As filed with the Securities and Exchange Commission on January 3, 2007
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number 811-21597
PRIMECAP ODYSSEY FUNDS
(Exact name of registrant as specified in charter)
225 SOUTH LAKE AVENUE, SUITE 400
PASADENA, CA 91101
(Address of principal executive offices) (Zip code)
DAVID H. VAN SLOOTEN
225 SOUTH LAKE AVENUE, SUITE 400
PASADENA, CA 91101
(Name and address of agent for service)
(626) 304-9222
Registrant's telephone number, including area code
Date of fiscal year end: OCTOBER 31, 2006
Date of reporting period: OCTOBER 31, 2006
ITEM 1. REPORT TO STOCKHOLDERS.
ANNUAL REPORT
OCTOBER 31, 2006
[LOGO, PRIMECAP(R) ODYSSEY FUNDS]
PRIMECAP ODYSSEY STOCK FUND
PRIMECAP ODYSSEY GROWTH FUND
PRIMECAP ODYSSEY AGGRESSIVE GROWTH FUND
[GRAPHIC] TABLE OF CONTENTS
PRIMECAP ODYSSEY FUNDS
Letter to Shareholders ..................................................... 2
Performance Graphs ......................................................... 10
Expense Example ............................................................ 13
Sector Breakdown ........................................................... 15
Schedule of Investments .................................................... 17
PRIMECAP Odyssey Stock Fund .............................................. 17
PRIMECAP Odyssey Growth Fund ............................................. 21
PRIMECAP Odyssey Aggressive Growth Fund .................................. 25
Statements of Assets and Liabilities ....................................... 29
Statements of Operations ................................................... 30
Statement of Changes in Net Assets ......................................... 31
PRIMECAP Odyssey Stock Fund .............................................. 31
PRIMECAP Odyssey Growth Fund ............................................. 32
PRIMECAP Odyssey Aggressive Growth Fund .................................. 33
Financial Highlights ....................................................... 34
PRIMECAP Odyssey Stock Fund .............................................. 34
PRIMECAP Odyssey Growth Fund ............................................. 35
PRIMECAP Odyssey Aggressive Growth Fund .................................. 36
Notes to Financial Statements .............................................. 37
Report of Independent Registered Public Accounting Firm .................... 43
Additional Information ..................................................... 44
Management ................................................................. 47
1
[GRAPHIC] LETTER TO SHAREHOLDERS
PRIMECAP ODYSSEY FUNDS
DEAR FELLOW SHAREHOLDERS,
During their second fiscal year, all three PRIMECAP Odyssey Funds outperformed
the unmanaged Standard & Poor's 500 Composite Stock Price Index (S&P 500). From
November 1, 2005 through October 31, 2006, the PRIMECAP Odyssey Stock, Growth,
and Aggressive Growth Funds produced total returns of 17.48%, 18.49%, and
23.84%, respectively, versus the S&P 500 total return of 16.34%.
Before we begin a discussion of the investment environment and the Funds'
results, we would like to address one housekeeping issue. The objective of all
three Funds is long-term capital appreciation. While we measure this by pre-tax
total returns, we are cognizant of the tax consequences of our investment
decisions. As long-term investors, we hold most of our positions for years, not
months. This year, however, three of our portfolio companies were acquired,
causing unavoidable short-term capital gains.
INVESTMENT ENVIRONMENT OF THE FISCAL YEAR
Despite concerns about weakness in the housing market, high oil prices, and
escalating violence in Iraq, equity markets produced solid returns this year.
The Dow Jones Industrial Average reached a new record, and nearly every sector
in the S&P 500 produced sizable gains. It was a volatile year for equity
investors, as the aforementioned concerns, combined with fears of ongoing
interest rate hikes, produced minimal returns for the first seven months of the
fiscal year. When the Federal Reserve paused its campaign of interest rate
increases, and oil prices retreated from their highs, equity markets rallied,
and the S&P 500 finished the year up 16.34%.
Oil prices began the fiscal year near $60/barrel, surpassed $75/barrel in July,
and then retreated to nearly $60/barrel by the end of October 2006. Persistently
high energy prices led to another strong year for the Energy sector, which
gained 19.3%. Despite the burden on consumers of continued high energy prices,
consumers remained resilient. The Consumer Discretionary sector, an area of
significant commitment for the Funds, was one of the better performing sectors
in the market, gaining 18.2%.
This year, we observed many industries adapt to oil price volatility. The
Airline industry, an area currently favored by the Funds, has dramatically
slashed its operating costs, enabling many carriers to return to profitability
despite $60/barrel oil.
Another issue, which we have commented on in the past, is a compression of the
multiple differential between growth stocks and value stocks. For the year ended
October 31, 2006, value stocks continued to significantly outperform growth
stocks. The Russell 1000 Value Index posted a total return of 21.46% this year,
significantly outperforming the Russell 1000 Growth Index's return of 10.84%.
This return differential between value and growth is unlikely to persist
indefinitely, as it would result in companies with slower earnings growth
trading at premiums to those with faster earnings growth, an unsustainable
scenario in our view. We believe that many growth stocks are undervalued. Most
of our growth stocks that have outperformed have done so primarily via earnings
growth; few have seen meaningful multiple expansion.
2
LETTER TO SHAREHOLDERS
PRIMECAP ODYSSEY FUNDS
In all three PRIMECAP Odyssey Funds, favorable stock selection offset extremely
unfavorable sector allocation. Our most heavily weighted sectors in all three
Funds, Health Care and Information Technology, were the two worst performing
sectors of the S&P 500 during the fiscal year. We feel fortunate to have
outperformed with such unfavorable sector allocation and remain optimistic that
these two sectors, which continue to be our most heavily weighted, will see
above average returns in the coming years.
A more detailed discussion of the results of each PRIMECAP Odyssey Fund follows.
PRIMECAP ODYSSEY STOCK FUND
From November 1, 2005 to October 31, 2006, the PRIMECAP Odyssey Stock Fund's
total return of 17.48% exceeded the 16.34% return recorded by the unmanaged
Standard & Poor's 500 Composite Stock Price Index (S&P 500). The Stock Fund's
outperformance was driven primarily by stock selection, which offset unfavorable
results from sector allocation.
The most notable performance in the Stock Fund was our Consumer Discretionary
holdings, which appreciated 39.7% versus the S&P 500 Consumer Discretionary
sector return of 18.2%. The results were primarily attributable to our
investments in retailers Kohl's (+46.7%) and Dress Barn (+63.5%).
Strong performance among our Information Technology (IT) selections also
contributed significantly to the Stock Fund's returns, more than offsetting our
heavy allocation to this underperform-ing sector. Our IT investments appreciated
17.9% versus the S&P 500 IT sector return of 9.5%. Intuit gained 53.7%, owing to
strong growth in TurboTax and QuickBooks. Other important contributors to this
performance included NVIDIA, which gained 107.9%, and ASML, which gained 34.5%.
NVIDIA continues to gain market share in graphics processors, and ASML widened
its technology leadership and market share in lithography tools used in
semiconductor manufacturing.
The Stock Fund also benefited from its Industrials holdings, which returned
27.7% versus the S&P 500 Industrial sector return of 16.2%. McDermott, our
strongest contributor to this Fund's return, appreciated 84.6%, owing to strong
growth in demand for its hydrocarbon development and service capabilities.
Our most heavily weighted sector this year was Health Care, which constituted
22.9% of our portfolio and exceeded the benchmark weighting by 10 percentage
points. Our Health Care investments, which appreciated 9.6%, lagged the S&P 500
Health Care sector return of 11.4%, and the S&P 500. Substantial declines from
Boston Scientific (-32.2%), Medtronic (-13.4%), and Affymetrix (-43.8%) offset
strong results from Pfizer (+27.1%) and Eli Lilly (+15.9%). Both Boston
Scientific and Medtronic experienced a dramatic slowdown in implantable
defibrillator sales as product recalls, FDA inquiries, safety concerns, and the
threat of declining reimbursement rates have had a short-term impact on growth
rates and investor psychology. Additionally, Boston Scientific has found the
initial integration of Guidant to be more challenging than expected. Affymetrix,
a pioneer in the gene expression and genotyping markets, has seen its early lead
in genotyping eroded by newer technologies.
3
LETTER TO SHAREHOLDERS
PRIMECAP ODYSSEY FUNDS
The table below lists the top 10 holdings, which collectively represent 25.3% of
the total net assets at the fiscal year end.
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PRIMECAP ODYSSEY STOCK FUND ENDING % OF
TOP 10 HOLDINGS AS OF 10/31/06 TOTAL NET ASSETS
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Novartis AG 3.30
Medtronic Inc. 3.30
Eli Lilly & Co. 3.26
Sony Corp. 2.65
Amgen Inc. 2.61
GlaxoSmithKline PLC 2.29
Affymetrix Inc. 2.05
Avery Dennison Corp. 2.02
Boston Scientific Corp. 2.01
Bed Bath & Beyond Inc. 1.78
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TOTAL % OF NET ASSETS 25.27
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With pharmaceuticals trading near 40-year trough relative price-to-earnings
ratios (P/Es), we continue to heavily weight these positions. In our view,
Novartis, Eli Lilly, and GlaxoSmithKline all have exciting pipelines and low
near-term patent expiration exposure. We also believe that the short-term issues
currently plaguing Boston Scientific and Medtronic will ultimately be favorably
resolved.
PRIMECAP ODYSSEY GROWTH FUND
From November 1, 2005 to October 31, 2006, the PRIMECAP Odyssey Growth Fund's
total return of 18.49% exceeded the 16.34% return recorded by the unmanaged
Standard & Poor's 500 Composite Stock Price Index (S&P 500) and the 10.84%
return recorded by the Russell 1000 Growth Index. The Growth Fund's
outperformance was driven primarily by stock selection, which offset unfavorable
results from sector allocation.
Our most heavily weighted sectors in this Fund were Health Care and Information
Technology (IT). Together, these two sectors constituted 55.3% of the portfolio.
In these two sectors, we have found a number of research-intensive companies
that stimulate growth through innovation. We believe that securities of such
companies, when purchased at reasonable valuations, tend to outperform over
long-term time horizons.
Our IT investments constituted 29.3% of the total portfolio, exceeding the S&P
500 IT sector weighting by 14 percentage points. Favorable stock selection more
than offset our heavy allocation to this underperforming sector. Our IT
investments appreciated 24.3% versus the S&P 500 IT sector return of 9.5%.
Intuit, our strongest contributor to the Growth Fund's return, appreciated
53.7%, owing to strong growth in TurboTax and QuickBooks. Other strong
contributors included
4
LETTER TO SHAREHOLDERS
PRIMECAP ODYSSEY FUNDS
ASML (+34.5%), Akamai (+199.7%), NVIDIA (+107.9%), Oracle (+45.7%), and Rambus
(+12.4%). ASML widened its technology and market share leadership in lithography
tools used in semiconductor manufacturing. Akamai saw strong demand for its
Internet content delivery services. Oracle's integration of several acquisitions
has resulted in an accelerating application business to complement their
dominant database franchise. NVIDIA continues to gain market share in graphics
processors. Rambus benefited from improving sentiment regarding the long-term
prospects of its technology licensing business.
Our Health Care investments constituted 26.0% of the Growth Fund's portfolio and
exceeded the S&P 500 Health Care sector weighting by over 13 percentage points.
Our Health Care investments, which appreciated 12.9%, exceeded the S&P 500
Health Care sector return of 11.4%, but lagged the return of the S&P 500.
Favorable results from Laserscope (+46.2%) and Eli Lilly (+15.9%) offset
declines from Affymetrix (-43.8%) and Boston Scientific (-32.2%). Laserscope, a
new addition to the portfolio this year, was acquired by American Medical
Systems.
The table below lists the top 10 holdings, which collectively represent 22.9% of
the total net assets at the fiscal year end.
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PRIMECAP ODYSSEY GROWTH FUND ENDING % OF
TOP 10 HOLDINGS AS OF 10/31/06 TOTAL NET ASSETS
---------------------------------------------------------------------
Medtronic Inc. 2.94
Eli Lilly & Co. 2.91
Sony Corp. 2.36
Novartis AG 2.33
Affymetrix Inc. 2.32
ASML Holding N.V. 2.16
Southwest Airlines Co. 2.11
Sepracor Inc. 1.95
Intuit Inc. 1.92
Amgen Inc. 1.88
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TOTAL % OF NET ASSETS 22.88
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With pharmaceuticals trading near 40-year trough relative price-to-earnings
ratios (P/Es), we continue to heavily weight these positions in the Growth Fund.
In our view, Novartis and Eli Lilly have exciting pipelines and low near-term
patent expiration exposure. Similarly, Sepracor recently launched what is
arguably the most effective, non-addictive drug on the market for the treatment
of insomnia. We are also optimistic about Medtronic. Although its shares are
depressed over concerns regarding product safety, efficacy, and the threat of
declining reimbursement rates, we believe these issues will ultimately be
favorably resolved, and that this diversified manufacturer of implantable
medical devices should continue to deliver double digit earnings growth for the
foreseeable future.
5
LETTER TO SHAREHOLDERS
PRIMECAP ODYSSEY FUNDS
PRIMECAP ODYSSEY AGGRESSIVE GROWTH FUND
From November 1, 2005 to October 31, 2006, the PRIMECAP Odyssey Aggressive
Growth Fund's return of 23.84% exceeded the 16.34% return recorded by the
unmanaged Standard & Poor's 500 Composite Stock Price Index (S&P 500) and the
14.51% return recorded by the Russell Midcap Growth Index. The Aggressive Growth
Fund's outperformance was driven primarily by stock selection, which offset
unfavorable results from sector allocation.
Our most heavily weighted sector in this Fund was Information Technology (IT),
which constituted 45.0% of our portfolio and exceeded the S&P 500 IT sector
weighting by 29 percentage points. Most of the Aggressive Growth Fund's
favorable relative returns this year were attributable to our IT selections. Our
stock selections earned a 37.6% return versus the S&P 500 IT sector return of
9.5%. Akamai, our strongest contributor to the Aggressive Growth Fund's return,
appreciated 170.2%, owing to robust growth in demand for its Internet content
delivery services. Other strong contributors in this sector included NVIDIA
(+107.9%), FormFactor (+36.1%), ASML (+34.5%), Rambus (+29.9%), Opsware
(+76.9%), RADVISION (+47.5%), and Micromuse (+39.3%). NVIDIA continues to gain
market share in graphics processors. FormFactor has transformed the wafer probe
segment of semiconductor testing, offering unprecedented productivity gains for
its customers. ASML widened its technology and market share leadership in
lithography tools used in semiconductor manufacturing. Rambus benefited from
improving sentiment regarding the long-term prospects of its technology
licensing business. RADVISION benefited from continued growth in demand for its
video conferencing technologies.
