<PAGE> 1
December 31, 1995
Dear American Odyssey Funds Participant:
We are pleased to provide you with the American Odyssey(R) Funds Annual
Report. As you may know, the American Odyssey Funds were created to provide a
range of investment options, each seeking maximum long-term total return in a
particular asset class. Consistent with this objective, each Fund is advised on
a day-to-day basis by a carefully selected portfolio manager, chosen for its
expertise in managing investments ranging from domestic equity and fixed income
to international equity.
1995 has been a truly extraordinary year for the capital markets. The
domestic stock markets, international stock markets, and domestic bond markets
all rose dramatically in 1995. I am pleased to report that the American Odyssey
Funds participated in these increases.
The Core Equity Fund total return of 38.6% exceeds its measurement
benchmark return of 37.6%, and was the best performing fund of the Travelers
Universal Annuity 29 available fund options. The Emerging Opportunities Fund,
1994's best performing Travelers Universal Annuity fund, return of 32.2%,
exceeded its benchmark return of 31.7%. This Fund was named the Number One
Performing Fund in its category for the two-year period ending December 31, 1995
by Lipper Analytical Services, Incorporated. The Emerging Opportunities Fund is
part of Lipper's Variable Annuity Small Company Growth category. The
International Equity Fund return of 19.0% far exceeded the benchmark return of
11.6%.
1995 bond fund returns were at highs not seen since 1985, and were the
third best returns in post war years. The Long Term Bond Fund return of 22.4%
surpassed the benchmark return of 21.3%. Intermediate Term Bond Fund and Short
Term Bond Fund returns of 15.0% and 10.9%, respectively, fell slightly below
their benchmark returns of 15.3% and 12.9%.
Following this letter you will find a performance summary from each
portfolio manager for their respective Funds as well as their view of the
future. Following their analyses are financial statements for the Funds and a
listing of the individual securities held by each Fund. It is my hope that this
Annual Report will 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 a long partnership in helping you achieve your financial objectives.
Very truly yours,
AMERICAN ODYSSEY FUNDS MANAGEMENT, INC.
/s/
---------------------------------------
GEORGE VLAISAVLJEVICH
President
<PAGE> 2
AMERICAN ODYSSEY INTERNATIONAL EQUITY FUND
The International Equity Fund returned 19.00% for the year ended December
31, 1995. The MSCI EAFE Index returned 11.55% for the same period.
While 1995 was a year of strength in international markets, there was a
wide divergence in the returns of the individual markets. In general, Europe was
strong while the Pacific Rim area had mixed results.
In Europe, the U.K. was one of the best performing markets. Its performance
was helped by a number of factors including: merger activity (with bids totaling
close to $50 billion in U.S. dollars); a favorable interest rate environment;
increased political stability following John Major's mid-year victory in the
Conservative Party leadership contest; and the continued strength in the U.S.
equity market.
In Continental Europe, most major markets moved ahead strongly with the
notable exception of France and Italy, both of which were rocked by political
uncertainty. In addition, the French market was hurt by the impact of a strong
currency and a high budget deficit on the economy. However, despite the year-end
industrial action which brought the country to a virtual standstill, the market
did recover some ground as investors positively viewed the strong stance taken
by the Government. Low inflation, declining interest rates and improved investor
sentiment sparked the rally in other European markets with particularly strong
performances in Switzerland, the Netherlands, Spain, Sweden and Ireland.
In the Far East, the largest single market, Japan, ended the year up less
than 1%, a result which masked considerable volatility during the year. The
market weakness early in the year was followed by relative strength in the
second half. The performance of the Yen was the inverse of the market, with the
second half weakness stemming from concerted intervention from the world's major
central banks. While the Yen's decline provides much needed relief to Japan's
export sector, many other problems remain, the principal one being the banking
crisis.
Smaller Far Eastern markets improved after a poor start to the year which
had been fueled by an unwarranted reaction to the Mexican crisis. Later in the
year, weakness was experienced in some markets, following the tightening of
liquidity by authorities in an attempt to prevent overheating as a result of the
recent strong economic growth.
Australia ended the year on a strong note helped by good results from the
resource sector and the prospect of lower interest rates.
FUND REVIEW
The Fund's outperformance for the year resulted from strong
across-the-board performances from many of the Themes and from some individual
stocks within the remainder. We define "Theme" generally as any economic event
which we believe will produce above-average growth opportunities.
The low interest rate environment across Europe helped financial companies
to move ahead strongly, resulting in a rally in the holdings within the
Insurance and Lower Interest Rate Themes. We
2
<PAGE> 3
increased the weighting in these Themes with the purchase of three U.K stocks:
Lloyds Bank, Barclays Bank, and General Accident.
Pharmaceutical companies within the Healthcare Theme reported impressive
earnings growth, and this together with takeover activity in the sector, boosted
the performance of the Healthcare Theme. We added four new stocks here during
the year: Hoechst (Germany), Medeva (U.K.), Zeneca (U.K.), and Roche Holdings
(Switzerland).
The Multimedia Opportunities Theme also made a significant contribution to
the overall Fund performance, as strong corporate earnings and takeover activity
provided upward momentum to stock prices.
Cyclical companies fell out of favor, as 'bears' anticipated a recession,
negatively affecting our Cyclical Recovery Theme. We believe, however, that the
current low growth, low inflation environment provides a positive backdrop for
companies and anticipate considerable upside potential for many cyclical stocks.
As a group, the Themes directed at the growth in the Far East were strong,
particularly in the consumer spending and financial services areas. The strong
economic growth in this region continues to provide above average growth
opportunities and we will increase the emphasis on banking, construction and
consumer stocks.
OUTLOOK
We believe that the major economies will continue to experience steady
economic growth. The only significant exception is Japan, where we believe an
economic recovery will be somewhat delayed.
In our view, equity markets worldwide will be supported by a range of
factors which have fallen into place. These include the downward bias of
interest rates, the strength of bond markets, underpinned by subdued inflation
and excess capital in corporate balance sheets, leading to increased dividend
payouts and/or share buybacks.
Although some equity markets in Europe stand at historically high levels,
following the returns achieved in 1995, we do not believe that they are
excessively valued. We believe that valuation levels in many of the Far East (ex
Japan) markets which did not participate in the rally are now at attractive
levels and will look to increase our weightings in this region, primarily by
adding to existing Themes and stocks.
BANK OF IRELAND ASSET MANAGEMENT (U.S.) LIMITED
INVESTMENT SUBADVISER TO THE AMERICAN ODYSSEY INTERNATIONAL EQUITY FUND
3
<PAGE> 4
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT
IN THE AMERICAN ODYSSEY INTERNATIONAL EQUITY FUND
AND MSCI EAFE INDEX*
<TABLE>
<CAPTION>
INTERNA-
MEASUREMENT PERIOD TIONAL EQ-
(FISCAL YEAR COVERED) UITY FUND MSCI EAFE*
<S> <C> <C>
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
</TABLE>
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 18 countries:
Australia, Austria, Belgium, Denmark, Finland, France, Germany, Hong Kong,
Italy, Japan, Netherlands, New Zealand, Norway, Singapore/Malaysia, 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.
4
<PAGE> 5
(This page intentionally left blank)
5
<PAGE> 6
AMERICAN ODYSSEY EMERGING OPPORTUNITIES FUND
The year 1995 will go down as one of the best on record for the equity
markets. Although larger stocks, in general, outperformed their smaller
counterparts, the American Odyssey Emerging Opportunities Fund posted a return
for the year of 32.2%, slightly ahead of its benchmark, the Russell 2500, which
returned 31.7%. We are looking forward to a strong 1996, with a premium being
placed on those companies that continue to show solid earnings gains.
Returns for the Fund had been strong through the end of November, but sharp
corrections in many stocks in December pulled down results for the year. Areas
that contributed most positively to returns included business services stocks,
software issues, healthcare, niche-industrial services companies, and a rebound
in some depressed restaurant issues. Weakness in the fourth quarter, and for the
year, was seen in the retail group, particularly apparel, computer
equipment/distribution, and electronics issues. The sharp year-end correction
was driven by a sell-off in technology, especially stocks that were in any way
related to personal computer sales. That area was due for a correction, as it
had been a market leader for some time.
As we look into 1996 we see opportunity for growth stock investors. There
are a number of positive factors that will affect the markets. On the political
front, it is an election year, which is usually a positive for the equity
markets. An eventual resolution to the current budget wrangling will be a plus.
Particularly positive for growth stocks is the very real potential for a capital
gains tax cut during the year which would most likely be retroactive to the
beginning of the year. Economically, we have reasonable, albeit slowing growth
in the economy, low inflation and low interest rates, all of which are positive
for growth stock investors. On the cautionary side of the ledger we have a
market that has set a record run for length of time and move up without at least
a 10% correction. Interest rates are unlikely to decline in 1996 as dramatically
as they did last year. Finally, earnings growth is slowing for many companies.
Our expectation is for a choppy first half of the year for the markets with some
correction, and a better second half with a return to rising stock prices.
WILKE/THOMPSON CAPITAL MANAGEMENT, INC.
INVESTMENT SUBADVISER TO THE AMERICAN ODYSSEY EMERGING OPPORTUNITIES FUND
Russell 2500 is a registered trademark of Frank Russell Company.
6
<PAGE> 7
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT
IN THE AMERICAN ODYSSEY EMERGING OPPORTUNITIES FUND
AND RUSSELL 2500 INDEX
<TABLE>
<CAPTION>
EMERGING
MEASUREMENT PERIOD OPPORTUNI-
(FISCAL YEAR COVERED) TIES RUSSELL 2500
<S> <C> <C>
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
</TABLE>
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.
7
<PAGE> 8
AMERICAN ODYSSEY CORE EQUITY FUND
December closed out a remarkable year in the capital markets. We entered
1995 with strong economic momentum resulting in robust growth through the first
quarter. With demand holding up and profit margins expanding corporate profits
increased substantially, leading to rising expectations throughout most of the
year. And, as expectations go, so do stock prices. The overall market, as
measured by the S&P 500 Index, returned 37.6% in 1995 while the American Odyssey
Core Equity Fund returned 38.6%.
Virtually all sectors of the economy participated in the rise in stock
prices last year, though the returns were not uniformly distributed across
industries. A key theme in 1995 that led to substantial outperformance was
consolidation. Both financial, especially banks, and defense stocks realized
significant price appreciation as their industries witnessed a high degree of
merger activity. Financial stocks were further fueled by the prospects of the
Fed lowering interest rates late in the year to jump start a dramatically
slowing domestic economy. Medical stocks were also big winners in 1995 due
mostly to their stock prices being bid up as investors, seeking greater
stability in earnings, rotated out of the more economically sensitive sectors.
