%(4) 5.77% 6.19% 5.35% 3.73%(4) 5.77% 6.11% 5.35% 4.35%(4) 191.20% 137.14% 22.72% -- -- -- -- -- - ------------------------------------------------------------------- Short-Term Bond Fund ---------------------------------------------------------------- May 17, 1993 (1) Year ended Year ended Year ended to December 31, December 31, December 31, December 31, 1996 1995 1994 1993 ------------- ------------ ------------ ------------ $ 10.22 $ 9.68 $ 10.07 $ 10.00 ---------- ---------- ---------- --------- 0.37 0.51 0.45 0.19 0.02 0.54 (0.46) 0.08 ---------- ---------- ---------- --------- 0.39 1.05 (0.01) 0.27 ---------- ---------- ---------- --------- (0.37) (0.51) (0.38) (0.14) -- -- -- (0.01) -- -- -- (0.05) ---------- ---------- ---------- --------- (0.37) (0.51) (0.38) (0.20) ---------- ---------- ---------- --------- $ 10.24 $ 10.22 $ 9.68 $ 10.07 ========== ========== ========== ========= 3.80% 10.86% (0.14%) 2.70% $ 48,672,916 $ 25,855,313 $ 17,628,991 $8,181,243 0.68% 0.76% 1.02% 1.72%(4) 0.75% 0.75% 0.75% 0.75%(4) 5.54% 5.77% 4.99% 3.52%(4) 5.47% 5.78% 5.25% 4.49%(4) 154.51% 93.37% 233.25% 144.30% -- -- -- -- - -------------------------------------------------------------------
25 27 - -------------------------------------------------------------------------------- PORTFOLIO OF INVESTMENTS American Odyssey Funds, Inc. / International Equity Fund / December 31, 1996 - --------------------------------------------------------------------------------
Shares Value - ---------------------------------------------------------- COMMON STOCKS -- 94.7% AUTOMOTIVE -- 0.8% 26,675 Michelin B................... $ 1,437,206 --------------- BANKING -- 15.6% 66,414 ABN AMRO Holdings............ 4,315,641 136,550 Allied Irish Banks Plc....... 914,844 24,545 Banco De Santander........... 1,568,087 240,200 Bangkok Bank Co, Ltd......... 2,323,286 217,400 Barclay's Plc................ 3,722,214 453,000 DCB Holdings................. 1,551,525 299,250 Development Bank of Singapore.................... 4,043,257 424,824 Lloyds TSB Group Plc......... 3,129,721 524,550 National Australia Bank Ltd.......................... 6,166,033 244,000 Thai Farmers Bank............ 1,522,609 --------------- 29,257,217 --------------- BEVERAGES, FOOD & TOBACCO -- 12.0% 594,560 B.A.T. Industries............ 4,929,616 304,680 Cadbury Schweppes Plc........ 2,567,874 260,800 Fraser & Neave Ltd........... 2,684,753 235,351 Grand Metropolitan Plc....... 1,848,635 601,000 Gudang Garam................. 2,594,793 656,000 Han Man Sampoerna............ 3,498,666 605,000 Mayora Indah................. 281,693 14,741 Nutricia Verenidge Bedrijven.................... 2,237,051 391,500 San Miguel Corp B............ 1,726,750 --------------- 22,369,831 --------------- BUILDING MATERIALS -- 0.9% 278,000 Hume Industries.............. 1,750,205 --------------- CHEMICALS -- 2.6% 13,060 DSM.......................... 1,286,567 78,030 Hoechst AG................... 3,610,081 --------------- 4,896,648 --------------- COMMUNICATIONS -- 4.1% 155,000 Cable & Wireless............. 1,294,421 42,250 Royal PTT Nederland NV....... 1,609,649 429,520 STET......................... 1,949,119 746,000 Telekomunikasi............... 1,286,751 365,000 Vodafone Group Plc........... 1,539,680 --------------- 7,679,620 --------------- Shares Value - ---------------------------------------------------------- CONGLOMERATES -- 6.2% 4,014 Alusuisse Lonza Holdings..... $ 3,189,743 360,961 BTR Ltd...................... 1,754,270 549,000 Indocement Tunggal........... 836,571 757,000 Sime-Darby Berhad............ 2,982,429 305,000 United Engineers (Malaysia)................... 2,753,479 --------------- 11,516,492 --------------- ELECTRIC UTILITIES -- 2.8% 129,200 Iberdrola SA................. 1,827,612 343,990 Scottish Power Plc........... 2,072,093 23,810 Veba AG...................... 1,367,315 --------------- 5,267,020 --------------- ELECTRICAL EQUIPMENT -- 4.0% 280,080 General Electric Plc......... 1,830,911 224,770 Siebe Plc.................... 4,161,886 31,840 Siemens...................... 1,475,567 --------------- 7,468,364 --------------- ELECTRONICS -- 1.7% 122,390 Chubb Security Plc........... 683,830 191,150 Farnell Electronic........... 2,453,353 --------------- 3,137,183 --------------- ENTERTAINMENT & LEISURE -- 4.3% 120,700 EMI Group Plc................ 2,850,439 240,700 Granada Group Plc............ 3,554,778 394,450 Ladbroke Group............... 1,559,300 --------------- 7,964,517 --------------- FINANCIAL SERVICES -- 1.9% 595,510 Grupo Financiero Banamex *... 1,245,152 107,000 HSBC Holdings Plc............ 2,289,393 --------------- 3,534,545 --------------- FOOD RETAILERS -- 1.8% 233,000 Hero Supermarket............. 172,593 327,150 TI Group Plc................. 3,241,533 --------------- 3,414,126 --------------- FOREST PRODUCTS & PAPER -- 2.0% 694,600 Jefferson Smurfit Group Plc.......................... 2,045,528 30,100 Stora Kopparbergs A.......... 414,378 63,200 UPM-Kymmene *................ 1,323,231 --------------- 3,783,137 ---------------
The accompanying notes are an integral part of the financial statements. 26 28 - -------------------------------------------------------------------------------- PORTFOLIO OF INVESTMENTS American Odyssey Funds, Inc. / International Equity Fund / December 31, 1996 (continued) - --------------------------------------------------------------------------------
Shares Value - ---------------------------------------------------------- HEAVY MACHINERY -- 1.9% 8,374 Mannesmann AG................ $ 3,598,228 --------------- INSURANCE -- 5.0% 20,000 General Accident Plc......... 262,342 95,150 International Nederlanden Groupe....................... 3,421,518 290,180 Prudential Corp.............. 2,440,704 3,005 Schw Ruckversicher........... 3,198,090 --------------- 9,322,654 --------------- MEDIA -- BROADCASTING & PUBLISHING -- 6.0% 236,100 Elsevier NV.................. 3,985,628 558,600 News Corp Ltd................ 2,945,945 210,800 Singapore Press Holdings Ltd.......................... 4,159,274 --------------- 11,090,847 --------------- METALS -- 2.8% 227,600 Broken Hill Proprietary Co... 3,239,431 331,950 Western Mining Corp Ltd...... 2,090,754 --------------- 5,330,185 --------------- OFFICE EQUIPMENT -- 2.1% 180,000 Canon........................ 3,970,008 --------------- OIL & GAS -- 3.3% 14,800 ELF Aquitaine................ 1,344,564 11,000 Repsol SA.................... 421,141 9,965 Royal Dutch Petroleum........ 1,745,003 149,850 Shell Transport & Trading.... 2,595,147 --------------- 6,105,855 --------------- PHARMACEUTICALS -- 9.6% 146,050 Glaxo Wellcome Plc........... 2,374,379 181,300 Medeva Plc................... 792,698 29,900 Pharmacia & Upjohn........... 1,223,933 362 Roche Holding AG............. 2,807,901 129,950 Zeneca Group Plc............. 3,663,758 6,195 Novartis AG.................. 7,072,405 --------------- 17,935,074 --------------- Shares Value - ---------------------------------------------------------- REAL ESTATE -- 2.1% 439,000 City Developments............ $ 3,954,293 --------------- RETAILERS -- 1.2% 326,400 Argyll Group................. 2,256,594 --------------- TOTAL COMMON STOCKS (Cost $146,166,565) 177,039,849 --------------- PREFERRED STOCK -- 0.2% (Cost $397,804) 104,200 News Corp Ltd................ 463,461 --------------- WARRANTS -- 0.0% (Cost $17,241) 17,500 Thai Farmers Bank*........... 16,551 --------------- TOTAL INVESTMENTS -- 94.9% (Cost $146,581,610) 177,519,861 Other assets in excess of liabilities -- 5.1%................................... 9,589,387 --------------- NET ASSETS -- 100.0% $ 187,109,248 =============== NOTES TO THE PORTFOLIO OF INVESTMENTS: * Non-income producing security.
