N-CSR 1 t305709.txt As filed with the Securities and Exchange Commission on Jan 6, 2010 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 ---------- Date of reporting period: October 31, 2009 ---------------- Item 1. Reports to Stockholders. ANNUAL REPORT OCTOBER 31, 2009 [LOGO, PRIMECAP 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 ......................................................... 8 Expense Example ............................................................ 11 Sector Breakdown ........................................................... 13 Schedule of Investments .................................................... 15 PRIMECAP Odyssey Stock Fund ............................................ 15 PRIMECAP Odyssey Growth Fund ........................................... 19 PRIMECAP Odyssey Aggressive Growth Fund ................................ 23 Statements of Assets and Liabilities ....................................... 26 Statements of Operations ................................................... 27 Statement of Changes in Net Assets ......................................... 28 PRIMECAP Odyssey Stock Fund ............................................ 28 PRIMECAP Odyssey Growth Fund ........................................... 29 PRIMECAP Odyssey Aggressive Growth Fund ................................ 30 Financial Highlights ....................................................... 31 PRIMECAP Odyssey Stock Fund ............................................ 31 PRIMECAP Odyssey Growth Fund ........................................... 32 PRIMECAP Odyssey Aggressive Growth Fund ................................ 33 Notes to Financial Statements .............................................. 34 Report of Independent Registered Public Accounting Firm .................... 42 Additional Information ..................................................... 43 Management ................................................................. 47 1 [GRAPHIC] LETTER TO SHAREHOLDERS PRIMECAP ODYSSEY FUNDS DEAR FELLOW SHAREHOLDERS, For the fiscal year ended October 31, 2009, each of the three PRIMECAP Odyssey Funds outperformed the unmanaged Standard & Poor's 500 Composite Stock Price Index (S&P 500). The PRIMECAP Odyssey Stock Fund, PRIMECAP Odyssey Growth Fund, and PRIMECAP Odyssey Aggressive Growth Fund produced total returns of +16.55%, +21.39%, and +30.34%, respectively. By comparison, the unmanaged S&P 500 produced a total return of +9.80% for the period. The fiscal year ended October 31, 2009 consisted of two distinct periods of very different stock market performance. Through early March 2009, the S&P 500 continued its decline, down nearly another 30% on the heels of a 36.1% decline in fiscal year 2008. The financial crisis that began in mid-2007 intensified, and economic activity declined sharply in an environment filled with fear and uncertainty. From November 1, 2008 through early March 2009, each of the funds declined less than the S&P 500, helped by our holdings in the information technology sector and our underweight position in financials, the sector with the largest decline during this period. Since its low in March 2009, the S&P 500 recovered more than 55% as financial markets stabilized and the economy showed signs of modest improvement. During this rally, returns for the PRIMECAP Odyssey Growth and PRIMECAP Odyssey Aggressive Growth Funds exceeded those for the S&P 500, while returns for the PRIMECAP Odyssey Stock Fund trailed slightly. Notably, our minimal position in the financial sector, which has more than doubled from its lows, has been a detractor to results since March 2009. For the entire fiscal year, our significant holdings in information technology, the highest returning sector in the S&P 500, along with our selection of consumer discretionary stocks and our minimal exposure to the financial sector, were the largest contributors to relative returns. Our sizeable holdings in health care were mixed contributors to returns; returns for the health care sector lagged the S&P 500, but our stock selection in the sector helped results, boosted by the acquisitions of three holdings, Medarex Inc., Genentech, and Wyeth, at substantial premiums. 2 LETTER TO SHAREHOLDERS PRIMECAP ODYSSEY FUNDS The recent acquisition activity reinforces our commitment to the funds' investments in the health care sector, and we believe the valuations of health care companies already reflect fairly pessimistic views of the potential impact of health care reform. Even though returns for the health care sector trailed the S&P 500 by a considerable margin after various plans for government reform were introduced in February, we are excited about the opportunity for positive developments in health care from both global demographic trends and scientific innovation. We believe the demand for health care products and services will continue to grow as the global population ages and standards of living in developing economies improve. Meanwhile, we expect that the considerable investment in research and development will lead to advances in medical products and services. A more detailed discussion of the results of each PRIMECAP Odyssey Fund follows. PRIMECAP ODYSSEY STOCK FUND From November 1, 2008 to October 31, 2009, the Stock Fund's total return of +16.55% exceeded the S&P 500's total return of +9.80%. On a relative basis, our overweight position and stock selection in the consumer discretionary sector and our underweight position in the financials benefited the fund. This benefit was partially offset by our overweight position in the health care sector. The top three contributors to fund results were retailing companies: Dress Barn, CarMax, and Amazon.com. Dress Barn (+88.8%) did better than most apparel retailers as consumers "traded-down" during the recession. We continue to believe that both CarMax (+85.2%) and Amazon.com (+107.6%) have huge market share opportunities in their respective markets. The market for used cars generally lacks price transparency. CarMax's "no-haggle" model is well-positioned to gain market share in a highly fragmented industry. Amazon.com continues to benefit from the shift in consumer behavior to online shopping, as well as the success of its Kindle e-book reader. Fund returns were also helped by the acquisitions of pharmaceutical company Wyeth and biotechnology firm Genentech at considerable premiums. On the negative side were Southwest Airlines, AMR Corp., Medtronic, and Amgen. Southwest Airlines declined 28.5% and AMR Corp. declined 47.2% as the two airlines struggled to cope with lower demand for air travel and volatile fuel prices. Given the high fixed-cost nature of their business, we believe earnings for both firms should rebound dramatically as air travel volumes recover. Medtronic, down 9.3%, has experienced modest growth in the sales of its cardiac rhythmic devices following a product recall in 2008. Amgen, which was our top contributor in fiscal year 2008, declined 10.5%. In addition to the general uncertainty regarding potential health care reform, Amgen also encountered delays in receiving regulatory approval for a new osteoporosis drug. 3 LETTER TO SHAREHOLDERS PRIMECAP ODYSSEY FUNDS The top 10 holdings, which collectively represent 30.3% of the portfolio at the period end, are listed below: PRIMECAP ODYSSEY STOCK FUND ENDING % OF TOP 10 HOLDINGS AS OF 10/31/09 TOTAL PORTFOLIO* -------------------------------------------------------------------------------- Eli Lilly & Co. 4.7 Roche Holding AG 4.0 Novartis AG (ADS) 3.7 Medtronic Inc. 3.2 Amgen Inc. 2.9 Waters Corp. 2.7 Whirlpool Corp. 2.4 CarMax Inc. 2.3 Marsh & McLennan Cos 2.2 EMC Corp. 2.2 -------------------------------------------------------------------------------- TOTAL % OF PORTFOLIO 30.3 * The percentage is calculated by using the ending market value of the security divided by the total investments of the Fund. PRIMECAP ODYSSEY GROWTH FUND From November 1, 2008 to October 31, 2009, the Growth Fund's total return was +21.39% compared with the S&P 500's total return of +9.80% and the Russell 1000 Growth Index's total return of +17.51%. Our overweight positions and stock selection in the information technology and consumer discretionary sectors were the primary reasons for positive returns relative to the S&P 500. Our overweight position in the health care sector was a negative, but this was offset by positive stock selection. In particular, the acquisition of biotechnology firm Medarex by Bristol-Myers Squibb in July at a significant premium was the single biggest contributor to fund returns. Top contributors included CarMax (+85.2%), Google (+49.2%), Oceaneering International (+81.4%), and Cerner Corp. (+104.2%). Oceaneering International is a provider of engineered products and services to the offshore oil and gas industry. Cerner Corp. is a health care information technology provider. Top 10 holdings Medtronic and Amgen were among the largest detractors from the fund's results. Medtronic, a medical device company, was down 9.3% for the year, while Amgen was down 10.5%. Other top detractors included Southwest Airlines, AMR Corp., and Marsh & McLennan. 4 LETTER TO SHAREHOLDERS PRIMECAP ODYSSEY FUNDS The top 10 holdings, which collectively represent 27.5% of the portfolio at the period end, are listed below: PRIMECAP ODYSSEY GROWTH FUND ENDING % OF TOP 10 HOLDINGS AS OF 10/31/09 TOTAL PORTFOLIO* -------------------------------------------------------------------------------- Amgen Inc. 4.1 Eli Lilly & Co. 4.0 Roche Holding AG 3.3 Conceptus Inc. 2.9 Google Inc. (Cl A) 2.8 Medtronic Inc. 2.6 Cepheid 2.1 CarMax Inc. 2.0 Novartis AG (ADS) 1.9 EMC Corp 1.8 -------------------------------------------------------------------------------- TOTAL % OF PORTFOLIO 27.5 * The percentage is calculated by using the ending market value of the security divided by the total investments of the Fund. PRIMECAP ODYSSEY AGGRESSIVE GROWTH FUND From November 1, 2008 to October 31, 2009, the Aggressive Growth Fund's total return was +30.34%. This compares favorably to the S&P 500's total return of +9.80% and the Russell Midcap Growth Index's total return of +22.48%. Much of the outperformance in the Aggressive Growth Fund came from the fund's second and third largest positions at the beginning of the fiscal year, Medarex and American Italian Pasta. Medarex (+127.9%) was acquired at a 90% premium by Bristol-Myers Squibb. American Italian Pasta (+112.5%) continued its recovery from an earlier fall due to poor financial controls. The company, which is the largest producer of private label dried pasta in the country, has experienced strong revenue and profit growth. The fund's overweight position in the information technology sector and underweight position in the financial sector also helped results. Favorable stock selection in the consumer discretionary, information technology, and financial sectors also contributed positively to fund returns. Dendreon Corp. (+413.6%), MarketAxess (+107.7%), and Amazon.com (+107.6%) posted some of the largest gains in the portfolio. Results in the overweighted health care sector were more mixed as contributions by Medarex and Dendreon were partially offset by holdings in Cardica, Abiomed, and BioMarin. Two airline