Technology had been the stand-out performer for much of the year. However,
in the fourth quarter this sector showed a dramatic slowing in returns as
managements announced that shipments were trailing expectations and earnings
were likely to fall short of projections. Retailers had a hard time last year as
heightened competition due to too many stores, coupled with sluggish consumer
spending, put severe pressure on profitability. The disappointing Christmas
selling season only exacerbated an already difficult situation. In general, the
economy sensitive sectors of industrial commodities and capital goods suffered
from production cutbacks, weakening prices, and falling profit margins in the
second half of the year resulting in relatively poor stock market performance.
In 1995 the Value style of investing did slightly better than the broad
market due to its much higher exposure to financial stocks. The performance of
the American Odyssey Core Equity Fund topped its benchmark, the S&P 500([)
Index, with a total portfolio return of 38.6% This performance, in large
measure, was driven by favorable stock selections, particularly in technology
and consumer staples. Also contributing to the better than benchmark performance
was maintaining a significant weighting in the financial stocks throughout the
year, cutting exposure to technology during the second half of 1995, and adding
to our weighting in electric utilities late in the year.
We have become somewhat more cautious about the outlook for the market in
1996. This is a result of the significant rise in stocks last year, combined
with signs of both a sluggish economy and our forecast for corporate earnings
that will likely fall short of expectations over the next couple of quarters.
Nevertheless, given our outlook for a very low level of inflation, our expected
modest improvement in the stock market this year should still represent a solid
real return. As there is no one sector of the economy which looks dramatically
undervalued currently we have established a well diversified portfolio and
maintain a large capitalization bias which implies lower volatility should the
market sustain a correction.
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.
8
<PAGE> 9
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT
IN THE AMERICAN ODYSSEY CORE EQUITY FUND
AND S&P 500 INDEX
<TABLE>
<CAPTION>
MEASUREMENT PERIOD
(FISCAL YEAR COVERED) CORE EQUITY S&P 500
<S> <C> <C>
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
</TABLE>
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.
9
<PAGE> 10
AMERICAN ODYSSEY LONG-TERM BOND FUND
The American Odyssey Long-Term Bond Fund return of 22.4% exceeded its
benchmark return of 21.3% for 1995. The portfolio's long duration posture
throughout the period was a positive factor for performance, since interest
rates fell sharply across the board. Yield curve exposure detracted somewhat
from performance, since the portfolio was positioned for a flattening in the
yield curve when the curve actually steepened a bit.
The portfolio's underexposure to corporates throughout the period was a
negative factor since corporates turned in a very strong performance, though
individual security selection helped offset this to a degree. On the plus side,
the portfolio was significantly underexposed to mortgage securities, which
helped performance since rising prepayment risk caused the mortgage sector to
lag other sectors.
Our economic outlook remains little changed from previous periods. The Fed
has managed monetary policy well, and as a result, inflation is under control
and the economy is unlikely to overheat. The combination of these factors argues
for continued, gradual ease on the part of the Fed. As for fiscal policy, we
continue to believe that government spending will gradually decline relative to
GDP, that tax burdens will moderate, and that this in turn will reinforce a
low-inflation outlook for the future.
But whereas this view ran counter to market expectations for most of the
past year, it is now much less controversial. Indeed, market expectations have
swung from anticipating an 8% Fed funds rate by the end of 1995, to now
expecting a 4.75% funds rate by the middle of 1996. Consequently, although we
continue to expect interest rates to decline further, the reward for taking
long-duration risk has diminished substantially. Put another way, we do not have
a high level of confidence that interest rates will decline by more than the
market expects over the near term. For this reason, we are targeting a neutral
to somewhat positive duration exposure as market conditions warrant.
We believe the yield curve still has the potential to flatten, since
long-term rates remain well above current and prospective levels of inflation,
and the Fed is unlikely to move aggressively to cut short-term rates, barring a
recession. Consequently, we are holding a modest barbell exposure to maturities.
This also makes sense if we are wrong in our view that the economy will remain
soft -- if it instead accelerates, short-term rates would spike up as
expectations of Fed easing evaporated, thus flattening or inverting the yield
curve. Nevertheless, since a sluggish economy poses the risk of a more
aggressive move by the Fed to cut short-term rates, we expect to take advantage
of very low implied option volatility to purchase call options on short-dated
instruments as a hedge against a possible steepening of the curve.
Given our less bullish bias to duration risk, we prefer to emphasize yield
in our portfolios. Consequently, we are targeting an overweight exposure to the
mortgage sector in order to take advantage of the attractive spreads available
there. Still, we are emphasizing low-coupon issues and commercial mortgages in
order to minimize the risk of rising prepayments. The continuing decline in
corporations' cost of capital, improved earnings prospects and ongoing balance
sheet improvements all augur well for selected corporate issues. But since yield
spreads are relatively narrow, we plan to reduce our corporate overweighting
somewhat in order to help fund an increased mortgage exposure. The remainder of
the increased mortgage allocation will be funded by reducing cash and Treasury
positions.
WESTERN ASSET MANAGEMENT COMPANY AND WLO GLOBAL MANAGEMENT
INVESTMENT SUBADVISERS TO THE AMERICAN ODYSSEY LONG-TERM BOND FUND
10
<PAGE> 11
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT
IN THE AMERICAN ODYSSEY LONG-TERM BOND FUND
AND SALOMON CORE+5 BOND INDEX
<TABLE>
<CAPTION>
MEASUREMENT PERIOD LONG-TERM SALOMON
(FISCAL YEAR COVERED) BOND CORE+5
<S> <C> <C>
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
</TABLE>
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.
11
<PAGE> 12
AMERICAN ODYSSEY INTERMEDIATE-TERM BOND FUND
Calendar year 1995 began under a cloud of fear over the accelerating
economy and bubbling inflationary pressures. These worries soon dissipated as
the economy's performance proved to be sub par and pricing power ebbed. Treasury
bonds put in the best annual performance since 1985 and the third best in
post-war history as two year yields fell 254 basis points while the long bond
declined 192. American Odyssey Intermediate Bond Fund returned 15.0% versus a
15.3% performance for the Lehman Brothers Government/Corporate Intermediate Bond
Index benchmark.
The economic growth for 1995 slowed to a 2.4% Real Gross Domestic Product
(GDP) versus 4.1% in 1994. The Consumer Price Index (CPI) stabilized at 2.7%
while the Producer Price Index, or PPI, came in at 2.0% versus 1.8% in 1994. The
consumer's willingness to spend has slowed as employment growth has eased.
Government gridlock with the budget stalemate has also contributed to the
expectation of muted growth. It is our belief that this backdrop keeps a floor
under the market and an environment in which further eases by the Fed should be
expected.
Bond markets continued to rally in the 4th quarter 1995 with yields falling
70 basis points in the 2-year treasury to 55 for the 30-year. The Fed punctuated
this with their second cut in Funds to 5.50% in December. Treasuries
outperformed spread product during this period.
In the 4th quarter, the Fund had a gross return of 3.96% versus the 3.52%
for its benchmark. This quarter's outperformance in the portfolio can be
attributed to a slightly longer duration than the index and item selection that
avoided sectors that widened significantly. Retailers (the Fund had no exposure
here), for instance, were generally wider on continued poor retail sales numbers
and the potential for a bankruptcy filing by Kmart.
The curve exposure for the portfolio is generally neutral to our Lehman
benchmark except for a slight over-weighting in the five year area. We also
maintain an over allocation to corporate product as we expect spreads to
slightly tighten in the 1st quarter of 1996 as investors seek spread product. An
effort has also been made to consolidate the portfolio's corporate positions to
enhance the liquidity and help improve performance going forward.
As the new year unfolds we expect the Fed to continue to reduce short term
rates as sluggish growth persists. We will stay flat to slightly long our
benchmark until we perceive either economic rebound or inflationary pressures
developing. Vigilance will be maintained with respect to corporates yet we
expect to maintain our long-run strategy to overweight this area. At this
juncture we are emphasizing the media and utility sectors as the best defensive
total return sectors.
TRAVELERS ASSET MANAGEMENT INTERNATIONAL CORPORATION
INVESTMENT SUBADVISER TO THE AMERICAN ODYSSEY INTERMEDIATE-TERM BOND FUND
12
<PAGE> 13
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT
IN THE AMERICAN ODYSSEY INTERMEDIATE-TERM BOND FUND
AND LBGC INTERMEDIATE BOND INDEX
<TABLE>
<CAPTION>
MEASUREMENT PERIOD INTERMEDI- LBGC IN-
(FISCAL YEAR COVERED) ATE-TERM BOND TERMEDIATE
<S> <C> <C>
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
</TABLE>
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.
13
<PAGE> 14
AMERICAN ODYSSEY SHORT-TERM BOND FUND
The year ended just as it began, with interest rates declining. Interest
rates declined about fifty basis points across the curve during the fourth
quarter of 1995, as evidence mounted of a stagnant economy. Expectations grew
that the Federal Reserve Board would be forced to ease further in order to
stimulate a slowing economy. Indeed, the Fed did ease twice during the year, the
second time in mid-December, lowering the Fed Funds rate to 5.50%.
Virtually every aspect of the economy seems to be in a slow-growth mode.
Retail sales weakness was accentuated by a very dismal Christmas season for
retailers. Job growth remains anemic, and anecdotal evidence is increasingly
suggesting a further deterioration in the job market.
The year 1995 will be remembered as a reversal of 1994. The rally of 1995
was quick and powerful. Much of the impetus for rising bond prices was fueled by
foreign purchases by central bankers, particularly Japan. Foreign central banks
purchased large amounts of U.S. securities in a concerted effort to support the
dollar. Investors also drove rates lower as the prospects for a balanced budget
plan seemed within reach.
Inflation remained under control during 1995. Wage pressures never did
surface during the year, although commodity prices did trend higher. Without
much publicity commodity prices skyrocketed during the fourth quarter of 1995.
The Goldman Sachs commodity index, designed to mimic the Producer Price Index
(PPI), rose over 14% during the quarter. Most of the rise can be attributed to
oil prices, which also rose over 14% during the quarter.
The Short-Term Bond Fund continues to invest in high grade bonds that offer
less price risk than longer-term funds. The Fund continues to provide a safe
haven for investors desiring a degree of safety during periods of volatile
interest rates.
SMITH GRAHAM & COMPANY ASSET MANAGERS, L.P.
INVESTMENT SUBADVISERS TO THE AMERICAN ODYSSEY SHORT-TERM BOND FUND
14
<PAGE> 15
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT
IN THE AMERICAN ODYSSEY SHORT-TERM BOND FUND
AND LBGC 1-5 YEAR BOND INDEX*
<TABLE>
<CAPTION>
MEASUREMENT PERIOD SHORT-TERM
(FISCAL YEAR COVERED) BOND LBGC 1-5 YEAR
<S> <C> <C>
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
</TABLE>
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.