The accompanying notes are an integral part of the financial statements. 27 29 - -------------------------------------------------------------------------------- INVESTMENTS BY COUNTRY American Odyssey Funds, Inc. / International Equity Fund / December 31, 1996 (Unaudited) - --------------------------------------------------------------------------------
Percentage of COUNTRY Net Assets - ------------------------------------------------------------ Great Britain 30.8% Netherlands 9.9 Switzerland 8.7 Singapore 7.9 Australia 8.0 Germany 5.4 Malaysia 4.8 Indonesia 4.6 Japan 2.1 Thailand 2.1 Spain 2.0 Ireland 1.6 France 1.5 Hong Kong 1.3 Italy 1.0 Philippines 0.9 Sweden 0.9 Finland 0.7 Mexico 0.7 ---- Total 94.9% ====
The accompanying notes are an integral part of the financial statements. 28 30 - -------------------------------------------------------------------------------- PORTFOLIO OF INVESTMENTS American Odyssey Funds, Inc. / Emerging Opportunities Fund / December 31, 1996 - --------------------------------------------------------------------------------
Shares Value - ---------------------------------------------------------- COMMON STOCKS -- 104.5% APPAREL RETAILERS -- 9.2% 84,700 Gymboree Corp.* ............. $ 1,937,513 246,700 Sunglass Hut Inc.* .......... 1,788,575 158,400 Talbots, Inc. ............... 4,534,200 134,000 The Men's Wearhouse, Inc.* ....................... 3,283,000 195,400 The Sports Authority, Inc.* ....................... 4,249,950 ------------ 15,793,238 ------------ BEVERAGES, FOOD & TOBACCO -- 1.9% 110,050 Dreyers Grand Ice Cream Inc. ........................ 3,191,450 ------------ BUSINESS SERVICES -- 3.3% 145,200 Fair Issac & Co, Inc. ....... 5,680,950 ------------ COMMERCIAL SERVICES -- 9.4% 92,300 Alternative Resources Corp.* ...................... 1,603,709 66,600 On Assignment, Inc.* ........ 1,964,700 119,350 Precision Response Corp.* ... 4,192,169 129,600 Quick Response Services, Inc.*.............. 3,693,600 332,400 Sitel Corp.*................. 4,695,150 ------------ 16,149,328 ------------ COMPUTER SERVICES -- 10.1% 103,500 BISYS Group, Inc.*........... 3,835,969 229,700 Fiserv, Inc.*................ 8,441,475 71,600 Gensym Corp.*................ 854,725 226,100 Macromedia, Inc.*............ 4,069,800 ------------ 17,201,969 ------------ COMPUTER SOFTWARE -- 19.5% 79,720 BGS Systems, Inc. ........... 2,182,335 147,250 Boole & Babbage, Inc.* ...... 3,681,250 123,700 Broderbund Software, Inc.* ....................... 3,680,075 165,700 Electronic Arts* ............ 4,960,644 114,300 Manugistics Group Inc.* ..... 4,543,425 96,600 Maxis, Inc.* ................ 1,183,350 107,000 Pinnacle Systems, Inc.*...... 1,123,500 Shares Value - ---------------------------------------------------------- 54,800 Project Software & Development* ................ $ 2,322,150 171,900 Sungard Data Systems, Inc.* ....................... 6,790,050 85,100 Transaction Systems* ........ 2,829,575 ------------ 33,296,354 ------------ CONSUMER PRODUCTS -- 1.9% 134,400 Department 56 Inc.*.......... 3,326,400 ------------ ELECTRONICS -- 5.9% 97,800 Itron, Inc.*................. 1,735,950 163,000 Unitrode Corp.*.............. 4,788,125 136,000 Zilog, Inc.*................. 3,553,000 ------------ 10,077,075 ------------ FOOD RETAILERS -- 1.8% 92,500 Quality Food Centers, Inc.* ....................... 3,121,875 ------------ INDUSTRIAL MACHINE SERVICES -- 5.2% 151,400 3D Systems Corp.* ........... 1,930,350 152,500 Fastenal Co. ................ 6,976,875 ------------ 8,907,225 ------------ MEDIA -- BROADCASTING & PUBLISHING -- 3.9% 106,000 Meta Group Inc.* ............ 2,862,000 57,100 Scholastic Corp.* ........... 3,839,975 ------------ 6,701,975 ------------ MEDICAL SUPPLIES -- 5.6% 72,700 Henry Schein, Inc.* ......... 2,499,063 105,600 Protocol Systems, Inc.* ..... 1,372,800 131,700 Steris Corp.* ............... 5,728,950 ------------ 9,600,813 ------------ MEDICAL & BIO-TECHNOLOGY -- 4.1% 197,200 Idexx Labs Corp.* ........... 7,099,200 ------------ PHARMACEUTICALS -- 3.2% 110,000 R. P. Scherer Corp.* ........ 5,527,500 ------------
The accompanying notes are an integral part of the financial statements. 29 31 - -------------------------------------------------------------------------------- PORTFOLIO OF INVESTMENTS American Odyssey Funds, Inc. / Emerging Opportunities Fund / December 31, 1996 (continued) - --------------------------------------------------------------------------------
Shares Value - ---------------------------------------------------------- RESTAURANTS -- 5.7% 516,300 Buffetts, Inc.* ............. $ 4,711,238 236,300 Landry's Seafood Restaurants* ................ 5,050,913 ------------ 9,762,151 ------------ RETAILERS -- 13.8% 188,700 Best Buy Co. Inc.* .......... 2,004,938 95,940 CDW Computer Centers Inc.* ....................... 5,690,441 111,200 Eagle Hardware & Garden Inc.* ................ 2,307,400 222,000 Micro Warehouse, Inc.* ...... 2,608,500 215,400 Tech Data Corp.* ............ 5,896,575 136,700 Tiffany & Co. ............... 5,006,638 ------------ 23,514,492 ------------ TOTAL INVESTMENTS -- 104.5% (Cost $158,790,825) 178,951,995 Liabilities in excess of other assets -- (4.5%)..................... (7,673,779) ------------ NET ASSETS -- 100.0% $171,278,216 ============
NOTES TO THE PORTFOLIO OF INVESTMENTS: * Non-income producing security. The accompanying notes are an integral part of the financial statements. 30 32 - -------------------------------------------------------------------------------- PORTFOLIO OF INVESTMENTS American Odyssey Funds, Inc. / Core Equity Fund / December 31, 1996 - --------------------------------------------------------------------------------
Shares Value - ------------------------------------------------------- COMMON STOCKS -- 103.3% AEROSPACE & DEFENSE -- 1.6% 42,200 Boeing Co. .................. $ 4,489,025 ------------ AIRLINES -- 1.9% 58,300 AMR Corp.*................... 5,137,688 ------------ AUTOMOTIVE -- 2.1% 181,100 Ford Motor Co. .............. 5,772,563 ------------ BANKING -- 11.8% 143,810 Banc One Corp. .............. 6,183,830 66,600 BankAmerica Corp. ........... 6,643,350 76,500 Barnett Banks, Inc. ......... 3,146,063 83,328 Chase Manhattan Corp. ....... 7,437,024 56,203 First Chicago NBD Corp. ..... 3,020,911 60,400 Nationsbank Corp. ........... 5,904,100 ------------ 32,335,278 ------------ BEVERAGES, FOOD & TOBACCO -- 7.4% 68,200 Anheuser-Busch Co, Inc. ..... 2,728,000 254,980 Archer-Daniels-Midland, Co. ......................... 5,609,560 72,100 Philip Morris Co, Inc. ...... 8,120,263 103,900 Sara Lee Corp. .............. 3,870,275 ------------ 20,328,098 ------------ CHEMICALS -- 1.3% 88,500 BF Goodrich Co. ............. 3,584,250 ------------ COMMUNICATIONS -- 3.1% 179,700 MCI Communications Inc. ..... 5,873,944 49,400 SBC Communications, Inc. .... 2,556,450 ------------ 8,430,394 ------------ COMPUTERS & INFORMATION -- 4.8% 56,900 Hewlett Packard Co. ......... 2,859,225 47,100 IBM Corp. ................... 7,112,100 82,800 Seagate Technology, Inc*..... 3,270,600 ------------ 13,241,925 ------------ ELECTRIC UTILITIES -- 6.6% 164,300 Entergy Corp. ............... 4,559,325 189,700 Potomac Electric Power....... 4,884,775 109,500 Texas Utilities Co. ......... 4,462,125 151,400 Unicom Corp. ................ 4,106,725 ------------ 18,012,950 ------------ Shares Value - ------------------------------------------------------- ELECTRICAL EQUIPMENT -- 2.1% 57,800 General Electric Co. ........ $ 5,714,975 ------------ ELECTRONICS -- 2.7% 56,900 Intel Corp. ................. 7,450,344 ------------ ENTERTAINMENT & LEISURE -- 1.7% 137,300 Carnival Corp A.............. 4,530,900 ------------ FINANCIAL SERVICES -- 8.5% 95,412 Dean Witter Discover & Co. ......................... 6,321,050 179,600 Federal National Mortgage Association.................. 6,690,100 180,700 H F Ahmanson & Co. .......... 5,872,750 95,400 Salomon Inc. ................ 4,495,725 ------------ 23,379,625 ------------ FOREST PRODUCTS & PAPER -- 2.6% 163,800 James River Corp of Virginia..................... 5,425,875 28,600 Mead Corp. .................. 1,662,375 ------------ 7,088,250 ------------ HEALTH CARE PROVIDERS -- 1.8% 118,650 Columbia/HCA Healthcare Corp. ....................... 4,834,988 ------------ HEAVY CONSTRUCTION -- 0.9% 62,800 Foster Wheeler Corp. ........ 2,331,450 ------------ HEAVY MACHINERY -- 1.2% 42,100 Caterpiller Tractor Inc. .... 3,168,025 ------------ HOME CONSTRUCTION, FURNISHINGS & APPLIANCES -- 1.8% 107,300 Whirlpool Corp. ............. 5,002,863 ------------ INSURANCE -- 5.3% 118,183 Allstate Corp. .............. 6,839,841 108,600 Chubb Corp. ................. 5,837,250 23,700 TransAmerica Corp. .......... 1,872,300 ------------ 14,549,391 ------------ MEDIA -- BROADCASTING & PUBLISHING -- 3.0% 39,500 Gannett Co Inc. ............. 2,957,563 67,000 Tribune Co. ................. 5,284,625 ------------ 8,242,188 ------------
The accompanying notes are an integral part of the financial statements. 31 33 - -------------------------------------------------------------------------------- PORTFOLIO OF INVESTMENTS American Odyssey Funds, Inc. / Core Equity Fund / December 31, 1996 (continued) - --------------------------------------------------------------------------------
Shares Value - ------------------------------------------------------- MEDICAL SUPPLIES -- 1.3% 86,600 Baxter International, Inc. ........................ $ 3,550,600 ------------ OIL & GAS -- 14.0% 82,500 Amerada Hess Corp. .......... 4,774,688 72,100 Amoco Corp. ................. 5,804,050 32,100 Atlantic Richfield Co. ...... 4,253,250 38,256 British Petroleum Plc (1).... 5,408,442 58,600 Exxon Corp. ................. 5,742,800 31,300 Mobil Corp. ................. 3,826,425 67,000 Tenneco Inc. ................ 3,023,375 54,100 Texaco Inc. ................. 5,308,563 ------------ 38,141,593 ------------ PHARMACEUTICALS -- 4.4% 70,000 Bristol Myers Squibb Co. .... 7,612,500 66,500 Schering Plough Corp. ....... 4,305,875 ------------ 11,918,375 ------------ RESTAURANTS -- 1.0% 179,500 Brinker International Inc*... 2,872,000 ------------ RETAILERS -- 5.3% 125,600 Dayton-Hudson Corp. ......... 4,929,800 116,800 Federated Department Stores*...................... 3,985,800 67,000 Sears Roebuck & Co. ......... 3,090,375 84,900 Toys "R" Us, Inc. Holding Co*.......................... 2,547,000 ------------ 14,552,975 ------------ Shares Value - ------------------------------------------------------- TELEPHONE SYSTEMS -- 2.3% 147,000 AT&T Corp. .................. $ 6,394,500 ------------ TRANSPORTATION -- 2.8% 15,774 Conrail, Inc. ............... 1,571,480 102,100 Ryder System................. 2,871,563 53,000 Union Pacific Corp. ......... 3,186,625 ------------ 7,629,668 ------------ TOTAL INVESTMENTS -- 103.3% (Cost $216,790,498) 282,684,881 Liabilities in excess of other assets -- (3.3%)................................ (8,913,355) ------------ NET ASSETS -- 100.0% $273,771,526 ============
NOTES TO THE PORTFOLIO OF INVESTMENTS: (1) American Depository Receipt * Non-income producing security. The accompanying notes are an integral part of the financial statements. 32 34 - -------------------------------------------------------------------------------- PORTFOLIO OF INVESTMENTS American Odyssey Funds, Inc. / Long-Term Bond Fund / December 31, 1996 - --------------------------------------------------------------------------------
Principal Amount Value - ---------------------------------------------------------- U.S. CORPORATE OBLIGATIONS -- 17.1% Asset Backed & Mortgage Backed Obligations $ 86,096 Citicorp Mortgage Trust Series 3-A3, REMIC 9.000% 12/25/17................... $ 86,184 1,020,000 Nomura Assets Securities Corp., REMIC 7.120% 04/13/36................... 1,030,200 ------------ 1,116,384 ------------ Corporate Bonds & Notes 2,000,000 Associates Corp. of North America 8.150% 08/01/09............ 2,158,340 500,000 Banque Paribas 6.875% 03/01/09............ 473,695 1,000,000 Cit Group Holdings 8.375% 11/01/01............ 1,071,290 500,000 Commonwealth Edison Co. 8.625% 02/01/22............ 515,030 1,350,000 Commonwealth Edison Co. 8.375% 02/15/23............ 1,368,779 400,000 Dean Witter Discover & Co. 6.250% 03/15/00............ 397,120 2,000,000 Ford Motor Credit Corp. 5.750% 01/25/01............ 1,936,120 350,000 General Motors Acceptance Corp. 9.625% 12/15/01............ 392,140 4,700,000 General Motors Acceptance Corp. (Units) 0.000% 06/15/15............ 1,228,439 382,666 GG1B Funding Corp 7.430% 01/15/11............ 370,808 2,000,000 International Paper Co. 7.000% 06/01/01............ 2,029,000 2,000,000 Lockheed Martin 6.850% 05/15/01............ 2,017,800 600,000 Loews Corp. 7.625% 06/01/23............ 588,708 700,000 NBD Bank N.A. 8.250% 11/01/24............ 788,333 Principal Amount Value - ---------------------------------------------------------- $ 400,000 News America Holdings 8.450% 08/01/34............ $ 434,924 2,000,000 News America Holdings 8.250% 10/17/96............ 1,966,200 500,000 Niagara Mohawk Power 7.750% 05/15/06............ 465,640 2,000,000 RJR Nabisco, Inc. 6.850% 06/15/05............ 1,965,800 580,000 RJR Nabisco, Inc. 8.750% 08/15/05............ 582,610 2,000,000 Southern Cal Edison 6.500% 06/01/01............ 1,988,340 400,000 Southern Union Co 7.600% 02/01/24............ 391,132 2,450,000 TCI Communications 8.750% 08/01/15............ 2,420,306 800,000 Telecommunications, Inc. 7.875% 08/01/13............ 736,464 ------------ 26,287,018 ------------ TOTAL U.S. CORPORATE OBLIGATIONS (Cost $27,238,127)..................... 27,403,402 ------------ FOREIGN OBLIGATIONS -- 1.8% 1,000,000 Sears Overseas Finance, Euro-dollar 0.000% 07/12/98............ 924,410 2,000,000 Quebec Province, Yankee-dollar 5.670% 02/27/26............ 1,974,400 ------------ TOTAL FOREIGN OBLIGATIONS (Cost $2,897,732)...................... 2,898,810 ------------ U.S. GOVERNMENT AGENCIES and MORTGAGE BACKED SECURITIES -- 45.9% U.S. Government Agency Obligations 3,000,000 Federal Home Loan Bank 5.920% 06/29/00............ 2,969,520 3,000,000 Federal Home Loan Bank 6.285% 07/28/00............ 3,003,270 3,000,000 Federal Home Loan Mortgage Corp 6.783% 08/18/05............ 3,020,610
The accompanying notes are an integral part of the financial statements. 33 35 - -------------------------------------------------------------------------------- PORTFOLIO OF INVESTMENTS American Odyssey Funds, Inc. / Long-Term Bond Fund / December 31, 1996 (continued) - --------------------------------------------------------------------------------
