AMERICAN ODYSSEY FUNDS INC /MD/, 485BPOS, 1997-04-30

AMERICAN ODYSSEY FUNDS INC /MD/
485BPOS, 1997-04-30

Previous: FIRST TRUST SPE SIT TR SER 57 FIRST TRUST INS CORP TR SER 8, 485BPOS, 1997-04-30

Next: VEL II ACCOUNT OF ALLMERICA FINANCIAL LIFE INS & ANN CO, 485BPOS, 1997-04-30

<PAGE> 1

AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 30, 1997

REGISTRATION NOS. 33-57536
811-7450

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933

POST-EFFECTIVE AMENDMENT NO. 7

AND
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940

AMENDMENT NO. 8

AMERICAN ODYSSEY FUNDS, INC.
(EXACT NAME OF REGISTRANT)

TWO TOWER CENTER
EAST BRUNSWICK, NEW JERSEY 08816
(908) 214-2000

(ADDRESS AND TELEPHONE NUMBER OF PRINCIPAL EXECUTIVE OFFICES)

PAUL S. FEINBERG, ESQ.

SENIOR VICE PRESIDENT AND SECRETARY

AMERICAN ODYSSEY FUNDS, INC.
TWO TOWER CENTER
EAST BRUNSWICK, NEW JERSEY 08816
(NAME AND ADDRESS OF AGENT FOR SERVICE)

COPY TO:
CHRISTOPHER E. PALMER
SHEA & GARDNER
1800 MASSACHUSETTS AVENUE, N.W.
WASHINGTON, D.C. 20036

THE REGISTRANT HAS REGISTERED AN INDEFINITE NUMBER OF SHARES PURSUANT TO RULE
24f-2 UNDER THE INVESTMENT COMPANY ACT OF 1940. IN ACCORDANCE WITH THIS RULE,
THE REGISTRANT FILED A 24f-2 NOTICE FOR THE FISCAL YEAR ENDING DECEMBER 31, 1996
ON FEBRUARY 27, 1997.

IT IS PROPOSED THAT THIS FILING WILL BECOME EFFECTIVE (CHECK APPROPRIATE BOX):

[ ] IMMEDIATELY UPON FILING PURSUANT TO PARAGRAPH (b) OF RULE 485

[X] ON MAY 1, 1997 PURSUANT TO PARAGRAPH (b) OF RULE 485

[ ] 60 DAYS AFTER FILING PURSUANT TO PARAGRAPH (a)(1) OF RULE 485

[ ] ON MAY 1, 1997 PURSUANT TO PARAGRAPH (a)(1) OF RULE 485

[ ] 75 DAYS AFTER FILING PURSUANT TO PARAGRAPH (a)(2) OF RULE 485

[ ] ON ________ PURSUANT TO PARAGRAPH (a)(2) OF RULE 485

IF APPROPRIATE CHECK THE FOLLOWING BOX:

[ ] THIS POST-EFFECTIVE AMENDMENT DESIGNATES A NEW EFFECTIVE DATE FOR A
PREVIOUSLY FILED POST-EFFECTIVE AMENDMENT.
<PAGE> 2
CROSS REFERENCE SHEET
(PURSUANT TO RULE 495 OF THE SECURITIES ACT OF 1933)

<TABLE>
<CAPTION>
ITEM NO. PART A: INFORMATION REQUIRED IN PROSPECTUS CAPTION IN PROSPECTUS
- -----------------------------------------------------------------------------------------------------
<S> <C> <C>

ITEM 1. COVER PAGE COVER PAGE

ITEM 2. SYNOPSIS SUMMARY OF EXPENSES

ITEM 3. FINANCIAL HIGHLIGHTS FINANCIAL HIGHLIGHTS;
PERFORMANCE INFORMATION

ITEM 4. GENERAL DESCRIPTION OF REGISTRANT GENERAL INFORMATION; INVESTMENT
OBJECTIVES AND PROGRAMS;
ADDITIONAL INVESTMENT INFORMATION

ITEM 5. MANAGEMENT OF THE FUND MANAGEMENT OF THE FUNDS;
PORTFOLIO BROKERAGE; MONITORING
FOR POSSIBLE CONFLICT

ITEM 5A. MANAGEMENT'S DISCUSSION OF FUND NOT APPLICABLE
PERFORMANCE

ITEM 6. CAPITAL STOCK AND OTHER GENERAL INFORMATION; VOTING
SECURITIES RIGHTS; PURCHASE AND REDEMPTION
OF SHARES; FEDERAL INCOME TAXES;
ADDITIONAL INFORMATION

ITEM 7. PURCHASE OF SECURITIES BEING PURCHASE AND REDEMPTION OF
OFFERED SHARES

ITEM 8. REDEMPTION OR REPURCHASE PURCHASE AND REDEMPTION OF
SHARES

ITEM 9. PENDING LEGAL PROCEEDINGS NOT APPLICABLE

<CAPTION>
PART B: INFORMATION REQUIRED IN CAPTION IN STATEMENT OF
ITEM NO. STATEMENT OF ADDITIONAL INFORMATION ADDITIONAL INFORMATION
- -----------------------------------------------------------------------------------------------------
<S> <C> <C>
ITEM 10. COVER PAGE COVER PAGE

ITEM 11. TABLE OF CONTENTS TABLE OF CONTENTS

ITEM 12. GENERAL INFORMATION AND HISTORY NOT APPLICABLE

ITEM 13. INVESTMENT OBJECTIVES AND INVESTMENT OBJECTIVES AND
POLICIES PROGRAMS; INVESTMENT
RESTRICTIONS

ITEM 14. MANAGEMENT OF THE FUND MANAGEMENT OF THE FUNDS
</TABLE>

<PAGE> 3
<TABLE>
<S> <C> <C>
ITEM 15. CONTROL PERSONS AND PRINCIPAL MANAGEMENT OF THE FUNDS
HOLDERS OF SECURITIES

ITEM 16. INVESTMENT ADVISORY AND OTHER MANAGEMENT OF THE FUNDS
SERVICES

ITEM 17. BROKERAGE ALLOCATION AND OTHER PORTFOLIO TRANSACTIONS
PRACTICES

ITEM 18. CAPITAL STOCK AND OTHER OWNERSHIP OF SHARES
SECURITIES

ITEM 19. PURCHASE, REDEMPTION AND NET ASSET VALUE OF SHARES
PRICING OF SECURITIES BEING
OFFERED

ITEM 20. TAX STATUS FEDERAL INCOME TAXES

ITEM 21. UNDERWRITERS MANAGEMENT OF THE FUNDS

ITEM 22. CALCULATIONS OF PERFORMANCE DATA PERFORMANCE INFORMATION

ITEM 23. FINANCIAL STATEMENTS FINANCIAL STATEMENTS
</TABLE>

PART C: OTHER INFORMATION

INFORMATION REQUIRED TO BE INCLUDED IN PART C IS SET FORTH UNDER THE APPROPRIATE
ITEM, SO NUMBERED, IN PART C TO THIS REGISTRATION STATEMENT.
<PAGE> 4

PART A

INFORMATION REQUIRED IN A PROSPECTUS

<PAGE> 5
[AMERICAN ODYSSEY FUNDS LOGO]

AMERICAN ODYSSEY INTERNATIONAL EQUITY FUND

AMERICAN ODYSSEY EMERGING OPPORTUNITIES FUND

AMERICAN ODYSSEY CORE EQUITY FUND

AMERICAN ODYSSEY LONG-TERM BOND FUND

AMERICAN ODYSSEY INTERMEDIATE-TERM BOND FUND

AMERICAN ODYSSEY SHORT-TERM BOND FUND

PROSPECTUS

May 1, 1997
<PAGE> 6

PROSPECTUS AMERICAN ODYSSEY FUNDS, INC.
May 1, 1997
- --------------------------------------------------------------------------------

American Odyssey Funds, Inc. is a diversified open-end management
investment company that is currently made up of six different "series" or Funds.
Each Fund is, for investment purposes, a separate investment fund, and each
issues a separate class of capital stock representing an interest in that Fund.
The investment objectives of the six Funds are as follows. There is, of course,
no assurance that these objectives will be achieved.

AMERICAN ODYSSEY INTERNATIONAL EQUITY FUND -- seeks maximum long-term total
return (capital appreciation and income) by investing primarily in common stocks
of established non-U.S. companies.

AMERICAN ODYSSEY EMERGING OPPORTUNITIES FUND -- seeks maximum long-term
total return (capital appreciation and income) by investing primarily in common
stocks of small, rapidly growing companies.

AMERICAN ODYSSEY CORE EQUITY FUND -- seeks maximum long-term total return
(capital appreciation and income) by investing primarily in common stocks of
well-established companies.

AMERICAN ODYSSEY LONG-TERM BOND FUND -- seeks maximum long-term total
return (capital appreciation and income) by investing primarily in long-term
corporate debt securities, U.S. government securities, mortgage-related
securities and asset-backed securities, as well as money market instruments.

AMERICAN ODYSSEY INTERMEDIATE-TERM BOND FUND -- seeks maximum long-term
total return (capital appreciation and income) by investing primarily in
intermediate-term corporate debt securities, U.S. government securities,
mortgage-related securities and asset-backed securities, as well as money market
instruments.

AMERICAN ODYSSEY SHORT-TERM BOND FUND -- seeks maximum long-term total
return (capital appreciation and income) by investing primarily in
investment-grade, short-term debt securities.

Shares of American Odyssey Funds, Inc. may be sold only to: (1) life
insurance company separate accounts to serve as the underlying investment
vehicle for variable annuity and variable life insurance contracts; (2)
qualified retirement plans, as permitted by Treasury regulations; and (3) life
insurance companies and their affiliates.

------------------------

This prospectus sets forth concisely the information a prospective
purchaser of a variable contract or a participant in a qualified retirement plan
should know before directing that amounts credited to him or her be invested in
the Funds. It should be retained for future reference.

A Statement of Additional Information about American Odyssey Funds, Inc.,
which is incorporated by reference in this prospectus, has been filed with the
Securities and Exchange Commission. It is available, at no charge, by writing
American Odyssey Funds, Inc., Two Tower Center, P.O. Box 1063, East Brunswick,
New Jersey 08816-1063, or by calling (908) 214-2000. The date of the Statement
of Additional Information is the same as the date of this prospectus.

- --------------------------------------------------------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
- --------------------------------------------------------------------------------

<PAGE> 7

PROSPECTUS CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Summary of Expenses......................................................... 3
Financial Highlights........................................................ 4
General Information......................................................... 8
Investment Objectives and Programs.......................................... 9
American Odyssey International Equity Fund............................. 9
American Odyssey Emerging Opportunities Fund........................... 10
American Odyssey Core Equity Fund...................................... 11
American Odyssey Long-Term Bond Fund................................... 12
American Odyssey Intermediate-Term Bond Fund........................... 14
American Odyssey Short-Term Bond Fund.................................. 15
Additional Investment Information........................................... 16
Options................................................................ 16
Futures Contracts...................................................... 17
Preferred Stocks, Convertible Securities, and Warrants................. 17
Short Sales Against the Box............................................ 18
When-Issued and Delayed Delivery Securities............................ 18
Lending of Portfolio Securities........................................ 18
Investment Restrictions................................................ 18
Management of the Funds..................................................... 19
Directors and Officers................................................. 19
Manager................................................................ 19
Subadvisers............................................................ 21
Changing Subadvisers Without Shareholder Approval...................... 24
Expense Limitations.................................................... 25
Custodian and Transfer Agent........................................... 25
Purchase and Redemption of Shares........................................... 26
Performance Information..................................................... 26
Federal Income Taxes........................................................ 27
Other Information........................................................... 28
Voting Rights.......................................................... 28
Portfolio Brokerage.................................................... 28
Monitoring for Possible Conflict....................................... 28
Additional Information................................................. 28
Appendix.................................................................... 29
Additional Information Regarding Money Market Instruments.............. 29
Ratings of Corporate Debt Securities................................... 30
Ratings of Commercial Paper............................................ 31
</TABLE>

2
<PAGE> 8

- -------------------
SUMMARY OF EXPENSES

The following table shows 1996 Fund expenses, expressed as a percentage of
average net assets during the year. If you have been given this prospectus
because you are considering the purchase of a variable annuity contract, you
should refer instead to the corresponding table in the variable annuity contract
prospectus.

<TABLE>
<CAPTION>
INT'L EMERGING CORE LONG- INTERMEDIATE- SHORT-
EQUITY OPPORTUNITIES EQUITY TERM TERM TERM
FUND FUND FUND BOND FUND BOND FUND BOND FUND
------ ------------- ------ --------- ------------- ---------
<S> <C> <C> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES
Sales Load on Purchases................... None None None None None None
Sales Load on Reinvested Dividends........ None None None None None None
Deferred Sales Load Imposed on
Redemption.............................. None None None None None None
Exchange Fees............................. None None None None None None
ANNUAL FUND OPERATING EXPENSES
(As a percentage of average net assets)
Management Fees........................... 0.65% 0.60%(1) 0.57% 0.50% 0.50% 0.50%
12b-1 Fees................................ None None None None None None
Other Expenses............................ 0.21% 0.12% 0.11% 0.13% 0.16% 0.25%
TOTAL FUND OPERATING EXPENSES............. 0.86% 0.72%(1) 0.68% 0.63% 0.66% 0.75%(2)
</TABLE>

- ---------------

1 These 1996 fee and expense figures for the Emerging Opportunities Fund reflect
the management fee paid to Wilke/Thompson Capital Management, Inc., who
managed all the Fund's assets in 1996. Effective May 1, 1997, Cowen Asset
Management has been added as a subadviser, managing a portion of the Fund's
assets, and the management fee for Cowen is greater than the fee for
Wilke/Thompson. Thus, 1997 management fees for the Fund will be greater than
1996 management fees.

2 The Short-Term Bond Fund is required to repay the Manager for any fees the
Manager previously waived or expenses the Manager previously reimbursed,
provided that this repayment by the Fund does not cause the total expense
ratio to exceed 0.75%. Without these repayments, Total Fund Operating Expenses
for the Short-Term Bond Fund for 1996 would have been 0.68%.

The purpose of the following example is to assist investors in
understanding the various costs and expenses that an investor in the Funds will
bear directly or indirectly. It shows the total expenses that would be payable
if you redeemed your shares after having held them for one, three, five and ten
year periods respectively. Actual expenses may be greater or less than shown.
The example assumes a 5% annual rate of return pursuant to requirements of the
Securities and Exchange Commission. This hypothetical rate of return is not
intended to be representative of past or future performance.

<TABLE>
<CAPTION>
INT'L EMERGING CORE LONG- INTERMEDIATE- SHORT-
EQUITY OPPORTUNITIES EQUITY TERM TERM TERM
FUND FUND FUND BOND FUND BOND FUND BOND FUND
------ ------------- ------ --------- ------------- ---------
<S> <C> <C> <C> <C> <C> <C>
EXAMPLE
A shareholder would pay the following
expenses on a $1,000 investment,
assuming (1) 5% annual return and (2)
redemption at end of each time period:
1 year...... $ 8.82 $ 7.38 $ 6.97 $ 6.46 $ 6.77 $ 7.69
3 years..... $ 27.55 $23.10 $21.82 $20.23 $21.19 $24.05
5 years..... $ 47.86 $40.18 $37.98 $35.22 $36.88 $41.83
10 years..... $106.42 $89.69 $84.87 $78.82 $82.45 $93.29
</TABLE>

A shareholder would pay the same expenses on the same investment, assuming
no redemption.

3
<PAGE> 9

- --------------------
FINANCIAL HIGHLIGHTS

The following table has been audited by Coopers & Lybrand, L.L.P.,
independent accountants. Their unqualified report is included in the Statement
of Additional Information. This information should be read in conjunction with
the financial statements and notes thereto which are included in the Statement
of Additional Information.

<TABLE>
<CAPTION>
INTERNATIONAL EQUITY FUND
-------------------------------------------------------------------------
YEAR ENDED YEAR ENDED YEAR ENDED MAY 17, 1993(1)
DECEMBER 31, DECEMBER 31, DECEMBER 31, TO DECEMBER 31,
1996 1995 1994 1993
------------- ------------- ------------- ----------------
<S> <C> <C> <C> <C>
NET ASSET VALUE
Beginning of period.................................. $ 12.68 $ 10.76 $ 11.98 $ 10.00
------------ ----------- ----------- -----------
OPERATIONS
Net investment income (loss)(2)...................... 0.29 0.17 (0.05) 0.03
Net realized and unrealized gain (loss) on
investments........................................ 2.48 1.87 (0.78) 1.95
------------ ----------- ----------- -----------
Total from investment operations..................... 2.77 2.04 (0.83) 1.98
------------ ----------- ----------- -----------
DISTRIBUTIONS TO SHAREHOLDERS
Dividends from net investment income................. (0.30) (0.12) (0.03) --
Distributions from net realized gains on
investments........................................ (0.07) -- (0.26) --
Distributions in excess of net investment income or
realized gains..................................... -- -- (0.10) --
------------ ----------- ----------- -----------
Total distributions.................................. (0.37) (0.12) (0.39) --
------------ ----------- ----------- -----------
NET ASSET VALUE
End of period........................................ $ 15.08 $ 12.68 $ 10.76 $ 11.98
============ =========== =========== ===========
TOTAL RETURN(3)....................................... 21.93% 19.00% (6.98%) 19.80%
RATIOS/SUPPLEMENTAL DATA
Net assets at end of period.......................... $ 187,109,248 $92,114,545 $51,712,327 $ 19,978,108
Ratios of expenses to average net assets:
Before repayments and directed brokerage
arrangements...................................... 0.86% 1.00% 1.36% 1.76%(4)
After repayments and directed brokerage
arrangements(6)................................... 0.83% 1.08% 1.25% 1.25%(4)
Ratios of net investment income (loss) to average net
assets:
Before repayments and directed brokerage
arrangements...................................... 1.51% 1.70% 0.83% 0.34%(4)
After repayments and directed brokerage
arrangements...................................... 1.54% 1.62% 0.94% 0.85%(4)
Portfolio turnover rate.............................. 21.54% 31.40% 50.25% 9.20%
Average commission rate paid(7)...................... $ 0.0219 -- -- --
</TABLE>

- --------------------------------------------------------------------------------

(1) Commencement of operations.

(2) Net of expense reimbursement, repayments and directed brokerage
arrangements.

(3) Total return is calculated assuming an initial investment made at net
asset value at the beginning of the period, all dividends and distributions
are reinvested and redemption on the last day of the period. Total Returns
do not reflect charges attributable to separate account expenses deducted
by the insurance company for variable annuity contract shareholders.
Inclusion of these charges would reduce the total return shown.

(4) Annualized

(5) The Long-Term Bond Fund did not qualify in 1993 as a regulated investment
company for federal income tax purposes because it had substantial
short-term capital gains during this period and was not able to meet the
requirement that no more than 30% of the Fund's investment income may be
from realized capital gains on the sale of securities held for less than
three months. While the Fund incurred a federal income tax of approximately
$155,000, the investment adviser to the Long-Term Bond Fund reimbursed the
Fund for the taxes and related legal expenses, so no shareholder of the
Fund was affected. The ratio of expenses to average net assets would have
been 2.58% had the adviser not agreed to reimburse the Fund for these
expenses. The Fund qualified in 1994, 1995 and 1996 as a regulated
investment company and intends to do so in future years as well.

(6) The After repayments and directed brokerage arrangements figure may be
greater than the Before repayments and directed brokerage arrangements
figure because of repayments by the Fund to the Manager once the Fund is
operating below the expense limitation.

(7) Average commission rate paid is computed by dividing the total dollar
amount of commissions paid during the period by the total number of shares
purchased and sold during the period for which commissions were charged.

Further information about the performance of the Funds is contained in the
Funds' annual report to shareholders which may be obtained without charge.

4
<PAGE> 10
<TABLE>
<CAPTION>
EMERGING OPPORTUNITIES FUND
--------------------------------------------------------------------
YEAR ENDED YEAR ENDED YEAR ENDED MAY 17, 1993(1)
DECEMBER 31, DECEMBER 31, DECEMBER 31, TO DECEMBER 31,
1996 1995 1994 1993
------------ ------------ ------------ -----------------
<S> <C> <C> <C> <C>
$ 15.02 $ 11.84 $ 10.94 $ 10.00
----------- ----------- ---------- ----------
-- -- -- (0.01)
(0.47) 3.81 1.06 0.95
----------- ----------- ---------- ----------
(0.47) 3.81 1.06 0.94
----------- ----------- ---------- ----------
-- -- -- --
(1.13) (0.58) (0.16) --
-- (0.05) -- --
----------- ----------- ---------- ----------
(1.13) (0.63) (0.16) --
----------- ----------- ---------- ----------
$ 13.42 $ 15.02 $ 11.84 $ 10.94
=========== =========== ========== ==========
(3.03%) 32.23% 9.69% 9.40%
$171,278,216 $157,192,884 $ 88,676,329 $29,112,652
0.72% 0.77% 0.91% 1.23%(4)
0.72% 0.77% 0.92% 1.00%(4)
(0.34%) (0.26%) (0.31%) (0.60%)(4)
(0.34%) (0.26%) (0.32%) (0.38%)(4)
43.00% 36.02% 27.40% 8.70%
$ 0.0505 -- -- --
- ------------------------------------------------------------------------

<CAPTION>
CORE EQUITY FUND
---------------------------------------------------------------------
YEAR ENDED YEAR ENDED YEAR ENDED MAY 17, 1993(1)
DECEMBER 31, DECEMBER 31, DECEMBER 31, TO DECEMBER 31,
1996 1995 1994 1993
------------- ------------ ------------ -----------------
<S> <C> <C> <C> <C>
$ 13.32 $ 10.06 $ 10.33 $ 10.00
----------- ----------- ----------- ----------
0.26 0.25 0.16 0.06
2.83 3.63 (0.26) 0.33
----------- ----------- ----------- ----------
3.09 3.88 (0.10) 0.39
----------- ----------- ----------- ----------
(0.27) (0.24) (0.17) (0.06)
(0.65) (0.37) -- --
-- (0.01) -- --
----------- ----------- ----------- ----------
(0.92) (0.62) (0.17) (0.06)
----------- ----------- ----------- ----------
$ 15.49 $ 13.32 $ 10.06 $ 10.33
=========== =========== =========== ==========
23.20% 38.56% (1.01%) 3.90%
$ 273,771,526 $183,734,809 $101,591,613 $37,355,875
0.68% 0.72% 0.84% 1.12%(4)
0.66% 0.70% 0.85% 1.00%(4)
1.93% 2.32% 2.27% 1.84%(4)
1.95% 2.33% 2.27% 1.96%(4)
45.73% 38.44% 48.16% 48.00%
$ 0.0594 -- -- --
- ------------------------------------------------------------------------
</TABLE>

5
<PAGE> 11

- --------------------
FINANCIAL HIGHLIGHTS

<TABLE>
<CAPTION>
LONG-TERM BOND FUND
----------------------------------------------------------------
YEAR ENDED YEAR ENDED YEAR ENDED MAY 17, 1993(1)
DECEMBER 31, DECEMBER 31, DECEMBER 31, TO DECEMBER 31,
1996 1995 1994 1993
------------ ------------ ------------ ----------------
<S> <C> <C> <C> <C>
NET ASSET VALUE
Beginning of period.......... $ 10.53 $ 9.37 $ 10.33 $ 10.00
----------- ---------- ---------- ----------
OPERATIONS
Net investment income (loss)
(2)........................ 0.50 0.53 0.37 0.62
Net realized and unrealized
gain (loss) on
investments................ (0.36) 1.57 (0.97) 0.45
----------- ---------- ---------- ----------
Total from investment
operations................. 0.14 2.10 (0.60) 1.07
----------- ---------- ---------- ----------
DISTRIBUTIONS TO SHAREHOLDERS
Dividends from net investment
income..................... (0.52) (0.57) (0.34) (0.18)
Distributions from net
realized gains on
investments................ -- (0.27) (0.02) (0.56)
Distributions in excess of
net investment income or
realized gains............. -- (0.10) -- --
----------- ---------- ---------- ----------
Total distributions.......... (0.52) (0.94) (0.36) (0.74)
----------- ---------- ---------- ----------
NET ASSET VALUE
End of period................ $ 10.15 $ 10.53 $ 9.37 $ 10.33
=========== ========== ========== ==========
TOTAL RETURN (3).............. 1.34% 22.44% (5.79%) 10.70%
RATIOS/SUPPLEMENTAL DATA
Net assets at end of
period..................... $160,694,516 $114,612,422 $ 70,359,236 $ 25,771,838
Ratios of expenses to average
net assets:
Before repayments and
directed brokerage
arrangements.............. 0.63% 0.66% 0.73% 1.30%(4)(5)
After repayments and
directed brokerage
arrangements (6).......... 0.63% 0.70% 0.75% 0.75%(4)
Ratios of net investment
income (loss) to average
net assets:
Before repayments and
directed brokerage
arrangements.............. 5.88% 6.67% 7.08% 15.19%(4)
After repayments and
directed brokerage
arrangements.............. 5.88% 6.63% 7.05% 15.73%(4)
Portfolio turnover rate...... 369.32% 381.53% 152.91% 589.40%
Average commission rate paid
(7)........................ -- -- -- --
</TABLE>

- --------------------------------------------------------------------------------

(1) Commencement of operations.

(2) Net of expense reimbursement, repayments and directed brokerage
arrangements.

(3) Total return is calculated assuming an initial investment made at net
asset value at the beginning of the period, all dividends and
distributions are reinvested and redemption on the last day of the period.
Total Returns do not reflect charges attributable to separate account
expenses deducted by the insurance company for variable annuity contract
shareholders. Inclusion of these charges would reduce the total return
shown.

(4) Annualized

(5) The Long-Term Bond Fund did not qualify in 1993 as a regulated investment
company for federal income tax purposes because it had substantial
short-term capital gains during this period and was not able to meet the
requirement that no more than 30% of the Fund's investment income may be
from realized capital gains on the sale of securities held for less than
three months. While the Fund incurred a federal income tax of
approximately $155,000, the investment adviser to the Long-Term Bond Fund
reimbursed the Fund for the taxes and related legal expenses, so no
shareholder of the Fund was affected. The ratio of expenses to average net
assets would have been 2.58% had the adviser not agreed to reimburse the
Fund for these expenses. The Fund qualified in 1994, 1995 and 1996 as a
regulated investment company and intends to do so in future years as well.

Further information about the performance of the Funds is contained in the
Funds' annual report to shareholders which may be obtained without charge.

6
<PAGE> 12
<TABLE>
<CAPTION>
INTERMEDIATE-TERM BOND FUND
--------------------------------------------------------------------
YEAR ENDED YEAR ENDED YEAR ENDED MAY 17, 1993(1)
DECEMBER 31, DECEMBER 31, DECEMBER 31, TO DECEMBER 31,
1996 1995 1994 1993
------------ ------------ ------------ -----------------
<S> <C> <C> <C> <C>
$ 10.38 $ 9.61 $ 10.28 $ 10.00
---------- ---------- ---------- ----------
0.61 0.54 0.38 0.17
(0.20) 0.90 (0.67) 0.28
---------- ---------- ---------- ----------
0.41 1.44 (0.29) 0.45
---------- ---------- ---------- ----------
(0.59) (0.55) (0.38) (0.17)
-- (0.07) -- --
-- (0.05) -- --
---------- ---------- ---------- ----------
(0.59) (0.67) (0.38) (0.17)
---------- ---------- ---------- ----------
$ 10.20 $ 10.38 $ 9.61 $ 10.28
========== ========== ========== ==========
3.95% 15.01% (2.85%) 4.50%
$ 86,385,074 $ 73,480,482 $ 48,570,907 $19,897,257
0.66% 0.68% 0.75% 1.37%(4)
0.66% 0.75% 0.75% 0.75%(4)
5.77% 6.19% 5.35% 3.73%(4)
5.77% 6.11% 5.35% 4.35%(4)
191.20% 137.14% 22.72% --
-- -- -- --

<CAPTION>
SHORT-TERM BOND FUND
---------------------------------------------------------------------
YEAR ENDED YEAR ENDED YEAR ENDED MAY 17, 1993(1)
DECEMBER 31, DECEMBER 31, DECEMBER 31, TO DECEMBER 31,
1996 1995 1994 1993
------------- ------------ ------------ -----------------
<S> <C> <C> <C> <C>
$ 10.22 $ 9.68 $ 10.07 $ 10.00
---------- ---------- ---------- ---------
0.37 0.51 0.45 0.19
0.02 0.54 (0.46) 0.08
---------- ---------- ---------- ---------
0.39 1.05 (0.01) 0.27
---------- ---------- ---------- ---------
(0.37) (0.51) (0.38) (0.14)
-- -- -- (0.01)
-- -- -- (0.05)
---------- ---------- ---------- ---------
(0.37) (0.51) (0.38) (0.20)
---------- ---------- ---------- ---------
$ 10.24 $ 10.22 $ 9.68 $ 10.07
========== ========== ========== =========
3.80% 10.86% (0.14%) 2.70%
$ 48,672,916 $ 25,855,313 $ 17,628,991 $ 8,181,243
0.68% 0.76% 1.02% 1.72%(4)
0.75% 0.75% 0.75% 0.75%(4)
5.54% 5.77% 4.99% 3.52%(4)
5.47% 5.78% 5.25% 4.49%(4)
154.51% 93.37% 233.25% 144.30%
-- -- -- --
</TABLE>

- --------------------------------------------------------------------------------

7
<PAGE> 13

- -------------------
GENERAL INFORMATION

American Odyssey Funds, Inc. (the "Company") was organized as a Maryland
corporation in December 1992. It is registered under the Investment Company Act
of 1940, as amended ("1940 Act") as an open-end diversified management
investment company, commonly known as a "mutual fund." It is currently made up
of six different "series" or Funds. Each Fund is, for investment purposes, a
separate investment fund, and each issues a separate class of capital stock for
each Fund. Each share of capital stock issued with respect to a Fund has a
pro-rata interest in the assets of that Fund and has no interest in the assets
of any other Fund. Each Fund bears its own liabilities and also its
proportionate share of the general liabilities of the Company.

American Odyssey Funds Management, Inc. (the "Manager") serves as the
overall investment adviser to the Company. The subadvisers perform the actual
day-to-day management of the Funds. The Manager monitors the performance of the
subadvisers and will recommend changes if warranted. The Company's shareholders
have approved a proposal that would permit the Board of Directors to change
subadvisers or amend existing subadvisory agreements without shareholder
approval. Before that arrangement can be implemented, it must be approved by the
Securities and Exchange Commission. For more information, see Changing
Subadvisers Without Shareholder Approval on page 24. The current subadvisers are
set forth below:

<TABLE>
<CAPTION>
FUND SUBADVISER(S)
- -------------------------------------- --------------------------------------
<S> <C>
American Odyssey International Equity Bank of Ireland Asset Management
Fund (U.S.) Limited
American Odyssey Emerging Wilke/Thompson Capital Management,
Opportunities Fund Inc. and Cowen Asset Management
American Odyssey Core Equity Fund Equinox Capital Management, Inc.
American Odyssey Long-Term Bond Fund Western Asset Management Company
American Odyssey Intermediate-Term Travelers Asset Management
Bond Fund International Corporation
American Odyssey Short-Term Bond Fund Smith Graham & Co. Asset Managers,
L.P.
</TABLE>

For more information, see Management of the Funds on page 19.

8
<PAGE> 14
- ----------------------------------
INVESTMENT OBJECTIVES AND PROGRAMS

The investment objectives of the various Funds, and their programs for
achieving those objectives, are described below. There can be no assurance, of
course, that the Funds will achieve their investment objectives. The investment
objectives of the Funds are fundamental, which means that they may not be
changed without the approval of the holders of a majority of the outstanding
shares of the affected Fund, or if it is less, 67% of the shares represented at
a meeting of shareholders at which the holders of 50% or more of the shares are
represented. Unless otherwise indicated, each Fund's practices, policies, and
programs for achieving its objective are not fundamental. They may be changed by
the Board of Directors of the Company. Additional information regarding these
investment practices and their associated risks is contained in the Statement of
Additional Information.

AMERICAN ODYSSEY INTERNATIONAL EQUITY FUND

Investment Objective. The investment objective of the International Equity
Fund is maximum long-term total return (capital appreciation and income) by
investing primarily in common stocks of established non-U.S. companies.

Investment Program. To achieve its objective, the Fund invests primarily
in common stocks of established non-U.S. companies. Under normal market
conditions, at least 65% of the Fund's total assets are invested in the
securities of companies domiciled in at least five foreign countries, not
including the United States.

Debt Securities. The Fund may acquire fixed income debt securities. It
does so primarily for defensive purposes, but may also do so where anticipated
interest rate movements, or factors affecting the degree of risk inherent in a
fixed income security, are expected to change significantly so as to produce
appreciation in the security consistent with the objective of the Fund.

Cash Reserves. The Fund may establish and maintain reserves for temporary
purposes or to enable it to take advantage of buying opportunities. The Fund's
reserves are invested in high quality domestic and foreign instruments,
including, but not limited to, obligations of the U.S. government and its
agencies and instrumentalities, bank obligations, commercial paper, and
short-term corporate debt securities. The Fund may also enter into repurchase
agreements and reverse repurchase agreements. These instruments are described
below in connection with the Long-Term Bond Fund and in the Appendix.