stocks, Southwest Airlines and AMR Corp., were also among the top five detractors from fund returns. LETTER TO SHAREHOLDERS PRIMECAP ODYSSEY FUNDS 5 LETTER TO SHAREHOLDERS PRIMECAP ODYSSEY FUNDS The top 10 holdings, which collectively represent 32.6% of the portfolio at the period end, are listed below: PRIMECAP ODYSSEY AGGRESSIVE GROWTH FUND ENDING % OF TOP 10 HOLDINGS AS OF 10/31/09 TOTAL PORTFOLIO* -------------------------------------------------------------------------------- American Italian Pasta Co. (Cl A) 5.5 Roche Holding AG 4.2 Cepheid 4.2 Conceptus Inc. 3.7 Dendreon Corp 3.6 Google Inc. (Cl A) 2.5 FormFactor Inc. 2.3 Electronic Arts Inc. 2.2 Abiomed Inc. 2.2 BioMarin Pharmaceutical Inc. 2.2 -------------------------------------------------------------------------------- TOTAL % OF PORTFOLIO 32.6 * The percentage is calculated by using the ending market value of the security divided by the total investments of the Fund. OUTLOOK FOR THE NEXT FISCAL YEAR As we begin fiscal 2010, there are reasons for both optimism and pessimism regarding the outlook for equities. On the positive side, it appears that the financial markets have stabilized and the economic outlook is less dire than it was a year ago. Even after the strong rally in stock markets since March, most stocks are still trading significantly below their highs in 2007. Yet troublesome signs regarding the economy remain. While corporations are reporting improving sales trends, it is not clear if this recovery is sustainable. Consumers remain under considerable stress as unemployment continues to rise, home prices remain depressed, and income growth remains anemic. Both businesses and consumers are still finding it difficult to access credit. The easy credit and massive buildup in leverage over the past decade leading up to the financial crisis will take time to unwind. At the same time, the government has continued to intervene not only in the financial markets, but also in the broader economy at large. The effectiveness of the various programs to stimulate the purchase of homes and automobiles and to adopt renewable energy is uncertain at best, but the costs to taxpayers are certain. The consequences of these government efforts, whether intended or not, are likely to influence the investment environment going forward. These actions tend to benefit certain parts of the economy at the expense of others. The uncertainty regarding the duration and potential expansion of these programs makes it difficult to anticipate the full extent of the impact. 6 LETTER TO SHAREHOLDERS PRIMECAP ODYSSEY FUNDS The extensive spending required to fund these programs has also raised concerns that the current fiscal and monetary policies of the U.S. government may lead to a rise in inflation and a weaker U.S. dollar in the future. In fact, higher and more volatile oil and commodity prices and recent U.S. dollar weakness suggest markets are factoring in these concerns. Despite our mixed outlook for the next fiscal year, we believe, as always, there will be attractive investment opportunities. We will continue to rely on fundamental research to identify companies with revenues and profits that, in our judgment, will grow more rapidly than the expectations reflected in their current valuations. In particular, we remain positive about our extensive investments in the health care and information technology sectors. We appreciate the confidence you have demonstrated in us. We will continue to work diligently to prove worthy of that confidence. Sincerely, PRIMECAP Management Company THE FUNDS INVEST IN SMALLER COMPANIES, WHICH INVOLVE 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. CURRENT AND FUTURE PORTFOLIO HOLDINGS ARE SUBJECT TO RISK. THE STANDARD & POOR'S 500 COMPOSITE STOCK PRICE INDEX is a broad based index of 500 stocks, which is widely recognized as representative of the market in general. 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. These indices do not incur expenses and are not available for investment. THE INFORMATION PROVIDED HEREIN REPRESENTS THE OPINIONS OF PRIMECAP MANAGEMENT COMPANY AND ARE NOT INTENDED TO BE A FORECAST OF FUTURE EVENTS, A GUARANTEE OF FUTURE RESULTS, NOR INVESTMENT ADVICE. PAST PERFORMANCE DOES NOT GUARANTEE FUTURE RESULTS. (12/09) 7 [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, 2009, 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.] [table] TOTAL RETURN PERIOD ENDED OCTOBER 31, 2009 ----------------------------- ANNUALIZED SINCE INCEPTION 1 YEAR (11/01/04) ------ --------------- PRIMECAP Odyssey Stock Fund 16.55% 3.79% S&P 500 Index* 9.80% 0.33% 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. 8 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, 2009, 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.] [table] TOTAL RETURN PERIOD ENDED OCTOBER 31, 2009 ----------------------------- ANNUALIZED SINCE INCEPTION 1 YEAR (11/01/04) ------ --------------- PRIMECAP Odyssey Growth Fund 21.39% 4.46% S&P 500 Index* 9.80% 0.33% 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. 9 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, 2009, 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.] [table] TOTAL RETURN PERIOD ENDED OCTOBER 31, 2009 ----------------------------- ANNUALIZED SINCE INCEPTION 1 YEAR (11/01/04) ------ --------------- PRIMECAP Odyssey Aggressive Growth Fund 30.34% 4.70% S&P 500 Index* 9.80% 0.33% 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 [GRAPHIC] EXPENSE EXAMPLE PRIMECAP ODYSSEY FUNDS (UNAUDITED) As a shareholder of one or more of the funds, you incur ongoing costs, including management fees and other fund expenses. This expense 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 expense example is based on an investment of $1,000 invested for a six month period beginning April 30, 2009 and held through October 31, 2009. ACTUAL EXPENSES The information in the table adjacent to 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 column 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 adjacent to 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 adjacent to 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. 11 EXPENSE EXAMPLE PRIMECAP ODYSSEY FUNDS (UNAUDITED), (CONTINUED)
BEGINNING ENDING EXPENSES PAID EXPENSE RATIO ACCOUNT ACCOUNT DURING PERIOD* DURING PERIOD* VALUE VALUE (04/30/09 TO (04/30/09 TO (04/30/09) (10/31/09) 10/31/09) 10/31/09) ----------------------------------------------------------------------------------------------------------- PRIMECAP ODYSSEY STOCK FUND Actual Performance $1,000.00 $1,192.90 $4.30 0.78% Hypothetical Performance (5% return before expenses) $1,000.00 $1,021.28 $3.97 0.78% PRIMECAP ODYSSEY GROWTH FUND Actual Performance $1,000.00 $1,211.90 $3.83 0.69% Hypothetical Performance (5% return before expenses) $1,000.00 $1,021.74 $3.50 0.69% PRIMECAP ODYSSEY AGGRESSIVE GROWTH FUND Actual Performance $1,000.00 $1,244.20 $4.19 0.74% Hypothetical Performance (5% return before expenses) $1,000.00 $1,021.47 $3.78 0.74%
---------- * Expenses are equal to a fund's 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. 12 [GRAPHIC] SECTOR BREAKDOWN PRIMECAP ODYSSEY FUNDS PRIMECAP ODYSSEY STOCK FUND -------------------------------------------------------------------------------- Consumer Discretionary 17.3% Consumer Staples 1.3% Energy 5.1% Financials 4.8% Health Care 27.3% Industrials 14.2% Information Technology 18.8% Materials 5.1% Telecommunication Services 0.2% Short Term Investments and Other Net Assets 5.9% -------------------------------------------------------------------------------- TOTAL 100.0% PRIMECAP ODYSSEY GROWTH FUND -------------------------------------------------------------------------------- Consumer Discretionary 9.8% Consumer Staples 0.2% Energy 5.6% Financials 3.1% Health Care 34.0% Industrials 8.9% Information Technology 29.4% Materials 2.3% Telecommunication Services 0.1% Short Term Investments and Other Net Assets 6.6% -------------------------------------------------------------------------------- TOTAL 100.0% The tables above list sector allocations as a percentage of each fund's total investments as of October 31, 2009. 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. 13 SECTOR BREAKDOWN PRIMECAP ODYSSEY FUNDS (CONTINUED) PRIMECAP ODYSSEY AGGRESSIVE GROWTH FUND -------------------------------------------------------------------------------- Consumer Discretionary 4.9% Consumer Staples 5.5% Energy 4.2% Financials 2.0% Health Care 33.8% Industrials 7.4% Information Technology 33.5% Materials 0.6% Telecommunication Services 0.2% Short Term Investments and Other Net Assets 7.9% -------------------------------------------------------------------------------- TOTAL 100.0% The table above lists sector allocations as a percentage of the fund's total investments as of October 31, 2009. 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. 14 [GRAPHIC] SCHEDULE OF INVESTMENTS PRIMECAP ODYSSEY STOCK FUND OCTOBER 31, 2009 Shares Value -------------------------------------------------------------------------------- COMMON STOCKS: 94.1% CONSUMER DISCRETIONARY: 17.3% 27,500 Amazon.com, Inc. (a) .............................. $ 3,267,275 63,700 Bed Bath & Beyond, Inc. (a) ....................... 2,242,877 211,900 CarMax, Inc. (a) .................................. 4,168,073 145,400 Collective Brands, Inc. (a) ....................... 2,697,170 58,500 DIRECTV Group, Inc. (The) (a) ..................... 1,538,550 199,300 Dress Barn, Inc. (a) .............................. 3,597,365 29,200 Kohl's Corp. (a) .................................. 1,670,824 65,200 Mattel, Inc. ...................................... 1,234,236 8,100 Men's Wearhouse, Inc. ............................. 187,677 53,900 Sony Corp. - ADR .................................. 1,584,121 83,650 TJX Cos, Inc. ..................................... 3,124,327 50,000 Walt Disney Co. (The) ............................. 1,368,500 60,900 Whirlpool Corp. ................................... 4,359,831 ------------ 31,040,826 ------------ CONSUMER STAPLES: 1.3% 24,000 Kellogg Co. ....................................... 1,236,960 18,600 Procter & Gamble Co. .............................. 1,078,800 ------------ 2,315,760 ------------ ENERGY: 5.1% 13,000 ConocoPhillips .................................... 652,340 18,600 EnCana Corp. ...................................... 1,030,254 35,800 EOG Resources, Inc. ............................... 2,923,428 33,800 National Oilwell Varco, Inc. (a) .................. 1,385,462 11,200 Noble Energy, Inc. ................................ 735,056 40,534 Schlumberger Ltd. ................................. 2,521,215 ------------ 9,247,755 ------------ FINANCIALS: 4.8% 586 Berkshire Hathaway, Inc. - Class B (a) ............ 1,923,838 27,900 Chubb Corp. ....................................... 1,353,708 100,100 Discover Financial Services ....................... 1,415,414 168,450 Marsh & McLennan Cos, Inc. ........................ 3,951,837 ------------ 8,644,797 ------------ The accompanying notes are an integral part of these financial statements. 15 SCHEDULE OF INVESTMENTS PRIMECAP ODYSSEY STOCK FUND OCTOBER 31, 2009 - (CONTINUED) Shares Value -------------------------------------------------------------------------------- HEALTH CARE: 27.3% 75,000 Affymetrix, Inc. (a) .............................. $ 392,250 97,500 Amgen, Inc. (a) ................................... 