<PAGE>
annual report
December 31, 1997
AMERICAN International Equity Fund
ODYSSEY
Emerging Opportunities Fund
Core Equity Fund
Long-Term Bond Fund
Intermediate Term Bond Fund
Short-Term Bond Fund
[LOGO AMERICAN
APPEARS ODYSSEY(R)
HERE] ==========
F U N D S
<PAGE>
Dear American Odyssey Fund Participants:
I am pleased to present you with the American Odyssey Funds Annual Report. As we
approach the fifth anniversary of the American Odyssey Funds, we are proud to
report that they now have assets in excess of $1.3 billion from the retirement
savings programs of over 89,000 participants. We at American Odyssey Funds
Management, Inc. (AOFMI) believe that the strong, sustained growth of the Funds
are a reflection of the energy we devote to making sure that performance is
delivered in a manner that is consistent with the fund's investment objectives.
In 1997, there were a number of notable events related to the American Odyssey
Funds. As you may know, AOFMI added a second subadviser to the Emerging
Opportunities Fund. The introduction of Cowen Asset Management helped to
increase the capacity of the fund while bringing a new, complimentary style to
the Fund. Since inception, the Emerging Opportunities Fund has produced an
annualized return of 11.45%. Speaking of consistency, the Long-Term Bond, Core
Equity and International Equity Funds all performed well in 1997 with
performances of 12.01%, 31.67% and 5.04% respectively. Additionally, the Long
Term Bond Fund and International Equity Fund have both exceeded their benchmarks
for the year and on an annualized basis since the inception of the Funds.
AOFMI is pleased to provide you with more complete performance information
including the investment summaries and financial highlights that can be found in
the pages that follow. It is our hope that this data will help you to understand
how your retirement savings are invested.
Thank you once again for your continued participation in the American Odyssey
Funds. We look forward to serving your investment needs now and in the future.
Very truly yours,
ROBERT C. DUGHI
Chairman of the Board and President
American Odyssey Funds Management, Inc.
<PAGE>
AMERICAN ODYSSEY INTERNATIONAL EQUITY FUND
The American Odyssey International Equity Fund returned 5.04% for the year
ended December 31, 1997. The MSCI EAFE Index returned 2.06% for the same period.
Global equity markets--with the notable exception of Southeast Asia and the
Far East--performed very strongly during 1997. Underpinning the strong stock
market performances was the almost universal phenomenon of steady economic
growth and low inflation which for the last three years now have been the
springboard for rising share prices.
Europe in general did well during the year on the back of lower interest
rates, increasing signs of economic recovery and evidence that management was
paying greater attention to shareholders' interests. Despite the fallout from
the Asian crisis European equity markets rallied to finish 1997 with a display
of strength. The Swiss bourse was the best performing Continental European
market over the year, although good showings were also registered by the Dutch
and German exchanges. In the U.K., strong corporate earnings results,
particularly from the financial services sector and the expectation of corporate
restructuring, proved to be the foundation for a solid year in the equity
market.
The seven worst performing equity markets during 1997 were all located in
Asia which witnessed a succession of economic and political crises during the
second half of the year. In the early part of the year, Japan managed to gain
22% during the second quarter. This increase occurred in spite of the disarray
in the country's financial sector and the poor state of the domestic economy.
However, the gain proved to be short lived and, during the second half of the
year, Japan suffered from the fallout of the currency and political crises which
started in Thailand in May and continued across Southeast Asia and into the Far
East during the remainder of the year.
Across the world the prevailing low interest rate environment has been one
of the main linchpins of equity market strength. Accordingly, on a thematic
basis, the Positive Banking Environment theme added significant value to the
portfolio in 1997. U.K.-quoted Barclay's Plc performed very well during the
second half of the year and was the biggest contributor to the theme's overall
performance. The upward move was prompted by the release in August of bigger-
than-expected pre-tax profits and the simultaneous announcement of an expanded
share buy-back program. Banco de Santander also benefited from good-earnings
news during the first half of the year. Later it announced the sale of its stake
in the U.S. Bank, First Union, and said that it plans to use the proceeds to
strengthen its provisions and capital ratios following an ambitious acquisition
drive in Latin America.
The Healthcare Needs theme was a positive contributor to the portfolio over
the year. The top performer in this theme was the fund's largest holding,
Novartis. In its first full year since its formation by the merger of Ciba Geigy
and Sandoz, it became apparent that the benefits
2
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of the alliance were having a much quicker-than-anticipated impact on
performance. Glaxo Wellcome Plc was an impressive performer during 1997, even
though its best-selling drug, Zantac, has come off patent. This is because new
drugs to treat asthma, AIDS and migraine, among others, are expected to increase
Glaxo's sales by 50% per annum over the next few years. Additionally, the
company's research and development pipeline is well primed.
On the negative side, themes with companies quoted in, or with earnings
exposure to Southeast Asia and the Pacific Basin, suffered during the year.
Examples of these themes are Infrastructural Development and Expanding Financial
Services in Developing Markets. Another poor performer was the Increased
Consumer Spending in the Pacific Basin theme, which saw companies such as
Indonesia-quoted HM Sampoerna and Philippines-quoted San Miguel Corp. hurt by
the fallout from the regional crisis.
Nevertheless, consumer oriented stocks in the Leading Consumer Franchises
theme did perform well during the year. The largest holding in this theme,
B.A.T. Industries made news in the fourth quarter when it announced a merger
between its financial services divisions and Zurich Insurance Group, ending the
company's year-long search for a means to release value for shareholders. The
proposed merger will create an insurance giant with a market capitalization of
approximately $37.3 billion, which would make the new entity the second largest
insurer in Europe. The merger of Guinness and Grand Metropolitan was completed
in December and the new company which is called Diageo Plc is now the world's
largest drinks company.
Although on a macro-economic level Japan has, thus far, failed to deal with
the problems facing it, selective Japanese companies have bitten the bullet in
recent years and have restructured their operations. These companies have
delivered strong earnings growth, despite the worsening GDP forecasts for the
country as a whole. Consequently, during the second half of 1997 we have
invested in a number of Japanese companies which on a relative valuation basis
look attractive compared to their global peers. We continue to monitor other
Japanese companies for value opportunities.
Bank of Ireland Asset Management (U.S.) Limited
Investment Subadviser to the American Odyssey International Equity Fund
3
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COMPARISON OF CHANGES IN VALUE OF $10,000 INVESTMENT
IN THE AMERICAN ODYSSEY INTERNATIONAL EQUITY FUND
AND MSCI EAFE INDEX
International Equity Fund MSCI EAFE
------------------------- ---------
5/31/93 10,000 10,000
6/30/93 9,819 9,900
9/30/93 10,210 10,512
12/31/93 11,980 10,570
3/31/94 11,220 10,946
6/30/94 11,110 11,514
9/30/94 11,590 11,532
12/31/94 11,144 11,423
3/31/95 11,267 11,644
6/30/95 12,158 11,737
9/30/95 13,101 12,236
12/31/95 13,260 12,741
3/31/96 14,013 13,118
6/30/96 14,348 13,335
9/30/96 14,714 13,255
12/31/96 16,159 13,551
3/31/97 16,400 13,392
6/30/97 17,755 15,140
9/30/97 17,985 15,043
12/31/97 17,126 13,875
4
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AMERICAN ODYSSEY EMERGING OPPORTUNITIES FUND
The American Odyssey Emerging Opportunities Fund returned 6.78% for the
year ended December 31, 1997. The Russell 2500 Index returned 24.36% for the
same period.
The following commentary has been provided by Wilke/Thompson Capital
Management, Inc., co-investment subadviser to the American Odyssey Emerging
Opportunities Fund. Wilke/Thompson managed 54% of the portfolio as of December
31, 1997.
The past year was a very rewarding yet complex one for investors as it
began with questions about the direction of interest rates and concluded with
uncertainty about the impact of the East Asian currency crisis on the domestic
economy. Value stocks of all sizes and large cap growth stocks generally were in
favor, while small and mid cap growth stocks were not. Against this backdrop,
the Emerging Opportunities Fund provided positive returns for our clients in
1997, but underperformed its respective benchmarks. Most of the relative
underperformance versus our benchmarks can be traced to a very poor first
quarter. Though we are disappointed with our relative performance, we are
encouraged about the last nine months.
In fact, the market generally widened out in the last nine months of the
year. By the third quarter, many stock market watchers thought the market was
actually starting to favor smaller and mid cap growth stocks. We tried to
caution our clients that the market was widening but that large cap leadership
had been in place for years and a true change could take quite a while. We also
suggested the change could be accompanied by greater financial uncertainty and
increased market volatility and that something would be pointed to as a
watershed event to mark the change. The financial difficulties in Asia may well
be the event to mark that change. Initially, it has caused the larger, multi-
national stocks to be in relative favor as a way of deploying dollars in the
U.S. Equity markets. Though this is not surprising, we believe the Asian
financial difficulties are likely to cause a slowing in economic activity.
Large, multi-national companies are most exposed to this impact, making it even
more difficult for them to post the kind of strong earnings growth they achieved
over the last few years.
In the fourth quarter, many companies with exposure to Asia felt the impact
of the recent events in Eastern Asia. Even companies not directly exposed to
this area, such as personal computer distributors, experienced price declines in
their stock prices. While Wilke/Thompson owns few companies with direct exposure
to the Asian markets, the impact was felt by companies whose business is
tangentially related to this region. In particular, our Distribution and
Electronics/Semiconductor sectors were particularly weak in the fourth quarter.
Although the portfolio remains fundamentally sound, it is not immune from such
broader market impacts. Bolstered by the announced acquisition of Quality Foods,
the Retailing sector of the portfolio demonstrated particular strength during
the fourth quarter.
Certain factors are coming together which will make it more difficult for
many companies in the broad indices to post strong earnings gains in 1998.
Increased spending to correct the so-called Y2K (year 2000) problem in computer
systems will result in rising costs for many companies.
5
<PAGE>
Shortages of trained workers in various fields is putting upward pressure on
wage rates. At the same time, continued low inflation and increased global
competition is limiting companies' ability to pass through these rising costs in
the form of higher prices. The result: declining profit margins, which when
combined with slower economic activity, make earnings growth increasingly more
difficult for many companies. In this type of environment, stable, steady growth
companies in which we invest look attractive and perform best. We believe we are
entering a period when growth will be more difficult for the average company,
and the real, consistent growth companies will be recognized. In this type of
environment, fundamental research on individual companies is rewarded and the
Emerging Opportunities Fund should perform well.
The following commentary has been provided by Cowen Asset Management, co-
investment subadviser to the American Odyssey Emerging Opportunities Fund. Cowen
Asset Management managed 46% of the portfolio as of December 31, 1997.
In 1997 the small capitalization market continued to underperform the large
cap market averages. Although this phenomenon showed signs of abating last
summer, it reemerged in the fall with the stock market sell-off in October.
After Asian stock markets plummeted, foreign investors once again sought
liquidity in the largest brand name U.S. corporations, virtually ignoring
smaller domestic companies. With large cap companies at historically high
valuations, coupled with their slowing growth rates, small cap stocks are now
even more attractively valued, setting the stage for better small cap
performance.
Our investment process looks to identify companies that are undervalued in
the marketplace. In some cases, companies that are rebuilding and adding to
their business values are recognized by other companies before they are
recognized by the marketplace. During 1997, our portfolio held Louisiana Land,
Dreco Energy, Healthdyne and Universal Hospital which were all acquired.
Although the portfolio employs a bottom-up strategy focusing on company
specifics, it is not unusual to have large positions in the portfolio invested
in certain sectors. That continued to be the case in 1997.
Energy - continues to be the largest sector in the portfolio. Exploration
and production companies, oil service and drillers all appreciated in value
through mid 1997. The valuation and performance disparity between large- and
small-capitalization stocks is vividly demonstrated in the energy area. In 1997,
the large multi-national companies were up 22% compared to a 3% decline for the
small domestic producers. Yet, our small-capitalization domestic group is
producing 10%+ gains in reserves and cash flows this year and next, compared to
flat production growth for the majors. Currently, our small-capitalization
exploration and production companies are now selling at about five times cash
flow, which is at the low end of historical valuations.
Health Care - is our second largest sector weighting. Two niche HMOs,
Sierra Health Services, Inc. (up 37% in `97) and Mid Atlantic Medical Services
(flat for the year), the most important providers in their regions, offer good
value and growth potential to our portfolio. We
6
<PAGE>
also believe another health care area, the generic drug sector, has a strong
tailwind to its back. Over $1 billion of pharmaceuticals came off patent per
year during the last 5 years and over $2 billion annually will come off patent
during the next 5 years. Mylan Labs, Inc. (up 27%) and Alpharma, Inc. (up 56%)
are our two generic drug choices.
Electric Utilities - At the same time, electric utilities are so down-
trodden that even most value buyers won't bite. An overweighting in this sector,
which was one of the best returning sectors in the Russell 2000 in 1997, was a
positive contributor to overall performance. With a high relative yield and with
relative price-to-earnings ratios and price-to-book values at all time lows, the
industry presented exciting investment potential as these characteristics reside
in the last industry to be deregulated. We believe we have found several special
electric utility situations that will benefit from performance based regulation
as well as offer good upside potential through consolidation and future growth.
Our largest utility holding is Niagara Mohawk Power Corp., which should benefit
from restructuring and state regulators approving a program to recapture
stranded costs.
Cable Television - After some years of underperformance, the cable
television industry made a comeback in 1997. The stocks were selling at
attractive valuations and we felt that catalysts were visible to warrant
investment in selected companies such as Cablevision Systems Corp. (up over 200%
in 1997), Comcast Corp. (up 77%), and TCA Cable TV, Inc. (up 50%). We saw cable
as a direct link into the home, a hidden asset that could be transformed and
magnified by technology and the Internet. After we invested in these stocks,
Microsoft recognized this as well by investing in Comcast Corp. During the year,
as the cable companies finally were able to get price increases, their steady
cash flows became even more attractive in a lower interest rate environment.
Special Situations - In addition, as always we have numerous special
situations where we have identified catalysts that should lead to an improvement
in their capital returns. These improvements in return on capital should lead to
higher stock market valuations for these companies and/or attract other
companies that will recognize their basic business value and growth potential.
Some of these special situations include Tasty Baking, Lo-Jack Corp., and Dravo
Corp.
We believe the dynamics are in place for a resumption of small cap
outperformance of large cap stocks. While we saw a glimmer of small cap
outperformance this summer, the resumption of the long-term relationship has
been delayed due to the Southeast Asian crisis but will ultimately not be
disproved. We have great enthusiasm for our portfolio and are adhering to our
investment discipline of searching for companies at attractive valuations poised
for growth.
Russell 2500 is a registered trademark of Frank Russell Company
7
<PAGE>
COMPARISON OF CHANGES IN VALUE OF $10,000 INVESTMENT
IN THE AMERICAN ODYSSEY EMERGING OPPORTUNITIES FUND
AND RUSSELL 2500 INDEX
<TABLE>
<CAPTION>
EMERGING OPPORTUNITIES RUSSELL 2500
---------------------- ------------
<S> <C> <C>
05/31/93 10,000 10,000
06/30/93 9,770 10,104
09/30/93 10,190 10,815
12/31/93 10,940 11,012
03/31/94 10,990 10,767
06/30/94 10,340 10,387
09/30/94 11,550 11,131
12/31/94 12,000 10,895
03/31/95 12,506 11,700
06/30/95 14,584 12,744
09/30/95 16,266 13,568
12/31/95 15,867 14,349
03/31/96 16,353 15,191
06/30/96 16,891 15,823
09/30/96 17,387 16,179
12/31/96 15,361 17,080
03/31/97 13,329 16,510
06/30/97 15,514 19,004
09/30/97 17,477 21,732
12/31/97 16,432 21,243
</TABLE>
8
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AMERICAN ODYSSEY CORE EQUITY FUND
The American Odyssey Core Equity Fund returned 31.67% for the year
ended December 31, 1997. The S&P 500 Index returned 33.36% for the same period.
Last year was a surprisingly strong year for the U.S. capital markets.
The Dow Jones rose by over 23% while returns to the S&P 500 Index, a broader
gauge of equity performance, topped 33%. This robust showing, which was the
third consecutive year of strong equity results, was fueled by ongoing strength
in the domestic economy with record low levels of unemployment yet little
evidence of an inflationary pick-up. The rise in the equity markets was further
bolstered by continuing cash flows into mutual fund investments. As the "Baby
Boom" generation nears retirement it has finally awakened to the need for
savings, and this has funded much of the appreciation in the capital markets
over the past several years.
