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