Principal Amount Value - ---------------------------------------------------------- $3,000,000 Federal National Mortgage Association 6.140% 11/25/05............ $ 2,852,460 15,000,000 Resolution Funding Corp., TIGR Principal Strip 0.000% 01/15/30............ 1,670,850 20,000,000 Resolution Funding Corp., TIGR Coupon Strip 0.000% 01/15/11............ 7,729,000 ------------ 21,245,710 ------------ U.S. Government Mortgage Backed Securities 9,915,630 Federal Home Loan Mortgage Corp. 7.000% 01/01/26............ 9,742,107 13,750,000 Federal Home Loan Mortgage Corp., TBA 6.50% 01/01/27............. 13,144,175 3,928,856 Federal National Mortgage Association 7.000% 01/01/26............ 3,845,564 3,236,909 Federal National Mortgage Association 7.000% 02/01/24............ 3,179,422 6,019,237 Federal National Mortgage Association 7.000% 12/01/24............ 5,912,336 991,548 Federal National Mortgage Association 7.000% 04/01/26............ 970,527 2,500,000 Federal National Mortgage Association, TBA 7.000% 01/01/27............ 2,444,525 989,820 Government National Mortgage Association 8.500% 06/15/25............ 1,029,126 644,778 Government National Mortgage Association 8.500% 01/15/25............ 670,382 637,639 Government National Mortgage Association 8.500% 01/15/25............ 662,959 Principal Amount Value - ---------------------------------------------------------- $9,608,634 Government National Mortgage Association 7.500% 07/15/25............ $ 9,625,545 659,308 Government National Mortgage Association 8.500% 01/15/25............ 685,489 196,463 Government National Mortgage Association 9.500% 09/15/30............ 208,557 418,553 Government National Mortgage Association 8.500% 01/15/25............ 435,173 ------------ 52,555,887 ------------ TOTAL U.S. GOVERNMENT AGENCY AND MORTGAGE BACKED OBLIGATIONS (Cost $74,982,978)..................... 73,801,597 ------------ U.S. GOVERNMENT TREASURY OBLIGATIONS -- 35.1% U.S. Treasury Bonds 10,300,000 6.000% 02/15/26(b)......... 9,374,648 12,400,000 6.750% 08/15/26(b)......... 12,493,000 ------------ 21,867,648 U.S. Treasury Notes 1,300,000 6.625% 07/31/01............ 1,320,722 30,100,000 6.125% 12/31/01(b)......... 29,987,125 100,000 5.500% 12/31/00............ 97,687 1,000,000 7.000% 07/15/06............ 1,038,910 ------------ 32,444,444 U.S. Treasury Principal Strips 5,000,000 0.000% 02/15/19............ 1,104,400 4,800,000 0.000% 08/15/20............ 955,920 ------------ 2,060,320 ------------ TOTAL U.S. GOVERNMENT TREASURY OBLIGATIONS (Cost $56,202,231)..................... 56,372,412 ------------
The accompanying notes are an integral part of the financial statements. 34 36 Portfolio of Investments American Odyssey Funds, Inc. / Long-Term Bond Fund / December 31, 1996 (continued)
Principal Amount Value - ------------------------------------------------------ SHORT TERM INVESTMENTS -- 1.3% $2,200,000 U.S. Treasury Bill 5.350% 01/09/97(a) (Amortized Cost $2,197,384)........... $ 2,197,384 --------------- TOTAL INVESTMENTS -- 101.2% (Cost $163,518,452).................... 162,673,605 Options written -- (0.1%) (78,578) Liabilities in excess of other assets -- (1.1%) (1,900,511) --------------- NET ASSETS -- 100.0% $160,694,516 ============
NOTES TO THE PORTFOLIO OF INVESTMENTS: (a) Security has been pledged to cover collateral requirements for open futures. (b) All or a portion of these securities have been segregated to cover delayed delivery transactions. Euro-Dollar -- Bonds issued offshore that pay interest and principal in U.S. Dollars. REMIC -- Real Estate Mortgage Investment Conduit TBA -- Delayed delivery transaction (Note 9) TIGR -- Treasury Income Growth Receipts (a stripped U.S. Bond) Yankee-Dollar -- U.S. Dollar denominated bonds issued by non-U.S. companies in the U.S. The accompanying notes are an integral part of the financial statements. 35 37 - -------------------------------------------------------------------------------- PORTFOLIO OF INVESTMENTS American Odyssey Funds, Inc. / Intermediate-Term Bond Fund / December 31, 1996 - --------------------------------------------------------------------------------
Principal Amount Value - ---------------------------------------------------------- ASSET BACKED SECURITIES -- 4.1% $2,512,000 DQU II Funding 7.230% 12/01/99............. $ 2,556,312 1,000,000 Signet Credit Card Master Trust 7.350% 09/15/02............. 1,020,620 ----------- TOTAL ASSET BACKED SECURITIES (Cost $3,550,390)....................... 3,576,932 ----------- CORPORATE BONDS and NOTES -- 65.2% 4,000,000 Alco Capital Resources 7.330% 03/27/98............. 4,060,680 4,250,000 BellSouth Capital Funding 6.040% 11/15/26............. 4,230,224 2,500,000 Continental Cablevision, Inc. 11.00% 06/01/07............. 2,868,750 2,000,000 Crane Co. 7.250% 06/15/99............. 2,019,040 4,000,000 Grand Metropolitan Investment Corp. 0.000% 01/06/04............. 2,469,120 3,000,000 Gulf States Utilities Co 7.350% 11/01/98............. 3,039,240 4,350,000 Hewlett-Packard Finance 6.500% 12/30/99............. 4,390,781 1,500,000 House Hold Private Label Credit Card Master Trust II 8.000% 09/20/03............. 1,548,750 550,000 Houston Power & Lighting 5.250% 01/01/97............. 550,000 3,000,000 Illinois Power 6.500% 09/01/99............. 2,952,780 4,500,000 MCI Communications Corp. 7.125% 06/15/27............. 4,668,120 3,000,000 New Plan Realty, REIT 5.950% 11/02/26............. 2,994,978 4,200,000 Philip Morris Co., Inc. 6.950% 06/01/06............. 4,259,800 3,800,000 RJR Nabisco, Inc. 8.300% 04/15/99............. 3,935,128 1,500,000 System Energy Resources 6.000% 04/01/98............. 1,490,250 Principal Amount Value - ---------------------------------------------------------- $4,900,000 Six Flags Entertainment 0.000% 12/15/99............. $ 3,969,000 4,000,000 Tele Communications Inc 9.650% 10/01/03............. 4,299,600 1,000,000 United Illuminating 7.000% 01/15/97............. 1,000,070 1,500,000 United Illuminating 7.375% 01/15/98............. 1,512,945 ----------- TOTAL CORPORATE BONDS AND NOTES (Cost $56,260,985)...................... 56,259,256 ----------- FOREIGN GOVERNMENT BONDS -- 11.0% 7,000,000 Republic of Austria, Euro-dollar 0.000% 11/25/00............. 5,451,250 5,000,000 Kingdom of Sweden, Yankee-dollar 0.000% 07/31/00............. 4,028,125 ----------- TOTAL FOREIGN GOVERNMENT BONDS (Cost $9,680,461)....................... 9,479,375 ----------- U.S. GOVERNMENT OBLIGATIONS -- 23.3% U.S. Government Mortgage Backed Securities 2,343,391 Federal Home Loan Mortgage Corp., REMIC 5.150% 08/25/12............. 2,301,632 4,520,000 Federal National Mortgage Association, Principal Strips 0.000% 03/09/02............. 4,473,399 4,431,795 Government National Mortgage Association 7.000% 10/01/26............. 4,420,716 ----------- 11,195,747 ----------- U.S. Treasury Notes 5,500,000 5.875% 06/30/00............. 5,458,750 3,500,000 6.250% 02/15/03............. 3,495,625 ----------- 8,954,375 ----------- TOTAL U.S. GOVERNMENT OBLIGATIONS (Cost $20,171,935)...................... 20,150,122 -----------
The accompanying notes are an integral part of the financial statements. 36 38 - -------------------------------------------------------------------------------- PORTFOLIO OF INVESTMENTS American Odyssey Funds, Inc. / Intermediate-Term Bond Fund / December 31, 1996 (continued) - --------------------------------------------------------------------------------