Capital market performance last year was not without its "fits and
starts". Throughout 1997 significant gyrations in returns occurred, fueled in
part by rotations among sectors. The inherent stepped-up volatility was only
exacerbated by the turmoil in many of the Asian markets which began in the
second half of the year.
Performance in 1997 for the American Odyssey Core Equity Fund was good,
with returns just shy of market results. The most positive sector contributors
last year included banks and other financial stocks, technology, and consumer
cyclicals. Individual top performers included: H.F. Ahmanson & Co. which
benefited from the improving California economy plus the favorable industry
trends of deregulation and consolidation; Salomon, which appreciated
substantially due to its acquisition by Travelers; Compaq benefited from strong
earnings momentum as improved product mix and market share gains in personal
computers spurred profit growth; Bristol Myers Squibb Co. showed steady earnings
gains and demonstrated an improved drug pipeline; and rounding out the top five
was Ford Motor Co., which gained due to successful new products and a
restructured portfolio of businesses focused more on its core competencies.
Among the portfolio's least favorable contributors last year were Columbia/HCA
Healthcare, Foster Wheeler Corp, International Paper Co., Motorola, Inc., and
MCI Communications.
The equity markets are currently under pressure stemming from concerns
over the negative impact on the U.S. economy from the woes in Asia. We believe
this situation will stabilize as self-imposed discipline and outside financial
assistance results in first the calming, and then the improvement, of the Asian
economies. Nonetheless, we expect other factors to lead to a slowing in domestic
economic growth.
The American Odyssey Core Equity Fund continues to have a higher than
market weighting in the financial sectors as we expect these stocks will realize
ongoing benefits from industry deregulation. In recent months we have
restructured the Fund for a more defensive posture by lowering its exposure to
the more volatile technology sector and raising weights in the
9
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utilities. Specifically, we have sold Intel and Compaq (both of which were very
positive contributors to performance) and have purchased GTE Corporation, PG&E
Corp., and Consolidated Edison of N.Y., Inc. The effect of these actions has
reduced the exposure to Asia, thereby lowering portfolio risk, and has increased
the dividend yield. There are no other significant over- or underweighted sector
bets in the portfolio, which continues to be structured to maintain the
characteristics of our value style.
Equinox Capital Management, Inc.
Investment Subadviser to the American Odyssey Core Equity Fund
S&P is a registered trademark of Standard & Poor's Corporation
10
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COMPARISON OF CHANGES IN VALUE OF $10,000 INVESTMENT
IN THE AMERICAN ODYSSEY CORE EQUITY FUND
AND S&P 500 INDEX
CORE EQUITY S&P 500
----------- -------
5/31/93 10,000 10,000
6/30/93 10,140 10,029
9/30/93 10,380 10,288
12/31/93 10,392 10,527
3/31/94 10,151 10,124
6/30/94 10,181 10,167
9/30/94 10,503 10,663
12/31/94 10,287 10,666
3/31/95 11,166 11,704
6/30/95 12,301 12,821
9/30/95 13,405 13,840
12/31/95 14,253 14,674
3/31/96 15,131 15,461
6/30/96 15,484 16,153
9/30/96 15,922 16,652
12/31/96 17,555 18,043
3/31/97 17,606 18,532
6/30/97 20,301 21,768
9/30/97 22,669 23,378
12/31/97 22,916 24,070
11
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AMERICAN ODYSSEY LONG-TERM BOND FUND
The American Odyssey Long-Term Bond Fund returned 12.01% for the year
ended December 31, 1997. The Salomon Core +5 Index returned 10.65% for the same
period.
The American Odyssey Long-Term Bond Fund's return exceeded its
benchmark return in 1997, as portfolio strategies produced generally positive
results. The portfolio's long duration posture throughout the period was
rewarded as interest rates fell substantially over the course of the year. Yield
curve positioning was also a significant contributor to performance, 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 quarter, a steepening of the yield curve in the second quarter, and a
dramatic flattening in the fourth quarter. A modest underweighting to the
mortgage sector detracted marginally from returns as spreads narrowed over the
course of the year, but selected corporate holdings, particularly those in the
cable and media sectors, enjoyed very strong performance and on balance
contributed to returns. The portfolio's holdings of inflation-indexed bonds,
which were intended to provide a hedge to the portfolio's long duration
exposure, detracted from performance (as expected) as real interest rates rose
alongside declining inflation expectations.
Although the economy proved stronger than our expectations throughout
the year, inflation did not. Indeed, the dominant feature on the domestic
economic landscape was a significant decline in inflation and inflation
expectations in the first half of the year. Whereas strong growth had pushed up
bond yields the prior year, due to fears that excessive growth would eventually
prove inflationary, these fears were overwhelmed in 1997 by persistent and
strong evidence that inflation pressures remained firmly under control. This
view was strengthened during the course of the second half of the year following
an outbreak of devaluations and economic disruptions throughout the Asian
countries. By the end of the year, inflation was well under 2%, and falling, and
long-term interest rates had reached historic lows. Though the economy showed
some signs of softening towards the end of the year, on balance it recorded
fairly healthy rates of growth without displaying any signs of overheating.
The major story of 1997 was the collapse of Asian currencies, but the
little known but equally major story leading up to the Asian crisis was a
dramatic, but stealthy, tightening of U.S. monetary policy. This took place in
two stages: 1) the Fed's decision to raise short-term rates as inflation fell
from 3% to 1.5% in the first half of the year, and 2) their decision to not
respond to the waves of Asian devaluations in the second half of the year. These
actions resulted in a significant rise in real interest rates (as nominal rates
rose and inflation fell), and an unsatisfied surge in demand for dollar
liquidity. The tightening was confirmed by evidence of a worldwide dollar
scarcity, manifested in falling commodity and precious metals prices, a
strengthening dollar, and a significant flattening of the yield curve.
12
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Going forward, we believe that the big story in 1998 is likely to be the
unwinding of the monetary tightening that occurred in 1997. Forward indicators
of inflation still reflect monetary tightness, and a realistic assessment of
core inflation would probably place it at close to zero currently. Thus it is
unlikely that the declines in interest rates to date will be enough to ward off
the deflation hobgoblins which appear to be circling ever nearer these days.
Consequently, we expect the Fed to shift to an easing mode within the next
several months. However, it is unlikely to make any significant moves until the
labor market shows clear signs of softening, or until some Asian-style financial
flu strikes closer to home.
Consequently, we remain long our benchmark's duration in anticipation of
further declines in interest rates, but with a degree of caution which
recognizes that valuations are not as attractive as they have been, and that the
economy may begin to respond to the rather sharp decline in interest rates we've
seen in the past nine months. We are targeting a more bulleted/less barbelled
exposure to the yield curve, since Fed easing has the potential to steepen the
yield curve by lowering short-term rates significantly, while at the same time
slowing the decline in long-term rates.
Western Asset Management Company
Investment Subadviser to the American Odyssey Long-Term Bond Fund
13
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COMPARISON OF CHANGES IN VALUE OF $10,000 INVESTMENT
IN THE AMERICAN ODYSSEY LONG-TERM BOND FUND
AND SALOMON CORE +5 BOND INDEX
<TABLE>
<CAPTION>
LONG-TERM BOND SALOMON CORE +5
-------------- ---------------
<S> <C> <C>
05/31/93 10,000 10,000
06/30/93 10,370 10,221
09/30/93 10,960 10,524
12/31/93 11,072 10,513
03/31/94 10,655 10,152
06/30/94 10,365 10,024
09/30/94 10,375 10,065
12/31/94 10,433 10,130
03/31/95 11,055 10,700
06/30/95 11,868 11,463
09/30/95 12,124 11,703
12/31/95 12,773 12,283
03/31/96 12,179 11,982
06/30/96 12,203 12,023
09/30/96 12,434 12,256
12/31/96 12,947 12,677
03/31/97 12,711 12,564
06/30/97 13,289 13,079
09/30/97 13,851 13,571
12/31/97 14,445 14,027
</TABLE>
14
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AMERICAN ODYSSEY INTERMEDIATE-TERM BOND FUND
The American Odyssey Intermediate-Term Bond Fund returned 7.50% for the
year ended December 31, 1997. The Lehman Government/Corporate Intermediate Bond
Index returned 7.87% for the same period.
Strong economic growth early in 1997 caused the Federal Reserve Board
to raise the Federal Funds target rate 25 basis points to 5.50% at its March
25th meeting. This was the first increase since January 1995. Inflation has
remained well contained with oil prices falling, the dollar very strong, and
most other commodity prices showing little change.
The second quarter began with weak financial markets. However, as the
markets bottomed in April and roared in May and June, investor fears of further
interest rate increases subsided. Investors seemed to have had a growing
conviction that we were in a new era where inflation could stay low despite low
levels of unemployment not seen since 1973.
In the third quarter, the pace of economic growth continued to moderate
and financial markets enjoyed a strong rally which continued through June.
However, as interest rates rose in August as a result of strong employment
figures in July, expectations of second half growth were lowered. With the pace
of consumer spending slowing in September, investors became less concerned about
further interest rate increases. This feeling was bolstered by a weakening
Japanese economy which has the effect of reducing U.S. growth by reducing
exports and providing cheaper imports.
The fourth quarter of 1997 was disastrous in Asia. Problems that
originated in Thailand spread quickly to Malaysia, Indonesia, and Korea.
Fortunately, our exposure to Asia was eliminated earlier in the year. Prices of
certain Korean debt dropped as much as 35% from their highs as questions arose
about their ability to roll over short term debt. Corporate bond spreads widened
and U.S. treasuries rallied sharply with 2-year yields falling 13 basis points,
5-year yields down 28 basis points, 10-year yields down 37 basis points, and
30-year yields down 48 basis points. The yield curve flattened dramatically the
last quarter with 2-year to 30-year treasuries ending up 63 basis points, which
is 34 basis points flatter than the September 30th quotes.
Travelers Asset Management International Corporation
Investment Subadviser to the American Odyssey Intermediate-Term Bond Fund
15
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COMPARISON OF CHANGES IN VALUE OF $10,000 INVESTMENT
IN THE AMERICAN ODYSSEY INTERMEDIATE-TERM BOND FUND
AND LBGC INTERMEDIATE BOND INDEX
INTERMEDIATE-TERM BOND LBGC BOND INDEX
---------------------- ---------------
5/31/93 10,000 10,000
6/30/93 10,170 10,157
9/30/93 10,440 10,386
12/31/93 10,455 10,403
3/31/94 10,232 10,192
6/30/94 10,120 10,131
9/30/94 10,170 10,214
12/31/94 10,157 10,203
3/31/95 10,559 10,649
6/30/95 11,098 11,181
9/30/95 11,257 11,365
12/31/95 11,682 11,763
3/31/96 11,604 11,665
6/30/96 11,649 11,759
9/30/96 11,840 11,968
12/31/96 12,143 12,241
3/31/97 12,191 12,227
6/30/97 12,528 12,587
9/30/97 12,796 12,927
12/31/97 13,066 13,204
16
<PAGE>
AMERICAN ODYSSEY SHORT-TERM BOND FUND
The American Odyssey Short-Term Bond Fund returned 6.11% for the year
ended December 31, 1997. The Lehman Government/Corporate 1-5 Year Bond Index
returned 7.13% for the same period.
Despite a tight labor market and economic growth that exceeded most
expectations, interest rates fell during 1997 to end the year at 3-year lows.
The yield on the 30-year Treasury bond fell 72 basis points to 5.92% and the
yield on the 2-year Treasury note fell by 22 basis points to a 5.64% yield. The
fall in interest rates as well as the resulting flatter yield curve were largely
due to benign inflation numbers (CPI for 1997 of 2.2%, the lowest since 1965)
and the subsequent fall in inflation expectations.
During 1997, there was a decoupling of the normal relationship between
strong economic growth and the rate of inflation. Although U.S. economic growth
was significantly higher (+3.5% estimate) than the historical non-inflationary
growth rate (2%), core inflation actually fell during 1997. The primary reasons
behind this decoupling were lower import prices, a stronger U.S. dollar, falling
prices for technological equipment and continued increase in productivity
growth. After raising the federal funds rate by 25 basis points during March of
last year, the Federal Reserve was on hold for the balance of the year in
response to the decoupling of inflation and economic growth.
This year experienced tremendous volatility in the Asian financial
markets. All Asian countries suffered severe declines in their equity and
currency markets caused by extreme leverage and heavily overvalued currencies.
This "Asian Contagion" had a direct impact on the U.S. bond market by causing a
flight to quality and a decline in U.S. domestic interest rates.
Our forecast for 1998 calls for inflation to remain subdued and
domestic economic growth to be moderate. Thus, there should be no need for the
Federal Reserve to tighten monetary policy during 1998. Interest rates should
remain range bound, as they did for most of 1997, but at lower levels. We
forecast that the yield curve will likely remain within a +/-75 basis point
range from 1997 year-end levels. Our outlook for sectors is largely influenced
by supply and demand. We anticipate heavy issuance of both investment grade
corporate bonds and mortgage-backed securities. Consequently, we should see both
widening in credit spreads and mortgage-backed spreads.
As always the Fund should continue to provide investors with a high
quality, low volatility investment vehicle.
Smith Graham & Company Asset Managers, L.P.