Our overweight position in Health Care investments returned 12.3% versus the S&P
500 Health Care gain of 11.4%. Our strongest contributors in this sector were
Conceptus (+93.0%) and Laserscope (+46.2%), which offset disappointing results
from Affymetrix (-43.8%), Pharmacyclics (-27.2%), and Boston Scientific
(-26.2%). Conceptus' non-invasive permanent birth control product, which is
safer and more cost effective than other procedures, nearly doubled its sales.
Laserscope, a new addition to the portfolio this year, was acquired by American
Medical Systems.
6
LETTER TO SHAREHOLDERS
PRIMECAP ODYSSEY FUNDS
The table below lists the top 10 holdings, which collectively represent 27.1% of
the total net assets at the fiscal year end.
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PRIMECAP ODYSSEY AGGRESSIVE GROWTH FUND ENDING % OF
TOP 10 HOLDINGS AS OF 10/31/06 TOTAL NET ASSETS
---------------------------------------------------------------------
ASML Holding N.V. 3.38
Affymetrix Inc. 3.25
American Italian Pasta Co. 3.18
Yahoo! Inc. 2.95
Cymer Inc. 2.65
FormFactor Inc. 2.52
Altera Corp. 2.40
AMR Corp. 2.36
Stratasys Inc. 2.26
Boston Scientific Corp. 2.12
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TOTAL % OF NET ASSETS 27.07
---------------------------------------------------------------------
Our top 10 holdings reflect our ongoing enthusiasm for information technology
and semiconductor related companies in particular. ASML, Cymer, and FormFactor
are all technological and market share leaders in the design of equipment used
to manufacture semiconductor devices. Each of these companies has significantly
widened its technological lead over its respective competition this year.
Similarly, Altera is one of two dominant suppliers of programmable logic
devices, a reprogrammable semiconductor that is found extensively in many
telecommunications devices.
The top 10 holdings also include a number of names we have continued to add to
despite very poor performance this year, namely Affymetrix, Yahoo, and Boston
Scientific. Affymetrix, a pioneer in the gene expression and genotyping markets,
has seen its early lead in genotyping eroded by newer technologies. We are
confident, however, that their new product pipeline will enable the company to
regain its competitive position. Similarly, we expect Yahoo to strengthen its
competitive position and accelerate its growth with the imminent release of its
much-anticipated new monetization and behavioral targeting technologies.
Finally, we believe the safety and efficacy concerns surrounding Boston
Scientific's implantable defibrillator and drug eluting stent businesses will be
favorably resolved. The company has been plagued by product recalls, safety
concerns, and the integration of Guidant, a recent acquisition.
7
LETTER TO SHAREHOLDERS
PRIMECAP ODYSSEY FUNDS
STRUCTURE OF PORTFOLIO, POSITIONING, AND OUTLOOK FOR THE
PRIMECAP ODYSSEY FUNDS
Although globalization continues to be an engine of economic growth, and we
remain optimistic on the U.S. economy, we see conflicting economic signals.
Corporate balance sheets are in excellent shape, energy and other commodity
prices have retreated from their highs, price-to-earnings ratios are at
reasonable levels, and long-term interest rates remain low relative to historic
levels. Conversely, the U.S. is still at war, the housing market is showing
clear signs of weakness, short-term interest rates are much higher than they
have been in recent years, energy and commodity prices remain high relative to
historic levels, and corporate profit margins are nearing all-time highs. Within
the context of this economic environment, we have continued to heavily weight
the Health Care and Information Technology sectors. We believe that our stock
selections in both of these sectors have significant appreciation potential,
irrespective of how the aforementioned economic forces ultimately evolve.
In previous shareholder letters, we have discussed our belief that the
pharmaceutical industry is part of the solution to rising health care costs, not
part of the problem. As our understanding of genetics and molecular biology
continues to advance, the medical profession will have a greater understanding
of which genetic traits increase susceptibility to disease, which genetic traits
result in improved responsiveness to various drugs, and which genetic traits
cause serious side effects. Medical care and drug therapy will be far more
customized in the future than it is today. We believe this will improve both the
efficacy and cost effectiveness of drugs, relative to other means of providing
health care. In the future, the prudent use of prescription drugs may
demonstrably lower total health costs by substantially reducing the frequency of
hospitalizations, emergency room visits, and surgeries. This will prove to be of
critical importance as the aging population and longer life expectancy in the
U.S. and other countries will place unprecedented demands on hospitals and
physicians.
Despite the bright future prospects for the pharmaceutical and biotechnology
industries, relative valuations remain near 40-year lows. In our view, the
long-term revenue growth opportunity and multiple expansion potential makes the
Health Care sector very attractive. In all three PRIMECAP Odyssey Funds, we have
increased our already heavy allocation to this sector.
We continue to remain heavily invested in Information Technology. As broadband
access becomes more pervasive and the Internet becomes more useful and engaging,
the complexity and sophistication of the hardware, software, and
telecommunications infrastructure supporting the Internet is increasing. We also
see significant international opportunities for our IT selections. We believe
that China will rapidly increase its consumption of the products, services, and
intellectual property that have become integral to modern life in the U.S. and
Europe.
In all three Funds, we have reduced our allocations to the Energy and Materials
sectors. While commodity prices (including hydrocarbons) may see significant
short-term volatility, we believe that, in the long-term, commodity price growth
will not exceed the rate of inflation. Although demand
8
LETTER TO SHAREHOLDERS
PRIMECAP ODYSSEY FUNDS
growth in China, India, and other rapidly expanding economies place upward price
pressure on commodities, this is a self correcting process as it also creates
economic incentives to consume more efficiently, curtail consumption, develop
new sources of supply, and find substitutes to reduce dependence on high-priced
commodities.
In closing, we would like to thank you for entrusting your hard-earned capital
with us. We will continue to work diligently to prove worthy of that trust.
Sincerely,
PRIMECAP Management Company
PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE AND DOES NOT GUARANTEE
FUTURE RESULTS. Performance figures reflect fee waivers in effect, and in the
absence of fee waivers, total returns would be lower.
The Standard & Poor's 500 Index is a broad based index of 500 stocks, which is
widely recognized as representative of the market in general. The Dow Jones
Industrial Average is an unmanaged index of common stocks comprised of major
industrial companies and assumes reinvestment of dividends. The Russell 1000
Growth Index is an index that measures the performance of those Russell 1000
companies with higher price-to-book ratios and higher forecasted growth values.
The Russell MidCap Growth Index measures the performance of those Russell MidCap
companies with higher price-to-book ratios and higher forecasted growth values.
The Russell 1000 Value Index contains those securities in the Russell 1000 Index
with a less-than-average growth orientation. These indices do not incur expenses
and are not available for investment.
Price-to-earnings ratios (P/Es) are calculated by dividing the current price of
a stock by a company's earnings per share.
THE FUNDS INVEST IN SMALLER COMPANIES, WHICH INVOLVES ADDITIONAL RISKS SUCH AS
LIMITED LIQUIDITY AND GREATER VOLATILITY. ALL FUNDS MAY INVEST IN FOREIGN
SECURITIES WHICH INVOLVES GREATER VOLATILITY AND POLITICAL, ECONOMIC AND
CURRENCY RISKS AND DIFFERENCES IN ACCOUNTING METHODS. MUTUAL FUND INVESTING
INVOLVES RISK, AND LOSS OF PRINCIPAL IS POSSIBLE.
GROWTH STOCKS TYPICALLY ARE MORE VOLATILE THAN VALUE STOCKS; HOWEVER, VALUE
STOCKS HAVE A LOWER EXPECTED GROWTH RATE IN EARNINGS AND SALES.
Please refer to the Schedule of Investments for details of Fund holdings. Fund
holdings and sector allocations are subject to change at any time and are not
recommendations to buy or sell any security.
(12/06)
- ----------
NOTE: SECTOR WEIGHTINGS ARE BASED ON AVERAGE WEIGHT FOR THE PERIOD.
9
[GRAPHIC] PERFORMANCE GRAPHS
PRIMECAP ODYSSEY STOCK FUND
The following chart compares the value of a hypothetical $10,000 investment in
the PRIMECAP Odyssey Stock Fund from November 1, 2004 (inception) to October 31,
2006 compared to the S&P 500 Index. This chart illustrates the performance of a
hypothetical $10,000 investment made on the Fund's inception date and is not
intended to imply any future performance. The returns shown do not reflect the
deduction of taxes that a shareholder would pay on Fund distributions or the
redemption of Fund shares. The chart assumes reinvestment of capital gains and
dividends.
[The following table was represented as a line chart in the printed material.]
PRIMECAP Odyssey Stock Fund S&P 500 Index
--------------------------- -------------
11/1/2004 $10,000 $10,000
11/30/2004 $10,360 $10,402
12/31/2004 $10,920 $10,756
1/31/2005 $10,610 $10,493
2/28/2005 $10,900 $10,714
3/31/2005 $10,740 $10,524
4/30/2005 $10,490 $10,324
5/31/2005 $10,940 $10,652
6/30/2005 $10,990 $10,667
7/31/2005 $11,530 $11,064
8/31/2005 $11,610 $10,963
9/30/2005 $11,630 $11,052
10/31/2005 $11,480 $10,868
11/30/2005 $11,950 $11,278
12/31/2005 $12,126 $11,282
1/31/2006 $12,767 $11,581
2/28/2006 $12,617 $11,612
3/31/2006 $12,907 $11,756
4/30/2006 $13,047 $11,914
5/31/2006 $12,677 $11,570
6/30/2006 $12,607 $11,587
7/31/2006 $12,496 $11,658
8/31/2006 $12,787 $11,936
9/30/2006 $13,007 $12,244
10/31/2006 $13,487 $12,643
TOTAL RETURN
PERIOD ENDED OCTOBER 31, 2006
-----------------------------
ANNUALIZED
SINCE INCEPTION
1 YEAR (11/01/04)
-------- ---------------
PRIMECAP Odyssey Stock Fund 17.48% 16.16%
S&P 500 Index* 16.34% 12.46%
PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE AND DOES NOT GUARANTEE
FUTURE RESULTS. THE INVESTMENT RETURN AND PRINCIPAL VALUE OF AN INVESTMENT WILL
FLUCTUATE SO THAT AN INVESTOR'S SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS
THAN THEIR ORIGINAL COST. CURRENT PERFORMANCE OF THE FUND MAY BE LOWER OR HIGHER
THAN THE PERFORMANCE QUOTED. PERFORMANCE DATA CURRENT TO THE MOST RECENT MONTH
END MAY BE OBTAINED BY CALLING 1-800-729-2307. THE FUNDS IMPOSE A 2% REDEMPTION
FEE ON SHARES HELD LESS THAN 60 DAYS. PERFORMANCE FIGURES REFLECT THE FEE WAIVER
IN EFFECT AND, IN THE ABSENCE OF FEE WAIVERS, TOTAL RETURNS WOULD BE LOWER.
SHORT-TERM PERFORMANCE, IN PARTICULAR, IS NOT A GOOD INDICATION OF A FUND'S
FUTURE PERFORMANCE, AND AN INVESTMENT SHOULD NOT BE MADE BASED SOLELY ON PAST
RETURNS.
- ----------
* The S&P 500 Index is an unmanaged index composed of 500 common stocks
weighted by market value; its total return includes reinvestment of
dividends and is considered representative of the stock market return as a
whole.
10
PERFORMANCE GRAPHS
PRIMECAP ODYSSEY GROWTH FUND
The following chart compares the value of a hypothetical $10,000 investment in
the PRIMECAP Odyssey Growth Fund from November 1, 2004 (inception) to October
31, 2006 compared to the S&P 500 Index. This chart illustrates the performance
of a hypothetical $10,000 investment made on the Fund's inception date and is
not intended to imply any future performance. The returns shown do not reflect
the deduction of taxes that a shareholder would pay on Fund distributions or the
redemption of Fund shares. The chart assumes reinvestment of capital gains and
dividends.
[The following table was represented as a line chart in the printed material.]
PRIMECAP Odyssey Growth Fund S&P 500 Index
---------------------------- -------------
11/1/2004 $10,000 $10,000
11/30/2004 $10,410 $10,402
12/31/2004 $10,960 $10,756
1/31/2005 $10,550 $10,493
2/28/2005 $10,810 $10,714
3/31/2005 $10,640 $10,524
4/30/2005 $10,450 $10,324
5/31/2005 $11,060 $10,652
6/30/2005 $11,060 $10,667
7/31/2005 $11,540 $11,064
8/31/2005 $11,560 $10,963
8/31/2005 $11,610 $11,052
10/31/2005 $11,620 $10,868
11/30/2005 $12,110 $11,278
12/31/2005 $12,248 $11,282
1/31/2006 $12,908 $11,581
2/28/2006 $12,858 $11,612
3/31/2006 $13,158 $11,756
4/30/2006 $13,208 $11,914
5/31/2006 $12,708 $11,570
6/30/2006 $12,808 $11,587
7/31/2006 $12,688 $11,658
8/31/2006 $13,068 $11,936
9/30/2006 $13,249 $12,244
10/31/2006 $13,769 $12,643
TOTAL RETURN
PERIOD ENDED OCTOBER 31, 2006
-----------------------------
ANNUALIZED
SINCE INCEPTION
1 YEAR (11/01/04)
-------- ---------------
PRIMECAP Odyssey Growth Fund 18.49% 17.37%
S&P 500 Index* 16.34% 12.46%
PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE AND DOES NOT GUARANTEE
FUTURE RESULTS. THE INVESTMENT RETURN AND PRINCIPAL VALUE OF AN INVESTMENT WILL
FLUCTUATE SO THAT AN INVESTOR'S SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS
THAN THEIR ORIGINAL COST. CURRENT PERFORMANCE OF THE FUND MAY BE LOWER OR HIGHER
THAN THE PERFORMANCE QUOTED. PERFORMANCE DATA CURRENT TO THE MOST RECENT MONTH
END MAY BE OBTAINED BY CALLING 1-800-729-2307. THE FUNDS IMPOSE A 2% REDEMPTION
FEE ON SHARES HELD LESS THAN 60 DAYS. PERFORMANCE FIGURES REFLECT THE FEE WAIVER
IN EFFECT AND, IN THE ABSENCE OF FEE WAIVERS, TOTAL RETURNS WOULD BE LOWER.