15
<PAGE> 16
- --------------------------------------------------------------------------------
Statements of Assets and Liabilities
American Odyssey Funds, Inc. / December 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Emerging Intermediate
International Opportunities Core Equity Long-Term Term Short-Term
Equity Fund Fund Fund Bond Fund Bond Fund Bond Fund
----------- ------------ ------------ ------------ ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Investments in securities, at cost...... $83,059,291 $127,623,898 $155,963,226 $129,126,120 $75,501,231 $28,148,762
- ------------------------------------------------------------------------------------------------------------------
Investments in securities, at value..... $92,683,740 $163,863,684 $191,376,838 $133,254,506 $77,248,767 $28,644,541
Cash.................................... -- -- -- -- 4,657 --
Cash, denominated in foreign currency
(cost $676,770)....................... 673,748 -- -- -- -- --
Receivables for:
Capital stock subscriptions........... 362,966 541,842 539,044 357,440 211,565 52,813
Investment securities sold............ -- 299,200 -- -- -- --
Forward foreign currency contracts.... 164,097 -- -- -- -- --
Interest.............................. 1,740 8,153 1,009 1,673,850 852,167 251,089
Dividends............................. 234,608 16,437 517,578 -- -- --
Foreign tax reclaims.................. 65,674 -- -- -- -- --
Prepaid organization expense............ 11,862 11,666 11,535 11,637 11,710 11,863
----------- ------------ ------------ ------------ ----------- -----------
Total Assets.......................... 94,198,435 164,740,982 192,446,004 135,297,433 78,328,866 28,960,306
----------- ------------ ------------ ------------ ----------- -----------
LIABILITIES
Payables for:
Capital stock redemptions............. 42,640 31,678 52,508 27,055 28,984 18,138
Investment securities purchased....... 1,036,158 750,231 -- 10,038,281 -- 1,754,102
Distributions payable................. 896,810 6,627,286 8,516,343 10,236,499 4,749,913 1,291,083
Forward foreign currency contracts.... 5,772 -- -- -- -- --
Variation margin...................... -- -- -- 76,874 -- --
Options written (premiums received
$206,422)........................... -- -- -- 207,031 -- --
Payable to advisor...................... -- -- -- -- -- 2,330
Accrued expenses........................ 102,510 138,903 142,344 99,271 69,487 39,340
----------- ------------ ------------ ------------ ----------- -----------
Total liabilities..................... 2,083,890 7,548,098 8,711,195 20,685,011 4,848,384 3,104,993
----------- ------------ ------------ ------------ ----------- -----------
NET ASSETS.............................. $92,114,545 $157,192,884 $183,734,809 $114,612,422 $73,480,482 $25,855,313
=========== ============ ============ ============ =========== ===========
Capital shares outstanding.............. 7,264,073 10,462,738 13,795,844 10,887,947 7,081,020 2,530,211
=========== ============ ============ ============ =========== ===========
Net asset value per share............... $12.68 $15.02 $13.32 $10.53 $10.38 $10.22
===== ===== ===== ===== ===== =====
- ------------------------------------------------------------------------------------------------------------------
COMPOSITION OF NET ASSETS
Capital shares at par................... $ 72,641 $ 104,627 $ 137,958 $ 108,879 $ 70,810 $ 25,302
Additional paid-in capital.............. 82,562,200 121,373,173 148,103,558 110,719,634 72,030,396 25,528,922
Undistributed net investment income..... 48,120 -- 84,510 1,552,790 2,125 18,374
Accumulated net realized gain........... (341,067) (524,702) (4,829) (1,077,489) (370,385) (213,064)
Net unrealized appreciation on
investments, translation of assets and
liabilities in foreign currencies,
futures contracts and option
contracts............................. 9,772,651 36,239,786 35,413,612 3,308,608 1,747,536 495,779
----------- ------------ ------------ ------------ ----------- -----------
$92,114,545 $157,192,884 $183,734,809 $114,612,422 $73,480,482 $25,855,313
=========== ============ ============ ============ =========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
16
<PAGE> 17
- --------------------------------------------------------------------------------
Statements of Operations
American Odyssey Funds, Inc. / For the year ended December 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Emerging Intermediate-
International Opportunities Core Equity Long-Term Term Short-Term
Equity Fund Fund Fund Bond Fund Bond Fund Bond Fund
------------- ------------- ------------- ------------- ------------- ----------
<S> <C> <C> <C> <C> <C> <C>
INVESTMENT INCOME
Dividends......................... $ 1,814,443(1) $ 285,925 $ 4,234,723(2) $ -- $ -- $ --
Interest.......................... 103,910 369,746 182,076 7,077,335 4,325,070 1,477,536
------------- ------------- ------------- ------------- ------------- ----------
Total income.................... 1,918,353 655,671 4,416,799 7,077,335 4,325,070 1,477,536
------------- ------------- ------------- ------------- ------------- ----------
EXPENSES
Management fees................... 488,474 811,641 855,725 486,896 317,000 113,867
Professional fees................. 19,444 25,100 21,442 27,529 21,690 16,696
Accounting fees................... 48,801 30,657 35,334 27,714 22,468 15,676
Director's fees................... 15,796 29,182 32,233 21,661 14,353 5,190
Custodian fees.................... 114,410 61,513 66,234 45,848 31,443 11,525
Amortization of organization
expense......................... 4,975 4,913 4,847 4,895 4,920 4,983
Legal fees........................ 4,140 7,907 8,396 5,822 3,817 1,410
Printing expense.................. 9,340 10,495 9,587 9,266 7,702 2,472
Miscellaneous..................... 3,427 5,960 7,148 4,854 3,290 1,188
------------- ------------- ------------- ------------- ------------- ----------
Total expenses before
reimbursement................. 708,807 987,368 1,040,946 634,485 426,683 173,007
------------- ------------- ------------- ------------- ------------- ----------
Reimbursement repaid to
Management Company............ 69,257 -- -- 40,770 46,612 1,531
Less:
Expenses Paid under Directed
Brokerage Arrangements........ (10,269) -- (19,106) -- -- --
------------- ------------- ------------- ------------- ------------- ----------
Net expenses.................... 767,795 987,368 1,021,840 675,255 473,295 174,538
------------- ------------- ------------- ------------- ------------- ----------
Net investment income
(loss)...................... 1,150,558 (331,697) 3,394,959 6,402,080 3,851,775 1,302,998
------------- ------------- ------------- ------------- ------------- ----------
REALIZED AND UNREALIZED
GAIN (LOSS) ON
INVESTMENTS
Net realized gain (loss) on
security transactions, futures
contracts and option
contracts....................... (89,338) 5,474,396 5,743,147 5,267,011 1,006,551 124,873
Net realized gain on foreign
currency transactions........... 51,021 -- -- -- -- --
Net increase in unrealized
appreciation of investments,
futures contracts and option
contracts....................... 11,151,771 28,661,663 37,716,285 7,628,153 3,848,473 860,681
Net unrealized appreciation from
translation of assets and
liabilities in foreign
currencies...................... 148,756 -- -- -- -- --
------------- ------------- ------------- ------------- ------------- ----------
Net realized and unrealized gain
on investments................ 11,262,210 34,136,059 43,459,432 12,895,164 4,855,024 985,554
------------- ------------- ------------- ------------- ------------- ----------
Net increase in net assets from
Operations...................... $ 12,412,768 $33,804,362 $ 46,854,391 $ 19,297,244 $ 8,706,799 $2,288,552
=========== =========== =========== =========== =========== ==========
</TABLE>
(1) Net of withholding taxes of $267,519.
(2) Net of withholding taxes of $31,675.
The accompanying notes are an integral part of the financial statements.
17
<PAGE> 18
- --------------------------------------------------------------------------------
Statements of Changes in Net Assets
American Odyssey Funds, Inc.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
International Equity Fund Emerging Opportunities Fund
---------------------------- -----------------------------
Year ended Year ended Year ended Year ended
December 31, December December 31, December 31,
1995 31, 1994 1995 1994
------------ ----------- ------------ ------------
<S> <C> <C> <C> <C>
INCREASE IN NET ASSETS FROM OPERATIONS
Net investment income (loss)................................... $ 1,150,558 $ 365,911 $ (331,697 ) $ (190,458 )
Net realized gain (loss) on security transactions, futures
contracts and
option contracts.............................................. (89,338 ) 1,239,116 5,474,396 2,171,563
Net realized gain (loss) on foreign currency transactions...... 51,021 (244,125 ) -- --
Net increase (decrease) in unrealized appreciation
(depreciation) of investments, translation of assets and
liabilities in foreign currencies, futures contracts and
option contracts.............................................. 11,300,527 (4,193,762 ) 28,661,663 4,991,641
------------ ----------- ------------ ------------
Net increase (decrease) in net assets from operations......... 12,412,768 (2,832,860 ) 33,804,362 6,972,746
------------ ----------- ------------ ------------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS
Net investment income.......................................... 896,810 121,786 -- --
Net realized gain from investment transactions................. -- 1,228,907 6,102,584 1,184,820
Distribution in excess of net investment income or realized
gains......................................................... -- 493,510 524,702 --
------------ ----------- ------------ ------------
Net decrease from distributions............................... 896,810 1,844,203 6,627,286 1,184,820
------------ ----------- ------------ ------------
CAPITAL SHARE TRANSACTIONS
Proceeds from sale of shares................................... 40,065,473 46,031,785 71,673,203 64,998,681
Dividends reinvested........................................... 1,844,203 -- 1,184,820 --
Cost of shares repurchased..................................... 13,023,416 9,620,503 31,518,544 11,222,930
------------ ----------- ------------ ------------
Net increase from capital share transactions.................. 28,886,260 36,411,282 41,339,479 53,775,751
------------ ----------- ------------ ------------
Net increase in net assets..................................... 40,402,218 31,734,219 68,516,555 59,563,677
NET ASSETS
Beginning of year.............................................. 51,712,327 19,978,108 88,676,329 29,112,652
------------ ----------- ------------ ------------
End of year.................................................... 92,114,545 51,712,327 157,192,884 88,676,329
=============== ============== =============== ===============
Undistributed (excess distribution) net investment income...... $ 48,120 $ (205,628 ) $ -- $ --
=============== ============== =============== ===============
CAPITAL SHARES
Capital Shares Outstanding, beginning of year.................. 4,805,255 1,668,085 7,487,091 2,661,650
Capital Shares Issued.......................................... 3,411,396 3,970,715 5,090,663 5,823,835
Dividends Reinvested........................................... 171,394 -- 101,180 --
Capital Shares Redeemed........................................ (1,123,972 ) (833,545 ) (2,216,196 ) (998,394 )
------------ ----------- ------------ ------------
Capital Shares Outstanding, end of year........................ 7,264,073 4,805,255 10,462,738 7,487,091
=============== ============== =============== ===============
</TABLE>
The accompanying notes are an integral part of the financial statements.