Depository Receipts. The Fund might not always purchase securities on the
principal market. For example, the Fund may purchase American Depository
Receipts ("ADRs"). ADRs are registered receipts typically issued in the United
States by a bank or trust company evidencing ownership of an underlying foreign
security. The Fund may invest in ADRs which are structured by a U.S. bank
without the sponsorship of the underlying foreign issuer. In addition to the
risks of foreign investment applicable to the underlying securities (described
below), such unsponsored ADRs may also be subject to the risks that the foreign
issuer may not be obligated to cooperate with the U.S. bank, and may not provide
additional financial and other information to the bank or the investor, or that
such information in the U.S. market may not be current. The Fund may likewise
utilize European

9
<PAGE> 15

Depository Receipts ("EDRs"), which are similar instruments, in bearer form,
designed for use in the European securities markets.

Foreign Currency Transactions. Normally, exchange transactions will be
conducted on a spot or cash basis at the prevailing rate in the foreign exchange
market. However, to hedge against unfavorable changes in exchange rates, and to
facilitate transactions, the Fund (1) may enter into forward contracts to
purchase or sell foreign currencies, (2) may purchase and sell options on
foreign currencies, and (3) may purchase and sell foreign currency futures
contracts and options thereon. Although such instruments may reduce the risk of
loss due to a decline in the value of the currency which is sold, they also
limit any possible gain which might result should the value of the currency
increase. Similarly, although such instruments will be used primarily to protect
the Fund from adverse currency movements, they also involve the risk that
anticipated currency movements will not be accurately predicted thus adversely
affecting the Fund's total return. For more information, see the Statement of
Additional Information.

General Risk Considerations. There can be no assurance that the Fund will
achieve its investment objective. Because of its investment policy, the Fund may
or may not be suitable or appropriate for certain participants. A participant
who selects this Fund will incur the risks generally associated with investment
in equity securities. But a participant bears additional risks. Foreign
investments involve sovereign risk, which includes the risk of adverse local
political or economic developments, expropriation or nationalization of assets,
imposition of withholding taxes on dividend or interest payments, and currency
blockage (which would prevent local currency from being sold). Foreign
investments may also be affected favorably or unfavorably by changes in currency
rates and exchange control regulations. And there is a risk that the subadviser
may not adequately hedge those risks. There also may be less publicly available
information about a foreign company than about a U.S. company, and foreign
companies may not be subject to accounting, auditing, and financial reporting
standards and requirements comparable to those applicable to U.S. companies.
Securities of some foreign companies are less liquid or more volatile than
securities of U.S. companies, the financial markets on which they are traded may
be subject to less strict governmental supervision, and foreign brokerage
commissions and custodian fees are generally higher than in the United States.

AMERICAN ODYSSEY EMERGING OPPORTUNITIES FUND

Investment Objective. The investment objective of the Emerging
Opportunities Fund is maximum long-term total return (capital appreciation and
income) by investing primarily in common stocks of small, rapidly growing
companies.

Investment Program. To achieve its objective, the Fund will invest
primarily in common stocks of companies with a market value of less than $1
billion that the investment manager believes will grow more rapidly than larger
well-established companies.

10
<PAGE> 16

commercial paper, and short-term corporate debt securities. The Fund may also
enter into repurchase agreements and reverse repurchase agreements. These
instruments are described below in connection with the Long-Term Bond Fund and
in the Appendix.

Foreign Securities and Foreign Currency Transactions. The Fund may invest
in securities principally traded in markets outside the United States and in
American Depository Receipts ("ADRs"). To facilitate the purchase and sale of
those securities and to manage foreign exchange risk, the Fund may enter into
forward contracts to purchase or sell foreign currencies. More information
concerning foreign securities, ADRs, and foreign currency transactions is set
forth above in connection with the International Equity Fund and in the
Statement of Additional Information.

General Risk Considerations. There can be no assurance that the Fund will
achieve its investment objective. Because of its investment policy, the Fund may
or may not be suitable or appropriate for certain participants. The Fund is
designed for long-term investors who can accept the somewhat larger risks
entailed in seeking long-term growth through investment in small companies. The
value of the Fund's securities will fluctuate based on market conditions,
specific industry conditions, and the condition of the individual issuers.
Moreover, while investments in foreign securities and foreign currency forward
contracts are intended to reduce overall risk by providing further
diversification, such investments involve additional risks discussed above in
connection with the International Equity Fund and in the Statement of Additional
Information. Consistent with a long-term investment approach, participants
selecting the Fund should be prepared to withstand periods of adverse market
conditions and should not invest in the Fund with an objective of short-term
financial gain.

AMERICAN ODYSSEY CORE EQUITY FUND

Investment Objective. The investment objective of the Core Equity Fund is
maximum long-term total return (capital appreciation and income) by investing
primarily in common stocks of well-established companies.

Investment Program. To achieve its objective, the Fund invests primarily
in the stocks of a diversified group of well-established companies which have
favorable valuations relative to the overall market (i.e., S&P 500) and are
expected to demonstrate long-term earnings growth that is greater than the
projected growth rate for the economy as a whole.

Cash Reserves. The Fund is normally fully invested in equities, but may
establish and maintain reserves for temporary purposes or to enable it to take
advantage of buying opportunities. The Fund's reserves are invested in high
quality domestic and foreign instruments, including, but not limited to,
obligations of the U.S. government and its agencies and instrumentalities, bank
obligations, commercial paper, and short-term corporate debt securities. The
Fund may also enter into repurchase agreements and reverse repurchase
agreements. These instruments are described below in connection with the
Long-Term Bond Fund and in the Appendix.

Foreign Securities. The Fund may invest in securities principally traded
in markets outside the United States and in American Depository Receipts
("ADRs"). To facilitate the purchase and sale of

11
<PAGE> 17

those securities and to manage foreign exchange risk, the Fund may enter into
forward contracts to purchase or sell foreign currencies. More information
concerning foreign securities, ADRs, and foreign currency transactions is set
forth above in connection with the International Equity Fund and in the
Statement of Additional Information.

General Risk Considerations. There can be no assurance that the Fund will
achieve its investment objective. Because of its investment policy, the Fund may
or may not be suitable or appropriate for certain participants. The Fund is
designed for long-term investors who can accept the risks entailed in seeking
long-term growth of capital and an increase in future income through investment
primarily in common stocks. By investing primarily in well-established growth
companies, the Fund seeks to avoid some of the volatility associated with
investment in less established companies. The Manager believes that, over the
long term, the earnings of well-established growth companies will not be as
adversely affected by unfavorable economic conditions as the earnings of more
cyclical companies. As with the Emerging Opportunities Fund, the value of the
securities held will fluctuate based on a variety of factors, and thus
participants selecting the Fund should be prepared to withstand periods of
adverse market conditions and should not invest with an objective of short-term
financial gain. Moreover, while investments in foreign securities and foreign
currency forward contracts are intended to reduce overall risk by providing
further diversification, such investments involve additional risks discussed
above in connection with the International Equity Fund and in the Statement of
Additional Information.

AMERICAN ODYSSEY LONG-TERM BOND FUND

Investment Objective. The investment objective of the Long-Term Bond Fund
is maximum long-term total return (capital appreciation and income) by investing
primarily in long-term corporate debt securities, U.S. government securities,
mortgage-related securities, and asset-backed securities, as well as money
market instruments.

Investment Program. To achieve its objective, the Fund generally invests
at least 85% of its assets in a diversified portfolio of five categories of
marketable (i.e., securities for which market quotations are readily available)
debt instruments: (1) corporate debt securities, (2) U.S. government securities,
(3) mortgage-related securities, (4) asset-backed securities, and (5) money
market instruments.

The dollar-weighted average maturity of the Fund's investments will
generally vary between eight and 25 years, depending upon the subadviser's
opinion of current and future economic conditions. The subadviser expects that
the portfolio turnover rate for the Fund will exceed 100%. Although brokerage
expenses increase as turnover increases, the subadviser believes that the
benefits of more active trading exceed the additional costs.

Corporate Debt. The Fund may invest in investment grade corporate debt,
i.e., corporate debt rated at least Baa by Moody's Investors Service, Inc.
("Moody's") or at least BBB by Standard & Poor's Corporation ("S&P") at the
time of purchase. The Fund may also purchase unrated corporate debt
securities that the subadviser determines to be of comparable quality. For
a description of Moody's and S&P's ratings, see the Appendix.

12
<PAGE> 18

U.S. Government Securities. The Fund may purchase (1) direct obligations
of the U.S. Treasury (such as Treasury bills, notes and bonds), (2)
obligations guaranteed as to principal and interest by the U.S. Treasury
(such as obligations of the Farmers Home Administration and the
Export-Import Bank), and (3) obligations issued by U.S. government agencies
and instrumentalities that are neither direct obligations of nor guaranteed
by the U.S. Treasury (such as obligations of Federal Land Banks, Central
Bank for Cooperatives, and Federal Intermediate Credit Banks).

Mortgage-Related Securities. The Fund may invest in mortgage-backed
securities issued by the Government National Mortgage Association ("GNMA"),
the Federal National Mortgage Association ("FNMA"), and the Federal Home
Loan Mortgage Corporation ("FHLMC"). These securities represent an interest
in a pool of mortgages, such as 30-year and 15-year fixed mortgages and
adjustable rate mortgages. For GNMA securities, the payment of principal
and interest on the underlying mortgages is guaranteed by the full faith
and credit of the U.S. government; for FNMA and FHLMC securities the
payment of principal and interest is guaranteed by the issuing agency, but
not the U.S. government. The guarantees, however, do not extend to the
securities' value or yield, which like other fixed income securities, are
likely to fluctuate inversely with fluctuations in interest rates.
Mortgage-backed securities have an investment characteristic that is not
applicable to other fixed-income securities. When interest rates fall
appreciably, mortgage borrowers tend to refinance and prepay their
mortgages, increasing the principal payments from the pool. The proceeds
can then be reinvested, but only at lower rates. Thus, although the value
of mortgage-backed securities will generally decrease in the same way as
other bonds when interest rates are rising, their value may not increase as
much when interest rates are falling.

The Fund may invest in mortgage-backed securities issued by private
entities, such as commercial or mortgage banks, savings and loan
associations, or broker-dealers, that meet the quality standards set forth
above for corporate debt. The issuer's obligation may vary but often it is
to "pass-through" the payments of principal and interest upon the mortgages
in the pool. In some cases timely payment of principal and interest is
guaranteed or insured by a third party, but in all cases, like any other
fixed-income security, a default by the issuer could lead to a loss.

The Fund may invest in collateralized mortgage obligations ("CMOs"). CMOs
are mortgage-backed securities that have been partitioned into several
classes with a ranked priority with respect to payments on the underlying
mortgages. The prepayment risks of certain CMOs are higher than that of
other mortgage-backed securities because of this partitioning. In addition,
certain CMOs have encountered liquidity problems in rising interest rate
environments with consequent adverse effects on their market values.

Asset-Backed Securities. The Fund may invest in asset-backed securities,
which represent a participation in, or are secured by and payable from, a
stream of payments generated by particular assets, most often a pool or
pools of similar assets (e.g., trade receivables). Asset-backed commercial
paper, one type of asset-backed securities, is issued by a special purpose
entity, organized solely to issue the commercial paper and to purchase
interests in the assets. The

13
<PAGE> 19

credit quality of these securities depends primarily upon the quality of
the underlying assets and the level of credit support and/or enhancement
provided.

Money Market Instruments. The Fund may invest in money market instruments,
including bank obligations and commercial paper. The Fund may also engage
in repurchase agreements and reverse repurchase agreements. These
instruments are described in the Appendix.

High Yield Debt. The Fund may invest up to 15% of its assets in debt
securities rated below investment grade, i.e., securities with a Moody's rating
of Ba or lower, or with S&P rating of BB or lower, or unrated securities
determined by the investment manager to be of comparable quality. While these
securities, sometimes referred to as junk bonds, generally offer a higher yield
than higher rated securities, they involve additional risks. They are considered
predominantly speculative with respect to the issuer's capacity to pay interest
and repay principal in accordance with the terms of the obligation. The market
value of the securities also tend to be more sensitive than higher-rated
securities to news about the issuer and changes in overall economic conditions.
In addition, markets for lower-rated securities may be more limited than for
higher-rated securities.

Foreign Securities and Foreign Currency Transactions. The Fund may invest
up to 25% of its assets in fixed income securities of foreign companies or
governmental agencies denominated in foreign currencies. To facilitate the
purchase and sale of those securities and to manage foreign exchange risk, the
Fund may enter into forward contracts to purchase or sell foreign currencies.
More information concerning foreign securities and foreign currency transactions
as well as the risks of these investments is set forth above in connection with
the International Equity Fund and in the Statement of Additional Information.

General Risk Considerations. There can be no assurance that the Fund will
achieve its investment objective. Because of its investment policy, the Fund may
or may not be suitable or appropriate for certain participants. The value of the
portfolio securities of the Fund will fluctuate based upon market conditions and
interest rates. An increase in interest rates will generally reduce the value of
debt securities, and conversely, a decline in interest rates will generally
increase the value of debt securities. This effect is generally greater the
longer the maturity of the security. Thus, the Long-Term Bond Fund will likely
be subject to greater fluctuation in value than either the Intermediate-Term or
Short-Term Bond Funds. The Fund is also subject to credit risk -- the risk that
the issuer will not be able to meet its obligations. Although the Fund seeks to
reduce credit risk through credit analysis and investment in a diversified
portfolio, these measures do not eliminate the risk entirely.

AMERICAN ODYSSEY INTERMEDIATE-TERM BOND FUND

Investment Objective. The investment objective of the Intermediate-Term
Bond Fund is maximum long-term total return (capital appreciation and income) by
investing primarily in intermediate-term corporate debt securities, U.S.
government securities, mortgage-related securities, and asset-backed securities,
as well as money market instruments.

14
<PAGE> 20

securities, (3) mortgage-related securities, (4) asset-backed securities, and
(5) money market instruments. The Fund may also engage in repurchase agreements
and reverse repurchase agreements. These securities are described in more detail
above in connection with the Long-Term Bond Fund and in the Appendix.

The dollar-weighted average maturity of the Fund's investments will
generally vary between two and seven years, depending upon the subadviser's
opinion of current and future economic conditions.

The Fund will invest primarily in investment grade securities, i.e.,
securities rated at least Baa by Moody's or at least BBB by S&P, or unrated
securities determined by the subadviser to be of similar quality. The Fund may
invest up to 15% of its assets in high yield debt securities with lower ratings
(or comparable unrated security as determined by the investment manager) as long
as the subadviser determines that the investment is consistent with the Fund's
objective of preserving capital. More information about high yield debt and its
risks is set forth above in connection with the Long-Term Bond Fund.

Foreign Securities and Foreign Currency Transactions. The Fund may invest
up to 25% of its assets in fixed income securities issued by foreign companies
or governments and their agencies denominated in foreign currencies. To
facilitate the purchase and sale of those securities and to manage foreign
exchange risk, the Fund may enter into forward contracts to purchase or sell
foreign currencies. More information concerning foreign securities and foreign
currency transactions as well as the risks of these investments is set forth
above in connection with the International Equity Fund and in the Statement of
Additional Information.

General Risk Considerations. There can be no assurance that the Fund will
achieve its investment objective. Because of its investment policy, the Fund may
or may not be suitable or appropriate for certain participants. The value of the
portfolio securities of the Fund fluctuates based upon market conditions and
interest rates. An increase in interest rates generally reduces the value of
debt securities, and conversely, a decline in interest rates generally increases
the value of debt securities. This effect is generally greater the longer the
maturity of the security. Thus the Intermediate-Term Bond Fund will likely be
subject to greater fluctuation in value than the Short-Term Bond Fund but less
than the Long-Term Bond Fund. The Fund is also subject to credit risk -- the
risk that the issuer will not be able to meet its obligations. Although the Fund
seeks to reduce credit risk through credit analysis and investment in a
diversified portfolio, these measures do not eliminate the risk entirely.

AMERICAN ODYSSEY SHORT-TERM BOND FUND

Investment Objective. The investment objective of the Short-Term Bond Fund
is maximum long-term total return (capital appreciation and income) by investing
primarily in investment-grade, short-term debt securities.

Investment Program. To achieve its objective, the Fund invests primarily
in a diversified portfolio of investment-grade, short-term debt securities,
including corporate debt securities, U.S. government securities,
mortgage-related securities, asset-backed securities, and money market
instruments. The Fund may also engage in repurchase agreements and reverse
repurchase agreements. These

15
<PAGE> 21

securities are described in more detail above in connection with the Long-Term
Bond Fund and in the Appendix.

The dollar-weighted average maturity of the Fund's investments will
generally vary between one and five years, depending upon the subadviser's
opinion of current and future economic conditions. As long as that average
maturity requirement is met, however, the Fund may purchase individual
securities with longer maturities. The subadviser expects that the portfolio
turnover rate for the Fund will exceed 100%. Although brokerage expenses
increase as turnover increases, the subadviser believes that the benefits of
more active trading exceed the additional costs.

The Fund invests primarily in investment grade securities, i.e., securities
rated at least Baa by Moody's or BBB by S&P, or unrated securities determined by
the subadviser to be of similar quality. The Fund may invest up to 15% of its
assets in high yield debt securities with lower ratings (or comparable unrated
security as determined by the investment manager) as long as the subadviser
determines that the investment is consistent with the Fund's objective of
preserving capital. More information about high yield debt and its risks is set
forth above in connection with the Long-Term Bond Fund.

General Risk Considerations. The Fund is not a money market fund and does
not attempt to maintain a stable net asset value of $1.00 per share. While the
Fund seeks to preserve capital, there can be no assurance that it will achieve
that objective. The Fund may purchase some securities of a lower quality than a
money market fund may purchase. Moreover, the average maturity of the Fund can
be longer than that of a money market fund, and thus the value of the Fund's
shares may be more sensitive to changes in interest rates although not to the
same extent as the Long-Term and Intermediate-Term Bond Funds.

- ---------------------------------
ADDITIONAL INVESTMENT INFORMATION

Options. Each Fund may write (i.e., sell) options under certain
limitations set forth in the Statement of Additional Information. More
specifically, (1) the International Equity Fund, the Emerging Opportunities
Fund, and the Core Equity Fund may purchase and write (i.e., sell) put and call
options on stocks or stock indices that are traded on national securities
exchanges or that are listed on the National Association of Securities Dealers
Automated Quotation System ("NASDAQ"); (2) any Fund other than the Emerging
Opportunities and the Core Equity Funds may purchase and write (i.e., sell) put
and call options on debt securities (including U.S. government debt securities)
that are traded on national securities exchanges or that result from privately
negotiated transactions with primary U.S. government securities dealers
recognized by the Federal Reserve Bank of New York;

16
<PAGE> 22

and (3) any Fund may purchase and write (i.e., sell) put and call options on
foreign currencies traded on U.S. or foreign securities exchanges or boards of
trade. The Funds will only write covered options, as explained in the Statement
of Additional Information. An option gives the owner the right to buy or sell
securities at a predetermined exercise price for a given period of time.
Although options are primarily used to minimize principal fluctuations, or to
generate additional premium income for the Funds, they do involve certain risks.
Writing covered call options involves the risk of not being able to effect
closing transactions at a favorable price or participate in the appreciation of
the underlying securities or index above the exercise price. Writing covered put
options also involves the risk of not being able to effect closing transactions
at favorable prices or losing part or all of the securities used for cover if
the price of the underlying security falls below the exercise price. Purchasing
put or call options involves the risk of losing the entire premium (purchase
price of the option). Further details concerning the Funds' use of options and
the risks involved are contained in the Statement of Additional Information.

Futures Contracts. Each Fund may enter into futures contracts and options
thereon under certain limitations set forth in the Statement of Additional
Information. More specifically, (1) the International Equity Fund, the Emerging
Opportunities Fund, and the Core Equity Fund may buy and sell stock index
futures contracts traded on a commodities exchange or board of trade and options
thereon; (2) any Fund other than the Emerging Opportunities and the Core Equity
Funds may buy and sell futures contracts on interest bearing securities (such as
U.S. Treasury Bonds, U.S. Treasury Notes, 3-month U.S. Treasury Bills, and GNMA
certificates) or interest rate indices and options thereon; and (3) any Fund may
buy and sell futures contracts on foreign currencies or groups of foreign
currencies such as the European Currency Unit and options thereon. The Funds use
these instruments as a hedge against or to minimize adverse principal
fluctuations or as an efficient means of adjusting its exposure to the market.
The Funds do not use futures contracts or options thereon for speculation. Each
Fund limits its use of futures contracts and options thereon so that no more
than 5% of the Fund's total assets will be committed to initial margin deposits
or premiums on options. Furthermore, immediately after entering into such
contracts or purchasing such options, no more than 30% of a Fund's total assets
may be represented by such contracts and options (other than futures contracts
and options thereon relating to money market instruments). These contracts and
options entail certain risks, including (but not limited to) the following: (1)
no assurance that futures contracts transactions can be offset at favorable
prices; (2) possible reduction of the Fund's total return due to the use of
hedging; (3) possible reduction in value of both the securities hedged and the
hedging instrument; (4) possible lack of liquidity due to daily limits on price
fluctuation or other factors; (5) an imperfect correlation between price
movements in the contract and in the securities being hedged; and (6) potential
losses in excess of the amount invested in the futures contracts themselves.
Further details concerning the Funds' use of futures contracts and the risks
involved are contained in the Statement of Additional Information.

Preferred Stocks, Convertible Securities, and Warrants. All Funds other
than the Short-Term Bond Fund may invest in preferred stocks and convertible
securities. Preferred stocks are equity securities whose owners have a claim on
a company's earnings and assets before common stockholders but after debt
holders. Convertible securities are debt or preferred stock which are
convertible into or

17
<PAGE> 23

exchangeable for common stock. In addition, the International Equity Fund, the
Emerging Opportunities Fund, and the Core Equity Fund may invest in warrants.
Warrants are options to buy a stated number of shares of common stock at a
specified price any time during the life of the warrant (generally two or more
years).

Short Sales Against the Box. The International Equity Fund, the Emerging
Opportunities Fund, and the Core Equity Fund may make short sales of securities
or maintain a short position, provided that at all times when a short position
is open the Fund owns an equal amount of such securities or securities
convertible into or exchangeable, with or without payment of any further
consideration, for an equal amount of the securities of the same issuer as the
securities sold short (a "short sale against the box"); provided, that if
further consideration is required in connection with the conversion or exchange,
cash or U.S. government securities in an amount equal to such consideration must
be put in a segregated account.

When-Issued and Delayed Delivery Securities. The Funds may purchase
securities on a when-issued or delayed delivery basis (i.e., delivery and
payment can take place a month or more after the date of the transaction). A
Fund will make commitments for when-issued transactions only with the intention
of actually acquiring the securities and, to facilitate such acquisitions, the
Fund's custodian bank will maintain in a temporary holding account cash, U.S.
government securities or other high-grade debt obligations having a value equal
to or greater than such commitments. On delivery dates for such transactions,
the Fund will meet its obligations from maturities or sales of the securities
held in the temporary holding account and/or from then available cash flow. If
the Fund chooses to dispose of the right to acquire a when-issued security prior
to its acquisition it could, as with the disposition of any other Fund security,
incur a gain or loss due to market fluctuations. No when-issued commitments will
be made if, as a result, more than 15% of the Fund's net assets would be so
committed.

Lending of Portfolio Securities. For the purpose of realizing additional
income, each Fund may, as a fundamental policy, lend securities with a value of
up to 33% of its total assets to unaffiliated broker-dealers or institutional
investors. Any such loan will be continuously secured by collateral at least
equal to the value of the security loaned. Although the risks of lending
portfolio securities are believed to be slight, as with other extensions of
secured credit, such lending could result in delays in receiving additional
collateral or in the recovery of the securities or possible loss of rights in
the collateral should the borrower fail financially. Loans will only be made to
firms deemed to be of good standing and will not be made unless the
consideration to be earned from such loans would justify the risk.

Investment Restrictions. Each Fund is also subject to certain investment
restrictions which are fundamental and may not be changed except with the
approval of a majority vote (as defined on page 9) of the persons having voting
rights with respect to the affected Fund. Investment limitations may also arise
under state insurance laws and regulations, and the Fund will comply with any
such applicable limitation. For a detailed discussion of the investment
restrictions applicable to the Funds, see INVESTMENT RESTRICTIONS in the
Statement of Additional Information.

18
<PAGE> 24

- -----------------------
MANAGEMENT OF THE FUNDS

DIRECTORS AND OFFICERS

The affairs of the Company are managed under the direction of its Board of
Directors. The directors decide upon matters of general policy and review the
actions of the Company's investment manager and subadvisers, and the Company's
officers conduct and supervise its daily business operations.

The Company is responsible for the payment of certain fees and expenses
including, among others, the following: (1) management and investment advisory
fees; (2) the fees of non-interested directors; (3) the fees of the Funds'
custodian; (4) the fees of the Company's legal counsel and independent
accountants; (5) brokerage commissions incurred in connection with fund
transactions; (6) all taxes and charges of governmental agencies; (7) the
reimbursement of organizational expenses; and (8) expenses of printing and
mailing prospectuses and other expenses related to shareholder communications.

MANAGER

American Odyssey Funds Management, Inc. (the "Manager"), Two Tower Center,
P.O. Box 1063, East Brunswick, New Jersey 08816-1063, is the overall investment
adviser of the Company. Pursuant to separate subadvisory agreements between the
Manager and the subadvisers, the subadvisers furnish investment advisory
services in connection with the management of the Funds. Each subadviser is paid
a fee for its services by the Manager out of the fee it collects from the Funds.
The Manager continues to have responsibility for all investment advisory
services pursuant to the Management Agreement and supervises the subadvisers'
performance of such services. The Manager provides accounting services to and
keeps the accounts and records of the Company, other than those maintained by
the custodian. It or an affiliated company pays the salaries and expenses of all
of its and the Company's personnel except for fees and expenses of the
non-interested directors. It or an affiliated company provides necessary office
space, staff assistance to the Board, and all expenses incurred in connection
with managing the ordinary course of the Company's business, other than the fees
and expenses described above that are paid directly by the Company.

The Manager was organized at the same time as the Funds and has managed
them since their inception. The Manager is registered as an investment adviser
under the Investment Advisers Act of 1940, as amended. It is a wholly-owned
indirect subsidiary of Travelers Group Inc. and a member of The Copeland
Companies, which includes another investment adviser upon whose expertise it is
able to draw. In addition, it retains consultants to provide assistance in
monitoring and evaluating the performance of the subadvisers and to provide
assistance in the administration of the Company. See OTHER SERVICE PROVIDERS in
the Statement of Additional Information.

Subject to the supervision and direction of the Directors, the Manager
manages the investment operations of the Funds and is responsible for monitoring
and overseeing the performance of the subadvisers to each of the Funds. The
Manager meets periodically with each of the subadvisers to review and agree upon
investment strategies and programs in the light of anticipated cash flows. The
Manager has responsibility for communicating performance expectations and
evaluations to

19
<PAGE> 25

subadvisers and recommending to the Directors whether subadvisers' contracts
should be renewed, modified, or terminated. The Manager reports to the Directors
regarding the results of its evaluation and monitoring functions. Each Fund pays
the Manager a fee for its services that is computed daily and paid monthly at
the annual rates specified below based on the value of the average net assets of
the Fund. The Manager pays each subadviser, out of the fee it receives from the
Fund, a fee that is computed daily and paid monthly at the annual rates
specified below based on the value of the Fund's average daily net assets:

<TABLE>
<CAPTION>
FEE PAID BY MANAGER
FUND MANAGER'S FEE TO THE SUBADVISER
- ---------------------------- ----------------------------- -----------------------------
<S> <C> <C>
International Equity Fund - 0.70% for first $50 million - 0.45% for first $50 million
in assets, plus in assets, plus
- 0.65% for next $50 million - 0.40% for next $50 million
in assets, plus in assets, plus
- 0.55% for assets over $100 - 0.30% for assets over $100
million million
Emerging Opportunities Fund - 0.75% for first $50 million - 0.50% for first $50 million
in assets allocated to in assets allocated to
Cowen, plus Cowen, plus
- 0.70% for next $50 million - 0.45% for next $50 million
in assets allocated to in assets allocated to
Cowen, plus Cowen, plus
- 0.65% for assets over $100 - 0.40% for assets over $100
million allocated to Cowen million allocated to Cowen
- 0.65% for first $100 - 0.40% for first $100
million in assets allocated million in assets allocated
to Wilke/Thompson to Wilke/Thompson
- 0.55% for assets over $100 - 0.30% for assets over $100
million allocated to million allocated to
Wilke/Thompson Wilke/Thompson
Core Equity Fund - 0.60% for first $100 - 0.35% for first $100
million in assets, plus million in assets, plus
- 0.55% for assets over $100 - 0.30% for assets over $100
million million
Long-Term Bond Fund - 0.50% for first $250 - 0.25% for first $250
million of assets, plus million of assets, plus
- 0.40% for assets over $250 - 0.15% for assets over $250
million million
Intermediate-Term Bond Fund - 0.50% for first $100 - 0.25% for first $100
million in assets, plus million in assets, plus
- 0.45% for next $100 million - 0.20% for next $100 million
in assets, plus in assets, plus
- 0.40% for assets over $200 - 0.15% for assets over $200
million million
Short-Term Bond Fund - 0.50% for first $100 - 0.25% for first $100
million in assets, plus million in assets, plus
- 0.40% for assets over $100 - 0.15% for assets over $100
million million
</TABLE>

During 1996, the Manager's fees (prior to any adjustment for the expense
limitation agreement) were the following percentages of the Funds' average net
assets: International Equity Fund, 0.65%;

20
<PAGE> 26

Emerging Opportunities Fund, 0.60%; Core Equity Fund, 0.57%; Long-Term Bond
Fund, 0.50%, Intermediate-Term Bond Fund, 0.50%; and Short-Term Bond Fund,
0.50%.

During 1996, the subadviser's fees (which were paid by the Manager) were
the following percentages of the Funds' average net assets: International Equity
Fund, 0.40%; Emerging Opportunities Fund, 0.35%; Core Equity Fund, 0.32%;
LongTerm Bond Fund, 0.25%; Intermediate-Term Bond Fund, 0.25%; and Short-Term
Bond Fund, 0.25%.

The Company's shareholders have approved a proposal that would permit the
Board of Directors to change subadvisers or amend existing subadvisory
agreements without shareholder approval. In connection with that proposal, the
shareholders approved a new Management Agreement under which each Fund would pay
the Manager a fee of 0.25% (the Manager's current net fee) and pay the
subadviser(s) for that Fund directly (rather than through the Manager). The new
Management Agreement would permit the Board to approve new subadvisory
agreements with fees that are 0.10% higher than the highest current subadviser
fee for the Fund. This new arrangement must be approved by the Securities and
Exchange Commission before the arrangement (including the new Management
Agreement) will be effective. For more information, see Changing Subadvisers
Without Shareholder Approval on page 24.

SUBADVISERS

The fees received by the subadvisers are generally lower than the fees they
charge to institutional clients to which they provide investment services or
advice. They are willing to do so in part because their functions are limited to
managing the securities held by the Funds by making investment decisions and
placing orders to buy and sell securities, with the Manager responsible for
administration and operations of the Funds. Although the subadvisers' fees are
paid by the Manager rather than by the Company, the subadvisory agreements have
been approved by the Board of Directors and the Company is a party to each of
the subadvisory agreements.

Set forth below is information about each of the subadvisers:

BANK OF IRELAND ASSET MANAGEMENT (U.S.) LIMITED ("BIAM") serves as
subadviser for the International Equity Fund. It is an indirect wholly-owned
subsidiary of Bank of Ireland. Its head offices are at 26 Fitzwilliam Place,
Dublin 2, Ireland. Its U.S. offices are at Two Greenwich Plaza, Greenwich, CT
06830. The Bank of Ireland provides investment management services through a
network of sister companies, including BIAM which represents U.S. clients. As of
December 31, 1996, the Bank of Ireland managed more than $7.5 billion in global
securities for U.S. clients. The Manager (not the Fund) currently pays BIAM, on
a monthly basis, an annual advisory fee based on the average daily net assets of
the Fund at the rate of 0.45% for the first $50 million in assets, 0.40% for the
next $50 million in assets, and 0.30% for assets over $100 million. BIAM's
Strategy Group makes all the investment decisions for the International Equity
Fund, and no person(s) is primarily responsible for making recommendations to
that Group.

WILKE/THOMPSON CAPITAL MANAGEMENT, INC. serves as a subadviser for the
Emerging Opportunities Fund. Its Corporate offices are at 3800 Norwest Center,
90 South 7th Street, Minneapolis, MN

21
<PAGE> 27

55402-3934. Wilke/Thompson serves as an investment adviser to a variety of
individual and institutional investors. As of December 31, 1996, Wilke/Thompson
managed more than $1.4 billion of assets. The Manager (not the Fund) currently
pays Wilke/Thompson on a monthly basis, an annual advisory fee based on the
average daily net assets managed by Wilke/Thompson at the rate of 0.40% for the
first $100 million in assets plus 0.30% for assets over $100 million. The
following individuals are responsible for the day-to-day management of the
portion of the Fund managed by Wilke/Thompson:

Mark A. Thompson co-founded Wilke/Thompson in June 1987 and was Portfolio
Manager until January 1991 when he became Chief Investment Officer. Prior to
Wilke/Thompson, he was with IDS Financial Corporation, where he served as a
securities analyst and the Associate Portfolio Manager of the IDS New Dimensions
Fund. Mr. Thompson has 15 years experience in growth stock investing.