SHORT-TERM PERFORMANCE, IN PARTICULAR, IS NOT A GOOD INDICATION OF A FUND'S
FUTURE PERFORMANCE, AND AN INVESTMENT SHOULD NOT BE MADE BASED SOLELY ON PAST
RETURNS.
- ----------
* The S&P 500 Index is an unmanaged index composed of 500 common stocks
weighted by market value; its total return includes reinvestment of
dividends and is considered representative of the stock market return as a
whole.
11
PERFORMANCE GRAPHS
PRIMECAP ODYSSEY AGGRESSIVE GROWTH FUND
The following chart compares the value of a hypothetical $10,000 investment in
the PRIMECAP Odyssey Aggressive Growth Fund from November 1, 2004 (inception) to
October 31, 2006 compared to the S&P 500 Index. This chart illustrates the
performance of a hypothetical $10,000 investment made on the Fund's inception
date and is not intended to imply any future performance. The returns shown do
not reflect the deduction of taxes that a shareholder would pay on Fund
distributions or the redemption of Fund shares. The chart assumes reinvestment
of capital gains and dividends.
[The following table was represented as a line chart in the printed material.]
PRIMECAP Odyssey
Aggressive Growth Fund S&P 500 Index
---------------------- -------------
11/1/2004 $10,000 $10,000
11/30/2004 $10,510 $10,402
12/31/2004 $11,080 $10,756
1/31/2005 $10,500 $10,493
2/28/2005 $10,690 $10,714
3/31/2005 $10,470 $10,524
4/30/2005 $9,890 $10,324
5/31/2005 $10,600 $10,652
6/30/2005 $10,560 $10,667
7/31/2005 $11,220 $11,064
8/31/2005 $11,170 $10,963
9/30/2005 $11,400 $11,052
10/31/2005 $11,240 $10,868
11/30/2005 $12,000 $11,278
12/31/2005 $11,960 $11,282
1/31/2006 $12,790 $11,581
2/28/2006 $12,700 $11,612
3/31/2006 $13,060 $11,756
4/30/2006 $13,110 $11,914
5/31/2006 $12,500 $11,570
6/30/2006 $12,710 $11,587
7/31/2006 $12,310 $11,658
8/31/2006 $13,000 $11,936
9/30/2006 $13,200 $12,244
10/31/2006 $13,920 $12,643
TOTAL RETURN
PERIOD ENDED OCTOBER 31, 2006
-----------------------------
ANNUALIZED
SINCE INCEPTION
1 YEAR (11/01/04)
-------- ---------------
PRIMECAP Odyssey Aggressive Growth Fund 23.84% 18.01%
S&P 500 Index* 16.34% 12.46%
PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE AND DOES NOT GUARANTEE
FUTURE RESULTS. THE INVESTMENT RETURN AND PRINCIPAL VALUE OF AN INVESTMENT WILL
FLUCTUATE SO THAT AN INVESTOR'S SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS
THAN THEIR ORIGINAL COST. CURRENT PERFORMANCE OF THE FUND MAY BE LOWER OR HIGHER
THAN THE PERFORMANCE QUOTED. PERFORMANCE DATA CURRENT TO THE MOST RECENT MONTH
END MAY BE OBTAINED BY CALLING 1-800-729-2307. THE FUNDS IMPOSE A 2% REDEMPTION
FEE ON SHARES HELD LESS THAN 60 DAYS. PERFORMANCE FIGURES REFLECT THE FEE WAIVER
IN EFFECT AND, IN THE ABSENCE OF FEE WAIVERS, TOTAL RETURNS WOULD BE LOWER.
SHORT-TERM PERFORMANCE, IN PARTICULAR, IS NOT A GOOD INDICATION OF A FUND'S
FUTURE PERFORMANCE, AND AN INVESTMENT SHOULD NOT BE MADE BASED SOLELY ON PAST
RETURNS.
- ----------
* The S&P 500 Index is an unmanaged index composed of 500 common stocks
weighted by market value; its total return includes reinvestment of
dividends and is considered representative of the stock market return as a
whole.
12
[GRAPHIC] EXPENSE EXAMPLE - (UNAUDITED)
PRIMECAP ODYSSEY FUNDS
As a shareholder of one or more of the Funds, you incur ongoing costs, including
management fees and other fund expenses. This Example is intended to help you
understand your ongoing costs (in dollars) of investing in the Funds and to
compare these costs with the ongoing costs of investing in other mutual funds.
The Example is based on an investment of $1,000 invested at the beginning of the
period and held for the entire period from April 30, 2006 to October 31, 2006.
ACTUAL EXPENSES
The information in the table under the heading "Actual Performance" provides
actual account values and actual expenses. You may use the information in these
columns, together with the amount you invested, to estimate the expenses that
you paid over the period. Simply divide your account value by $1,000 (for
example, an $8,600 account value divided by $1,000 = 8.6), then multiply the
result by the number in the row entitled "Expenses Paid during Period" to
estimate the expenses you paid on your account during this period.
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
The information in the table under the heading "Hypothetical Performance (5%
return before expenses)" provides hypothetical account values and hypothetical
expenses based on the Funds' actual expense ratios and an assumed rate of return
of 5% per year before expenses, which are not the Funds' actual returns. The
hypothetical account values and expenses may not be used to estimate the actual
ending account balance or expenses you paid for the period. You may use this
information to compare the ongoing costs of investing in the Funds and other
mutual funds. To do so, compare these 5% hypothetical examples with the 5%
hypothetical examples that appear in the shareholder reports of the other mutual
funds.
Please note that the expenses shown in the table are meant to highlight your
ongoing costs only. Therefore, the information under the heading "Hypothetical
Performance (5% return before expenses)" is useful in comparing ongoing costs
only, and will not help you determine the relative total costs of owning
different mutual funds. In addition, if transactional costs were included, your
costs would have been higher.
13
EXPENSE EXAMPLE - (UNAUDITED)
PRIMECAP ODYSSEY FUNDS
- ---------------------------------------------------------------------------------------
BEGINNING ENDING EXPENSES PAID EXPENSE RATIO
ACCOUNT ACCOUNT DURING PERIOD* DURING PERIOD*
VALUE VALUE (4/30/06 TO (4/30/06 TO
(4/30/06) (10/31/06) 10/31/06) 10/31/06)
- ---------------------------------------------------------------------------------------
PRIMECAP ODYSSEY STOCK FUND
Actual Performance $1,000.00 $1,033.70 $4.98 0.97%
Hypothetical Performance
(5% return before expenses) $1,000.00 $1,020.31 $4.94 0.97%
PRIMECAP ODYSSEY GROWTH FUND
Actual Performance $1,000.00 $1,042.40 $4.67 0.91%
Hypothetical Performance
(5% return before expenses) $1,000.00 $1,020.64 $4.62 0.91%
PRIMECAP ODYSSEY AGGRESSIVE GROWTH FUND
Actual Performance $1,000.00 $1,061.80 $5.02 0.97%
Hypothetical Performance
(5% return before expenses) $1,000.00 $1,020.34 $4.92 0.97%
- ---------------------------------------------------------------------------------------
- ----------
* Expenses are equal to the Funds' annualized expense ratio as indicated,
multiplied by the average account value over the period, multiplied by the
number of days in the most recent fiscal half-year period (184), then
divided by the number of days in the fiscal year (365) to reflect the
one-half year period.
14
[GRAPHIC] SECTOR BREAKDOWN
PRIMECAP ODYSSEY FUNDS
PRIMECAP ODYSSEY STOCK FUND
-----------------------------------------------------
Consumer Discretionary 16.0%
Consumer Staples 0.2%
Energy 5.4%
Financials 8.0%
Health Care 24.8%
Industrials 13.4%
Information Technology 16.5%
Materials 6.6%
Telecommunication Services 0.7%
Short Term Investments 8.4%
-----------------------------------------------------
TOTAL 100.0%
-----------------------------------------------------
PRIMECAP ODYSSEY GROWTH FUND
-----------------------------------------------------
Consumer Discretionary 13.8%
Energy 4.4%
Financials 5.6%
Health Care 25.3%
Industrials 10.2%
Information Technology 28.8%
Materials 1.3%
Telecommunication Services 0.9%
Short Term Investments 9.7%
-----------------------------------------------------
TOTAL 100.0%
-----------------------------------------------------
The tables above list sector allocations as a percentage of each Fund's total
investments as of October 31, 2006. The management report makes reference to
average allocations during the period. As a result, the sector allocations above
may differ from those discussed in the management report.
15
SECTOR BREAKDOWN
PRIMECAP ODYSSEY FUNDS
PRIMECAP ODYSSEY AGGRESSIVE GROWTH FUND
-----------------------------------------------------
Consumer Discretionary 4.9%
Consumer Staples 4.2%
Energy 3.6%
Financials 2.7%
Health Care 21.3%
Industrials 7.9%
Information Technology 41.7%
Materials 0.7%
Short Term Investments 13.0%
-----------------------------------------------------
TOTAL 100.0%
-----------------------------------------------------
The table above lists sector allocations as a percentage of the Fund's total
investments as of October 31, 2006. The management report makes reference to
average allocations during the period. As a result, the sector allocations above
may differ from those discussed in the management report.
16
[GRAPHIC] SCHEDULE OF INVESTMENTS
PRIMECAP ODYSSEY STOCK FUND
OCTOBER 31, 2006
Shares Value
- --------------------------------------------------------------------------------
COMMON STOCKS: 93.1%
CONSUMER DISCRETIONARY: 16.3%
39,100 Bed Bath & Beyond, Inc. (a) ....................... $ 1,575,339
16,400 CarMax, Inc. (a) .................................. 726,520
20,000 Comcast Corp. - Class A (a) ....................... 813,400
35,900 DIRECTV Group, Inc. (The) (a) ..................... 799,852
30,000 Dow Jones & Co., Inc. ............................. 1,052,700
30,000 Dress Barn, Inc. (a) .............................. 651,600
10,000 Eastman Kodak Co. ................................. 244,000
15,900 Kohl's Corp. (a) .................................. 1,122,540
20,000 Mattel, Inc. ...................................... 452,600
3,600 Nordstrom, Inc. ................................... 170,460
57,200 Sony Corp. - ADR .................................. 2,344,056
4,050 Target Corp. ...................................... 239,679
11,950 Time Warner, Inc. ................................. 239,120
38,550 TJX Cos, Inc. ..................................... 1,116,022
15,100 Univision Communications, Inc. - Class A (a) ...... 529,406
17,500 Walt Disney Co. (The) ............................. 550,550
16,000 Whirlpool Corp. ................................... 1,390,880
6,700 Yum! Brands, Inc. ................................. 398,382
------------
14,417,106
------------
CONSUMER STAPLES: 0.2%
10,700 Cott Corp. (a) .................................... 156,648
------------
ENERGY: 5.5%
2,400 Arch Coal, Inc. ................................... 83,112
1,300 Cameron International Corp. (a) ................... 65,130
23,500 EnCana Corp. ...................................... 1,116,015
14,000 EOG Resources, Inc. ............................... 931,420
1,400 GlobalSantaFe Corp. ............................... 72,660
8,000 Murphy Oil Corp. .................................. 377,280
11,422 National Oilwell Varco, Inc. (a) .................. 689,889
550 Noble Corp. ....................................... 38,555
1,100 Pioneer Natural Resources Co. ..................... 44,803
6,200 Pogo Producing Co. ................................ 277,450
17,900 Schlumberger Ltd. ................................. 1,129,132
------------
4,825,446
------------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
17
[GRAPHIC] SCHEDULE OF INVESTMENTS
PRIMECAP ODYSSEY STOCK FUND
OCTOBER 31, 2006 - (CONTINUED)
Shares Value
- --------------------------------------------------------------------------------
FINANCIALS: 8.1%
10,100 American International Group, Inc. ................ $ 678,417
31,500 Bank of New York Co., Inc. (The) .................. 1,082,655
370 Berkshire Hathaway, Inc. - Class B (a) ............ 1,300,550
11,500 Chubb Corp. ....................................... 611,225
13,000 Fannie Mae ........................................ 770,380
5,500 Fifth Third Bancorp ............................... 219,175
50,050 Marsh & McLennan Cos, Inc. ........................ 1,473,472
4,950 MBIA, Inc. ........................................ 306,999
12,000 St. Paul Travelers Cos, Inc. (The) ................ 613,560
3,000 Washington Mutual, Inc. ........................... 126,900
------------
7,183,333
------------
HEALTH CARE: 25.2%
71,100 Affymetrix, Inc. (a) .............................. 1,813,050
30,400 Amgen, Inc. (a) ................................... 2,307,664
19,750 Biogen Idec, Inc. (a) ............................. 940,100
111,656 Boston Scientific Corp. (a) ....................... 1,776,447
51,400 Eli Lilly & Co. ................................... 2,878,914
38,000 GlaxoSmithKline PLC - ADR ......................... 2,023,500
59,900 Medtronic, Inc. ................................... 2,915,932
48,050 Novartis AG - ADR ................................. 2,918,077
45,300 Pfizer, Inc. ...................................... 1,207,245
7,900 Roche Holding AG - CHF ............................ 1,382,444
21,100 Sepracor, Inc. (a) ................................ 1,092,136
19,900 Waters Corp. (a) .................................. 991,020
------------
22,246,529
------------
INDUSTRIALS: 13.6%
6,000 3M Co. ............................................ 473,040
28,000 Alaska Air Group, Inc. (a) ........................ 1,124,200
8,000 Alexander & Baldwin, Inc. ......................... 368,240
49,000 AMR Corp. (a) ..................................... 1,388,660
28,300 Avery Dennison Corp. .............................. 1,786,862
2,200 Burlington Northern Santa Fe Corp. ................ 170,566
6,000 Canadian National Railway Co. ..................... 285,840
8,200 Caterpillar, Inc. ................................. 497,822
18,000 Chicago Bridge & Iron Co. N.V. - ADR .............. 442,080
2,050 Fluor Corp. ....................................... 160,781
15,000 General Electric Co. .............................. 526,650
29,600 JetBlue Airways Corp. (a) ......................... 371,776
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
18
SCHEDULE OF INVESTMENTS
PRIMECAP ODYSSEY STOCK FUND
OCTOBER 31, 2006 - (CONTINUED)
Shares Value
- --------------------------------------------------------------------------------
INDUSTRIALS (CONTINUED)
27,100 McDermott International, Inc. (a) ................. $ 1,211,370
5,200 Norfolk Southern Corp. ............................ 273,364
24,700 Pall Corp. ........................................ 787,930
99,800 Southwest Airlines Co. ............................ 1,499,994
2,300 Thomas & Betts Corp. (a) .......................... 118,519
5,800 Union Pacific Corp. ............................... 525,654
------------
12,013,348
------------
INFORMATION TECHNOLOGY: 16.8%
16,250 Accenture Ltd. - Class A .......................... 534,788
9,300 Agilent Technologies, Inc. (a) .................... 331,080
42,000 Applied Materials, Inc. ........................... 730,380
49,000 ASML Holding N.V. (a) ............................. 1,119,160
6,400 Comverse Technology, Inc. (a) ..................... 139,328
53,450 Corning, Inc. (a) ................................. 1,091,983
62,900 EMC Corp. (a) ..................................... 770,525
496 Freescale Semiconductor, Inc. - Class B (a) ....... 19,508
30,000 Intel Corp. ....................................... 640,200
27,000 Intuit, Inc. (a) .................................. 953,100
8,000 KLA-Tencor Corp. .................................. 393,360
16,000 L.M. Ericsson Telephone Co. - ADR ................. 605,120
44,000 Microsoft Corp. ................................... 1,263,240
20,000 Motorola, Inc. .................................... 461,200
332,000 Nortel Networks Corp. (a) ......................... 740,360
18,000 NVIDIA Corp. (a) .................................. 627,660
52,300 Oracle Corp. (a) .................................. 965,981
7,200 Paychex, Inc. ..................................... 284,256
4,100 Research In Motion Ltd. (a) ....................... 481,668
1,600 Silicon Laboratories, Inc. (a) .................... 52,208
62,800 Symantec Corp. (a) ................................ 1,245,952
34,500 Texas Instruments, Inc. ........................... 1,041,210
13,000 Yahoo!, Inc. (a) .................................. 342,420
------------
14,834,687
------------
MATERIALS: 6.7%
24,500 Alcoa, Inc. ....................................... 708,295
7,750 Dow Chemical Co. (The) ............................ 316,122
18,000 MeadWestvaco Corp. ................................ 495,360
2,000 Minerals Technologies, Inc. ....................... 110,320
14,300 Monsanto Co. ...................................... 632,346
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
19
SCHEDULE OF INVESTMENTS
PRIMECAP ODYSSEY STOCK FUND
OCTOBER 31, 2006 - (CONTINUED)
Shares Value
- --------------------------------------------------------------------------------
MATERIALS (CONTINUED)
7,000 Newmont Mining Corp. .............................. $ 316,890
8,000 Phelps Dodge Corp. ................................ 803,040
7,000 Potash Corp. of Saskatchewan ...................... 874,300
5,950 Praxair, Inc. ..................................... 358,488
8,000 Vulcan Materials Co. .............................. 651,840
10,300 Weyerhaeuser Co. .................................. 654,977
------------
5,921,978
------------
TELECOMMUNICATION SERVICES: 0.7%
1,042 Embarq Corp. ...................................... 50,381
31,650 Sprint Corp. ...................................... 591,538
------------
641,919
------------
TOTAL COMMON STOCKS
(cost $72,963,853) ............................................ 82,240,994
------------
Principal
Amount
- --------------------------------------------------------------------------------
SHORT-TERM INVESTMENTS: 8.6%
$ 7,580,121 Dreyfus Institutional U.S. Treasury Money Market Fund
(cost $7,580,121) ............................................. $ 7,580,121
------------
TOTAL INVESTMENTS
(cost $80,543,974): 101.7% .................................... 89,821,115
Liabilities in Excess of Other Assets: (1.7)% ................... (1,467,000)
------------
TOTAL NET ASSETS: 100.0% ........................................ $ 88,354,115
============
- ----------
Percentages are stated as a percent of net assets.