18
<PAGE> 19
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
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,
1995 1994 1995 1994 1995 1994
------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
$ 3,394,959 $ 1,675,406 $ 6,402,080 $ 3,496,863 $ 3,851,775 $ 1,927,175
5,743,147 (475,610 ) 5,267,011 (1,391,897 ) 1,006,551 (509,840 )
-- -- -- -- -- --
37,716,285 (2,562,226 ) 7,628,153 (4,176,708 ) 3,848,473 (2,211,787 )
------------ ------------ ------------ ------------ ------------ ------------
46,854,391 (1,362,430 ) 19,297,244 (2,071,742 ) 8,706,799 (794,452 )
------------ ------------ ------------ ------------ ------------ ------------
3,323,421 1,667,504 6,255,797 2,371,885 3,883,129 1,903,243
5,188,093 -- 2,903,213 139,081 496,399 --
4,829 -- 1,077,489 -- 370,385 --
------------ ------------ ------------ ------------ ------------ ------------
8,516,343 1,667,504 10,236,499 2,510,966 4,749,913 1,903,243
------------ ------------ ------------ ------------ ------------ ------------
64,224,865 79,020,934 46,464,747 54,487,073 29,022,622 37,129,807
1,667,504 223,604 1,892,963 2,443,214 1,903,243 335,798
22,087,221 11,978,866 13,165,269 7,760,181 9,973,176 6,094,260
------------ ------------ ------------ ------------ ------------ ------------
43,805,148 67,265,672 35,192,441 49,170,106 20,952,689 31,371,345
------------ ------------ ------------ ------------ ------------ ------------
82,143,196 64,235,738 44,253,186 44,587,398 24,909,575 28,673,650
101,591,613 37,355,875 70,359,236 25,771,838 48,570,907 19,897,257
------------ ------------ ------------ ------------ ------------ ------------
183,734,809 101,591,613 114,612,422 70,359,236 73,480,482 48,570,907
=============== =============== =============== =============== =============== ===============
$ 84,510 $ 12,972 $ 1,552,790 $ 1,406,507 $ 2,125 $ 33,479
=============== =============== =============== =============== =============== ===============
10,093,660 3,614,936 7,508,227 2,495,430 5,054,210 1,935,856
5,359,111 7,608,497 4,434,521 5,569,393 2,790,359 3,693,061
165,756 21,709 202,456 240,805 198,255 32,761
(1,822,683 ) (1,151,482 ) (1,257,257 ) (797,401 ) (961,804 ) (607,468 )
------------ ------------ ------------ ------------ ------------ ------------
13,795,844 10,093,660 10,887,947 7,508,227 7,081,020 5,054,210
=============== =============== =============== =============== =============== ===============
<CAPTION>
Short-Term
Bond Fund
------------
Year ended Year ended
December 31, December 31,
1995 1994
------------ ------------
<S> <C>
$ 1,302,998 $ 729,955
124,873 (319,270 )
-- --
860,681 (406,109 )
------------ ------------
2,288,552 4,576
------------ ------------
1,291,083 684,280
-- --
-- --
------------ ------------
1,291,083 684,280
------------ ------------
12,788,292 14,394,171
684,280 166,204
6,243,719 4,432,923
------------ ------------
7,228,853 10,127,452
------------ ------------
8,226,322 9,447,748
17,628,991 8,181,243
------------ ------------
25,855,313 17,628,991
=============== ===============
$ 18,374 $ 6,459
=============== ===============
1,821,850 812,593
1,246,378 1,434,103
70,763 16,521
(608,780) (441,367 )
------------ ------------
2,530,211 1,821,850
=============== ===============
</TABLE>
19
<PAGE> 20
- --------------------------------------------------------------------------------
Financial Highlights
American Odyssey Funds, Inc.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
International Equity Fund
-----------------------------------------------
May 17, 1993(1)
Year ended Year ended to
December 31, December 31, December 31,
1995 1994 1993
------------ ------------ ---------------
<S> <C> <C> <C>
NET ASSET VALUE
Beginning of period................................................. $ 10.76 $ 11.98 $ 10.00
------------ ------------ ---------------
OPERATIONS
Net investment income (loss) (2).................................... 0.17 (0.05 ) 0.03
Net realized and unrealized gain (loss) on investments.............. 1.87 (0.78 ) 1.95
------------ ------------ ---------------
Total from investment operations.................................... 2.04 (0.83 ) 1.98
------------ ------------ ---------------
DISTRIBUTIONS TO SHAREHOLDERS
Dividends........................................................... 0.12 0.03 --
Distributions....................................................... -- 0.26 --
Distributions in excess of net investment income or realized
gains............................................................. -- 0.10 --
------------ ------------ ---------------
Total distributions................................................. 0.12 0.39 --
------------ ------------ ---------------
NET ASSET VALUE
End of period....................................................... $ 12.68 $ 10.76 $ 11.98
=========== =========== ==============
TOTAL RETURN (3)...................................................... 19.00% (6.98%) 19.80%
RATIOS/SUPPLEMENTAL DATA
Net assets at end of period......................................... $92,114,545 $51,712,327 $19,978,108
Ratios of expenses to average net assets:
Before repayments and directed brokerage arrangements............. 1.00% 1.36% 1.76%(4)
After repayments and directed brokerage arrangements (6).......... 1.08% 1.25% 1.25%(4)
Ratio of net investment income (loss) to average net assets:
Before repayments and directed brokerage arrangements............. 1.70% 0.83% 0.34%(4)
After repayments and directed brokerage arrangements.............. 1.62% 0.94% 0.85%(4)
Portfolio turnover rate............................................. 31.40% 50.25% 9.20%
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
(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.
(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 and 1995 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.
The accompanying notes are an integral part of the financial statements.
20
<PAGE> 21
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Emerging Opportunities Fund Core Equity Fund
-------------------------------------------------- -------------------------------------------------
May 17, 1993(1) May 17, 1993(1)
Year ended Year ended to Year ended Year ended to
December 31, December 31, December 31, December 31, December 31, December 31,
1995 1994 1993 1995 1994 1993
------------ ------------ ---------------- ------------ ------------ ---------------
<S> <C> <C> <C> <C> <C>
$ 11.84 $ 10.94 $ 10.00 $ 10.06 $ 10.33 $ 10.00
------------ ------------ ---------------- ------------ ------------ ---------------
-- -- (0.01) 0.25 0.16 0.06
3.81 1.06 0.95 3.63 (0.26) 0.33
------------ ------------ ---------------- ------------ ------------ ---------------
3.81 1.06 0.94 3.88 (0.10) 0.39
------------ ------------ ---------------- ------------ ------------ ---------------
-- -- -- 0.24 0.17 0.06
0.58 0.16 -- 0.37 -- --
0.05 -- -- 0.01 -- --
------------ ------------ ---------------- ------------ ------------ ---------------
0.63 0.16 -- 0.62 0.17 0.06
------------ ------------ ---------------- ------------ ------------ ---------------
$ 15.02 $ 11.84 $ 10.94 $ 13.32 $ 10.06 $ 10.33
============ =========== ============== ============ ============ ==============
32.23% 9.69% 9.40% 38.56% (1.01%) 3.90%
$157,192,884 $88,676,329 $ 29,112,652 $183,734,809 $101,591,613 $37,355,875
0.77% 0.91% 1.23%(4) 0.72% 0.84% 1.12%(4)
0.77% 0.92% 1.00%(4) 0.70% 0.85% 1.00%(4)
(0.26%) (0.31%) (0.60%)(4) 2.32% 2.27% 1.84%(4)
(0.26%) (0.32%) (0.38%)(4) 2.33% 2.27% 1.96%(4)
36.02% 27.40% 8.70% 38.44% 48.16% 48.00%
--------------------------------------------------------------------------------------------------------
</TABLE>
21
<PAGE> 22
- --------------------------------------------------------------------------------
Financial Highlights
American Odyssey Funds, Inc.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Long-Term Bond Fund
-----------------------------------------------
May 17, 1993(1)
Year ended Year ended to
December 31, December 31, December 31,
1995 1994 1993
------------ ------------ ---------------
<S> <C> <C> <C>
NET ASSET VALUE
Beginning of period............................................. $ 9.37 $ 10.33 $ 10.00
------------ ------------ ---------------
OPERATIONS
Net investment income (loss) (2)................................ 0.53 0.37 0.62
Net realized and unrealized gain (loss) on investments.......... 1.57 (0.97 ) 0.45
------------ ------------ ---------------
Total from investment operations................................ 2.10 (0.60 ) 1.07
------------ ------------ ---------------
DISTRIBUTIONS TO SHAREHOLDERS
Dividends....................................................... 0.57 0.34 0.18
Distributions................................................... 0.27 0.02 0.56
Distributions in excess of net investment income or realized
gains......................................................... 0.10 -- --
------------ ------------ ---------------
Total distributions............................................. 0.94 0.36 0.74
------------ ------------ ---------------
NET ASSET VALUE
End of period................................................... $ 10.53 $ 9.37 $ 10.33
============ =========== ==============
TOTAL RETURN (3).................................................. 22.44% (5.79%) 10.70%
RATIOS/SUPPLEMENTAL DATA
Net assets at end of period..................................... $114,612,422 $70,359,236 $25,771,838
Ratios of expenses to average net assets:
Before repayments and directed brokerage arrangements......... 0.66% 0.73% 1.30%(4)(5)
After repayments and directed brokerage arrangements (6)...... 0.70% 0.75% 0.75%(4)
Ratio of net investment income (loss) to average net assets:
Before repayments and directed brokerage arrangements......... 6.67% 7.08% 15.19%(4)
After repayments and directed brokerage arrangements.......... 6.63% 7.05% 15.73%(4)
Portfolio turnover rate......................................... 381.53% 152.91% 589.40%
</TABLE>
- --------------------------------------------------------------------------------
(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.
(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 and 1995 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.
The accompanying notes are an integral part of the financial statements.