Dana L. Feick, C.F.A. joined Wilke/Thompson as a Portfolio Manager in
January 1992. He has served as a Senior Portfolio Manager since January 1994 and
is responsible for securities analysis and management of the Fund. From April
1990 through December 1991, he served as a Research Analyst with IDS Financial
Corporation. Mr. Feick has 11 years experience in growth stock investing.

Stephen M. Kensinger, C.P.A., C.F.A. joined Wilke/Thompson in February 1994
as Senior Portfolio Manager. Mr. Kensinger, along with Mr. Feick, is responsible
for securities analysis and management of the Fund. From July 1987 through
February 1994, Mr. Kensinger served as Vice President and Senior Portfolio
Manager of Norwest Bank Minnesota, N.A., where he was responsible for the
management of balanced endowment, foundation, and other tax-exempt portfolios.
He was a member of the Norwest Growth Equity Team, which is responsible for
overall equity selection and strategy. Mr. Kensinger has 17 years experience in
professional money management.

COWEN ASSET MANAGEMENT. Cowen & Co., through its investment management
division, Cowen Asset Management ("Cowen"), serves as a subadviser for the
Emerging Opportunities Fund. Its principal offices are at Financial Square, New
York, NY 10005. Cowen serves as investment adviser to a variety of individual
and institutional investors, including mutual funds. As of December 31, 1996,
Cowen managed more than $5.2 billion of assets. The Manager (not the Fund)
currently pays Cowen, on a monthly basis, an annual advisory fee based on the
average daily net assets managed by Cowen at the rate of 0.50% for the first $50
million in assets, 0.45% for the next $50 million in assets, and 0.40% for
assets over $100 million. The following individual is responsible for the
day-to-day management of the portion of the Fund managed by Cowen:

William Church, the portfolio manager, is Vice President and Senior
Investment Officer of Cowen & Co. and Chief Investment Officer of Cowen Asset
Management, and has been with Cowen & Co. since 1982.

EQUINOX CAPITAL MANAGEMENT, INC. serves as subadviser for the Core Equity
Fund. Its Corporate offices are at 590 Madison Avenue, New York, NY 10022.
Equinox serves as an investment adviser to a variety of individual and
institutional investors. As of December 31, 1996, Equinox managed more than $7.2
billion of assets. The Manager (not the Fund) currently pays Equinox, on a
monthly basis, an annual advisory fee based on the average daily net assets of
the Fund at the rate of 0.35% for the

22
<PAGE> 28

first $100 million in assets plus 0.30% for assets over $100 million. The
following individuals are responsible for the day-to-day management of the Core
Equity Fund:

Ronald J. Ulrich founded Equinox in 1989 and has served as President and
Chief Investment Officer since the firm's inception. He oversees the firm's
portfolio construction and stock selection committees. Prior to Equinox, Mr.
Ulrich was with Morgan Stanley Asset Management, which he co-founded. He served
as Managing Director at Morgan Stanley, Inc. and was responsible for equity
management in their asset management division. Mr. Ulrich has over 25 years
experience in the investment management field.

Wendy D. Lee, C.F.A. joined Equinox in June 1992 as a Principal and Senior
Equity Analyst responsible for coverage of the consumer and basic materials
sectors. She was subsequently promoted in January 1994 to Managing Director and
Director of Research. Ms. Lee, together with Mr. Ulrich, oversees portfolio
construction and stock selection. From May 1985 through June 1992, she was a
Partner and Senior Equity Analyst at Brinson Partners. Ms. Lee has over 16 years
experience in the investment management field.

WESTERN ASSET MANAGEMENT COMPANY serves as subadviser for the Long-Term
Bond Fund. Its Corporate offices are at 117 East Colorado Boulevard, Pasadena,
CA 91105. Western Asset Management serves as an investment adviser to a variety
of individual and institutional investors, including mutual funds. As of
December 31, 1996, Western Asset Management managed more than $25 billion of
assets. The Manager (not the Fund) currently pays Western Asset Management, on a
monthly basis, an annual advisory fee based on the average daily net assets of
the Fund at the rate of 0.25% for the first $250 million of assets and 0.15% for
assets over $250 million. The following individuals are responsible for the
day-to-day management of the Long-Term Bond Fund:

Kent S. Engel has been with Western Asset since its inception in 1971 and
currently serves as Chief Investment Officer. He is responsible for overseeing
the decisions of the Investment Strategy Committee. Mr. Engel has 25 years
experience with fixed income investing.

S. Kenneth Leech joined Western Asset in May 1990 and currently serves as
Director of Portfolio Management. He is responsible for overseeing the
implementation of the firm's investment strategy. Mr. Leech has 19 years
experience with fixed income investing.

TRAVELERS ASSET MANAGEMENT INTERNATIONAL CORPORATION ("TAMIC") serves as
subadviser for the Intermediate-Term Bond Fund. TAMIC is a wholly-owned
subsidiary of Travelers Group Inc. Its corporate offices are at One Tower
Square, Hartford, CT 06183. It serves as an investment adviser to a variety of
individual and institutional investors, including mutual funds and variable
annuity portfolios. As of December 31, 1996, TAMIC managed more than $4 billion
of assets. The Manager (not the Fund) currently pays TAMIC, on a monthly basis,
an annual advisory fee based on the average daily net assets of the Fund at the
rate of 0.25% for the first $100 million in assets, 0.20% for the next $100
million in assets, and 0.15% for assets over $200 million. The following
individuals are responsible for the day-to-day management of the
Intermediate-Term Bond Fund:

F. Denney Voss joined The Travelers in 1980. Mr. Voss is a Senior Vice
President of both The Travelers and of TAMIC and has served as the Fund's
portfolio manager since March 1995. Mr. Voss

23
<PAGE> 29

has also managed TAMIC's Quality Bond Account for Variable Annuities since March
1995 and has been responsible for managing the Travelers portfolios backing
general account insurance products since August 1994. Prior to transferring to
the Travelers Securities Department in 1994, Mr. Voss performed various sales
and trading functions for Smith Barney Inc., a Travelers Group subsidiary.

David A. Tyson, Ph.D., C.F.A. joined The Travelers in 1985. Since January
1995, Mr. Tyson has served as a Senior Vice President of The Travelers and has
headed up the Securities Department Portfolio Management Group since March 1993.
He has been a Senior Vice President of TAMIC since April 1990 and its Chief
Investment Officer since March 1994. In addition to assisting Mr. Voss in the
management of this Fund, Mr. Tyson is also responsible for managing TAMIC's
Managed Assets Trust Account for Variable Annuities. Since April 1990, he has
managed the Travelers convertible portfolio, several Travelers business line
portfolios, and several of TAMIC's outside insurance portfolios. His previous
responsibilities have included managing the Travelers Derivatives,
Mortgage-Backed, and Quantitative Investment Groups.

SMITH GRAHAM & CO. ASSET MANAGERS, L.P. serves as subadviser for the
Short-Term Bond Fund. Its Corporate offices are at 6900 Texas Commerce Tower,
600 Travis Street, Houston, TX 77002-3007. Smith Graham serves as an investment
adviser to a variety of individual and institutional investors, including mutual
funds. As of December 31, 1996, Smith Graham managed more than $2 billion of
assets. The Manager (not the Fund) currently pays Smith Graham, on a monthly
basis, an annual advisory fee based on the average daily net assets of the Fund
at the rate of 0.25% for the first $100 million in assets, plus 0.15% for assets
over $100 million. The following individuals are responsible for the day-to-day
management of the Short-Term Bond Fund:

Ladell Graham co-founded Smith Graham in 1990 and currently serves as
President and Chief Investment Officer. Prior to Smith Graham, he was most
recently with American Capital Asset Management, Inc. as an Investment Vice
President; Dean Witter Inter-Capital Division as an Assistant Vice President;
and Associates Corporation as a portfolio and risk manager. Mr. Graham has over
14 years experience in fixed income investing.

Brian L. Stine joined Smith Graham in January 1993 and currently serves as
a Portfolio Manager. From October 1990 to September 1992 he was in Institutional
Sales at Dean Witter and from December 1989 to October 1990 he was at Shearson
Lehman, where he was a portfolio strategist responsible for risk analysis on
mortgage-backed securities, CMOs, and other derivative products. Mr. Stine has
over 14 years experience in fixed income investing.

Mark Delaney joined Smith Graham in November 1994 and currently serves as a
Portfolio Manager. From July 1988 to November 1994 he was a Senior Portfolio
Manager for Transamerica Fund Management. Mr. Delaney has over 15 years
experience in fixed income investing.

CHANGING SUBADVISERS WITHOUT SHAREHOLDER APPROVAL

24
<PAGE> 30

will be effective. If the SEC does not approve the arrangement, it will not
become effective (unless the law changes to permit the arrangement without SEC
approval).

As part of the proposal, the shareholders approved a new Management
Agreement and new subadvisory agreements with each of the current subadvisers.
Those new agreements will become effective only with the SEC approval referred
to above. They provide that each Fund will pay the Manager a fee of 0.25% (the
Manager's current net fee) and will pay the subadviser(s) for that Fund directly
(rather than through the Manager). The new Management Agreement would permit the
Board to approve new subadvisory agreements with fees that are 0.10% higher that
the highest current subadviser fee for the Fund. In particular, the new
Management Agreement would set the following maximums for subadviser fees:
International Equity Fund, 0.55%; Emerging Opportunities Fund, 0.60%; Core
Equity Fund, 0.45%; Long-Term Bond Fund, 0.35%; Intermediate-Term Bond Fund,
0.35%; and Short-Term Bond Fund, 0.35%. Subadviser fees above those maximums
would require shareholder approval.

Under the new arrangement, the Company will send shareholders an
informational statement when and if it hires a new subadviser or materially
amends a current subadvisory agreement. This arrangement will not permit the
Board, without shareholder approval, to enter into a subadvisory agreement with
a subadviser that is an "affiliated person" (as defined in the Investment
Company Act of 1940) of the Company (other than by reason of serving as a
subadviser).

EXPENSE LIMITATIONS

The Manager previously agreed to waive fees or reimburse expenses for the
Short-Term Bond Fund to the extent the Fund's total expense ratio (excluding
interest, taxes, brokerage, other expenses which are capitalized in accordance
with generally accepted accounting principles, and extraordinary expenses, but
including the Manager's investment advisory fees), exceeded 0.75%. The
Short-Term Bond Fund is currently repaying the Manager for any fees the Manager
previously waived or expenses the Manager previously reimbursed pursuant to the
above expense limitation; however, no repayment will be made if it would result
in the Fund's total expense ratio in any year exceeding the expense limitation
set forth above.

CUSTODIAN AND TRANSFER AGENT

Investors Bank and Trust Company, 89 South Street, Boston, Massachusetts
02111, is custodian of the assets of the Funds of the Company and maintains
certain records and books in connection therewith.

The Manager, Two Tower Center, P.O. Box 1063, East Brunswick, NJ
08816-1063, is the transfer agent and dividend disbursing agent for the Funds
and in those capacities maintains certain records and books for them.

25
<PAGE> 31

- ---------------------------------
PURCHASE AND REDEMPTION OF SHARES

Principal Underwriter. Copeland Equities, Inc., Two Tower Center, P.O. Box
1063, East Brunswick, NJ 08816-1063, serves as the principal underwriter of the
shares of the Company. It is a wholly-owned, indirect subsidiary of Travelers
Group Inc.

Purchase. Shares of the Company are sold at net asset value of the shares
next determined after receipt of the purchase order. There is no sales charge or
sales load on the purchase of any shares.

Redemption. The Company is required to redeem its shares for cash, within
7 days of receipt of proper notice of redemption or sooner if required by law.
The redemption price is the net asset value next determined after the initial
receipt of a proper request for redemption. There is no redemption charge. The
right to redeem shares or to receive payment with respect to any redemption may
be suspended only for any period during which trading on the New York Stock
Exchange is restricted as determined by the Securities and Exchange Commission
("SEC") or when such exchange is closed (other than customary weekend and
holiday closings), for any period during which an emergency exists as defined by
the SEC as a result of which disposal of a Fund's securities or determination of
the net asset value of each Fund is not reasonably practicable, and for such
other periods as the SEC may by order permit for the protection of shareholders
of each Fund.

Net Asset Value. The net asset value of the shares of each Fund is
determined once daily, as of 4:15 p.m. New York City time, on each day during
which the New York Stock Exchange is open for business. The net asset value per
share of each Fund is computed by adding the sum of the value of the securities
held by that Fund plus any cash or other assets it holds, subtracting all its
liabilities, and dividing the result by the total number of shares outstanding
of that Fund at such time. Expenses, including the investment management fee,
are accrued daily. Equity securities, options, and futures contracts are
generally valued based on market quotations. Debt obligations securities (other
than debt obligations with remaining maturities of less than 60 days when
purchased, which are based on an amortized cost basis) are valued utilizing an
independent pricing service. Quotations of foreign securities in a foreign
currency are converted to U.S. dollar equivalents at the current rate obtained
by a recognized bank or dealer. Forward contracts are valued at the current cost
of covering or offsetting such contracts. Securities or assets for which market
quotations are not readily available will be valued at fair value as determined
by the Manager and/or the subadvisers under the direction of the Board of
Directors of the Company.

- -----------------------
PERFORMANCE INFORMATION

From time to time the Funds may advertise their total return, average
annual total return, or yield. These performance figures are based upon
historical results and are not intended to indicate future performance.

A Fund's total return for any given period measures the Fund's overall
change in value over that period, including share price movements, and assumes
all dividends and capital gains have been reinvested. Average annual total
return is that rate of return which, if earned uniformly over standard one-,
five- or ten-year periods (or shorter periods depending on the length of time
during which the

26
<PAGE> 32

Fund has operated), would have resulted in the Fund's actual total return for
that period. Other reported total return figures may differ in that they may
report non-standard periods or represent aggregate or cumulative returns over
stated lengths of time.

The yield of a Fund refers to the income generated by a hypothetical
investment in the Fund over a specific 30-day period. This income is then
annualized, which means that the income generated during the 30-day period is
assumed to be generated every 30 days during a one-year period and is shown as a
percentage of the hypothetical investment. For further information regarding the
calculation of total return and yield see PERFORMANCE INFORMATION in the
Statement of Additional Information.

Comparative performance information may be used from time to time in
advertising the Funds' shares, including data from independent fund reporting
services, such as Lipper Analytical Services, Inc., from unmanaged market
indices, such as the Morgan Stanley Capital International EAFE Index, the
Russell 2500 Index, the Standard & Poor's 500 Stock Index, the Salomon Core +
Five Index, the Lehman Brothers Government/Corporate Intermediate Bond Index,
the Lehman Brothers Government/Corporate 1-5 Year Bond Index, and industry or
financial publications of general interest such as Business Week, Forbes and
Money.

Purchasers of variable contracts which offer the American Odyssey Funds as
an investment option should not compare the Funds' performance information with
funds that offer their shares directly to the public because the performance
figures provided by the American Odyssey Funds do not reflect charges of the
insurance company issuing the variable contract. Purchasers of variable
contracts should therefore consult their contract prospectus to learn more about
those charges.

- --------------------
FEDERAL INCOME TAXES

The Funds intend to qualify as regulated investment companies under certain
provisions of the Internal Revenue Code (the "Code"). Under such provisions, the
Funds are not subject to federal income tax on the part of their net ordinary
income and net realized capital gains that they distribute. They intend to
distribute as dividends substantially all their net investment income, if any.
They also declare and distribute annually all their net realized capital gains.
Such dividends and distributions are automatically reinvested in additional
shares of the Funds.

The Long-Term Bond Fund did not qualify as a regulated investment company
for 1993 because during that year it had substantial short-term capital gains
and was not able to meet the requirement that no more than 30% of the Fund's
investment income may be from realized capital gains on the sale of securities
held for less than three months. While the Fund incurred a federal income tax of
approximately $155,000, the investment subadviser to the Long-Term Bond Fund
reimbursed the Fund for the taxes and related legal expenses, so no shareholder
of the Fund was affected. The Long-Term Bond Fund qualified in 1994-1996 as a
regulated investment company and intends to do so in future years as well.

For a discussion of the tax consequences to the owners of variable
contracts that invest in the Funds, see the prospectus for the variable
contract.

27
<PAGE> 33

The provisions of the Code and the Treasury Regulations that apply to
qualified retirement plans are complex and vary according to the type of plan
and its terms and conditions. Accordingly, this prospectus provides only general
tax information, and participants in qualified retirement plans that invest
directly in the Funds should consult a qualified tax adviser before purchasing
or redeeming any Fund shares. In general, assuming that a plan adheres to the
applicable limitations of the Code and Treasury Regulations, payments for the
purchase of Fund shares (other than after-tax employee payments) will be
deductible (or not includable in income) up to certain amounts each year.
Federal income tax currently is not imposed upon the investment income and
realized gains until redemption. When Fund shares are redeemed for the purpose
of making payments to plan participants, all or a portion of the payment is
normally taxable as ordinary income. Some redemptions may also be subject to
penalty tax. For more information contact a qualified tax adviser.

- -----------------
OTHER INFORMATION

Voting Rights. The shares of the Funds have equal voting rights, except
that certain issues will be voted on separately by the shareholders of each
Fund. Pursuant to current SEC requirements and staff interpretations, insurance
companies will vote Fund shares held in registered separate accounts in
accordance with voting instructions received from variable contract owners or
payees having the right to give such instructions. Fund shares for which
contract owners or payees are entitled to give voting instructions, but as to
which no voting instructions are received, and shares owned by an insurance
company in its general and unregistered separate accounts, will be voted in
proportion to the shares for which voting instructions have been received by
that company. Under state insurance law and federal regulations, there are
certain circumstances under which the insurance companies may disregard such
voting instructions. If voting instructions are ever ignored, the insurance
companies will so advise contract owners in the next semiannual report. The
Company currently does not intend to hold annual meetings of shareholders unless
required to do so under applicable law.

Portfolio Brokerage. A subadviser may employ an affiliated broker to
execute brokerage transactions on behalf of the Fund as long as the commissions
are reasonable and fair compared to the commissions received by other brokers in
connection with comparable transactions involving similar securities being
purchased or sold on a securities exchange during a comparable period of time.
The Funds may not engage in any transaction in which a subadviser or its
affiliates act as principal, including over-the-counter purchases and negotiated
trades in which such party acts as a principal.

Monitoring for Possible Conflict. Shares are sold to separate accounts of
insurers to fund variable annuity contracts, to separate accounts of insurers to
fund variable life insurance contracts, and to qualified retirement plans as
permitted by Treasury Regulation sec.1.817-5. There is a possibility that
material conflicts may arise between or among the interests of variable life
insurance contract owners, variable annuity contract owners, and participants in
qualified retirement plans. The Board of Directors of the Company will monitor
events for the existence of any such material conflicts and determine what
action, if any, should be taken in response to any such conflict.

Additional Information. For further information, shareholders may contact
the Company's office, the address and telephone number of which are set forth on
page 1 of this prospectus.

28
<PAGE> 34

- --------
APPENDIX

ADDITIONAL INFORMATION REGARDING MONEY MARKET INSTRUMENTS

Bank Obligations. Bank obligations include certificates of deposit,
bankers' acceptances, and time deposits of domestic banks, foreign branches of
U.S. banks, U.S. branches of foreign banks, foreign offices of foreign banks,
savings and loan associations, or savings banks. Certificates of deposit are
certificates evidencing the indebtedness of a bank to repay funds deposited with
it for a definite period of time (usually from 14 days to 1 year). Bankers'
acceptances are credit instruments evidencing the obligation of a bank to pay a
draft which has been drawn on it by a customer. These instruments reflect the
obligation both of the bank and of the drawer to pay the face amount of the
instrument upon maturity. Time deposits are non-negotiable deposits in a bank
for a fixed period of time. Certificates of deposit include both Eurodollar
certificates of deposit, which are traded in the over-the-counter market, and
Eurodollar time deposits, for which there is generally not a market. Eurodollars
are dollars deposited in banks outside the United States.

Commercial Paper. Commercial paper is a high-quality short-term promissory
note of a large corporation issued to finance its current obligations. The Funds
may invest in commercial paper which at the time of the investment is (1) rated
in the two highest categories by Moody's (Prime-1 and Prime-2) or by S&P (A-1
and A-2), or (2) unrated but determined by the subadviser to be of comparable
quality.

Repurchase Agreements. When a Fund purchases money market securities, it
may on occasion enter into a repurchase agreement with the seller wherein the
seller and the buyer agree at the time of sale to a repurchase of the security
at a mutually agreed upon time and price. The period of maturity is usually
quite short, possibly overnight or a few days, although it may extend over a
number of months. The resale price is in excess of the purchase price,
reflecting an agreed upon market rate effective for the period of time the
Fund's money is invested in the security, and is not related to the coupon rate
of the purchase security. Repurchase agreements may be considered loans of money
to the seller of the underlying security, which are collateralized by the
securities underlying the repurchase agreement. A Fund will not enter into
repurchase agreements unless the agreement is fully collateralized (i.e., the
value of the securities is, and during the entire term of the agreement remains,
at least equal to the amount of the loan including interest). The Fund will take
possession of the securities underlying the agreement and will value them daily
to assure that this condition is met. In the event that a seller defaults on a
repurchase agreement, the Fund may incur loss in the market value of the
collateral, as well as disposition costs; and, if a party with whom the Fund has
entered into a repurchase agreement becomes involved in a bankruptcy proceeding,
the Fund's ability to realize on the collateral may be limited or delayed and a
loss may be incurred if the collateral securing the repurchase agreement
declines in value during the bankruptcy proceeding.

Reverse Repurchase Agreements. The Funds may enter into reverse repurchase
agreements with banks, which agreements have the characteristics of borrowing
and involve the sale of securities held by a Fund with an agreement to
repurchase the securities at an agreed-upon price and date, which reflect a rate
of interest paid for the use of funds for the period. Generally, the effect of
such a transaction is that the Fund can recover all or most of the cash invested
in the securities involved

29
<PAGE> 35

during the term of the reverse repurchase agreement, while in many cases it will
be able to keep some of the interest income associated with those securities.
Such transactions are only advantageous if the Fund has an opportunity to earn a
greater rate of interest on the cash derived from the transaction than the
interest cost of obtaining that cash. The Fund may be unable to realize a return
from the use of the proceeds equal to or greater than the interest required to
be paid. Opportunities to achieve this advantage may not always be available,
and the Funds intend only to use the reverse repurchase technique when it
appears to be to their advantage to do so. The use of reverse repurchase
agreements may magnify any increase or decrease in the value of a Fund's
securities. The Fund's custodian bank will maintain in a separate account
securities of the Fund that have a value equal to or greater than the Fund's
commitments under reverse repurchase agreements. The value of the securities
subject to reverse purchase agreements will not exceed 10% of the value of the
Fund's total assets.

RATINGS OF CORPORATE DEBT SECURITIES

Moody's Investors Service, Inc.

AAA -- Bonds rated Aaa are judged to be of the best quality. They carry the
smallest degree of investment risk and are generally referred to as "gilt
edged."

AA -- Bonds rated Aa are judged to be of high quality by all standards. Together
with the Aaa group they comprise what are generally known as high grade bonds.

A -- Bonds rated A possess many favorable investment attributes and are
generally considered as upper medium grade obligations.

BAA -- Bonds rated Baa are considered medium grade obligations, i.e., they are
neither highly protected nor poorly secured. Interest payments and principal
security appear adequate for the present but certain protective elements may be
lacking or may be characteristically unreliable over any great length of time.
Such bonds lack outstanding investment characteristics and in fact have
speculative characteristics as well.

BA -- Bonds rated Ba are judged to have speculative elements; their future
cannot be considered as well-assured. Often the protection of interest and
principal payments may be very moderate and thereby not well safeguarded during
both good and bad times over the future. Uncertainty of position characterize
bonds in this class.

B -- Bonds rated B generally lack characteristics of the desirable investment.
Assurance of interest and principal payments or of maintenance of other terms of
the contract over any long period of time may be small.

CAA -- Bonds rated Caa are of poor standing. Such issues may be in default or
there may be present elements of danger with respect to principal or interest.

CA -- Bonds rated Ca represent obligations which are speculative in a high
degree. Such issues are often in default or have other marked shortcomings.

30
<PAGE> 36

Standard & Poor's Corporation

AAA -- Bonds rated AAA have the highest rating assigned by Standard & Poor's to
a debt obligation. Capacity to pay interest and repay principal is extremely
strong.

AA -- Bonds rated AA have a very strong capacity to pay interest and repay
principal, and differ from the highest rated issues in small degree.

A -- Bonds rated A have a strong capacity to pay interest and repay principal,
although they are somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than bonds in higher rated categories.

BBB -- Bonds rated BBB are regarded as having adequate capacity to pay interest
and repay principal. Whereas they normally exhibit adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
bonds in this category than for bonds in the higher rated categories.

BB, B, CCC, CC -- Bonds rated BB, B, CCC, and CC are regarded on balance, as
predominantly speculative with respect to capacity to pay interest and repay
principal in accordance with the terms of the obligation. BB indicates the
lowest degree of speculation and CC the highest degree of speculation. While
such bonds will likely have some quality and protective characteristics, these
are outweighed by large uncertainties or major risk exposures to adverse
conditions.

RATINGS OF COMMERCIAL PAPER

Moody's Investors Service, Inc.

Prime-1 is the highest commercial paper rating assigned by Moody's. Issuers
rated Prime-1 (or supporting institutions) are considered to have a superior
capacity for repayment of short-term promissory obligations. Issuers rated
Prime-2 (or supporting institutions) are considered to have a strong capacity
for repayment of short-term promissory obligations. This will normally be
evidenced by many of the characteristics of issuers rated Prime-1 but to a
lesser degree. Earnings trends and coverage ratios, while sound, will be more
subject to variation. Capitalization characteristics, while still appropriate,
may be more affected by external conditions. Ample alternative liquidity is
maintained.

Standard & Poor's Corporation

Commercial paper rated A-1 by S&P indicates that the degree of safety
regarding timely payment is either overwhelming or very strong. Capacity for
timely payment on commercial paper rated A-2 is strong, but the relative degree
of safety is not as high as for issues designated A-1.

31
<PAGE> 37
[AMERICAN ODYSSEY FUNDS LOGO]

American Odyssey Funds Management, Inc.
Two Tower Center
East Brunswick, NJ 08816
1-800-212-7881

AMERICAN ODYSSEY and the Sailing Ship Logo are
registered trademarks of American Odyssey Funds Management, Inc.
(C) Copyright 1997 American Odyssey Funds Management, Inc.
<PAGE> 38

PART B

INFORMATION REQUIRED IN A
STATEMENT OF ADDITIONAL INFORMATION

<PAGE> 39
A M E R I C A N O D Y S S E Y F U N D S , I N C .

STATEMENT OF ADDITIONAL INFORMATION

MAY 1, 1997

Shares of American Odyssey Funds, Inc. may be sold only to: (1) life
insurance company separate accounts to serve as the underlying investment
vehicle for variable annuity and variable life insurance contracts; (2)
qualified retirement plans, as permitted by Treasury Regulations; and (3) life
insurance companies and their affiliates.

This statement of additional information is not a prospectus. It should
be read in conjunction with the American Odyssey Funds, Inc.'s prospectus dated
May 1, 1997. It is available without charge upon written request to American
Odyssey Funds, Inc., Two Tower Center, P.O. Box 1063, East Brunswick, New Jersey
08816-1063, or by calling (908) 214-2000.

American Odyssey Funds, Inc.
Two Tower Center, P.O. Box 1063
East Brunswick, New Jersey 08816-1063
Telephone: (908) 214-2000
<PAGE> 40
AMERICAN ODYSSEY FUNDS, INC.
STATEMENT OF ADDITIONAL INFORMATION

TABLE OF CONTENTS

PAGE
----

INVESTMENT OBJECTIVES AND PROGRAMS........................................ 3
Options on Equity Securities.................................... 3
Options on Stock Indices........................................ 6
Options on Debt Securities...................................... 9
Options on Foreign Currencies................................... 11
Stock Index Futures Contracts................................... 12
Interest Rate Futures Contracts................................. 13
Foreign Currency Futures Contracts.............................. 14
Options on Futures Contracts.................................... 15
Forward Foreign Currency Exchange Contracts..................... 16
INVESTMENT RESTRICTIONS................................................... 19
MANAGEMENT OF THE FUNDS................................................... 23
Directors and Officers.......................................... 23
Investment Advisers............................................. 25
Other Service Providers......................................... 27
PORTFOLIO TRANSACTIONS.................................................... 28
NET ASSET VALUE OF SHARES................................................. 32
PERFORMANCE INFORMATION................................................... 34
TAXES ................................................................ 36
OWNERSHIP OF SHARES....................................................... 37
FINANCIAL STATEMENTS...................................................... 38
<PAGE> 41
AMERICAN ODYSSEY FUNDS, INC.
STATEMENT OF ADDITIONAL INFORMATION

INVESTMENT OBJECTIVES AND PROGRAMS

The investment objectives of the various Funds, and their programs for
achieving those objectives, are described in the prospectus. This section
supplements that description.

OPTIONS ON EQUITY SECURITIES

The International Equity Fund, the Emerging Opportunities Fund, and the Core
Equity Fund may purchase and write (i.e., sell) put and call options on equity
securities that are traded on national securities exchanges or that are listed
on the National Association of Securities Dealers Automated Quotation System
("NASDAQ"). A call option is a short-term contract pursuant to which the
purchaser or holder, in return for a premium paid, has the right to buy the
equity security underlying the option at a specified exercise price (the strike
price) at any time during the term of the option. The writer of the call option,
who received the premium, has the obligation, upon exercise of the option, to
deliver the underlying equity security against payment of the strike price. A
put option is a similar contract which gives the purchaser or holder, in return
for a premium, the right to sell the underlying equity security at a specified
exercise price (the strike price) during the term of the option. The writer of
the put, who receives the premium, has the obligation to buy the underlying
equity security at the strike price upon exercise by the holder of the put.

A Fund will write call options on stocks only if they are covered, and such
options must remain covered so long as the Fund is obligated as a writer. A call
option is "covered" if: (1) the Fund owns the security underlying the option; or
(2) the Fund has an absolute and immediate right to acquire that security
without additional cash consideration (or for additional cash consideration held
in a segregated account by its custodian) upon conversion or exchange of other
securities held in its portfolio; or (3) the Fund holds on a share-for-share
basis a call on the same security as the call written where the strike price of
the call held is equal to or less than the strike price of the call written or
greater than the strike price of the call written if the difference is
maintained by the Fund in cash, Treasury bills or other liquid high-grade
short-term debt obligations in a segregated account with its custodian.

A Fund will write put options on stocks only if they are covered, and such
options must remain covered so long as the Fund is obligated as a writer. A put
option is "covered" if: (1) the Fund holds in a segregated account cash,
Treasury bills, or other liquid high-grade short-term debt obligations of a
value equal to the strike price; or (2) the Fund holds on a share-for-

3
<PAGE> 42
AMERICAN ODYSSEY FUNDS, INC.
STATEMENT OF ADDITIONAL INFORMATION

share basis a put on the same security as the put written where the strike price
of the put held is equal to or greater than the strike price of the put written
or less than the strike price of the put written if the difference is maintained
by the Fund in cash, Treasury bills, or other liquid high-grade short-term
obligations in a segregated account with its custodian.

A Fund may purchase "protective puts," i.e., put options acquired for the
purpose of protecting a portfolio security from a decline in market value. In
exchange for the premium paid for the put option, the Fund acquires the right to
sell the underlying security at the strike price of the put regardless of the
extent to which the underlying security declines in value. The loss to the Fund
is limited to the premium paid for, and transaction costs in connection with,
the put plus the initial excess, if any, of the market price of the underlying
security over the strike price. However, if the market price of the security
underlying the put rises, the profit the Fund realizes on the sale of the
security will be reduced by the premium paid for the put option less any amount
(net of transaction costs) of which the put may be sold.

A Fund may purchase call options for hedging and investment purposes. No Fund
intends to invest more than 5% of its net assets at any one time in the purchase
of call options on stocks.

If the writer of an option wishes to terminate the obligation, he or she may
effect a "closing purchase transaction" by buying an option of the same series
as the option previously written. Similarly, the holder of an option may
liquidate his or her position by exercising the option or by effecting a
"closing sale transaction," i.e., selling an option of the same series as the
option previously purchased. A Fund may effect closing sale and purchase
transactions. A Fund will realize a profit from a closing transaction if the
price of the transaction is less than the premium received from writing the
option or is more than the premium paid to purchase the option. Because
increases in the market price of a call option will generally reflect increases
in the market price of the underlying security, any loss resulting from a
closing purchase transaction with respect to a call option is likely to be
offset in whole or in part by appreciation of the underlying equity security
owned by the Fund. There is no guarantee that closing purchase or closing sale
transactions can be effected.