ADR - American Depository Receipt.
CHF - Swiss Security.
(a) Non Income Producing.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
20
[GRAPHIC] SCHEDULE OF INVESTMENTS
PRIMECAP ODYSSEY GROWTH FUND
OCTOBER 31, 2006
Shares Value
- --------------------------------------------------------------------------------
COMMON STOCKS: 92.2%
CONSUMER DISCRETIONARY: 14.1%
160,000 99 Cents Only Stores (a) .......................... $ 1,918,400
90,000 Bed Bath & Beyond, Inc. (a) ....................... 3,626,100
37,450 CarMax, Inc. (a) .................................. 1,659,035
25,000 Comcast Corp. - Class A (a) ....................... 1,016,750
54,800 DIRECTV Group, Inc. (The) (a) ..................... 1,220,944
36,000 Dress Barn, Inc. (a) .............................. 781,920
97,000 Gentex Corp. ...................................... 1,543,270
16,000 Harman International Industries, Inc. ............. 1,637,600
17,850 Kohl's Corp. (a) .................................. 1,260,210
50,000 Mattel, Inc. ...................................... 1,131,500
6,700 Nordstrom, Inc. ................................... 317,245
157,900 Quiksilver, Inc. (a) .............................. 2,202,705
116,500 Sony Corp. - ADR .................................. 4,774,170
7,450 Target Corp. ...................................... 440,891
27,950 Time Warner, Inc. ................................. 559,280
50,050 TJX Cos, Inc. ..................................... 1,448,947
35,100 Univision Communications, Inc. - Class A (a) ...... 1,230,606
3,500 Walt Disney Co. (The) ............................. 110,110
28,750 Yum! Brands, Inc. ................................. 1,709,475
------------
28,589,158
------------
ENERGY: 4.5%
40,000 Arch Coal, Inc. ................................... 1,385,200
3,000 Cameron International Corp. (a) ................... 150,300
1,196 Chevron Corp. ..................................... 80,371
13,600 EnCana Corp. ...................................... 645,864
31,000 EOG Resources, Inc. ............................... 2,062,430
10,000 Murphy Oil Corp. .................................. 471,600
20,000 National Oilwell Varco, Inc. (a) .................. 1,208,000
2,000 Noble Corp. ....................................... 140,200
5,600 Pogo Producing Co. ................................ 250,600
4,000 Pride International, Inc. (a) ..................... 110,440
38,400 Schlumberger Ltd. ................................. 2,422,272
2,400 Transocean, Inc. (a) .............................. 174,096
------------
9,101,373
------------
FINANCIALS: 5.7%
25,750 American International Group, Inc. ................ 1,729,627
27,000 Bank of New York Co., Inc. (The) .................. 927,990
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
21
SCHEDULE OF INVESTMENTS
PRIMECAP ODYSSEY GROWTH FUND
OCTOBER 31, 2006 - (CONTINUED)
Shares Value
- --------------------------------------------------------------------------------
FINANCIALS (CONTINUED)
600 Berkshire Hathaway, Inc. - Class B (a) ............ $ 2,109,000
20,884 Chubb Corp. ....................................... 1,109,985
6,000 Fifth Third Bancorp ............................... 239,100
60,000 Hanmi Financial Corp. ............................. 1,282,200
96,450 Marsh & McLennan Cos, Inc. ........................ 2,839,488
10,700 MBIA, Inc. ........................................ 663,614
10,600 State Street Corp. ................................ 680,838
------------
11,581,842
------------
HEALTH CARE: 25.9%
183,650 Affymetrix, Inc. (a) .............................. 4,683,075
14,000 Alcon, Inc. ....................................... 1,485,120
50,000 Amgen, Inc. (a) ................................... 3,795,500
36,150 Biogen Idec, Inc. (a) ............................. 1,720,740
209,300 Boston Scientific Corp. (a) ....................... 3,329,963
60,000 Conceptus, Inc. (a) ............................... 1,189,200
105,000 Eli Lilly & Co. ................................... 5,881,050
59,000 GlaxoSmithKline PLC - ADR ......................... 3,141,750
121,900 Medtronic, Inc. ................................... 5,934,092
77,550 Novartis AG - ADR ................................. 4,709,611
82,150 Pfizer, Inc. ...................................... 2,189,298
340,000 Possis Medical, Inc. (a) .......................... 3,712,800
16,200 Roche Holding AG - CHF ............................ 2,834,886
76,300 Sepracor, Inc. (a) ................................ 3,949,288
43,000 SurModics, Inc. (a) ............................... 1,500,700
44,000 Waters Corp. (a) .................................. 2,191,200
------------
52,248,273
------------
INDUSTRIALS: 10.4%
13,000 3M Co. ............................................ 1,024,920
125,000 AMR Corp. (a) ..................................... 3,542,500
46,350 Avery Dennison Corp. .............................. 2,926,539
13,700 Caterpillar, Inc. ................................. 831,727
10,500 FedEx Corp. ....................................... 1,202,670
18,750 Fluor Corp. ....................................... 1,470,563
103,250 JetBlue Airways Corp. (a) ......................... 1,296,820
10,400 Kirby Corp. (a) ................................... 364,312
44,000 McDermott International, Inc. (a) ................. 1,966,800
68,400 Pall Corp. ........................................ 2,181,960
283,400 Southwest Airlines Co. ............................ 4,259,502
------------
21,068,313
------------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
22
SCHEDULE OF INVESTMENTS
PRIMECAP ODYSSEY GROWTH FUND
OCTOBER 31, 2006 - (CONTINUED)
Shares Value
- --------------------------------------------------------------------------------
INFORMATION TECHNOLOGY: 29.4%
31,550 Accenture Ltd. - Class A .......................... $ 1,038,311
3,588 Adobe Systems, Inc. (a) ........................... 137,241
12,700 Agilent Technologies, Inc. (a) .................... 452,120
105,000 Altera Corp. (a) .................................. 1,936,200
51,700 Applied Materials, Inc. ........................... 899,063
191,250 ASML Holding N.V. (a) ............................. 4,368,150
2,800 Autodesk, Inc. (a) ................................ 102,900
76,000 Avid Technology, Inc. (a) ......................... 2,745,120
26,000 Avocent Corp. (a) ................................. 954,460
100,000 Comverse Technology, Inc. (a) ..................... 2,177,000
52,300 Corning, Inc. (a) ................................. 1,068,489
44,100 Cymer, Inc. (a) ................................... 2,043,153
132,300 EMC Corp. (a) ..................................... 1,620,675
70,000 FormFactor, Inc. (a) .............................. 2,672,600
220 Freescale Semiconductor, Inc. - Class B (a) ....... 8,653
4,000 Google, Inc. (a) .................................. 1,905,560
50,000 Intel Corp. ....................................... 1,067,000
20,000 Intersil Corp. - Class A .......................... 469,000
110,000 Intuit, Inc. (a) .................................. 3,883,000
29,000 KLA-Tencor Corp. .................................. 1,425,930
48,000 L.M. Ericsson Telephone Co. - ADR ................. 1,815,360
40,000 McAfee, Inc. (a) .................................. 1,157,200
108,200 Micron Technology, Inc. (a) ....................... 1,563,490
98,600 Microsoft Corp. ................................... 2,830,806
40,000 Motorola, Inc. .................................... 922,400
496,700 Nortel Networks Corp. (a) ......................... 1,107,641
60,000 NVIDIA Corp. (a) .................................. 2,092,200
150,400 Oracle Corp. (a) .................................. 2,777,888
14,000 Paychex, Inc. ..................................... 552,720
30,600 QUALCOMM, Inc. .................................... 1,113,534
93,000 Rambus, Inc. (a) .................................. 1,540,080
12,750 Research In Motion Ltd. (a) ....................... 1,497,870
12,050 Silicon Laboratories, Inc. (a) .................... 393,191
102,600 Symantec Corp. (a) ................................ 2,035,584
52,200 Texas Instruments, Inc. ........................... 1,575,396
12,000 Trimble Navigation Ltd. (a) ....................... 554,640
78,000 VeriSign, Inc. (a) ................................ 1,613,040
128,600 Yahoo!, Inc. (a) .................................. 3,387,324
------------
59,504,989
------------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
23
SCHEDULE OF INVESTMENTS
PRIMECAP ODYSSEY GROWTH FUND
OCTOBER 31, 2006 - (CONTINUED)
Shares Value
- --------------------------------------------------------------------------------
MATERIALS: 1.3%
9,500 Minerals Technologies, Inc. ....................... $ 524,020
18,800 Monsanto Co. ...................................... 831,336
20,800 Praxair, Inc. ..................................... 1,253,200
------------
2,608,556
------------
TELECOMMUNICATION SERVICES: 0.9%
2,622 Embarq Corp. ...................................... 126,774
91,150 Sprint Corp. ...................................... 1,703,593
------------
1,830,367
------------
TOTAL COMMON STOCKS
(cost $169,867,237) ............................................. 186,532,871
------------
Principal
Amount
- --------------------------------------------------------------------------------
SHORT-TERM INVESTMENTS: 9.9%
$19,993,117 Dreyfus Institutional U.S. Treasury Money Market Fund
(cost $19,993,117) ............................................ $ 19,993,117
------------
TOTAL INVESTMENTS
(cost $189,860,354): 102.1% ................................... 206,525,988
Liabilities in Excess of Other Assets: (2.1)% ................... (4,316,773)
------------
TOTAL NET ASSETS: 100.0% ........................................ $202,209,215
============
- ----------
Percentages are stated as a percent of net assets.
ADR - American Depository Receipt.
CHF - Swiss Security.