5,238,675 69,900 Biogen Idec, Inc. (a) ............................. 2,944,887 300,600 Boston Scientific Corp. (a) ....................... 2,440,872 247,300 Eli Lilly & Co. ................................... 8,410,673 76,000 GlaxoSmithKline PLC - ADR ......................... 3,128,160 25,000 Johnson & Johnson ................................. 1,476,250 160,300 Medtronic, Inc. ................................... 5,722,710 126,950 Novartis AG - ADR ................................. 6,595,052 15,000 Pfizer, Inc. ...................................... 255,450 44,100 Roche Holding AG - CHF ............................ 7,079,901 14,500 Sanofi Aventis - ADR .............................. 535,340 84,400 Waters Corp. (a) .................................. 4,847,092 ------------ 49,067,312 ------------ INDUSTRIALS: 14.2% 23,800 Alaska Air Group, Inc. (a) ........................ 612,136 50,000 Alexander & Baldwin, Inc. ......................... 1,441,500 228,000 AMR Corp. (a) ..................................... 1,228,920 79,700 Boeing Co. ........................................ 3,809,660 21,500 Caterpillar, Inc. ................................. 1,183,790 6,500 Deere & Co. ....................................... 296,075 14,000 FedEx Corp. ....................................... 1,017,660 89,200 Honeywell International, Inc. ..................... 3,201,388 23,500 JetBlue Airways Corp. (a) ......................... 116,560 77,100 McDermott International, Inc. (a) ................. 1,713,933 5,200 Norfolk Southern Corp. ............................ 242,424 26,800 Pall Corp. ........................................ 850,632 55,800 Rockwell Automation, Inc. ......................... 2,285,010 373,100 Southwest Airlines Co. ............................ 3,134,040 1,900 Thomas & Betts Corp. (a) .......................... 64,999 20,000 Union Pacific Corp. ............................... 1,102,800 61,400 United Parcel Service, Inc. ....................... 3,295,952 ------------ 25,597,479 ------------ The accompanying notes are an integral part of these financial statements. 16 SCHEDULE OF INVESTMENTS PRIMECAP ODYSSEY STOCK FUND OCTOBER 31, 2009 - (CONTINUED) Shares Value -------------------------------------------------------------------------------- INFORMATION TECHNOLOGY: 18.8% 18,550 Accenture Ltd. - Class A .......................... 687,834 118,700 Applied Materials, Inc. ........................... 1,448,140 63,321 ASML Holding N.V. - ADR ........................... 1,705,868 45,600 Corning, Inc. ..................................... 666,216 45,100 Electronic Arts, Inc. (a) ......................... 822,624 237,800 EMC Corp. (a). .................................... 3,916,566 1,000 Google, Inc. (a) .................................. 536,120 25,400 Hewlett-Packard Co. ............................... 1,205,484 63,800 Intel Corp. ....................................... 1,219,218 44,400 Intersil Corp. .................................... 557,220 51,900 Intuit, Inc. (a) .................................. 1,508,733 30,100 KLA-Tencor Corp. .................................. 978,551 250,000 L.M. Ericsson Telephone Co. - ADR ................. 2,600,000 121,800 Microsoft Corp. ................................... 3,377,514 101,900 Motorola, Inc. .................................... 873,283 54,800 NeuStar, Inc. - Class A (a) ....................... 1,265,880 80,000 NVIDIA Corp. (a) .................................. 956,800 79,500 Oracle Corp. ...................................... 1,677,450 20,200 Research In Motion Ltd. (a) ....................... 1,186,346 108,800 Symantec Corp. (a) ................................ 1,912,704 142,400 Texas Instruments, Inc. ........................... 3,339,280 42,400 Xilinx, Inc. ...................................... 922,200 22,800 Yahoo!, Inc. (a) .................................. 362,520 ------------ 33,726,551 ------------ MATERIALS: 5.1% 8,725 Domtar Corp. (a) .................................. 365,490 22,300 Freeport-McMoRan Copper & Gold, Inc. (a) .......... 1,635,928 34,600 Monsanto Co. ...................................... 2,324,428 30,000 Newmont Mining Corp ............................... 1,303,800 19,400 Potash Corp. of Saskatchewan ...................... 1,799,932 7,400 Praxair, Inc. ..................................... 587,856 23,600 Vulcan Materials Co. .............................. 1,086,308 ------------ 9,103,742 ------------ The accompanying notes are an integral part of these financial statements. 17 SCHEDULE OF INVESTMENTS PRIMECAP ODYSSEY STOCK FUND OCTOBER 31, 2009 - (CONTINUED) Shares Value -------------------------------------------------------------------------------- TELECOMMUNICATION SERVICES: 0.2% 104,750 Sprint Nextel Corp. (a) ........................... $ 310,060 ------------ 310,060 ------------ TOTAL COMMON STOCKS (Cost $168,613,899) .......................................... 169,054,282 ------------ SHORT TERM INVESTMENTS: 5.6% 10,103,069 Dreyfus Treasury Prime Cash Management ............ 10,103,069 ------------ TOTAL SHORT TERM INVESTMENTS (Cost $10,103,069) ........................................... 10,103,069 ------------ TOTAL INVESTMENTS (Cost $178,716,968): 99.7% ................................... 179,157,351 Other Assets in Excess of Liabilities: 0.3% .................... 514,799 ------------ TOTAL NET ASSETS: 100.0% ....................................... $179,672,150 ============ ---------- 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. 18 [GRAPHIC] SCHEDULE OF INVESTMENTS PRIMECAP ODYSSEY GROWTH FUND OCTOBER 31, 2009 Shares Value -------------------------------------------------------------------------------- COMMON STOCKS: 93.4% CONSUMER DISCRETIONARY: 9.8% 250,000 99 Cents Only Stores (a) .......................... $ 2,842,500 65,800 Amazon.com, Inc. (a) .............................. 7,817,698 213,600 Bed Bath & Beyond, Inc. (a) ....................... 7,520,856 717,000 CarMax, Inc. (a). ................................. 14,103,390 40,000 Carnival Corp. .................................... 1,164,800 166,200 DIRECTV Group, Inc. (The) (a) ..................... 4,371,060 357,900 Dress Barn, Inc. (a) .............................. 6,460,095 228,500 Gentex Corp. ...................................... 3,658,285 55,850 Kohl's Corp. (a) .................................. 3,195,737 184,800 Mattel, Inc. ...................................... 3,498,264 343,800 Quiksilver, Inc. (a) .............................. 684,162 312,100 Sony Corp. - ADR .................................. 9,172,619 134,650 TJX Cos, Inc. ..................................... 5,029,178 ------------ 69,518,644 ------------ CONSUMER STAPLES: 0.2% 22,200 Procter & Gamble Co. .............................. 1,287,600 ------------ ENERGY: 5.6% 21,000 ConocoPhillips .................................... 1,053,780 70,000 EnCana Corp. ...................................... 3,877,300 115,400 EOG Resources, Inc. ............................... 9,423,564 140,000 National Oilwell Varco, Inc. (a) .................. 5,738,600 30,000 Noble Energy, Inc. ................................ 1,968,900 170,000 Oceaneering International, Inc. (a) ............... 8,687,000 10,000 Range Resources Corp. ............................. 500,500 130,100 Schlumberger Ltd. ................................. 8,092,220 ------------ 39,341,864 ------------ FINANCIALS: 3.1% 29,000 Bank of New York Mellon Corp. (The) ............... 773,140 1,779 Berkshire Hathaway, Inc. - Class B (a) ............ 5,840,457 80,000 Chubb Corp. ....................................... 3,881,600 420,000 Marsh & McLennan Cos, Inc. ........................ 9,853,200 120,000 Progressive Corp. (The) (a) ....................... 1,920,000 ------------ 22,268,397 ------------ The accompanying notes are an integral part of these financial statements. 19 SCHEDULE OF INVESTMENTS PRIMECAP ODYSSEY GROWTH FUND OCTOBER 31, 2009 - (CONTINUED) Shares Value -------------------------------------------------------------------------------- HEALTH CARE: 34.0% 500,000 Abiomed, Inc. (a) ................................. $ 4,525,000 750,000 Accuray, Inc. (a) ................................. 4,327,500 281,000 Affymetrix, Inc. (a) .............................. 1,469,630 537,600 Amgen, Inc. (a) ................................... 28,885,248 156,300 Biogen Idec, Inc. (a) ............................. 6,584,919 274,900 BioMarin Pharmaceutical, Inc. (a) ................. 4,277,444 922,100 Boston Scientific Corp. (a) ....................... 7,487,452 1,100,100 Cepheid, Inc. (a) ................................. 14,598,327 140,000 Cerner Corp. (a) .................................. 10,645,600 229,900 Charles River Laboratories International, Inc. (a) 8,395,948 1,151,800 Conceptus, Inc. (a) ............................... 20,202,572 310,000 Dendreon Corp. (a) ................................ 7,833,700 827,400 Eli Lilly & Co. ................................... 28,139,874 88,800 GlaxoSmithKline PLC - ADR ......................... 3,655,008 220,000 Illumina, Inc. (a) ................................ 7,062,000 80,000 Johnson & Johnson ................................. 4,724,000 200,000 Kinetic Concepts, Inc. (a) ........................ 6,638,000 509,100 Medtronic, Inc. ................................... 18,174,870 288,100 Micrus Endovascular Corp. (a) ..................... 3,405,342 260,800 Novartis AG - ADR ................................. 13,548,560 160,000 OraSure Technologies, Inc. (a) .................... 521,600 146,900 Roche Holding AG - CHF. ........................... 23,583,614 136,200 SurModics, Inc. (a) ............................... 3,488,082 146,500 Waters Corp. (a) .................................. 8,413,495 ------------ 240,587,785 ------------ INDUSTRIALS: 8.9% 1,227,300 AMR Corp. (a) ..................................... 6,615,147 200,000 C. H. Robinson Worldwide, Inc. .................... 11,022,000 136,000 Caterpillar, Inc. ................................. 7,488,160 187,565 Colfax Corp. (a) .................................. 2,040,707 160,000 Expeditors International Washington, Inc. ......... 5,155,200 50,600 FedEx Corp. ....................................... 3,678,114 284,550 JetBlue Airways Corp. (a) ......................... 1,411,368 180,000 McDermott International, Inc. (a) ................. 4,001,400 67,800 Pall Corp. ........................................ 2,151,972 33,100 Rockwell Automation, Inc. ......................... 1,355,445 1,392,900 Southwest Airlines Co. ............................ 11,700,360 113,300 United Parcel Service, Inc. ....................... 6,081,944 ------------ 62,701,817 ------------ The accompanying notes are an integral part of these financial statements. 20 SCHEDULE OF INVESTMENTS PRIMECAP ODYSSEY GROWTH FUND OCTOBER 31, 2009 - (CONTINUED) Shares Value -------------------------------------------------------------------------------- INFORMATION TECHNOLOGY: 29.4% 57,850 Accenture Ltd. - Class A .......................... $ 2,145,078 78,200 Adobe Systems, Inc. (a) ........................... 2,575,908 200,000 Akamai Technologies, Inc. (a) ..................... 