A Fund's use of options on equity securities is subject to certain special
risks, in addition to the risk that the market value of the security will move
adversely to the Fund's option position. An option position may be closed out
only on an exchange, board of trade or other trading facility which provides a
secondary market for an option of the same series. Although a Fund will
generally purchase or write only those options for which there appears to be an
active secondary market, there is no assurance that a liquid secondary market on
an exchange will exist for any particular option, or at any particular time, and
for some options no

4
<PAGE> 43
AMERICAN ODYSSEY FUNDS, INC.
STATEMENT OF ADDITIONAL INFORMATION

secondary market on an exchange or otherwise may exist. In such event it might
not be possible to effect closing transactions in particular options, with the
result that the Fund would have to exercise its options in order to realize any
profit and would incur brokerage commissions upon the exercise of such options
and upon the subsequent disposition of the underlying securities acquired
through the exercise of call options or upon the purchase of underlying
securities or the exercise of put options. If a Fund as a covered call option
writer is unable to effect a closing purchase transaction in a secondary market,
it will not be able to sell the underlying security until the option expires or
it delivers the underlying security upon exercise.

Reasons for the absence of a liquid secondary market on an exchange include the
following: (i) there may be insufficient trading interest in certain options;
(ii) restrictions imposed by an exchange on opening transactions or closing
transactions or both; (iii) trading halts, suspensions or other restrictions may
be imposed with respect to particular classes or series of options or underlying
securities; (iv) unusual or unforeseen circumstances may interrupt normal
operations on an exchange; (v) the facilities of an exchange or a clearing
corporation may not at all times be adequate to handle current trading volume;
or (vi) one or more exchanges could, for economic or other reasons, decide or be
compelled at some future date to discontinue the trading of options (or a
particular class or series of options), in which event the secondary market on
that exchange (or in the class or series of options) would cease to exist,
although outstanding options on that exchange that had been issued by a clearing
corporation as a result of trades on that exchange would continue to be
exercisable in accordance with their terms. There is no assurance that higher
than anticipated trading activity or other unforeseen events might not, at
times, render certain of the facility of any of the clearing corporations
inadequate, and thereby result in the institution by an exchange of special
procedures which may interfere with the timely execution of customers' orders.
However, The Option Clearing Corporation, based on forecasts provided by the
U.S. exchanges, believes that its facilities are adequate to handle the volume
of reasonably anticipated options transactions, and such exchanges have advised
such clearing corporation that they believe their facilities will also be
adequate to handle reasonable anticipated volumes.

5
<PAGE> 44
AMERICAN ODYSSEY FUNDS, INC.
STATEMENT OF ADDITIONAL INFORMATION

OPTIONS ON STOCK INDICES

The International Equity Fund, the Emerging Opportunities Fund, and the Core
Equity Fund may purchase and sell (i.e., write) put and call options on stock
indices traded on national securities exchanges or listed on NASDAQ. Options on
stock indices are similar to options on stock except that, rather than the right
to take or make delivery of stock at a specified price, an option on a stock
index gives the holder the right to receive, upon exercise of the option, an
amount of cash if the closing level of the stock index upon which the option is
based is greater than (in the case of a call) or less than (in the case of a
put) the strike price of the option. This amount of cash is equal to such
difference between the closing price of the index and the strike price of the
option times a specified multiple (the "multiplier"). If the option is
exercised, the writer is obligated, in return for the premium received, to make
delivery of this amount. Unlike stock options, all settlements are in cash, and
gain or loss depends on price movements in the stock market generally (or in a
particular industry or segment of the market) rather than price movements in
individual stocks.

A Fund will write call options on stock indices only if they are covered, and
such options remain covered as long as the Fund is obligated as a writer. A call
option is covered if the Fund follows the segregation requirements set forth in
this paragraph. When a Fund writes a call option on a broadly based stock market
index, the portfolio will segregate or put into escrow with its custodian or
pledge to a broker as collateral for the option, cash, Treasury bills or other
liquid high-grade short-term debt obligations, or "qualified securities"
(defined below) with a market value at the time the option is written of not
less than 100% of the current index value times the multiplier times the number
of contracts. A "qualified security" is an equity security which is listed on a
national securities exchange or listed on NASDAQ against which the Fund has not
written a stock call option and which has not been hedged by the Fund by the
sale of stock index futures. When a Fund writes a call option on an industry or
market segment index, it will segregate or put into escrow with its custodian or
pledge to a broker as collateral for the option, cash, Treasury bills or other
liquid high-grade short-term debt obligations, or at least five qualified
securities, all of which are stocks of issuers in such industry or market
segment, with a market value at the time the option is written of not less than
100% of the current index value times the multiplier times the number of
contracts. Such stocks will include stocks which represent at least 50% of the
weighting of the industry or market segment index and will represent at least
50% of the portfolio's holdings in that industry or market segment. No
individual security will represent more than 15% of the amount so segregated,
pledged or escrowed in the case of broadly based stock market stock

6
<PAGE> 45
AMERICAN ODYSSEY FUNDS, INC.
STATEMENT OF ADDITIONAL INFORMATION

options or 25% of such amount in the case of industry or market segment index
options. If at the close of business on any day the market value of such
qualified securities so segregated, escrowed, or pledged falls below 100% of the
current index value times the multiplier times the number of contracts, the fund
will so segregate, escrow, or pledge an amount in cash, Treasury bills, or other
liquid high-grade short-term obligations equal in value to the difference. In
addition, when a Fund writes a call on an index which is in-the-money at the
time the call is written, the Funds will segregate with its custodian or pledge
to the broker as collateral, cash or U.S. government or other liquid high-grade
short-term debt obligations equal in value to the amount by which the call is
in-the-money times the multiplier times the number of contracts. Any amount
segregated pursuant to the foregoing sentence may be applied to the Fund's
obligation to segregate additional amounts in the event that the market value of
the qualified securities falls below 100% of the current index value times the
multiplier times the number of contracts. A call option is also covered and the
Fund need not follow the segregation requirements set forth in this paragraph if
the Fund holds a call on the same index as the call written where the strike
price of the call held is equal to or less than the strike price of the call
written or greater than the strike price of the call written if the difference
is maintained by the Fund in cash, Treasury bills or other liquid high-grade
short-term obligations in a segregated account with its custodian.

A Fund will write put options on stock indices only if they are covered, and
such options must remain covered so long as the Fund is obligated as a writer. A
put option is covered if: (1) the Fund holds in a segregated account cash,
Treasury bills, or other liquid high-grade short-term debt obligations of a
value equal to the strike price times the multiplier times the number of
contracts; or (2) the Fund holds a put on the same index as the put written
where the strike price of the put held is equal to or greater than the strike
price of the put written or less than the strike price of the put written if the
difference is maintained by the Fund in cash, Treasury bills, or other liquid
high-grade short-term debt obligations in a segregated account with its
custodian.

A Fund may purchase put and call options for hedging and investment purposes.
No Fund intends to invest more than 5% of its net assets at any one time in the
purchase of puts and calls on stock indices. A Fund may effect closing sale and
purchase transactions, as described above in connection with options on equity
securities.

The purchase and sale of options on stock indices will be subject to the same
risks as options on equity securities, described above. In addition, the
distinctive characteristics of options on indices create certain risks that are
not present with stock options. Index prices may be

7
<PAGE> 46
AMERICAN ODYSSEY FUNDS, INC.
STATEMENT OF ADDITIONAL INFORMATION

distorted if trading of certain stocks included in the index is interrupted.
Trading in the index options also may be interrupted in certain circumstances,
such as if trading were halted in a substantial number of stocks included in the
index. If this occurred, the Fund would not be able to close out options which
it had purchased or written and, if restrictions on exercise were imposed, may
be unable to exercise an option it holds, which could result in substantial
losses to the Fund. It is the policy of each Fund to purchase or write options
only on stock indices which include a number of stocks sufficient to minimize
the likelihood of a trading halt in options on the index.

Although the markets for certain index option contracts have developed rapidly,
the markets for other index options are still relatively illiquid. The ability
to establish and close out positions on such options will be subject to the
development and maintenance of a liquid secondary market. It is not certain that
this market will develop in all index options contracts. No Fund will purchase
or sell any index option contract unless and until, in the subadviser's opinion,
the market for such options has developed sufficiently that the risk in
connection with such transactions is no greater than the risk in connection with
options on stocks.

Price movements in a Fund's equity security portfolio probably will not
correlate precisely with movements in the level of the index and, therefore, in
writing a call on a stock index a Fund bears the risk that the price of the
securities held by the Fund may not increase as much as the index. In such
event, the Fund would bear a loss on the call which is not completely offset by
movement in the price of the Fund's equity securities. It is also possible that
the index may rise when the Fund's securities do not rise in value. If this
occurred, the Fund would experience a loss on the call which is not offset by an
increase in the value of its securities portfolio and might also experience a
loss in its securities portfolio. However, because the value of a diversified
securities portfolio will, over time, tend to move in the same direction as the
market, movements in the value of the Fund's securities in the opposite
direction as the market would be likely to occur for only a short period or to a
small degree.

When a Fund has written a call, there is also a risk that the market may
decline between the time the Fund has a call exercised against it, at a price
which is fixed as of the closing level of the index on the date of exercise, and
the time the Fund is able to sell stocks in its portfolio. As with stock
options, the Fund will not learn that an index option has been exercised until
the day following the exercise date but, unlike a call on stock where the Fund
would be able to deliver the underlying securities in settlement, the Fund may
have to sell part of its stock portfolio in order to make settlement in cash,
and the price of such stocks might decline before

8
<PAGE> 47
AMERICAN ODYSSEY FUNDS, INC.
STATEMENT OF ADDITIONAL INFORMATION

they can be sold. This timing risk makes certain strategies involving more than
one option substantially more risky with options in stock indices than with
stock options.

There are also certain special risks involved in purchasing put and call
options on stock indices. If the Fund holds an index option and exercises it
before final determination of the closing index value for that day, it runs the
risk that the level of the underlying index may change before closing. If such a
change causes the exercised option to fall out-of-the-money, the Fund will be
required to pay the difference between the closing index value and the strike
price of the option (times the applicable multiplier) to the assigned writer.
Although the Fund may be able to minimize the risk by withholding exercise
instructions until just before the daily cutoff time or by selling rather than
exercising an option when the index level is close to the exercise price, it may
not be possible to eliminate this risk entirely because the cutoff times for
index options may be earlier than those fixed for other types of options and may
occur before definitive closing index values are announced.

OPTIONS ON DEBT SECURITIES

The Funds (other than the Emerging Opportunities and the Core Equity Funds) may
purchase and write (i.e., sell) put and call options on debt securities
(including U.S. government debt securities) that are traded on national
securities exchanges or that result from privately negotiated transactions with
primary U.S. government securities dealers recognized by the Federal Reserve
Bank of New York ("OTC options"). Options on debt are similar to options on
stock, except that the option holder has the right to take or make delivery of a
debt security, rather than stock.

A Fund will write options only if they are covered, and such options must
remain covered so long as the Fund is obligated as a writer. An option on debt
securities is covered in the same manner as explained in connection with options
on equity securities, except that, in the case of call options on U.S. Treasury
bills, a Fund might own U.S. Treasury bills of a different series from those
underlying the call option, but with a principal amount and value corresponding
to the option contract amount and a maturity date no later than that of the
securities deliverable under the call option. The principal reason for a Fund to
write an option on one or more of its securities is to realize through the
receipt of the premiums paid by the purchaser of the option a greater current
return than would be realized on the underlying security alone. Calls on debt
securities will not be written when, in the opinion of the subadviser, interest
rates are likely to decline significantly, because under those circumstances the
premium received by writing the

9
<PAGE> 48
AMERICAN ODYSSEY FUNDS, INC.
STATEMENT OF ADDITIONAL INFORMATION

call likely would not fully offset the foregone appreciation in the value of the
underlying security.

A Fund may also write straddles (i.e., a combination of a call and a put
written on the same security at the same strike price where the same issue of
the security is considered "cover" for both the put and the call). In such
cases, the Fund will also segregate or deposit for the benefit of the Fund's
broker cash or liquid high-grade debt obligations equivalent to the amount, if
any, by which the put is in-the-money. Each Fund's use of straddles will be
limited to 5% of its net assets (meaning that the securities used for cover or
segregated as described above will not exceed 5% of the Fund's net assets at the
time the straddle is written). The writing of a call and a put on the same
security at the same strike price where the call and the put are covered by
different securities is not considered a straddle for purposes of this limit.

A Fund may purchase "protective puts" in an effort to protect the value of a
security that they own against a substantial decline in market value. Protective
puts are described in OPTIONS ON EQUITY SECURITIES, page 3.

A Fund may also purchase call options on debt securities for hedging or
investment purposes. No Fund intends to invest more than 5% of its net assets at
any one time in the purchase of call options on debt securities.

If the writer of an exchange-traded option wishes to terminate the obligation,
he or she may effect a closing purchase or sale transaction in a manner similar
to that discussed above in connection with options on equity securities. Unlike
exchange-traded options, OTC options generally do not have a continuous liquid
market. Consequently, a Fund will generally be able to realize the value of an
OTC option it has purchased only by exercising it or reselling it to the dealer
who issued it. Similarly, when the Fund writes an OTC option, it generally will
be able to close out the OTC option prior to its expiration only by entering
into a closing purchase transaction with the dealer to which the Fund originally
wrote the OTC option. While the Funds will seek to enter into OTC options only
with dealers who agree to and which are expected to be able to be capable of
entering into closing transactions with the Fund, there can be no assurance that
the Fund will be able to liquidate an OTC option at a favorable price at any
time prior to expiration. In the event of insolvency of the other party, the
Fund may be unable to liquidate an OTC option. There is, in general, no
guarantee that closing purchase or closing sale transactions can be effected.

As explained in INVESTMENT RESTRICTIONS on page 19, no Fund may invest more
than 10% of its total assets (determined at the time of investment) in illiquid
securities, including debt

10
<PAGE> 49
AMERICAN ODYSSEY FUNDS, INC.
STATEMENT OF ADDITIONAL INFORMATION

securities for which there is not an established market. The staff of the
Securities and Exchange Commission has taken the position that purchased OTC
options and the assets used as "cover" for written OTC options are illiquid
securities. However, pursuant to the terms of certain no-action letters issued
by the staff, the securities used as cover for written OTC options may be
considered liquid provided that the Fund sells OTC options only to qualified
dealers who agree that the Fund may repurchase any OTC option its writes for a
maximum price to be calculated by a predetermined formula. In such cases, the
OTC option would be considered illiquid only to the extent that the maximum
repurchase price under the formula exceeds the intrinsic value of the option.

The Funds' purchase and sale of exchange-traded options on debt securities will
be subject to the risks described in OPTIONS ON EQUITY SECURITIES on page 3.

OPTIONS ON FOREIGN CURRENCIES

The Funds may purchase and write put and call options on foreign currencies
traded on U.S. or foreign securities exchanges or boards of trade for hedging
purposes. Options on foreign currencies are similar to options on stock, except
that the option holder has the right to take or make delivery of a specified
amount of foreign currency, rather than stock.

A Fund may purchase and write options to hedge its securities denominated in
foreign currencies. If there is a decline in the dollar value of a foreign
currency in which a Fund's securities are denominated, the dollar value of such
securities will decline even though the foreign currency value remains the same.
To hedge against the decline of the foreign currency, a Fund may purchase put
options on such foreign currency. If the value of the foreign currency declines,
the gain realized on the put option would offset, in whole or in part, the
adverse effect such decline would have on the value of the Fund's securities.
Alternatively, a Fund may write a call option on the foreign currency. If the
foreign currency declines, the option would not be exercised and the decline in
the value of the portfolio securities denominated in such foreign currency would
be offset in part by the premium the Fund received for the option.

If, on the other hand, a subadviser anticipates purchasing a foreign security
and also anticipates a rise in such foreign currency (thereby increasing the
cost of such security), a Fund may purchase call options on the foreign
currency. The purchase of such options could offset, at least partially, the
effects of the adverse movements of the exchange rates. Alternatively, a Fund
could write a put option on the currency and, if the exchange rates move as
anticipated, the option would expire unexercised.

11
<PAGE> 50
AMERICAN ODYSSEY FUNDS, INC.
STATEMENT OF ADDITIONAL INFORMATION

A Fund's successful use of currency exchange options on foreign currencies
depends upon the subadviser's ability to predict the direction of the currency
exchange markets and political conditions, which requires different skills and
techniques than predicting changes in the securities markets generally. For
instance, if the currency being hedged has moved in a favorable direction, the
corresponding appreciation of the Fund's securities denominated in such currency
would be partially offset by the premiums paid on the options. Further, if the
currency exchange rate does not change, the Fund's net income would be less than
if the Fund had not hedged since there are costs associated with options.

The use of these options is subject to various additional risks. The
correlation between movements in the price of options and the price of the
currencies being hedged is imperfect. The use of these instruments will hedge
only the currency risks associated with investments in foreign securities, not
market risks. A Fund's ability to establish and maintain positions will depend
on market liquidity. The ability of a Fund to close out an option depends upon a
liquid secondary market. There is no assurance that liquid secondary markets
will exist for any particular option at any particular time.

STOCK INDEX FUTURES CONTRACTS

To the extent permitted by applicable regulations, the International Equity
Fund, the Emerging Opportunities Fund, and the Core Equity Fund may buy and sell
for hedging purposes stock index futures contracts traded on a commodities
exchange or board of trade. A stock index futures contract is an agreement in
which the seller of the contract agrees to deliver to the buyer an amount of
cash equal to a specific dollar amount times the difference between the value of
a specific stock index at the close of the last trading day of the contract and
the price at which the agreement is made. No physical delivery of the underlying
stocks in the index is made. When the futures contract is entered into, each
party deposits with a broker or in a segregated custodial account approximately
5% of the contract amount, called the "initial margin." Subsequent payments to
and from the broker, called "variation margin," will be made on a daily basis as
the price of the underlying stock index fluctuates, making the long and short
positions in the futures contracts more or less valuable, a process known as
"marking to the market."

A Fund may sell stock index futures to hedge against a decline in the value of
equity securities it holds. A Fund may also buy stock index futures to hedge
against a rise in the value of equity securities it intends to acquire. To the
extent permitted by federal regulations, a Fund may also engage in other types
of hedging transactions in stock index futures that are

12
<PAGE> 51
AMERICAN ODYSSEY FUNDS, INC.
STATEMENT OF ADDITIONAL INFORMATION

economically appropriate for the reduction of risks inherent in the ongoing
management of the Fund's equity securities.

A Fund's successful use of stock index futures contracts depends upon the
subadviser's ability to predict the direction of the market and is subject to
various additional risks. The correlation between movement in the price of the
stock index future and the price of the securities being hedged is imperfect and
the risk from imperfect correlation increases as the composition of the Fund's
securities portfolio diverges from the composition of the relevant index. In
addition, the ability of a Fund to close out a futures position depends on a
liquid secondary market. There is no assurance that liquid secondary markets
will exist for any particular stock index futures contract at any particular
time.

Under regulations of the Commodity Futures Trading Commission ("CFTC"),
investment companies registered under the Investment Company Act of 1940 are
excluded from regulation as commodity pools or commodity pool operators if their
use of futures is limited in certain specified ways. The Funds will use futures
in a manner consistent with the terms of this exclusion. Among other
requirements, no more than 5% of any Fund's assets may be committed as initial
margin on futures contracts.

INTEREST RATE FUTURES CONTRACTS

To the extent permitted by applicable regulations, the Funds (other than the
Emerging Opportunities and the Core Equity Funds) may buy and sell for hedging
purposes futures contracts on interest bearing securities (such as U.S. Treasury
Bonds, U.S. Treasury Notes, 3-month U.S. Treasury Bills, and GNMA certificates)
or interest rate indices. Futures contracts on interest bearing securities and
interest rate indices are referred to collectively as "interest rate futures
contracts." The portfolios will engage in transactions in only those futures
contracts that are traded on a commodities exchange or board of trade.

A Fund may sell an interest rate futures contract to hedge against a decline in
the market value of debt securities it owns. A Fund may purchase an interest
rate futures contract to hedge against an anticipated increase in the value of
debt securities it intends to acquire. To the extent permitted by applicable
federal regulations, a Fund may also engage in other types of transactions in
interest rate futures contracts that are economically appropriate for the
reduction of risks inherent in the ongoing management of its futures.

A Fund's successful use of interest rate futures contracts depends upon the
subadviser's ability to predict interest rate movements. Further, because there
are a limited number of

13
<PAGE> 52
AMERICAN ODYSSEY FUNDS, INC.
STATEMENT OF ADDITIONAL INFORMATION

types of interest rate futures contracts, it is likely that the interest rate
futures contracts available to a Fund will not exactly match the debt securities
the Fund intends to hedge or acquire. To compensate for differences in
historical volatility between securities a Fund intends to hedge or acquire and
the interest rate futures contracts available to it, a Fund could purchase or
sell futures contracts with a greater or lesser value than the securities it
wished to hedge or intended to purchase. Interest rate futures contracts are
subject to the same risks regarding closing transactions and the CFTC limits as
described in STOCK INDEX FUTURES CONTRACTS on page 12.

FOREIGN CURRENCY FUTURES CONTRACTS

To the extent permitted by applicable regulations, a Fund may buy and sell for
hedging purposes futures contracts on foreign currencies or groups of foreign
currencies such as the European Currency Unit. A European Currency Unit is a
basket of specified amount of the currencies of certain member states of the
European Economic Community, a Western European economic cooperative
organization including France, Germany, The Netherlands, and the United Kingdom.
A Fund will engage in transactions in only those futures contracts and options
thereon that are traded on a commodities exchange or a board of trade. See STOCK
INDEX FUTURES CONTRACTS on page 12 for a general description of futures
contracts. A Fund intends to engage in transactions involving futures contracts
as a hedge against changes in the value of the currencies in which they hold
investments or in which they expect to pay expenses or pay for future purchases.
To the extent permitted by federal regulations, a Fund may also engage in such
transactions when they are economically appropriate for the reduction of risks
inherent in their ongoing management.

The use of these futures contracts is subject to risks similar to those
involved in the use of options on foreign currencies and the use of any futures
contract. A Fund's successful use of foreign currency futures contracts depends
upon the subadviser's ability to predict the direction of currency exchange
markets and political conditions. In addition, the correlation between movements
in the price of futures contracts and the price of currencies being hedged is
imperfect, and there is no assurance that liquid markets will exist for any
particular futures contract at any particular time. Those risks are discussed
more fully under OPTIONS ON FOREIGN CURRENCIES on page 11 and STOCK INDEX
FUTURES CONTRACTS on page 12.

14
<PAGE> 53
AMERICAN ODYSSEY FUNDS, INC.
STATEMENT OF ADDITIONAL INFORMATION

OPTIONS ON FUTURES CONTRACTS

The Funds may, to the extent permitted by applicable regulations, enter into
certain transactions involving options on futures contracts. An option on a
futures contract gives the purchaser or holder the right, but not the
obligation, to assume a position in a futures contract (a long position if the
option is a call and a short position if the option is a put) at a specified
price at any time during the option exercise period. The writer of the option is
required upon exercise to assume an offsetting futures position (a short
position if the option is a call and a long position if the option is a put).
Upon exercise of the option, the assumption of offsetting futures positions by
the writer and holder of the option will be accomplished by delivery of the
accumulated balance in the writer's futures margin account which represents the
amount by which the market price of the futures contract, at exercise, exceeds,
in the case of a call, or is less than, in the case of a put, the exercise price
of the option on the futures contract. As an alternative to exercise, the holder
or writer of an option may terminate a position by selling or purchasing an
option of the same series. There is no guarantee that such closing transactions
can be effected. The Funds intend to utilize options on futures contracts for
the same purposes that it intends to use the underlying futures contracts.

Options on futures contracts are subject to risks similar to those described
above with respect to options and futures contracts. There is also the risk of
imperfect correlation between the option and the underlying futures contract. If
there were no liquid secondary market for a particular option on a futures
contract, a Fund might have to exercise an option it held in order to realize
any profit and might continue to be obligated under an option it had written
until the option expired or was exercised. If a Fund were unable to close out an
option it had written on a futures contract, it would continue to be required to
maintain initial margin and make variation margin payments with respect to the
option position until the option expired or was exercised against the Fund.

15
<PAGE> 54
AMERICAN ODYSSEY FUNDS, INC.
STATEMENT OF ADDITIONAL INFORMATION

FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS

The Funds may enter into forward foreign currency exchange contracts in several
circumstances. When a Fund enters into a contract for the purchase or sale of a
security denominated in a foreign currency, or when a Fund anticipates the
receipt in a foreign currency of dividends or interest payments on a security
which it holds, the Fund may desire to "lock-in" the U.S. dollar price of the
security or the U.S. dollar equivalent of such dividend or interest payment, as
the case may be. By entering into a forward contract for a fixed amount of
dollars, for the purchase or sale of the amount of foreign currency involved in
the underlying transactions, the Fund will be able to protect itself against a
possible loss resulting from an adverse change in the relationship between the
U.S. dollar and the subject foreign currency during the period between the date
on which the security is purchased or sold, or on which the dividend or interest
payment is declared, and the date on which such payments are made or received.

Additionally, when a subadviser believes that the currency of a particular
foreign country may suffer a substantial decline against the U.S. dollar, the
Fund may enter into a forward contract for a fixed amount of dollars, to sell
the amount of foreign currency approximating the value of some or all of the
portfolio securities denominated in such foreign currency. The precise matching
of the forward contract amounts and the value of the securities involved will
not generally be possible since the future value of securities in foreign
currencies will change as a consequence of market movements in the value of
those securities between the date on which the forward contract is entered into
and the date it matures. The projection of short-term currency market movement
is extremely difficult, and the successful execution of a short-term hedging
strategy is highly uncertain. The Funds will not enter into such forward
contracts or maintain a net exposure to such contracts where the consummation of
the contracts would obligate a Fund to deliver an amount of foreign currency in
excess of the value of the securities or other assets denominated in that
currency held by the Fund. Under normal circumstances, consideration of the
prospect for currency parities will be incorporated into the long-term
investment decisions made with regard to overall diversification strategies.
However, the Funds believe that it is important to have the flexibility to enter
into such forward contracts when it is determined that the best interests of the
Funds will thereby be served. A Fund will cover its obligations under forward
contracts by (i) holding the underlying foreign currency, a security denominated
in the foreign currency, or an offsetting forward contract; or (ii) placing in a
segregated account cash or liquid securities.

16
<PAGE> 55
AMERICAN ODYSSEY FUNDS, INC.
STATEMENT OF ADDITIONAL INFORMATION

The Funds generally will not enter into a forward contract with a term of
greater than 1 year. At the maturity of a forward contract, a Fund may either
sell the portfolio security and make delivery of the foreign currency or it may
retain the security and terminate its contractual obligation to deliver the
foreign currency by purchasing an "offsetting" contract with the same currency
trader obligating it to purchase, on the same maturity date, the same amount of
the foreign currency.

It is impossible to forecast with absolute precision the market value of a
particular portfolio security at the expiration of the contract. Accordingly, it
may be necessary for a Fund to purchase additional foreign currency on the spot
market (and bear the expense of such purchase) if the market value of the
security is less than the amount of foreign currency that the Fund is obligated
to deliver and if a decision is made to sell the security and make delivery of
the foreign currency.

If a Fund retains the portfolio security and engages in an offsetting
transaction, the Fund will incur a gain or a loss (as described below) to the
extent that there has been movement in forward contract prices. Should forward
prices decline during the period between the Fund's entering into a forward
contract for the sale of a foreign currency and the date it enters into an
offsetting contract for the purchase of the foreign currency, the Fund will
realize a gain to the extent that the price of the currency it has agreed to
sell exceeds the price of the currency it has agreed to purchase. Should forward
prices increase, the Fund will suffer a loss to the extent that the price of the
currency it has agreed to purchase exceeds the price of the currency it has
agreed to sell.

The Fund's dealing in forward foreign currency exchange contracts will be
limited to the transactions described above. Of course, the Funds are not
required to enter into such transactions with regard to their foreign
currency-denominated securities. It also should be realized that this method of
protecting the value of the portfolio securities against a decline in the value
of a currency does not eliminate fluctuations in the underlying prices of the
securities which are unrelated to exchange rates. Additionally, although such
contracts tend to minimize the risk of loss due to a decline in the value of the
hedged currency, at the same time they tend to limit any potential gain which
might result should the value of such currency increase.

Although the Funds value their assets daily in terms of U.S. dollars, they do
not intend physically to convert their holdings of foreign currencies into U.S.
dollars on a daily basis. They will do so from time to time, and investors
should be aware of the costs of currency conversion. Although foreign exchange
dealers do not charge a fee for conversion, they do realize a profit based on
the difference (the "spread") between the prices at which they are

17
<PAGE> 56
AMERICAN ODYSSEY FUNDS, INC.
STATEMENT OF ADDITIONAL INFORMATION

buying and selling various currencies. Thus, a dealer may offer to sell a
foreign currency to a Fund at one rate, while offering a lesser rate of exchange
should the Fund desire to resell that currency to the dealer.

18
<PAGE> 57
AMERICAN ODYSSEY FUNDS, INC.
STATEMENT OF ADDITIONAL INFORMATION

INVESTMENT RESTRICTIONS

Certain investment restrictions are fundamental to the operations of American
Odyssey Funds, Inc. and may not be changed without the approval of the holders
of a majority of the outstanding shares of the affected Fund, or if it is less,
67% of the shares represented at a meeting of shareholders at which the holders
of 50% or more of the shares are represented.

As a result of these restrictions, none of the Funds will:

1. Buy or sell real estate and mortgages, although the Funds may buy and
sell securities that are secured by real estate and securities of real
estate investment trusts and of other issuers that engage in real
estate operations.

2. Buy or sell commodities or commodity contracts, except that the Funds
may purchase and sell futures contracts and related options.

3. Buy or sell the securities of other investment companies, except by
purchases in the open market involving only customary brokerage
commissions and as a result of which not more than 5% of the Fund's
total assets (taken at current value) would be invested in such
securities, or except as part of a merger, consolidation or other
acquisition.

4. Acquire securities for the purpose of exercising control or management
of any company except in connection with a merger, consolidation,
acquisition, or reorganization.

5. Make a short sale of securities or maintain a short position, except
that the International Equity Fund, the Emerging Opportunities Fund,
and the Core Equity Fund may make short sales against-the-box.
Collateral arrangements entered into by the Funds with respect to
futures contracts and related options and the writing of options are
not deemed to be short sales.

19
<PAGE> 58
AMERICAN ODYSSEY FUNDS, INC.
STATEMENT OF ADDITIONAL INFORMATION

6. Purchase securities on margin or otherwise borrow money or issue senior
securities except that a Fund may enter into reverse repurchase
agreements and purchase securities on a when-issued or a delayed
delivery basis. A Fund may also obtain such short-term credit as it
needs for the clearance of securities transactions and may borrow from
a bank as a temporary measure to facilitate redemptions (but not for
leveraging or investment) or to exercise an option, provided that the
amount borrowed does not exceed 5% of the value of the Fund's total
assets (including the amount owed as a result of the borrowing) at the
time the borrowing is made. Investment securities will not be purchased
while borrowings are outstanding. Interest paid on borrowings will not
be available for investment. Collateral arrangements entered into by a
Fund with respect to futures contracts and related options and the
writing of options are not deemed to be the issuance of a senior
security or the purchase of a security on margin.

7. Enter into reverse repurchase agreements if, as a result, the Fund's
obligations with respect to reverse repurchase agreements would exceed
10% of the Fund's net assets (defined to mean total assets at market
value less liabilities other than reverse repurchase agreements).

8. Pledge or mortgage assets, except that not more than 10% of the value
of any Fund may be pledged (taken at the time the pledge is made) to
secure borrowings made in accordance with item 6 above and that a Fund
may enter into reverse repurchase agreements in accordance with item 7
above. Collateral arrangements entered into by a Fund with respect to
futures contracts and related options and the writing of options are
not deemed to be the pledge of assets.

9. Lend money, except that loans of up to 10% of the value of each Fund
may be made through the purchase of privately placed bonds, debentures,
notes, and other evidences of indebtedness of a character customarily
acquired by institutional investors that may or may not be convertible
into stock or accompanied by warrants or rights to acquire stock.
Repurchase agreements and the purchase of publicly traded debt
obligations are not considered to be "loans" for this purpose and may
be entered into or purchased by a Fund in accordance with its
investment objectives and policies.

20
<PAGE> 59
AMERICAN ODYSSEY FUNDS, INC.
STATEMENT OF ADDITIONAL INFORMATION

10. Underwrite the securities of other issuers, except where the Fund may
be deemed to be an underwriter for purposes of certain federal
securities laws in connection with the disposition of Fund securities
and with loans that a Fund may make pursuant to item 9 above.

11. Make an investment unless, when considering all its other investments,
75% of the value of a Fund's assets would consist of cash, cash items,
obligations of the United States government, its agencies or
instrumentalities, and other securities. For purposes of this
restriction, "other securities" are limited for each issuer to not more
than 5% of the value of a Fund's assets and to not more than 10% of the
issuer's outstanding voting securities held by American Odyssey Funds,
Inc. as a whole. Some uncertainty exists as to whether certain of the
types of bank obligations in which a Fund may invest, such as
certificates of deposit and bankers' acceptances, should be classified
as "cash items" rather than "other securities" for purposes of this
restriction, which is a diversification requirement under the 1940 Act.
Interpreting most bank obligations as "other securities" limits the
amount a Fund may invest in the obligations of any one bank to 5% of
its total assets. If there is an authoritative decision that any of
these obligations are not "securities" for purposes of this
diversification test, this limitation would not apply to the purchase
of such obligations.