(a) Non Income Producing.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
24
[GRAPHIC] SCHEDULE OF INVESTMENTS
PRIMECAP ODYSSEY AGGRESSIVE GROWTH FUND
OCTOBER 31, 2006
Shares Value
- --------------------------------------------------------------------------------
COMMON STOCKS: 88.6%
CONSUMER DISCRETIONARY: 5.0%
17,800 99 Cents Only Stores (a) .......................... $ 213,422
31,000 AC Moore Arts & Crafts, Inc. (a) .................. 679,830
6,000 Blue Nile, Inc. (a) ............................... 229,260
6,500 California Pizza Kitchen, Inc. (a) ................ 209,755
22,400 CarMax, Inc. (a) .................................. 992,320
26,800 DIRECTV Group, Inc. (The) (a) ..................... 597,104
84,000 Gentex Corp. ...................................... 1,336,440
78,900 Quiksilver, Inc. (a) .............................. 1,100,655
10,100 Yum! Brands, Inc. ................................. 600,546
------------
5,959,332
------------
CONSUMER STAPLES: 4.3%
508,800 American Italian Pasta Co. - Class A (a) .......... 3,810,912
17,900 Cott Corp. (a) .................................... 262,056
72,100 Senomyx, Inc. (a) ................................. 1,111,782
------------
5,184,750
------------
ENERGY: 3.7%
3,600 Arch Coal, Inc. ................................... 124,668
14,000 EOG Resources, Inc. ............................... 931,420
29,000 Hanover Compressor Co. (a) ........................ 537,080
12,000 National Oilwell Varco, Inc. (a) .................. 724,800
1,900 Noble Corp. ....................................... 133,190
4,650 Pioneer Natural Resources Co. ..................... 189,394
5,350 Pogo Producing Co. ................................ 239,413
28,200 Pride International, Inc. (a) ..................... 778,602
10,000 Transocean, Inc. (a) .............................. 725,400
------------
4,383,967
------------
FINANCIALS: 2.7%
28,100 Advance America Cash Advance Centers, Inc. ........ 421,219
49,000 Hanmi Financial Corp. ............................. 1,047,130
120,700 MarketAxess Holdings, Inc. (a) .................... 1,357,875
7,450 MBIA, Inc. ........................................ 462,049
------------
3,288,273
------------
HEALTH CARE: 21.7%
103,200 Abiomed, Inc. (a) ................................. 1,465,440
152,600 Affymetrix, Inc. (a) .............................. 3,891,300
8,000 Alcon, Inc. ....................................... 848,640
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
25
SCHEDULE OF INVESTMENTS
PRIMECAP ODYSSEY AGGRESSIVE GROWTH FUND
OCTOBER 31, 2006 - (CONTINUED)
Shares Value
- --------------------------------------------------------------------------------
HEALTH CARE (CONTINUED)
20,000 BioMarin Pharmaceuticals, Inc. (a) ................ $ 320,600
159,500 Boston Scientific Corp. (a) ....................... 2,537,645
102,950 Conceptus, Inc. (a) ............................... 2,040,469
179,000 Dendreon Corp. (a) ................................ 902,160
21,600 Greatbatch, Inc. (a) .............................. 485,784
50,000 Kinetic Concepts, Inc. (a) ........................ 1,738,000
174,700 Medarex, Inc. (a) ................................. 2,257,124
315,500 Pharmacyclics, Inc. (a) ........................... 1,700,545
192,400 Possis Medical, Inc. (a) .......................... 2,101,008
10,900 Roche Holding AG - CHF ............................ 1,907,423
48,350 Sepracor, Inc. (a) ................................ 2,502,596
39,000 SurModics, Inc. (a) ............................... 1,361,100
------------
26,059,834
------------
INDUSTRIALS: 8.0%
54,000 Alaska Air Group, Inc. (a) ........................ 2,168,100
100,000 AMR Corp. (a) ..................................... 2,834,000
10,050 Avery Dennison Corp. .............................. 634,557
4,000 Granite Construction, Inc. ........................ 208,400
131,025 JetBlue Airways Corp. (a) ......................... 1,645,674
39,300 Pall Corp. ........................................ 1,253,670
56,300 Southwest Airlines Co. ............................ 846,189
------------
9,590,590
------------
INFORMATION TECHNOLOGY: 42.5%
12,420 Adobe Systems, Inc. (a) ........................... 475,065
4,200 Agilent Technologies, Inc. (a) .................... 149,520
17,000 Akamai Technologies, Inc. (a) ..................... 796,620
156,000 Altera Corp. (a) .................................. 2,876,640
177,350 ASML Holding N.V. (a) ............................. 4,050,674
67,000 Avid Technology, Inc. (a) ......................... 2,420,040
65,900 Avocent Corp. (a) ................................. 2,419,189
64,600 Brocade Communications Systems, Inc. (a) .......... 523,906
28,050 Comverse Technology, Inc. (a) ..................... 610,648
68,600 Cymer, Inc. (a) ................................... 3,178,238
43,000 eBay, Inc. (a) .................................... 1,381,590
32,100 Emulex Corp. (a) .................................. 603,480
36,000 eSpeed, Inc. - Class A (a) ........................ 354,960
64,000 Faro Technologies, Inc. (a) ....................... 1,218,560
79,100 FormFactor, Inc. (a) .............................. 3,020,038
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
26
SCHEDULE OF INVESTMENTS
PRIMECAP ODYSSEY AGGRESSIVE GROWTH FUND
OCTOBER 31, 2006 - (CONTINUED)
Shares Value
- --------------------------------------------------------------------------------
INFORMATION TECHNOLOGY (CONTINUED)
153,000 InPhonic, Inc. (a) ................................ $ 1,403,010
35,000 Intuit, Inc. (a) .................................. 1,235,500
39,000 KLA-Tencor Corp. .................................. 1,917,630
39,300 McAfee, Inc. (a) .................................. 1,136,949
90,200 Micron Technology, Inc. (a) ....................... 1,303,390
658,500 Nortel Networks Corp. (a) ......................... 1,468,455
59,700 NVIDIA Corp. (a) .................................. 2,081,739
131,500 Opsware, Inc. (a) ................................. 1,195,335
51,250 RADVISION Ltd. (a) ................................ 982,463
135,000 Rambus, Inc. (a) .................................. 2,235,600
8,700 Research In Motion Ltd. (a) ....................... 1,022,076
9,150 Silicon Laboratories, Inc. (a) .................... 298,565
72,000 SonicWALL, Inc. (a) ............................... 756,000
97,000 Stratasys, Inc. (a) ............................... 2,704,360
46,800 Symantec Corp. (a) ................................ 928,512
28,400 THQ, Inc. (a) ..................................... 853,988
9,000 Trimble Navigation Ltd. (a) ....................... 415,980
68,700 VeriSign, Inc. (a) ................................ 1,420,716
134,200 Yahoo!, Inc. (a) .................................. 3,534,828
------------
50,974,264
------------
MATERIALS: 0.7%
11,400 Minerals Technologies, Inc. ....................... 628,824
4,800 Monsanto Co. ...................................... 212,256
------------
841,080
------------
TOTAL COMMON STOCKS
(cost $94,837,711) ............................................ 106,282,090
------------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
27
SCHEDULE OF INVESTMENTS
PRIMECAP ODYSSEY AGGRESSIVE GROWTH FUND
OCTOBER 31, 2006 - (CONTINUED)
Principal
Amount
- --------------------------------------------------------------------------------
SHORT-TERM INVESTMENTS: 13.3%
$15,914,295 Dreyfus Institutional U.S. Treasury Money Market Fund
(cost $15,914,295) ............................................ $ 15,914,295
------------
TOTAL INVESTMENTS
(cost $110,752,006): 101.9% ................................... 122,196,385
Liabilities in Excess of Other Assets: (1.9)% ................... (2,304,587)
------------
TOTAL NET ASSETS: 100.0% ........................................ $119,891,798
============
- ----------
Percentages are stated as a percent of net assets.
CHF - Swiss Security.
(a) Non Income Producing.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
28
[GRAPHIC] STATEMENTS OF ASSETS AND LIABILITIES
PRIMECAP ODYSSEY FUNDS
OCTOBER 31, 2006
PRIMECAP
PRIMECAP PRIMECAP ODYSSEY
ODYSSEY ODYSSEY AGGRESSIVE
STOCK FUND GROWTH FUND GROWTH FUND
------------ ------------ ------------
ASSETS
Investments, at cost ...................... $ 80,543,974 $189,860,354 $110,752,006
============ ============ ============
Investments, at value ..................... $ 89,821,115 $206,525,988 $122,196,385
Receivables:
Securities sold ......................... 22,794 -- --
Dividends and interest .................. 81,388 138,913 72,346
Fund shares sold ........................ 134,252 1,130,012 773,386
Other assets .............................. 42,376 76,633 47,171
------------ ------------ ------------
Total assets ............................ 90,101,925 207,871,546 123,089,288
------------ ------------ ------------
LIABILITIES
Payable for securities purchased .......... 1,531,267 4,878,421 2,958,735
Payable for fund shares redeemed .......... 19,085 384,567 11,476
Due to advisor (Note 5) ................... 111,764 248,665 130,012
Accrued administration fees ............... 10,831 23,634 12,834
Other accrued expenses .................... 74,863 127,044 84,433
------------ ------------ ------------
Total liabilities ....................... 1,747,810 5,662,331 3,197,490
------------ ------------ ------------
NET ASSETS .................................. $ 88,354,115 $202,209,215 $119,891,798
============ ============ ============
Number of shares issued and
outstanding (unlimited shares
authorized, $0.01 par value) .............. 6,553,093 14,690,643 8,614,450
============ ============ ============
NET ASSET VALUE, OFFERING AND
REDEMPTION PRICE PER SHARE ................ $ 13.48 $ 13.76 $ 13.92
============ ============ ============
COMPONENTS OF NET ASSETS
Paid-in capital ........................... $ 78,356,275 $182,959,503 $106,359,921
Undistributed net investment
income .................................. 211,614 223,160 --
Accumulated net realized gain
on investments .......................... 509,085 2,360,918 2,087,498
Accumulated net unrealized
appreciation on investments ............. 9,277,141 16,665,634 11,444,379
------------ ------------ ------------
Net assets .............................. $ 88,354,115 $202,209,215 $119,891,798
============ ============ ============
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
29
[GRAPHIC] STATEMENTS OF OPERATIONS
PRIMECAP ODYSSEY FUNDS
FOR THE YEAR ENDED OCTOBER 31, 2006
PRIMECAP
PRIMECAP PRIMECAP ODYSSEY
ODYSSEY ODYSSEY AGGRESSIVE
STOCK FUND GROWTH FUND GROWTH FUND
------------ ------------ ------------
INVESTMENT INCOME
Income
Dividends (net of foreign taxes
withheld of $9,260, $13,970,
and $3,385, respectively) ............. $ 538,207 $ 731,235 $ 95,305
Interest ................................ 226,404 527,220 281,280
------------ ------------ ------------
Total income .......................... 764,611 1,258,455 376,585
------------ ------------ ------------
Expenses
Advisory fees ........................... 329,077 687,970 344,429
Administration fees ..................... 44,271 91,055 46,874
Insurance ............................... 35,542 52,357 27,557
Audit fees .............................. 28,903 28,903 28,903
Transfer agent fees and expenses ........ 23,103 42,231 29,814
Registration fees ....................... 21,862 20,253 22,550
Custody fees ............................ 17,274 25,055 17,859
Fund accounting fees .................... 10,946 23,568 12,023
Trustee fees ............................ 10,423 10,423 10,424
Other expenses .......................... 8,171 20,000 8,897
Printing and mailing .................... 7,643 10,136 12,839
Legal fees .............................. 3,475 21,691 5,592
------------ ------------ ------------
Total expenses ........................ 540,690 1,033,642 567,761
------------ ------------ ------------
NET INVESTMENT INCOME (LOSS) ........ 223,921 224,813 (191,176)
------------ ------------ ------------
CHANGE IN REALIZED AND
UNREALIZED GAIN
ON INVESTMENTS
Net realized gain on:
Investments ............................. 542,818 2,386,269 2,470,999
Foreign currency transactions ........... 103 184 128
------------ ------------ ------------
Net realized gain ..................... 542,921 2,386,453 2,471,127
------------ ------------ ------------
Net unrealized appreciation
on investments .......................... 7,586,374 15,060,244 9,718,713
------------ ------------ ------------
Net realized and unrealized gain
on investments ...................... 8,129,295 17,446,697 12,189,840
------------ ------------ ------------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS ......... $ 8,353,216 $ 17,671,510 $ 11,998,664
============ ============ ============
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
30
[GRAPHIC] STATEMENT OF CHANGES IN NET ASSETS
PRIMECAP ODYSSEY STOCK FUND
YEAR ENDED PERIOD ENDED
OCTOBER 31, 2006 OCTOBER 31, 2005(1)
---------------- -------------------
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS
Net investment income (loss) ................................ $ 223,921 $ (17,484)
Net realized gain (loss) on investments ..................... 542,921 (23,690)
Net unrealized appreciation on investments .................. 7,586,374 1,690,767
------------ ------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS ...... 8,353,216 1,649,593
------------ ------------
DISTRIBUTIONS TO SHAREHOLDERS
Net investment income ....................................... (12,410) --
Realized gain on investments ................................ (5,043) --
------------ ------------
TOTAL DISTRIBUTIONS TO SHAREHOLDERS ....................... (17,453) --
------------ ------------
CAPITAL SHARE TRANSACTIONS
Proceeds from shares sold ................................... 53,541,677 28,719,772
Proceeds from reinvestment of distribution .................. 15,443 --
Cost of shares redeemed ..................................... (3,649,793) (293,419)
Redemption fee proceeds ..................................... 1,068 11
------------ ------------
NET INCREASE FROM CAPITAL SHARE TRANSACTIONS .............. 49,908,395 28,426,364
------------ ------------
TOTAL INCREASE IN NET ASSETS .............................. 58,244,158 30,075,957
NET ASSETS
Beginning of period ......................................... 30,109,957 34,000
------------ ------------
END OF PERIOD (including undistributed net investment
income of $211,614 and $ --, respectively) ................ $ 88,354,115 $ 30,109,957
============ ============
CHANGE IN CAPITAL SHARES
Shares sold ................................................. 4,216,481 2,646,899
Shares issued on reinvestment of distributions .............. 1,280 --
Shares redeemed ............................................. (288,611) (26,356)
------------ ------------
NET INCREASE IN CAPITAL SHARES ............................ 3,929,150 2,620,543
============ ============
- ----------
(1) Commenced operations on November 1, 2004.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
31
[GRAPHIC] STATEMENT OF CHANGES IN NET ASSETS
PRIMECAP ODYSSEY GROWTH FUND
YEAR ENDED PERIOD ENDED
OCTOBER 31, 2006 OCTOBER 31, 2005(1)
---------------- -------------------
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS
Net investment income (loss) ................................ $ 224,813 $ (41,989)
Net realized gain on investments ............................ 2,386,453 54,943
Net unrealized appreciation on investments .................. 15,060,244 1,605,390
------------ ------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS ...... 17,671,510 1,618,344
------------ ------------
DISTRIBUTIONS TO SHAREHOLDERS
Net investment income ....................................... (1,837) --
Realized gain on investments ................................ (38,375) --
------------ ------------
TOTAL DISTRIBUTIONS TO SHAREHOLDERS ....................... (40,212) --
------------ ------------
CAPITAL SHARE TRANSACTIONS
Proceeds from shares sold ................................... 147,754,093 45,005,048
Proceeds from reinvestment of distribution .................. 39,926 --
Cost of shares redeemed ..................................... (9,787,774) (92,228)
Redemption fee proceeds ..................................... 6,067 441
------------ ------------
NET INCREASE FROM CAPITAL SHARE TRANSACTIONS .............. 138,012,312 44,913,261
------------ ------------
TOTAL INCREASE IN NET ASSETS .............................. 155,643,610 46,531,605
NET ASSETS
Beginning of period ......................................... 46,565,605 34,000
------------ ------------
END OF PERIOD (including undistributed net investment
income of $223,160 and $ --, respectively) ................ $202,209,215 $ 46,565,605
============ ============
CHANGE IN CAPITAL SHARES
Shares sold ................................................. 11,461,405 4,012,397
Shares issued on reinvestment of distributions .............. 3,259 --
Shares redeemed ............................................. (781,496) (8,322)
------------ ------------
NET INCREASE IN CAPITAL SHARES ............................ 10,683,168 4,004,075
============ ============
- ----------
(1) Commenced operations on November 1, 2004.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
32
[GRAPHIC] STATEMENT OF CHANGES IN NET ASSETS
PRIMECAP ODYSSEY AGGRESSIVE GROWTH FUND
YEAR ENDED PERIOD ENDED
OCTOBER 31, 2006 OCTOBER 31, 2005(1)
---------------- -------------------
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS
Net investment loss ......................................... $ (191,176) $ (126,506)
Net realized gain (loss) on investments ..................... 2,471,127 (192,454)
Net unrealized appreciation on investments .................. 9,718,713 1,725,666
------------ ------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS ...... 11,998,664 1,406,706
------------ ------------
CAPITAL SHARE TRANSACTIONS
Proceeds from shares sold ................................... 89,190,276 23,059,769
Cost of shares redeemed ..................................... (4,130,146) (1,677,835)
Redemption fee proceeds ..................................... 8,580 1,784
------------ ------------
NET INCREASE FROM CAPITAL SHARE TRANSACTIONS .............. 85,068,710 21,383,718
------------ ------------
TOTAL INCREASE IN NET ASSETS .............................. 97,067,374 22,790,424
NET ASSETS
Beginning of period ......................................... 22,824,424 34,000
------------ ------------
END OF PERIOD ............................................... $119,891,798 $ 22,824,424
============ ============
CHANGE IN CAPITAL SHARES
Shares sold ................................................. 6,910,316 2,181,304
Shares redeemed ............................................. (327,348) (153,222)
------------ ------------
NET INCREASE IN CAPITAL SHARES ............................ 6,582,968 2,028,082
============ ============
(1) Commenced operations on November 1, 2004.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
33
[GRAPHIC] FINANCIAL HIGHLIGHTS
PRIMECAP ODYSSEY STOCK FUND
FOR A CAPITAL SHARE OUTSTANDING THROUGHOUT THE PERIOD
THE FOLLOWING INFORMATION SHOULD BE READ IN CONJUNCTION WITH THE FINANCIAL
STATEMENTS AND NOTES THERETO APPEARING ELSEWHERE IN THIS ANNUAL REPORT.