4,400,000 400,000 Altera Corp. ...................................... 7,916,000 289,300 Applied Materials, Inc. ........................... 3,529,460 282,544 ASML Holding N.V. - ADR ........................... 7,611,735 138,000 Avid Technology, Inc. (a) ......................... 1,742,940 134,300 Avocent Corp. (a) ................................. 3,340,041 30,000 Cisco Systems, Inc. (a) ........................... 685,500 198,800 Corning, Inc. ..................................... 2,904,468 194,700 Cree, Inc. (a) .................................... 8,196,870 37,000 Cymer, Inc. (a) ................................... 1,266,880 440,000 Electronic Arts, Inc. (a) ......................... 8,025,600 783,700 EMC Corp. (a) ..................................... 12,907,539 1,240,000 Flextronics International Ltd. (a) ................ 8,035,200 529,700 FormFactor, Inc. (a) .............................. 8,999,603 36,460 Google, Inc. - Class A (a) ........................ 19,546,935 42,100 Hewlett-Packard Co. ............................... 1,998,066 185,500 Intel Corp. ....................................... 3,544,905 170,000 Intersil Corp. - Class A .......................... 2,133,500 390,400 Intuit, Inc. (a) .................................. 11,348,928 88,800 KLA-Tencor Corp. .................................. 2,886,888 1,015,000 L.M. Ericsson Telephone Co. - ADR ................. 10,556,000 49,000 McAfee, Inc. (a) .................................. 2,052,120 42,000 Micron Technology, Inc. (a) ....................... 285,180 292,300 Microsoft Corp. ................................... 8,105,479 208,200 Motorola, Inc. .................................... 1,784,274 195,900 NeuStar, Inc. - Class A (a) ....................... 4,525,290 800,000 Nuance Communications, Inc. (a) ................... 10,488,000 280,000 NVIDIA Corp. (a) .................................. 3,348,800 231,100 Oracle Corp. ...................................... 4,876,210 70,000 QUALCOMM, Inc. .................................... 2,898,700 409,800 Rambus, Inc. (a) .................................. 6,556,800 73,750 Research In Motion Ltd. (a) ....................... 4,331,338 151,800 SanDisk Corp. (a) ................................. 3,108,864 The accompanying notes are an integral part of these financial statements. 21 SCHEDULE OF INVESTMENTS PRIMECAP ODYSSEY GROWTH FUND OCTOBER 31, 2009 - (CONTINUED) Shares Value -------------------------------------------------------------------------------- INFORMATION TECHNOLOGY (CONTINUED) 171,400 Stratasys, Inc. (a) ............................... $ 2,704,692 289,000 Symantec Corp. (a) ................................ 5,080,620 301,000 Texas Instruments, Inc. ........................... 7,058,450 22,900 Trimble Navigation Ltd. (a) ....................... 480,213 158,300 Xilinx, Inc. ...................................... 3,443,025 ------------ 207,426,099 ------------ MATERIALS: 2.3% 139,800 Monsanto Co. ...................................... 9,391,764 37,150 Praxair, Inc. ..................................... 2,951,196 80,000 Vulcan Materials Co. .............................. 3,682,400 ------------ 16,025,360 ------------ TELECOMMUNICATION SERVICES: 0.1% 292,450 Sprint Nextel Corp. (a) ........................... 865,652 ------------ TOTAL COMMON STOCKS (Cost $692,155,643) .......................................... 660,023,218 ------------ SHORT TERM INVESTMENTS: 6.5% 45,917,687 Dreyfus Treasury Prime Cash Management ............ 45,917,687 ------------ TOTAL SHORT TERM INVESTMENTS (Cost $45,917,687) ........................................... 45,917,687 ------------ TOTAL INVESTMENTS (Cost $738,073,330): 99.9%. .................................. 705,940,905 Other Assets in Excess of Liabilities: 0.1% .................... 548,872 ------------ TOTAL NET ASSETS: 100.0% ....................................... $706,489,777 ============ ---------- 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. 22 [GRAPHIC] SCHEDULE OF INVESTMENTS PRIMECAP ODYSSEY AGGRESSIVE GROWTH FUND OCTOBER 31, 2009 Shares Value -------------------------------------------------------------------------------- COMMON STOCKS: 92.1% CONSUMER DISCRETIONARY: 4.9% 63,000 Amazon.com, Inc. (a) .............................. $ 7,485,030 293,400 CarMax, Inc. (a) .................................. 5,771,178 74,700 DIRECTV Group, Inc. (The) (a) ..................... 1,964,610 140,000 Gentex Corp. ...................................... 2,241,400 229,000 Quiksilver, Inc. (a) .............................. 455,710 ------------ 17,917,928 ------------ CONSUMER STAPLES: 5.5% 736,866 American Italian Pasta Co. - Class A (a) .......... 20,020,649 ------------ ENERGY: 4.2% 90,000 Cabot Oil & Gas Corp. ............................. 3,462,300 32,000 EOG Resources, Inc. ............................... 2,613,120 60,000 National Oilwell Varco, Inc. (a) .................. 2,459,400 74,000 Oceaneering International, Inc. (a) ............... 3,781,400 60,000 Range Resources Corp. ............................. 3,003,000 ------------ 15,319,220 ------------ FINANCIALS: 2.0% 605,820 MarketAxess Holdings, Inc. (a) .................... 7,197,141 ------------ HEALTH CARE: 33.8% 894,673 Abiomed, Inc. (a) ................................. 8,096,791 390,000 Accuray, Inc. (a) ................................. 2,250,300 222,000 Affymetrix, Inc. (a) .............................. 1,161,060 65,000 Biogen Idec, Inc. (a) ............................. 2,738,450 510,300 BioMarin Pharmaceutical, Inc. (a) ................. 7,940,268 948,100 Boston Scientific Corp. (a) ....................... 7,698,572 591,600 Cardica, Inc. (a) ................................. 739,500 1,152,800 Cepheid, Inc. (a) ................................. 15,297,656 50,900 Charles River Laboratories International, Inc. (a) 1,858,868 770,950 Conceptus, Inc. (a) ............................... 13,522,463 525,300 Dendreon Corp. (a) ................................ 13,274,331 1,150,000 Dyax Corp. (a) .................................... 3,611,000 60,000 ev3, Inc. (a) ..................................... 706,800 587,200 Immunogen, Inc. (a) ............................... 3,928,368 198,500 Kinetic Concepts, Inc. (a) ........................ 6,588,215 140,000 Luminex Corp. (a) ................................. 2,060,800 The accompanying notes are an integral part of these financial statements. 23 SCHEDULE OF INVESTMENTS PRIMECAP ODYSSEY AGGRESSIVE GROWTH FUND OCTOBER 31, 2009 - (CONTINUED) Shares Value -------------------------------------------------------------------------------- HEALTH CARE (CONTINUED) 315,000 Micrus Endovascular Corp. (a) ..................... $ 3,723,300 260,000 Nektar Therapeutics (a) ........................... 2,111,200 1,417,745 OraSure Technologies, Inc. (a) .................... 4,621,849 1,233,539 Pharmacyclics, Inc. (a) ........................... 2,405,401 96,600 Roche Holding AG - CHF ............................ 15,508,353 116,000 SurModics, Inc. (a) ............................... 2,970,760 ------------ 122,814,305 ------------ INDUSTRIALS: 7.4% 195,000 Alaska Air Group, Inc. (a) ........................ 5,015,400 960,000 AMR Corp. (a) ..................................... 5,174,400 64,000 C. H. Robinson Worldwide, Inc. .................... 3,527,040 441,210 Colfax Corp. (a) .................................. 4,800,365 495,425 JetBlue Airways Corp. (a) ......................... 2,457,308 53,000 Monster Worldwide, Inc. (a) ....................... 769,560 52,600 Pall Corp. ........................................ 1,669,524 320,600 Southwest Airlines Co. ............................ 2,693,040 90,000 US Airways Group, Inc. (a) ........................ 275,400 60,000 Vitran Corp, Inc. (a) ............................. 513,600 ------------ 26,895,637 ------------ INFORMATION TECHNOLOGY: 33.5% 180,000 Akamai Technologies, Inc. (a) ..................... 3,960,000 340,000 Altera Corp. ...................................... 6,728,600 283,288 ASML Holding N.V. - ADR ........................... 7,631,779 115,000 Avid Technology, Inc. (a) ......................... 1,452,450 205,000 Avocent Corp. (a) ................................. 5,098,350 145,600 Cree, Inc. (a) .................................... 6,129,760 96,500 Cymer, Inc. (a) ................................... 3,304,160 50,000 eBay, Inc. (a) .................................... 1,113,500 450,200 Electronic Arts, Inc. (a) ......................... 8,211,648 200,000 EMC Corp. (a) ..................................... 3,294,000 200,000 FARO Technologies, Inc. (a) ....................... 3,092,000 493,800 FormFactor, Inc. (a) .............................. 8,389,662 17,100 Google, Inc. (a) .................................. 9,167,652 452,100 Guidance Software, Inc. (a) ....................... 2,518,197 113,800 Intermec, Inc. (a) ................................ 1,402,016 255,000 Intuit, Inc. (a) .................................. 7,412,850 165,300 KLA-Tencor Corp. .................................. 5,373,903 The accompanying notes are an integral part of these financial statements. 24 SCHEDULE OF INVESTMENTS PRIMECAP ODYSSEY AGGRESSIVE GROWTH FUND OCTOBER 31, 2009 - (CONTINUED) Shares Value -------------------------------------------------------------------------------- INFORMATION TECHNOLOGY (CONTINUED) 57,500 McAfee, Inc. (a) .................................. $ 2,408,100 40,000 Micron Technology, Inc. (a) ....................... 271,600 149,200 NeuStar, Inc. - Class A (a) ....................... 3,446,520 340,000 Nuance Communications, Inc. (a) ................... 4,457,400 246,550 NVIDIA Corp. (a) .................................. 2,948,738 311,800 Rambus, Inc. (a) .................................. 4,988,800 96,900 Research In Motion Ltd. (a) ....................... 5,690,937 111,700 SanDisk Corp. (a) ................................. 2,287,616 214,300 SonicWall, Inc. (a) ............................... 1,701,542 262,400 Stratasys, Inc. (a) ............................... 4,140,672 180,900 Symantec Corp. (a) ................................ 3,180,222 58,000 Trimble Navigation Ltd (a) ........................ 1,216,260 25,000 Websense, Inc. (a) ................................ 401,500 25,000 Yahoo!, Inc. (a) .................................. 397,500 ------------ 121,817,934 ------------ MATERIALS: 0.6% 30,000 Monsanto Co. ...................................... 2,015,400 ------------ TELECOMMUNICATION SERVICES: 0.2% 296,700 Sprint Nextel Corp. (a) ........................... 878,232 ------------ TOTAL COMMON STOCKS (Cost $349,226,570) .......................................... 334,876,446 ------------ SHORT TERM INVESTMENTS: 8.3% 30,252,330 Dreyfus Treasury Prime Cash Management ............ 30,252,330 ------------ TOTAL SHORT TERM INVESTMENTS (Cost $30,252,330) ........................................... 30,252,330 ------------ TOTAL INVESTMENTS (Cost $379,478,900): 100.4% .................................. 365,128,776 Liabilities in Excess of Other Assets: (0.4)% .................. (1,297,984) ------------ TOTAL NET ASSETS: 100.0% ....................................... $363,830,792 ============ ---------- 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. 25 [GRAPHIC] STATEMENTS OF ASSETS AND LIABILITIES PRIMECAP ODYSSEY FUNDS OCTOBER 31, 2009