Principal Amount Value - ---------------------------------------------------------- REPURCHASE AGREEMENT -- 1.4% $1,231,000 Repurchase Agreement with Morgan Stanley, dated 12/31/96, 5.25%, due 01/02/97, proceeds at maturity of $1,231,410 (collateralized by $1,140,000 U.S. Treasury Note, 7.875%, due 11/15/04, with a market value of $1,245,094) (Cost $1,231,000)........... $ 1,231,000 -------------- TOTAL INVESTMENTS -- 105.0% (Cost $90,894,771).................... 90,696,685 Liabilities in excess of other assets -- (5.0%)...................... (4,311,611) -------------- NET ASSETS -- 100.0% $ 86,385,074 ==============
NOTES TO THE PORTFOLIO OF INVESTMENTS: Euro-Dollar -- Bonds issued offshore that pay interest and principal in U.S. Dollars. REIT -- Real Estate Investment Trust REMIC -- Real Estate Mortgage Investment Conduit Yankee-Dollar -- U.S. Dollar denominated bonds issued by non-U.S. companies in the U.S. The accompanying notes are an integral part of the financial statements. 37 39 - -------------------------------------------------------------------------------- PORTFOLIO OF INVESTMENTS American Odyssey Funds, Inc. / Short-Term Bond Fund / December 31, 1996 - --------------------------------------------------------------------------------
Principal Amount Value - ---------------------------------------------------------- ASSET-BACKED SECURITIES -- 2.8% $ 600,000 Contimortgage Home Equity Trust, REMIC 6.860% 07/15/10.................... $ 600,750 750,000 Equicredit Home Equity Trust, REMIC 6.450% 11/15/08.................... 750,234 -------------- TOTAL ASSET-BACKED SECURITIES (Cost $1,347,938)....................... 1,350,984 -------------- CORPORATE BONDS and NOTES -- 9.2% 800,000 American General 8.500% 06/16/99.................... 833,353 300,000 Arizona Public Service 7.625% 06/15/99............. 303,741 500,000 Associates Corp. N.A. 8.250% 12/01/99............. 524,950 200,000 Carolina Power & Light 5.375% 07/01/98............. 197,922 500,000 Conagra, Inc. 9.750% 11/01/97............. 513,635 650,000 Ford Motor Credit Corp. 8.000% 01/15/99............. 671,164 317,000 Nationsbank Corp. 7.000% 05/15/03.................... 321,330 395,000 Norwest Corp. 8.150% 11/01/01.................... 420,861 375,000 Texas Utilities Co. 5.750% 07/01/98.................... 372,810 300,000 WMX Technologies 6.650% 05/15/05.................... 301,185 -------------- TOTAL CORPORATE BONDS AND NOTES (Cost $4,427,863)....................... 4,460,951 -------------- FOREIGN OBLIGATIONS -- 0.3% 150,000 Republic of Ireland, Yankee Bond 7.876% 12/01/01 (Cost $151,312)............. 158,403 -------------- Principal Amount Value - ---------------------------------------------------------- U.S. GOVERNMENT and AGENCIES OBLIGATIONS -- 80.8% U.S. Government Agency Obligations $2,755,000 Farmer Mac 6.800% 05/27/97.............. $ 2,768,334 425,000 Federal Home Loan Bank 5.870% 11/21/00..................... 419,088 1,300,000 Federal Home Loan Mortgage Corp. 6.395% 05/16/00..................... 1,305,889 580,000 Federal National Mortgage Association 6.270% 10/26/00..................... 575,650 765,000 Federal National Mortgage Association 6.770% 04/14/97.............. 766,790 1,020,000 Student Loan Marketing Association 7.500% 03/08/00..................... 1,056,812 ------------- 6,892,563 ------------- Collaterallized Mortgage Obligations 1,115,070 Federal Home Loan Mortgage Corp. REMIC 6.000% 08/15/20.............. 1,111,580 ------------- U.S. Treasury Notes 283,000 5.000% 01/31/98.............. 281,011 645,000 7.250% 02/15/98.............. 655,584 2,256,000 5.375% 05/31/98.............. 2,244,359 2,370,000 4.750% 09/30/98.............. 2,327,790 3,465,000 7.125% 09/30/99.............. 3,560,842 590,000 7.875% 11/15/99.............. 618,119 584,000 6.750% 04/30/00.............. 574,665 1,327,000 6.125% 07/31/00.............. 1,327,000 7,095,000 6.250% 04/30/01.............. 7,110,538 5,068,000 6.375% 09/30/01.............. 5,098,104 6,728,000 6.250% 10/31/01.............. 6,734,324 750,000 7.250% 05/15/04.............. 789,143 ------------- 31,321,479 -------------
The accompanying notes are an integral part of the financial statements. 38 40 - -------------------------------------------------------------------------------- PORTFOLIO OF INVESTMENTS American Odyssey Funds, Inc. / Short-Term Bond Fund / December 31, 1996 (continued) - --------------------------------------------------------------------------------
Value - ---------------------------------------------------------- TOTAL U.S. GOVERNMENT AND AGENCY OBLIGATIONS (Cost $39,458,202)...................... $ 39,325,622 -------------- SHORT TERM INVESTMENTS -- 8.8% $4,320,000 U.S. Treasury Bill 4.800% 02/06/97 (Amortized Cost $4,299,225)............ 4,299,225 -------------- TOTAL INVESTMENTS -- 101.9% (Cost $49,684,540).................... 49,595,185 Liabilities in excess of other assets -- (1.9%)...................... (922,269) -------------- NET ASSETS -- 100.0% $ 48,672,916 ==============
NOTES TO THE PORTFOLIO OF INVESTMENTS: REMIC -- Real Estate Mortgage Investment Conduit Yankee Bond -- U.S. Dollar denominated bonds issued by non-U.S. companies in the U.S. The accompanying notes are an integral part of the financial statements. 39 41 - -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS American Odyssey Funds, Inc. / December 31, 1996 - -------------------------------------------------------------------------------- NOTE 1. ORGANIZATION American Odyssey Funds, Inc., (the "Company"), was organized as a Maryland corporation in December 1992. It is registered under the Investment Company Act of 1940 as an open-end diversified management investment company. It consists of six separate funds (the "Fund(s)"): International Equity Fund, Emerging Opportunities Fund, Core Equity Fund, Long-Term Bond Fund, Intermediate-Term Bond Fund, and Short-Term Bond Fund. Shares of the Funds are offered only to life insurance companies and their affiliates for their separate and general accounts, and to qualified retirement plans. NOTE 2. SIGNIFICANT ACCOUNTING POLICIES 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 at the date of the financial statements and the reported amounts of income and expenses during the reporting period. Actual results could differ from those estimates. a) SECURITIES VALUATION Securities traded on a national exchange and those traded on over-the-counter markets are valued at the last sales price; if there was no sale on such day, the securities are valued at the mean between the most recently quoted bid and asked prices. Securities for which market quotations are not readily available are valued in good faith at fair value using methods determined by the Board of Directors. Securities which mature in 60 days or less are valued at amortized cost, which approximates market value, unless this method does not represent fair market value, at which time the security will be valued at its fair value as determined in good faith by the Board of Directors. Futures contracts and options are valued based upon their quoted daily settlement prices. b) OFF BALANCE SHEET RISK The Funds may utilize futures contracts, options, and forward foreign currency contracts for hedging purposes. The primary risks associated with the use of these financial instruments for hedging purposes are (a) an imperfect correlation between the change in market value of the other securities held by the Funds and the change in market value of these financial instruments, and (b) the possibility of an illiquid market. As a result, the use of these financial instruments may involve, to a varying