YEAR ENDED PERIOD ENDED
OCTOBER 31, 2006 OCTOBER 31, 2005(1)
---------------- -------------------
Net asset value, beginning of period .......................... $ 11.48 $ 10.00
------------ ------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) ................................ 0.03 (0.01)
Net realized and unrealized gain on investments ............. 1.97 1.49
------------ ------------
Total from investment operations .............................. 2.00 1.48
------------ ------------
LESS DISTRIBUTIONS:
Dividends from net investment income ........................ 0.00(2) 0.00
Distributions from realized gain ............................ 0.00(2) 0.00
------------ ------------
Total distributions ........................................... 0.00 0.00
------------ ------------
Redemption fee proceeds ....................................... 0.00(2) 0.00(2)
------------ ------------
Net asset value, end of period .............................. $ 13.48 $ 11.48
============ ============
Total return .................................................. 17.48% 14.80%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (millions) ........................ $ 88.4 $ 30.1
RATIO OF EXPENSES TO AVERAGE NET ASSETS:
Before fees waived and expenses absorbed or recouped ........ 0.99% 1.80%
After fees waived and expenses absorbed or recouped ......... 0.99% 1.25%
RATIO OF NET INVESTMENT INCOME
(LOSS) TO AVERAGE NET ASSETS ................................ 0.41% (0.11%)
Portfolio turnover rate ....................................... 4.09% 12.46%
- ----------
(1) Commenced operations on November 1, 2004.
(2) Amount represents less than $0.01 per share.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
34
[GRAPHIC] FINANCIAL HIGHLIGHTS
PRIMECAP ODYSSEY GROWTH FUND
FOR A CAPITAL SHARE OUTSTANDING THROUGHOUT THE PERIOD
THE FOLLOWING INFORMATION SHOULD BE READ IN CONJUNCTION WITH THE FINANCIAL
STATEMENTS AND NOTES THERETO APPEARING ELSEWHERE IN THIS ANNUAL REPORT.
YEAR ENDED PERIOD ENDED
OCTOBER 31, 2006 OCTOBER 31, 2005(1)
---------------- -------------------
Net asset value, beginning of period .......................... $ 11.62 $ 10.00
------------ ------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) ................................ 0.01 (0.01)
Net realized and unrealized gain on investments ............. 2.14 1.63
------------ ------------
Total from investment operations .............................. 2.15 1.62
------------ ------------
LESS DISTRIBUTIONS:
Dividends from net investment income ........................ 0.00(2) 0.00
Distributions from realized gain ............................ (0.01) 0.00
------------ ------------
Total distributions ........................................... (0.01) 0.00
------------ ------------
Redemption fee proceeds ....................................... 0.00(2) 0.00(2)
------------ ------------
Net asset value, end of period ................................ $ 13.76 $ 11.62
============ ============
Total return .................................................. 18.49% 16.20%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (millions) ........................ $ 202.2 $ 46.6
RATIO OF EXPENSES TO AVERAGE NET ASSETS:
Before fees waived and expenses absorbed or recouped ........ 0.89% 1.79%
After fees waived and expenses absorbed or recouped ......... 0.89% 1.25%
RATIO OF NET INVESTMENT INCOME
(LOSS) TO AVERAGE NET ASSETS ................................ 0.19% (0.27%)
Portfolio turnover rate ....................................... 6.87% 8.84%
- ----------
(1) Commenced operations on November 1, 2004.
(2) Amount represents less than $0.01 per share.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
35
[GRAPHIC] FINANCIAL HIGHLIGHTS
PRIMECAP ODYSSEY AGGRESSIVE GROWTH FUND
FOR A CAPITAL SHARE OUTSTANDING THROUGHOUT THE PERIOD
THE FOLLOWING INFORMATION SHOULD BE READ IN CONJUNCTION WITH THE FINANCIAL
STATEMENTS AND NOTES THERETO APPEARING ELSEWHERE IN THIS ANNUAL REPORT.
YEAR ENDED PERIOD ENDED
OCTOBER 31, 2006 OCTOBER 31, 2005(1)
---------------- -------------------
Net asset value, beginning of period .......................... $ 11.24 $ 10.00
------------ ------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) ................................ (0.02) (0.06)
Net realized and unrealized gain on investments ............. 2.70 1.30
------------ ------------
Total from investment operations .............................. 2.68 1.24
------------ ------------
Redemption fee proceeds ....................................... 0.00(2) 0.00(2)
------------ ------------
Net asset value, end of period .............................. $ 13.92 $ 11.24
============ ============
Total return .................................................. 23.84% 12.40%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (millions) ........................ $ 119.9 $ 22.8
RATIO OF EXPENSES TO AVERAGE NET ASSETS:
Before fees waived and expenses absorbed or recouped ........ 0.99% 1.82%
After fees waived and expenses absorbed or recouped ......... 0.99% 1.25%
RATIO OF NET INVESTMENT INCOME
(LOSS) TO AVERAGE NET ASSETS ................................ (0.33%) (0.82%)
Portfolio turnover rate ....................................... 12.30% 7.38%
- ----------
(1) Commenced operations on November 1, 2004.
(2) Amount represents less than $0.01 per share.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
36
[GRAPHIC] NOTES TO FINANCIAL STATEMENTS
PRIMECAP ODYSSEY FUNDS
FOR THE YEAR ENDED OCTOBER 31, 2006
(1) ORGANIZATION
PRIMECAP Odyssey Funds (the "Trust") was organized on June 8, 2004 as a Delaware
statutory trust and is registered as an open-end management investment company
under the Investment Company Act of 1940, as amended (the "1940 Act"). The Trust
is comprised of three series: PRIMECAP Odyssey Stock Fund, PRIMECAP Odyssey
Growth Fund, and PRIMECAP Odyssey Aggressive Growth Fund (the "Funds"), each of
which is diversified within the meaning of the 1940 Act. PRIMECAP Management
Company (the "Investment Advisor") serves as investment advisor to the Funds.
The Funds commenced operations on November 1, 2004. Each Fund's investment
objective is to seek to provide long-term capital appreciation. Each Fund is
authorized to issue unlimited shares of beneficial interest. All shares within
each Fund have equal rights with respect to voting.
(2) SIGNIFICANT ACCOUNTING POLICIES
The Funds consistently follow the accounting policies set forth below which are
in conformity with accounting principles generally accepted in the United States
of America.
A. SECURITY VALUATION.
Securities traded on a national securities exchange are valued at
the last reported sales price at the close of regular trading on
each day the exchanges are open for trading. Securities listed on
the NASDAQ Global Market and the NASDAQ Global Select Market are
valued using the NASDAQ Official Closing Price. Securities traded on
an exchange for which there have been no sales are valued at the
mean between the bid and asked price. Securities for which
quotations are not readily available are stated at their respective
fair values as determined in good faith by a valuation committee of
the Investment Advisor in accordance with procedures approved by the
Board of Trustees. In determining fair value, the Funds take into
account all relevant factors and available information.
Consequently, the price of the security used by the Fund to
calculate its NAV may differ from quoted or published prices for the
same security. Fair value pricing involves subjective judgments and
there is no single standard for determining a security's fair value.
As a result, different mutual funds could reasonably arrive at a
different fair value for the same security. It is possible that the
fair value determined for a security is materially different from
the value that could be realized upon the sale of that security or
from the values that other mutual funds may determine.
Investments in other funds are valued at their respective net asset
values as determined by those funds, in accordance with the
Investment Company Act of 1940.
Foreign securities are recorded in the financial statements after
translation to U.S. dollars based on the applicable exchange rate at
the end of the period. The Funds do not isolate that portion of the
results of operations arising as a result of changes in the currency
exchange rate from the fluctuations arising as a result of changes
in the market prices of investments during the period.
37
NOTES TO FINANCIAL STATEMENTS
PRIMECAP ODYSSEY FUNDS
FOR THE YEAR ENDED OCTOBER 31, 2006 - (CONTINUED)
B. SHARES VALUATION.
The net asset value ("NAV") per share of a Fund is calculated by
dividing the sum of the value of the securities held by the Fund,
plus cash or other assets, minus all liabilities (including
estimated accrued expenses) by the total number of shares
outstanding of the Fund. The result is rounded to the nearest cent.
The Funds' shares will not be priced on the days on which the NYSE
is closed for trading.
C. FOREIGN CURRENCY.
Values of investments denominated in foreign currencies are
converted into U.S. dollars using the spot market rate of exchange
at the time of valuation. Purchases and sales of investments and
dividend and interest income are translated into U.S. dollars using
the spot market rate of exchange prevailing on the respective dates
of such translations. The gain or loss resulting from changes in
foreign exchange rates is included with net realized and unrealized
gain or loss from investments, as appropriate. Foreign securities
and currency transactions may involve certain considerations and
risks not typically associated with those of domestic origin.
D. FEDERAL INCOME TAXES.
Each Fund has elected to be treated as a "regulated investment
company" under Subchapter M of the Internal Revenue Code. The Funds
intend to distribute substantially all of their taxable income and
any capital gains in excess of applicable capital loss
carryforwards. Accordingly, no provision for Federal income taxes
has been made in the accompanying financial statements.
The Funds may be subject to foreign taxes on income, gains on
investments, or currency repatriation, a portion of which may be
recoverable. The Funds will accrue such taxes and recoveries as
applicable based upon their current interpretations of the tax rules
and regulations that exist in the markets in which they invest.
E. ALLOCATION OF EXPENSES.
Each Fund is charged for those expenses directly attributable to it.
Expenses that are not directly attributable to a Fund are allocated
among the Funds in proportion to their respective assets or another
appropriate method.
F. SECURITY TRANSACTIONS, INVESTMENT INCOME, AND DISTRIBUTIONS.
Security transactions are accounted for on the trade date. Dividend
income and distributions to shareholders are recorded on the
ex-dividend date, and interest income is recognized on the accrual
basis. Realized gains and losses are evaluated on the basis of
identified costs. Premiums and discounts on the purchase of
securities are amortized/accreted using the effective interest
method. Accounting principles generally accepted in the United
States of America require that permanent financial reporting and tax
differences be reclassified in the capital accounts.
38
NOTES TO FINANCIAL STATEMENTS
PRIMECAP ODYSSEY FUNDS
FOR THE YEAR ENDED OCTOBER 31, 2006 - (CONTINUED)
G. USE OF ESTIMATES.
The preparation of financial statements in conformity with
accounting principles generally accepted in the United States of
America requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure
of contingent assets and liabilities at the date of the financial
statements, and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from these
estimates.
H. INDEMNIFICATION OBLIGATIONS.
Under the Funds' organizational documents, its current and former
officers and trustees are indemnified against certain liabilities
arising out of the performance of their duties to the Funds. In
addition, in the normal course of business, the Funds enter into
contracts that contain a variety of representations and warranties
that provide general indemnifications. The Funds' maximum exposure
under these arrangements is unknown as this would involve future
claims that may be made against the Funds that have not yet
occurred. Based on experience, the Funds would expect the risk of
loss to be remote.
(3) INVESTMENT TRANSACTIONS
The cost of purchases and the proceeds from sales of securities, excluding
short-term investments, for the year ended October 31, 2006 were as follows:
FUND PURCHASES SALES
------------ ------------
PRIMECAP Odyssey Stock Fund $ 48,961,292 $ 2,062,950
PRIMECAP Odyssey Growth Fund $133,539,219 $ 7,276,278
PRIMECAP Odyssey Aggressive Growth Fund $ 79,305,650 $ 6,511,773
(4) DISTRIBUTION TO SHAREHOLDERS
Net investment income and net realized gains differ for financial statement and
tax purposes due to differing treatments of deferred wash sale losses.