PRIMECAP PRIMECAP PRIMECAP ODYSSEY ODYSSEY ODYSSEY AGGRESSIVE STOCK FUND GROWTH FUND GROWTH FUND ------------- ------------- ------------- ASSETS Investments, at cost ..................... $ 178,716,968 $ 738,073,330 $ 379,478,900 ============= ============= ============= Investments, at value .................... $ 179,157,351 $ 705,940,905 $ 365,128,776 Receivables: Dividends and interest ................. 165,579 404,205 129,748 Fund shares sold ....................... 700,220 2,060,346 542,004 Prepaid expenses and other assets ........ 5,110 4,932 4,155 ------------- ------------- ------------- Total assets ........................... 180,028,260 708,410,388 365,804,683 ------------- ------------- ------------- LIABILITIES Payable for securities purchased ......... -- 350,460 1,136,231 Payable for fund shares repurchased ...... -- 432,675 186,266 Payable to advisor (Note 6) .............. 260,962 957,859 510,330 Payable to the custodian ................. 2,479 405 431 Other accrued expenses & liabilities ..... 92,669 179,212 140,633 ------------- ------------- ------------- Total liabilities ...................... 356,110 1,920,611 1,973,891 ------------- ------------- ------------- NET ASSETS ................................. $ 179,672,150 $ 706,489,777 $ 363,830,792 ============= ============= ============= Number of shares issued and outstanding (unlimited shares authorized, $0.01 par value) ............. 15,370,380 57,986,448 29,505,941 ============= ============= ============= NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE ............... $ 11.69 $ 12.18 $ 12.33 ============= ============= ============= COMPONENTS OF NET ASSETS Paid-in capital .......................... $ 213,159,122 $ 752,813,354 $ 392,041,476 Undistributed net investment income ................................. 1,385,823 1,256,012 -- Accumulated net realized loss on investments ......................... (35,321,874) (15,465,695) (13,876,683) Accumulated net unrealized appreciation (depreciation) on investments ......................... 449,079 (32,113,894) (14,334,001) ------------- ------------- ------------- Net assets ........................... $ 179,672,150 $ 706,489,777 $ 363,830,792 ============= ============= =============
The accompanying notes are an integral part of these financial statements. 26 [GRAPHIC] STATEMENTS OF OPERATIONS PRIMECAP ODYSSEY FUNDS FOR THE YEAR ENDED OCTOBER 31, 2009
PRIMECAP PRIMECAP PRIMECAP ODYSSEY ODYSSEY ODYSSEY AGGRESSIVE STOCK FUND GROWTH FUND GROWTH FUND ------------- ------------- ------------- INVESTMENT INCOME Income Dividends (net of foreign taxes withheld of $82,555, $156,499, and $47,051, respectively) ........... $ 3,040,012 $ 5,136,249 $ 616,666 Interest income ........................ 8,783 16,089 10,955 ------------- ------------- ------------- Total income ......................... 3,048,795 5,152,338 627,621 ------------- ------------- ------------- Expenses Advisory fees .......................... 1,004,907 2,739,706 1,506,221 Fund administration and accounting costs ..................... 101,213 247,295 137,544 Professional fees ...................... 58,952 91,579 66,531 Shareholder servicing fees and expenses ......................... 97,134 172,725 165,871 Federal and state registration fees .... 28,985 30,773 28,539 Custody fees ........................... 21,262 48,112 28,621 Trustee fees and expenses .............. 29,024 29,244 28,974 Printing and mailing ................... 17,216 32,444 48,450 Other expenses ......................... 30,789 63,347 36,606 ------------- ------------- ------------- Total expenses ....................... 1,389,482 3,455,225 2,047,357 ------------- ------------- ------------- NET INVESTMENT INCOME (LOSS) ....... 1,659,313 1,697,113 (1,419,736) ------------- ------------- ------------- REALIZED AND CHANGE IN UNREALIZED GAIN ON INVESTMENTS Net realized loss on investments ......... (28,008,473) (13,802,550) (10,430,012) ------------- ------------- ------------- Net change in unrealized appreciation on investments ............ 47,825,757 114,126,729 85,726,892 ------------- ------------- ------------- Net realized loss and net change in unrealized gain on investments ......... 19,817,284 100,324,179 75,296,880 ------------- ------------- ------------- NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS .......... $ 21,476,597 $ 102,021,292 $ 73,877,144 ============= ============= =============
The accompanying notes are an integral part of these financial statements. 27 [GRAPHIC] STATEMENT OF CHANGES IN NET ASSETS PRIMECAP ODYSSEY STOCK FUND
YEAR ENDED YEAR ENDED OCTOBER 31, 2009 OCTOBER 31, 2008 ---------------- ---------------- INCREASE (DECREASE) IN NET ASSETS FROM: OPERATIONS Net investment income ....................................... $ 1,659,313 $ 1,050,452 Net realized loss on investments ............................ (28,008,473) (4,884,429) Net change in unrealized appreciation (depreciation) on investments ............................................ 47,825,757 (72,983,012) ------------- ------------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS ............................... 21,476,597 (76,816,989) ------------- ------------- DISTRIBUTIONS TO SHAREHOLDERS Net investment income ....................................... (1,193,169) (1,004,697) Realized gain on investments ................................ -- (1,730,950) ------------- ------------- TOTAL DISTRIBUTIONS TO SHAREHOLDERS ....................... (1,193,169) (2,735,647) ------------- ------------- CAPITAL SHARE TRANSACTIONS Proceeds from shares sold ................................... 100,416,214 105,717,172 Proceeds from reinvestment of distribution .................. 1,191,178 2,729,618 Cost of shares redeemed ..................................... (129,262,401) (58,327,033) Redemption fee proceeds ..................................... 72,580 16,796 ------------- ------------- NET INCREASE (DECREASE) FROM CAPITAL SHARE TRANSACTIONS ... (27,582,429) 50,136,553 ------------- ------------- TOTAL DECREASE IN NET ASSETS .............................. (7,299,001) (29,416,083) NET ASSETS Beginning of year ........................................... 186,971,151 216,387,234 ------------- ------------- End of year (including undistributed net investment income of $1,385,823 and $893,333, respectively) .......... $ 179,672,150 $ 186,971,151 ============= ============= CHANGE IN CAPITAL SHARES Shares Outstanding, beginning of year ....................... 18,503,767 14,221,625 ------------- ------------- Shares sold ............................................... 10,460,306 8,671,951 Shares issued on reinvestment of distributions ............ 129,476 195,812 Shares repurchased ........................................ (13,723,169) (4,585,621) ------------- ------------- Net increase (decrease) in capital shares ............... (3,133,387) 4,282,142 ------------- ------------- Shares Outstanding, end of year ............................. 15,370,380 18,503,767 ============= =============
The accompanying notes are an integral part of these financial statements. 28 [GRAPHIC] STATEMENT OF CHANGES IN NET ASSETS PRIMECAP ODYSSEY GROWTH FUND
YEAR ENDED YEAR ENDED OCTOBER 31, 2009 OCTOBER 31, 2008 ---------------- ---------------- INCREASE (DECREASE) IN NET ASSETS FROM: OPERATIONS Net investment income ................................... $ 1,697,113 $ 1,260,052 Net realized loss on investments ........................ (13,802,550) (1,685,524) Net change in unrealized appreciation (depreciation) on investments ......................................... 114,126,729 (210,303,550) ------------- ------------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS ............................ 102,021,292 (210,729,022) ------------- ------------- DISTRIBUTIONS TO SHAREHOLDERS Net investment income ................................... (1,291,445) (1,327,014) Realized gain on investments ............................ -- (1,320,226) ------------- ------------- TOTAL DISTRIBUTIONS TO SHAREHOLDERS ................... (1,291,445) (2,647,240) ------------- ------------- CAPITAL SHARE TRANSACTIONS Proceeds from shares sold ............................... 371,086,180 219,128,199 Proceeds from reinvestment of distribution .............. 1,224,200 2,590,543 Cost of shares redeemed ................................. (178,976,597) (108,029,238) Redemption fee proceeds ................................. 46,291 50,321 ------------- ------------- NET INCREASE FROM CAPITAL SHARE TRANSACTIONS .......... 193,380,074 113,739,825 ------------- ------------- TOTAL INCREASE (DECREASE) IN NET ASSETS ............... 294,109,921 (99,636,437) NET ASSETS Beginning of period ..................................... 412,379,856 512,016,293 ------------- ------------- End of year (including undistributed net investment income of $1,256,012 and $874,008, respectively) ...... $ 706,489,777 $ 412,379,856 ============= ============= CHANGE IN CAPITAL SHARES Shares Outstanding, beginning of year ................... 40,960,083 32,598,060 ------------- ------------- Shares sold ........................................... 35,350,990 16,494,850 Shares issued on reinvestment of distributions ........ 132,203 180,904 Shares repurchased .................................... (18,456,828) (8,313,731) ------------- ------------- Net increase in capital shares ...................... 17,026,365 8,362,023 ------------- ------------- Shares Outstanding, end of year ......................... 57,986,448 40,960,083 ============= =============
The accompanying notes are an integral part of these financial statements. 29 STATEMENT OF CHANGES IN NET ASSETS PRIMECAP ODYSSEY AGGRESSIVE GROWTH FUND
YEAR ENDED YEAR ENDED OCTOBER 31, 2009 OCTOBER 31, 2008 ---------------- ---------------- INCREASE (DECREASE) IN NET ASSETS FROM: OPERATIONS Net investment loss .................................... $ (1,419,736) $ (1,315,073) Net realized loss on investments ....................... (10,430,012) (3,398,525) Net change in unrealized appreciation (depreciation) on investments ....................................... 85,726,892 (146,850,322) ------------- ------------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS .......................... 73,877,144 (151,563,920) ------------- ------------- DISTRIBUTIONS TO SHAREHOLDERS Realized gain on investments ........................... -- (2,095,284) ------------- ------------- CAPITAL SHARE TRANSACTIONS Proceeds from shares sold .............................. 125,071,901 95,788,080 Proceeds from reinvestment of distribution ............. -- 2,053,073 Cost of shares repurchased ............................. (60,586,982) (94,028,746) Redemption fee proceeds ................................ 40,419 41,578 ------------- ------------- NET INCREASE FROM CAPITAL SHARE TRANSACTIONS ......... 64,525,338 3,853,985 ------------- ------------- TOTAL INCREASE (DECREASE) IN NET ASSETS .............. 138,402,482 (149,805,219) NET ASSETS Beginning of year ...................................... 225,428,310 375,233,529 ------------- ------------- End of year ............................................ $ 363,830,792 $ 225,428,310 ============= ============= CHANGE IN CAPITAL SHARES Shares Outstanding, beginning of year .................. 23,820,611 23,401,238 ------------- ------------- Shares sold .......................................... 12,038,983 7,717,895 Shares issued on reinvestment of distributions ....... -- 146,753 Shares repurchased ................................... (6,353,653) (7,445,275) ------------- ------------- Net increase in capital shares ..................... 5,685,330 419,373 ------------- ------------- Shares Outstanding, end of year ........................ 29,505,941 23,820,611 ============= =============