22
<PAGE> 23
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Intermediate Term Bond Fund Short-Term Bond Fund
-------------------------------------------------- -------------------------------------------------
May 17, 1993(1) May 17, 1993(1)
Year ended Year ended to Year ended Year ended to
December 31, December 31, December 31, December 31, December 31, December 31,
1995 1994 1993 1995 1994 1993
------------ ------------ ---------------- ------------ ------------ ---------------
<S> <C> <C> <C> <C> <C>
$ 9.61 $ 10.28 $ 10.00 $ 9.68 $ 10.07 $ 10.00
------------ ------------ ---------------- ------------ ------------ ---------------
0.54 0.38 0.17 0.51 0.45 0.19
0.90 (0.67 ) 0.28 0.54 (0.46 ) 0.08
------------ ------------ ---------------- ------------ ------------ ---------------
1.44 (0.29 ) 0.45 1.05 (0.01 ) 0.27
------------ ------------ ---------------- ------------ ------------ ---------------
0.55 0.38 0.17 0.51 0.38 0.14
0.07 -- -- -- -- 0.01
0.05 -- -- -- -- 0.05
------------ ------------ ---------------- ------------ ------------ ---------------
0.67 0.38 0.17 0.51 0.38 0.20
------------ ------------ ---------------- ------------ ------------ ---------------
$ 10.38 $ 9.61 $ 10.28 $ 10.22 $ 9.68 $ 10.07
=========== =========== ============== =========== =========== ==============
15.01% (2.85%) 4.50% 10.86% (0.14%) 2.70%
$73,480,482 $48,570,907 $ 19,897,257 $25,855,313 $17,628,991 $ 8,181,243
0.68% 0.75% 1.37%(4) 0.76% 1.02% 1.72%(4)
0.75% 0.75% 0.75%(4) 0.77% 0.75% 0.75%(4)
6.19% 5.35% 3.73%(4) 5.77% 4.99% 3.52%(4)
6.11% 5.35% 4.35%(4) 5.76% 5.25% 4.49%(4)
137.14% 22.72% -- 93.37% 233.25% 144.30%
</TABLE>
- --------------------------------------------------------------------------------
23
<PAGE> 24
- --------------------------------------------------------------------------------
Portfolio of Investments
American Odyssey Funds, Inc. / International Equity Fund / December 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Value
- ------------------------------------------------------
<S> <C> <C>
COMMON STOCKS -- 97.7%
AVIATION -- 1.2%
130,200 British Airways............. $ 942,010
5,320 KLM Royal Dutch Air......... 187,180
--------------
1,129,190
--------------
BANKS -- 15.4%
33,790 ABN AMRO Holdings........... 1,540,902
66,050 Allied Irish Banks Plc...... 359,946
19,465 Banco de Santander.......... 977,131
117,200 Bangkok Bank Co., Ltd....... 1,423,746
178,400 Barclay's Plc............... 2,046,908
170,250 Development Bank of
Singapore................... 2,118,387
264,510 Grupo Financiero Banamex.... 440,806
275,000 DCB Holdings................ 801,515
219,024 Lloyds TSB Group Plc........ 1,127,273
248,700 National Australia Bank
Ltd......................... 2,238,474
1,075 Swiss Bank Corp............. 220,017
84,000 Thai Farmers Bank........... 847,022
--------------
14,142,127
--------------
BUILDING & MATERIALS -- 2.6%
243,000 Hume Industries............. 1,167,664
188,000 Indocement Tunggal.......... 631,072
11,100 Siam Cement................. 615,168
--------------
2,413,904
--------------
CHEMICALS -- 1.2%
9,550 Akzo Dutch.................. 1,105,734
--------------
COMMODITIES -- 5.5%
37,950 British Petroleum Co. Plc... 317,288
157,600 Broken Hill Proprietary
Co.......................... 2,227,424
17,360 Societe National ELF
Aquitaine................... 1,280,777
194,800 Western Mining Corp......... 1,251,980
--------------
5,077,469
--------------
CONGLOMERATES -- 5.2%
360,961 B.T.R. Ltd.................. 1,843,789
434,700 Hanson Trust Plc............ 1,299,188
617,000 Sime-Darby Berhad........... 1,640,356
25,000 Gadjah Tunggal.............. 13,941
--------------
4,797,274
--------------
<CAPTION>
Shares Value
- ------------------------------------------------------
<S> <C> <C>
CONSUMER GOODS & SERVICES -- 9.1%
289,280 B.A.T. Industries........... $ 2,548,846
181,120 Cadbury Schweppes Plc....... 1,496,015
81,200 Grand Metropolitan Plc...... 584,965
91,000 Gudang Garam................ 951,222
208,000 Han Man Sampoerna........... 2,165,125
854,000 Mayora Indah................ 616,289
--------------
8,362,462
--------------
ENERGY -- 2.3%
188,610 British Gas Corp............ 743,802
243,990 Scottish Power Plc.......... 1,401,625
--------------
2,145,427
--------------
ENGINEERING -- 9.5%
122,390 Chubb Security Plc.......... 605,218
257,420 General Electric Plc........ 1,418,822
4,060 Mannesmann AG............... 1,294,921
66,900 Philips Electronics NV...... 2,420,602
243,520 Siebe Plc................... 3,002,017
--------------
8,741,580
--------------
FOOD MANUFACTURERS -- 2.1%
126,000 Fraser and Neave Ltd........ 1,603,426
4,640 Nutricia Verenidge
Bedrijven................... 375,718
--------------
1,979,144
--------------
INSURANCE -- 5.8%
90,300 General Accident Plc........ 912,698
22,080 Int'l Nederlanden Group..... 1,476,600
220,180 Prudential Corp............. 1,418,664
1,327 Schw Ruckverischer.......... 1,547,676
--------------
5,355,638
--------------
LEISURE -- 0.7%
275,950 Ladbroke Group.............. 627,648
--------------
MEDIA -- 9.3%
146,500 Elsevier NV................. 1,955,775
19,000 Granada Group Plc........... 190,270
422,700 News Corporation Ltd........ 2,257,598
110,800 Singapore Press Holdings
Ltd......................... 1,958,335
93,450 Thorn EMI Plc............... 2,201,018
--------------
8,562,996
--------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
24
<PAGE> 25
- --------------------------------------------------------------------------------
Portfolio of Investments
American Odyssey Funds, Inc. / International Equity Fund / December 31, 1995
(continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Value
- ------------------------------------------------------
<S> <C> <C>
MINING -- 0.9%
576,520 MIM Holdings Ltd............ $ 797,615
--------------
PHARMACEUTICALS -- 10.5%
3,006 Ciba Geigy AG............... 2,651,622
75,800 Glaxo Wellcome Plc.......... 1,076,830
5,100 Hoechst AG.................. 1,389,668
143,000 Kalbe Farma................. 484,708
155,400 Medeva Plc.................. 646,604
322 Roche Holding AG............ 2,553,555
45,400 Zeneca Group Plc............ 878,277
--------------
9,681,264
--------------
REAL ESTATE DEVELOPMENT -- 1.7%
214,000 City Developments........... 1,558,305
--------------
RETAIL -- 1.1%
162,400 Argyll Group................ 857,277
90,000 Hero Supermarket............ 192,877
--------------
1,050,154
--------------
PAPER & PACKAGING -- 3.3%
11,500 Assidoman AB................ 249,879
63,200 Repola OY................... 1,193,545
601,600 Smurfit (Jefferson) Group... 1,417,370
13,000 Stora Kopparbergs........... 153,005
--------------
3,013,799
--------------
SHIPPING -- 0.3%
99,000 Malaysian Int'l Shipping
Corp........................ 259,301
--------------
TECHNOLOGY -- 1.4%
70,000 Canon Inc................... 1,269,002
--------------
TELECOMMUNICATIONS -- 5.6%
79,946 Ericsson Series B........... 1,568,229
257,000 Telekomunikasi.............. 337,207
16,725 Royal PTT Nederland NV...... 608,280
591,550 Stet........................ 1,674,264
265,000 Vodafone Group Plc.......... 948,356
--------------
5,136,336
--------------
TEXTILES -- 0.9%
305,430 Coats Viyella Plc........... $ 829,853
--------------
TRANSPORTATION -- 0.1%
5,400 Volvo AB Series B........... 110,816
--------------
MISCELLANEOUS -- 2.0%
2,283 Alusuisse Lonza Holdings.... 1,813,463
--------------
TOTAL COMMON STOCKS
(cost $80,425,789)...................... 89,960,501
--------------
PREFERRED STOCK -- 0.5%
104,200 News Corporation Ltd.
(cost $397,804) 487,541
--------------
Principal Amount
REPURCHASE AGREEMENT -- 2.4%
$2,235,698 Repurchase Agreement with
Cantor Fitzgerald, dated
12/29/1995, due 01/2/1996,
proceeds at maturity of
$2,236,920 (collateralized
by 2,234,000 US Treasury
Notes, 0.00%-7.25%, due
11/30/96-09/30/97, with a
market value of $2,285,441)
(cost $2,235,698)........... 2,235,698
--------------
TOTAL INVESTMENTS -- 100.6%
(cost $83,059,291)...................... 92,683,740
Liabilities in excess of other
assets -- (.6%)......................... (569,195)
--------------
NET ASSETS -- 100.0% $ 92,114,545
=============
</TABLE>
The accompanying notes are an integral part of the financial statements.
25
<PAGE> 26
- --------------------------------------------------------------------------------
Investments By Country
American Odyssey Funds, Inc. / International Equity Fund / December 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
% of
Net
COUNTRY Assets
- --------------------------------------------------------
<S> <C>
Australia 10.1
Finland 1.3
France 1.4
Germany 2.9
Indonesia 5.9
Ireland 1.9
Italy 1.8
Japan 1.4
Malaysia 4.2
Mexico 0.5
Netherlands 10.5
Singapore 7.8
Spain 1.1
Sweden 2.3
Switzerland 9.5
Thailand 3.1
United Kingdom 32.5
United States 2.4
-------
TOTAL 100.6%
======
</TABLE>
The accompanying notes are an integral part of the financial statements.
26
<PAGE> 27
- --------------------------------------------------------------------------------
Portfolio of Investments
American Odyssey Funds, Inc. / Emerging Opportunities Fund / December 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Value
- ------------------------------------------------------
<S> <C> <C>
COMMON STOCKS -- 97.7%
BUSINESS SERVICES -- 19.8%
89,300 BISYS Group, Inc.*....... $ 2,745,975
94,700 Corporate Express,
Inc.*.................... 2,852,838
82,500 Fair Issaac & Co. ....... 2,134,688
197,900 Fiserv, Inc.*............ 5,937,000
124,700 Gartner Group, Inc. Cl.
A.*...................... 5,970,012
49,500 On Assignment, Inc.*..... 1,621,125
89,025 Paychex, Inc............. 4,440,121
42,600 SITEL*................... 1,304,625
145,000 Sungard Data Systems,
Inc.*.................... 4,132,500
----------------
31,138,884
----------------
COMPUTER EQUIPMENT -- 7.1%
90,600 CDW Computer Centers,
Inc.*.................... 3,669,300
83,600 Micro Warehouse, Inc.*... 3,615,700
260,100 Tech Data Corp.*......... 3,901,500
----------------
11,186,500
----------------
CONSUMER PRODUCTS -- 2.0%
94,150 Dreyers Grand Ice Cream,
Inc...................... 3,130,488
----------------
ELECTRONICS -- 9.6%
98,200 Avid Technology, Inc.*... 1,865,800
100,300 Macromedia, Inc.*........ 5,240,675
136,200 Unitrode Corp.*.......... 3,847,650
113,565 Zilog, Inc.*............. 4,159,318
----------------
15,113,443
----------------
HEALTHCARE -- 9.0%
64,850 Advantage Health Corp.*.. 2,829,081
90,650 Elan Corp. Plc.* (1)..... 4,407,856
189,300 Perrigo Company*......... 2,247,938
93,300 R.P. Scherer*............ 4,583,363
----------------
14,068,238
----------------
INDUSTRIAL SERVICES -- 8.1%
166,680 Fastenal Company......... 7,042,230
230,800 Grossman's, Inc.*........ 259,650
81,700 Itron Incorporation*..... 2,757,375
117,000 Watts Industries, Inc.