Investment Subadviser to the American Odyssey Short-Term Bond Fund
17
<PAGE>
COMPARISON OF CHANGES IN VALUE OF $10,000 INVESTMENT
IN THE AMERICAN ODYSSEY SHORT-TERM BOND FUND
AND LBGC 1-5 YEAR BOND INDEX
<TABLE>
<CAPTION>
SHORT-TERM BOND LBGC 1-5 YEAR
--------------- -------------
<S> <C> <C>
05/31/93 10,000 10,000
06/30/93 10,070 10,074
09/30/93 10,200 10,219
12/31/93 10,276 10,279
03/31/94 10,225 10,160
06/30/94 10,195 10,130
09/30/94 10,266 10,222
12/31/94 10,262 10,204
03/31/95 10,601 10,599
06/30/95 10,983 11,023
09/30/95 11,099 11,192
12/31/95 11,376 11,518
03/31/96 11,353 11,508
06/30/96 11,442 11,622
09/30/96 11,609 11,823
12/31/96 11,806 12,058
03/31/97 11,811 12,172
06/30/97 12,086 12,478
09/30/97 12,321 12,762
12/31/97 12,533 12,996
</TABLE>
18
<PAGE>
(This page intentionally left blank)
19
<PAGE>
- -------------------------------------------------------------------------------
Statements of Assets and Liabilities
American Odyssey Funds, Inc. / December 31, 1997
- -------------------------------------------------------------------------------
<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.. $201,197,983 $212,586,767 $297,388,264 $198,965,142 $106,685,504 $57,188,291
- ----------------------------------------------------------------------------------------------------------------------------------
Investments in securities, at value
(see accompanying Portfolio of
Investments) (Note 2) ............... $224,207,852 $245,774,796 $406,071,334 $204,140,597 $107,272,740 $57,572,198
Cash .................................. 8,051,307 21,290,263 7,728,339 17,665,389 2,215 609,105
Cash, denominated in foreign currency
(cost, $4,364,940) .................. 4,196,182 -- -- -- -- --
Receivables for:
Capital stock subscriptions ........ 281,888 243,045 502,408 305,656 64,193 50,435
Investment securities sold ......... -- 2,274,122 1,442,922 -- -- --
Delayed delivery transactions
(Note 9) ......................... -- -- -- 49,948,278 -- --
Unrealized appreciation on forward
foreign currency contracts
(Note 8) ......................... 1,089,879 -- -- -- -- --
Interest ........................... 39,956 80,895 47,091 2,340,810 1,326,244 631,196
Dividends .......................... 228,645 91,226 745,224 -- -- --
Foreign tax reclaims ............... 78,093 -- 2,851 -- -- --
Prepaid organization expense .......... 1,898 1,826 1,827 1,834 1,856 1,856
------------ ------------ ------------ ------------ ------------ -----------
Total assets ....................... 238,175,700 269,756,173 416,541,996 274,402,564 108,667,248 58,864,790
------------ ------------ ------------ ------------ ------------ -----------
LIABILITIES
Payables for:
Investment securities purchased .... 1,361,614 10,679,678 1,587,134 3,988,223 -- --
Delayed delivery transactions
(Note 9) ......................... -- -- -- 51,337,598 -- --
Unrealized depreciation on forward
foreign currency contracts
(Note 8) ......................... 69,093 -- -- -- -- --
Variation margin on open futures
contracts (Note 6) ............... -- -- -- 106,687 -- --
Payable to Adviser .................... 125,896 150,578 207,580 83,066 47,980 26,335
Accrued expenses ...................... 48,040 39,489 49,187 32,639 23,634 17,909
------------ ------------ ------------ ------------ ------------ -----------
Total liabilities .................. 1,604,643 10,869,745 1,843,901 55,548,213 71,614 44,244
------------ ------------ ------------ ------------ ------------ -----------
NET ASSETS ............................ $236,571,057 $258,886,428 $414,698,095 $218,854,351 $108,595,634 $58,820,546
============ ============ ============ ============ ============ ===========
Capital shares outstanding ............ 15,277,557 18,071,430 20,812,710 20,383,564 10,531,347 5,704,494
============ ============ ============ ============ ============ ===========
Net asset value per share ............. $15.48 $14.33 $19.93 $10.74 $10.31 $10.31
============ ============ ============ ============ ============ ===========
- ------------------------------------------------------------------------------------------------------------------------------------
COMPOSITION OF NET ASSETS
Capital shares at par ................. $ 152,776 $ 180,714 $ 208,127 $ 203,836 $ 105,313 $ 57,045
Additional paid-in-capital ............ 198,816,813 226,916,667 256,865,764 208,966,285 107,349,249 58,608,562
Undistributed net investment income.... 4,133,869 -- 40,198 114,595 37,666 21,955
Accumulated net realized gain (loss)
on investments, futures contracts,
option contracts and foreign
currency transactions ............... 9,593,909 (1,398,982) 48,900,936 4,572,544 516,170 (250,923)
Net unrealized appreciation on
investments, translation of assets
and liabilities in foreign
currencies, futures contracts and
option contracts .................... 23,873,690 33,188,029 108,683,070 4,997,091 587,236 383,907
============ ============ ============ ============ ============ ===========
$236,571,057 $258,886,428 $414,698,095 $218,854,351 $108,595,634 $58,820,546
============ ============ ============ ============ ============ ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
20
<PAGE>
- --------------------------------------------------------------------------------
Statements of Operations
American Odyssey Funds, Inc. / For the year ended December 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Emerging Intermediate
International Opportunities Core Equity Long-Term Term Short-Term
Equity Fund Fund Fund Bond Fund Bond Fund Bond Fund
------------ ------------- ------------ ------------ ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
INVESTMENT INCOME
Dividends ................................... $ 4,740,999(1) $ 578,112(2) $ 6,913,314(3) $ -- $ -- $ --
Interest .................................... 480,037 851,831 363,698 12,939,002 6,452,343 3,361,008
----------- ------------ ----------- ----------- ----------- ----------
Total income ............................. 5,221,036 1,429,943 7,277,012 12,939,002 6,452,343 3,361,008
----------- ------------ ----------- ----------- ----------- ----------
EXPENSES
Management fees (Note 3) .................... 1,320,135 1,405,303 2,022,000 945,274 493,298 271,414
Audit fees .................................. 13,890 11,472 15,727 12,475 9,114 6,685
Director's fees & expenses .................. 21,928 21,137 33,544 16,571 8,795 4,887
Custodian fees .............................. 268,332 162,886 212,360 122,051 57,924 40,553
Legal fees .................................. 13,786 17,398 22,187 15,937 9,136 3,965
Printing expense ............................ 58,407 245,265 71,011 50,912 36,720 24,559
Amortization of organization expense ........ 4,975 4,913 4,847 4,895 4,920 4,997
Miscellaneous expense ....................... 5,497 8,095 9,644 5,499 3,447 1,316
----------- ------------ ----------- ----------- ----------- ----------
Total expenses before reimbursement ...... 1,706,950 1,876,469 2,391,320 1,173,614 623,354 358,376
----------- ------------ ----------- ----------- ----------- ----------
Reimbursement repaid to Management Company
(Note 3) ............................... -- -- -- -- -- 42,792
Less:
Expenses paid under directed brokerage
arrangements (Note 4) .................. (35,639) -- (58,525) -- -- --
----------- ------------ ----------- ----------- ----------- ----------
Net expenses ............................. 1,671,311 1,876,469 2,332,795 1,173,614 623,354 401,168
----------- ------------ ----------- ----------- ----------- ----------
Net investment income (loss) ........... 3,549,725 (446,526) 4,944,217 11,765,388 5,828,989 2,959,840
----------- ------------ ----------- ----------- ----------- ----------
REALIZED and UNREALIZED
GAIN (LOSS) ON INVESTMENTS
Net realized gain (loss) on security
transactions ........................... 9,593,909 4,178,737 48,900,932 4,903,936 632,431 (148,187)
Net realized loss on futures contracts ... -- -- -- (1,166,089) -- --
Net realized gain on option contracts .... -- -- -- 798,211 -- --
----------- ------------ ----------- ----------- ----------- ----------
Net realized gain (loss) on security
transactions, futures contracts and
option contracts ..................... 9,593,909 4,178,737 48,900,932 4,536,058 632,431 (148,187)
Net realized gain on foreign currency
transactions ........................... 5,039,668 -- -- -- -- --
Net increase (decrease) in unrealized
appreciation of investments, futures
contracts and option contracts ......... (7,928,382) 13,026,859 42,788,687 5,890,460 785,322 473,223
Net unrealized depreciation from
translation of assets and liabilities
in foreign currencies .................. (43,044) -- -- -- -- --
----------- ------------ ----------- ----------- ----------- ----------
Net realized and unrealized gain on
investments .......................... 6,662,151 17,205,596 91,689,619 10,426,518 1,417,753 325,036
----------- ------------ ----------- ----------- ----------- ----------
Net increase in net assets from
operations ............................. $10,211,876 $ 16,759,070 $96,633,836 $22,191,906 $ 7,246,742 $3,284,876
=========== ============ =========== =========== =========== ==========
</TABLE>
(1) Net of withholding taxes of $597,297.
(2) Net of withholding taxes of $678.
(3) Net of withholding taxes of $17,229
The accompanying notes are an integral part of the financial statements.
21
<PAGE>
- -------------------------------------------------------------------------------
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,
1997 1996 1997 1996
--------------- -------------- --------------- --------------
<S> <C> <C> <C> <C>
INCREASE IN NET ASSETS FROM OPERATIONS
Net investment income (loss) ................................... $ 3,549,725 $ 1,951,989 $ (446,526) $ (661,610)
Net realized gain (loss) on security transactions, futures
contracts and option contracts ............................... 9,593,909 1,855,312 4,178,737 9,311,902
Net realized gain (loss) on foreign currency transactions ...... 5,039,668 1,968,421 -- --
Net increase (decrease) in unrealized appreciation
(depreciation) of investments, translation of assets and
liabilities in foreign currencies, futures contracts and
option contracts ............................................. (7,971,426) 22,072,465 13,026,859 (16,078,616)
------------- ------------- -------------- -------------
Net increase (decrease) in net assets resulting from
operations ................................................ 10,211,876 27,848,187 16,759,070 (7,428,324)
------------- ------------- -------------- -------------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS
From net investment income ..................................... (3,549,725) (3,751,066) -- --
From net realized gains on investment transactions ............. (862,014) (903,958) -- (14,364,919)
In excess of net investment income or realized gains ........... (886,397) -- -- --
------------- ------------- -------------- -------------
Total distributions to shareholders ......................... (5,298,136) (4,655,024) -- (14,364,919)
------------- ------------- -------------- -------------
CAPITAL SHARE TRANSACTIONS
Proceeds from sales of shares .................................. 43,198,871 89,218,342 66,649,338 103,366,353
Distributions reinvested ....................................... 9,953,160 896,810 14,364,919 6,627,286
Cost of shares repurchased ..................................... (8,603,962) (18,313,612) (10,165,115) (74,115,064)
------------- ------------- -------------- -------------
Net increase from capital share transactions ................ 44,548,069 71,801,540 70,849,142 35,878,575
------------- ------------- -------------- -------------
Net increase in net assets ..................................... 49,461,809 94,994,703 87,608,212 14,085,332
NET ASSETS
Beginning of year .............................................. 187,109,248 92,114,545 171,278,216 157,192,884
------------- ------------- -------------- -------------
End of year .................................................... $236,571,057 $187,109,248 $ 258,886,428 $171,278,216
============= ============= ============== =============
Undistributed (excess distribution) net investment income ...... $ 4,133,869 $ (19,402) -- --
============= ============= ============== =============
CAPITAL SHARES
Capital shares outstanding, beginning of year .................. 12,410,280 7,264,073 12,764,369 10,462,738
Capital shares issued .......................................... 2,764,223 6,422,181 4,984,206 6,669,075
Capital shares from distributions reinvested ................... 652,615 70,283 1,087,428 443,000
Capital shares redeemed ........................................ (549,561) (1,346,257) (764,573) (4,810,444)
------------- ------------- -------------- -------------
Capital shares outstanding, end of year ........................ 15,277,557 12,410,280 18,071,430 12,764,369
============= ============= ============== =============
</TABLE>
The accompanying notes are an integral part of the financial statements.
22
<PAGE>
- --------------------------------------------------------------------------------
Statements of Changes in Net Assets (continued)
American Odyssey Funds, Inc.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Core Equity Fund Long-Term Bond Fund
----------------------------- ------------------------------
Year ended Year ended Year ended Year ended
December 31, December 31, December 31, December 31,
1997 1996 1997 1996
------------ ------------- ------------- ------------
<S> <C> <C> <C> <C>
INCREASE IN NET ASSETS FROM OPERATIONS
Net investment income (loss) ................................... $ 4,944,217 $ 4,660,486 $ 11,765,388 $ 8,450,174
Net realized gain (loss) on security transactions, futures
contracts and option contracts ............................... 48,900,932 15,834,337 4,536,058 (650,445)
Net realized gain (loss) on foreign currency transactions ...... -- -- -- --
Net increase (decrease) in unrealized appreciation
(depreciation) of investments, translation of assets and
liabilities in foreign currencies, futures contracts and
option contracts ............................................. 42,788,687 30,480,771 5,890,460 (4,201,977)
------------ ------------- ------------- ------------
Net increase (decrease) in net assets resulting from
operations ................................................ 96,633,836 50,975,594 22,191,906 3,597,752
------------ ------------- ------------- ------------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS
From net investment income ..................................... (4,951,911) (4,697,100) (11,872,559) (8,175,364)
From net realized gains on investment transactions ............. (4,293,241) (11,536,265) (188,073) --
In excess of net investment income or realized gains ........... -- -- -- --
------------ ------------- ------------- ------------
Total distributions to shareholders ......................... (9,245,152) (16,233,365) (12,060,632) (8,175,364)
------------ ------------- ------------- ------------
CAPITAL SHARE TRANSACTIONS
Proceeds from sales of shares .................................. 63,233,692 89,834,796 31,371,836 64,001,096
Distributions reinvested ....................................... 25,394,006 8,600,854 20,235,996 10,236,499
Cost of shares repurchased ..................................... (35,089,813) (43,141,162) (3,579,271) (23,577,889)
------------ ------------- ------------- ------------
Net increase from capital share transactions ................ 53,537,885 55,294,488 48,028,561 50,659,706
------------ ------------- ------------- ------------
Net increase in net assets ..................................... 140,926,569 90,036,717 58,159,835 46,082,094
NET ASSETS
Beginning of year .............................................. 273,771,526 183,734,809 160,694,516 114,612,422
------------ ------------- ------------- ------------
End of year .................................................... $414,698,095 $ 273,771,526 $ 218,854,351 $160,694,516
============ ============= ============= ============
Undistributed (excess distribution) net investment income ...... $ 40,198 $ 47,896 $ 114,595 $ 242,735
============ ============= ============= ============
CAPITAL SHARES
Capital shares outstanding, beginning of year .................. 17,673,755 13,795,844 15,828,492 10,887,947
Capital shares issued .......................................... 3,512,120 6,205,107 2,958,292 6,272,737
Capital shares from distributions reinvested ................... 1,520,884 639,225 1,934,930 973,051
Capital shares redeemed ........................................ (1,894,049) (2,966,421) (338,150) (2,305,243)
------------ ------------- ------------- ------------
Capital shares outstanding, end of year ........................ 20,812,710 17,673,755 20,383,564 15,828,492
============ ============= ============= ============
<CAPTION>
Intermediate-Term Bond Fund Short-Term Bond Fund
----------------------------- ----------------------------
Year ended Year ended Year ended Year ended
December 31, December 31, December 31, December 31,
1997 1996 1997 1996
------------- ------------ ------------ -----------
<S> <C> <C> <C> <C>
INCREASE IN NET ASSETS FROM OPERATIONS
Net investment income (loss) ................................... $ 5,828,989 $ 5,111,303 $ 2,959,840 $ 1,767,705
Net realized gain (loss) on security transactions, futures
contracts and option contracts ............................... 632,431 488,591 (148,187) 75,014
Net realized gain (loss) on foreign currency transactions ...... -- -- -- --
Net increase (decrease) in unrealized appreciation
(depreciation) of investments, translation of assets and
liabilities in foreign currencies, futures contracts and
option contracts ............................................. 785,322 (1,945,622) 473,223 (585,095)
------------- ------------ ------------ -----------
Net increase (decrease) in net assets resulting from
operations ................................................ 7,246,742 3,654,272 3,284,876 1,257,624
------------- ------------ ------------ -----------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS
From net investment income ..................................... (5,989,855) (4,980,334) (3,005,205) (1,745,696)
From net realized gains on investment transactions ............. (475,876) -- -- --
In excess of net investment income or realized gains ........... -- -- -- --
------------- ------------ ------------ -----------
Total distributions to shareholders ......................... (6,465,731) (4,980,334) (3,005,205) (1,745,696)
------------- ------------ ------------ -----------
CAPITAL SHARE TRANSACTIONS
Proceeds from sales of shares .................................. 13,449,251 34,374,279 10,266,744 29,548,991
Distributions reinvested ....................................... 11,446,064 4,749,913 4,750,901 1,291,083
Cost of shares repurchased ..................................... (3,465,766) (24,893,538) (5,149,686) (7,534,399)
------------- ------------ ------------ -----------
Net increase from capital share transactions ................ 21,429,549 14,230,654 9,867,959 23,305,675
------------- ------------ ------------ -----------
Net increase in net assets ..................................... 22,210,560 12,904,592 10,147,630 22,817,603
NET ASSETS
Beginning of year .............................................. 86,385,074 73,480,482 48,672,916 25,855,313
------------- ------------ ------------ -----------
End of year .................................................... $ 108,595,634 $ 86,385,074 $ 58,820,546 $48,672,916
============= ============ ============ ===========
Undistributed (excess distribution) net investment income ...... $ 37,666 $ 165,695 $ 21,955 $ 45,487
============= ============ ============ ===========
CAPITAL SHARES
Capital shares outstanding, beginning of year .................. 8,470,117 7,081,020 4,754,313 2,530,211
Capital shares issued .......................................... 1,276,376 3,298,559 975,165 2,826,896
Capital shares from distributions reinvested ................... 1,114,771 457,603 462,176 126,329
Capital shares redeemed ........................................ (329,917) (2,367,065) (487,160) (729,123)
------------- ------------ ------------ -----------
Capital shares outstanding, end of year ........................ 10,531,347 8,470,117 5,704,494 4,754,313
============= ============ ============ ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
23
<PAGE>
- --------------------------------------------------------------------------------
Financial Highlights
American Odyssey Funds, Inc.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
International Equity Fund
-----------------------------------------------------------------------------
May 17,
1993 (1)
Year ended Year ended Year ended Year ended to
December 31, December 31, December 31, December 31, December 31,
1997 1996 1995 1994 1993
------------- ------------ ------------ ------------ -------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE
Beginning of period ...................... $ 15.08 $ 12.68 $ 10.76 $ 11.98 $ 10.00
------------- ------------ ------------ ------------ -------------
OPERATIONS
Net investment income (loss) (2).......... 0.57 0.29 0.17 (0.05) 0.03
Net realized and unrealized gain (loss)
on investments ......................... 0.19 2.48 1.87 (0.78) 1.95
------------- ------------ ------------ ------------ -------------
Total from investment operations ......... 0.76 2.77 2.04 (0.83) 1.98
------------- ------------ ------------ ------------ -------------
DISTRIBUTIONS TO SHAREHOLDERS
Dividends from net investment income ..... (0.24) (0.30) (0.12) (0.03) --
Distributions from net realized gains on
investments ........................... (0.06) (0.07) -- (0.26) --
Distributions in excess of net investment
income or realized gains ............... (0.06) -- -- (0.10) --
------------- ------------ ------------ ------------ -------------
Total distributions ...................... (0.36) (0.37) (0.12) (0.39) --
------------- ------------ ------------ ------------ -------------
NET ASSET VALUE
End of period ............................ $ 15.48 $ 15.08 $ 12.68 $ 10.76 $ 11.98
============= ============ ============ ============ =============
TOTAL RETURN (3)............................. 5.04% 21.93% 19.00% (6.98)% 19.80%
RATIOS/SUPPLEMENTAL DATA
Net assets at end of period .............. $236,571,057 $187,109,248 $ 92,114,545 $ 51,712,327 $ 19,978,108
Ratios of expenses to average net assets:
Before repayments/reimbursements and
directed brokerage arrangements ...... 0.79% 0.86% 1.00% 1.36% 1.76%(4)
After repayments/reimbursements and
directed brokerage arrangements (5)... 0.77% 0.83% 1.08% 1.25% 1.25%(4)
Ratios of net investment income to
average net assets:
Before repayments/reimbursements and
directed brokerage arrangements ...... 1.61% 1.51% 1.70% 0.83% 0.34%(4)
After repayments/reimbursements and
directed brokerage arrangements ...... 1.63% 1.54% 1.62% 0.94% 0.85%(4)
Portfolio turnover rate .................. 23.08% 21.54% 31.40% 50.25% 9.20%
Average commission rate paid (6).......... $ 0.0217 $ 0.0219 -- -- --
</TABLE>
================================================================================
(1) Commencement of operations.