degree, elements of market risk in excess of the amount recognized in the Statement of Assets and Liabilities. c) FUTURES CONTRACTS Initial margin deposits made upon entering into futures contracts are recognized as assets due from the broker. During the period the futures contract is open, changes in the value of the contract are recognized as unrealized gains or losses by "marking to market" on a daily basis to reflect the value of the contract at the end of each day's trading. Variation margin payments are made or received and recognized as assets due from or liabilities to the broker depending upon whether unrealized gains or losses are incurred. When the contract is closed, the Fund records a realized gain or loss equal to the difference between the proceeds from (or 40 42 cost of) the closing transaction and its basis in the contract. d) OPTIONS The premium paid by the Fund for the purchase of a call or put option is included in the Fund's Statement of Assets and Liabilities as an investment and subsequently "marked to market" to reflect the current market value of the option purchased. The current market value of a purchased option is the last reported sale price on the principal exchange on which such option is traded. If an option which the Fund has purchased expires on its stipulated expiration date, the Fund realizes a loss in the amount of the cost of the option. If the Fund enters into a closing transaction, it realizes a gain or loss, depending on whether the proceeds from the sale are greater or less than the cost of the option. If the Fund exercises a put option, it realizes a gain or loss from the sale of the underlying security and the proceeds from such sale will be decreased by the premium originally paid. If the Fund exercises a call option, the cost of the security which the Fund purchases upon exercise will be increased by the premium originally paid. The premium received for a written option is recorded as an asset with an equivalent liability. The liability is marked-to-market based on the option's quoted daily settlement price. When an option expires or the Fund enters into a closing purchase transaction, the Fund realizes a gain (or loss if the cost of the closing purchase transaction exceeds the premium received when the option was sold) without regard to any unrealized gain or loss on the underlying security and the liability related to such option is eliminated. When a written call option is exercised, the Fund realizes a gain or loss from the sale of the underlying security and the proceeds from such sale are increased by the premium originally received. If a written put option is exercised, the amount of the premium originally received will reduce the cost of the security which the Fund purchased. e) FORWARD FOREIGN CURRENCY CONTRACTS The International Equity Fund may enter into forward foreign currency contracts to hedge future movements in certain foreign currency exchange rates. A forward currency contract is a commitment to purchase or sell a foreign currency at a future date at a set price. The forward currency contracts are valued at the forward rate and are marked-to-market daily. The change in market value is recorded by the Fund as a unrealized gain or loss. When the contract is closed, the Fund records a realized gain or loss equal to the difference between the value of the contract at the time it was opened and the value at the time it was closed. Risks arise from the possible inability of counterparties to meet the terms of their contracts and from movements in currency values and interest rates. f) REPURCHASE AGREEMENTS The Funds may enter into repurchase agreements (on an individual Fund basis or in conjunction with the other Funds) with the seller wherein the seller and the buyer agree at the time of sale to a repurchase of the security at a mutually agreed upon time and price. The Funds will not enter into repurchase agreements unless the agreement is fully collateralized. Securities purchased subject to the repurchase agreement are deposited with a custodian and, pursuant to the terms of the repurchase agreement, must have an aggregate market value at least equal to the repurchase price plus accrued interest. If the value of the underlying securities falls below the value of the repurchase price plus accrued interest, the seller is required to deposit additional collateral by the next business day. If the request for additional collateral is not met, or the seller defaults on its repurchase obliga- 41 43 tion, the Funds maintain the right to sell the underlying securities at market value and may claim any resulting loss against the seller. Repurchase agreements could involve certain risks in the event of default or insolvency of the other party, including possible delays or restrictions upon the Fund's ability to dispose of the underlying securities. g) CURRENCY TRANSLATION Assets and liabilities denominated in foreign currencies are translated into U.S. dollars at the rate of exchange at the end of the period. Purchases and sales of securities are translated at the rates of exchange prevailing when such securities were acquired or sold. Income is translated at rates of exchange prevailing when accrued. The Fund does not isolate that portion of the results of operations resulting from changes in foreign exchange rates on investments from the fluctuations arising from changes in market prices of securities held. Such fluctuations are included with the net realized and unrealized gain or loss from investments. Reported net realized foreign exchange gains or losses arise from sales and maturities of short-term securities, sales of foreign currencies, currency gains or losses realized between the trade and settlement dates on securities transactions, the difference between the amounts of dividends, interest, and foreign withholding taxes recorded on the Fund's books, and the U.S. dollar equivalent of the amounts actually received or paid. Net unrealized foreign exchange gains and losses arise from changes in the value of assets and liabilities other than investments in securities at fiscal year end, resulting from changes in the exchange rate. h) ORGANIZATION EXPENSES Organization expenses totaling $147,450 have been deferred and are being amortized on a straight-line basis through May 1998. If any of the initial shares of the Company are redeemed by any shareholder during the period of amortization of organization expenses, the redemption proceeds will be reduced by the pro rata amount of unamortized organization expenses based on the number of initial shares being redeemed to the number of initial shares outstanding at the time of redemption. i) TAXES It is the Company's policy to comply with the provisions of the Internal Revenue Code applicable to a regulated investment company. Under such provisions, the Company will not be subject to federal income tax as the Company intends to distribute as dividends substantially all of the net investment income, if any, of each Fund. The Company also intends to distribute annually all of its net realized capital gains. Such dividends and distributions are automatically reinvested in additional shares of the Funds. j) DISTRIBUTIONS Dividends from net investment income and capital gain distributions are determined in accordance with U.S. federal income tax regulations which may differ from generally accepted