CL. A.................... 2,720,250
----------------
12,779,505
----------------
MISCELLANEOUS -- 5.6%
187,140 Idexx Labs
Corporation*............. $ 8,795,580
----------------
RESTAURANTS -- 5.8%
90,400 Applebee's International,
Inc...................... 2,056,600
261,910 Buffets, Inc.*........... 3,601,262
202,900 Landrys Seafood
Restaurant*.............. 3,461,981
----------------
9,119,843
----------------
RETAIL -- 11.5%
158,650 Best Buy Company*........ 2,578,062
73,000 Gymboree Corp.*.......... 1,505,625
114,900 The Men's Wearhouse,
Inc.*.................... 2,958,675
77,490 Quality Food Centers,
Inc.*.................... 1,704,780
111,700 The Sports Authority,
Inc.*.................... 2,275,888
107,500 Talbots, Inc............. 3,090,625
78,000 Tiffany & Co............. 3,929,250
----------------
18,042,905
----------------
SOFTWARE & SERVICES -- 17.3%
35,910 BGS Systems, Inc......... 1,328,670
84,280 Boole & Babbage, Inc.*... 2,064,860
106,200 Broderbund Software,
Inc.*.................... 6,451,650
123,300 Datalogix International,
Inc.*.................... 1,556,662
147,100 Electronic Arts*......... 3,842,988
81,600 Expert Software, Inc.*... 1,142,400
120,000 Manugistics Group,
Inc.*.................... 1,770,000
90,250 Minnesota Educational
Computer Corp.*.......... 2,256,250
87,400 Pinnacle Systems Inc.*... 2,163,150
76,700 Progress Software
Corp.*................... 2,876,250
99,900 Quick Response Services,
Inc.*.................... 1,835,663
----------------
27,288,543
----------------
SPECIALTY CHEMICALS -- 1.9%
83,460 H.B. Fuller Co........... 2,900,235
----------------
TOTAL COMMON STOCKS
(cost $117,324,378) 153,564,164
----------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
27
<PAGE> 28
- --------------------------------------------------------------------------------
Portfolio of Investments
American Odyssey Funds, Inc. / Emerging Opportunities Fund / December 31, 1995
(continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal Amount Value
- ------------------------------------------------------
<S> <C> <C>
REPURCHASE AGREEMENT -- 6.5%
$10,299,520 Repurchase Agreement with
Cantor Fitzgerald, dated
12/29/1995, due
01/2/1996, proceeds at
maturity of $10,305,150
(collateralized by
10,197,000 US Treasury
Notes, 0%-5.75%, due
09/30/97-08/15/03, with a
market value of
$10,513,955)
(cost $10,299,520)....... $ 10,299,520
----------------
TOTAL INVESTMENTS -- 104.2%
(cost $127,623,898) 163,863,684
Liabilities in excess of other
assets -- (4.2%)...................... $ (6,670,800)
----------------
NET ASSETS -- 100.0% $ 157,192,884
============
</TABLE>
(1) American Depository Receipt
* Non-income producing security
The accompanying notes are an integral part of the financial statements.
28
<PAGE> 29
- --------------------------------------------------------------------------------
Portfolio of Investments
American Odyssey Funds, Inc. / Core Equity Fund / December 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Value
- ------------------------------------------------------
<S> <C> <C>
COMMON STOCKS -- 103.4%
AUTO & HOUSING -- 4.0%
80,900 General Motors Corp. .......... $ 4,277,588
71,400 Weyerhaeuser Co. .............. 3,088,050
------------
7,365,638
------------
BANKS -- 10.2%
47,900 BancOne Corp. ................. 1,808,225
44,100 BankAmerica Corp. ............. 2,855,475
45,100 Barnett Banks, Inc. ........... 2,660,900
38,400 Chase Manhattan Corp. ......... 2,328,000
54,200 Chemical Banking Corp. ........ 3,184,250
48,703 First Chicago NBD Corp. ....... 1,923,768
57,200 Nationsbank Corp. ............. 3,982,550
------------
18,743,168
------------
CAPITAL EQUIPMENT -- 4.7%
66,300 General Electric Co. .......... 4,773,600
77,600 Tenneco Inc. .................. 3,850,900
------------
8,624,500
------------
CONSUMER CYCLICAL --
EXCEPT RETAILERS -- 3.5%
128,100 Brinker International ,
Inc.*.......................... 1,937,512
30,000 Tribune Co. ................... 1,833,750
50,900 Whirlpool Corp. ............... 2,710,425
------------
6,481,687
------------
CONSUMER NONDURABLES -- 12.4%
101,500 American Stores Co. ........... 2,715,125
46,000 Anheuser-Busch Co., Inc. ...... 3,076,250
213,800 Archer-Daniels-Midland, Co. ... 3,848,400
103,400 Dial Corp. .................... 3,063,225
53,600 Philip Morris Co., Inc. ....... 4,850,800
105,400 Sara Lee Corp. ................ 3,359,625
57,600 Supervalu Inc. ................ 1,814,400
------------
22,727,825
------------
DEFENSE -- 3.4%
55,700 Boeing Co. .................... 4,365,487
42,000 Raytheon Co. .................. 1,984,500
------------
6,349,987
------------
<CAPTION>
Shares Value
- ------------------------------------------------------
<S> <C> <C>
ENERGY -- 11.3%
58,000 Amoco Corp. ................... $ 4,168,750
23,056 British Petroleum, P. (1)...... 2,354,594
33,000 Mobil Corp. ................... 3,696,000
25,100 Royal Dutch Petroleum, Plc.
(1)............................ 3,542,238
67,500 Texaco Inc. ................... 5,298,750
60,200 Unocal Corp. .................. 1,753,325
------------
20,813,657
------------
FINANCIAL -- EXCEPT BANKS -- 8.7%
54,483 Allstate Corp. ................ 2,240,613
39,000 Chubb Corp. ................... 3,773,250
66,112 Dean Witter Discover & Co. .... 3,107,264
39,500 Federal National Mtg Assn.
Corp. ......................... 4,902,937
34,300 Unum Corp...................... 1,886,500
------------
15,910,564
------------
GAS & ELECTRIC UTILITIES -- 10.5%
66,700 Dominion Resources Inc. ....... 2,751,375
54,200 Detroit Edison Co. ............ 1,869,900
45,500 FPL Group Inc. ................ 2,110,063
111,600 General Public Utilities....... 3,794,400
99,900 Texas Utilities Co. ........... 4,108,388
139,900 Unicom Corp. .................. 4,581,725
------------
19,215,851
------------
INDUSTRIAL COMMODITIES -- 7.2%
18,500 Air Products & Chemicals,
Inc. .......................... 975,875
111,900 Bethlehem Steel Corp.*......... 1,566,600
52,200 Dow Chemical Co. .............. 3,673,575
49,000 B. F. Goodrich Co. ............ 3,338,125
50,100 Great Lakes Chemical Corp. .... 3,607,200
------------
13,161,375
------------
MEDICAL -- 7.4%
50,300 Bristol Myers Squibb Co. ...... 4,319,512
58,100 Columbia/HCA Healthcare
Corp. ......................... 2,948,575
51,700 Schering Plough Corp. ......... 2,830,575
36,000 Warner Lambert Co. ............ 3,496,500
------------
13,595,162
------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
29
<PAGE> 30
- --------------------------------------------------------------------------------
Portfolio of Investments
American Odyssey Funds, Inc. / Core Equity Fund / December 31, 1995
(continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Value
- ------------------------------------------------------
<S> <C> <C>
RETAILERS -- 3.4%
33,700 Dayton-Hudson Corp. ........... $ 2,527,500
91,600 Price/Costco Inc. ............. 1,396,900
58,800 Sears Roebuck & Co............. 2,293,200
------------
6,217,600
------------
TECHNOLOGY -- 5.8%
32,400 Compaq Computer Corp.*......... 1,555,200
28,700 Hewlett Packard Co. ........... 2,403,625
38,000 IBM Corp. ..................... 3,486,500
58,100 Intel Corp. ................... 3,297,175
------------
10,742,500
------------
TELEPHONE UTILITIES -- 7.7%
23,500 AT&T Corp. .................... 1,521,625
75,300 Bellsouth Corp. ............... 3,275,550
61,300 GTE Corp. ..................... 2,697,200
147,700 MCI Communications Inc. ....... 3,858,663
70,500 Sprint Corp. .................. 2,811,188
------------
14,164,226
------------
TRANSPORTATION -- 3.2%
30,600 AMR Corp.*..................... 2,272,050
50,500 Conrail Inc. .................. 3,535,000
------------
5,807,050
------------
TOTAL COMMON STOCKS
(cost $154,507,178) $189,920,790
Principal Amount
REPURCHASE AGREEMENT -- 0.8%
$1,456,048 Repurchase agreement with
Cantor Fitzgerald, dated
12/29/1995, due 01/02/96,
proceeds at maturity of
$1,456,844 (collateralized
by 1,392,000 US Treasury
Notes, 0%-6.375%, due
09/30/97-08/15/02,
with a market value
of $1,490,089) (cost
$1,456,048)............... 1,456,048
---------------
TOTAL INVESTMENTS -- 104.2%
(cost $155,963,226) 191,376,838
Liabilities in excess of other
assets -- (4.2%)...................... (7,642,029)
---------------
NET ASSETS -- 100.0% $ 183,734,809
============
(1) American Depository Receipt
* Non-income producing security
</TABLE>
The accompanying notes are an integral part of the financial statements.
30
<PAGE> 31
- --------------------------------------------------------------------------------
Portfolio of Investments
American Odyssey Funds, Inc. / Long-Term Bond Fund / December 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal Amount Value
- ------------------------------------------------------
<S> <C> <C>
CORPORATE BONDS and NOTES -- 12.6%
$ 800,000 AMR Corp.
10.00% 02/01/01........... $ 919,040
600,000 American Home Products
7.70% 02/15/00............ 641,994
500,000 Banque Paribas
6.875% 03/01/09........... 501,680
446,917 Citicorp Mortgage Trust
Series 3-A3
9.00% 12/25/17............ 451,663
350,000 Commonwealth Edison Co.