(2) Net of expense reimbursements, 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 After repayments/reimbursements and directed brokerage arrangements
figure may be greater than the Before repayments/ reimbursements and
directed brokerage arrangements figure because of repayments by the Fund to
the Manager once the Fund is operating below the expense limitation.
(6) 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>
- --------------------------------------------------------------------------------
Financial Highlights
American Odyssey Funds, Inc.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Emerging Opportunities Fund
-----------------------------------------------------------------------------
May 17,
1993 (1)
Year ended Year ended Year ended Year ended to
December 31, December 31, December 31, December 31, December 31,
1997 1996 1995 1994 1993
------------- ------------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE
Beginning of period ..................... $ 13.42 $ 15.02 $ 11.84 $ 10.94 $ 10.00
------------- ------------ ------------ ------------ -----------
OPERATIONS
Net investment loss (2).................. -- -- -- -- (0.01)
Net realized and unrealized gain (loss)
on investments ........................ 0.91 (0.47) 3.81 1.06 0.95
------------- ------------ ------------ ------------ -----------
Total from investment operations ........ 0.91 (0.47) 3.81 1.06 0.94
------------- ------------ ------------ ------------ -----------
DISTRIBUTIONS TO SHAREHOLDERS
Distributions from net realized gains on
investments ........................... -- (1.13) (0.58) (0.16) --
Distributions in excess of net
investment income or realized gains ... -- -- (0.05) -- --
------------- ------------ ------------ ------------ -----------
Total distributions ..................... -- (1.13) (0.63) (0.16) --
------------- ------------ ------------ ------------ -----------
NET ASSET VALUE
End of period ........................... $ 14.33 $ 13.42 $ 15.02 $ 11.84 $ 10.94
============= ============ ============ ============ ===========
TOTAL RETURN (3)............................ 6.78% (3.03)% 32.23% 9.69% 9.40%
RATIOS/SUPPLEMENTAL DATA
Net assets at end of period ............. $ 258,886,428 $171,278,216 $157,192,884 $ 88,676,329 $29,112,652
Ratios of expenses to average net
assets:
Before repayments/reimbursements and
directed brokerage arrangements ..... 0.86% 0.72% 0.77% 0.91% 1.23%(4)
After repayments/reimbursements and
directed brokerage arrangements (5).. 0.86% 0.72% 0.77% 0.92% 1.00%(4)
Ratios of net investment loss to average
net assets:
Before repayments/reimbursements and
directed brokerage arrangements ..... (0.20)% (0.34)% (0.26)% (0.31)% (0.60)%(4)
After repayments/reimbursements and
directed brokerage arrangements ..... (0.20)% (0.34)% (0.26)% (0.32)% (0.38)%(4)
Portfolio turnover rate ................. 80.36% 43.00% 36.02% 27.40% 8.70%
Average commission rate paid (6)......... $ 0.0565 $ 0.0505 -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Commencement of operations.
(2) Net of expense reimbursements, 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 After repayments/reimbursements and directed brokerage arrangements
figure may be greater than the Before repayments/reimbursements and
directed brokerage arrangements figure because of repayments by the Fund to
the Manager once the Fund is operating below the expense limitation.
(6) 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.
25
<PAGE>
- -------------------------------------------------------------------------------
Financial Highlights
American Odyssey Funds, Inc.
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Core Equity Fund
-------------------------------------------------------------------------------
May 17,
1993 (1)
Year ended Year ended Year ended Year ended to
December 31, December 31, December 31, December 31, December 31,
1997 1996 1995 1994 1993
------------- ------------- --------------- -------------- ---------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE
Beginning of period .................... $ 15.49 $ 13.32 $ 10.06 $ 10.33 $ 10.00
-------------- ------------- ------------- -------------- ------------
OPERATIONS
Net investment income (2)............... 0.24 0.26 0.25 0.16 0.06
Net realized and unrealized gain (loss)
on investments ....................... 4.65 2.83 3.63 (0.26) 0.33
-------------- ------------- ------------- -------------- ------------
Total from investment operations ....... 4.89 3.09 3.88 (0.10) 0.39
-------------- ------------- ------------- -------------- ------------
DISTRIBUTIONS TO SHAREHOLDERS
Dividends from net investment income ... (0.24) (0.27) (0.24) (0.17) (0.06)
Distributions from net realized gains
on investments ....................... (0.21) (0.65) (0.37) -- --
Distributions in excess of net
investment income or realized gains .. -- -- (0.01) -- --
-------------- ------------- ------------- -------------- ------------
Total distributions .................... (0.45) (0.92) (0.62) (0.17) (0.06)
-------------- ------------- ------------- -------------- ------------
NET ASSET VALUE
End of period .......................... $ 19.93 $ 15.49 $ 13.32 $ 10.06 $ 10.33
============== ============= ============= ============== ============
TOTAL RETURN (3)........................... 31.67% 23.20% 38.56% (1.01)% 3.90%
RATIOS/SUPPLEMENTAL DATA
Net assets at end of period ............ $ 414,698,095 $273,771,526 $183,734,809 $ 101,591,613 $37,355,875
Ratios of expenses to average net
assets:
Before repayments/reimbursements and
directed brokerage arrangements .... 0.67% 0.68% 0.72% 0.84% 1.12%(4)
After repayments/reimbursements and
directed brokerage arrangements (5). 0.65% 0.66% 0.70% 0.85% 1.00%(4)
Ratios of net investment income to
average net assets:
Before repayments/reimbursements and
directed brokerage arrangements .... 1.36% 1.93% 2.32% 2.27% 1.84%(4)
After repayments/reimbursements and
directed brokerage arrangements .... 1.38% 1.95% 2.33% 2.27% 1.96%(4)
Portfolio turnover rate ................ 45.54% 45.73% 38.44% 48.16% 48.00%
Average commission rate paid (6)........ $ 0.0596 $ 0.0594 -- -- --
===================================================================================================================================
</TABLE>
(1) Commencement of operations.
(2) Net of expense reimbursements, 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 After repayments/reimbursements and directed brokerage arrangements
figure may be greater than the Before repayments/ reimbursements and
directed brokerage arrangements figure because of repayments by the Fund to
the Manager once the Fund is operating below the expense limitation.
(6) 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.
26
<PAGE>
- -------------------------------------------------------------------------------
Financial Highlights
American Odyssey Funds, Inc.
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Long-Term Bond Fund
--------------------------------------------------------------------------------
May 17,
1993 (1)
Year ended Year ended Year ended Year ended to
December 31, December 31, December 31, December 31, December 31,
1997 1996 1995 1994 1993
-------------- ------------- --------------- -------------- -------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE
Beginning of period ..................... $ 10.15 $ 10.53 $ 9.37 $ 10.33 $ 10.00
-------------- ------------- ------------- ------------- ------------
OPERATIONS
Net investment income (2)................ 0.61 0.50 0.53 0.37 0.62
Net realized and unrealized gain (loss)
on investments ........................ 0.61 (0.36) 1.57 (0.97) 0.45
-------------- ------------- ------------- ------------- ------------
Total from investment operations ........ 1.22 0.14 2.10 (0.60) 1.07
-------------- ------------- ------------- ------------- ------------
DISTRIBUTIONS TO SHAREHOLDERS
Dividends from net investment income .... (0.62) (0.52) (0.57) (0.34) (0.18)
Distributions from net realized gains on
investments ........................... (0.01) -- (0.27) (0.02) (0.56)
Distributions in excess of net
investment income or realized gains ... -- -- (0.10) -- --
-------------- ------------- ------------- ------------- ------------
Total distributions ..................... (0.63) (0.52) (0.94) (0.36) (0.74)
-------------- ------------- ------------- ------------- ------------
NET ASSET VALUE
End of period ........................... $ 10.74 $ 10.15 $ 10.53 $ 9.37 $ 10.33
============== ============= ============= ============= ============
TOTAL RETURN (3)............................ 12.01% 1.34% 22.44% (5.79)% 10.70%
RATIOS/SUPPLEMENTAL DATA
Net assets at end of period ............. $ 218,854,351 $160,694,516 $114,612,422 $ 70,359,236 $25,771,838
Ratios of expenses to average net assets:
Before repayments/reimbursements and
directed brokerage arrangements ..... 0.62% 0.63% 0.66% 0.73% 1.30%(4)(5)
After repayments/reimbursements and
directed brokerage arrangements (6).. 0.62% 0.63% 0.70% 0.75% 0.75%(4)
Ratios of net investment income to
average net assets:
Before repayments/reimbursements and
directed brokerage arrangements ..... 6.22% 5.88% 6.67% 7.08% 15.19%(4)
After repayments/reimbursements and
directed brokerage arrangements ..... 6.22% 5.88% 6.63% 7.05% 15.73%(4)
Portfolio turnover rate ................. 358.67% 369.32% 381.53% 152.91% 589.40%
====================================================================================================================================
</TABLE>
(1) Commencement of operations.
(2) Net of expense reimbursements, 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, 1996 and 1997 as a regulated
investment company and intends to do so in future years as well.
(6) The After repayments/reimbursements and directed brokerage arrangements
figure may be greater than the Before repayments/reimbursements and
directed brokerage arrangements figure because of repayments by the Fund to
the Manager once the Fund is operating below the expense limitation.
The accompanying notes are an integral part of the financial statements.
27
<PAGE>
- --------------------------------------------------------------------------------
Financial Highlights
American Odyssey Funds, Inc.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Intermediate-Term Bond Fund
----------------------------------------------------------------------------
May 17,
1993 (1)
Year ended Year ended Year ended Year ended to
December 31, December 31, December 31, December 31, December 31,
1997 1996 1995 1994 1993
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE
Beginning of period ........................ $ 10.20 $ 10.38 $ 9.61 $ 10.28 $ 10.00
------------ ----------- ---------- ----------- -----------
OPERATIONS
Net investment income (2)................... 0.59 0.61 0.54 0.38 0.17
Net realized and unrealized gain (loss) on
investments .............................. 0.17 (0.20) 0.90 (0.67) 0.28
------------ ----------- ---------- ----------- -----------
Total from investment operations ........... 0.76 0.41 1.44 (0.29) 0.45
------------ ----------- ---------- ----------- -----------
DISTRIBUTIONS TO SHAREHOLDERS
Dividends from net investment income ....... (0.60) (0.59) (0.55) (0.38) (0.17)
Distributions from net realized gains on
investments .............................. (0.05) -- (0.07) -- --
Distributions in excess of net investment
income or realized gains ................. -- -- (0.05) -- --
------------ ----------- ---------- ----------- -----------
Total distributions ........................ (0.65) (0.59) (0.67) (0.38) (0.17)
------------ ----------- ---------- ----------- -----------
NET ASSET VALUE
End of period .............................. $ 10.31 $ 10.20 $ 10.38 $ 9.61 $ 10.28
============ =========== ========== =========== ===========
TOTAL RETURN (3)............................... 7.50% 3.95% 15.01% (2.85)% 4.50%
RATIOS/SUPPLEMENTAL DATA
Net assets at end of period ................ $108,595,634 $86,385,074 $73,480,482 $ 48,570,907 $19,897,257
Ratios of expenses to average net assets:
Before repayments/reimbursements and
directed brokerage arrangements ........ 0.63% 0.66% 0.68% 0.75% 1.37%(4)
After repayments/reimbursements and
directed brokerage arrangements (5)..... 0.63% 0.66% 0.75% 0.75% 0.75%(4)
Ratios of net investment income to average
net assets:
Before repayments/reimbursements and
directed brokerage arrangements ........ 5.90% 5.77% 6.19% 5.35% 3.73%(4)
After repayments/reimbursements and
directed brokerage arrangements ........ 5.90% 5.77% 6.11% 5.35% 4.35%(4)
Portfolio turnover rate .................... 215.97% 191.20% 137.14% 22.72% --
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Commencement of operations.
(2) Net of expense reimbursements, 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 After repayments/reimbursements and directed brokerage arrangements
figure may be greater than the Before repayments/reimbursements and
directed brokerage arrangements figure because of repayments by the Fund to
the Manager once the Fund is operating below the expense limitation.
The accompanying notes are an integral part of the financial statements.
28
<PAGE>
- -------------------------------------------------------------------------------
Financial Highlights
American Odyssey Funds, Inc.
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Short-Term Bond Fund
---------------------------------------------------------------------------
May 17,
1993 (1)
Year ended Year ended Year ended Year ended to
December 31, December 31, December 31, December 31, December 31,
1997 1996 1995 1994 1993
------------- ------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE
Beginning of period .......................... $ 10.24 $ 10.22 $ 9.68 $ 10.07 $ 10.00
------------ ------------ ------------- ------------ -----------
OPERATIONS
Net investment income (2)..................... 0.55 0.37 0.51 0.45 0.19
Net realized and unrealized gain (loss) on
investments ................................ 0.08 0.02 0.54 (0.46) 0.08
------------ ------------ ------------- ------------ -----------
Total from investment operations ............. 0.63 0.39 1.05 (0.01) 0.27
------------ ------------ ------------- ------------ -----------
DISTRIBUTIONS TO SHAREHOLDERS
Dividends from net investment income ......... (0.56) (0.37) (0.51) (0.38) (0.14)
Distributions from net realized gains on
investments ................................ -- -- -- -- (0.01)
Distributions in excess of net investment
income or realized gains ................... -- -- -- -- (0.05)
------------ ------------ ------------- ------------ -----------
Total distributions .......................... (0.56) (0.37) (0.51) (0.38) (0.20)
------------ ------------ ------------- ------------ -----------
NET ASSET VALUE
End of period ................................ $ 10.31 $ 10.24 $ 10.22 $ 9.68 $ 10.07
============ ============ ============= ============ ===========
TOTAL RETURN (3)................................. 6.11% 3.80% 10.86% (0.14)% 2.70%
RATIOS/SUPPLEMENTAL DATA
Net assets at end of period .................. $58,820,546 $48,672,916 $ 25,855,313 $17,628,991 $8,181,243
Ratios of expenses to average net assets:
Before repayments/reimbursements and
directed brokerage arrangements .......... 0.66% 0.68% 0.76% 1.02% 1.72%(4)
After repayments/reimbursements and
directed brokerage arrangements (5)....... 0.74% 0.75% 0.75% 0.75% 0.75%(4)
Ratios of net investment income to average
net assets:
Before repayments/reimbursements and
directed brokerage arrangements .......... 5.53% 5.54% 5.77% 4.99% 3.52%(4)
After repayments/reimbursements and
directed brokerage arrangements .......... 5.45% 5.47% 5.78% 5.25% 4.49%(4)
Portfolio turnover rate ...................... 200.78% 154.51% 93.37% 233.25% 144.30%
====================================================================================================================================
</TABLE>
(1) Commencement of operations.
(2) Net of expense reimbursements, 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 After repayments/reimbursements and directed brokerage arrangements
figure may be greater than the Before repayments/reimbursements and
directed brokerage arrangements figure because of repayments by the Fund to
the Manager once the Fund is operating below the expense limitation.
The accompanying notes are an integral part of the financial statements.