accounting principles. As a result, dividends and distributions differ from net investment income and net realized capital gains due to timing differences, primarily the deferral of losses due to wash sales and the deferral of net realized capital losses recognized subsequent to October 31, 1996. Distributions which were the result of permanent differences between book and tax rules, primarily due to the differing treatment of foreign currency transactions and the inability to carry net operating losses forward to future years, have been reclassified to additional paid-in capital, undistributed net investment income and accumulated net realized gain (loss) 42 44 on investments, futures contracts, option contracts and foreign currency transactions. k) SECURITIES TRANSACTIONS Securities transactions are accounted for on the date the securities are purchased or sold. Realized gains and losses are determined on the identified cost basis. Dividend income is recorded on the ex-dividend date. Interest income is accrued daily as earned. NOTE 3. MANAGEMENT, TRANSFER AGENCY AND SUBADVISORY AGREEMENTS AND TRANSACTIONS WITH AFFILIATES The Company has entered into a management agreement with American Odyssey Funds Management, Inc. (AOFM), pursuant to which AOFM manages the investment operations of the Company and administers the Company's affairs. AOFM has entered into subadvisory agreements for investment advisory services in connection with the management of each of the Funds. AOFM supervises the subadvisers' performance of advisory services and will make recommendations to the Company's Board of Directors with respect to the retention or renewal of the subadvisory agreements. AOFM pays for the costs pursuant to the subadvisory agreements, the cost of compensating officers of the Company, occupancy, and certain clerical and accounting costs of the Company. The Company bears all other costs and expenses. Under the terms of the management agreement, the Funds pay AOFM a management fee based on average daily net assets as follows: International Equity Fund, .70% for the first $50 million in assets, .65% for the next $50 million in assets, and .55% for the assets over $100 million; Emerging Opportunities Fund, .65% for the first $100 million in assets and .55% for the assets over $100 million; Core Equity Fund, .60% for the first $100 million in assets and .55% for the assets over $100 million; Long-Term Bond Fund, .50% and .70% for the first $250 million in U.S. and non-U.S. assets, respectively, and .40% and .60% for U.S. and non-U.S. assets, respectively, over $250 million; Intermediate-Term Bond Fund, .50% for the first $100 million in assets, .45% for the next $100 million in assets, and .40% for assets over $200 million; Short-Term Bond Fund, .50% for the first $100 million in assets and .40% for assets over $100 million. Prior to May 1, 1996, AOFM had agreed to limit the expenses for each Fund and reimburse expenses to the extent that each Fund's aggregate expenses (excluding interest, taxes, brokerage commissions and extraordinary expenses) exceeds the expense limitation for that Fund. AOFM has agreed to continue, at least until May 1, 1997, this expense limitation for the Short-Term Bond Fund. The expense limitations for the Funds, as a percentage of the average daily net assets, are as follows: International Equity Fund, 1.25%; Emerging Opportunities Fund, 1.00%; Core Equity Fund, 1.00%; Long-Term Bond Fund, .75%; Intermediate- Term Bond Fund, .75%; and Short-Term Bond Fund, .75%. Each Fund is required to reimburse AOFM for any fees it waived or expenses it reimbursed pursuant to these expense limitations, provided that such reimbursement would not cause the total expense ratio to exceed the expense limitations set forth above. AOFM's management fees for 1996 were $4,678,520. An additional $21,289 was paid to AOFM for reimbursement of previous fees waived and expenses reimbursed. The Short-Term Bond Fund is currently reimbursing AOFM and has a potential future liability to reimburse AOFM amounting to $42,792, at December 31, 1996. AOFM has acknowledged that upon termination of the Investment Management Agreement between AOFM and the Funds, the portfolio's would not be liable for any waived or reimbursed fees which have not been repaid. 43 45 The Company has entered into a transfer agency agreement with AOFM pursuant to which AOFM is responsible for shareholders' record keeping and communications. AOFM does not currently charge any additional fees for these services. Under the subadvisory agreements, AOFM pays each subadviser a fee that is computed daily and paid monthly at the annual rates based on the value of the Fund's average daily net assets as follows: International Equity Fund, .45% for the first $50 million in assets, .40% for the next $50 million in assets, and .30% for assets over $100 million; Emerging Opportunities Fund, .40% for the first $100 million in assets and .30% for assets over $100 million; Core Equity Fund, .35% for the first $100 million in assets and .30% for assets over $100 million; Long-Term Bond Fund, .25% and .45% for the first $250 million in U.S. and non-U.S. assets, respectively, and .15% and .35% for U.S. and non-U.S. assets, respectively, over $250 million: Intermediate-Term Bond Fund, .25% for the first $100 million in assets, .20% for the next $100 million in assets, and .15% for assets over $200 million; and Short-Term Bond Fund, .25% for the first $100 million in assets and .15% for assets over $100 million. Travelers Asset Management International Corporation, an affiliate of AOFM, serves as subadviser for the Intermediate-Term Bond Fund. NOTE 4. DIRECTED BROKERAGE ARRANGEMENTS The International Equity Fund and Core Equity Fund have entered into brokerage service arrangements with certain broker-dealers. The broker-dealers have agreed to pay certain Fund expenses in exchange for the Fund directing a portion of the fund brokerage to these broker dealers. In no event would the Fund pay additional brokerage or receive inferior execution of transactions for fund brokerage so allocated. Under these arrangements for the year ended December 31, 1996, broker-dealers paid custodian expenses for the International Equity Fund and the Core Equity Fund of $34,598 and $47,610, respectively. NOTE 5. SECURITIES TRANSACTIONS The cost of purchases and proceeds from sales of investment securities (excluding short-term investments and repurchase agreements), for the year ended December 31, 1996 were:
Emerging Intermediate- International Opportunities Core Equity Long-Term Term Short-Term Equity Fund Fund Fund Bond Fund Bond Fund Bond Fund ----------- ------------ ------------ ------------ ------------ ----------- Purchases: Government................. $ -- $ -- $ -- $532,065,118 $ 62,966,566 $65,418,775 Non-Government............. 90,307,641 111,319,458 153,210,252 26,790,914 112,191,540 3,256,864 ----------- ------------ ------------ ------------ ------------ ----------- Total...................... $90,307,641 $111,319,458 $153,210,252 $558,856,032 $175,158,106 $68,675,639 =========== ============ ============ ============ ============ =========== Sales: Government................. $ -- $ -- $ -- $500,438,276 $ 60,332,095 $46,386,383 Non-Government............. 26,599,427 79,162,646 106,761,269 8,834,964 99,772,664 2,258,027 ----------- ------------ ------------ ------------ ------------ ----------- Total...................... $26,559,427 $ 79,162,646 $106,761,269 $509,273,240 $160,104,759 $48,644,410 =========== ============ ============ ============ ============ ===========