The accompanying notes are an integral part of these financial statements. 30 [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 YEAR YEAR YEAR YEAR ENDED ENDED ENDED ENDED ENDED OCT. 31, OCT. 31, OCT. 31, OCT. 31, OCT. 31, 2009 2008 2007 2006 2005(2) -------- -------- -------- -------- -------- Net asset value, beginning of period ........ $ 10.10 $ 15.22 $ 13.48 $ 11.48 $ 10.00 -------- -------- -------- -------- -------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) .............. 0.10 0.06 0.07 0.03 (0.01) Net realized and unrealized gain (loss) on investments .............. 1.55 (4.99) 1.79 1.97 1.49 -------- -------- -------- -------- -------- Total from investment operations ............ 1.65 (4.93) 1.86 2.00 1.48 -------- -------- -------- -------- -------- LESS DISTRIBUTIONS: Dividends from net investment income ...... (0.06) (0.07) (0.04) 0.00(1) 0.00 Distributions from realized gain .......... 0.00 (0.12) (0.08) 0.00(1) 0.00 -------- -------- -------- -------- -------- Total distributions ......................... (0.06) (0.19) (0.12) 0.00 0.00 -------- -------- -------- -------- -------- Redemption fee proceeds ..................... 0.00(1) 0.00(1) 0.00(1) 0.00(1) 0.00(1) -------- -------- -------- -------- -------- Net asset value, end of period .............. $ 11.69 $ 10.10 $ 15.22 $ 13.48 $ 11.48 ======== ======== ======== ======== ======== Total return ................................ 16.55% (32.73%) 13.88% 17.48% 14.80% RATIOS/SUPPLEMENTAL DATA: Net assets, end of period (millions) ...... $ 179.7 $ 187.0 $ 216.4 $ 88.4 $ 30.1 RATIO OF EXPENSES TO AVERAGE NET ASSETS: Before fees waived and expenses absorbed or recouped .................... 0.80% 0.79% 0.81% 0.99% 1.80% After fees waived and expenses absorbed or recouped .................... 0.80% 0.79% 0.81% 0.99% 1.25% RATIO OF NET INVESTMENT INCOME (LOSS) TO AVERAGE NET ASSETS .............. 0.96% 0.51% 0.59% 0.41% (0.11%) Portfolio turnover rate ..................... 33.55% 9.66% 5.87% 4.09% 12.46%
(1) Amount represents less than $0.01 per share. (2) Commenced operations on November 1, 2004. The accompanying notes are an integral part of these financial statements. 31 [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 YEAR YEAR YEAR YEAR ENDED ENDED ENDED ENDED ENDED OCT. 31, OCT. 31, OCT. 31, OCT. 31, OCT. 31, 2009 2008 2007 2006 2005(2) -------- -------- -------- -------- -------- Net asset value, beginning of period ......... $ 10.07 $ 15.71 $ 13.76 $ 11.62 $ 10.00 -------- -------- -------- -------- -------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) ............... 0.03 0.03 0.04 0.01 (0.01) Net realized and unrealized gain (loss) on investments ............... 2.11 (5.59) 2.07 2.14 1.63 -------- -------- -------- -------- -------- Total from investment operations ............. 2.14 (5.56) 2.11 2.15 1.62 -------- -------- -------- -------- -------- LESS DISTRIBUTIONS: Dividends from net investment income ....... (0.03) (0.04) (0.02) 0.00(1) 0.00 Distributions from realized gain ........... 0.00 (0.04) (0.14) (0.01) 0.00 -------- -------- -------- -------- -------- Total distributions .......................... (0.03) (0.08) (0.16) (0.01) 0.00 -------- -------- -------- -------- -------- Redemption fee proceeds ...................... 0.00(1) 0.00(1) 0.00(1) 0.00(1) 0.00(1) -------- -------- -------- -------- -------- Net asset value, end of period ............... $ 12.18 $ 10.07 $ 15.71 $ 13.76 $ 11.62 ======== ======== ======== ======== ======== Total return ................................. 21.39% (35.55%) 15.46% 18.49% 16.20% RATIOS/SUPPLEMENTAL DATA: Net assets, end of period (millions) ....... $ 706.5 $ 412.4 $ 512.0 $ 202.2 $ 46.6 RATIO OF EXPENSES TO AVERAGE NET ASSETS: Before fees waived and expenses absorbed or recouped ..................... 0.71% 0.71% 0.75% 0.89% 1.79% After fees waived and expenses absorbed or recouped ..................... 0.71% 0.71% 0.75% 0.89% 1.25% RATIO OF NET INVESTMENT INCOME (LOSS) TO AVERAGE NET ASSETS ............... 0.35% 0.26% 0.30% 0.19% (0.27%) Portfolio turnover rate ...................... 12.49% 12.72% 4.83% 6.87% 8.84%
(1) Amount represents less than $0.01 per share. (2) Commenced operations on November 1, 2004. The accompanying notes are an integral part of these financial statements. 32 [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 YEAR YEAR YEAR YEAR ENDED ENDED ENDED ENDED ENDED OCT. 31, OCT. 31, OCT. 31, OCT. 31, OCT. 31, 2009 2008 2007 2006 2005(2) -------- -------- -------- -------- -------- Net asset value, beginning of period ........ $ 9.46 $ 16.03 $ 13.92 $ 11.24 $ 10.00 -------- -------- -------- -------- -------- INCOME FROM INVESTMENT OPERATIONS: Net investment loss ....................... (0.05) (0.06) (0.03) (0.02) (0.06) Net realized and unrealized gain (loss) on investments .............. 2.92 (6.42) 2.34 2.70 1.30 -------- -------- -------- -------- -------- Total from investment operations ............ 2.87 (6.48) 2.31 2.68 1.24 -------- -------- -------- -------- -------- LESS DISTRIBUTIONS: Distributions from realized gain .......... 0.00 (0.09) (0.20) 0.00 0.00 -------- -------- -------- -------- -------- Redemption fee proceeds ..................... 0.00(1) 0.00(1) 0.00(1) 0.00(1) 0.00(1) -------- -------- -------- -------- -------- Net asset value, end of period .............. $ 12.33 $ 9.46 $ 16.03 $ 13.92 $ 11.24 ======== ======== ======== ======== ======== Total return ................................ 30.34% (40.60%) 16.76% 23.84% 12.40% RATIOS/SUPPLEMENTAL DATA: Net assets, end of period (millions) ...... $ 363.8 $ 225.4 $ 375.2 $ 119.9 $ 22.8 RATIO OF EXPENSES TO AVERAGE NET ASSETS: Before fees waived and expenses absorbed or recouped .................... 0.77% 0.78% 0.78% 0.99% 1.82% After fees waived and expenses absorbed or recouped .................... 0.77% 0.78% 0.78% 0.99% 1.25% RATIO OF NET INVESTMENT LOSS TO AVERAGE NET ASSETS ..................... (0.54%) (0.46%) (0.25%) (0.33%) (0.82%) Portfolio turnover rate ..................... 19.70% 24.32% 6.02% 12.30% 7.38%
(1) Amount represents less than $0.01 per share. (2) Commenced operations on November 1, 2004. The accompanying notes are an integral part of these financial statements. 33 [GRAPHIC] NOTES TO FINANCIAL STATEMENTS PRIMECAP ODYSSEY FUNDS FOR THE YEAR ENDED OCTOBER 31, 2009 (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 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, the NASDAQ Global Select Market, and the NASDAQ Capital Market are valued using the NASDAQ Official Closing Price, which may not necessarily represent the last sale price. Quotations of foreign securities in a foreign currency are valued daily in U.S. dollars on the basis of the foreign currency exchange rates prevailing at the time such valuation is determined. Foreign currency exchange rates generally are determined prior to the close of the New York Stock Exchange (the "NYSE"). 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 Trust's board of trustees. In determining fair value, the Funds take into account all relevant factors and available information. Consequently, the price of a security used by a Fund to calculate its net asset value per share ("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 1940 Act. 34 NOTES TO FINANCIAL STATEMENTS PRIMECAP ODYSSEY FUNDS FOR THE YEAR ENDED OCTOBER 31, 2009 - (CONTINUED) 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. B. SHARE VALUATION. The net asset value per share ("NAV") 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. There is no tax liability resulting from unrecognized tax benefits relating to uncertain income tax positions taken or expected to be taken on the tax return for the fiscal year-end October 31, 2009, or for any other tax years which are open for exam. As of October 31, 2009, open tax years include the tax years ended October 31, 2006 through 2009. The Funds are also not aware of any tax positions for which it is reasonably possible that the total amounts of unrecognized tax benefits will significantly change in the next six months. The Funds recognize interest and penalties, if any, related to unrecognized tax benefits as income tax expense in the Statement of Operations. During the period, the Funds did not incur any interest or penalties. 35 NOTES TO FINANCIAL STATEMENTS PRIMECAP ODYSSEY FUNDS FOR THE YEAR ENDED OCTOBER 31, 2009 - (CONTINUED) 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. 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 Trust's 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, 2009 were as follows: FUND PURCHASES SALES --- ------------ ------------ PRIMECAP Odyssey Stock Fund .................. $ 55,476,453 $ 69,751,420 PRIMECAP Odyssey Growth Fund ................. $216,696,413 $ 57,988,164 PRIMECAP Odyssey Aggressive Growth Fund ...... $ 97,019,919 $ 48,924,487 ---------- These amounts exclude securities transferred in the in-kind transfer (Note 5). 36 NOTES TO FINANCIAL STATEMENTS PRIMECAP ODYSSEY FUNDS FOR THE YEAR ENDED OCTOBER 31, 2009 - (CONTINUED) (4) FAIR VALUE OF FINANCIAL INSTRUMENTS The Funds have adopted authoritative fair valuation accounting standards which establish an authoritative definition of fair value and set out a hierarchy for measuring fair value. These standards require additional disclosures about the various inputs and valuation techniques used to develop the measurements of fair value and a discussion in changes in valuation techniques and related inputs during the period. These inputs are summarized in the three broad levels listed below: Level 1 - Quoted unadjusted prices for identical instruments in active markets to which the Funds have access at the date of measurement. Level 2 - Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model- derived valuations in which all significant inputs and significant value drivers are observable in active markets. Level 2 inputs are those in markets for which there are few transactions, the prices are not current, little public information exists, or instances where prices vary substantially over time or among brokered market makers. Level 3 - Model derived valuations in which one or more significant inputs or significant value drivers are unobservable. Unobservable inputs are those inputs that reflect the Funds own assumptions that market participants would use to price the asset or liability based on the best available information 37 NOTES TO FINANCIAL STATEMENTS PRIMECAP ODYSSEY FUNDS FOR THE YEAR ENDED OCTOBER 31, 2009 - (CONTINUED) The following table provides the fair value measurements of applicable Fund assets by level within the fair value hierarchy for each Fund as of October 31, 2009. These assets are measured on a recurring basis.