29
<PAGE>
- --------------------------------------------------------------------------------
Portfolio of Investments
American Odyssey Funds, Inc./International Equity Fund/December 31, 1997
- --------------------------------------------------------------------------------
Shares Value
- ----------------------------------------------------------------------------
COMMON STOCKS -- 94.6%
AUTOMOTIVE -- 3.5%
166,000 Honda Motor Co. Ltd. .............................. $ 6,115,456
41,975 Michelin B ........................................ 2,114,146
-------------
8,229,602
-------------
BANKING -- 10.8%
139,726 ABN Amro Holdings ................................. 2,722,519
78,635 Banco De Santander ................................ 2,626,055
213,100 Barclay's Plc ..................................... 5,662,748
375,250 Development Bank of Singapore ..................... 3,206,962
400,324 Lloyds TSB Group Plc .............................. 5,177,310
429,550 National Australia Bank Ltd. ...................... 5,997,806
453,000 RHB Capital Berhad ................................ 218,754
-------------
25,612,154
-------------
BEVERAGES, FOOD & TOBACCO -- 9.4%
765,360 B.A.T. Industries ................................. 6,982,914
208,130 Cadbury Schweppes Plc ............................. 2,071,851
313,792 Diageo Plc ........................................ 2,883,592
260,800 Fraser & Neave Ltd. ............................... 1,129,890
601,000 Gudang Garam ...................................... 916,019
719,000 HM Sampoerna ...................................... 542,989
3,492 Nestle ............................................ 5,240,809
58,830 Nutricia Verenigde Bedrijven NV* .................. 1,766,818
520,650 San Miguel Corp. B ................................ 645,918
-------------
22,180,800
-------------
BUILDING MATERIALS -- 0.9%
419,000 City Developments ................................. 1,939,635
278,000 Hume Industries ................................... 291,400
-------------
2,231,035
-------------
COMMERCIAL SERVICES -- 1.1%
140,000 Dai Nippon Printing Co., Ltd....................... 2,638,020
-------------
COMMUNICATIONS -- 6.3%
292,100 Cable & Wireless .................................. 2,571,298
71,850 Royal PTT Nederland NV ............................ 2,998,430
540,736 Telecom Italia SpA ................................ 3,456,060
1,126,000 Telekomunikasi .................................... 599,370
601,050 Telstra Corporation Ltd.* ......................... 1,268,817
534,250 Vodafone Group Plc ................................ 3,898,583
-------------
14,792,558
-------------
CONGLOMERATES -- 2.7%
3,209 Alusuisse Lonza Holdings .......................... 3,086,780
811,611 BTR Ltd. .......................................... 2,490,510
757,000 Sime-Darby Berhad ................................. 727,326
203,000 United Engineers .................................. 168,977
-------------
6,473,593
-------------
ELECTRIC UTILITIES -- 2.9%
18,575 EDP - Electricidade de Portugal SA* ............... 352,111
162,515 Scottish Power Plc ................................ 1,434,601
52,660 Veba AG ........................................... 3,587,705
2,716 Viag AG ........................................... 1,463,705
-------------
6,838,122
-------------
ELECTRICAL EQUIPMENT -- 4.7%
362,330 General Electric Co. Plc .......................... 2,378,733
10,300 Keyence Corp. ..................................... 1,528,905
224,770 Siebe Plc ......................................... 4,419,278
44,430 Siemens ........................................... 2,681,053
-------------
11,007,969
-------------
ELECTRONICS -- 5.0%
227,150 Farnell Electronic ................................ 1,637,025
63,000 Murata Manufacturing Co, Ltd. ..................... 1,589,276
24,000 Rohm Co. Ltd. ..................................... 2,454,984
69,900 Sony Corp. ........................................ 6,236,211
-------------
11,917,496
-------------
ENTERTAINMENT & LEISURE -- 3.2%
133,150 EMI Group Plc ..................................... 1,148,552
304,950 Granada Group Plc ................................. 4,666,406
394,450 Ladbroke Group .................................... 1,713,412
-------------
7,528,370
-------------
The accompanying notes are an integral part of the financial statements.
30
<PAGE>
- -------------------------------------------------------------------------------
Portfolio of Investments
American Odyssey Funds, Inc./International Equity Fund/December 31, 1997
(continued)
- -------------------------------------------------------------------------------
Shares Value
- ----------------------------------------------------------------------------
FINANCIAL SERVICES -- 2.3%
595,510 Grupo Financiero Banamex* ......................... $ 1,780,218
149,000 HSBC Holdings Plc ................................. 3,672,939
------------
5,453,157
------------
FOOD RETAILERS -- 1.1%
327,150 TI Group Plc ...................................... 2,497,659
------------
FOREST PRODUCTS & PAPER -- 0.8%
694,600 Jefferson Smurfit Group Plc ....................... 1,960,231
------------
HEAVY MACHINERY -- 2.4%
11,134 Mannesmann AG ..................................... 5,591,635
------------
INSURANCE -- 7.2%
120,075 International Nederlanden Groep ................... 5,058,340
372,180 Prudential Corp. .................................. 4,348,481
4,088 Schw Ruckversicher ................................ 7,657,198
------------
17,064,019
------------
MEDIA - BROADCASTING
& PUBLISHING -- 4.1%
171,600 Elsevier NV ....................................... 2,776,437
791,900 News Corp. Ltd. ................................... 4,370,259
213,800 Singapore Press Holdings Ltd. ..................... 2,677,353
------------
9,824,049
------------
MEDICAL SUPPLIES -- 2.4%
197,000 Takeda Chemical Industries Ltd. ................... 5,636,308
------------
METALS -- 0.6%
59,300 Broken Hill Proprietary Co......................... 550,589
253,950 Western Mining Corp. Ltd. ......................... 885,219
------------
1,435,808
------------
OFFICE EQUIPMENT -- 2.9%
290,000 Canon ............................................. 6,780,431
------------
OIL & GAS -- 4.7%
100,327 Ente Nazionale Idrocarburi SpA .................... 569,155
51,850 Royal Dutch Petroleum Co. ......................... 2,846,695
571,450 Shell Transport & Trading ......................... 4,137,127
33,560 Total SA - Series B ............................... 3,653,973
------------
11,206,950
------------
PHARMACEUTICALS -- 11.6%
194,680 Glaxo Wellcome Plc ................................ 4,612,690
75,205 Hoechst AG ........................................ 2,605,755
6,836 Novartis .......................................... 11,107,817
433 Roche Holding AG .................................. 4,306,099
133,650 Zeneca Group ...................................... 4,706,017
------------
27,338,378
------------
RETAILERS -- 4.0%
169,000 KAO Corp. ......................................... 2,443,588
180,200 Kingfisher ........................................ 2,514,313
413,400 Safeway Plc ....................................... 2,346,706
157,000 Shiseido Co., Ltd. ................................ 2,149,330
------------
9,453,937
------------
Total Common Stocks
(Cost $200,800,179) ......................................... 223,692,281
------------
PREFERRED STOCKS -- 0.2%
MEDIA - BROADCASTING
& PUBLISHING -- 0.2%
104,200 News Corp. Ltd. (Cost $397,804).................... 515,571
------------
Total Investments -- 94.8%
(Cost $201,197,983) 224,207,852
Other assets in excess of liabilities -- 5.2% 12,363,205
------------
Total Net Assets -- 100.0% $236,571,057
============
Notes to the Portfolio of Investments:
* Non-income producing security.
The accompanying notes are an integral part of the financial statements.
31
<PAGE>
- --------------------------------------------------------------------------------
Investments by Country
American Odyssey Funds, Inc./International Equity Fund/December 31, 1997
(Unaudited)
- --------------------------------------------------------------------------------
Percentage of
COUNTRY Net Assets
-------------------------------------------------------------------------
Great Britain 31.4%
Japan 15.9
Switzerland 13.3
Netherlands 7.7
Germany 6.7
Australia 5.7
Singapore 3.8
France 2.4
Italy 1.7
Hong Kong 1.6
Spain 1.1
Indonesia 0.9
Ireland 0.8
Mexico 0.8
Malaysia 0.6
Philippines 0.3
Portugal 0.1
========
Total 94.8%
========
The accompanying notes are an integral part of the financial statements.
32
<PAGE>
- --------------------------------------------------------------------------------
Portfolio of Investments
American Odyssey Funds, Inc. / Emerging Opportunities Fund /December 31, 1997
- --------------------------------------------------------------------------------
Shares Value
- -------------------------------------------------------------------------------
COMMON STOCKS -- 94.9%
ADVERTISING -- 1.2%
65,800 Catalina Marketing Corp.* ........................... $ 3,043,250
------------
APPAREL RETAILERS -- 1.4%
29,000 AnnTaylor Stores Corp.* ............................. 387,875
7,600 Brylane, Inc.* ...................................... 374,300
198,600 The Sports Authority, Inc.* ......................... 2,929,350
------------
3,691,525
------------
AUTOMOTIVE -- 0.4%
12,200 Keystone Automotive
Industries, Inc.* ................................... 289,750
20,200 Wabash National Corp. ............................... 574,438
15,100 Walbro Corp. ........................................ 202,906
------------
1,067,094
------------
BANKING -- 1.7%
28,200 Alliance Bancorp, Inc. .............................. 747,300
4,000 Bank Plus Corporation* .............................. 50,500
5,000 Carver Bancorp, Inc. ................................ 81,250
7,800 Community Capital Corp.* ............................ 117,000
32,600 Compass Bancshares, Inc. ............................ 1,426,250
45,000 IBS Financial Corp. ................................. 795,938
25,000 Roslyn Bancorp, Inc. ................................ 581,250
29,700 Sovereign Bancorp, Inc. ............................. 616,275
------------
4,415,763
------------
BEVERAGES, FOOD & TOBACCO -- 2.4%
6,600 Boston Beer Co., Inc. Class A* ...................... 51,563
176,800 Dreyers Grand Ice Cream, Inc. ....................... 4,265,299
36,850 Flowers Industries, Inc. ............................ 757,728
10,100 Morrison Health Care, Inc. .......................... 202,000
20,400 Petes Brewing Co.* .................................. 82,875
10,500 Redhook Ale Brewery, Inc.* .......................... 55,125
44,700 Scheid Vineyards, Inc. Class A* ..................... 407,888
25,750 Tasty Baking ........................................ 497,297
------------
6,319,775
------------
BUILDING MATERIALS -- 0.7%
125,500 Dravo Corp.* ........................................ 1,380,500
10,900 USG Corp.* .......................................... 534,100
------------
1,914,600
------------
CHEMICALS -- 0.1%
35,700 Calgon Carbon Corp. ................................. 383,775
------------
COMMERCIAL SERVICES -- 9.1%
53,500 American Banknote Corp.* ............................ 267,500
20,100 COR Therapeutics, Inc.* ............................. 452,250
105,100 Fair Issac & Co., Inc. .............................. 3,501,143
81,900 Forrester Research, Inc.* ........................... 1,863,225
14,200 Healthworld Corp.* .................................. 171,288
163,100 ICF International, Inc. Class A* .................... 377,169
103,100 Lo-Jack Corp.* ...................................... 1,520,725
91,400 Meta Group, Inc.* ................................... 2,010,800
116,200 On Assignment, Inc.* ................................ 3,079,300
96,100 Quick Response Services, Inc.* ...................... 3,555,699
104,700 Romac International, Inc.* .......................... 2,558,606
340,100 Sitel Corp.* ........................................ 3,103,413
64,300 Sotheby's, Inc. ..................................... 1,189,550
------------
23,650,668
------------
COMMUNICATIONS -- 0.0%
10,800 Positron Fiber Systems Corp.* ....................... 70,875
------------
COMPUTER HARDWARE -- 0.1%
25,200 Impact Systems, Inc.* ............................... 68,511
70,500 Visioneer, Inc.* .................................... 114,563
------------
183,074
------------
COMPUTER SERVICES -- 4.3%
75,100 BISYS Group, Inc.* .................................. 2,497,075
48,600 CSG Systems International, Inc.* .................... 1,944,000
124,800 Fiserv, Inc.* ....................................... 6,130,799
21,000 Gerber Scientific, Inc. ............................. 417,375
7,700 Red Brick Systems, Inc.* ............................ 53,900
13,000 TCSI Corporation* ................................... 104,000
------------
11,147,149
------------
The accompanying notes are an integral part of the financial statements.
33
<PAGE>
- --------------------------------------------------------------------------------
Portfolio of Investments
American Odyssey Funds, Inc. / Emerging Opportunities Fund /December 31, 1997
(continued)
- --------------------------------------------------------------------------------
Shares Value
- -------------------------------------------------------------------------------
COMPUTER SOFTWARE -- 15.9%
118,900 Acxiom Corp.* ....................................... $ 2,288,825
12,750 Barra, Inc.* ........................................ 307,594
75,520 BGS Systems, Inc. ................................... 2,643,200
125,450 Boole & Babbage, Inc.* .............................. 3,747,818
14,100 Business Objects S.A. ADR* .......................... 146,288
117,000 Data Processing Resources Corp.* .................... 2,983,500
7,500 DataWorks Corporation* .............................. 149,063
39,500 Electronic Arts* .................................... 1,493,594
9,400 Evans & Sutherland Computer Co.* .................... 272,600
21,800 HNC Software, Inc.* ................................. 937,400
16,800 Information Advantage, Inc.* ........................ 109,200
30,300 Information Resources, Inc.* ........................ 405,263
92,600 Manugistics Group, Inc.* ............................ 4,132,274
155,000 MetaCreations Corp.* ................................ 1,724,375
293,100 Novell, Inc.* ....................................... 2,198,250
12,400 Objective Systems Integrator, Inc.* ................. 103,850
129,900 Pinnacle Systems, Inc.* ............................. 3,166,312
13,000 Platinum Software Corp.* ............................ 152,750
6,300 Project Software & Development, Inc.* ............... 148,050
55,200 Saville Systems Ireland ADR* ........................ 2,290,800
188,800 Sungard Data Systems, Inc.* ......................... 5,852,799
86,100 Sykes Enterprises, Inc.* ............................ 1,678,950
5,400 Symix Systems, Inc.* ................................ 83,700
103,400 Transaction Systems* ................................ 3,929,199
23,600 Versant Object Technology Corp.* .................... 325,975
------------
41,271,629
------------
CONGLOMERATES -- 0.3%
30,900 York Group, Inc. .................................... 753,188
------------
ELECTRIC UTILITIES -- 5.0%
18,500 Central Louisiana Electric, Inc. .................... 598,938
19,200 DPL, Inc. ........................................... 552,000
17,000 Eastern Utilities Associates ........................ 446,250
26,800 Empire District Electric Co. ........................ 525,950
16,400 Madison Gas & Electric Co. .......................... 377,200
13,600 New Century Energies, Inc. .......................... 651,950
260,400 Niagara Mohawk Power Corp.* ......................... 2,734,200
9,000 NIPSCO Industries, Inc. ............................. 444,938
23,200 Northeast Utilities ................................. 274,050
9,100 Orange & Rockland Utilities ......................... 423,719
14,000 Otter Tail Power Co. ................................ 530,250
11,900 Puget Sound Energy, Inc. ............................ 359,231
13,200 SCANA Corp. ......................................... 395,175
30,900 Sierra Pacific Resources ............................ 1,158,750
21,100 St. Joseph Light & Power ............................ 375,844
36,600 TNP Enterprises, Inc. ............................... 1,216,950
36,600 Union Electric Co. .................................. 1,582,950
12,200 Wisconsin Power & Light Holding, Inc. ............... 404,125
------------
13,052,470
------------
ELECTRICAL EQUIPMENT -- 1.0%
14,700 General Signal Corp. ................................ 620,156
74,200 Littelfuse, Inc.* ................................... 1,845,725
------------
2,465,881
------------
ELECTRONICS -- 1.3%
70,200 Anicom, Inc.* ....................................... 1,114,425
104,900 Unitrode Corp.* ..................................... 2,255,350
------------
3,369,775
------------
ENVIRONMENTAL CONTROLS -- 0.5%
18,400 AIM Safety Co.* ..................................... 230,156
97,600 Laidlaw Environmental Services* ..................... 475,800
27,000 OHM Corp.* .......................................... 212,738
16,600 U.S. Filter Corp.* .................................. 496,963
------------
1,415,657
------------
FOOD RETAILERS -- 1.9%
73,600 Quality Food Centers, Inc.* ......................... 4,931,199
------------
FOREST PRODUCTS & PAPER -- 0.1%
3,900 Bowater, Inc. ....................................... 173,306
18,700 Stone Container Corp.* .............................. 195,181
------------
368,487
------------
The accompanying notes are an integral part of the financial statements.