1st Mortgage Series 88
8.375% 02/15/23........... 376,677
500,000 Commonwealth Edison Co.
8.625% 02/01/22........... 527,500
400,000 Dean Witter Discover & Co.
6.25% 03/15/00............ 408,300
350,000 General Motors
Acceptance Corp.
9.625% 12/15/01........... 411,772
1,000,000 Lehman Brothers Holding
9.75% 04/01/96............ 1,007,720
600,000 Loews Corp.
7.625% 06/01/23........... 619,440
1,350,000 Long Island Lighting Co.
7.125% 06/01/05........... 1,274,967
700,000 National Bank of Detroit
8.25% 11/01/24............ 856,639
400,000 News America
Holdings Corp.
8.45% 08/01/34............ 461,464
500,000 Niagara Mohawk Power
6.625% 07/01/05........... 447,845
850,000 Paine Webber Group
7.625% 02/15/14........... 873,282
400,000 Quebec Province
7.50% 07/15/23............ 419,328
580,000 RJR Nabisco, Inc.
8.75% 08/15/05............ 594,100
1,000,000 Sears Overseas Finance
0.00% 07/12/98............ 867,500
400,000 Southern Union Company
7.60% 02/01/24............ 416,768
394,130 GG1B Funding Corp.
7.43% 01/15/11............ 392,423
800,000 Telecommunications Inc.
7.875% 08/01/13........... 822,808
500,000 Unisys Corp
8.875% 07/15/97........... 442,500
500,000 United Airlines
11.21% 05/01/14........... 661,825
---------------
TOTAL CORPORATE BONDS AND NOTES
(cost $13,367,108) 14,397,235
---------------
U.S. GOVERNMENT and AGENCIES -- 89.5%
Mortgage Backed Securities
1,000,000 Federal Home Loan Bank
7.87% 04/19/00............ 1,007,030
3,000,000 Federal Home Loan Bank
5.92% 06/29/00............ 3,044,520
3,000,000 Federal Home Loan Bank
6.285% 07/28/00........... 3,082,980
3,000,000 Federal National Mortgage
Association
6.14% 11/25/05............ 3,043,140
3,508,544 Federal National Mortgage
Association
7.00% 02/01/24............ 3,538,191
6,492,824 Federal National Mortgage
Association
7.00% 12/01/24............ 6,547,689
3,000,000 Federal Home Loan Mortgage
Corp.
6.783% 08/18/05........... 3,188,910
10,000,000 Federal Home Loan Mortgage
Corp. -- Gold 30 Year
7.00% 01/01/26 (+)........ 10,090,600
3,469,095 GNMA
8.50% 01/15/25............ 3,644,907
998,307 GNMA
8.50% 06/15/25............ 1,048,901
9,761,409 GNMA
7.50% 07/01/25............ 10,050,347
</TABLE>
The accompanying notes are an integral part of the financial statements.
31
<PAGE> 32
- --------------------------------------------------------------------------------
Portfolio of Investments
American Odyssey Funds, Inc. / Long-Term Bond Fund / December 31, 1995
(continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal Amount Value
- ------------------------------------------------------
<S> <C> <C>
$ 197,212 GNMA
9.50% 09/15/30............ $ 207,873
20,000,000 Resolution Funding Corp.
Strip 01/15/11............ 7,962,800
15,000,000 Resolution Funding Corp.
Strip P/O 01/15/30........ 1,921,350
U.S. Treasury Bonds
8,000,000 6.875% 08/15/25........... 9,022,480
18,500,000 7.625% 02/15/25........... 22,621,985
5,900,000 6.250% 08/15/23........... 6,070,569
U.S. Treasury Notes
500,000 6.250% 05/31/00........... 516,795
4,200,000 6.125% 09/30/00........... 4,326,000
U.S. Treasury Strips
5,000,000 0.00% 02/15/19............ 1,195,700
2,000,000 0.00% 08/15/20............ 435,360
---------------
TOTAL U.S. GOVERNMENT AND AGENCIES
(cost $99,343,118) 102,568,127
---------------
U.S. GOVERNMENT -- SHORT TERM -- 1.9%
U.S. Treasury Bill
2,200,000 5.395% 01/18/96
(cost $2,139,996)*........ 2,139,996
---------------
REPURCHASE AGREEMENT -- 12.3%
14,143,523 Repurchase Agreement With
Cantor Fitzgerald, dated
12/29/1995, due
01/02/1996, proceeds at
maturity of $14,151,254
(collateralized by
14,101,000 US Treasury
Note, 0.00%-7.25%, due
11/30/95-08/15/03 with a
market value of
$14,430,689) (cost
$14,143,523).............. 14,143,523
---------------
OPTION CONTRACTS
$ 150 Mar 96 Eurodollars Future
Calls 03/18/96
(cost $132,375)........... $ 5,625
---------------
TOTAL INVESTMENTS -- 116.3%
(cost $129,126,120) 133,254,506
Options written -- (.2%) (207,031)
Liabilities in excess of other
assets -- (16.1%)...................... (18,435,053)
---------------
NET ASSETS -- 100.0% $ 114,612,422
============
</TABLE>
(+) "When issued" security.
* This security has been segregated with the custodian
to cover open futures contracts.
The accompanying notes are an integral part of the financial statements.
32
<PAGE> 33
- --------------------------------------------------------------------------------
Portfolio of Investments
American Odyssey Funds, Inc. / Intermediate-Term Bond Fund / December 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal Amount Value
- ------------------------------------------------------
<S> <C> <C>
CORPORATE BONDS and NOTES -- 78.4%
$ 289,937 American Southwest Financial
9.00% 03/01/18.............. $ 301,079
2,800,000 AT&T Capital Corp.
6.10% 08/31/98.............. 2,831,976
1,000,000 Bacardi Martini
5.75% 07/23/98.............. 998,750
3,500,000 Banponce Financial
6.69% 09/21/00.............. 3,585,369
1,500,000 Becton Dickinson
8.80% 03/01/01.............. 1,689,555
1,000,000 Bomt 1995-A B
6.30% 07/15/02.............. 1,015,930
1,000,000 Carco 1991-3 A
7.875% 08/15/96............. 1,013,750
1,180,895 Cfat 1995-A CTFS
6.45% 08/25/01.............. 1,191,594
1,000,000 Champion International
9.70% 05/01/01.............. 1,125,490
1,000,000 Crane Co.
7.25% 06/15/99.............. 1,033,560
3,500,000 DQU II Funding
7.23% 12/01/99.............. 3,615,325
2,000,000 Electronic Data
Systems 144A
7.125% 05/15/05............. 2,133,460
3,000,000 Equitable Life
6.95% 12/01/05.............. 3,037,500
1,500,000 First Deposit Master Trust
5.75% 06/15/01.............. 1,509,375
3,000,000 Fleet Financial Group
9.90% 06/15/01.............. 3,510,600
500,000 Florida Gas Transmission
7.75% 11/01/97.............. 516,745
1,500,000 General Motors
Acceptance Corp.
6.625% 10/01/02............. 1,541,160
4,000,000 Grand Metropolitan
Inv Corp
0.00% 01/06/04.............. 2,420,440
$1,500,000 Household Private Label
Credit Card Master Trust II
1994-2, Cl. B
8.00% 09/20/03.............. $ 1,580,145
550,000 Houston Power & Lighting
5.25% 01/01/97.............. 545,490
3,000,000 Hydro-Quebec
7.375% 02/01/03............. 3,203,730
768,765 IBM Credit Receivables
Leased Asset Mst
6.55% 07/16/01.............. 783,701
2,900,000 ITT Corp (New)
6.25% 11/15/00.............. 2,919,068
1,100,000 Mellon Financial
7.625% 11/15/99............. 1,169,388
500,000 Premier Auto Trust
1994-3, Cl. A-6
6.85% 03/02/99.............. 510,465
1,000,000 Premier Auto Trust 1995-3
6.25% 08/06/01.............. 1,016,749
1,000,000 Signet Credit Card
Master Trust
7.35% 09/15/02.............. 1,047,810
3,000,000 Six Flags Ent
0.00% 12/15/99.............. 2,272,500
1,500,000 System Energy Resources
6.00% 04/01/98.............. 1,501,290
1,690,000 Transco Energy INC
9.125% 05/01/98............. 1,805,697
3,500,000 TCI Communications
7.31% 08/24/01.............. 3,653,476
1,000,000 United Illuminating
7.00% 01/15/97.............. 1,005,160
1,500,000 United Illuminating
7.375% 01/15/98............. 1,531,350
--------------
TOTAL CORPORATE BONDS AND NOTES
(cost $56,287,871) 57,617,677
--------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
33
<PAGE> 34
- --------------------------------------------------------------------------------
Portfolio of Investments
American Odyssey Funds, Inc. / Intermediate-Term Bond Fund / December 31, 1995
(continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal Amount Value
- ------------------------------------------------------
<S> <C> <C>
U.S. GOVERNMENT and AGENCIES -- 24.8%
$3,880,112 FNMA
7.50% 10/01/25.............. $ 3,979,539
980,000 GNMA
7.50% 12/15/25.............. 1,008,787
1,500,000 FNMA
5.75% 09/25/18.............. 1,481,715
500,000 FNMA
7.55% 06/10/04.............. 525,390
2,226,007 FHLMC-GNMA
5.15% 08/25/12.............. 2,173,829
9,000,000 U.S. Treasury Note
5.50% 02/28/99.............. 9,061,830
--------------
TOTAL U.S. GOVERNMENT AND AGENCIES
(cost $17,813,360) 18,231,090
--------------
REPURCHASE AGREEMENT -- 1.9%
$1,400,000 Repurchase Agreement with
Merrill Lynch, dated
12/29/1995, 5.50%, due
01/2/1996, proceeds at
maturity of $1,400,856
(collateralized by 1,410,000
US Treasury Note, 5.625%,
due 10/31/97, with a market
value of $1,420,575) (cost
$1,400,000)................. $ 1,400,000
--------------
TOTAL INVESTMENTS -- 105.1%
(cost $75,501,231) 77,248,767
Liabilities in excess of other
assets -- (5.1%)........................ (3,768,285)
--------------
NET ASSETS -- 100.0% $ 73,480,482
=============
</TABLE>
The accompanying notes are an integral part of the financial statements.