44 46 At December 31, 1996, the cost of securities for federal income tax purposes and the unrealized appreciation (depreciation) of investments for federal income tax purposes for each Fund was as follows:
Emerging Intermediate- International Opportunities Core Equity Long-Term Term Short-Term Equity Fund Fund Fund Bond Fund Bond Fund Bond Fund -------------- -------------- ------------ ------------ -------------- ----------- Federal Income Tax Cost..... $ 146,581,610 $ 159,388,221 $216,790,498 $163,518,452 $ 90,894,771 $49,702,164 Gross Unrealized Appreciation.............. 33,151,400 38,723,938 67,243,550 811,067 401,943 109,571 Gross Unrealized (Depreciation)............ (2,213,149) (19,160,164) (1,349,167) (1,655,914) (600,029) (216,550)
NOTE 6. FUTURES CONTRACTS At December 31, 1996, the Long-Term Bond Fund had entered into the following futures contracts:
Unrealized Number Underlying Expiration Nominal Nominal Appreciation/ of Contracts Face Value Security Date Cost Value (Depreciation) --------------- ----------- ---------------------------------- ---------- ----------- ----------- -------------- Long Position ------------ 482 48,200,000 5 Year U.S. Treasury Note 03/31/97 $51,540,726 $51,378,187 $ (162,539) Short Position ------------- 16 1,600,000 U.S. Long Term Treasury Bonds 03/31/97 1,796,880 1,802,000 (5,120) ---------- Total $ (167,659) ==========
NOTE 7. WRITTEN OPTIONS The Long Term Bond Fund's activity in written options during year ended December 31, 1996 was as follows:
Number of Options Premiums --------- ---------- Options Outstanding at December 31, 1995.................................................. 100 $ 206,422 Options Written....................................................................... 1,865 1,120,311 Options Canceled in Closing Transactions.............................................. (1,312) (830,099) Options Expired....................................................................... (87) (70,629) Options Exercised..................................................................... (353) (228,290) -------- ---------- Options Outstanding at December 31, 1996.................................................. 213 $ 197,715 ======== ========== Cost of Closing Transactions.............................................................. $ 610,406
45 47 NOTE 8. FORWARD FOREIGN CURRENCY CONTRACTS The International Equity Fund had forward foreign currency contracts which contractually obligates the Fund to deliver or receive currencies at specified future dates. The following contracts were open at December 31, 1996:
Foreign Unrealized Contract Settlement Appreciation/ Sales U.S. Value Date Value Depreciation - ---------------------------------------------------------- -------------- ---------- ------------ -------------- Swiss Franc............................................... $4,005,590 01/17/97 $ 3,735,441 $270,149 Swiss Franc............................................... 8,773,113 02/19/97 8,248,563 524,550 German Deutsche Mark...................................... 2,400,941 02/03/97 2,390,801 10,140 German Deutsche Mark...................................... 4,814,124 02/27/97 4,726,730 87,394 Netherlands Guilder....................................... 3,781,882 01/16/97 3,734,728 47,154 Netherlands Guilder....................................... 4,416,678 03/05/97 4,478,219 (61,541) Netherlands Guilder....................................... 4,782,166 03/17/97 4,784,549 (2,383) ------------ ----------- Total Sales........................................... $ 32,099,031 $875,463 ============ ===========
NOTE 9. DELAYED DELIVERY TRANSACTIONS: The Long-Term Bond Fund (the "Fund") may purchase securities on a when-issued or forward commitment basis. Payment and delivery may take place a month or more after the date of the transactions. The price of the underlying securities and the date when the securities will be delivered and paid for are fixed at the time the transaction is negotiated. The Fund instructs its custodian to segregate securities having a value at least equal to the net amount of the purchase commitments. At December 31, 1996, the Fund has entered into the following delayed delivery transactions.
Type Security Settlement Date Amount - ----- -------------------------------------------------------------------------- --------------- ----------- Buy Federal National Mortgage Association..................................... 1/14/97 $ 2,470,313 Buy Federal Home Loan Mortgage Corp........................................... 1/14/97 13,163,867 Buy Federal Home Loan Mortgage Corp........................................... 1/16/97 14,760,937 ----------- $30,395,117 =========== Sell Federal Home Loan Mortgage Corp........................................... 1/16/97 $14,742,188 ===========
NOTE 10. FEDERAL INCOME TAXES For federal income tax purposes, the Fund indicated below has a capital loss carryforward as of December 31, 1996 which is available to offset future capital gains, if any.
Capital Loss Expiration Carryforward Date ------------ ---------- Short Term Bond Fund.................................................................... $ 85,972 2002
The Emerging Opportunities Fund elected to defer to its fiscal year ending December 31, 1997, $4,980,322 of losses recognized during the period November 1, 1996 to December 31, 1996. 46 48 REPORT OF INDEPENDENT ACCOUNTANTS To The Shareholders and Board of Directors of the American Odyssey Funds, Inc.: We have audited the statements of assets and liabilities, including the portfolios of investments, of the American Odyssey Funds, Inc., comprising, respectively, the International Equity Fund, Emerging Opportunities Fund, Core Equity Fund, Long-Term Bond Fund, Intermediate-Term Bond Fund, and Short-Term Bond Fund, (the "Funds"), as of December 31, 1996, and the related statements of operations for the year then ended, the statements of changes in net assets for each of the two years in the period then ended, and the financial highlights for each of the three years in the period then ended and for the period from May 17, 1993 (commencement of operations) to December 31, 1993. These financial statements and financial highlights are the responsibility of the Fund's management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of December 31, 1996, by correspondence with the custodian and brokers. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of each of the respective Funds constituting the American Odyssey Funds, Inc. as of December 31, 1996, the results of their operations for the year then ended, the changes in their net assets for each of the two years in the period then ended, and the financial highlights for the periods referred to above, in conformity with generally accepted accounting principles. COOPERS & LYBRAND L.L.P. Boston, Massachusetts February 12, 1997 49 [AMERICAN ODYSSEY FUNDS LOGO] American Odyssey Funds Management, Inc. Two Tower Center East Brunswick, NJ 08816 1-800-242-7884 AMERICAN ODYSSEY and the Sailing Ship Logo are registered trademarks of American Odyssey Funds Management, Inc. (c) Copyright 1997 American Odyssey Funds Management, Inc. -----END PRIVACY-ENHANCED MESSAGE-----