12. Purchase securities of a company in any industry if, as a result of the
purchase, a Fund's holdings of securities issued by companies in that
industry would exceed 25% of the value of the Fund, except that this
restriction does not apply to purchases of obligations issued or
guaranteed by the U.S. government, its agencies and instrumentalities
or issued by domestic banks. For purposes of this restriction, neither
finance companies as a group nor utility companies as a group are
considered to be a single industry and will be grouped instead
according to their services; for example, gas, electric, and telephone
utilities will each be considered a separate industry.

21
<PAGE> 60
AMERICAN ODYSSEY FUNDS, INC.
STATEMENT OF ADDITIONAL INFORMATION

13. Invest in illiquid securities (including repurchase agreements maturing
in more than 7 days) or in the securities of issuers (other than U.S.
government agencies or instrumentalities) having a record, together
with predecessors, of less than 3 years' continuous operation if,
regarding all such securities, more than 10% of the Fund's total assets
would be invested in them. For purposes of this restriction, illiquid
securities are those that are subject to legal or contractual
restrictions on resale or for which no readily available market exists.
Restricted securities that have not been registered but may be sold and
resold to institutional investors are not considered illiquid for
purposes of this restriction, provided that there is dealer or
institutional trading market in such securities.

22
<PAGE> 61
AMERICAN ODYSSEY FUNDS, INC.
STATEMENT OF ADDITIONAL INFORMATION

MANAGEMENT OF THE FUNDS

DIRECTORS AND OFFICERS

The directors and principal officers of American Odyssey Funds, Inc. (the
"Company"), their business addresses and principal occupations for the past five
years are set forth in the following table. Those Directors who are "interested
persons" (as defined in the 1940 Act) by virtue of their affiliation with the
Company, are indicated by an asterisk (*).

<TABLE>
<CAPTION>
POSITION WITH PRINCIPAL OCCUPATION
NAME AND ADDRESS THE COMPANY DURING PAST FIVE YEARS
------------------------------------------------------------------------------------------------------
<S> <C> <C>
Robert C. Dughi* Chairman of the Chairman of the Board and Chief
Two Tower Center Board and President Executive Officer, The Copeland
East Brunswick, NJ Companies. Also: Chairman of the Board
08816 and President of Copeland Financial
Services, Inc. ("CFS") and the Manager,
and Chairman of the Board of Copeland
Equities, Inc.

Kent A. Kelley* Director President and Chief Executive Officer,
One Tower Square The Travelers Investment Management
Hartford, CT Company ("TIMCO"); prior to November
06183 1992, Executive Vice President of TIMCO.

Linda Walker Bynoe Director President and Chief Operating Officer,
875 N. Michigan Avenue Telemat, Ltd.
Suite 2505
Chicago, IL
60611

Steven I. Weinstein Director Deputy General Counsel, Foster Wheeler
Perryville Corp. Park Corporation; President and Director,
Clinton, NJ Foster Wheeler Real Estate Development
08809 Corporation.
</TABLE>

23
<PAGE> 62
AMERICAN ODYSSEY FUNDS, INC.
STATEMENT OF ADDITIONAL INFORMATION

<TABLE>
<CAPTION>
POSITION WITH PRINCIPAL OCCUPATION
NAME AND ADDRESS THE COMPANY DURING PAST FIVE YEARS
------------------------------------------------------------------------------------------------------
<S> <C> <C>
Jane DiRenzo Pigott Director Partner, Environmental Law Department,
35 West Wacker Drive Winston & Strawn. Prior to May 1993,
Suite 4000 Partner and Chairperson of Environmental
Chicago, IL Law Dept., Katten Muchin & Zavis.
60601

Mark M. Skinner* Director Executive Vice President, Chief
Two Tower Center Marketing Officer, The Copeland
East Brunswick, NJ Companies. Also: President of Copeland
08816 Equities, Inc. and Executive Vice
President of CFS and the Manager

John G. Beam, Jr. Director Chairman of the Board,
501 South 2nd Street Harris & Harris of Kentucky, Inc.
Louisville, KY
40202

Nicholas D. Yatrakis Director Physician in private practice
1 Wedgewood Way
Scotch Plains, NJ
07076

Michael R. Zarelli Senior Vice President Senior Vice President, Chief Financial
Two Tower Center and Treasurer Officer, and Treasurer, The Copeland
East Brunswick, NJ Companies. Also: Senior Vice President,
08816 Chief Financial Officer and Treasurer of
CFS, the Manager, and Copeland Equities,
Inc.
</TABLE>

24
<PAGE> 63
AMERICAN ODYSSEY FUNDS, INC.
STATEMENT OF ADDITIONAL INFORMATION

<TABLE>
<CAPTION>
POSITION WITH PRINCIPAL OCCUPATION
NAME AND ADDRESS THE COMPANY DURING PAST FIVE YEARS
---------------- ----------- ----------------------
<S> <C> <C>
Paul S. Feinberg Senior Vice President Senior Vice President and General
Two Tower Center and Secretary Counsel, The Copeland Companies. Also:
East Brunswick, NJ Senior Vice President and General
08816 Counsel of CFS, the Manager, and
Copeland Equities, Inc.

Mark E. Freemyer Vice President Vice President, The Copeland Companies.
Two Tower Center Also: Vice President of CFS, the
East Brunswick, NJ Manager, and Copeland Equities, Inc.
08816 Prior to February 1995, Vice President,
Kidder, Peabody & Co., Incorporated.
</TABLE>

As of May 1, 1997, the directors and officers owned in the aggregate less than
1% of the outstanding shares of each Fund.

INVESTMENT ADVISERS
For the years 1994, 1995 and 1996, the International Equity Fund paid the
Manager fees of $271,013, $488,474, and $823,891 respectively, and the Manager
paid the subadviser $174,167, $310,189, and $506,087 respectively. In addition,
in the years 1993 and 1994 the Manager paid the Fund $26,345 and $42,912,
respectively, under the Manager's agreement to limit expenses to 1.25% of
average net assets. In 1995, the Fund paid the Manager $69,257 as a repayment of
expenses previously reimbursed.

For the years 1994, 1995, and 1996, the Emerging Opportunities Fund paid the
Manager fees of $382,046, $811,641, and $1,169,885 respectively, and the Manager
paid the subadviser $235,098, $487,651, and $683,573 respectively. In addition,
in 1993 the Manager paid the Fund $18,755 under the Manager's agreement to limit
expenses to 1.00% of average net assets. In 1994 the Fund paid the Manager
$7,210 as a repayment of expenses previously reimbursed.

For the years 1994, 1995, and 1996, the Core Equity Fund paid the Manager fees
of $442,721, $855,725, and $1,362,267 respectively, and the Manager paid the
subadviser

25
<PAGE> 64
AMERICAN ODYSSEY FUNDS, INC.
STATEMENT OF ADDITIONAL INFORMATION

$258,232, $489,333, and $765,782 respectively. In addition, in 1993 the Manager
paid the Fund $13,517 under the Manager's agreement to limit expenses to 1.00%
of average net assets. In 1994 the Fund paid the Manager $2,689 as a repayment
of expenses previously reimbursed.

For the years 1994, 1995, and 1996, the Long-Term Bond Fund paid the Manager
fees of $247,872, $486,896, and $718,488 respectively, and the Manager paid the
subadviser $123,928, $243,334, and $359,244 respectively. In addition, in 1993
the Manager paid the Fund $53,415 under the Manager's agreement to limit
expenses to 0.75% of average net assets. In 1994 and 1995, the Fund paid the
Manager $11,413 and $40,770, respectively, as a repayment of expenses previously
reimbursed.

For the years 1994, 1995, and 1996, the Intermediate-Term Bond Fund paid the
Manager fees of $180,136, $317,000, and $442,594 respectively, and the Manager
paid the subadviser $90,068, $158,441, and $221,298 respectively. In addition,
in 1993 the Manager paid the Fund $48,471 under the Manager's agreement to limit
expenses to 0.75% of average net assets. In 1994 and 1995, the Fund paid the
Manager $1,777 and $46,612, respectively, as a repayment of expenses previously
reimbursed.

The expense limitation agreement is no longer in effect for the International
Equity Fund, the Emerging Opportunities Fund, the Core Equity Fund, the
Long-Term Bond Fund and the Intermediate-Term Bond Fund. These Funds have repaid
the Manager for all expenses previously reimbursed.

For the years 1994, 1995, and 1996, the Short-Term Bond Fund paid the Manager
fees of $69,569, $113,867, and $161,395 respectively, and the Manager paid the
subadviser $34,785, $56,916, and $80,698 respectively. In addition, in the years
1993 and 1994, the Manager paid the Fund $34,717 and $35,718, respectively,
under the Manager's agreement to limit expenses to 0.75% of average net assets.
In 1995 and 1996, the Fund paid the Manager $1,531 and $21,298, respectively, as
a repayment of expenses previously reimbursed.

26
<PAGE> 65
AMERICAN ODYSSEY FUNDS, INC.
STATEMENT OF ADDITIONAL INFORMATION

For more information regarding investment advisers, see MANAGEMENT OF THE FUNDS
in the prospectus.

OTHER SERVICE PROVIDERS

Investors Bank & Trust Company, 89 South Street, Boston, MA 02111 is the
custodian of the assets and is also the accounting services agent for the Funds
of the Company. In that capacity Investors Bank & Trust Company provides
custodial and accounting services to, and keeps the accounts and records of, the
Company. The Company pays a monthly fee based upon the total assets of the Funds
at the end of the month at an annual rate of between 0.04% and 0.08% plus
reimbursement of out-of-pocket expenses for obtaining information from pricing
services and securities transaction charges. For both U.S. and non-U.S. assets,
the annual rate is 0.08% for assets up to $250 million, 0.06% for assets over
$250 million and up to $500 million, and 0.04% for assets over $500 million. For
non-U.S. assets, the Company paid additional custodial expenses at annual rates
of 0.04% and 0.13%, based upon the country. For the years 1995 and 1996, the
Company paid $265,520 and $671,232, respectively, to Investors Bank & Trust
Company as custodian and accounting services agent.

The Bank of New York, 48 Wall Street, New York, New York, 10286 was custodian
of the assets of the Funds of the Company and maintained certain records and
books in connection therewith, until June 30, 1995.

The Bank of New York was also the accounting services agent for the Funds of
the Company until that date. In that capacity the Bank of New York provided
accounting services to, and kept the accounts and records of, the Company. Each
Fund paid a monthly fee based on the Fund's net asset value at the end of the
month at an annual rate of between 0.03% and 0.08% plus reimbursement of
out-of-pocket expenses for obtaining information from pricing services. For U.S.
assets, the annual rate is 0.05% for assets up to $50 million, 0.04% for assets
over $50 million and up to $100 million, and 0.03% for assets over $100 million.
For non-U.S. assets, the annual rate is 0.08% for assets up to $50 million,
0.06% for assets over $50 million and up to $100 million, and 0.04% for assets
over $100 million. The minimum monthly fee was $2,000 for U.S. Funds and $3,400
for international Funds. For the years 1994 and 1995, the Company paid $183,614
and $117,045, respectively, to the Bank of New York as accounting services
agent.

American Odyssey Funds Management, Inc. (the "Manager"), Two Tower Center, P.O.
Box 1063, East Brunswick, NJ 08816-1063, serves as transfer agent and dividend
disbursing agent

27
<PAGE> 66
AMERICAN ODYSSEY FUNDS, INC.
STATEMENT OF ADDITIONAL INFORMATION

for the Company. The Company does not pay a separate fee for
this service; rather, it reimburses the Manager for reasonable out-of-pocket
expenses incurred in connection with providing the service.

Coopers & Lybrand, L.L.P., One Post Office Square, Boston, MA 02109 serves as
the Company's independent accountants, providing audit services.

Copeland Equities, Inc., Two Tower Center, East Brunswick, NJ 08816, serves as
principal underwriter of the shares of the Company. It is an indirect,
wholly-owned subsidiary of Travelers Group Inc.

Rogers, Casey and Associates ("Rogers-Casey"), 1 Parkland Drive, Darien, CT
06820, assists the Manager in monitoring the performance of the subadvisers and
comparing that performance to that of other investment managers. For this
assistance, the Manager (not the Company) paid Rogers-Casey a fee of
approximately $50,000 in 1994, $50,000 in 1995 and $135,000 in 1996.

Investors Bank and Trust Company assists the Manager in providing certain
administrative services for the Company. For this assistance, the Manager (not
the Company) paid Investors Bank & Trust Company a fee of $116,550 in 1996.
Investors Bank & Trust Company did not serve in this capacity before 1996.

PORTFOLIO TRANSACTIONS

Each Fund's subadviser is responsible for the selection of brokers and dealers
to effect that Fund's transactions and the negotiation of brokerage commissions,
if any. Transactions on a stock exchange in equity securities will be executed
primarily through brokers who will receive a commission paid by the Fund. Fixed
income securities, as well as securities traded in the over-the-counter market,
on the other hand, will not normally involve any brokerage commissions. The
securities are generally traded on a "net" basis with the dealer acting as
principal for its own account without a stated commission, although the price of
the security usually includes a profit to the dealer. In underwritten offerings,
securities are purchased at a fixed priced that includes an amount of
compensation to the underwriter, generally referred to as the underwriter's
concession or discount. On occasion, certain of these securities may be
purchased directly from an issuer, in which case neither commissions nor
discounts are paid.

28
<PAGE> 67
AMERICAN ODYSSEY FUNDS, INC.
STATEMENT OF ADDITIONAL INFORMATION

In purchasing and selling a Fund's portfolio securities, it is the subadvisers'
policy to seek quality execution at the most favorable prices through
responsible broker-dealers and, in the case of agency transactions, at
competitive commission rates. In selecting broker-dealers to execute a Fund's
portfolio transactions, the subadviser will consider such factors as the price
of the security, the rate of the commission, the size and difficulty of the
order, the reliability, integrity, financial condition, general execution and
operational capabilities of competing broker-dealers, and the brokerage and
research services they provide to the subadviser or the Fund.

Notwithstanding the above, under certain conditions, the Funds are authorized
to pay higher brokerage commissions in return for brokerage and research
services, although they have no current arrangement to do so. The subadvisers
may cause a Fund to pay a broker-dealer who furnishes brokerage and/or research
services a commission or price for executing a transaction that is in excess of
the commission or price another broker would have received for executing the
transaction if it is determined that such commission or price is reasonable in
relation to the value of the brokerage and/or research services which have been
provided. In some cases, research services are generated by third parties, but
are provided to the subadviser or through broker-dealers.

The subadvisers may receive a wide range of research services from
broker-dealers, including information on securities markets, the economy,
individual companies, statistical information, accounting and tax law
interpretations, technical market action, pricing and appraisal services, and
credit analyses. Research services are received primarily in the form of written
reports, telephone contacts, personal meetings with security analysts, corporate
and industry spokespersons, economists, academicians, and government
representatives, and access to various computer-generated data. Research
services received from broker-dealers are supplemental to each investment
adviser's own research efforts and, when utilized, are subject to internal
analysis before being incorporated into the investment process.

In allocating brokerage for the Funds, the subadvisers may annually assess the
contribution of the brokerage and research services provided by broker-dealers,
and allocate a portion of the brokerage business of its clients on the basis of
these assessments. In addition, broker-dealers sometimes suggest a level of
business they would like to receive in return for the various brokerage and
research services they provide. Actual brokerage received by any firm may be
less than the suggested allocations, but can exceed the suggestions because
total brokerage is allocated on the basis of all the considerations described
above. In no instance is a broker-

29
<PAGE> 68
AMERICAN ODYSSEY FUNDS, INC.
STATEMENT OF ADDITIONAL INFORMATION

dealer excluded from receiving business because it has not been identified as
providing research services.

The subadvisers cannot readily determine the extent to which net prices or
commission rates charged by broker-dealers reflect the value of their research
services. However, net prices and commissions are periodically reviewed to
determine whether they are reasonable in relation to the services provided. In
some instances, the subadvisers receive research services they might otherwise
have had to perform for themselves. The research services provided by
broker-dealers can be useful to the subadvisers, in serving the Funds, as well
as to their other clients.

A subadviser may employ an affiliated broker to execute brokerage transactions
on behalf of the Fund as long as the commissions are reasonable and fair
compared to the commissions received by other brokers in connection with
comparable transactions involving similar securities being purchased or sold on
a securities exchange during a comparable period of time. The Funds may not
engage in any transaction in which a subadviser or its affiliates act as
principal, including over-the-counter purchases and negotiated trades in which
such party acts as a principal.

On occasion, an investment opportunity may be appropriate for more than one
entity for which a subadviser serves as investment manager or adviser. On those
occasions, one entity will not be favored over another and allocations of
investments among them will be made in an impartial manner believed to be
equitable to each entity involved. The allocations will be based on each
entities investment objectives and its current cash and investment positions.

The subadvisers may enter into certain commission recapture arrangements with
broker-dealers. Under these arrangements, the broker-dealer agrees to return a
portion of the brokerage commission for the benefit of the fund, either in the
form of a cash refund or by payment of a fund expense such as custodial
expenses. Subadvisers will execute trades under such arrangements only when it
is consistent with the policy to seek best execution.

The following charts provide the aggregate amount of brokerage commissions paid
by each Fund during the last three years.

30
<PAGE> 69
AMERICAN ODYSSEY FUNDS, INC.
STATEMENT OF ADDITIONAL INFORMATION

INTERNATIONAL EQUITY FUND

<TABLE>
<CAPTION>
% of Transactions
% Paid to Brokers through Brokers
Year Total Commissions Providing Research Providing Research
---- ----------------- ------------------ ------------------
<S> <C> <C> <C>
1994 $185,665 0% 0%
1995 $161,675 0% 0%
1996 $249,106 0% 0%
</TABLE>

Commissions in the amount of $356 in 1994, $0 in 1995, and $0 in 1996 were paid
to Smith Barney Inc., an affiliate of the Manager.

EMERGING OPPORTUNITIES FUND

<TABLE>
<CAPTION>
% of Transactions
% Paid to Brokers through Brokers
Year Total Commissions Providing Research Providing Research
---- ----------------- ------------------ ------------------
<S> <C> <C> <C>
1994 $43,899 100% 100%
1995 $65,993 100% 100%
1996 $90,013 60% 60%
</TABLE>

Commissions in the amount of $273 in 1996 were paid to The Robinson-Humphrey
Company, Inc., an affiliate of the Manager. In 1996, 0.303% of total commissions
were paid to The Robinson-Humphrey Company, Inc., and those commissions related
to transactions that represented 0.111% of the aggregate dollar amount of
transactions involving commissions.

CORE EQUITY FUND

<TABLE>
<CAPTION>
% of Transactions
% Paid to Brokers through Brokers
Year Total Commissions Providing Research Providing Research
---- ----------------- ------------------ ------------------
<S> <C> <C> <C>
1994 $190,450 73% 73%
1995 $207,159 78% 78%
1996 $333,930 63% 63%
</TABLE>

Commissions in the amount of $582 in 1994 and $0 in 1995 were paid to The
Robinson-Humphrey Company, Inc., an affiliate of the Manager. The Fund also paid
commissions in the amount of $2,952 in 1994, $0 in 1995, and $186 in 1996 to
Smith Barney Inc., an affiliate of the Manager. In 1996, 0.055% of total
commissions were paid to Smith Barney Inc., and those commissions related to
transactions that represented 0.026% of the aggregate dollar amount of
transactions involving the payment of commissions.

31
<PAGE> 70
AMERICAN ODYSSEY FUNDS, INC.
STATEMENT OF ADDITIONAL INFORMATION

LONG-TERM BOND FUND

<TABLE>
<CAPTION>
% of Transactions
% Paid to Brokers through Brokers
Year Total Commissions Providing Research Providing Research
---- ----------------- ------------------ ------------------
<S> <C> <C> <C>
1994 $42,115 0% 0%
1995 $30,903 0% 0%
1996 $66,218 0% 0%
</TABLE>

INTERMEDIATE-TERM BOND FUND

<TABLE>
<CAPTION>
% of Transactions
% Paid to Brokers through Brokers
Year Total Commission Providing Research Providing Research
---- ---------------- ------------------ ------------------
<S> <C> <C> <C>
1994 $0 0% 0%
1995 $0 0% 0%
1996 $0 0% 0%
</TABLE>

SHORT-TERM BOND FUND

<TABLE>
<CAPTION>
% of Transactions
% Paid to Brokers through Brokers
Year Total Commissions Providing Research Providing Research
---- ----------------- ------------------ ------------------
<S> <C> <C> <C>
1994 $0 0% 0%
1995 $1,447 100% 100%
1996 $0 0% 0%
</TABLE>

The annual portfolio turnover rate for the International Equity, Emerging
Opportunities, and Core Equity Funds are expected to be less than 100%. The
annual portfolio turnover rate for the Long-Term Bond, Intermediate-Term Bond,
and Short-Term Bond Funds are expected to be more than 100%. See INVESTMENT
OBJECTIVES AND PROGRAMS of those Funds in the prospectus for more information.
For a listing of last year's portfolio turnover rates for all the Funds, see
FINANCIAL HIGHLIGHTS in the prospectus.

32
<PAGE> 71
AMERICAN ODYSSEY FUNDS, INC.
STATEMENT OF ADDITIONAL INFORMATION

NET ASSET VALUE OF SHARES

The net asset value of the shares of each Fund is determined once daily, as of
4:15 p.m. New York City time, on each day during which the New York Stock
Exchange ("NYSE") is open for business. The NYSE is open for business Monday
through Friday except for the days on which the following holidays are observed:
New Year's Day, Presidents' Day, Good Friday, Memorial Day, Independence Day,
Labor Day, Thanksgiving Day, and Christmas Day. The net asset value per share of
each Fund is computed by adding the sum of the value of the securities held by
that Fund plus any cash or other assets it holds, subtracting all its
liabilities, and dividing the result by the total number of shares outstanding
of that Fund at such time. Expenses, including the investment management fee,
are accrued daily.

Equity securities for which the primary market is on an exchange are generally
valued at the last sale price on such exchange as of the close of the NYSE
(which is currently 4:00 p.m. New York City time) or, in the absence of recorded
sales, at the mean between the most recently quoted bid and asked prices. NASDAQ
National Market System equity securities are valued at the last sale price or,
if there was no sale on such day, at the mean between the most recently quoted
bid and asked prices. Other over-the-counter equity securities are valued at the
mean between the most recently quoted bid and asked prices. Convertible debt
securities that are actively traded in the over-the-counter, including listed
securities for which the primary market is believed to be over-the-counter, are
valued at the mean between the most recently quoted bid and asked prices.

Debt obligations (other than those with remaining maturities of less than 60
days when purchased) are valued utilizing an independent pricing service to
determine valuations for normal institutional size trading units of securities.
The pricing service considers such factors as security prices, yields,
maturities, call features, ratings, and developments relating to specific
securities. Debt obligations with remaining maturities of less than 60 days when
purchased will be valued at amortized cost. This means that each obligation will
be valued initially at its purchase price and thereafter by amortizing any
discount or premium uniformly to maturity, unless this method does not represent
fair market value. In such cases, the security will be valued at its fair value
as determined by the Manager and/or the subadvisers under the direction of the
Board of Directors of the Company.

Options traded on national securities exchanges are valued at their last sale
price as of the close of option trading on such exchanges (which is currently
4:10 p.m. New York City time). Futures contracts are marked to market daily, and
options thereon are valued at their last sale

33
<PAGE> 72
AMERICAN ODYSSEY FUNDS, INC.
STATEMENT OF ADDITIONAL INFORMATION

price, as of the close of the applicable commodities exchanges (which is
currently 4:15 p.m. New York City time). Quotations of foreign securities in a
foreign currency are converted to U.S. dollar equivalents at the current rate
obtained by a recognized bank or dealer. Forward contracts are valued at the
current cost of covering or offsetting such contracts.

Securities or assets for which market quotations are not readily available will
be valued at fair value as determined by the Manager and/or the subadvisers
under the direction of the Board of Directors of the Company.

Generally, trading in foreign securities, as well as corporate bonds, U.S.
government securities, and money market instruments, is substantially completed
each day at various times prior to the close of the NYSE. The value of any such
securities are determined as of such times for purposes of computing a Fund's
net asset value. Foreign currency exchange rates are also generally determined
prior to the close of the NYSE. If an extraordinary event occurs after the close
of an exchange on which that security is traded, the security will be valued at
fair value as determined in good faith by the applicable subadviser under
procedures established by and under the general supervision of the Company's
Board of Directors.

PERFORMANCE INFORMATION

The Funds may quote their performance in various ways. All performance
information supplied by the Funds is historical and is not intended to indicate
future performance. A Fund's share prices, yields, and total returns fluctuate
in response to market conditions and other factors, and the value of Fund shares
when redeemed may be more or less than their original cost.

Performance information for a Fund includes the effect of deducting that Fund's
expenses, but does not include charges and expenses attributable to any
particular insurance product.

Yields quoted in advertising are computed by dividing that Fund's interest and
dividend income for a given 30-day period, net of expenses, by the average
number of shares entitled to receive dividends during the period, dividing this
figure by the Fund's net asset value per share at the end of the period and
annualizing the result (assuming compounding of income) in order to arrive at an
annual percentage rate. Income is calculated for purposes of yield quotations in
accordance with standardized methods applicable to all stock and bond funds.
Dividends for equity investments are treated as if they were accrued on a daily
basis, solely

34
<PAGE> 73
AMERICAN ODYSSEY FUNDS, INC.
STATEMENT OF ADDITIONAL INFORMATION

for the purposes of yield calculations. In general, interest income is reduced
with respect to bonds trading at a premium over their par value by subtracting a
portion of the premium from income on a daily basis, and is increased with
respect to bonds trading at a discount by adding a portion of the discount to
daily income. Capital gains and losses generally are excluded from the
calculation.

Income calculated for the purpose of determining the Funds' yields differs from
income as determined for other accounting purposes. Because of the different
accounting methods used, and because of the semiannual compounding assumed in
yield calculations, the yields quoted for the Funds may differ from the income
the Funds paid over the same period or the rate of income reported in the Funds'
financial statements.

Total returns quoted in advertising reflect all aspects of a Fund's return,
including the effect of reinvesting dividends and capital gain distributions,
and any change in the Fund's net asset value per share (NAV) over the period.
Average annual total returns are calculated by determining the growth or decline
in value of a hypothetical historical investment in the Fund over a stated
period, and then calculating the annually compounded percentage rate that would
have produced the same result if the rate of growth or decline in value had been
constant over the period. For example, a total return of 100% over ten years
would require an average annual return of 7.18%, which is the steady annual rate
that would equal 100% growth on a compounded basis in ten years. While average
annual total returns are a convenient means of comparing investment
alternatives, investors should realize that a Fund's performance is not constant
over time, but changes from year to year, and that average annual total returns
represent averaged figures as opposed to the actual year-to-year performance.

In addition to average annual total returns, the Funds may quote unaveraged or
cumulative total returns reflecting the simple change in value of an investment
over a stated period. Average annual and cumulative total returns may be quoted
as a percentage or as a dollar amount, and may be calculated for a single
investment, a series of investments, and/or a series of redemptions, over any
time period. Total returns may be broken down into their components of income
and capital (including capital gains and changes in share price) in order to
illustrate the relationship of these factors and their contributions to total
return. Total returns, yield and other performance information may be quoted
numerically or in a table, graph or similar illustration.

35
<PAGE> 74
AMERICAN ODYSSEY FUNDS, INC.
STATEMENT OF ADDITIONAL INFORMATION

TAXES

This section supplements the tax disclosure in the section FEDERAL TAXES in the
prospectus.

Section 817(h) of the Internal Revenue Code requires that assets underlying
variable life insurance and variable annuity contracts must meet certain
diversification requirements if the contracts are to qualify as life insurance
and annuity contracts. The diversification requirements ordinarily must be met
within 1 year after contract owner funds are first allocated to the particular
Fund, and within 30 days after the end of each calendar quarter thereafter. In
order to meet the diversification requirements set forth in Treasury Regulations
issued pursuant to Section 817(h), each Fund must meet one of two alternative
tests. Under the first test, no more than 55% of the Fund's assets can be
invested in any one investment; no more than 70% of the assets can be invested
in any two investments; no more than 80% of the assets can be invested in any
three investments; and no more than 90% can be invested in any four investments.
Under the second test, the Fund must meet the tax law diversification
requirements for a regulated investment company and no more than 55% of the
value of the Fund's assets can be invested in cash, cash items, government
securities, and securities of other regulated investments.

For purposes of determining whether a variable account is adequately
diversified, each United States government agency or instrumentality is treated
as a separate issuer for purposes of determining whether a Fund is adequately
diversified. The Company's compliance with the diversification requirements will
generally limit the amount of assets that may be invested in federally insured
certificates of deposit and all types of securities issued or guaranteed by each
United States government agency or instrumentality.

The International Equity Fund may be required to pay withholding or other taxes
to foreign governments. If so, the taxes will reduce the Fund's dividends.
Foreign tax withholding from dividends and interest (if any) is typically set at
a rate between 10% and 15% if there is a treaty with the foreign government
which addresses this issue. If no such treaty exists, the foreign tax
withholding would be 30%. While contract owners will thus bear the cost of
foreign tax withholding, they will not be able to claim a foreign tax credit or
deduction for foreign taxes paid by the Fund.

36
<PAGE> 75
AMERICAN ODYSSEY FUNDS, INC.
STATEMENT OF ADDITIONAL INFORMATION

OWNERSHIP OF SHARES

The Company currently issues six classes of stock: (1) American Odyssey Core
Equity Fund Stock; (2) American Odyssey Emerging Opportunities Fund Stock; (3)
American Odyssey International Equity Fund Stock; (4) American Odyssey Long-Term
Bond Fund Stock; (5) American Odyssey Intermediate-Term Bond Fund Stock; and (6)
American Odyssey Short-Term Bond Fund Stock. For more information, see GENERAL
INFORMATION in the prospectus.

37
<PAGE> 76

Statements of Assets and Liabilities
American Odyssey Funds, Inc. / December 31, 1996

<TABLE>
<CAPTION>
Emerging Intermediate-
International Opportunities Core Equity Long-Term Term Short-Term
Equity Fund Fund Fund Bond Fund Bond Fund Bond Fund
------------- ------------- ------------ ------------ ------------- -----------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Investments in securities, at cost........ $146,581,610 $158,790,825 $216,790,498 $163,518,452 $90,894,771 $49,684,540
- ---------------------------------------------------------------------------------------------------------------------------------
Investments in securities, at value (see
accompanying Portfolio of Investments)
(Note 2)................................. $177,519,861 $178,951,995 $282,684,881 $162,673,605 $90,696,685 $49,595,185
Cash...................................... 10,723,573 11,524,754 6,582,908 20,574,437 38 349,228
Cash, denominated in foreign currency
(cost $3,087,755)........................ 3,112,731 -- -- -- -- --
Receivables for:
Capital stock subscriptions.............. 232,803 237,014 251,940 136,492 54,464 11,094
Investment securities sold............... -- -- -- -- 5,340 --
Delayed delivery transactions (Note 9)... -- -- -- 14,742,188 -- --
Unrealized appreciation on forward
foreign currency contracts (Note 8).... 939,387 -- -- -- -- --
Interest................................. 41,916 43,426 22,528 1,677,214 772,023 566,583
Dividends................................ 361,104 36,979 817,834 -- -- --
Foreign tax reclaims..................... 107,661 -- 2,350 -- -- --
Prepaid organization expense.............. 6,873 6,739 6,674 6,729 6,776 6,853
------------ ------------ ------------ ------------ ----------- -----------
Total assets............................. 193,045,909 190,800,907 290,369,115 199,810,665 91,535,326 50,528,943
------------ ------------ ------------ ------------ ----------- -----------
LIABILITIES
Payables for:
Investment securities purchased.......... 897,743 4,810,030 -- -- -- 7,907
Distributions payable.................... 4,655,024 14,364,919 16,148,854 8,175,364 4,980,334 1,745,696
Delayed delivery transactions (Note 9)... -- -- -- 30,395,117 -- --
Variation margin on open futures
contracts (Note 6)..................... -- -- -- 205,938 -- --
Options written (premiums received
$197,715)(Note 7)...................... -- -- -- 78,578 -- --
Unrealized depreciation on forward
foreign currency contracts (Note 8).... 63,924 -- -- -- -- --
Payable to Adviser........................ 261,671 297,073 397,717 206,966 116,480 70,589
Accrued expenses.......................... 58,299 50,669 51,018 54,186 53,438 31,835
------------ ------------ ------------ ------------ ----------- -----------
Total liabilities........................ 5,936,661 19,522,691 16,597,589 39,116,149 5,150,252 1,856,027
------------ ------------ ------------ ------------ ----------- -----------
NET ASSETS................................ $187,109,248 $171,278,216 $273,771,526 $160,694,516 $86,385,074 $48,672,916
============ ============ ============ ============ =========== ===========
Capital shares outstanding................ 12,410,280 12,764,369 17,673,755 15,828,492 8,470,117 4,754,313
============ ============ ============ ============ =========== ===========
Net asset value per share................. $15.08 $13.42 $15.49 $10.15 $10.20 $10.24
====== ====== ====== ====== ====== ======
- ---------------------------------------------------------------------------------------------------------------------------------
COMPOSITION OF NET ASSETS
Capital shares at par..................... $ 124,103 $ 127,644 $ 176,738 $ 158,285 $ 84,701 $ 47,543
Additional paid-in-capital................ 154,297,417 156,567,121 203,354,437 160,979,329 85,856,888 48,772,799
Undistributed net investment income
(distributions in excess of net
investment income)....................... (19,402) -- 47,896 242,735 165,695 45,487
Accumulated net realized gain (loss) on
investments, futures contracts, option
contracts and foreign currency
transactions............................. 862,014 (5,577,719) 4,298,072 207,536 475,876 (103,597)
Net unrealized appreciation (depreciation)
on investments, translation of assets and
liabilities in foreign currencies,
futures contracts and option contracts... 31,845,116 20,161,170 65,894,383 (893,369) (198,086) (89,316)
------------ ------------ ------------ ------------ ----------- -----------
$187,109,248 $171,278,216 $273,771,526 $160,694,516 $86,385,074 $48,672,916
============ ============ ============ ============ =========== ===========
</TABLE>

The accompanying notes are an integral part of the financial statements.