QUOTED PRICES SIGNIFICANT IN ACTIVE OTHER SIGNIFICANT MARKETS FOR OBSERVABLE UNOBSERVABLE IDENTICAL ASSETS INPUTS INPUTS FUND DESCRIPTION (LEVEL 1) (LEVEL 2) (LEVEL 3) TOTAL ---- ----------- ---------------- ----------- ------------ ----- PRIMECAP Equity ODYSSEY STOCK Common Stock $169,054,282 $ -- $ -- $169,054,282 FUND ------------ ---- ---- ------------ Total Equity $169,054,282 $ -- $ -- $169,054,282 ------------ ---- ---- ------------ Short-Term Investments $ 10,103,069 $ -- $ -- $ 10,103,069 ------------ ---- ---- ------------ Total Investments in Securities $179,157,351 $ -- $ -- $179,157,351 ============ ==== ==== ============ PRIMECAP Equity ODYSSEY GROWTH Common Stock $660,023,218 $ -- $ -- $660,023,218 FUND ------------ ---- ---- ------------ Total Equity $660,023,218 $ -- $ -- $660,023,218 ------------ ---- ---- ------------ Short-Term Investments $ 45,917,687 $ -- $ -- $ 45,917,687 ------------ ---- ---- ------------ Total Investments in Securities $705,940,905 $ -- $ -- $705,940,905 ============ ==== ==== ============ PRIMECAP Equity ODYSSEY Common Stock $334,876,446 $ -- $ -- $334,876,446 AGGRESSIVE ------------ ---- ---- ------------ GROWTH FUND Total Equity $334,876,446 $ -- $ -- $334,876,446 ------------ ---- ---- ------------ Short-Term Investments $ 30,252,330 $ -- $ -- $ 30,252,330 ------------ ---- ---- ------------ Total Investments in Securities $365,128,776 $ -- $ -- $365,128,776 ============ ==== ==== ============
---------- Refer to each Fund's respective Schedule of Investments for the breakdown of major categories. 38 NOTES TO FINANCIAL STATEMENTS PRIMECAP ODYSSEY FUNDS FOR THE YEAR ENDED OCTOBER 31, 2009 - (CONTINUED) (5) 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, 2009, the components of capital on a tax basis were as follows:
PRIMECAP PRIMECAP PRIMECAP ODYSSEY ODYSSEY ODYSSEY AGGRESSIVE STOCK FUND GROWTH FUND GROWTH FUND ------------- ------------- ------------- Cost of investments for tax purposes(1) .................. $ 183,468,929 $ 742,113,539 $ 379,523,723 ============= ============= ============= Gross tax unrealized appreciation ......................... 21,373,303 75,226,142 54,692,911 Gross tax unrealized depreciation ......................... (25,676,185) (111,380,245) (69,071,735) ------------- ------------- ------------- Net tax unrealized depreciation ........ $ (4,302,882) $ (36,154,103) $ (14,378,824) ============= ============= ============= Currently distributable ordinary income ...................... $ 1,385,823 $ 1,256,012 $ -- Currently distributable long-term capital gain ......................... -- -- -- ------------- ------------- ------------- Currently total distributable earnings ............................. $ 1,385,823 $ 1,256,012 $ -- ------------- ------------- ------------- Other accumulated loss ................. $ (30,569,914) $ (11,425,486) $ (13,831,859) ------------- ------------- ------------- Total accumulated loss ................. $ (33,486,973) $ (46,323,577) $ (28,210,683) ============= ============= =============
---------- (1) At October 31, 2009, the basis of investments for federal income tax purposes differs from the cost for financial reporting purposes due to the tax deferral of losses on wash sales. 39 NOTES TO FINANCIAL STATEMENTS PRIMECAP ODYSSEY FUNDS FOR THE YEAR ENDED OCTOBER 31, 2009 - (CONTINUED) U.S. Generally Accepted Accounting Principles (GAAP) require that certain components of net assets relating to permanent differences be reclassified between financial and tax reporting. These reclassifications have no effect on net assets or net asset value per share. During the fiscal year ended October 31, 2009 the reclassifications were as follows: UNDISTRIBUTED ACCUMULATED NET INVESTMENT NET REALIZED INCOME LOSS PAID IN CAPITAL ------ ---- --------------- PRIMECAP Odyssey Stock Fund ................. 26,346 (2,388,622) 2,362,276 PRIMECAP Odyssey Growth Fund ................ (23,664) 23,664 -- PRIMECAP Odyssey Aggressive Growth Fund ..... 1,419,736 (1,446) (1,418,290) The permanent differences relate to net operating loss and foreign currency adjustments and in-kind transfers of securities with differing book and tax methods of accounting. During the year ended October 31, 2009, the PRIMECAP Odyssey Stock Fund realized a $2,362,276 gain resulting from an in-kind transfer of securities to the PRIMECAP Odyssey Growth Fund in connection with a shareholder redemption. Because such gains are not taxable, the transaction resulted in a permanent book-to-tax difference for the PRIMECAP Odyssey Stock Fund. At October 31, 2009, the PRIMECAP Odyssey Stock Fund, PRIMECAP Odyssey Growth Fund, and PRIMECAP Odyssey Aggressive Growth Fund had capital loss carryovers of $30,569,914, $11,425,486, and $13,831,859, respectively, of which $4,884,883, $1,686,809, and $3,399,678, expire on October 31, 2016 and $25,685,031, $9,738,677, and $10,432,181, expire on October 31, 2017, respectively. Tax components of dividends paid during the year ended October 31, 2009 and the year ended October 31, 2008 were as follows: OCTOBER 31, 2009 --------------------------------- ORDINARY LONG-TERM INCOME CAPITAL GAIN DISTRIBUTIONS DISTRIBUTIONS ------------- ------------- PRIMECAP Odyssey Stock Fund. ............. $1,193,169 $ -- PRIMECAP Odyssey Growth Fund ............. $1,291,445 $ -- PRIMECAP Odyssey Aggressive Growth Fund .. $ -- $ -- OCTOBER 31, 2008 --------------------------------- ORDINARY LONG-TERM INCOME CAPITAL GAIN DISTRIBUTIONS DISTRIBUTIONS ------------- ------------- PRIMECAP Odyssey Stock Fund. ............. $1,518,217 $1,217,430 PRIMECAP Odyssey Growth Fund ............. $2,159,493 $ 487,747 PRIMECAP Odyssey Aggressive Growth Fund .. $1,834,245 $ 261,039 40 NOTES TO FINANCIAL STATEMENTS PRIMECAP ODYSSEY FUNDS FOR THE YEAR ENDED OCTOBER 31, 2009- (CONTINUED) The Funds designated as long-term capital gain dividends, pursuant to Internal Revenue Code Section 852(b)(3), the amounts necessary to reduce the earnings and profits of the Funds related to net capital gains to zero for the tax year ended October 31, 2009. (6) 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 Bank of New York Mellon Corporation 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. (7) SUBSEQUENT EVENTS As of December 23, 2009, the date the financial statements were available to be issued, no subsequent events or transactions had occurred that would have materially impacted the financial statements. 41 [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 (the "Funds") at October 31, 2009, the results of each of their operations for the year then ended, the changes in each of their net assets for each of the two years in the period then ended and the financial highlights for each of the periods presented, 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 audits 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, 2009 by correspondence with the custodian and brokers, provide a reasonable basis for our opinion. PRICEWATERHOUSECOOPERS, LLP San Francisco, California December 23, 2009 42 [GRAPHIC] ADDITIONAL INFORMATION PRIMECAP ODYSSEY FUNDS (UNAUDITED) ADDITIONAL TAX INFORMATION The PRIMECAP Odyssey Stock Fund and PRIMECAP Odyssey Growth Fund designate 100% and 100%, respectively, of ordinary income distributions paid during the fiscal year ended October 31, 2009 as qualified dividend income. The PRIMECAP Odyssey Stock Fund and PRIMECAP Odyssey Growth Fund designate 100% and 100%, respectively, of ordinary income distributions paid during the fiscal year ended October 31, 2009 as dividends qualifying for the dividends received deduction available for corporate shareholders. TAX NOTICE ADDITIONAL INFORMATION FOR FOREIGN SHAREHOLDERS ONLY: The PRIMECAP Odyssey Stock Fund and PRIMECAP Odyssey Growth Fund designate 7% and 9%, respectively, of ordinary income distributions paid during the fiscal year ended October 31, 2009 as interest related dividends under the Internal Revenue Code Section 871 (k)(1)(c). 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. 43 ADDITIONAL INFORMATION PRIMECAP ODYSSEY FUNDS (UNAUDITED), (CONTINUED) BOARD APPROVAL OF THE RENEWAL OF THE INVESTMENT ADVISORY AGREEMENT The Board of Trustees of PRIMECAP Odyssey Funds (the "Trust") is comprised of five Trustees, four of whom are not "interested persons" of the Trust within the meaning of the Investment Company Act of 1940, as amended (the "Independent Trustees"). In September 2009, the Board of Trustees, including the Independent Trustees, approved a one-year renewal of the Trust's investment advisory agreement (the "Investment Advisory Agreement") with PRIMECAP Management Company (the "Investment Advisor"). GENERAL INFORMATION The following information summarizes the Board's considerations associated with its review 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. In considering these matters, the Board discussed the renewal of the Investment Advisory Agreement with management, and the Independent Trustees met in private sessions with counsel at which no employees 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 of the Investment Advisor providing services to the Funds. They also took into account information they received at past Board meetings with respect to these matters. In deciding to approve the renewal of the Investment Advisory Agreement, the Board and the Independent Trustees did not identify a single factor as controlling, and this summary does not describe all of the matters considered. However, the Board and the Independent Trustees concluded that each of the various factors referred to below favored such approval. NATURE, EXTENT AND QUALITY OF SERVICES The Board discussed the services provided by the Investment Advisor to the Funds under the Investment Advisory Agreement, including the background, education and experience of its 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 and trading 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 and the Independent Trustees concluded that the nature, extent and quality of services provided under the Investment Advisory Agreement were satisfactory. 44 ADDITIONAL INFORMATION PRIMECAP ODYSSEY FUNDS (UNAUDITED), (CONTINUED) INVESTMENT PERFORMANCE The Board assessed the performance of each Fund compared with its benchmark and the average of a peer group of funds (each a "peer group") selected by Lipper, Inc. ("Lipper") for the year-to-date and one-year and three-year periods ended June 30, 2009 and for the inception-to-date period ended July 31, 2009. The Board made the following observations in reviewing the Funds' performance: o The PRIMECAP Odyssey Stock Fund performed in line with the median return of the funds in the Lipper Multi-Cap Core fund peer group, but outperformed the S&P 500 Index for the year-to-date, one- and three-year periods ended June 30, 2009 and the period from the Fund's inception through July 31, 2009. o The year-to-date, one-year and three-year total return of the PRIMECAP Odyssey Growth Fund exceeded the median return of the funds in the Lipper Multi-Cap Core fund peer group and the S&P 500 Index for the period ended June 30, 2009. The return from the Fund's inception through July 31, 2009 was also better than that of the S&P 500 Index and the Russell 1000 Growth Index. o The performance of the PRIMECAP Odyssey Aggressive Growth Fund exceeded the median return of the funds in the Lipper Mid-Cap Growth fund peer group and the S&P 500 Index for the year-to-date, one-year and three-year periods ended June 30, 2009. The Fund also outperformed the S&P 500 Index and the Russell Midcap Growth Index from the Fund's inception through July 31, 2009. Based on the information provided to them, the Board and the Independent Trustees concluded that the performance of each Fund was satisfactory. ADVISORY FEES AND FUND EXPENSES The Board reviewed the fees and expenses paid by each Fund to the Investment Advisor and an analysis of Lipper data with respect to the fees and expenses paid by comparable funds, noting in particular that: o The PRIMECAP Odyssey Stock Fund had the lowest total expense ratio and the second-lowest advisory fee in its Lipper peer group. In addition, the Fund's non-advisory expenses were below the peer group median. o The PRIMECAP Odyssey Growth Fund had the lowest total expense ratio in its Lipper peer group, and its advisory fee and non-advisory expenses were below the peer group median. o The total expense ratio, advisory fee and non-advisory expenses of the PRIMECAP Odyssey Aggressive Growth Fund were below the median of its Lipper peer group. 