As of October 31, 2006, the components of distributable earnings/(accumulated
losses) on a tax basis were as follows:
39
NOTES TO FINANCIAL STATEMENTS
PRIMECAP ODYSSEY FUNDS
FOR THE YEAR ENDED OCTOBER 31, 2006 - (CONTINUED)
PRIMECAP
PRIMECAP PRIMECAP ODYSSEY
ODYSSEY ODYSSEY AGGRESSIVE
STOCK FUND GROWTH FUND GROWTH FUND
------------ ------------- -------------
Cost of investments
for tax purposes ...................... $ 80,583,871 $ 189,860,354 $ 110,778,193
============ ============= =============
Gross tax unrealized
appreciation .......................... 11,126,645 21,862,756 15,342,501
Gross tax unrealized
depreciation .......................... (1,889,401) (5,197,122) (3,924,309)
------------ ------------- -------------
Net tax unrealized appreciation ......... $ 9,237,244 $ 16,665,634 $ 11,418,192
============ ============= =============
Currently distributable
ordinary income ....................... 334,889 1,530,228 1,122,106
Currently distributable
long-term capital gain ................ 425,707 1,053,850 991,579
------------ ------------- -------------
Currently total distributable
earnings .............................. 760,596 2,584,078 2,113,685
------------ ------------- -------------
Total accumulated earnings .............. $ 9,997,840 $ 19,249,712 $ 13,531,877
============ ============= =============
Tax components of dividends paid during the periods ended October 31, 2005 and
2006 were as follows:
2006
----------------------------
ORDINARY LONG-TERM
INCOME CAPITAL GAIN
DISTRIBUTIONS DISTRIBUTIONS
------------- -------------
PRIMECAP Odyssey Stock Fund ..................... $ 17,453 $ --
PRIMECAP Odyssey Growth Fund .................... $ 40,212 $ --
PRIMECAP Odyssey Aggressive Growth Fund ......... $ -- $ --
2005
----------------------------
ORDINARY LONG-TERM
INCOME CAPITAL GAIN
DISTRIBUTIONS DISTRIBUTIONS
------------- -------------
PRIMECAP Odyssey Stock Fund ..................... $ -- $ --
PRIMECAP Odyssey Growth Fund .................... $ -- $ --
PRIMECAP Odyssey Aggressive Growth Fund ......... $ -- $ --
40
NOTES TO FINANCIAL STATEMENTS
PRIMECAP ODYSSEY FUNDS
FOR THE YEAR ENDED OCTOBER 31, 2006 - (CONTINUED)
(5) INVESTMENT ADVISORY AND OTHER AGREEMENTS
The Trust has entered into an investment management agreement with the
Investment Advisor on behalf of each Fund. Under the terms of the agreement,
each of the Funds will pay a fee equal to the following annual percentages of
average net assets:
FOR THE FIRST ASSETS IN EXCESS OF
$100,000,000 $100,000,000
PER FUND PER FUND
------------- -------------------
PRIMECAP Odyssey
Stock Fund ............................ 0.60% 0.55%
PRIMECAP Odyssey
Growth Fund ........................... 0.60% 0.55%
PRIMECAP Odyssey
Aggressive Growth Fund ................ 0.60% 0.55%
The Investment Advisor has contractually agreed to waive its fees and/or
reimburse each Fund through October 31, 2007 to the extent necessary so that its
ratio of operating expenses to average net assets will not exceed the following
levels:
PRIMECAP Odyssey Stock Fund ........................... 1.25%
PRIMECAP Odyssey Growth Fund .......................... 1.25%
PRIMECAP Odyssey Aggressive Growth Fund ............... 1.25%
THESE PERCENTAGES ARE BASED ON THE AVERAGE DAILY NET ASSETS OF THE FUNDS.
The Investment Advisor did not seek reimbursement in 2006 for fees waived or
expenses paid under this agreement.
Mellon Bank, N.A. serves as the Funds' Custodian. U.S. Bancorp Fund Services,
LLC ("USBFS") serves as the Administrator, Fund Accountant, and Transfer Agent
to the Funds. Quasar Distributors, LLC, an affiliate of USBFS, serves as the
Funds' Distributor.
(6) ACCOUNTING PRONOUNCEMENTS
In December, 2005, the Financial Accounting Standards Board ("FASB") released
Financial Accounting Standard Board Statement No. 157 Fair Value Measurements
("SFAS 157"). SFAS 157 establishes a fair valuation hierarchy to increase
consistency and comparability in fair value measurements and related
disclosures. The fair value hierarchy prioritizes the inputs to valuation
techniques used to measure fair value into three broad levels. The fair value
hierarchy gives the highest priority to quoted prices (unadjusted) in active
markets for identical assets or liabilities (Level 1) and the lowest priority to
unobservable inputs (Level 3). SFAS 157 is effective for financial statements
issued for fiscal years beginning after November 15, 2007.
41
NOTES TO FINANCIAL STATEMENTS
PRIMECAP ODYSSEY FUNDS
FOR THE YEAR ENDED OCTOBER 31, 2006 - (CONTINUED)
On July 13, 2006, the Financial Accounting Standards Board ("FASB") released
FASB Interpretation No. 48 "Accounting for Uncertainty in Income Taxes" ("FIN
48"). FIN 48 provides guidance for how uncertain tax positions should be
recognized, measured, presented, and disclosed in the financial statements. FIN
48 requires the evaluation of tax positions taken or expected to be taken in the
course of preparing the Fund's tax returns to determine whether the tax
positions are "more-likely-than-not" of being sustained by the applicable tax
authority. Tax positions not deemed to meet the more-likely-than-not threshold
would be recorded as a tax benefit or expense in the current year. Adoption of
FIN 48 is required for fiscal years beginning after December 15, 2006 and is to
be applied to all open tax years as of the effective date. At this time,
management is evaluating the implications of FIN 48 and its impact in the
financial statements has not yet been determined.
42
[GRAPHIC] REPORT OF INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM
To the Board of Trustees and Shareholders
of PRIMECAP Odyssey Funds:
In our opinion, the accompanying statements of assets and liabilities, including
the schedules of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of PRIMECAP Odyssey Stock Fund,
PRIMECAP Odyssey Growth Fund, and PRIMECAP Odyssey Aggressive Growth Fund
(hereafter referred to as the "Funds") at October 31, 2006, the results of each
of their operations for the year then ended and the changes in each of their net
assets and the financial highlights for the year then ended and for the period
November 1, 2004 (commencement of operations) through October 31, 2005, in
conformity with accounting principles generally accepted in the United States of
America. These financial statements and financial highlights (hereafter referred
to as "financial statements") are the responsibility of the Funds' management;
our responsibility is to express an opinion on these financial statements based
on our audits. We conducted our audits of these financial statements in
accordance with the standards of the Public Company Accounting Oversight Board
(United States). Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of securities at October 31, 2006 by
correspondence with the custodian and brokers, provide a reasonable basis for
our opinion.
PRICEWATERHOUSECOOPERS LLP
San Francisco, California
December 19, 2006
[GRAPHIC] ADDITIONAL INFORMATION - (UNAUDITED)
PRIMECAP ODYSSEY FUNDS
ADDITIONAL TAX INFORMATION
The PRIMECAP Odyssey Growth Fund and PRIMECAP Odyssey Stock Fund designate 65%
and 100%, respectively, of ordinary income and short term capital gain
distributions paid during the fiscal year ended October 31, 2006 as qualified
dividend income.
The PRIMECAP Odyssey Growth Fund and PRIMECAP Odyssey Stock Fund designate 57%
and 100%, respectively, of ordinary income and short term capital gain
distributions paid during the fiscal year ended October 31, 2006 as dividends
qualifying for the dividends received deduction available for corporate
shareholders.
TAX NOTICE (UNAUDITED)
ADDITIONAL INFORMATION FOR FOREIGN SHAREHOLDERS ONLY:
The PRIMECAP Odyssey Growth Fund and PRIMECAP Odyssey Stock Fund designate 21%
and 25%, respectively, of ordinary distributions paid during the fiscal year
ended October 31, 2006 as interest related dividends under the Internal Revenue
Code Section 871 (k)(1)(c).
The PRIMECAP Odyssey Growth Fund and PRIMECAP Odyssey Stock Fund designate
$38,375 (95%) and $5,043 (29%), respectively, of ordinary distributions paid
during the fiscal year ended October 31, 2006 as short-term capital gain
distributions.
PROXY VOTING PROCEDURES
The Investment Advisor votes proxies relating to portfolio securities in
accordance with procedures that have been approved by the Trust's Board of
Trustees. You may obtain a description of these procedures, free of charge, by
calling toll-free 1-800-729-2307. This information is also available through the
Securities and Exchange Commission's ("SEC") website at http://www.sec.gov.
PROXY VOTING RECORD
Information regarding how the Funds voted proxies relating to the portfolio
securities during the most recent 12-month period ended June 30 is available
without charge, upon request, by calling toll-free 1-800-729-2307. This
information is also available through the SEC's website at http://www.sec.gov.
FORM N-Q DISCLOSURE
The Trust files its complete schedules of portfolio holdings with the SEC for
the first and third quarters of each fiscal year on Form N-Q. The Trust's Form
N-Q is available on the SEC's website at http://www.sec.gov. The Trust's Form
N-Q may be reviewed and copied at the Commission's Public Reference Room in
Washington, DC, and information on the operation of the Public Reference Room
may be obtained by calling 1-800-SEC-0330. This information is also available,
without charge, by calling toll-free 1-800-729-2307.
44
ADDITIONAL INFORMATION - (UNAUDITED)
PRIMECAP ODYSSEY FUNDS
BOARD CONSIDERATION OF AND CONTINUATION OF INVESTMENT ADVISORY AGREEMENT
The Board of Trustees of the Trust is comprised of four Trustees, three of whom
are independent of the Investment Advisor. During the six months ended October
31, 2006, the Board of Trustees unanimously approved a one-year renewal of the
Trust's investment advisory agreement (the "Investment Advisory Agreement") with
the Investment Advisor.
GENERAL INFORMATION
The following information summarizes the Board's considerations associated with
its renewal of the Investment Advisory Agreement. In connection with their
deliberations, the Board considered such information and factors as they
believed, in light of the legal advice furnished to them and their own business
judgment, to be relevant. The Investment Advisory Agreement was considered
separately for each Fund, although the Board took into account the common
interests of all the Funds in its review. As described below, the Board
considered the nature, quality and extent of the various services provided to
the Funds by the Investment Advisor as well as the levels of the Funds' advisory
fees and other expenses. In considering these matters, the Board discussed the
renewal of the Investment Advisory Agreement with management and in private
sessions with counsel at which no representatives of the Investment Advisor were
present.
The Board reviewed extensive materials regarding the investment results of the
Funds, advisory fee and expense comparisons, financial and profitability
information with respect to the Investment Advisor, descriptions of various
functions such as compliance monitoring and portfolio trading practices, and
information about the personnel providing services to the Funds.
In deciding to approve the renewal of the Investment Advisory Agreement, the
Board did not identify a single factor as controlling and this summary does not
describe all of the matters considered. However, the Board concluded that each
of the various factors referred to below favored such approval.
NATURE, EXTENT AND QUALITY OF SERVICES
In reviewing the services provided by the Investment Advisor, the Board
discussed the services provided by the Investment Advisor to the Funds under the
Investment Management Agreement, including the background, education and
experience of the Investment Advisor's key portfolio management and operational
personnel; its overall financial strength and stability; its resources and
efforts to retain, attract and motivate capable personnel to serve the Funds;
and the overall general quality and depth of its organization. The Board also
took into account the experience, capability and integrity of the Investment
Advisor's senior management; its investment philosophy and processes, including
its brokerage, trading and soft dollar practices; its disaster recovery and
contingency planning; and its commitment and systems in place with regard to
compliance with applicable laws and regulations. The Board concluded that the
Investment Advisor continued to provide high quality services to the Funds.
45
ADDITIONAL INFORMATION - (UNAUDITED)
PRIMECAP ODYSSEY FUNDS
INVESTMENT PERFORMANCE
The Board assessed the performance of each Fund compared with its respective
benchmark and the average of a peer group of funds (each, a "peer group")
selected by Lipper, Inc. ("Lipper") for the one-, three- and six-month and
one-year periods ended July 31, 2006. The Board observed that the Funds'
investment results were good, and that the one-year total return of each of the
Funds was above the median return of the funds in its peer group and above the
S&P 500 Index.
ADVISORY FEES AND FUND EXPENSES
The Board reviewed information regarding the advisory fees charged by the
Investment Advisor and total expenses of each of the Funds compared to those of
the funds included in the relevant Lipper peer group, and observed that those
fees were at or below the average of their respective peer groups. The Board
also reviewed the fees charged by the Investment Advisor to other clients,
including other funds to which the Investment Advisor served as sub-advisor, and
noted that although such fees were lower than those charged to the Funds, the
Investment Advisor provided additional services to the Trust that it did not
provide to other clients.
The Trustees reviewed information regarding the Funds' total expense levels
compared to those in their respective Lipper peer groups and determined that the
Funds' expenses were reasonable and below the medians of the funds in the peer
groups. They considered information relating to the Advisor's costs and profits,
and noted that given the Funds' current asset levels it was unlikely that the
Funds provide substantial profits to the Advisor or could lead to significant
economies of scale. The Board concluded that the advisory fees and expenses of
the Funds continued to be reasonable.
CONCLUSIONS
Based on their review, including their consideration of each of the factors
referred to above, the Board concluded that the Investment Advisory Agreement
represents fair and reasonable compensation in light of the nature and quality
of the services being provided by the Investment Advisor to the Trust and the
shareholders of the Funds, and that it would be in the best interests of the
Funds to renew the Agreement.
46
[GRAPHIC] MANAGEMENT - (UNAUDITED)
PRIMECAP ODYSSEY FUNDS
PORTFOLIO MANAGERS
PRIMECAP Management Company has five portfolio managers who together have more
than 150 years of investment experience. Each of these five individuals manages
a portion of the PRIMECAP Odyssey Growth Fund and the PRIMECAP Odyssey Stock
Fund. The PRIMECAP Odyssey Aggressive Growth Fund is primarily managed by
Messrs. Schow, Kolokotrones, Fried, and Mordecai. A small portion of each Fund's
assets may be managed by individuals in the Advisor's research department. The
portfolio managers primarily responsible for overseeing the Funds' investments
are:
-------------------------------------------------
NAME YEARS OF EXPERIENCE
-------------------------------------------------
Howard B. Schow 50
Mitchell J. Milias 42
Theo A. Kolokotrones 36
Joel P. Fried 22
Alfred W. Mordecai 9
-------------------------------------------------
OFFICERS AND TRUSTEES
The Trust's officers, who administer the Funds' daily operations, are appointed
by the Board of Trustees. The Trustees are responsible for the overall
management of the Trust, including establishing the Funds' policies and general
supervision and review of their investment activities. The Statement of
Additional Information includes additional information about the Trust's
Trustees and is available, without charge, by calling 1-800-729-2307 or the
Fund's web site at www.odysseyfunds.com.
EXECUTIVE OFFICERS. The table below sets forth certain information about each of
the Trust's executive officers.