18
<PAGE> 77

Statements of Operations
American Odyssey Funds, Inc. / For the year ended December 31, 1996

<TABLE>
<CAPTION>
Emerging Intermediate-
International Opportunities Core Equity Long-Term Term Short-Term
Equity Fund Fund Fund Bond Fund Bond Fund Bond Fund
------------- ------------- ----------- ----------- ------------- ----------
<S> <C> <C> <C> <C> <C> <C>
INVESTMENT INCOME
Interest................................ $ 247,119 $ 510,750 $ 272,595 $ 9,353,294 $ 5,693,888 $2,009,975
Dividends............................... 2,759,372(1) 228,948 5,964,921(2) -- -- --
---------- ----------- ---------- ---------- ---------- ---------
Total Income.......................... 3,006,491 739,698 6,237,516 9,353,294 5,693,888 2,009,975
---------- ----------- ---------- ---------- ---------- ---------
EXPENSES
Management fees (Note 3)................ 823,891 1,169,885 1,362,267 718,488 442,594 161,395
Audit fees.............................. 30,297 36,510 32,694 32,349 27,489 22,947
Director's fees & expenses.............. 14,313 24,651 29,721 19,434 12,096 4,038
Custodian fees.......................... 189,937 129,983 158,113 98,806 73,927 20,466
Amortization of organization expense.... 4,989 4,926 4,860 4,908 4,934 5,011
Legal fees.............................. 5,664 9,579 11,688 7,782 4,941 1,761
Printing expense........................ 15,078 17,376 15,312 14,712 12,282 3,768
Miscellaneous expense................... 4,931 8,398 9,985 6,641 4,322 1,586
---------- ----------- ---------- ---------- ---------- ---------
Total expenses before
reimbursement....................... 1,089,100 1,401,308 1,624,640 903,120 582,585 220,972
---------- ----------- ---------- ---------- ---------- ---------
Reimbursement repaid to Management
Company (Note 3).................... -- -- -- -- -- 21,298
Less:
Expenses paid under directed brokerage
arrangements (Note 4)............... (34,598) -- (47,610) -- -- --
---------- ----------- ---------- ---------- ---------- ---------
Net expenses.......................... 1,054,502 1,401,308 1,577,030 903,120 582,585 242,270
---------- ----------- ---------- ---------- ---------- ---------
Net investment income (loss)........ 1,951,989 (661,610) 4,660,486 8,450,174 5,111,303 1,767,705
---------- ----------- ---------- ---------- ---------- ---------
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS
Net realized gain (loss) on security
transactions.......................... 1,855,312 9,311,902 15,834,337 (1,771,579) 488,591 75,014
Net realized gain on option contracts... -- -- -- 477,181 -- --
Net realized gain on futures
contracts............................. -- -- -- 643,953 -- --
---------- ----------- ---------- ---------- ---------- ---------
Net realized gain (loss) on security
transactions, futures contracts and
option contracts.................... 1,855,312 9,311,902 15,834,337 (650,445) 488,591 75,014
Net realized gain on foreign currency
transactions.......................... 1,968,421 -- -- -- -- --
Net increase (decrease) in unrealized
appreciation of investments, futures
contracts and option contracts........ 21,313,802 (16,078,616) 30,480,771 (4,201,977) (1,945,622) (585,095)
Net unrealized appreciation from
translation of assets and liabilities
in foreign currencies................. 758,663 -- -- -- -- --
---------- ----------- ---------- ---------- ---------- ---------
Net realized and unrealized gain/
(loss) on investments............... 25,896,198 (6,766,714) 46,315,108 (4,852,422) (1,457,031) (510,081)
---------- ----------- ---------- ---------- ---------- ---------
Net increase (decrease) in net assets
from operations....................... $ 27,848,187 ($7,428,324) $50,975,594 $ 3,597,752 $ 3,654,272 $1,257,624
========== =========== ========== ========== ========== =========
</TABLE>

(1) Net of withholding taxes of $387,510.

(2) Net of withholding taxes of $24,165.

The accompanying notes are an integral part of the financial statements.

19
<PAGE> 78

Statements of Changes in Net Assets
American Odyssey Funds, Inc.

<TABLE>
<CAPTION>
International Equity Fund Emerging Opportunities Fund
----------------------------- -----------------------------
Year ended Year ended Year ended Year ended
December 31, December 31, December 31, December 31,
1996 1995 1996 1995
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
INCREASE IN NET ASSETS FROM OPERATIONS
Net investment income (loss).................................. $ 1,951,989 $ 1,150,558 $ (661,610) $ (331,697)
Net realized gain (loss) on security transactions, futures
contracts and option contracts............................... 1,855,312 (89,338) 9,311,902 5,474,396
Net realized gain (loss) on foreign currency transactions..... 1,968,421 51,021 -- --
Net increase (decrease) in unrealized appreciation
(depreciation) of investments, translation of assets and
liabilities in foreign currencies, futures contracts and
option contracts............................................. 22,072,465 11,300,527 (16,078,616) 28,661,663
------------ ----------- ------------ ------------
Net increase (decrease) in net assets resulting from
operations................................................. 27,848,187 12,412,768 (7,428,324) 33,804,362
------------ ----------- ------------ ------------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS
From net investment income.................................... (3,751,066) (896,810) -- --
From net realized gains on investment transactions............ (903,958) -- (14,364,919) (6,102,584)
In excess of net investment income or realized gains.......... -- -- -- (524,702)
------------ ----------- ------------ ------------
Total distributions to shareholders.......................... (4,655,024) (896,810) (14,364,919) (6,627,286)
------------ ----------- ------------ ------------
CAPITAL SHARE TRANSACTIONS
Proceeds from sales of shares................................. 89,218,342 40,065,473 103,366,353 71,673,203
Distributions reinvested...................................... 896,810 1,844,203 6,627,286 1,184,820
Cost of shares repurchased.................................... (18,313,612) (13,023,416) (74,115,064) (31,518,544)
------------ ----------- ------------ ------------
Net increase from capital share transactions................. 71,801,540 28,886,260 35,878,575 41,339,479
------------ ----------- ------------ ------------
Net increase in net assets.................................... 94,994,703 40,402,218 14,085,332 68,516,555
NET ASSETS
Beginning of year............................................. 92,114,545 51,712,327 157,192,884 88,676,329
------------ ----------- ------------ ------------
End of year................................................... 187,109,248 92,114,545 171,278,216 157,192,884
============ =========== ============ ============
Undistributed (excess distribution) net investment income..... $ (19,402) $ 48,120 $ -- $ --
============ =========== ============ ============
CAPITAL SHARES
Capital shares outstanding, beginning of year................. 7,264,073 4,805,255 10,462,738 7,487,091
Capital shares issued......................................... 6,422,181 3,411,396 6,669,075 5,090,663
Capital shares from distributions reinvested.................. 70,283 171,394 443,000 101,180
Capital shares redeemed....................................... (1,346,257) (1,123,972) (4,810,444) (2,216,196)
------------ ----------- ------------ ------------
Capital shares outstanding, end of year....................... 12,410,280 7,264,073 12,764,369 10,462,738
============ =========== ============ ============
</TABLE>

The accompanying notes are an integral part of the financial statements.

20
<PAGE> 79
<TABLE>
<CAPTION>
Core Equity Fund Long-Term Bond Fund Intermediate-Term Bond Fund
----------------------------- ----------------------------- -----------------------------
Year ended Year ended Year ended Year ended Year ended Year ended
December 31, December 31, December 31, December 31, December 31, December 31,
1996 1995 1996 1995 1996 1995
------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
$ 4,660,486 $ 3,394,959 $ 8,450,174 $ 6,402,080 $ 5,111,303 $ 3,851,775
15,834,337 5,743,147 (650,445) 5,267,011 488,591 1,006,551
-- -- -- -- --
30,480,771 37,716,285 (4,201,977) 7,628,153 (1,945,622) 3,848,473
------------ ----------- ----------- ----------- ------------ -----------
50,975,594 46,854,391 3,597,752 19,297,244 3,654,272 8,706,799
------------ ----------- ----------- ----------- ------------ -----------
(4,697,100) (3,323,421) (8,175,364) (6,255,797) (4,980,334) (3,883,129)
(11,536,265) (5,188,093) -- (2,903,213) -- (496,399)
-- (4,829) -- (1,077,489) -- (370,385)
------------ ----------- ----------- ----------- ------------ -----------
(16,233,365) (8,516,343) (8,175,364) (10,236,499) (4,980,334) (4,749,913)
------------ ----------- ----------- ----------- ------------ -----------
89,834,796 64,224,865 64,001,096 46,464,747 34,374,279 29,022,622
8,600,854 1,667,504 10,236,499 1,892,963 4,749,913 1,903,243
(43,141,162) (22,087,221) (23,577,889) (13,165,269) (24,893,538) (9,973,176)
------------ ----------- ----------- ----------- ------------ -----------
55,294,488 43,805,148 50,659,706 35,192,441 14,230,654 20,952,689
------------ ----------- ----------- ----------- ------------ -----------
90,036,717 82,143,196 46,082,094 44,253,186 12,904,592 24,909,575
183,734,809 101,591,613 114,612,422 70,359,236 73,480,482 48,570,907
------------ ----------- ----------- ----------- ------------ -----------
273,771,526 183,734,809 160,694,516 114,612,422 86,385,074 73,480,482
============ =========== =========== =========== ============ ===========
$ 47,896 $ 84,510 $ 242,735 $ 1,552,790 $ 165,695 $ 2,125
============ =========== =========== =========== ============ ===========
13,795,844 10,093,660 10,887,947 7,508,227 7,081,020 5,054,210
6,205,107 5,359,111 6,272,737 4,434,521 3,298,559 2,790,359
639,225 165,756 973,051 202,456 457,603 198,255
(2,966,421) (1,822,683) (2,305,243) (1,257,257) (2,367,065) (961,804)
------------ ----------- ----------- ----------- ------------ -----------
17,673,755 13,795,844 15,828,492 10,887,947 8,470,117 7,081,020
============ =========== =========== =========== ============ ===========

<CAPTION>
Short-Term Bond Fund
------------------------------
Year ended Year ended
December 31, December 31,
1996 1995
------------- ------------
<S> <C> <C>
$ 1,767,705 $ 1,302,998
75,014 124,873
-- --
(585,095) 860,681
------------ ------------
1,257,624 2,288,552
------------ ------------
(1,745,696) (1,291,083)
-- --
-- --
------------ ------------
(1,745,696) (1,291,083)
------------ ------------
29,548,991 12,788,292
1,291,083 684,280
(7,534,399) (6,243,719)
------------ ------------
23,305,675 7,228,853
------------ ------------
22,817,603 8,226,322
25,855,313 17,628,991
------------ ------------
48,672,916 25,855,313
============ ============
$ 45,487 $ 18,374
============ ============
2,530,211 1,821,850
2,826,896 1,246,378
126,329 70,763
(729,123) (608,780)
------------ ------------
4,754,313 2,530,211
============ ============
</TABLE>

21
<PAGE> 80

- --------------------------------------------------------------------------------
Financial Highlights
American Odyssey Funds, Inc.
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
International Equity Fund
---------------------------------------------------------------
May 17,
1993 (1)
Year ended Year ended Year ended to
December 31, December 31, December 31, December 31,
1996 1995 1994 1993
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
NET ASSET VALUE
Beginning of period.......... $ 12.68 $ 10.76 $ 11.98 $ 10.00
----------- ---------- ---------- ----------
OPERATIONS
Net investment income (loss)
(2)........................ 0.29 0.17 (0.05) 0.03
Net realized and unrealized
gain (loss) on
investments................ 2.48 1.87 (0.78) 1.95
----------- ---------- ---------- ----------
Total from investment
operations................. 2.77 2.04 (0.83) 1.98
----------- ---------- ---------- ----------
DISTRIBUTIONS TO SHAREHOLDERS
Dividends from net investment
income..................... (0.30) (0.12) (0.03) --
Distributions from net
realized gains on
investments................ (0.07) -- (0.26) --
Distributions in excess of
net investment income or
realized gains............. -- -- (0.10) --
----------- ---------- ---------- ----------
Total distributions.......... (0.37) (0.12) (0.39) --
----------- ---------- ---------- ----------
NET ASSET VALUE
End of period................ $ 15.08 $ 12.68 $ 10.76 $ 11.98
=========== ========== ========== ==========
TOTAL RETURN (3).............. 21.93% 19.00% (6.98%) 19.80%
RATIOS/SUPPLEMENTAL DATA
Net assets at end of
period..................... $187,109,248 $ 92,114,545 $ 51,712,327 $ 19,978,108
Ratios of expenses to average
net assets:
Before repayments and
directed brokerage
arrangements............. 0.86% 1.00% 1.36% 1.76%(4)
After repayments and
directed brokerage
arrangements (6)......... 0.83% 1.08% 1.25% 1.25%(4)
Ratios of net investment
income (loss) to average
net assets:
Before repayments and
directed brokerage
arrangements............. 1.51% 1.70% 0.83% 0.34%(4)
After repayments and
directed brokerage
arrangements............. 1.54% 1.62% 0.94% 0.85%(4)
Portfolio turnover rate...... 21.54% 31.40% 50.25% 9.20%
Average commission rate paid
(7)........................ $ 0.0219 -- -- --
- -------------------------------------------------------------------------------------------------
</TABLE>

(1) Commencement of operations.

(2) Net of expense reimbursement, repayments and directed brokerage
arrangements.

(3) Total return is calculated assuming an initial investment made at net asset
value at the beginning of the period, all dividends and distributions are
reinvested and redemption on the last day of the period. Total Returns do
not reflect charges attributable to separate account expenses deducted by
the insurance company for variable annuity contract shareholders. Inclusion
of these charges would reduce the total return shown.

(4) Annualized

(5) The Long-Term Bond Fund did not qualify in 1993 as a regulated investment
company for federal income tax purposes because it had substantial
short-term capital gains during this period and was not able to meet the
requirement that no more than 30% of the Fund's investment income may be
from realized capital gains on the sale of securities held for less than
three months. While the Fund incurred a federal income tax of approximately
$155,000, the investment adviser to the Long-Term Bond Fund reimbursed the
Fund for the taxes and related legal expenses, so no shareholder of the Fund
was affected. The ratio of expenses to average net assets would have been
2.58% had the adviser not agreed to reimburse the Fund for these expenses.
The Fund qualified in 1994, 1995 and 1996 as a regulated investment company
and intends to do so in future years as well.

(7) Average commission rate paid is computed by dividing the total dollar amount
of commissions paid during the period by the total number of shares
purchased and sold during the period for which commissions were charged.

The accompanying notes are an integral part of the financial statements.

22
<PAGE> 81

- --------------------------------------------------------------------------------

- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Emerging Opportunities Fund
---------------------------------------------------------------
May 17,
1993 (1)
Year ended Year ended Year ended to
December 31, December 31, December 31, December 31,
1996 1995 1994 1993
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
$ 15.02 $ 11.84 $ 10.94 $ 10.00
----------- ----------- ---------- ----------
-- -- -- (0.01)
(0.47) 3.81 1.06 0.95
----------- ----------- ---------- ----------
(0.47) 3.81 1.06 0.94
----------- ----------- ---------- ----------
-- -- -- --
(1.13) (0.58) (0.16) --
-- (0.05) -- --
----------- ----------- ---------- ----------
(1.13) (0.63) (0.16) --
----------- ----------- ---------- ----------
$ 13.42 $ 15.02 $ 11.84 $ 10.94
=========== =========== ========== ==========
(3.03%) 32.23% 9.69% 9.40%
$171,278,216 $157,192,884 $ 88,676,329 $ 29,112,652
0.72% 0.77% 0.91% 1.23%(4)
0.72% 0.77% 0.92% 1.00%(4)
(0.34%) (0.26%) (0.31%) (0.60%)(4)
(0.34%) (0.26%) (0.32%) (0.38%)(4)
43.00% 36.02% 27.40% 8.70%
$ 0.0505 -- -- --
- -------------------------------------------------------------------

<CAPTION>
Core Equity Fund
----------------------------------------------------------------
May 17,
1993 (1)
Year ended Year ended Year ended to
December 31, December 31, December 31, December 31,
1996 1995 1994 1993
------------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
$ 13.32 $ 10.06 $ 10.33 $ 10.00
----------- ----------- ----------- ----------
0.26 0.25 0.16 0.06
2.83 3.63 (0.26) 0.33
----------- ----------- ----------- ----------
3.09 3.88 (0.10) 0.39
----------- ----------- ----------- ----------
(0.27) (0.24) (0.17) (0.06)
(0.65) (0.37) -- --
-- (0.01) -- --
----------- ----------- ----------- ----------
(0.92) (0.62) (0.17) (0.06)
----------- ----------- ----------- ----------
$ 15.49 $ 13.32 $ 10.06 $ 10.33
=========== =========== =========== ==========
23.20% 38.56% (1.01%) 3.90%
$ 273,771,526 $183,734,809 $101,591,613 $ 37,355,875
0.68% 0.72% 0.84% 1.12%(4)
0.66% 0.70% 0.85% 1.00%(4)
1.93% 2.32% 2.27% 1.84%(4)
1.95% 2.33% 2.27% 1.96%(4)
45.73% 38.44% 48.16% 48.00%
$ 0.0594 -- -- --
- -------------------------------------------------------------------
</TABLE>

23
<PAGE> 82

<TABLE>
<CAPTION>
Long-Term Bond Fund
---------------------------------------------------------------
May 17,
1993 (1)
Year ended Year ended Year ended to
December 31, December 31, December 31, December 31,
1996 1995 1994 1993
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
NET ASSET VALUE
Beginning of period.......... $ 10.53 $ 9.37 $ 10.33 $ 10.00
----------- ---------- ---------- ----------
OPERATIONS
Net investment income (loss)
(2)........................ 0.50 0.53 0.37 0.62
Net realized and unrealized
gain (loss) on
investments................ (0.36) 1.57 (0.97) 0.45
----------- ---------- ---------- ----------
Total from investment
operations................. 0.14 2.10 (0.60) 1.07
----------- ---------- ---------- ----------
DISTRIBUTIONS TO SHAREHOLDERS
Dividends from net investment
income..................... (0.52) (0.57) (0.34) (0.18)
Distributions from net
realized gains on
investments................ -- (0.27) (0.02) (0.56)
Distributions in excess of
net investment income or
realized gains............. -- (0.10) -- --
----------- ---------- ---------- ----------
Total distributions.......... (0.52) (0.94) (0.36) (0.74)
----------- ---------- ---------- ----------
NET ASSET VALUE
End of period................ $ 10.15 $ 10.53 $ 9.37 $ 10.33
=========== ========== ========== ==========
TOTAL RETURN (3).............. 1.34% 22.44% (5.79%) 10.70%
RATIOS/SUPPLEMENTAL DATA
Net assets at end of
period..................... $160,694,516 $114,612,422 $70,359,236 $25,771,838
Ratios of expenses to average
net assets:
Before repayments and
directed brokerage
arrangements............. 0.63% 0.66% 0.73% 1.30% (4)(5)
After repayments and
directed brokerage
arrangements (6)......... 0.63% 0.70% 0.75% 0.75% (4)
Ratios of net investment
income (loss) to average
net assets:
Before repayments and
directed brokerage
arrangements............. 5.88% 6.67% 7.08% 15.19% (4)
After repayments and
directed brokerage
arrangements............. 5.88% 6.63% 7.05% 15.73% (4)
Portfolio turnover rate...... 369.32% 381.53% 152.91% 589.40%
Average commission rate paid
(7)........................ -- -- -- --
- -------------------------------------------------------------------------------------------------
</TABLE>

(1) Commencement of operations.

(2) Net of expense reimbursement, repayments and directed brokerage
arrangements.

(3) Total return is calculated assuming an initial investment made at net asset
value at the beginning of the period, all dividends and distributions are
reinvested and redemption on the last day of the period. Total Returns do
not reflect charges attributable to separate account expenses deducted by
the insurance company for variable annuity contract shareholders. Inclusion
of these charges would reduce the total return shown.

(4) Annualized

(5) The Long-Term Bond Fund did not qualify in 1993 as a regulated investment
company for federal income tax purposes because it had substantial
short-term capital gains during this period and was not able to meet the
requirement that no more than 30% of the Fund's investment income may be
from realized capital gains on the sale of securities held for less than
three months. While the Fund incurred a federal income tax of approximately
$155,000, the investment adviser to the Long-Term Bond Fund reimbursed the
Fund for the taxes and related legal expenses, so no shareholder of the Fund
was affected. The ratio of expenses to average net assets would have been
2.58% had the adviser not agreed to reimburse the Fund for these expenses.
The Fund qualified in 1994, 1995 and 1996 as a regulated investment company
and intends to do so in future years as well.

(7) Average commission rate paid is computed by dividing the total dollar amount
of commissions paid during the period by the total number of shares
purchased and sold during the period for which commissions were charged.

The accompanying notes are an integral part of the financial statements.

24
<PAGE> 83

- --------------------------------------------------------------------------------

- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Intermediate-Term Bond Fund
---------------------------------------------------------------
May 17,
1993 (1)
Year ended Year ended Year ended to
December 31, December 31, December 31, December 31,
1996 1995 1994 1993
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
$ 10.38 $ 9.61 $ 10.28 $ 10.00
---------- ---------- ---------- ----------
0.61 0.54 0.38 0.17
(0.20) 0.90 (0.67) 0.28
---------- ---------- ---------- ----------
0.41 1.44 (0.29) 0.45
---------- ---------- ---------- ----------
(0.59) (0.55) (0.38) (0.17)
-- (0.07) -- --
-- (0.05) -- --
---------- ---------- ---------- ----------
(0.59) (0.67) (0.38) (0.17)
---------- ---------- ---------- ----------
$ 10.20 $ 10.38 $ 9.61 $ 10.28
========== ========== ========== ==========
3.95% 15.01% (2.85%) 4.50%
$ 86,385,074 $ 73,480,482 $ 48,570,907 $ 19,897,257
0.66% 0.68% 0.75% 1.37%(4)
0.66% 0.75% 0.75% 0.75%(4)
5.77% 6.19% 5.35% 3.73%(4)
5.77% 6.11% 5.35% 4.35%(4)
191.20% 137.14% 22.72% --
-- -- -- --
- -------------------------------------------------------------------

<CAPTION>
Short-Term Bond Fund
----------------------------------------------------------------
May 17, 1993
(1)
Year ended Year ended Year ended to
December 31, December 31, December 31, December 31,
1996 1995 1994 1993
------------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
$ 10.22 $ 9.68 $ 10.07 $ 10.00
---------- ---------- ---------- ---------
0.37 0.51 0.45 0.19
0.02 0.54 (0.46) 0.08
---------- ---------- ---------- ---------
0.39 1.05 (0.01) 0.27
---------- ---------- ---------- ---------
(0.37) (0.51) (0.38) (0.14)
-- -- -- (0.01)
-- -- -- (0.05)
---------- ---------- ---------- ---------
(0.37) (0.51) (0.38) (0.20)
---------- ---------- ---------- ---------
$ 10.24 $ 10.22 $ 9.68 $ 10.07
========== ========== ========== =========
3.80% 10.86% (0.14%) 2.70%
$ 48,672,916 $ 25,855,313 $ 17,628,991 $8,181,243
0.68% 0.76% 1.02% 1.72%(4)
0.75% 0.75% 0.75% 0.75%(4)
5.54% 5.77% 4.99% 3.52%(4)
5.47% 5.78% 5.25% 4.49%(4)
154.51% 93.37% 233.25% 144.30%
-- -- -- --
- -------------------------------------------------------------------
</TABLE>

25
<PAGE> 84

- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
American Odyssey Funds, Inc. / International Equity Fund / December 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Value
- ----------------------------------------------------------
<S> <C>
COMMON STOCKS -- 94.7%
AUTOMOTIVE -- 0.8%
26,675 Michelin B................... $ 1,437,206
---------------
BANKING -- 15.6%
66,414 ABN AMRO Holdings............ 4,315,641
136,550 Allied Irish Banks Plc....... 914,844
24,545 Banco De Santander........... 1,568,087
240,200 Bangkok Bank Co, Ltd......... 2,323,286
217,400 Barclay's Plc................ 3,722,214
453,000 DCB Holdings................. 1,551,525
299,250 Development Bank of
Singapore.................... 4,043,257
424,824 Lloyds TSB Group Plc......... 3,129,721
524,550 National Australia Bank
Ltd.......................... 6,166,033
244,000 Thai Farmers Bank............ 1,522,609
---------------
29,257,217
---------------
BEVERAGES, FOOD & TOBACCO -- 12.0%
594,560 B.A.T. Industries............ 4,929,616
304,680 Cadbury Schweppes Plc........ 2,567,874
260,800 Fraser & Neave Ltd........... 2,684,753
235,351 Grand Metropolitan Plc....... 1,848,635
601,000 Gudang Garam................. 2,594,793
656,000 Han Man Sampoerna............ 3,498,666
605,000 Mayora Indah................. 281,693
14,741 Nutricia Verenidge
Bedrijven.................... 2,237,051
391,500 San Miguel Corp B............ 1,726,750
---------------
22,369,831
---------------
BUILDING MATERIALS -- 0.9%
278,000 Hume Industries.............. 1,750,205
---------------
CHEMICALS -- 2.6%
13,060 DSM.......................... 1,286,567
78,030 Hoechst AG................... 3,610,081
---------------
4,896,648
---------------
COMMUNICATIONS -- 4.1%
155,000 Cable & Wireless............. 1,294,421
42,250 Royal PTT Nederland NV....... 1,609,649
429,520 STET......................... 1,949,119
746,000 Telekomunikasi............... 1,286,751
365,000 Vodafone Group Plc........... 1,539,680
---------------
7,679,620
---------------
<CAPTION>
Shares Value
- ----------------------------------------------------------
<S> <C>
CONGLOMERATES -- 6.2%
4,014 Alusuisse Lonza Holdings..... $ 3,189,743
360,961 BTR Ltd...................... 1,754,270
549,000 Indocement Tunggal........... 836,571
757,000 Sime-Darby Berhad............ 2,982,429
305,000 United Engineers
(Malaysia)................... 2,753,479
---------------
11,516,492
---------------
ELECTRIC UTILITIES -- 2.8%
129,200 Iberdrola SA................. 1,827,612
343,990 Scottish Power Plc........... 2,072,093
23,810 Veba AG...................... 1,367,315
---------------
5,267,020
---------------
ELECTRICAL EQUIPMENT -- 4.0%
280,080 General Electric Plc......... 1,830,911
224,770 Siebe Plc.................... 4,161,886
31,840 Siemens...................... 1,475,567
---------------
7,468,364
---------------
ELECTRONICS -- 1.7%
122,390 Chubb Security Plc........... 683,830
191,150 Farnell Electronic........... 2,453,353
---------------
3,137,183
---------------
ENTERTAINMENT & LEISURE -- 4.3%
120,700 EMI Group Plc................ 2,850,439
240,700 Granada Group Plc............ 3,554,778
394,450 Ladbroke Group............... 1,559,300
---------------
7,964,517
---------------
FINANCIAL SERVICES -- 1.9%
595,510 Grupo Financiero Banamex *... 1,245,152
107,000 HSBC Holdings Plc............ 2,289,393
---------------
3,534,545
---------------
FOOD RETAILERS -- 1.8%
233,000 Hero Supermarket............. 172,593
327,150 TI Group Plc................. 3,241,533
---------------
3,414,126
---------------
FOREST PRODUCTS & PAPER -- 2.0%
694,600 Jefferson Smurfit Group
Plc.......................... 2,045,528
30,100 Stora Kopparbergs A.......... 414,378
63,200 UPM-Kymmene *................ 1,323,231
---------------
3,783,137
---------------
</TABLE>

The accompanying notes are an integral part of the financial statements.

26
<PAGE> 85

<CAPTION>
Shares Value
- ----------------------------------------------------------
<S> <C>
REAL ESTATE -- 2.1%
439,000 City Developments............ $ 3,954,293
---------------
RETAILERS -- 1.2%
326,400 Argyll Group................. 2,256,594
---------------
TOTAL COMMON STOCKS
(Cost $146,166,565) 177,039,849
---------------
PREFERRED STOCK -- 0.2%
(Cost $397,804)
104,200 News Corp Ltd................ 463,461
---------------
WARRANTS -- 0.0%
(Cost $17,241)
17,500 Thai Farmers Bank*........... 16,551
---------------
TOTAL INVESTMENTS -- 94.9%
(Cost $146,581,610) 177,519,861
Other assets in excess of liabilities --
5.1%................................... 9,589,387
---------------
NET ASSETS -- 100.0% $ 187,109,248
===============
NOTES TO THE PORTFOLIO OF INVESTMENTS:
* Non-income producing security.
</TABLE>

The accompanying notes are an integral part of the financial statements.

27
<PAGE> 86

- --------------------------------------------------------------------------------
INVESTMENTS BY COUNTRY
American Odyssey Funds, Inc. / International Equity Fund / December 31, 1996
(Unaudited)
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
Percentage of
COUNTRY Net Assets
- ------------------------------------------------------------
<S> <C>
Great Britain 30.8%
Netherlands 9.9
Switzerland 8.7
Singapore 7.9
Australia 8.0
Germany 5.4
Malaysia 4.8
Indonesia 4.6
Japan 2.1
Thailand 2.1
Spain 2.0
Ireland 1.6
France 1.5
Hong Kong 1.3
Italy 1.0
Philippines 0.9
Sweden 0.9
Finland 0.7
Mexico 0.7
----
Total 94.9%
====
</TABLE>

The accompanying notes are an integral part of the financial statements.

28
<PAGE> 87
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
American Odyssey Funds, Inc. / Emerging Opportunities Fund / December 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Value
- ----------------------------------------------------------
<S> <C>
COMMON STOCKS -- 104.5%
APPAREL RETAILERS -- 9.2%
84,700 Gymboree Corp.* ............. $ 1,937,513
246,700 Sunglass Hut Inc.* .......... 1,788,575
158,400 Talbots, Inc. ............... 4,534,200
134,000 The Men's Wearhouse,
Inc.* ....................... 3,283,000
195,400 The Sports Authority,
Inc.* ....................... 4,249,950
------------
15,793,238
------------
BEVERAGES, FOOD & TOBACCO -- 1.9%
110,050 Dreyers Grand Ice Cream
Inc. ........................ 3,191,450
------------
BUSINESS SERVICES -- 3.3%
145,200 Fair Issac & Co, Inc. ....... 5,680,950
------------
COMMERCIAL SERVICES -- 9.4%
92,300 Alternative Resources
Corp.* ...................... 1,603,709
66,600 On Assignment, Inc.* ........ 1,964,700
119,350 Precision Response Corp.* ... 4,192,169
129,600 Quick Response
Services, Inc.*.............. 3,693,600
332,400 Sitel Corp.*................. 4,695,150
------------
16,149,328
------------
COMPUTER SERVICES -- 10.1%
103,500 BISYS Group, Inc.*........... 3,835,969
229,700 Fiserv, Inc.*................ 8,441,475
71,600 Gensym Corp.*................ 854,725
226,100 Macromedia, Inc.*............ 4,069,800
------------
17,201,969
------------
COMPUTER SOFTWARE -- 19.5%
79,720 BGS Systems, Inc. ........... 2,182,335
147,250 Boole & Babbage, Inc.* ...... 3,681,250
123,700 Broderbund Software,
Inc.* ....................... 3,680,075
165,700 Electronic Arts* ............ 4,960,644
114,300 Manugistics Group Inc.* ..... 4,543,425
96,600 Maxis, Inc.* ................ 1,183,350
107,000 Pinnacle Systems, Inc.*...... 1,123,500

<CAPTION>
Shares Value
- ----------------------------------------------------------
<S> <C>
54,800 Project Software &
Development* ................ $ 2,322,150
171,900 Sungard Data Systems,
Inc.* ....................... 6,790,050
85,100 Transaction Systems* ........ 2,829,575
------------
33,296,354
------------
CONSUMER PRODUCTS -- 1.9%
134,400 Department 56 Inc.*.......... 3,326,400
------------
ELECTRONICS -- 5.9%
97,800 Itron, Inc.*................. 1,735,950
163,000 Unitrode Corp.*.............. 4,788,125
136,000 Zilog, Inc.*................. 3,553,000
------------
10,077,075
------------
FOOD RETAILERS -- 1.8%
92,500 Quality Food Centers,
Inc.* ....................... 3,121,875
------------
INDUSTRIAL MACHINE SERVICES -- 5.2%
151,400 3D Systems Corp.* ........... 1,930,350
152,500 Fastenal Co. ................ 6,976,875
------------
8,907,225
------------
MEDIA -- BROADCASTING &
PUBLISHING -- 3.9%
106,000 Meta Group Inc.* ............ 2,862,000
57,100 Scholastic Corp.* ........... 3,839,975
------------
6,701,975
------------
MEDICAL SUPPLIES -- 5.6%
72,700 Henry Schein, Inc.* ......... 2,499,063
105,600 Protocol Systems, Inc.* ..... 1,372,800
131,700 Steris Corp.* ............... 5,728,950
------------
9,600,813
------------
MEDICAL & BIO-TECHNOLOGY -- 4.1%
197,200 Idexx Labs Corp.* ........... 7,099,200
------------
PHARMACEUTICALS -- 3.2%
110,000 R. P. Scherer Corp.* ........ 5,527,500
------------
</TABLE>

The accompanying notes are an integral part of the financial statements.