34
<PAGE>
- -------------------------------------------------------------------------------
Portfolio of Investments
American Odyssey Funds, Inc. / Emerging Opportunities Fund /December 31, 1997
(continued)
- -------------------------------------------------------------------------------
Shares Value
- -------------------------------------------------------------------------------
HEALTH CARE PROVIDERS -- 2.4%
91,800 Healthplan Services Corp. ........................... $ 1,927,800
230,900 Mid Atlantic Medical Services* ...................... 2,943,975
91,700 Physician Reliance Network, Inc.* ................... 957,119
12,600 Sierra Health Services, Inc.* ....................... 423,675
------------
6,252,569
------------
HEAVY MACHINERY -- 3.4%
110,300 Fastenal Co. ........................................ 4,218,974
105,800 JLK Direct Distribution, Inc.* ...................... 2,962,400
29,500 Stewart & Stevenson Services, Inc.................... 752,250
36,900 Tokheim Corp.* ...................................... 763,369
4,600 Varco International, Inc.* .......................... 98,612
------------
8,795,605
------------
HOME CONSTRUCTION, FURNISHINGS &
APPLIANCES -- 0.2%
18,800 American Woodmark Corp. ............................. 413,600
------------
HOUSEHOLD PRODUCTS -- 0.3%
34,500 American Safety Razor Co.* .......................... 690,000
------------
MEDIA - BROADCASTING & PUBLISHING -- 0.6%
10,100 Cablevision Systems Corp.* .......................... 967,075
15,200 Central European Media Enterprises Ltd.* ............ 383,800
2,600 TCA Cable TV, Inc. .................................. 119,600
------------
1,470,475
------------
MEDICAL & BIO-TECHNOLOGY -- 1.7%
22,000 Biogen, Inc.* ....................................... 800,250
63,700 CN Biosciences, Inc.* ............................... 1,592,500
53,700 Genzyme Corp.-General Division*...................... 1,490,175
36,100 NeoPath, Inc.* ...................................... 469,300
------------
4,352,225
------------
MEDICAL SUPPLIES -- 5.3%
43,700 Healthdyne Technologies* ............................ 890,388
13,600 Heartstream, Inc.* .................................. 145,350
72,400 Henry Schein, Inc.* ................................. 2,534,000
9,000 Hologic, Inc.* ...................................... 186,188
48,100 Patterson Dental Co.* ............................... 2,176,525
129,000 Physician Sales & Service, Inc.* .................... 2,773,500
95,300 Steris Corp.* ....................................... 4,598,224
5,100 Thoratec Laboratories Corp.* ........................ 33,788
21,700 Universal Hospital Services* ........................ 330,925
------------
13,668,888
------------
METALS -- 2.0%
76,500 Armco, Inc.* ........................................ 377,719
139,500 Battle Mountain Gold Co. ............................ 819,562
31,000 Birmingham Steel Corp. .............................. 488,250
45,900 Cyprus Amax Minerals Co. ............................ 705,713
12,100 Getchell Gold Corp.* ................................ 290,400
62,600 Hecla Mining* ....................................... 309,088
45,400 Kaiser Aluminum Corp.* .............................. 400,088
12,800 Newmont Mining Corp. ................................ 376,000
11,300 Placer Dome, Inc. ................................... 143,369
157,600 Royal Oak Mines, Inc.* .............................. 246,250
125,300 TVX Gold, Inc.* ..................................... 422,888
28,600 Worthington Industries, Inc. ........................ 471,900
------------
5,051,227
------------
MISCELLANEOUS -- 0.1%
37,300 Marker International* ............................... 149,200
------------
OIL & GAS EXPLORATION -- 8.5%
61,200 Barrett Resources Corp.* ............................ 1,851,300
14,800 Benton Oil & Gas Co.* ............................... 191,475
34,500 Devon Energy Corp. .................................. 1,328,250
204,300 EEX Corporation* .................................... 1,851,469
45,000 Forest Oil Corp.* ................................... 742,500
87,900 HS Resources, Inc.* ................................. 1,214,119
3,500 Murphy Oil Corp. .................................... 189,656
32,100 Nuevo Energy Co.* ................................... 1,308,075
181,100 Oryx Energy Co.* .................................... 4,618,049
42,900 Pioneer Natural Resources Co. ....................... 1,241,419
14,300 Pogo Producing Co. .................................. 421,850
The accompanying notes are an integral part of the financial statements.
35
<PAGE>
- -------------------------------------------------------------------------------
Portfolio of Investments
American Odyssey Funds, Inc./Emerging Opportunities Fund/December 31, 1997
(continued)
- -------------------------------------------------------------------------------
Shares Value
- -------------------------------------------------------------------------------
197,700 Santa Fe Energy Resources, Inc.* .................... $ 2,224,125
60,100 Seagull Energy Corp.* ............................... 1,239,563
32,000 Titan Exploration, Inc.* ............................ 304,000
10,300 Union Texas Petroleum Holdings, Inc. ................ 214,369
105,100 United Meridian Corp.* .............................. 2,955,938
------------
21,896,157
------------
OIL & GAS FIELD SERVICES -- 6.8%
6,100 BJ Services Co.* .................................... 438,819
88,900 Global Marine, Inc.* ................................ 2,178,050
33,200 Hanover Compressor Co.* ............................. 678,525
15,200 KeySpan Energy Corp. ................................ 559,550
49,900 Nabors Industries, Inc.* ............................ 1,568,731
131,000 Oceaneering International, Inc.* .................... 2,587,250
61,900 Parker Drilling Co.* ................................ 754,406
24,100 Petroleum Geo-Services ADR* ......................... 1,560,475
84,800 Pride International, Inc.* .......................... 2,141,200
59,400 Reading & Bates Corp.* .............................. 2,487,375
6,700 Rowan Co., Inc.* .................................... 204,350
54,300 Weatherford Enterra, Inc.* .......................... 2,375,625
------------
17,534,356
------------
PHARMACEUTICALS -- 3.6%
54,500 Alpharma, Inc. ...................................... 1,185,375
31,300 Ascent Pediatrics, Inc.* ............................ 183,888
35,800 Carter-Wallace ...................................... 604,125
40,500 Columbia Laboratories, Inc.* ........................ 642,938
35,700 Kos Pharmaceuticals* ................................ 551,119
27,900 Matrix Pharmaceuticals, Inc.* ....................... 95,906
180,000 Mylan Labs, Inc. .................................... 3,768,749
4,900 Nastech Pharmaceutical Co., Inc.* ................... 63,700
17,000 Onyx Pharmaceuticals, Inc.* ......................... 131,750
35,400 R. P. Scherer Corp.* ................................ 2,159,400
------------
9,386,950
------------
REAL ESTATE -- 0.6%
59,200 Atlantic Gulf Communities* .......................... 266,400
20,300 Heartland Partners LP ............................... 324,800
5,800 Storage USA, Inc. REIT .............................. 231,638
23,900 Trizec Hahn Corp. ................................... 554,181
6,200 Washington Real Estate Investment Trust ............. 103,850
------------
1,480,869
------------
RESTAURANTS -- 2.5%
44,700 Brinker International, Inc.* ........................ 715,200
171,300 Landry's Seafood Restaurants* ....................... 4,111,199
99,300 O' Charleys, Inc.* .................................. 1,737,750
------------
6,564,149
------------
RETAILERS -- 6.9%
172,150 Arbor Drugs, Inc. ................................... 3,184,774
64,400 Best Buy Co., Inc.* ................................. 2,374,750
23,940 CDW Computer Centers, Inc.* ......................... 1,247,873
130,300 Eagle Hardware & Garden, Inc.* ...................... 2,524,563
10,400 Homebase, Inc.* ..................................... 81,900
46,800 Michaels Stores* .................................... 1,368,900
85,800 MSC Industrial Direct Co., Inc.* .................... 3,635,774
71,500 Tech Data Corp.* .................................... 2,779,563
15,300 Williams-Sonoma, Inc.* .............................. 640,688
------------
17,838,785
------------
TELEPHONE SYSTEMS -- 0.7%
107,200 Brightpoint, Inc.* .................................. 1,487,400
11,800 Century Communications Corp.* ....................... 115,050
17,600 Vanguard Cellular Systems, Inc. Class A* ............ 224,400
------------
1,826,850
------------
TEXTILES, CLOTHING & FABRICS -- 0.4%
27,500 Osh Kosh B Gosh Class A ............................. 907,500
------------
TRANSPORTATION -- 1.5%
16,900 Covenant Transport, Inc.* ........................... 257,725
23,700 Halter Marine Group, Inc.* .......................... 684,338
19,500 Kirby Corp.* ........................................ 376,594
The accompanying notes are an integral part of the financial statements.
36
<PAGE>
- --------------------------------------------------------------------------------
Portfolio of Investments
American Odyssey Funds, Inc./Emerging Opportunities Fund/December 31, 1997
(continued)
- --------------------------------------------------------------------------------
Shares Value
- -------------------------------------------------------------------------------
68,600 Offshore Logistics, Inc.* ........................... $ 1,466,325
22,800 Simon Transportation Services* ...................... 547,200
30,300 Transport Corporation of America, Inc.* ............. 477,225
8,300 Werner Enterprises, Inc. ............................ 170,150
------------
3,979,557
------------
Total Investments -- 94.9%
(Cost $212,586,767) 245,774,796
Other assets in excess of liabilities -- 5.1% 13,111,632
------------
Total Net Assets -- 100.0% $258,886,428
============
Notes to the Portfolio of Investments:
REIT - Real Estate Investment Trust
ADR - American Depository Receipt
* Non-income producing security.
The accompanying notes are an integral part of the financial statements.
37
<PAGE>
- --------------------------------------------------------------------------------
Portfolio of Investments
American Odyssey Funds, Inc. / Core Equity Fund / December 31, 1997
- --------------------------------------------------------------------------------
Shares Value
- --------------------------------------------------------------
COMMON STOCKS -- 97.9%
AIRLINES -- 4.5%
62,800 AMR Corp.* ....................... $ 8,069,800
56,800 Delta Air Lines, Inc. ............ 6,759,200
59,600 Federal Express Corp.* ........... 3,639,325
---------------
18,468,325
---------------
AUTOMOTIVE -- 2.9%
249,700 Ford Motor Co. .................. 12,157,268
---------------
BANKING -- 13.5%
74,810 Banc One Corp. ................... 4,063,118
134,300 BankAmerica Corp. ................ 9,803,899
31,700 Bankers Trust New York Corp. ..... 3,564,269
50,000 Barnett Banks, Inc. .............. 3,593,750
64,028 Chase Manhattan Corp. ............ 7,011,066
60,403 First Chicago NBD Corp. .......... 5,043,651
115,500 Fleet Financial Group, Inc. ...... 8,655,281
132,300 H.F. Ahmanson & Co. .............. 8,855,831
88,300 Nationsbank Corp. ................ 5,369,744
---------------
55,960,609
---------------
BEVERAGES, FOOD & TOBACCO -- 4.6%
145,900 Anheuser-Busch Co., Inc. ......... 6,419,600
175,600 Pepsico, Inc. .................... 6,398,425
111,800 Sara Lee Corp. ................... 6,295,738
---------------
19,113,763
---------------
COMMUNICATIONS -- 2.7%
152,100 SBC Communications, Inc. ........ 11,141,324
---------------
COMPUTER SOFTWARE
& PROCESSING -- 1.6%
149,998 Electronic Data Systems Corp. ... 6,590,537
---------------
COMPUTERS & INFORMATION -- 3.4%
64,400 Hewlett Packard Co. .............. 4,025,000
94,900 IBM Corp. ........................ 9,922,980
---------------
13,947,980
---------------
ELECTRIC UTILITIES -- 5.7%
105,400 Consolidated Edison of
N.Y., Inc. ....................... 4,321,400
208,200 Edison International ............. 5,660,438
174,900 Entergy Corp. .................... 5,236,069
275,485 PG&E Corp. ....................... 8,385,075
---------------
23,602,982
---------------
ELECTRICAL EQUIPMENT -- 2.2%
124,400 General Electric Co. ............ 9,127,850
---------------
ELECTRONICS -- 1.2%
87,900 Motorola, Inc. .................. 5,015,794
---------------
ENTERTAINMENT & LEISURE -- 1.6%
118,600 Carnival Corp. A ................ 6,567,475
---------------
FINANCIAL SERVICES -- 5.4%
193,200 Federal National Mortgage
Association ...................... 11,024,474
194,024 Morgan Stanley, Dean Witter,
Discover and Co. ................. 11,471,668
---------------
22,496,142
---------------
FOREST PRODUCTS & PAPER -- 3.6%
176,200 Fort James Corp. ................. 6,739,650
112,100 International Paper Co. .......... 4,834,313
114,400 Mead Corp. ....................... 3,203,200
---------------
14,777,163
---------------
HEAVY CONSTRUCTION -- 0.9%
145,000 Foster Wheeler Corp. ............ 3,924,063
---------------
HEAVY MACHINERY -- 1.0%
82,800 Caterpiller Tractor, Inc. ....... 4,020,975
---------------
HOME CONSTRUCTION, FURNISHINGS & APPLIANCES-- 1.7%
127,400 Whirlpool Corp. ................. 7,007,000
---------------
INSURANCE -- 8.5%
102,400 Aetna, Inc. ...................... 7,225,600
107,883 Allstate Corp. ................... 9,803,867
80,500 Chubb Corp. ...................... 6,087,813
39,600 TransAmerica Corp. ............... 4,217,400
149,668 Travelers Group Inc.(a) .......... 8,063,364
---------------
35,398,044
---------------
MEDIA - BROADCASTING
& PUBLISHING -- 3.0%
71,500 Time Warner, Inc. ................ 4,433,000
The accompanying notes are an integral part of the financial statements.
38
<PAGE>
- -------------------------------------------------------------------------------
Portfolio of Investments
American Odyssey Funds, Inc. / Core Equity Fund / December 31, 1997 (continued)
- -------------------------------------------------------------------------------
Shares Value
- ------------------------------------------------------------------------------
128,900 Tribune Co. ...................................... $ 8,024,025
---------------
12,457,025
---------------
MEDICAL SUPPLIES -- 1.3%
110,200 Baxter International, Inc. ....................... 5,558,213
---------------
METALS -- 1.9%
77,800 Reynolds Metals Co. .............................. 4,668,000
109,400 USX-US Steel Group, Inc. ......................... 3,418,750
---------------
8,086,750
---------------
OIL & GAS -- 10.0%
120,100 Amerada Hess Corp. ............................... 6,590,488
92,900 Ashland, Inc. .................................... 4,987,569
91,600 Atlantic Richfield Co. ........................... 7,339,450
55,012 British Petroleum ADR ............................ 4,383,769
115,800 Exxon Corp. ...................................... 7,085,513
67,400 Mobil Corp. ...................................... 4,865,438
116,500 Texaco, Inc. ..................................... 6,334,688
---------------
41,586,915
---------------
PHARMACEUTICALS -- 3.5%
87,100 Bristol Myers Squibb Co. ......................... 8,241,838
100,700 Schering Plough Corp. ............................ 6,255,988
---------------
14,497,826
---------------
RETAILERS -- 3.4%
99,200 J.C. Penney Co., Inc. ............................ 5,983,000
72,000 Sears Roebuck & Co. .............................. 3,258,000
125,600 Wal-Mart Stores, Inc. ............................ 4,953,350
---------------
14,194,350
---------------
TELEPHONE SYSTEMS -- 8.0%
156,600 AT&T Corp. ....................................... 9,591,750
123,378 Bell Atlantic Corp. .............................. 11,227,397
115,859 GTE Corporation .................................. 6,053,633
205,800 Worldcom, Inc.* .................................. 6,225,450
---------------
33,098,230
---------------
TRANSPORTATION -- 1.8%
45,700 FMC Corp.* ....................................... 3,076,181
128,200 Ryder System ..................................... 4,198,550
---------------
7,274,731
---------------
Total Investments -- 97.9%
(Cost $297,388,264) 406,071,334
Other assets in excess of liabilities-- 2.1% 8,626,761
===============
Total Net Assets-- 100.0% $ 414,698,095
===============
Notes to the Portfolio of Investments: ADR -- American Depository Receipt
* Non-income producing security.
(a) An affiliate of American Odyssey Funds Management Inc. Received in exchange
for Salomon Brothers stock upon acquisition by Travelers Group Inc.