- --------------------------------------------------------------------------------------------------------------------------
POSITION(S) TERM OF OFFICE;
NAME, ADDRESS HELD LENGTH OF PRINCIPAL OCCUPATION(S)
(YEAR OF BIRTH) WITH TRUST TIME SERVED DURING PAST 5 YEARS
- --------------------------------------------------------------------------------------------------------------------------
Howard B. Schow Co-Chief Executive Indefinite; Chairman and Director, Portfolio Manager, Chief
225 South Lake Ave., Officer Since 09/04 Investment Officer, and Principal PRIMECAP Management
Suite 400, Pasadena, Company
CA 91101-3005
(1927)
Theo A. Kolokotrones Co-Chief Executive Indefinite; President, Director, Portfolio Manager, and Principal
225 South Lake Ave., Officer Since 09/04 PRIMECAP Management Company
Suite 400, Pasadena,
CA 91101-3005
(1946)
- --------------------------------------------------------------------------------------------------------------------------
47
MANAGEMENT - (UNAUDITED)
PRIMECAP ODYSSEY FUNDS
- --------------------------------------------------------------------------------------------------------------------------
POSITION(S) TERM OF OFFICE;
NAME, ADDRESS HELD LENGTH OF PRINCIPAL OCCUPATION(S)
(YEAR OF BIRTH) WITH TRUST TIME SERVED DURING PAST 5 YEARS
- --------------------------------------------------------------------------------------------------------------------------
Joel P. Fried Co-Chief Executive Indefinite; Executive Vice President, Director, Portfolio Manager,
225 South Lake Ave., Officer and Trustee Since 09/04 and Principal PRIMECAP Management Company
Suite 400, Pasadena,
CA 91101-3005
(1962)
David H. Van Slooten Chief Financial Indefinite; Senior Vice President, Portfolio Manager, Financial
225 South Lake Ave., Officer and Secretary Since 06/04 Analyst, and Principal PRIMECAP Management Company
Suite 400, Pasadena,
CA 91101-3005
(1963)
Baltej S. Kochar Vice President and Indefinite; Vice President and Financial Analyst, PRIMECAP
225 South Lake Ave., Chief Administrative Since 10/04 Management Company (1/04 - Present); Chief Executive
Suite 400, Pasadena, Officer Officer, The Share Group, Inc. (9/01 - 1/03); Chief
CA 91101-3005 Executive Officer, BetterTomorrow.org (6/00 - 9/01);
(1970) President, GreaterGood.com (4/98 - 1/00)
Karen Chen Vice President of Indefinite; Chief Compliance Officer, Director of Compliance and
225 South Lake Ave., Compliance and Chief Since 10/04 Reporting, PRIMECAP Management Company (10/04 -
Suite 400, Pasadena, Compliance Officer Present); Team Lead - Legal and Compliance, Pacific
CA 91101-3005 and AML Compliance Investment Management Company (7/02 - 9/04 and 11/97 -
(1973) Officer 7/99); Consultant, Trinity Consulting (9/01 - 2/02);
Treasury Intern, The Walt Disney Company (6/00 - 10/00)
- --------------------------------------------------------------------------------------------------------------------------
48
MANAGEMENT - (UNAUDITED)
PRIMECAP ODYSSEY FUNDS
"INDEPENDENT" TRUSTEES. The table below sets forth certain information about
each of the Trustees of the Trust who is not an "interested person" of the Trust
as defined in the 1940 Act ("Independent Trustees").
NUMBER OF
PORTFOLIOS IN
TERM OF FUND OTHER
POSITION(S) OFFICE; COMPLEX DIRECTOR-
NAME, ADDRESS HELD LENGTH OF PRINCIPAL OCCUPATION(S) OVERSEEN BY SHIPS HELD
(YEAR OF BIRTH) WITH TRUST TIME SERVED DURING PAST 5 YEARS TRUSTEE BY TRUSTEE
- -----------------------------------------------------------------------------------------------------------------------------------
Benjamin F. Hammon Chairman of the Indefinite; Retired; Director, Institutional 3 None
225 South Lake Ave., Board and Trustee Since 09/04 Equity Sales, Salomon Smith
Suite 400, Pasadena, CA Barney Inc. (1997-1998)
91101-3005
(1935)
Wayne H. Smith Chairman of the Indefinite; President, Wayne H. Smith 3 None
225 South Lake Ave., Audit Committee and Since 09/04 Consulting, Inc. (2002-Present);
Suite 400, Pasadena, Trustee Vice President, Financial
CA 91101-3005 Services, Avery Dennison
(1941) Corporation (2001-2002); Vice
President, Financial Services,
and Treasurer, Avery Dennison
Corporation (1999-2001)
Stephen M. Rucker Trustee Indefinite; Retired; Executive Vice 3 None
225 South Lake Ave., Since 09/04 President, Credit Suisse First
Suite 400, Pasadena, Boston (1999-2001)
CA 91101-3005
(1938)
49
MANAGEMENT - (UNAUDITED)
PRIMECAP ODYSSEY FUNDS
"INTERESTED" TRUSTEES. The table below sets forth certain information about each
of the Trustees of the Trust who is an "interested person" of the Trust as
defined by the 1940 Act.
NUMBER OF
PORTFOLIOS IN
TERM OF FUND OTHER
POSITION(S) OFFICE; COMPLEX DIRECTOR-
NAME, ADDRESS HELD LENGTH OF PRINCIPAL OCCUPATION(S) OVERSEEN BY SHIPS HELD
(YEAR OF BIRTH) WITH TRUST TIME SERVED DURING PAST 5 YEARS TRUSTEE BY TRUSTEE
- -----------------------------------------------------------------------------------------------------------------------------------
Joel P. Fried* Co-Chief Executive Indefinite; Executive Vice President, 3 None
225 South Lake Ave., Officer and Trustee Since 09/04 Director, Portfolio Manager,
Suite 400, Pasadena, and Principal PRIMECAP
CA 91101-3005 Management Company
(1962)
* Mr. Fried is an "interested person" of the Trust, as defined by the
1940 Act, because of his employment with PRIMECAP Management
Company, the investment advisor to the Trust.
50
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Investment Advisor
PRIMECAP MANAGEMENT COMPANY
225 South Lake Avenue, Suite 400
Pasadena, California 91101
o
Distributor
QUASAR DISTRIBUTORS, LLC 615 East
Michigan Street, 3rd Floor Milwaukee,
Wisconsin 53202
o
Custodian
MELLON BANK, N.A.
One Mellon Center Pittsburgh,
Pennsylvania 15258
o
Transfer Agent
U.S. BANCORP FUND SERVICES, LLC
615 East Michigan Street, 3rd Floor
Milwaukee, Wisconsin 53202
o
Administrator
U.S. BANCORP FUND SERVICES, LLC
2020 East Financial Way, Suite 100
Glendora, California 91741
o
Legal Counsel
PAUL, HASTINGS, JANOFSKY & WALKER LLP
515 South Flower Street
Los Angeles, California 90071
o
Independent Registered Public Accounting Firm
PRICEWATERHOUSECOOPERS LLP
Three Embarcadero Centre
San Francisco, California 94111
THIS REPORT IS INTENDED FOR THE SHAREHOLDERS OF THE PRIMECAP ODYSSEY FUNDS AND
MAY NOT BE USED AS SALES LITERATURE UNLESS PRECEDED OR ACCOMPANIED BY A CURRENT
PROSPECTUS.
PAST PERFORMANCE RESULTS SHOWN IN THIS REPORT SHOULD NOT BE CONSIDERED A
REPRESENTATION OF FUTURE PERFORMANCE. SHARE PRICE AND RETURNS WILL FLUCTUATE SO
THAT SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST.
STATEMENTS AND OTHER INFORMATION HEREIN ARE DATED AND ARE SUBJECT TO CHANGE.
PRIMECAP, PRIMECAP ODYSSEY, AND THE PRIMECAP ODYSSEY LOGO ARE TRADEMARKS OF
PRIMECAP MANAGEMENT COMPANY.
ITEM 2. CODE OF ETHICS.
The registrant has adopted a code of ethics that applies to the registrant's
principal executive officer and principal financial officer. The registrant has
not made any amendments to its code of ethics during the period covered by this
report. The registrant has not granted any waivers from any provisions of the
code of ethics during the period covered by this report.
The registrant undertakes to provide to any person without charge, upon request,
a copy of its code of ethics by mail when they call the registrant at
1-800-729-2307.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
The registrant's board of trustees has determined that there is at least one
audit committee financial expert serving on its audit committee. Wayne Smith is
the "audit committee financial expert" and is considered to be "independent" as
each term is defined in Item 3 of Form N-CSR.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
The registrant has engaged its principal accountant to perform audit services,
audit-related services, tax services and other services during the past two
fiscal years. "Audit services" refer to performing an audit of the registrant's
annual financial statements or services that are normally provided by the
accountant in connection with statutory and regulatory filings or engagements
for those fiscal years. "Audit-related services" refer to the assurance and
related services by the principal accountant that are reasonably related to the
performance of the audit. "Tax services" refer to professional services rendered
by the principal accountant for tax compliance, tax advice, and tax planning.
There were no "other services" provided by the principal account. The following
table details the aggregate fees billed or expected to be billed for each of the
last two fiscal years for audit fees, audit-related fees, tax fees and other
fees by the principal accountant.
- --------------------------------------------------------------------------------
FYE 10/31/2006 FYE 10/31/2005
- --------------------------------------------------------------------------------
Audit Fees $70,500 $51,175
Audit-Related Fees $0 $0
Tax Fees $13,500 $6,600
All Other Fees $0 $0
- --------------------------------------------------------------------------------
The audit committee has adopted pre-approval policies and procedures that
require the audit committee to pre-approve all audit and non-audit services of
the registrant, including services provided to any entity affiliated with the
registrant. All of the principal accountant's hours spent on auditing the
registrant's financial statements were attributed to work performed by full-time
permanent employees of the principal accountant.
The following table indicates the non-audit fees billed or expected to be billed
by the registrant's accountant for services to the registrant and to the
registrant's investment adviser (and any other controlling entity, etc.--not
sub-adviser) for the last two years. The audit committee of the board of
trustees/directors has considered whether the provision of non-audit services
that were rendered to the registrant's investment adviser is compatible with
maintaining the principal accountant's independence and has concluded that the
provision of such non-audit services by the accountant has not compromised the
accountant's independence.
- --------------------------------------------------------------------------------
Non-Audit Related Fees FYE 10/31/2006 FYE 10/31/2005
- --------------------------------------------------------------------------------
Registrant $13,500 $6,600
Registrant's Investment Adviser $0 $0
- --------------------------------------------------------------------------------
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS.
Not applicable to registrants who are not listed issuers (as defined in Rule
10A-3 under the Securities Exchange Act of 1934).
ITEM 6. SCHEDULE OF INVESTMENTS.
Schedule of Investments is included as part of the report to shareholders filed
under Item 1 of this Form.
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END
MANAGEMENT INVESTMENT COMPANIES.
Not applicable to open-end investment companies.
ITEM 8. PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES.
Not applicable to open-end investment companies.
ITEM 9. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT
COMPANY AND AFFILIATED PURCHASES.
Not applicable to open-end investment companies.
ITEM 10. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
There have been no material changes to the procedures by which shareholders may
recommend nominees to the Registrant's Board of Trustees.
ITEM 11. CONTROLS AND PROCEDURES.
(a) The Registrant's Co-Chief Executive Officers and Chief Financial Officer
have reviewed the Registrant's disclosure controls and procedures (as
defined in Rule 30a-3(c) under the Investment Company Act of 1940 (the
"Act")) as of a date within 90 days of the filing of this report, as
required by Rule 30a-3(b) under the Act and Rules 13a-15(b) or 15d-15(b)
under the Securities Exchange Act of 1934. Based on their review, such
officers have concluded that the disclosure controls and procedures are
effective in ensuring that information required to be disclosed in this
report is appropriately recorded, processed, summarized and reported and
made known to them by others within the Registrant and by the Registrant's
service provider.
(b) There were no changes in the Registrant's internal control over financial
reporting (as defined in Rule 30a-3(d) under the Act) that occurred during
the second fiscal quarter of the period covered by this report that has
materially affected, or is reasonably likely to materially affect, the
Registrant's internal control over financial reporting.
ITEM 12. EXHIBITS.
(a) (1) ANY CODE OF ETHICS OR AMENDMENT THERETO, THAT IS SUBJECT OF THE
DISCLOSURE REQUIRED BY ITEM 2, TO THE EXTENT THAT THE REGISTRANT INTENDS TO
SATISFY ITEM 2 REQUIREMENTS THROUGH FILING AN EXHIBIT. Incorporated by
reference to the Registrant's Form N-CSR filed January 5, 2006.
(2) CERTIFICATIONS PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF
2002. Filed herewith.
(3) ANY WRITTEN SOLICITATION TO PURCHASE SECURITIES UNDER RULE 23C-1 UNDER
THE ACT SENT OR GIVEN DURING THE PERIOD COVERED BY THE REPORT BY OR ON
BEHALF OF THE REGISTRANT TO 10 OR MORE PERSONS. Not applicable to open-end
investment companies.
(b) CERTIFICATION PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002.
Furnished herewith.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and
the Investment Company Act of 1940, the registrant has duly caused this report
to be signed on its behalf by the undersigned, thereunto duly authorized.
PRIMECAP ODYSSEY FUNDS
By /s/ Joel P. Fried
-----------------------------------------------------
Joel P. Fried, Co-Chief Executive Officer
Date December 29, 2006
By /s/ Howard B. Schow
-----------------------------------------------------
Howard B. Schow, Co-Chief Executive Officer
Date December 28, 2006
By /s/ THEO A. KOLOKOTRONES
-----------------------------------------------------
Theo A. Kolokotrones, Co-Chief Executive Officer
Date December 28, 2006
Pursuant to the requirements of the Securities Exchange Act of 1934 and
the Investment Company Act of 1940, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
By /s/ Joel P. Fried
-----------------------------------------------------
Joel P. Fried, Co-Chief Executive Officer
Date December 29, 2006
By /s/ Howard B. Schow
-----------------------------------------------------
Howard B. Schow, Co-Chief Executive Officer
Date December 28, 2006
By /s/ Theo A. Kolokotrones
-----------------------------------------------------
Theo A. Kolokotrones, Co-Chief Executive Officer
Date December 28, 2006
By /s/ David H. Van Slooten
-----------------------------------------------------
David H. Van Slooten, Chief Financial Officer
Date December 29, 2006
PRINT THE NAME AND TITLE OF EACH SIGNING OFFICER UNDER HIS OR HER SIGNATURE.