34
<PAGE> 35
- --------------------------------------------------------------------------------
Portfolio of Investments
American Odyssey Funds, Inc. / Short-Term Bond Fund / December 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal Amount Value
------------------------------------------------------
<S> <C> <C>
U.S. GOVERNMENTS and AGENCIES -- 80.3%
Mortgage Backed Securities
$1,278,537 FHLMC
6.00% 08/15/20............. $ 1,274,139
614,478 FHLMC
9.50% 01/15/19............. 630,989
U.S. Government Agencies
2,050,000 FHLB Note
8.25% 06/25/96............. 2,077,859
2,755,000 FAMC
6.80% 05/27/97............. 2,807,951
3,200,000 FNMA Note
6.77% 04/14/97............. 3,241,632
425,000 FHLB Note
5.87% 11/21/00............. 430,045
580,000 FNMA Note
6.27% 10/26/00............. 588,700
U.S. Treasury Notes
378,000 5.375% 05/31/98............ 379,240
250,000 5.625% 10/31/97............ 251,835
2,284,000 6.50% 04/30/99............. 2,367,503
4,704,000 6.75% 04/30/00............. 4,950,207
1,750,000 5.50% 12/31/00 (+)......... 1,759,030
-------------
TOTAL U.S. GOVERNMENTS AND AGENCIES
(cost $20,457,504) 20,759,130
-------------
ASSET-BACKED SECURITIES -- 5.3%
600,000 Contimortgage Hel Trust
6.86% 07/15/10............. 608,063
750,000 Equicredit Home Equity
Trust
6.45% 11/15/08............. 753,523
-------------
TOTAL ASSET-BACKED SECURITIES
(cost $1,347,938) 1,361,586
-------------
CORPORATE NOTES -- 14.6%
500,000 Associates Corp N.A.
8.25% 12/1/99.............. 539,615
500,000 Conagra, Inc.
9.75% 11/1/97.............. 532,925
200,000 Carolina Power & Light
5.375% 07/1/98............. 198,770
200,000 Nippon
9.50% 07/27/98............. 218,428
500,000 Tenneco, Inc.
10.00% 08/1/98............. 549,650
300,000 Arizona Public Service
7.625% 06/15/99............ 312,669
150,000 Republic of Ireland
7.875% 12/1/01............. 165,006
395,000 Norwest Corp.
8.15% 11/1/01.............. 437,644
500,000 Southern New England Tel.
6.50% 08/15/00............. 514,005
300,000 WMX Technologies
6.65% 05/15/05............. 311,742
-------------
TOTAL CORPORATE NOTES
(cost $3,599,949) 3,780,454
-------------
U.S. GOVERNMENTS --
SHORT TERM -- 0.6%
150,000 U.S. Treasury Bills
5.28% 02/22/96
(cost $147,492)............ 147,492
-------------
REPURCHASE AGREEMENT -- 10.0%
2,595,879 Repurchase agreement with
Cantor Fitzgerald, dated
12/29/1995, due 01/02/1996,
proceeds at maturity of
$2,597,298 (collateralized
by 2,592,000 US Treasury
Note, 0.00%, due 9/30/97,
with a market value of
$2,650,715) (cost
$2,595,879)................ 2,595,879
-------------
TOTAL INVESTMENTS -- 110.8%
(cost $28,148,762) 28,644,541
Liabilities in excess of other
assets -- (10.8%)...................... (2,789,228)
-------------
NET ASSETS -- 100.0% $ 25,855,313
===========
</TABLE>
(+) "When issued" security
The accompanying notes are an integral part of the financial statements.
35
<PAGE> 36
- --------------------------------------------------------------------------------
Notes to Financial Statements
American Odyssey Funds, Inc./December 31, 1995
- --------------------------------------------------------------------------------
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 their 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
36
<PAGE> 37
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-
37
<PAGE> 38
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 respective fiscal
yearends. 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.
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 differed from net investment income and net realized capital gains
due to timing differences, primarily the deferral of wash sales and the deferral
of net realized capital losses recognized subsequent to October. In addition, at
December 31, 1995, the Emerging Opportunity Fund decreased additional paid-in
capital by $331,697 and increased undistributed net investment income by
$331,697. This reclassification was due to the Fund's inability to carry net
operating losses forward to future years.
38
<PAGE> 39
J) 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.
AOFM has 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 through May 1996. 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%. AOFM, at its discretion, may extend this period past May 1996.
Thereafter, 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 1994 were $1,593,356, of
which $55,541 was reimbursed to the Funds. AOFM's management fees for 1995 were
$3,073,603. An additional $158,170 was paid to AOFM for reimbursement of
previous fees waived and expenses reimbursed. As of December 31, 1995, the
International Equity Fund, Emerging Opportunities Fund, Core Equity Fund,
Long-Term Bond Fund and Intermediate-Term Bond Fund have reimbursed AOFM for all
fees it waived and expenses it reimbursed. The Short-Term Bond Fund is currently
reimbursing AOFM and has a potential future liability to reimburse AOFM
amounting to $64,090. AOFM has acknowledged that upon termination of the
Investment Management Agreement be-
39
<PAGE> 40
tween AOFM and the Funds, the portfolio's would not be liable for any waived or
reimbursed fees which have not been repaid.
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, 1995,
broker-dealers paid custodian expenses for the International Equity Fund and
Core Equity Fund of $10,269 and $19,106 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, 1995, were:
<TABLE>
<CAPTION>
Emerging Intermediate-
International Opportunities Core Equity Long-Term Term Short-Term
Equity Fund Fund Fund Bond Fund Bond Fund Bond Fund
------------- ------------- ------------ ------------ ------------- -----------
<S> <C> <C> <C> <C> <C> <C>
Purchases:
Government................ $ -- $ -- $ -- $365,335,808 $ 51,747,539 $24,379,073
Non-Government............ 49,714,116 77,412,960 102,191,148 $ 27,278,508 66,466,929 3,821,589
------------- ------------- ------------ ------------ ------------- -----------
Total..................... $ 49,714,116 $77,412,960 $102,191,148 $392,614,316 $ 118,214,468 $28,200,662
=========== =========== ============ ============ ============ ===========
Sales:
Government................ $ -- $ -- $ -- $331,415,495 $ 50,480,123 $18,168,939
Non-Government............ 21,795,449 44,119,184 55,003,387 19,131,905 39,691,745 883,905
------------- ------------- ------------ ------------ ------------- -----------
Total..................... $ 21,795,449 $44,119,184 $ 55,003,387 $350,547,400 $ 90,171,868 $19,052,844
=========== =========== ============ ============ ============ ===========
</TABLE>
40
<PAGE> 41
At December 31, 1995, 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:
<TABLE>
<CAPTION>
Emerging Intermediate-
International Opportunities Core Equity Long-Term Term Short-Term
Equity Fund Fund Fund Bond Fund Bond Fund Bond Fund
------------- ------------- ------------ ------------ ------------- -----------
<S> <C> <C> <C> <C> <C> <C>
Federal Income Tax Cost..... $ 83,059,291 $ 127,623,898 $155,963,226 $129,126,120 $75,501,231 $28,148,762
Gross Unrealized
Appreciation.............. 12,154,690 41,435,653 36,098,623 4,339,347 1,783,748 495,779
Gross Unrealized
(Depreciation)............ (2,530,241) 5,195,867 685,011 210,961 36,212 --
</TABLE>
NOTE 6. FUTURES CONTRACTS
At December 31, 1995, the Long-Term Bond Fund had entered into the
following futures contracts:
<TABLE>
<CAPTION>
Unrealized
Number Underlying Expiration Nominal Nominal Appreciation/
of Contracts Face Value Security Date Cost Value (Depreciation)
--------------- ----------- -------------------------------- ---------- ------------ ------------ --------------
<S> <C> <C> <C> <C> <C> <C>
Short Position
-------------
150 $15,000,000 5 Year U.S. Treasury Notes 3/20/96 $(16,433,250) $(16,560,938) $ (127,688)
135 13,500,000 30 Year U.S. Treasury Bonds 3/20/96 (15,706,800) (16,398,281) (691,481)
------------ ------------ --------------
Total Short Position $(32,140,050) $(32,959,219) $ (819,169)
============ ============ ============
</TABLE>
NOTE 7. WRITTEN OPTIONS
The Long Term Bond Fund's activity in written options during the year ended
December 31, 1995 was as follows:
<TABLE>
<CAPTION>
Number of
Options Premiums
--------- ---------
<S> <C> <C>
Options Outstanding at December 31, 1994.................................................. -- --
Options Written....................................................................... 700 $ 912,860
Options Cancelled in Closing Transactions............................................. (175) (134,625)
Options Expired....................................................................... (250) (198,125)
Options Exercised..................................................................... (175) (373,688)
--------- ---------
Options Outstanding at December 31, 1995.................................................. 100 206,422
========= =========
Cost of Closing Transactions.............................................................. 53,516
</TABLE>
41
<PAGE> 42
NOTE 8. FORWARD FOREIGN CURRENCY CONTRACTS
The International Equity Fund had forward foreign currency contracts which
contractually obligates the Fund to deliver currencies at specified future
dates. The following contracts were open at December 31, 1995:
<TABLE>
<CAPTION>
Foreign
Contract Settlement Unrealized
Contract to Deliver Value Date Value Depreciation
- ------------------------------------------------------------- -------------- ---------- ----------- ------------
<S> <C> <C> <C> <C>
Swiss Franc.................................................. 7,799,600 1/16/96 $ 6,772,163 $ 27,837
Netherlands Guilder.......................................... 12,658,000 1/30/96 7,886,102 113,898
French Franc................................................. 5,406,000 2/13/96 1,102,888 1,391
Japanese Yen................................................. 113,000,000 2/22/96 1,099,661 20,971
German Deutsche Marx......................................... 3,566,000 3/27/96 2,493,303 (5,772)
----------- ------------
Total.................................................... $19,354,117 $158,325
=========== ==========
</TABLE>
NOTE 9. FEDERAL INCOME TAXES
For federal income tax purposes, the Funds indicated below have capital
loss carryforwards as of December 31, 1995 which are available to offset future
capital gains, if any.
<TABLE>
<CAPTION>
Capital Loss Expiration
Carryforward Date
------------ ----------
<S> <C> <C>
International Equity Fund................................................................. $ 89,338 2003
Short Term Bond Fund...................................................................... 180,767 2002
</TABLE>
42
<PAGE> 43
REPORT OF INDEPENDENT ACCOUNTANTS
To The Shareholders and
Board of Directors of the
American Odyssey Funds, Inc.:
We have audited the accompanying statements of assets and liabilities,
including the statements of portfolio of investments, of the American Odyssey
Funds, Inc., comprising, respectively, the International Equity, Emerging
Opportunities, Core Equity, Long-Term Bond, Intermediate-Term Bond, and
Short-Term Bond Funds, (the "Fund"), as of December 31, 1995, 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 two 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, 1995, 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 American Odyssey Funds, Inc. as of
December 31, 1995, 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 their financial highlights for the periods referred to above, in conformity
with generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
New York, New York
February 1, 1996
<PAGE> 44
[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 1996 American Odyssey Funds Management, Inc.