The accompanying notes are an integral part of the financial statements.
39
<PAGE>
- -------------------------------------------------------------------------------
Portfolio of Investments
American Odyssey Funds, Inc. / Long-Term Bond Fund / December 31, 1997
- -------------------------------------------------------------------------------
Principal
Amount Value
- -------------------------------------------------------------------------------
FOREIGN OBLIGATIONS -- 6.0%
Corporate Debt
$ 600,000 Comtel Brasileira Ltd. 144A, Yankee Dollar
10.750%, 09/26/04 ............................. $ 589,500
320,000 Korea Development Bank 7.125%, 09/17/01 ....... 272,636
870,000 Korea Electric Power 6.375%, 12/01/03 ......... 667,653
2,000,000 Petroleos Mexicanos, Yankee Dollar 8.850%,
09/15/07 ...................................... 1,980,000
1,000,000 Sears Overseas Finance, Euro-Dollar 0.000%,
07/12/98 ...................................... 973,580
2,218,059 YPF Sociedad Anonima, Yankee-Dollar 7.000%,
10/26/02 ...................................... 2,230,569
-------------
6,713,938
-------------
Government Obligations
2,000,000 Quebec Province, Yankee-Dollar 5.670%,
02/27/26 ...................................... 2,108,060
1,390,000 Republic of Argentina Global Bond 9.750%,
09/19/27 ...................................... 1,333,009
2,182,300 Republic of Brazil 6.813%, 01/01/01 ........... 2,074,560
980,000 Venezuela 9.250%, 09/15/27 .................... 880,529
-------------
6,396,158
-------------
Total Foreign Obligations
(Cost $13,024,098) ......................................... 13,110,096
-------------
U.S. CORPORATE OBLIGATIONS -- 21.2%
Asset Backed and Mortgage Backed
1,020,000 Nomura Assets Securities Corp., REMIC 7.120%,
04/13/36 ...................................... 1,064,146
------------
Corporate Bonds & Notes
2,000,000 Associates Corporation of North America
8.150%, 08/01/09 .............................. 2,235,280
1,000,000 Cit Group Holdings 8.375%, 11/01/01 ........... 1,070,630
1,500,000 Citicorp Capital I 7.933%, 02/15/27 ........... 1,599,315
1,350,000 Commonwealth Edison Co. 8.375%, 02/15/23 ...... 1,478,277
500,000 Commonwealth Edison Co. 8.625%, 02/01/22 ...... 551,675
400,000 Dean Witter Discover & Co. 6.250%, 03/15/00 ... 400,676
2,500,000 Ford Motor Co. 7.700%, 05/15/97 ............... 2,747,025
2,000,000 Ford Motor Credit Corp. 5.750%, 01/25/01 ...... 1,972,340
350,000 General Motors Acceptance Corp. 9.625%,
12/15/01 ...................................... 389,102
4,700,000 General Motors Acceptance Corp. - Units
0.000%, 06/15/15 .............................. 1,493,425
370,351 GG1B Funding Corp 7.430%, 01/15/11 ............ 373,307
2,000,000 International Paper Co. 7.000%, 06/01/01 ...... 2,042,660
2,000,000 JP Morgan Co. 6.000%, 02/15/12 ................ 1,916,480
1,500,000 JPM Capital Trust I 7.540%, 01/15/27 .......... 1,523,790
The accompanying notes are an integral part of the financial statements.
40
<PAGE>
- -------------------------------------------------------------------------------
Portfolio of Investments
American Odyssey Funds, Inc./Long-Term Bond Fund/December 31, 1997
(continued)
- -------------------------------------------------------------------------------
Principal
Amount Value
- --------------------------------------------------------------
$ 2,000,000 Lockheed Martin
6.850%, 05/15/01 ............. $ 2,036,020
600,000 Loews Corp.
7.625%, 06/01/23 ............. 616,968
700,000 NBD Bank N.A.
8.250%, 11/01/24 ............. 829,612
2,000,000 News America Holdings
8.250%, 10/17/96 ............. 2,173,380
400,000 News America Holdings
8.450%, 08/01/34 ............. 451,628
2,000,000 Niagara Mohawk
Power Corp.
7.750%, 05/15/06 ............. 2,111,080
740,000 Philip Morris Co., Inc.
7.000%, 07/15/05 ............. 754,326
1,600,000 Republic of New York Corp.
7.200%, 07/15/97 ............. 1,693,360
2,000,000 RJR Nabisco, Inc.
6.850%, 06/15/05 ............. 2,041,440
200,000 RJR Nabisco, Inc.
8.500%, 07/01/07 ............. 213,210
380,000 RJR Nabisco, Inc.
8.750%, 08/15/05 ............. 409,993
2,000,000 Southern California Edison
6.500%, 06/01/01 ............. 2,017,220
400,000 Southern Union Co.
7.600%, 02/01/24 ............. 417,412
950,000 TCI Communications
8.750%, 08/01/15 ............. 1,101,041
1,860,000 TCI Communications
9.650%, 03/31/27 ............. 2,177,353
800,000 Telecommunications, Inc.
7.875%, 08/01/13 ............. 860,456
2,000,000 Time Warner Entertainment
8.375%, 03/15/23 ............. 2,282,360
1,000,000 Time Warner Entertainment
8.375%, 07/15/33 ............. 1,144,760
2,000,000 US West Capital
Funding, Inc.
7.950%, 02/01/97 ............. 2,203,060
---------------
45,328,661
---------------
Total U.S. Corporate Obligations
(Cost $43,098,794) ....................... 46,392,807
---------------
U.S. GOVERNMENT AND AGENCY OBLIGATIONS -- 65.1%
U.S. Government Agency Mortgage Backed Obligations
9,040,130 Federal Home Loan Mortgage
Corp.,
7.000%, 01/01/26 ............. 9,130,531
978,520 Federal National
Mortgage Association
6.000%, 02/01/26 ............. 945,935
992,957 Federal National
Mortgage Association
6.000%, 10/01/27 ............. 957,419
14,100,000 Federal National
Mortgage Association, TBA
7.000%, 01/01/27 ............. 14,201,379
3,000,000 Federal National
Mortgage Association, TBA
8.500%, 01/01/26 ............. 3,132,180
195,637 Government National Mortgage
Association
9.500%, 09/15/30 ............. 207,987
4,570,000 Government National Mortgage
Association, TBA
7.000%, 01/01/28 ............. 4,607,154
8,890,000 Government National Mortgage
Association, TBA
7.500%, 01/01/28 ............. 9,106,738
---------------
42,289,323
---------------
The accompanying notes are an integral part of the financial statements.
41
<PAGE>
- --------------------------------------------------------------------------------
Portfolio of Investments
American Odyssey Funds, Inc. / Long-Term Bond Fund / December 31, 1997
(continued)
- --------------------------------------------------------------------------------
Principal
Amount Value
- --------------------------------------------------------------------------------
U.S. Government Agency Obligations
$ 3,000,000 Federal Home Loan Bank 5.920%, 06/29/00 ........ $ 3,007,980
3,000,000 Federal Home Loan Bank 6.285%, 07/28/00 ........ 3,033,270
3,000,000 Federal Home Loan Mortgage Corp. 6.783%,
08/18/05 ....................................... 3,133,590
3,000,000 Federal National Mortgage Association 6.140%,
11/25/05 ....................................... 2,979,870
20,000,000 Resolution Funding Corp., TIGR Coupon Strip
0.000%, 01/15/11(a) ............................ 9,097,800
15,000,000 Resolution Funding Corp., TIGR Principal Strip
0.000%, 01/15/30 ............................... 2,222,550
-------------
23,475,060
-------------
U.S. Treasury Bonds
4,380,000 6.000%, 02/15/26(a) ............................ 4,374,525
1,100,000 6.125%, 11/15/27 ............................... 1,130,426
15,660,000 6.625%, 02/15/27(a) ............................ 17,000,809
2,560,000 6.375%, 08/15/27 ............................... 2,700,006
-------------
25,205,766
-------------
U.S. Treasury Notes
10,402,878 3.375%, 01/15/07 II ............................ 10,129,802
24,000,000 5.625%, 12/31/02 ............................... 23,910,000
100,000 5.625%, 11/30/00 ............................... 99,812
3,670,000 5.750%, 10/31/02(a) ............................ 3,673,450
700,000 5.750%, 11/30/02 ............................... 700,546
2,100,000 5.875%, 09/30/02 ............................... 2,111,487
1,300,000 6.625%, 07/31/01 ............................... 1,336,556
-------------
41,961,653
-------------
U.S. Treasury Principal Strip
5,000,000 0.000%, 02/15/19 ............................... 1,402,650
34,000,000 0.000%, 11/15/21(a) ............................ 8,084,180
-------------
9,486,830
-------------
Total U.S. Government and Agency Obligations
(Cost $140,633,163) ......................................... $ 142,418,632
-------------
PURCHASED OPTIONS -- 0.0%
257,500 90 Day Eurodollar Future Call Option, expires
6/15/98, Strike price $94.25 (Cost $29,223) .... 38,625
-------------
SHORT-TERM INVESTMENTS -- 1.0%
U.S. TREASURY BILLS -- 1.0%
2,200,000 U.S. Treasury Bill 5.230%(b), 03/05/98(c)
(Cost $2,179,864) .............................. 2,180,437
-------------
Total Investments -- 93.3%
(Cost $198,965,142) 204,140,597
Other assets in excess of liabilities -- 6.7% 14,713,754
=============
Total Net Assets -- 100.0% $ 218,854,351
=============
Notes to the Portfolio of Investments:
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.
144A - Securities restricted for resale to Qualified
Institutional Buyers
II - Inflation Indexed
(a) All or a portion of these securities have been segregated to cover delayed
delivery transactions.
(b) Rate noted reflects yield to maturity at issue.
(c) Security has been pledged to cover collateral requirements for open futures.
The accompanying notes are an integral part of the financial statements.
42
<PAGE>
- --------------------------------------------------------------------------------
Portfolio of Investments
American Odyssey Funds, Inc. / Intermediate-Term Bond Fund / December 31, 1997
- --------------------------------------------------------------------------------
Principal
Amount Value
- -------------------------------------------------------------------------------
FOREIGN OBLIGATIONS -- 4.6%
Corporate Debt
$ 5,000,000 Avon Energy Partners
Holdings 144A
6.730%, 12/11/02 ................................ $ 5,049,705
------------
Total Foreign Obligations
(Cost $5,000,000) ............................................ 5,049,705
------------
U.S. CORPORATE OBLIGATIONS -- 56.3%
Asset Backed and Mortgage Backed
1,452,000 DQU II Funding
7.230%, 12/01/99 ................................ 1,479,820
1,500,000 Household Private Label Credit Card Master
Trust II 8.000%, 09/20/03 ....................... 1,532,340
1,000,000 Signet Credit Card Master Trust
7.350%, 09/15/02 ................................ 1,015,620
------------
4,027,780
------------
Corporate Bonds & Notes
50,000 Banponce Financial Corp.
6.750%, 08/09/01 ................................ 50,484
4,500,000 CalEnergy Company, Inc.
9.500%, 09/15/06 ................................ 4,917,240
1,750,000 CIT Group Holdings, Inc.
6.200%, 10/20/00 ................................ 1,751,803
3,000,000 Columbia/HCA Healthcare Corp.
6.870%, 09/15/03 ................................ 2,941,470
1,500,000 Columbia/HCA Healthcare Corp.
8.700%, 02/10/10 ................................ 1,617,195
2,800,000 Comdisco Inc.
6.500%, 04/30/99 ................................ 2,817,752
2,500,000 Continental Cablevision, Inc.
11.000%, 06/01/07 ............................... 2,775,900
2,100,000 Cox Communications, Inc.
6.690%, 09/20/04 ................................ 2,114,490
2,000,000 Crane Co.
7.250%, 06/15/99 ................................ 2,027,900
1,100,000 GTE Corporation
9.100%, 06/01/03 ................................ 1,237,669
3,000,000 Hewlett-Packard Finance Corp.
6.500%, 12/30/99 ................................ 3,020,625
1,850,000 Illinois Power
6.500%, 09/01/99 ................................ 1,856,790
3,000,000 Nationwide Health Properties
6.900%, 10/01/37 ................................ 3,092,166
4,200,000 Philip Morris Co., Inc.
6.950%, 06/01/06 ................................ 4,329,935
5,000,000 Six Flags Entertainment
0.000%, 12/15/99 ................................ 4,422,650
4,050,000 Tele Communications, Inc.
9.650%, 10/01/03 ................................ 4,340,588
3,500,000 Texaco Capital
8.500%, 02/15/03 ................................ 3,841,390
1,500,000 United Illuminating
7.375%, 01/15/98 ................................ 1,500,555
4,400,000 US West Capital Funding, Inc.
6.950%, 01/15/37 ................................ 4,532,308
3,750,000 USL Capital Corp.
8.125%, 02/15/00 ................................ 3,891,825
------------
57,080,735
------------
Total U.S. Corporate Obligations
(Cost $60,665,854) ........................................... 61,108,515
------------
U.S. GOVERNMENT AND AGENCY OBLIGATIONS -- 30.9%
U.S. Treasury Notes
5,000,000 5.750%, 11/15/00 ................................ 5,010,935
23,350,000 5.750%, 10/31/02 ................................ 23,371,948
5,000,000 6.125%, 08/15/07 ................................ 5,138,300
------------
33,521,183
------------
The accompanying notes are an integral part of the financial statements.
43
<PAGE>
- -------------------------------------------------------------------------------
Portfolio of Investments
American Odyssey Funds, Inc. / Intermediate-Term Bond Fund / December 31, 1997
(continued)
- -------------------------------------------------------------------------------
Principal
Amount Value
- -------------------------------------------------------------------------------
Total U.S. Government and Agency Obligations
(Cost $33,426,313) ........................................... 33,521,183
------------
SHORT-TERM INVESTMENTS -- 7.0%
COMMERCIAL PAPER
$ 2,000,000 Goldman Sachs Group LP
5.950%(a), 01/05/98 ............................. 1,998,678
2,000,000 Transamerica Financial Corp.
6.000%(a), 01/06/98 ............................. 1,998,333
3,597,000 UBS Finance (Delaware) Inc.
6.750%(a), 01/02/98............................. 3,596,326
Total Short-Term Investments ------------
(Cost $7,593,337)............................................. 7,593,337
------------
Total Investments -- 98.8%
(Cost $106,685,504) 107,272,740
Other assets in excess of liabilities -- 1.2% 1,322,894
============
Total Net Assets -- 100.0% $108,595,634
============
Notes to the Portfolio of Investments:
REIT -- Real Estate Investment Trust
144A -- Securities restriced for resale to
Qualified Institutional Buyers
Yankee-Dollar -- U.S. Dollar denominated bonds issued by
non-U.S. companies in the U.S.
(a) Rate noted reflects yield to maturity at issue.
The accompanying notes are an integral part of the financial statements.