45 ADDITIONAL INFORMATION PRIMECAP ODYSSEY FUNDS (UNAUDITED), (CONTINUED) The Board also reviewed the fees charged by the Investment Advisor to other clients, including other funds for which it serves as sub-adviser. The Board noted that, although such fees were lower than those charged to the Funds, the Investment Advisor provided additional services to the Funds that it did not provide to other clients. The Board and the Independent Trustees determined that the advisory fees and expenses charged to the Funds were reasonable in consideration of the services provided. COSTS AND PROFITS OF THE INVESTMENT ADVISOR The Board reviewed information relating to the costs of the Investment Advisor in providing ser- vices under the Investment Advisory Agreement and the Investment Advisor's profitability under that Agreement. The Board noted that, at the Funds' current asset levels, the Investment Advisory Agreement was less profitable to the Investment Advisor than its other advisory relationships. The Board and the Independent Trustees determined that the Investment Advisor's profitability under the Investment Advisory Agreement was reasonable in light of the nature, extent and quality of the services provided to the Funds. ECONOMIES OF SCALE AND OTHER BENEFITS TO THE INVESTMENT ADVISOR The Board reviewed whether the Funds had achieved economies of scale, noting that the Funds' asset levels had fluctuated significantly during the past twelve months. The Board and the Independent Trustees noted that the current asset levels of the Funds were not so substantial as to lead to economies of scale that would necessitate including additional breakpoints in the advisory fee schedule. The Board also considered the benefits received by the Investment Advisor as a result of its relationship with the Funds, including investment advisory fees and the intangible benefits of any favorable publicity arising in connection with the Funds' performance. CONCLUSIONS Based on their review, including their consideration of each of the factors referred to above, the Board and the Independent Trustees concluded that the compensation payable to the Investment Advisor pursuant to the Investment Advisory Agreement is fair and reasonable in light of the services being provided by the Investment Advisor to the Funds and their shareholders, and that renewal of the Investment Advisory Agreement was in the best interest of the Funds and their shareholders. 46 [GRAPHIC] MANAGEMENT PRIMECAP ODYSSEY FUNDS (UNAUDITED) PORTFOLIO MANAGERS PRIMECAP Management Company has five portfolio managers who together have more than 170 years of investment experience. Each of these five individuals manages a portion of the PRIMECAP Odyssey Stock Fund and the PRIMECAP Odyssey Growth 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 Investment Advisor's research department. The portfolio managers primarily responsible for overseeing the Funds' investments are: NAME YEARS OF EXPERIENCE ---- ------------------- Howard B. Schow 53 Mitchell J. Milias 45 Theo A. Kolokotrones 39 Joel P. Fried 24 Alfred W. Mordecai 12 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 at the Funds' 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 Indefinite; Chairman and Director, Portfolio Manager, 225 South Lake Ave., Executive Since 09/04 Chief Investment Officer, and Principal Suite 400, Pasadena, CA Officer PRIMECAP Management Company 91101-3005 (1927) ------------------------------------------------------------------------------------------------------------------- Theo A. Kolokotrones Co-Chief Indefinite; President, Director, Portfolio 225 South Lake Ave., Executive Since 09/04 Manager, and Principal Suite 400, Pasadena, CA Officer PRIMECAP Management Company 91101-3005 (1946) -------------------------------------------------------------------------------------------------------------------
MANAGEMENT PRIMECAP ODYSSEY FUNDS (UNAUDITED), (CONTINUED)
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 Indefinite; Executive Vice President, Director, 225 South Lake Ave., Executive Officer Since 09/04 Portfolio Manager, and Principal Suite 400, Pasadena, CA and Trustee PRIMECAP Management Company 91101-3005 (1962) ------------------------------------------------------------------------------------------------------------------- David H. Van Slooten Chief Financial Indefinite; Executive Vice President, Portfolio 225 South Lake Ave., Officer and Since 06/04 Manager, Financial Analyst, and Principal Suite 400, Pasadena, CA Secretary PRIMECAP Management Company 91101-3005 (1963) Chief Indefinite; Administrative Since 02/09 Officer ------------------------------------------------------------------------------------------------------------------- Karen Chen Vice President Indefinite; Chief Compliance Officer, Director of 225 South Lake Ave., of Compliance Since 10/04 Compliance and Reporting, PRIMECAP Suite 400, Pasadena, CA and Chief Management Company 91101-3005 Compliance (1973) Officer and AML Officer -------------------------------------------------------------------------------------------------------------------
"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 TERM OF PORTFOLIOS OTHER POSITION(S) OFFICE; IN FUND DIRECTOR- NAME, ADDRESS HELD LENGTH OF PRINCIPAL OCCUPATION(S) COMPLEX BY SHIPS HELD (YEAR OF BIRTH) WITH TRUST TIME SERVED DURING PAST 5 YEARS TRUSTEE(1) BY TRUSTEE ------------------------------------------------------------------------------------------------------------------- Benjamin F. Hammon Chairman Indefinite; Retired; Director, 3 None 225 South Lake Ave., of the Since 09/04 Institutional Equity Suite 400, Pasadena, CA Board and Sales, Salomon Smith 91101-3005 Trustee Barney Inc. (1963-1998) (1935) ------------------------------------------------------------------------------------------------------------------- Wayne H. Smith Chairman Indefinite; Retired; President, 3 None 225 South Lake Ave., of the Audit Since 09/04 Wayne H. Smith Suite 400, Pasadena, CA Committee Consulting, Inc. (2002- 91101-3005 and Trustee 2007); Vice President, (1941) Financial Services, Avery Dennison Corporation (2001-2002); Vice President, Financial Services, and Treasurer, Avery Dennison Corporation (1999- 2001) -------------------------------------------------------------------------------------------------------------------
48 MANAGEMENT PRIMECAP ODYSSEY FUNDS (UNAUDITED), (CONTINUED)
NUMBER OF TERM OF PORTFOLIOS OTHER POSITION(S) OFFICE; IN FUND DIRECTOR- NAME, ADDRESS HELD LENGTH OF PRINCIPAL OCCUPATION(S) COMPLEX BY SHIPS HELD (YEAR OF BIRTH) WITH TRUST TIME SERVED DURING PAST 5 YEARS TRUSTEE(1) BY TRUSTEE ------------------------------------------------------------------------------------------------------------------- Joseph G. Uzelac Trustee Indefinite; Retired; Managing 3 None 225 South Lake Ave., Since 10/07 Director, Lehman Suite 400, Pasadena, CA Brothers Global 91101-3005 Investment Bank (1944) (1988-2007) ------------------------------------------------------------------------------------------------------------------- Elizabeth D. Obershaw Trustee Indefinite; Managing Director, 3 None 225 South Lake Ave., Since 06/08 Horsley Bridge Suite 400, Pasadena, CA Partners, a California- 91101-3005 based investment advisor (1960) (2007-present); Vice President and Chief Investment Officer, Hewlett-Packard Company (1991-2007); Hewlett-Packard Company (1983-1991) -------------------------------------------------------------------------------------------------------------------
---------- (1) Fund Complex includes any funds, series of funds, or trusts that share the same advisor or that hold themselves out to investors as related companies. "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 TERM OF PORTFOLIOS OTHER POSITION(S) OFFICE; IN FUND DIRECTOR- NAME, ADDRESS HELD LENGTH OF PRINCIPAL OCCUPATION(S) COMPLEX BY SHIPS HELD (YEAR OF BIRTH) WITH TRUST TIME SERVED DURING PAST 5 YEARS TRUSTEE(1) BY TRUSTEE ------------------------------------------------------------------------------------------------------------------- Joel P. Fried(1) Co-Chief Indefinite; Executive Vice 3 None 225 South Lake Ave., Executive Since 09/04 President, Director, Suite 400, Pasadena, Officer and Portfolio Manager, and CA 91101-3005 Trustee Principal (1962) PRIMECAP Management Company -------------------------------------------------------------------------------------------------------------------
---------- (1) 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. (2) Fund Complex includes any funds, series of funds, or trusts that share the same advisor or that hold themselves out to investors as related companies. 49 This page intentionally left blank. Investment Advisor PRIMECAP MANAGEMENT COMPANY 225 South Lake Avenue, Suite 400 Pasadena, California 91101 -- Distributor QUASAR DISTRIBUTORS, LLC 615 East Michigan Street, 4th Floor Milwaukee, Wisconsin 53202 -- Custodian THE BANK OF NEW YORK MELLON CORPORATION One Wall Street New York, New York 10286 -- Transfer Agent U.S. BANCORP FUND SERVICES, LLC 615 East Michigan Street, 3rd Floor Milwaukee, Wisconsin 53202 -- Administrator U.S. BANCORP FUND SERVICES, LLC 2020 East Financial Way, Suite 100 Glendora, California 91741 -- Legal Counsel BINGHAM McCUTCHEN LLP 355 South Grand Avenue, Suite 4400 Los Angeles, California 90071 -- Independent Registered Public Accounting Firm PRICEWATERHOUSECOOPERS LLP Three Embarcadero Center 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 accountant. 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 10/31/2009 FYE 10/31/2008 ----------------------------- ----------------------- ----------------------- Audit Fees $75,000 $96,000 Audit-Related Fees $0 $0 Tax Fees $16,800 $16,800 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. The percentage of fees billed by PricewaterhouseCoopers LLP applicable to non-audit services pursuant to waiver of pre-approval requirement were as follows: ----------------------------- ----------------------- ----------------------- FYE 10/31/2009 FYE 10/31/2008 ----------------------------- ----------------------- ----------------------- Audit-Related Fees 0% 0% Tax Fees 0% 0% All Other Fees 0% 0% ----------------------------- ----------------------- ----------------------- 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 10/31/2009 FYE 10/31/2008 ------------------------------------ -------------------- ------------------- Registrant $16,800 $16,800 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. 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 Purchasers. Not applicable to open-end investment companies. Item 10. Submission of Matters to a Vote of Security Holders. -2- There have been no material changes to the procedures by which shareholders may recommend nominees to the registrant's board of directors/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 the 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 July 2, 2009 (2) A separate certification for each principal executive and principal financial officer 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) Certifications pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. Furnished herewith. -3- 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 January 5, 2010 By /s/ Howard B. Schow ------------------------------------------- Howard B. Schow, Co-Chief Executive Officer Date January 5, 2010 By /s/ Theo A. Kolokotrones ------------------------------------------- Theo A. Kolokotrones, Co-Chief Executive Officer Date January 5, 2010 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 January 5, 2010 By /s/ Howard B. Schow ------------------------------------------- Howard B. Schow, Co-Chief Executive Officer Date January 5, 2010 By /s/ Theo A. Kolokotrones ------------------------------------------- Theo A. Kolokotrones, Co-Chief Executive Officer Date January 5, 2010 By /s/ David H. Van Slooten ------------------------------------------- David H. Van Slooten, Chief Financial Officer Date January 5, 2010 Print the name and title of each signing officer under his or her signature. -4-