29
<PAGE> 88
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
American Odyssey Funds, Inc. / Emerging Opportunities Fund / December 31, 1996
(continued)
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
Shares Value
- ----------------------------------------------------------
<S> <C>
RESTAURANTS -- 5.7%
516,300 Buffetts, Inc.* ............. $ 4,711,238
236,300 Landry's Seafood
Restaurants* ................ 5,050,913
------------
9,762,151
------------
RETAILERS -- 13.8%
188,700 Best Buy Co. Inc.* .......... 2,004,938
95,940 CDW Computer Centers
Inc.* ....................... 5,690,441
111,200 Eagle Hardware &
Garden Inc.* ................ 2,307,400
222,000 Micro Warehouse, Inc.* ...... 2,608,500
215,400 Tech Data Corp.* ............ 5,896,575
136,700 Tiffany & Co. ............... 5,006,638
------------
23,514,492
------------
TOTAL INVESTMENTS -- 104.5%
(Cost $158,790,825) 178,951,995
Liabilities in excess of other
assets -- (4.5%)..................... (7,673,779)
------------
NET ASSETS -- 100.0%
$171,278,216
============
</TABLE>

NOTES TO THE PORTFOLIO OF INVESTMENTS:

* Non-income producing security.

The accompanying notes are an integral part of the financial statements.

30
<PAGE> 89
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
American Odyssey Funds, Inc. / Core Equity Fund / December 31, 1996
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
Shares Value
- -------------------------------------------------------
<S> <C>
COMMON STOCKS -- 103.3%
AEROSPACE & DEFENSE -- 1.6%
42,200 Boeing Co. .................. $ 4,489,025
------------
AIRLINES -- 1.9%
58,300 AMR Corp.*................... 5,137,688
------------
AUTOMOTIVE -- 2.1%
181,100 Ford Motor Co. .............. 5,772,563
------------
BANKING -- 11.8%
143,810 Banc One Corp. .............. 6,183,830
66,600 BankAmerica Corp. ........... 6,643,350
76,500 Barnett Banks, Inc. ......... 3,146,063
83,328 Chase Manhattan Corp. ....... 7,437,024
56,203 First Chicago NBD Corp. ..... 3,020,911
60,400 Nationsbank Corp. ........... 5,904,100
------------
32,335,278
------------
BEVERAGES, FOOD & TOBACCO -- 7.4%
68,200 Anheuser-Busch Co, Inc. ..... 2,728,000
254,980 Archer-Daniels-Midland,
Co. ......................... 5,609,560
72,100 Philip Morris Co, Inc. ...... 8,120,263
103,900 Sara Lee Corp. .............. 3,870,275
------------
20,328,098
------------
CHEMICALS -- 1.3%
88,500 BF Goodrich Co. ............. 3,584,250
------------
COMMUNICATIONS -- 3.1%
179,700 MCI Communications Inc. ..... 5,873,944
49,400 SBC Communications, Inc. .... 2,556,450
------------
8,430,394
------------
COMPUTERS & INFORMATION -- 4.8%
56,900 Hewlett Packard Co. ......... 2,859,225
47,100 IBM Corp. ................... 7,112,100
82,800 Seagate Technology, Inc*..... 3,270,600
------------
13,241,925
------------
ELECTRIC UTILITIES -- 6.6%
164,300 Entergy Corp. ............... 4,559,325
189,700 Potomac Electric Power....... 4,884,775
109,500 Texas Utilities Co. ......... 4,462,125
151,400 Unicom Corp. ................ 4,106,725
------------
18,012,950
------------

<CAPTION>
Shares Value
- -------------------------------------------------------
<S> <C>
ELECTRICAL EQUIPMENT -- 2.1%
57,800 General Electric Co. ........ $ 5,714,975
------------
ELECTRONICS -- 2.7%
56,900 Intel Corp. ................. 7,450,344
------------
ENTERTAINMENT & LEISURE -- 1.7%
137,300 Carnival Corp A.............. 4,530,900
------------
FINANCIAL SERVICES -- 8.5%
95,412 Dean Witter Discover &
Co. ......................... 6,321,050
179,600 Federal National Mortgage
Association.................. 6,690,100
180,700 H F Ahmanson & Co. .......... 5,872,750
95,400 Salomon Inc. ................ 4,495,725
------------
23,379,625
------------
FOREST PRODUCTS & PAPER -- 2.6%
163,800 James River Corp of
Virginia..................... 5,425,875
28,600 Mead Corp. .................. 1,662,375
------------
7,088,250
------------
HEALTH CARE PROVIDERS -- 1.8%
118,650 Columbia/HCA Healthcare
Corp. ....................... 4,834,988
------------
HEAVY CONSTRUCTION -- 0.9%
62,800 Foster Wheeler Corp. ........ 2,331,450
------------
HEAVY MACHINERY -- 1.2%
42,100 Caterpiller Tractor Inc. .... 3,168,025
------------
HOME CONSTRUCTION,
FURNISHINGS & APPLIANCES -- 1.8%
107,300 Whirlpool Corp. ............. 5,002,863
------------
INSURANCE -- 5.3%
118,183 Allstate Corp. .............. 6,839,841
108,600 Chubb Corp. ................. 5,837,250
23,700 TransAmerica Corp. .......... 1,872,300
------------
14,549,391
------------
MEDIA -- BROADCASTING &
PUBLISHING -- 3.0%
39,500 Gannett Co Inc. ............. 2,957,563
67,000 Tribune Co. ................. 5,284,625
------------
8,242,188
------------
</TABLE>

The accompanying notes are an integral part of the financial statements.

31
<PAGE> 90
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
American Odyssey Funds, Inc. / Core Equity Fund / December 31, 1996
(continued)
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
Shares Value
- -------------------------------------------------------
<S> <C>
MEDICAL SUPPLIES -- 1.3%
86,600 Baxter International,
Inc. ........................ $ 3,550,600
------------
OIL & GAS -- 14.0%
82,500 Amerada Hess Corp. .......... 4,774,688
72,100 Amoco Corp. ................. 5,804,050
32,100 Atlantic Richfield Co. ...... 4,253,250
38,256 British Petroleum Plc (1).... 5,408,442
58,600 Exxon Corp. ................. 5,742,800
31,300 Mobil Corp. ................. 3,826,425
67,000 Tenneco Inc. ................ 3,023,375
54,100 Texaco Inc. ................. 5,308,563
------------
38,141,593
------------
PHARMACEUTICALS -- 4.4%
70,000 Bristol Myers Squibb Co. .... 7,612,500
66,500 Schering Plough Corp. ....... 4,305,875
------------
11,918,375
------------
RESTAURANTS -- 1.0%
179,500 Brinker International Inc*... 2,872,000
------------
RETAILERS -- 5.3%
125,600 Dayton-Hudson Corp. ......... 4,929,800
116,800 Federated Department
Stores*...................... 3,985,800
67,000 Sears Roebuck & Co. ......... 3,090,375
84,900 Toys "R" Us, Inc. Holding
Co*.......................... 2,547,000
------------
14,552,975
------------
<CAPTION>
Shares Value
- -------------------------------------------------------
<S> <C>
TELEPHONE SYSTEMS -- 2.3%
147,000 AT&T Corp. .................. $ 6,394,500
------------
TRANSPORTATION -- 2.8%
15,774 Conrail, Inc. ............... 1,571,480
102,100 Ryder System................. 2,871,563
53,000 Union Pacific Corp. ......... 3,186,625
------------
7,629,668
------------
TOTAL INVESTMENTS -- 103.3%
(Cost $216,790,498) 282,684,881
Liabilities in excess of other assets --
(3.3%)................................ (8,913,355)
------------
NET ASSETS -- 100.0% $273,771,526
============
</TABLE>

NOTES TO THE PORTFOLIO OF INVESTMENTS:
(1) American Depository Receipt
* Non-income producing security.

The accompanying notes are an integral part of the financial statements.

32
<PAGE> 91
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
American Odyssey Funds, Inc. / Long-Term Bond Fund / December 31, 1996
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
Principal Amount Value
- ----------------------------------------------------------
<S> <C>
U.S. CORPORATE OBLIGATIONS -- 17.1%
Asset Backed & Mortgage Backed
Obligations
$ 86,096 Citicorp Mortgage Trust
Series 3-A3, REMIC 9.000%
12/25/17................... $ 86,184
1,020,000 Nomura Assets Securities
Corp., REMIC 7.120%
04/13/36................... 1,030,200
------------
1,116,384
------------
Corporate Bonds & Notes
2,000,000 Associates Corp. of North
America
8.150% 08/01/09............ 2,158,340
500,000 Banque Paribas
6.875% 03/01/09............ 473,695
1,000,000 Cit Group Holdings
8.375% 11/01/01............ 1,071,290
500,000 Commonwealth Edison Co.
8.625% 02/01/22............ 515,030
1,350,000 Commonwealth Edison Co.
8.375% 02/15/23............ 1,368,779
400,000 Dean Witter Discover & Co.
6.250% 03/15/00............ 397,120
2,000,000 Ford Motor Credit Corp.
5.750% 01/25/01............ 1,936,120
350,000 General Motors Acceptance
Corp.
9.625% 12/15/01............ 392,140
4,700,000 General Motors Acceptance
Corp. (Units)
0.000% 06/15/15............ 1,228,439
382,666 GG1B Funding Corp
7.430% 01/15/11............ 370,808
2,000,000 International Paper Co.
7.000% 06/01/01............ 2,029,000
2,000,000 Lockheed Martin
6.850% 05/15/01............ 2,017,800
600,000 Loews Corp.
7.625% 06/01/23............ 588,708
700,000 NBD Bank N.A.
8.250% 11/01/24............ 788,333
<CAPTION>
Principal Amount Value
- ----------------------------------------------------------
<S> <C>
$ 400,000 News America Holdings
8.450% 08/01/34............ $ 434,924
2,000,000 News America Holdings
8.250% 10/17/96............ 1,966,200
500,000 Niagara Mohawk Power
7.750% 05/15/06............ 465,640
2,000,000 RJR Nabisco, Inc.
6.850% 06/15/05............ 1,965,800
580,000 RJR Nabisco, Inc.
8.750% 08/15/05............ 582,610
2,000,000 Southern Cal Edison
6.500% 06/01/01............ 1,988,340
400,000 Southern Union Co
7.600% 02/01/24............ 391,132
2,450,000 TCI Communications
8.750% 08/01/15............ 2,420,306
800,000 Telecommunications, Inc.
7.875% 08/01/13............ 736,464
------------
26,287,018
------------
TOTAL U.S. CORPORATE OBLIGATIONS
(Cost $27,238,127)..................... 27,403,402
------------
FOREIGN OBLIGATIONS -- 1.8%
1,000,000 Sears Overseas Finance,
Euro-dollar
0.000% 07/12/98............ 924,410
2,000,000 Quebec Province,
Yankee-dollar
5.670% 02/27/26............ 1,974,400
------------
TOTAL FOREIGN OBLIGATIONS
(Cost $2,897,732)...................... 2,898,810
------------
U.S. GOVERNMENT AGENCIES and
MORTGAGE BACKED SECURITIES -- 45.9%
U.S. Government Agency Obligations
3,000,000 Federal Home Loan Bank
5.920% 06/29/00............ 2,969,520
3,000,000 Federal Home Loan Bank
6.285% 07/28/00............ 3,003,270
3,000,000 Federal Home Loan Mortgage
Corp
6.783% 08/18/05............ 3,020,610
</TABLE>

The accompanying notes are an integral part of the financial statements.

33
<PAGE> 92
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
American Odyssey Funds, Inc. / Long-Term Bond Fund / December 31, 1996
(continued)
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
Principal Amount Value
- ----------------------------------------------------------
<S> <C>
$3,000,000 Federal National Mortgage
Association
6.140% 11/25/05............ $ 2,852,460
15,000,000 Resolution Funding Corp.,
TIGR Principal Strip
0.000% 01/15/30............ 1,670,850
20,000,000 Resolution Funding Corp.,
TIGR Coupon Strip
0.000% 01/15/11............ 7,729,000
------------
21,245,710
------------
U.S. Government Mortgage Backed
Securities
9,915,630 Federal Home Loan Mortgage
Corp.
7.000% 01/01/26............ 9,742,107
13,750,000 Federal Home Loan Mortgage
Corp., TBA
6.50% 01/01/27............. 13,144,175
3,928,856 Federal National Mortgage
Association
7.000% 01/01/26............ 3,845,564
3,236,909 Federal National Mortgage
Association
7.000% 02/01/24............ 3,179,422
6,019,237 Federal National Mortgage
Association
7.000% 12/01/24............ 5,912,336
991,548 Federal National Mortgage
Association
7.000% 04/01/26............ 970,527
2,500,000 Federal National Mortgage
Association, TBA
7.000% 01/01/27............ 2,444,525
989,820 Government National
Mortgage Association
8.500% 06/15/25............ 1,029,126
644,778 Government National
Mortgage Association
8.500% 01/15/25............ 670,382
637,639 Government National
Mortgage Association
8.500% 01/15/25............ 662,959
<CAPTION>
Principal Amount Value
- ----------------------------------------------------------
<S> <C>
$9,608,634 Government National
Mortgage Association
7.500% 07/15/25............ $ 9,625,545
659,308 Government National
Mortgage Association
8.500% 01/15/25............ 685,489
196,463 Government National
Mortgage Association
9.500% 09/15/30............ 208,557
418,553 Government National
Mortgage Association
8.500% 01/15/25............ 435,173
------------
52,555,887
------------
TOTAL U.S. GOVERNMENT AGENCY AND
MORTGAGE BACKED OBLIGATIONS
(Cost $74,982,978)..................... 73,801,597
------------
U.S. GOVERNMENT TREASURY
OBLIGATIONS -- 35.1%
U.S. Treasury Bonds
10,300,000 6.000% 02/15/26(b)......... 9,374,648
12,400,000 6.750% 08/15/26(b)......... 12,493,000
------------
21,867,648
U.S. Treasury Notes
1,300,000 6.625% 07/31/01............ 1,320,722
30,100,000 6.125% 12/31/01(b)......... 29,987,125
100,000 5.500% 12/31/00............ 97,687
1,000,000 7.000% 07/15/06............ 1,038,910
------------
32,444,444
U.S. Treasury Principal Strips
5,000,000 0.000% 02/15/19............ 1,104,400
4,800,000 0.000% 08/15/20............ 955,920
------------
2,060,320
------------
TOTAL U.S. GOVERNMENT
TREASURY OBLIGATIONS
(Cost $56,202,231)..................... 56,372,412
------------
</TABLE>

The accompanying notes are an integral part of the financial statements.

34
<PAGE> 93

Portfolio of Investments
American Odyssey Funds, Inc. / Long-Term Bond Fund / December 31, 1996
(continued)
<TABLE>
<CAPTION>
Principal Amount Value
<C> <S> <C>
- ------------------------------------------------------

<CAPTION>
SHORT TERM INVESTMENTS -- 1.3%
$2,200,000 U.S. Treasury Bill
5.350% 01/09/97(a)
(Amortized
Cost $2,197,384)........... $ 2,197,384
---------------
TOTAL INVESTMENTS -- 101.2%
(Cost $163,518,452).................... 162,673,605
Options written -- (0.1%) (78,578)
Liabilities in excess of other
assets -- (1.1%) (1,900,511)
---------------
NET ASSETS -- 100.0% $160,694,516
============
</TABLE>

NOTES TO THE PORTFOLIO OF INVESTMENTS:

(a) Security has been pledged to cover collateral requirements for open futures.
(b) All or a portion of these securities have been segregated to cover delayed
delivery transactions.
Euro-Dollar -- Bonds issued offshore that pay interest and principal in U.S.
Dollars.
REMIC -- Real Estate Mortgage Investment Conduit
TBA -- Delayed delivery transaction (Note 9)
TIGR -- Treasury Income Growth Receipts (a stripped U.S. Bond)
Yankee-Dollar -- U.S. Dollar denominated bonds issued by non-U.S. companies in
the U.S.

The accompanying notes are an integral part of the financial statements.

35
<PAGE> 94

- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
American Odyssey Funds, Inc. / Intermediate-Term Bond Fund / December 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal Amount Value
- ----------------------------------------------------------
<S> <C>
ASSET BACKED SECURITIES -- 4.1%
$2,512,000 DQU II Funding
7.230% 12/01/99............. $ 2,556,312
1,000,000 Signet Credit Card Master
Trust
7.350% 09/15/02............. 1,020,620
-----------
TOTAL ASSET BACKED SECURITIES
(Cost $3,550,390)....................... 3,576,932
-----------
CORPORATE BONDS and NOTES -- 65.2%
4,000,000 Alco Capital Resources
7.330% 03/27/98............. 4,060,680
4,250,000 BellSouth Capital Funding
6.040% 11/15/26............. 4,230,224
2,500,000 Continental Cablevision,
Inc.
11.00% 06/01/07............. 2,868,750
2,000,000 Crane Co.
7.250% 06/15/99............. 2,019,040
4,000,000 Grand Metropolitan
Investment Corp.
0.000% 01/06/04............. 2,469,120
3,000,000 Gulf States Utilities Co
7.350% 11/01/98............. 3,039,240
4,350,000 Hewlett-Packard Finance
6.500% 12/30/99............. 4,390,781
1,500,000 House Hold Private Label
Credit Card Master Trust II
8.000% 09/20/03............. 1,548,750
550,000 Houston Power & Lighting
5.250% 01/01/97............. 550,000
3,000,000 Illinois Power
6.500% 09/01/99............. 2,952,780
4,500,000 MCI Communications Corp.
7.125% 06/15/27............. 4,668,120
3,000,000 New Plan Realty, REIT
5.950% 11/02/26............. 2,994,978
4,200,000 Philip Morris Co., Inc.
6.950% 06/01/06............. 4,259,800
3,800,000 RJR Nabisco, Inc.
8.300% 04/15/99............. 3,935,128
1,500,000 System Energy Resources
6.000% 04/01/98............. 1,490,250
<CAPTION>
Principal Amount Value
- ----------------------------------------------------------
<S> <C>
$4,900,000 Six Flags Entertainment
0.000% 12/15/99............. $ 3,969,000
4,000,000 Tele Communications Inc
9.650% 10/01/03............. 4,299,600
1,000,000 United Illuminating
7.000% 01/15/97............. 1,000,070
1,500,000 United Illuminating
7.375% 01/15/98............. 1,512,945
-----------
TOTAL CORPORATE BONDS AND NOTES
(Cost $56,260,985)...................... 56,259,256
-----------
FOREIGN GOVERNMENT BONDS -- 11.0%
7,000,000 Republic of Austria,
Euro-dollar
0.000% 11/25/00............. 5,451,250
5,000,000 Kingdom of Sweden,
Yankee-dollar
0.000% 07/31/00............. 4,028,125
-----------
TOTAL FOREIGN GOVERNMENT BONDS
(Cost $9,680,461)....................... 9,479,375
-----------
U.S. GOVERNMENT OBLIGATIONS -- 23.3%
U.S. Government Mortgage Backed Securities
2,343,391 Federal Home Loan Mortgage
Corp., REMIC
5.150% 08/25/12............. 2,301,632
4,520,000 Federal National Mortgage
Association, Principal
Strips
0.000% 03/09/02............. 4,473,399
4,431,795 Government National Mortgage
Association
7.000% 10/01/26............. 4,420,716
-----------
11,195,747
-----------
U.S. Treasury Notes
5,500,000 5.875% 06/30/00............. 5,458,750
3,500,000 6.250% 02/15/03............. 3,495,625
-----------
8,954,375
-----------
TOTAL U.S. GOVERNMENT OBLIGATIONS
(Cost $20,171,935)...................... 20,150,122
-----------
</TABLE>

The accompanying notes are an integral part of the financial statements.

36
<PAGE> 95

The accompanying notes are an integral part of the financial statements.

37
<PAGE> 96

- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
American Odyssey Funds, Inc. / Short-Term Bond Fund / December 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal Amount Value
- ----------------------------------------------------------
<S> <C>
ASSET-BACKED SECURITIES -- 2.8%
$ 600,000 Contimortgage Home Equity
Trust, REMIC 6.860%
07/15/10.................... $ 600,750
750,000 Equicredit Home Equity
Trust, REMIC 6.450%
11/15/08.................... 750,234
--------------
TOTAL ASSET-BACKED SECURITIES
(Cost $1,347,938)....................... 1,350,984
--------------
CORPORATE BONDS and NOTES -- 9.2%
800,000 American General 8.500%
06/16/99.................... 833,353
300,000 Arizona Public Service
7.625% 06/15/99............. 303,741
500,000 Associates Corp. N.A.
8.250% 12/01/99............. 524,950
200,000 Carolina Power & Light
5.375% 07/01/98............. 197,922
500,000 Conagra, Inc.
9.750% 11/01/97............. 513,635
650,000 Ford Motor Credit Corp.
8.000% 01/15/99............. 671,164
317,000 Nationsbank Corp. 7.000%
05/15/03.................... 321,330
395,000 Norwest Corp. 8.150%
11/01/01.................... 420,861
375,000 Texas Utilities Co. 5.750%
07/01/98.................... 372,810
300,000 WMX Technologies 6.650%
05/15/05.................... 301,185
--------------
TOTAL CORPORATE BONDS AND NOTES
(Cost $4,427,863).......................
4,460,951
--------------
FOREIGN OBLIGATIONS -- 0.3%
150,000 Republic of Ireland, Yankee
Bond
7.876% 12/01/01
(Cost $151,312)............. 158,403
--------------

<CAPTION>
Principal Amount Value
- ----------------------------------------------------------
<S> <C>
U.S. GOVERNMENT and AGENCIES
OBLIGATIONS -- 80.8%
U.S. Government Agency Obligations
$2,755,000 Farmer Mac
6.800% 05/27/97.............. $ 2,768,334
425,000 Federal Home Loan Bank 5.870%
11/21/00..................... 419,088
1,300,000 Federal Home Loan
Mortgage Corp. 6.395%
05/16/00..................... 1,305,889
580,000 Federal National
Mortgage Association 6.270%
10/26/00..................... 575,650
765,000 Federal National
Mortgage Association
6.770% 04/14/97.............. 766,790
1,020,000 Student Loan
Marketing Association 7.500%
03/08/00..................... 1,056,812
-------------
6,892,563
-------------
Collaterallized Mortgage Obligations
1,115,070 Federal Home Loan Mortgage
Corp. REMIC
6.000% 08/15/20.............. 1,111,580
-------------
U.S. Treasury Notes
283,000 5.000% 01/31/98.............. 281,011
645,000 7.250% 02/15/98.............. 655,584
2,256,000 5.375% 05/31/98.............. 2,244,359
2,370,000 4.750% 09/30/98.............. 2,327,790
3,465,000 7.125% 09/30/99.............. 3,560,842
590,000 7.875% 11/15/99.............. 618,119
584,000 6.750% 04/30/00.............. 574,665
1,327,000 6.125% 07/31/00.............. 1,327,000
7,095,000 6.250% 04/30/01.............. 7,110,538
5,068,000 6.375% 09/30/01.............. 5,098,104
6,728,000 6.250% 10/31/01.............. 6,734,324
750,000 7.250% 05/15/04.............. 789,143
-------------
31,321,479
-------------
</TABLE>

The accompanying notes are an integral part of the financial statements.

38
<PAGE> 97

<TABLE>
<CAPTION>
Value
- ----------------------------------------------------------
<S> <C>
TOTAL U.S. GOVERNMENT AND AGENCY
OBLIGATIONS
(Cost $39,458,202)......................
$ 39,325,622
--------------
SHORT TERM INVESTMENTS -- 8.8%
$4,320,000 U.S. Treasury Bill
4.800% 02/06/97
(Amortized
Cost $4,299,225)............ 4,299,225
--------------
TOTAL INVESTMENTS -- 101.9%
(Cost $49,684,540).................... 49,595,185
Liabilities in excess of other
assets -- (1.9%)...................... (922,269)
--------------
NET ASSETS -- 100.0% $ 48,672,916
==============
</TABLE>

NOTES TO THE PORTFOLIO OF INVESTMENTS:
REMIC -- Real Estate Mortgage Investment Conduit
Yankee Bond -- U.S. Dollar denominated bonds issued by
non-U.S. companies in the U.S.

The accompanying notes are an integral part of the financial statements.

39
<PAGE> 98

- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
American Odyssey Funds, Inc. / December 31, 1996
- --------------------------------------------------------------------------------

NOTE 1. ORGANIZATION
American Odyssey Funds, Inc., (the "Company"), was organized as a Maryland
corporation in December 1992. It is registered under the Investment Company Act
of 1940 as an open-end diversified management investment company. It consists of
six separate funds (the "Fund(s)"): International Equity Fund, Emerging
Opportunities Fund, Core Equity Fund, Long-Term Bond Fund, Intermediate-Term
Bond Fund, and Short-Term Bond Fund. Shares of the Funds are offered only to
life insurance companies and their affiliates for their separate and general
accounts, and to qualified retirement plans.

NOTE 2. SIGNIFICANT ACCOUNTING POLICIES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities at the
date of the financial statements and the reported amounts of income and expenses
during the reporting period. Actual results could differ from those estimates.

a) SECURITIES VALUATION
Securities traded on a national exchange and those traded on
over-the-counter markets are valued at the last sales price; if there was no
sale on such day, the securities are valued at the mean between the most
recently quoted bid and asked prices. Securities for which market quotations are
not readily available are valued in good faith at fair value using methods
determined by the Board of Directors. Securities which mature in 60 days or less
are valued at amortized cost, which approximates market value, unless this
method does not represent fair market value, at which time the security will be
valued at its fair value as determined in good faith by the Board of Directors.
Futures contracts and options are valued based upon their quoted daily
settlement prices.

b) OFF BALANCE SHEET RISK
The Funds may utilize futures contracts, options, and forward foreign
currency contracts for hedging purposes. The primary risks associated with the
use of these financial instruments for hedging purposes are (a) an imperfect
correlation between the change in market value of the other securities held by
the Funds and the change in market value of these financial instruments, and (b)
the possibility of an illiquid market. As a result, the use of these financial
instruments may involve, to a varying degree, elements of market risk in excess
of the amount recognized in the Statement of Assets and Liabilities.

c) FUTURES CONTRACTS
Initial margin deposits made upon entering into futures contracts are
recognized as assets due from the broker. During the period the futures contract
is open, changes in the value of the contract are recognized as unrealized gains
or losses by "marking to market" on a daily basis to reflect the value of the
contract at the end of each day's trading. Variation margin payments are made or
received and recognized as assets due from or liabilities to the broker
depending upon whether unrealized gains or losses are incurred. When the
contract is closed, the Fund records a realized gain or loss equal to the
difference between the proceeds from (or

40
<PAGE> 99

cost of) the closing transaction and its basis in the contract.

d) OPTIONS
The premium paid by the Fund for the purchase of a call or put option is
included in the Fund's Statement of Assets and Liabilities as an investment and
subsequently "marked to market" to reflect the current market value of the
option purchased. The current market value of a purchased option is the last
reported sale price on the principal exchange on which such option is traded. If
an option which the Fund has purchased expires on its stipulated expiration
date, the Fund realizes a loss in the amount of the cost of the option. If the
Fund enters into a closing transaction, it realizes a gain or loss, depending on
whether the proceeds from the sale are greater or less than the cost of the
option. If the Fund exercises a put option, it realizes a gain or loss from the
sale of the underlying security and the proceeds from such sale will be
decreased by the premium originally paid. If the Fund exercises a call option,
the cost of the security which the Fund purchases upon exercise will be
increased by the premium originally paid.
The premium received for a written option is recorded as an asset with an
equivalent liability. The liability is marked-to-market based on the option's
quoted daily settlement price. When an option expires or the Fund enters into a
closing purchase transaction, the Fund realizes a gain (or loss if the cost of
the closing purchase transaction exceeds the premium received when the option
was sold) without regard to any unrealized gain or loss on the underlying
security and the liability related to such option is eliminated. When a written
call option is exercised, the Fund realizes a gain or loss from the sale of the
underlying security and the proceeds from such sale are increased by the premium
originally received. If a written put option is exercised, the amount of the
premium originally received will reduce the cost of the security which the Fund
purchased.

e) FORWARD FOREIGN CURRENCY CONTRACTS
The International Equity Fund may enter into forward foreign currency
contracts to hedge future movements in certain foreign currency exchange rates.
A forward currency contract is a commitment to purchase or sell a foreign
currency at a future date at a set price. The forward currency contracts are
valued at the forward rate and are marked-to-market daily. The change in market
value is recorded by the Fund as a unrealized gain or loss. When the contract is
closed, the Fund records a realized gain or loss equal to the difference between
the value of the contract at the time it was opened and the value at the time it
was closed. Risks arise from the possible inability of counterparties to meet
the terms of their contracts and from movements in currency values and interest
rates.

f) REPURCHASE AGREEMENTS
The Funds may enter into repurchase agreements (on an individual Fund basis
or in conjunction with the other Funds) with the seller wherein the seller and
the buyer agree at the time of sale to a repurchase of the security at a
mutually agreed upon time and price. The Funds will not enter into repurchase
agreements unless the agreement is fully collateralized. Securities purchased
subject to the repurchase agreement are deposited with a custodian and, pursuant
to the terms of the repurchase agreement, must have an aggregate market value at
least equal to the repurchase price plus accrued interest. If the value of the
underlying securities falls below the value of the repurchase price plus accrued
interest, the seller is required to deposit additional collateral by the next
business day. If the request for additional collateral is not met, or the seller
defaults on its repurchase obliga-

41
<PAGE> 100

tion, the Funds maintain the right to sell the underlying securities at market
value and may claim any resulting loss against the seller. Repurchase agreements
could involve certain risks in the event of default or insolvency of the other
party, including possible delays or restrictions upon the Fund's ability to
dispose of the underlying securities.

g) CURRENCY TRANSLATION
Assets and liabilities denominated in foreign currencies are translated
into U.S. dollars at the rate of exchange at the end of the period. Purchases
and sales of securities are translated at the rates of exchange prevailing when
such securities were acquired or sold. Income is translated at rates of exchange
prevailing when accrued.
The Fund does not isolate that portion of the results of operations
resulting from changes in foreign exchange rates on investments from the
fluctuations arising from changes in market prices of securities held. Such
fluctuations are included with the net realized and unrealized gain or loss from
investments.
Reported net realized foreign exchange gains or losses arise from sales and
maturities of short-term securities, sales of foreign currencies, currency gains
or losses realized between the trade and settlement dates on securities
transactions, the difference between the amounts of dividends, interest, and
foreign withholding taxes recorded on the Fund's books, and the U.S. dollar
equivalent of the amounts actually received or paid. Net unrealized foreign
exchange gains and losses arise from changes in the value of assets and
liabilities other than investments in securities at fiscal year end, resulting
from changes in the exchange rate.

h) ORGANIZATION EXPENSES
Organization expenses totaling $147,450 have been deferred and are being
amortized on a straight-line basis through May 1998. If any of the initial
shares of the Company are redeemed by any shareholder during the period of
amortization of organization expenses, the redemption proceeds will be reduced
by the pro rata amount of unamortized organization expenses based on the number
of initial shares being redeemed to the number of initial shares outstanding at
the time of redemption.

i) TAXES
It is the Company's policy to comply with the provisions of the Internal
Revenue Code applicable to a regulated investment company. Under such
provisions, the Company will not be subject to federal income tax as the Company
intends to distribute as dividends substantially all of the net investment
income, if any, of each Fund. The Company also intends to distribute annually
all of its net realized capital gains. Such dividends and distributions are
automatically reinvested in additional shares of the Funds.

j) DISTRIBUTIONS
Dividends from net investment income and capital gain distributions are
determined in accordance with U.S. federal income tax regulations which may
differ from generally accepted accounting principles. As a result, dividends and
distributions differ from net investment income and net realized capital gains
due to timing differences, primarily the deferral of losses due to wash sales
and the deferral of net realized capital losses recognized subsequent to October
31, 1996. Distributions which were the result of permanent differences between
book and tax rules, primarily due to the differing treatment of foreign currency
transactions and the inability to carry net operating losses forward to future
years, have been reclassified to additional paid-in capital, undistributed net
investment income and accumulated net realized gain (loss)

42
<PAGE> 101

on investments, futures contracts, option contracts and foreign currency
transactions.

k) SECURITIES TRANSACTIONS
Securities transactions are accounted for on the date the securities are
purchased or sold. Realized gains and losses are determined on the identified
cost basis. Dividend income is recorded on the ex-dividend date. Interest income
is accrued daily as earned.