44
<PAGE>
- --------------------------------------------------------------------------------
Portfolio of Investments
American Odyssey Funds, Inc. / Short-Term Bond Fund / December 31, 1997
- --------------------------------------------------------------------------------
Principal
Amount Value
- -------------------------------------------------------------------------------
U.S. CORPORATE OBLIGATIONS -- 34.8%
Asset Backed and Mortgage Backed
$ 1,500,000 Contimortgage Home Equity Trust 6.770%, 01/15/12 ... $ 1,510,781
530,000 Contimortgage Home Equity Trust 7.340%, 07/15/11 ... 535,464
1,625,000 Equicredit Home Equity Trust, REMIC 6.840%,
09/15/11 ........................................... 1,653,226
925,000 Premier Auto 1997-2 A4 6.250%, 06/06/01 ............ 926,734
1,020,000 Student Loan Marketing Association 7.500%,
03/08/00 ........................................... 1,054,741
1,250,000 The Money Store Home Equity Trust 6.520%, 07/15/12 . 1,250,388
------------
6,931,334
------------
Corporate Bonds & Notes
800,000 American General 8.500%, 06/15/99 .................. 825,256
500,000 Associates Corp. N. A. 6.375%, 08/15/00 ............ 502,815
215,000 BankAmerica Corp. 6.625%, 05/30/01 ................. 217,346
1,625,000 BankAmerica Corp. 8.125%, 02/01/02 ................. 1,730,706
775,000 Ford Holdings, Inc. 9.250%, 03/01/00 ............... 822,205
475,000 Ford Motor Credit Corp. 8.200%, 02/15/02 ........... 507,310
1,575,000 General Motors 9.625%, 12/01/00 .................... 1,714,167
895,000 Lehman Brothers Holdings, Inc. 6.500%, 10/01/02 .... 895,179
317,000 Nationsbank Corp. 6.500%, 08/15/03 ................. 320,050
1,785,000 Norwest Corp. 8.150%, 11/01/01 ..................... 1,901,525
1,500,000 Salomon, Inc. 7.250%, 05/01/01 ..................... 1,539,480
750,000 Sears Roebuck Acceptance Corp. 6.600%, 09/22/04 .... 758,360
1,780,000 Union Acceptance Corp. 6.260%, 02/08/02 ............ 1,780,556
-----------
13,514,955
-----------
Total U.S. Corporate Obligations (Cost $20,313,763) ............... 20,446,289
-----------
U.S. GOVERNMENT AND AGENCY OBLIGATIONS -- 63.1%
U.S. Government Agency Mortgage Backed Obligations
2,957,945 Federal Home Loan Mortgage Corp., REMIC 5.500%,
04/15/05 ........................................... 2,913,576
779,177 Federal Home Loan Mortgage Corp., REMIC 6.000%,
08/15/20 ........................................... 777,229
2,036,000 Federal Home Loan Mortgage Corp., REMIC 7.000%,
06/15/21 ........................................... 2,056,279
4,469,827 Federal National Mortgage Association 6.470%,
12/01/01 ........................................... 4,502,009
2,441,134 Federal National Mortgage Association 6.925%,
03/01/01 ........................................... 2,485,074
1,396,876 Federal National Mortgage Association 8.500%,
03/01/25 ........................................... 1,461,677
2,740,000 Federal National Mortgage Association, REMIC 5.700%,
06/25/17 ........................................... 2,715,148
-----------
16,910,992
-----------
The accompanying notes are an integral part of the financial statements.
45
<PAGE>
- --------------------------------------------------------------------------------
Portfolio of Investments
American Odyssey Funds, Inc. / Short-Term Bond Fund / December 31, 1997
(continued)
- --------------------------------------------------------------------------------
Principal
Amount Value
- --------------------------------------------------------------------------------
U.S. Government Agency Obligations
$ 425,000 Federal Home Loan Bank 5.870%, 11/21/00 ............ $ 425,531
2,500,000 Federal Home Loan Bank 5.970%, 10/06/00 ............ 2,508,975
1,000,000 Federal Home Loan Bank 6.100%, 10/27/99 ............ 997,970
2,400,865 Federal Home Loan Mortgage Corp. 5.500%, 12/01/99 .. 2,390,133
3,105,000 Federal Home Loan Mortgage Corp. 7.125%, 07/21/99 .. 3,165,641
580,000 Federal National Mortgage Association 6.270%,
10/26/00 ........................................... 579,095
-----------
10,067,345
-----------
U.S. Treasury Bonds 5,580,000 6.500%, 05/31/02 .................. 5,743,047
-----------
5,743,047
-----------
U.S. Treasury Notes
1,100,000 4.750%, 10/31/98 ................................... 1,092,091
2,545,000 6.125%, 07/31/00 ................................... 2,571,239
724,000 7.125%, 09/30/99 ................................... 741,195
-----------
4,404,525
-----------
Total U.S. Government and Agency Obligations
(Cost $36,874,528) .............................................. 37,125,909
-----------
Total Investments -- 97.9%
(Cost $57,188,291) 57,572,198
Other assets in excess of liabilities -- 2.1% 1,248,348
===========
Total Net Assets -- 100.0% $58,820,546
===========
Notes to the Portfolio of Investments:
REMIC -- Real Estate Mortgage Investment Conduit
The accompanying notes are an integral part of the financial statements.
46
<PAGE>
- -------------------------------------------------------------------------------
Notes to Financial Statements
American Odyssey Funds, Inc./December 31, 1997
- -------------------------------------------------------------------------------
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 company separate accounts to serve as the underlying investment
vehicle for variable annuity and variable life insurance contracts; qualified
retirement plans, as permitted by Treasury regulations and insurance companies
and their affiliates.
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. Short-term 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 to manage its exposure to the stock and bond markets and to
fluctuations in interest rates and currency values. 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,
(b) the possibility of an illiquid market, and (c) the non-performance of the
counterparties under the terms of the contract. As a result, the use of these
financial instruments may involve, to a varying degree, risk of loss 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
47
<PAGE>
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. Gains and losses
are realized upon the expiration or closing of the futures 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 manage its exposure to fluctuations in certain foreign currency
values. 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
48
<PAGE>
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 obligation, 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 gains 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
49
<PAGE>
deferral of losses due to wash sales and the deferral of net realized capital
losses recognized subsequent to October 31, 1997. 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) 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
subadvisors' 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
manage-ment 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, .75% for the first $50 million in assets allocated to Cowen
Asset Management ("Cowen"), .70% for the next $50 million in assets allocated to
Cowen, and .65% for assets over $100 million allocated to Cowen, .65% for the
first $100 million in assets allocated to Wilke/Thompson Capital Management,
Inc. ("Wilke/Thompson") and .55% for the assets over $100 million allocated to
Wilke/Thompson; Core Equity Fund, .60% for the first $100 million in assets and
.55% for the assets over $100 million; Long-Term Bond Fund, .50% for the first
$250 million in assets, and .40% for assets 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, 1997, Wilke/Thompson was the sole subadvisor for the Emerging
Opportunities Fund. The management fee paid to AOFM prior to that date was .65%
for the first $100 million in assets and .55% for assets over $100 million.
AOFM's management fees for the year ended December 31, 1997 were $6,457,424.
AOFM previously agreed to waive fees or reimburse expenses for the
Short-Term Bond Fund to the extent the Fund's total expense ratio (excluding
interest, taxes, brokerage, other expenses which are capitalized in accordance
with generally accepted accounting principles, and extraordinary expenses, but
including the Manager's investment advisory
50
<PAGE>
fees), exceeded 0.75%. During the fiscal year ended December 31, 1997, the
Short-Term Bond Fund completed repaying the Manager for any fees the Manager
previously waived or expenses the Manager previously reimbursed pursuant to the
above expense limitation. For the year ended December 31, 1997, the Short-Term
Bond Fund paid to AOFM $42,792 for reimbursement of previous fees waived and
expenses reimbursed..
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 subadvisor 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, .50% for the
first $50 million in assets allocated to Cowen, .45% for the next $50 million in
assets allocated to Cowen, and .40% for assets over $100 million allocated to
Cowen, .40% for the first $100 million in assets allocated to Wilke/Thompson and
.30% for assets over $100 million allocated to Wilke/Thompson; Core Equity Fund,
.35% for the first $100 million in assets and .30% for assets over $100 million;
Long-Term Bond Fund, .25% for the first $250 million in assets and .15% for
assets 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. Prior to May 1, 1997,
Wilke/Thompson was the sole subadvisor for the Emerging Opportunities Fund.
Travelers Asset Management International Corporation, an affiliate of
AOFM, serves as subadvisor 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, 1997,
broker-dealers paid custodian expenses for the International Equity Fund and the
Core Equity Fund of $35,639 and $58,525, respectfully.
51
<PAGE>
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, 1997 were:
<TABLE>
<CAPTION>
Emerging Intermediate-
Internationa 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...................... $ -- $ -- $ -- $625,127,560 $103,812,247 $ 92,163,012
Non-Government.................. 91,963,944 211,342,351 190,344,034 44,229,130 99,747,105 24,161,769
----------- ------------ ------------ ------------ ------------ ------------
Total........................... $91,963,944 $211,342,351 $190,344,034 $669,356,690 $203,559,352 $116,324,781
=========== ============ ============ ============ ============ ============
Sales:
Government...................... $ -- $ -- $ -- $621,325,933 $ 90,856,875 $ 93,366,643
Non-Government.................. 46,941,480 161,481,564 158,647,206 19,170,339 104,069,897 10,852,802
=========== ============ ============ ============ ============ ============
Total........................... $46,941,480 $161,481,564 $158,647,206 $640,496,272 $194,926,772 $104,219,445
=========== ============ ============ ============ ============ ============
</TABLE>
At December 31, 1997, 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-
Internationa 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........... $201,197,983 $212,866,154 $297,388,264 $199,003,151 $106,685,504 $57,204,658
============ ============ ============ ============ ============ ===========
Gross Unrealized
Appreciation.................... 44,039,532 42,142,217 116,449,047 5,472,822 673,017 398,086
Gross Unrealized
(Depreciation).................. (21,029,663) (9,233,575) (7,765,977) (335,376) (85,781) (30,546)
------------ ------------ ------------ ------------ ------------ -----------
Net Unrealized Appreciation....... $ 23,009,869 $ 32,908,642 $108,683,070 $ 5,137,446 $ 587,236 $ 367,540
============ ============ ============ ============ ============ ===========
</TABLE>
NOTE 6. Futures Contracts
At December 31, 1997, 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 Securities Date Cost Value (Depreciation)
- -------------- ------------ ----------------------------- ------------ --------- --------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Short Position
- --------------
231 $23,100,000 U.S. Long-Term Treasury Bonds 3/20/98 $27,650,892 $27,828,281 $ (177,389)
Long Position
- -------------
130 13,000,000 5 Year U.S. Treasury Note 3/20/98 14,122,225 14,121,250 (975)
------------
Total: $ (178,364)
============
</TABLE>
At December 31, 1997, the Fund had segregated sufficient cash and/or
securities to cover margin requirements on open future contracts.
52
<PAGE>
NOTE 7. Written Options
The Long Term Bond Fund's activity in written options during year ended
December 31, 1997 was as follows:
<TABLE>
<CAPTION>
Number of
Options Premiums
---------- -----------
<S> <C> <C>
Options Outstanding at December 31, 1996.............................................. 213 $ 197,715
Options Written................................................................... 6,187 1,407,266
Options Canceled in Closing Transactions.......................................... (1,951) (1,260,110)
Options Expired................................................................... (4,275) (242,551)
Options Exercised................................................................. (174) (102,320)
---------- ----------
Options Outstanding at December 31, 1997.............................................. 0 $ 0
========== ==========
Cost of closing transactions......................................................... $ 806,770
==========
</TABLE>
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, 1997:
<TABLE>
<CAPTION>
Foreign
Contract Unrealized
U.S. $ Settlement Current Appreciation/
Sales Value Date U.S. $ Value (Depreciation)
- ------------------------------------------------------------ ------------ ---------- ------------- ------------
<S> <C> <C> <C> <C>
British Pound............................................. $ 6,579,630 01/26/98 $ 6,648,723 $ (69,093)
British Pound............................................. 5,748,174 02/24/98 5,593,964 154,210
German Deutsche Mark...................................... 3,430,531 01/14/98 3,322,628 107,903
Japanese Yen.............................................. 3,241,430 02/27/98 3,122,467 118,963
Japanese Yen.............................................. 8,798,760 03/09/98 8,531,746 267,014
Japanese Yen.............................................. 3,164,738 03/16/98 3,129,812 34,926
Swiss Franc............................................... 5,198,064 01/07/98 5,154,366 43,698
Swiss Franc............................................... 4,202,149 01/30/98 4,027,273 174,876
Swiss Franc............................................... 3,309,557 02/13/98 3,121,268 188,289
----------- ----------- ----------
Total Sales........................................... $43,673,033 $42,652,247 $1,020,786
=========== =========== ===========
</TABLE>
53
<PAGE>
NOTE 9. Delayed Delivery Transactions:
The Long-Term Bond Fund may purchase and sell 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, 1997, the Fund has entered into the following delayed
delivery transactions.
<TABLE>
<CAPTION>
Settlement
Type Security Date Amount
---- --------------------------------------------------------------------- -------------- -----------
<S> <C> <C> <C>
Buy Federal National Mortgage Association, 7%........................... 01/14/98 $10,186,362
Buy Federal National Mortgage Association, 7%........................... 01/14/98 2,944,594
Buy Federal National Mortgage Association, 7%........................... 01/14/98 18,193,327
Buy Federal National Mortgage Association, TBA, 8.5%.................... 01/14/98 3,135,938
Buy Government National Mortgage Association, TBA, 7%................... 01/22/98 4,609,988
Buy Government National Mortgage Association, TBA, 7.5%................. 01/22/98 9,113,639
Buy Government National Mortgage Association, TBA, 8.5%................. 01/22/98 3,153,750
-----------
Total............................................................... $51,337,598
===========
Sell Federal National Mortgage Association, 7%........................... 01/14/98 $ 2,962,739
Sell Federal National Mortgage Association, 7%........................... 01/14/98 10,254,759
Sell Federal National Mortgage Association, 7%........................... 01/14/98 4,020,625
Sell Federal National Mortgage Association, 6%........................... 01/14/98 12,630,118
Sell Government National Mortgage Association, TBA, 7% .................. 01/22/98 2,561,981
Sell Government National Mortgage Association, TBA, 8.5%................. 01/22/98 1,035,847
Sell Government National Mortgage Association, TBA, 7%................... 01/22/98 11,244,142
Sell Government National Mortgage Association, TBA, 8.5%................. 01/22/98 5,238,067
-----------
Total............................................................... $49,948,278
===========
</TABLE>
NOTE 10. Federal Income Taxes:
For federal income tax purposes, the Funds indicated below have a
capital loss carryforward as of December 31, 1997 which is available to offset
future capital gains, if any.
Capital
Loss Expiration
Carryforward Date
------------ -----------
Emerging Opportunities $1,119,594 12/31/2005
==========
Short-Term Bond $ 85,972 12/31/2002
148,584 12/31/2005
----------
$ 234,556
==========
The International Equity elected to defer to its fiscal year ending December 31,
1998, $627,301 of losses recognized during the period November 1, 1997 to
December 31, 1997.
54
<PAGE>
Supplementary Data (Unaudited): Proxy Voting Results
A special meeting of the fund's shareholders was held on April 23, 1997. The
results of votes taken among shareholders on proposals are listed below.
Proposal 1
For the Emerging Opportunities Fund Only: To approve or disapprove certain
advisory and subadvisory agreements to add Cowen Asset Management as a second
subadvisor for the Emerging Opportunities Fund.
# of
Shares Voted % of Shares
Affirmative.......................... 11,951,639 86.23%
Against.............................. 1,125,862 8.12%
Abstain.............................. 782,684 5.65%
TOTAL.............................. 13,860,185 100.00%
Proposal 2
For all Funds: To approve or disapprove an arrangement, a new investment
advisory agreement, and revised subadvisory agreements that would permit AOF to
enter into new subadvisory agreements or to amend the terms of existing
subadvisory agreements without the approval of persons having voting rights.
International Equity Fund Shareholders:
# of
Shares Voted % of Shares
Affirmative.......................... 10,242,491 79.54%
Against.............................. 2,024,726 15.72%
Abstain.............................. 610,263 4.74%
TOTAL.............................. 12,877,480 100.00%
Emerging Opportunities Fund Shareholders:
# of
Shares Voted % of Shares
Affirmative.......................... 10,950,517 79.01%
Against.............................. 2,259,349 16.30%
Abstain.............................. 650,319 4.69%
TOTAL.............................. 13,860,185 100.00%
Core Equity Fund Shareholders:
# of
Shares Voted % of Shares
Affirmative.......................... 15,121,900 80.86%
Against.............................. 2,685,083 14.36%
Abstain.............................. 895,277 4.78%
TOTAL.............................. 18,702,260 100.00%
Long-Term Bond Fund Shareholders:
# of
Shares Voted % of Shares
Affirmative.......................... 13,700,793 80.72%
Against.............................. 2,476,163 14.59%
Abstain.............................. 795,855 4.69%
TOTAL.............................. 16,972,811 100.00%
Intermediate-Term Bond Fund Shareholders:
# of
Shares Voted % of Shares
Affirmative.......................... 7,284,262 80.30%
Against.............................. 1,409,444 15.54%
Abstain.............................. 377,829 4.16%
TOTAL.............................. 9,071,535 100.00%
Short-Term Bond Fund Shareholders:
# of
Shares Voted % of Shares
Affirmative.......................... 4,174,795 83.95%
Against.............................. 569,127 11.45%
Abstain.............................. 228,794 4.60%
TOTAL.............................. 4,972,716 100.00%
55
<PAGE>
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, 1997, 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 four 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 Funds'
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, 1997, 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, 1997, 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 6, 1998
56
<PAGE>
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APPEARS ODYSSEY(R)
HERE] ==========
F U N D S
American Odyssey Funds Management, Inc.
Two Tower Center
Eats 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 1998 American Odyssey Funds Management, Inc.