NOTE 3. MANAGEMENT, TRANSFER AGENCY
AND SUBADVISORY AGREEMENTS AND
TRANSACTIONS WITH AFFILIATES
The Company has entered into a management agreement with American Odyssey
Funds Management, Inc. (AOFM), pursuant to which AOFM manages the investment
operations of the Company and administers the Company's affairs. AOFM has
entered into subadvisory agreements for investment advisory services in
connection with the management of each of the Funds. AOFM supervises the
subadvisers' performance of advisory services and will make recommendations to
the Company's Board of Directors with respect to the retention or renewal of the
subadvisory agreements. AOFM pays for the costs pursuant to the subadvisory
agreements, the cost of compensating officers of the Company, occupancy, and
certain clerical and accounting costs of the Company. The Company bears all
other costs and expenses.
Under the terms of the management agreement, the Funds pay AOFM a
management fee based on average daily net assets as follows: International
Equity Fund, .70% for the first $50 million in assets, .65% for the next $50
million in assets, and .55% for the assets over $100 million; Emerging
Opportunities Fund, .65% for the first $100 million in assets and .55% for the
assets over $100 million; Core Equity Fund, .60% for the first $100 million in
assets and .55% for the assets over $100 million; Long-Term Bond Fund, .50% and
.70% for the first $250 million in U.S. and non-U.S. assets, respectively, and
.40% and .60% for U.S. and non-U.S. assets, respectively, over $250 million;
Intermediate-Term Bond Fund, .50% for the first $100 million in assets, .45% for
the next $100 million in assets, and .40% for assets over $200 million;
Short-Term Bond Fund, .50% for the first $100 million in assets and .40% for
assets over $100 million.
Prior to May 1, 1996, AOFM had agreed to limit the expenses for each Fund
and reimburse expenses to the extent that each Fund's aggregate expenses
(excluding interest, taxes, brokerage commissions and extraordinary expenses)
exceeds the expense limitation for that Fund. AOFM has agreed to continue, at
least until May 1, 1997, this expense limitation for the Short-Term Bond Fund.
The expense limitations for the Funds, as a percentage of the average daily net
assets, are as follows: International Equity Fund, 1.25%; Emerging Opportunities
Fund, 1.00%; Core Equity Fund, 1.00%; Long-Term Bond Fund, .75%; Intermediate-
Term Bond Fund, .75%; and Short-Term Bond Fund, .75%. Each Fund is required to
reimburse AOFM for any fees it waived or expenses it reimbursed pursuant to
these expense limitations, provided that such reimbursement would not cause the
total expense ratio to exceed the expense limitations set forth above. AOFM's
management fees for 1996 were $4,678,520. An additional $21,289 was paid to AOFM
for reimbursement of previous fees waived and expenses reimbursed. The
Short-Term Bond Fund is currently reimbursing AOFM and has a potential future
liability to reimburse AOFM amounting to $42,792, at December 31, 1996. AOFM has
acknowledged that upon termination of the Investment Management Agreement
between AOFM and the Funds, the portfolio's would not be liable for any waived
or reimbursed fees which have not been repaid.

43
<PAGE> 102

The Company has entered into a transfer agency agreement with AOFM pursuant
to which AOFM is responsible for shareholders' record keeping and
communications. AOFM does not currently charge any additional fees for these
services.
Under the subadvisory agreements, AOFM pays each subadviser a fee that is
computed daily and paid monthly at the annual rates based on the value of the
Fund's average daily net assets as follows: International Equity Fund, .45% for
the first $50 million in assets, .40% for the next $50 million in assets, and
.30% for assets over $100 million; Emerging Opportunities Fund, .40% for the
first $100 million in assets and .30% for assets over $100 million; Core Equity
Fund, .35% for the first $100 million in assets and .30% for assets over $100
million; Long-Term Bond Fund, .25% and .45% for the first $250 million in U.S.
and non-U.S. assets, respectively, and .15% and .35% for U.S. and non-U.S.
assets, respectively, over $250 million: Intermediate-Term Bond Fund, .25% for
the first $100 million in assets, .20% for the next $100 million in assets, and
.15% for assets over $200 million; and Short-Term Bond Fund, .25% for the first
$100 million in assets and .15% for assets over $100 million.
Travelers Asset Management International Corporation, an affiliate of AOFM,
serves as subadviser for the Intermediate-Term Bond Fund.

NOTE 4. DIRECTED BROKERAGE ARRANGEMENTS
The International Equity Fund and Core Equity Fund have entered into
brokerage service arrangements with certain broker-dealers. The broker-dealers
have agreed to pay certain Fund expenses in exchange for the Fund directing a
portion of the fund brokerage to these broker dealers. In no event would the
Fund pay additional brokerage or receive inferior execution of transactions for
fund brokerage so allocated.
Under these arrangements for the year ended December 31, 1996,
broker-dealers paid custodian expenses for the International Equity Fund and the
Core Equity Fund of $34,598 and $47,610, respectively.

NOTE 5. SECURITIES TRANSACTIONS
The cost of purchases and proceeds from sales of investment securities
(excluding short-term investments and repurchase agreements), for the year ended
December 31, 1996 were:

44
<PAGE> 103

At December 31, 1996, the cost of securities for federal income tax
purposes and the unrealized appreciation (depreciation) of investments for
federal income tax purposes for each Fund was as follows:

NOTE 6. FUTURES CONTRACTS
At December 31, 1996, the Long-Term Bond Fund had entered into the
following futures contracts:

<TABLE>
<CAPTION>
Unrealized
Number Underlying Expiration Nominal Nominal Appreciation/
of Contracts Face Value Security Date Cost Value (Depreciation)
--------------- ----------- ---------------------------------- ---------- ----------- ----------- --------------
<C> <C> <S> <C> <C> <C> <C>
Long Position
------------
482 48,200,000 5 Year U.S. Treasury Note 03/31/97 $51,540,726 $51,378,187 $ (162,539)
Short Position
-------------
16 1,600,000 U.S. Long Term Treasury Bonds 03/31/97 1,796,880 1,802,000 (5,120)
----------
Total $ (167,659)
==========
</TABLE>

NOTE 7. WRITTEN OPTIONS
The Long Term Bond Fund's activity in written options during year ended
December 31, 1996 was as follows:

<TABLE>
<CAPTION>
Number of
Options Premiums
--------- ----------
<S> <C> <C>
Options Outstanding at December 31, 1995.................................................. 100 $ 206,422
Options Written....................................................................... 1,865 1,120,311
Options Canceled in Closing Transactions.............................................. (1,312) (830,099)
Options Expired....................................................................... (87) (70,629)
Options Exercised..................................................................... (353) (228,290)
-------- ----------
Options Outstanding at December 31, 1996.................................................. 213 $ 197,715
======== ==========
Cost of Closing Transactions.............................................................. $ 610,406
</TABLE>

45
<PAGE> 104

NOTE 8. FORWARD FOREIGN CURRENCY CONTRACTS
The International Equity Fund had forward foreign currency contracts which
contractually obligates the Fund to deliver or receive currencies at specified
future dates. The following contracts were open at December 31, 1996:

<TABLE>
<CAPTION>
Foreign Unrealized
Contract Settlement Appreciation/
Sales U.S. Value Date Value Depreciation
- ---------------------------------------------------------- -------------- ---------- ------------ --------------
<S> <C> <C> <C> <C>
Swiss Franc............................................... $4,005,590 01/17/97 $ 3,735,441 $270,149
Swiss Franc............................................... 8,773,113 02/19/97 8,248,563 524,550
German Deutsche Mark...................................... 2,400,941 02/03/97 2,390,801 10,140
German Deutsche Mark...................................... 4,814,124 02/27/97 4,726,730 87,394
Netherlands Guilder....................................... 3,781,882 01/16/97 3,734,728 47,154
Netherlands Guilder....................................... 4,416,678 03/05/97 4,478,219 (61,541)
Netherlands Guilder....................................... 4,782,166 03/17/97 4,784,549 (2,383)
------------ -----------
Total Sales........................................... $ 32,099,031 $875,463
============ ===========
</TABLE>

NOTE 9. DELAYED DELIVERY TRANSACTIONS:
The Long-Term Bond Fund (the "Fund") may purchase securities on a
when-issued or forward commitment basis. Payment and delivery may take place a
month or more after the date of the transactions. The price of the underlying
securities and the date when the securities will be delivered and paid for are
fixed at the time the transaction is negotiated. The Fund instructs its
custodian to segregate securities having a value at least equal to the net
amount of the purchase commitments.
At December 31, 1996, the Fund has entered into the following delayed
delivery transactions.

<TABLE>
<CAPTION>
Type Security Settlement Date Amount
- ----- -------------------------------------------------------------------------- --------------- -----------
<C> <S> <C> <C>
Buy Federal National Mortgage Association..................................... 1/14/97 $ 2,470,313
Buy Federal Home Loan Mortgage Corp........................................... 1/14/97 13,163,867
Buy Federal Home Loan Mortgage Corp........................................... 1/16/97 14,760,937
-----------
$30,395,117
===========

Sell Federal Home Loan Mortgage Corp........................................... 1/16/97 $14,742,188
===========
</TABLE>

NOTE 10. FEDERAL INCOME TAXES
For federal income tax purposes, the Fund indicated below has a capital
loss carryforward as of December 31, 1996 which is available to offset future
capital gains, if any.

<TABLE>
<CAPTION>
Capital Loss Expiration
Carryforward Date
------------ ----------
<S> <C> <C>
Short Term Bond Fund.................................................................... $ 85,972 2002
</TABLE>

The Emerging Opportunities Fund elected to defer to its fiscal year ending
December 31, 1997, $4,980,322 of losses recognized during the period November 1,
1996 to December 31, 1996.

46
<PAGE> 105

REPORT OF INDEPENDENT ACCOUNTANTS

To The Shareholders and
Board of Directors of the
American Odyssey Funds, Inc.:

We have audited the statements of assets and liabilities, including the
portfolios of investments, of the American Odyssey Funds, Inc., comprising,
respectively, the International Equity Fund, Emerging Opportunities Fund, Core
Equity Fund, Long-Term Bond Fund, Intermediate-Term Bond Fund, and Short-Term
Bond Fund, (the "Funds"), as of December 31, 1996, and the related statements of
operations for the year then ended, the statements of changes in net assets for
each of the two years in the period then ended, and the financial highlights for
each of the three years in the period then ended and for the period from May 17,
1993 (commencement of operations) to December 31, 1993. These financial
statements and financial highlights are the responsibility of the Fund's
management. Our responsibility is to express an opinion on these financial
statements and financial highlights based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
December 31, 1996, by correspondence with the custodian and brokers. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.

In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of
each of the respective Funds constituting the American Odyssey Funds, Inc. as of
December 31, 1996, the results of their operations for the year then ended, the
changes in their net assets for each of the two years in the period then ended,
and the financial highlights for the periods referred to above, in conformity
with generally accepted accounting principles.

COOPERS & LYBRAND L.L.P.

Boston, Massachusetts
February 12, 1997
<PAGE> 106
PART C
OTHER INFORMATION

ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS.

(a). FINANCIAL STATEMENTS

1. Financial Statements included in the Prospectus
constituting Part A of this Registration Statement:

Financial Highlights

2. Financial Statements included in the Statement of
Additional Information constituting Part B of this
Registration Statement:

Statements of Assets and Liabilities
Statements of Operations
Statements of Changes in Net Assets
Financial Highlights
Portfolios of Investments
Notes to Financial Statements
Report of Independent Accountants

(B). EXHIBITS

1. (a) Articles of Incorporation (1)

(b) Amendment to Articles of Incorporation (3)

2. By-Laws (8)

3. Not Applicable

4. Not Applicable

5. (a) Investment Management Agreement between
Registrant and American Odyssey Funds Management,
Inc. (9)

(b) Subadvisory Agreement among Registrant, American
Odyssey Funds Management, Inc. and Equinox Capital
Management, Inc. (2)

(c) Amended Subadvisory Agreement among Registrant,
American Odyssey Funds Management, Inc. and
Wilke/Thompson Capital Management, Inc. (9)

1
<PAGE> 107
(d) Subadvisory Agreement among Registrant, American
Odyssey Funds Management, Inc. and Bank of Ireland
Asset Management Ltd. (2)

(e) Amended Subadvisory Agreement among Registrant,
American Odyssey Funds Management, Inc. and Western
Asset Management Company (9)

(f) Form of Subadvisory Agreement among Registrant,
American Odyssey Funds Management, Inc. and Travelers
Asset Management International Corporation (2)

(g) Subadvisory Agreement among Registrant, American
Odyssey Funds Management, Inc. and Smith Graham & Co.
Asset Managers, L.P. (2)

(h) Subadvisory Agreement among Registrant, American
Odyssey Funds Management, Inc. and Cowen & Co. (9)

6. (a) Form of Participation Agreement among Registrant,
Copeland Equities, Inc. and The Travelers Insurance
Company (2)

(b) Distribution Agreement between Registrant and
Copeland Equities, Inc. (8)

(c) Amendment No. 1 to the Participation Agreement
among Registrant, Copeland Equities, Inc. and The
Travelers Insurance Company (4)

7. Not Applicable

8. (a) Form of Custodian Contract between Registrant and
The Bank of New York (1)

(b) Custodian Agreement between Registrant and
Investors Bank & Trust Company (6)

9. (a) Form of Accounting Services Agreement between
Registrant and The Bank of New York (1)

(b) Form of Transfer Agency Agreement between
Registrant and American Odyssey Funds Management,
Inc. (2)

10. Opinion of Counsel (5)

2
<PAGE> 108

11. Consent of Independent Accountants (9)

12. Not Applicable

13. Not Applicable

14. Not Applicable

15. Not Applicable

16. Not Applicable

17. Financial Data Schedules (9)

18. Not Applicable

19. Powers of Attorney:

Robert C. Dughi (1)
Kent A. Kelley (1)
Steven I. Weinstein (1)
Michael R. Zarelli (1)
Linda Walker Bynoe (2)
John G. Beam, Jr. (2)
Nicholas D. Yatrakis (2)
Jane DiRenzo Pigott (3)
Mark M. Skinner (3)

- -----------------------------

(1) Incorporated by reference to the initial registration statement filed
January 27, 1993.

(2) Incorporated by reference to the Pre-Effective Amendment filed April
22, 1993.

(3) Incorporated by reference to Post-Effective Amendment No. 1 filed
November 24, 1993.

(4) Incorporated by reference to Post-Effective Amendment No. 2 filed March
1, 1994.

(5) Incorporated by reference to Post-Effective Amendment No. 1 filed
November 24, 1993 and the Rule 24f-2 Notice filed February 27, 1997.

(6) Incorporated by reference to Post-Effective Amendment No. 4 filed April
28, 1995.

(7) Incorporated by reference to Post-Effective Amendment No. 5 filed April
29, 1996.

(8) Incorporated by reference to Post-Effective Amendment No. 6 filed
February 28, 1997.

(9) Filed herewith.

3
<PAGE> 109
ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT.

Not Applicable

ITEM 26. NUMBER OF HOLDERS OF SECURITIES.

Title of Class Number of Record Holders
-------------- ------------------------
American Odyssey International Equity Fund 5

American Odyssey Emerging Opportunities Fund 6

American Odyssey Core Equity Fund 5

American Odyssey Long-Term Bond Fund 5

American Odyssey Intermediate-Term Bond Fund 5

American Odyssey Short-Term Bond Fund 5

ITEM 27. INDEMNIFICATION.

Article VII, paragraph (3) of the Registrant's Articles of
Incorporation provides: "Each director and each officer of the Corporation shall
be indemnified by the Corporation to the full extent permitted by the General
Laws of the State of Maryland and the Investment Company Act of 1940, now or
hereafter in force, including the advance of related expenses.: Article IX
provides in pertinent part: "No provision of these Articles of Incorporation
shall be effective to (i) require a waiver of compliance with any provision of
of the Securities Act of 1933, as amended, or the Investment Company Act of
1940, as amended, or of any valid rule, regulation or order of the Securities
and Exchange Commission thereunder or (ii) protect or purport to protect any
director or officer of the Corporation against any liability to the corporation
or its security holders to which he would otherwise be subject to by reason of
willful misfeasance, bad faith, gross negligence or reckless disregard of the
duties involved in the conduct of his office." Article II, Section 2 of
Registrant's By-Laws contain similar provisions.

The agreement between the Registrant (the "Series Fund") and American
Odyssey Funds Management, Inc. (the "Manager") provides:

"The Manager shall not be liable for any loss suffered by the Series
Fund as the result of any negligent act or error of judgment of the
Manager in connection with the matters of which this Agreement relates,
except a loss resulting from a breach of fiduciary duty with respect to
the receipt of compensation for services (in which case any award of
damages shall be limited to the period and the amount set forth in
Section 36(b)(3) of the 1940 Act) or loss resulting from willful
misfeasance, bad faith or gross negligence on its part in the
performance of its duties or from reckless disregard by it of its

4
<PAGE> 110
obligations and duties under this Agreement. The Series Fund shall
indemnify the Manager and hold it harmless from all cost, damage and
expenses, including reasonable expenses for legal counsel, incurred by
the Manager resulting from actions for which for which it is relieved
of responsibility by this paragraph. The Manager shall indemnify the
Series Fund and hold it harmless from all cost, damage and expense,
including reasonable expenses for legal counsel, incurred by the Series
Fund resulting from actions for which the Manager is not relieved of
responsibility by this paragraph."

The agreement among the Registrant (the "Series Fund"), American
Odyssey Funds Management, Inc. (the "Manager"), and the Subadvisers provide:

"The Subadviser shall not be liable for any loss suffered by the Series
Fund or the Manager as a result of any negligent act or error of
judgment of the Subadviser in connection with the matters to which the
Agreement relates, except a loss resulting from a breach of fiduciary
duty with respect to the receipt of compensation for services (in which
case any award of damages shall be limited to the period and the amount
set forth in Section 36(b)(3) of the 1940 Act) or loss resulting from
willful misfeasance, bad faith or gross negligence on the Subadviser's
part in the performance of its duties or from its reckless disregard of
its obligations and duties under this Agreement. The Series Fund shall
indemnify the Subadviser and hold it harmless from all cost, damage and
expense, including reasonable expenses for legal counsel, incurred by
the Subadviser resulting from actions from which it is relieved of
responsibility by this paragraph. The Subadviser shall indemnify the
Series Fund and the Manager and hold them harmless from all cost,
damage and expense, including reasonable expenses for legal counsel,
incurred by the Series Fund and the Manager resulting from actions from
which the Subadviser is not relieved of responsibility by this
paragraph."

Insofar as indemnification for liability arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the Registrant pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the Registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.

ITEM 28. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER

(a) AMERICAN ODYSSEY FUNDS MANAGEMENT, INC. ("AOFM")

5
<PAGE> 111
See "Management of the Funds" both in the Prospectus constituting Part
A of this Registration Statement and in the Statement of Additional Information
constituting Part B of this Registration Statement.

The business and other connections of AOFM's directors and officers are
set forth below. Except as otherwise indicated, the address of each person is
Two Tower Center, P.O. Box 1063, East Brunswick, NJ 08816-1063.

<TABLE>
<CAPTION>
Name and Address Position with AOFM Principal Occupation
- ---------------- ------------------ --------------------
<S> <C> <C>
Robert C. Dughi Chairman of the Board and Board of Directors and Chief Executive
President Officer, The Copeland Companies and various
affiliates

Mark M. Skinner Director and Executive Vice Executive Vice President and Chief Marketing
President Officer, The Copeland Companies; President,
Copeland Equities, Inc.; Executive Vice
President, Copeland Financial Services, Inc.

Mark E. Freemyer Vice President Vice President, The Copeland Companies and
various affiliates

Paul S. Feinberg Senior Vice President, General Senior Vice President, General Counsel and
Counsel and Secretary, and Director Secretary, The Copeland Companies and
various affiliates

Peter J. Gulia Vice President and Counsel, and Vice President and Counsel, and Assistant
Assistant Secretary Secretary, The Copeland Companies and
various affiliates

Lori M. Renzulli Assistant Secretary Legal Assistant, The Copeland Companies
and various affiliates

Donna S. Webber Assistant Secretary Assistant General Counsel, The Copeland
Companies and various affiliates

Michael R. Zarelli Senior Vice President, Chief Senior Vice President, Chief Financial
Financial Officer, and Treasurer, Officer, and Treasurer, The Copeland
and Director Companies and various affiliates
</TABLE>

6
<PAGE> 112
(b) BANK OF IRELAND ASSET MANAGEMENT (U.S.) LIMITED

See "Management of the Funds" both in the Prospectus constituting Part
A of this Registration Statement and in the Statement of Additional Information
constituting Part B of this Registration Statement.

Information as to Bank of Ireland Asset Management (U.S.) Limited's
directors and executive officers is included in its Form ADV filed with the
Securities and Exchange Commission (File No. 801-29606), as most recently
amended, the text of which is incorporated herein by reference.

Information as to Wilke/Thompson Capital Management's directors and
executive officers is included in its Form ADV filed with the Securities and
Exchange Commission (File No. 801-30224), as most recently amended, the text of
which is incorporated herein by reference.

(d) EQUINOX CAPITAL MANAGEMENT, INC.

Information as to Equinox Capital Management's directors and executive
officers is included in its Form ADV filed with the Securities and Exchange
Commission (File No. 801-34524), as most recently amended, the text of which is
incorporated herein by reference.

(e) WESTERN ASSET MANAGEMENT COMPANY

Information as to Western Asset Management's directors and executive
officers is included in its Form ADV filed with the Securities and Exchange
Commission (File No. 801-08162), as most recently amended, the text of which is
incorporated herein by reference.

7
<PAGE> 113
(f) TRAVELERS ASSET MANAGEMENT INTERNATIONAL CORPORATION

Information as to Travelers Asset Management International
Corporation's directors and executive officers is included in its Form ADV filed
with the Securities and Exchange Commission (File No. 801-17003), as most
recently amended, the text of which is incorporated herein by reference.

(g) SMITH GRAHAM & CO. ASSET MANAGERS, L.P.

Information as to Smith Graham & Co. Asset Managers, L.P.'s directors
and executive officers is included in its Form ADV filed with the Securities and
Exchange Commission (File No. 801-34685), as most recently amended, the text of
which is incorporated herein by reference.

(h). COWEN & CO.

Information as to Cowen & Co.'s, and its investment management
division, Cowen Asset Management, directors and executive officers is included
in its Form ADV filed with the Securities and Exchange Commission (File No.
801-7380), as most recently amended, the text of which is incorporated herein by
reference.

ITEM 29. PRINCIPAL UNDERWRITERS

(a) Copeland Equities, Inc. does not act as principal underwriter,
depositor or investment adviser of any other investment company.

(b) Information concerning the directors and officers of Copeland
Equities, Inc. is set forth below. Except as otherwise indicated, the address of
each person is Two Tower Center, P.O. Box 1063, East Brunswick, NJ 08816-1063.

8
<PAGE> 114

<TABLE>
<CAPTION>
Name Positions and Offices with Positions and Offices with
Underwriter Registrant
<S> <C> <C>
Robert C. Dughi Chairman of the Board of Chairman of the Board of Directors
Directors
Mark M. Skinner Director and President Director and Executive Vice
President

Steven M. Bresler Senior Vice President None

Dennis M. Casey Senior Vice President, None
Administrative Operations

Paul S. Chong Senior Vice President, Corporate None
Markets Marketing and Sales
Paul S. Feinberg Senior Vice President, General Senior Vice President and
Counsel and Secretary, and Secretary
Director

Mark E. Freemyer Vice President Vice President

Gary E. Ganakas Senior Vice President None

Harvey J. Gannon Vice President, Client None
Communications and Services

William M. Gardner Senior Vice President None

Sage D. Grumbach Vice President, Field Training None
and Development

Peter J. Gulia Vice President and Counsel, and None
Assistant Secretary

Charles Katz Vice President, Education Markets None

Robert C. Kniceley Senior Vice President, None
Government Markets
</TABLE>

9
<PAGE> 115
<TABLE>
<S> <C> <C>
Mary F. Nolan Vice President, Marketing None

Marcellous J. Reed Senior Vice President None

Lori M. Renzulli Assistant Secretary None

George A. Ryan Assistant Secretary None
One Tower Square
Hartford, CT 06183

William P. Schwarzkopf Senior Vice President None

Michael L. St. Clair Senior Vice President None

Donna S. Webber Assistant Secretary None

Michael R. Zarelli Senior Vice President, Chief Senior Vice President and
Financial Officer and Treasurer, Treasurer
and Director
</TABLE>

ITEM 30. LOCATION OF ACCOUNTS AND RECORDS

All accounts, books and other documents required to be maintained by
Section 31(a) of the Investment Company Act and the Rules thereunder are
maintained at the offices of (1) the Registrant and American Odyssey Funds
Management, Inc., Two Tower Center, P.O. Box 1063, East Brunswick, NJ
08816-1063; (2) Bank of Ireland Asset Management (U.S.) Limited, 26 Fitzwilliam
Place, Dublin 2, Ireland and 2 Greenwich Plaza, Greenwich, CT 06830; (3)
Wilke/Thompson Capital Management, Inc., 3800 Norwest Center, 90 South 7th
Street, Minneapolis, MN 55402-3934; (4) Equinox Capital Management, Inc., 590
Madison Avenue, New York, NY 10022; (5) Western Asset Management, 117 East
Colorado Boulevard, Pasadena, CA 91105; (6) Travelers Asset Management
International Corporation, One Tower Square, Hartford, CT 06183; (7) Smith
Graham & Co. Asset Managers, L.P., 6900 Texas Commerce Tower, 600 Travis Street,
Houston, TX 77002-3007; (8) Cowen & Co., Financial Square, New York, NY 10005;
and (9) Investors Bank and Trust Company, 89 South Street, Boston, MA 02111.

ITEM 31. MANAGEMENT SERVICES

Not Applicable

10
<PAGE> 116
ITEM 32. UNDERTAKINGS

The Registrant hereby undertakes to furnish each person to whom a
prospectus is delivered with a copy of the Registrant's latest annual report to
shareholders upon request and without charge.

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that this amendment is
filed solely for one or more of the purposes specified in Rule 485(b)(1) under
the Securities Act of 1933 and that no material event requiring disclosure in
the prospectus, other than one listed in Rule 485(b)(1), has occurred since the
filing date of a Post-Effective Amendment under Rule 485(a) and has duly caused
this Registration Statement to be signed on its behalf by the undersigned,
thereto duly authorized, in the City of East Brunswick, and the State of New
Jersey on the 29th day of April, 1997.

AMERICAN ODYSSEY FUNDS, INC.

By: /s/ Robert C. Dughi
-------------------
Robert C. Dughi
Chairman of the Board and President

Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities indicated on April 29, 1997.

Signature and Title

/s/ Robert C. Dughi By: /s/ Paul S. Feinberg
- ------------------- --------------------
Robert C. Dughi Paul S. Feinberg
Chairman of the Board of Directors (Attorney-in-Fact)

/s/ John G. Beam, Jr. By: /s/ Paul S. Feinberg
- ------------------- --------------------
John G. Beam, Jr. Paul S. Feinberg
Director (Attorney-in-Fact)

/s/ Linda Walker Bynoe By: /s/ Paul S. Feinberg
- ------------------- --------------------
Linda Walker Bynoe Paul S. Feinberg
Director (Attorney-in-Fact)

/s/ Jane DiRenzo Pigott By: /s/ Paul S. Feinberg
- ------------------- --------------------
Jane DiRenzo Pigott Paul S. Feinberg
Director (Attorney-in-Fact)

11
<PAGE> 117
/s/ Kent A. Kelley By: /s/ Paul S. Feinberg
- ------------------- --------------------
Kent A. Kelley Paul S. Feinberg
Director (Attorney-in-Fact)

/s/ Mark M. Skinner By: /s/ Paul S. Feinberg
- ------------------- --------------------
Mark M. Skinner Paul S. Feinberg
Executive Vice President and Director (Attorney-in-Fact)

/s/ Nicholas D. Yatrakis By: /s/ Paul S. Feinberg
- ------------------------ --------------------
Nicholas D. Yatrakis Paul S. Feinberg
Director (Attorney-in-Fact)

/s/ Steven I. Weinstein By: /s/ Paul S. Feinberg
- ------------------------ --------------------
Steven I. Weinstein Paul S. Feinberg
Director (Attorney-in-Fact)

/s/ Michael R. Zarelli By: /s/ Paul S. Feinberg
- ------------------------ --------------------
Michael R. Zarelli Paul S. Feinberg
Senior Vice President and Treasurer; (Attorney-in-Fact)
Principal Financial Officer;
Principal Accounting Officer

12
<PAGE> 118
EXHIBIT INDEX

<TABLE>
<CAPTION>
EXHIBIT NUMBER DESCRIPTION PAGE NUMBERS
-------------- ----------- ------------
<S> <C> <C>
5(a) Investment Management Agreement C-14
between Registrant and Manager

5(c) Amended Subadvisory Agreement C-24
among Registrant, the Manager,
and Wilke/Thompson

5(e) Amended Subadvisory Agreement C-31
among Registrant, the Manager
and Western Asset

5(h) Subadvisory Agreement among C-38
Registrant, the Manager and Cowen

11 Consent of Independent C-45
Accountants

17 Financial Data Schedules C-46
</TABLE>

<PAGE> 1
INVESTMENT MANAGEMENT AGREEMENT

Agreement made this 23rd day of February, 1993 between American Odyssey
Funds, Inc., a Maryland corporation (the "Series Fund"), and American Odyssey
Funds Management, Inc., a New Jersey corporation (the "Manager") and amended
effective May 1, 1997.

WHEREAS, the Series Fund is a diversified, open-end management investment
company registered under the Investment Company Act of 1940, as amended (the
"1940 Act"); and

WHEREAS, the Series Fund is currently divided into six separate series
(each a "Fund"), each of which is established pursuant to a resolution of the
Board of Directors of the Series Fund, and the Series Fund may in the future add
additional Funds; and

WHEREAS, the Series Fund desires to retain the Manager to render, or
contract to obtain as hereinafter provided, investment advisory services to the
Series Fund and also to avail itself of the facilities available to the Manager
with respect to the administration of the Series Fund's day to day business
affairs; and

WHEREAS, the Manager is willing to render such investment advisory and
administrative services;

NOW, THEREFORE, the parties agree as follows:

1. The Series Fund hereby appoints the Manager to act as manager of the
Series Fund and administrator of its business affairs for the period and on the
terms set forth in this Agreement. The Manager accepts such appointment and
agrees to render the services described below for the compensation provided in
paragraph 9. The Manager is authorized to enter into Subadvisory agreements for
investment advisory services in connection with the management of each of the
Funds of the Series Fund (the "Subadvisory agreements"), provided that no such
contract shall be made until it has been approved by the Board of Directors of
the Series Fund and, to the extent required by the 1940 Act, ratified by the
shareholders of the Series Fund. The Series Fund shall be a party to each such
agreement. Any such agreement may be entered into by the Manager on such terms
and in such manner as may be permitted by the 1940 Act and the rules thereunder.
The Manager will continue to have supervisory responsibility for all investment
advisory services furnished pursuant to any such Subadvisory agreements. The
Manager will review the performance of all Subadvisers, determine the allocation
of assets among the Subadvisers, and make recommendations to the Board of
Directors with respect to the retention and renewal of such Subadvisory
agreements.
<PAGE> 2
-2-

2. Subject to the supervision of the Board of Directors and, subject to
paragraph 1 hereof, the Manager shall manage the operations of the Series Fund
and each Fund thereof. More particularly:

(a) The Manager, in the performance of its duties and obligations
under this Agreement, shall act in conformity with the Articles of
Incorporation, By-Laws, Prospectus, and Statement of Additional
Information of the Series Fund and with the instructions and directions of
the Board of Directors of the Series Fund and will conform to and comply
with the requirements of the 1940 Act and all other applicable federal and
state laws and regulations.

(b) The Manager will monitor the performance of each of the
Subadvisers and will be generally responsible for their activities. The
Manager shall meet periodically with each Subadviser to review and agree
upon its current investment strategies and programs in the light of
anticipated cash flows. The Manager shall periodically provide the Board
of Directors with evaluations of the performance of the Subadvisers and
shall make recommendations concerning the renewal or termination of the
Subadvisory contracts.

(c) For any Fund with more than one Subadviser, the Manager is
authorized to determine the allocation of Fund assets among the
Subadvisers.

(d) The Manager shall provide the Board of Directors of the Series
Fund such periodic and special reports as the Board may reasonably
request.

(e) The Manager shall be responsible for the financial and
accounting records maintained by the Series Fund, other than those being
maintained by the Series Fund's custodian or accounting services agent.

(f) The Manager shall provide, or cause to be provided, to the
Series Fund's custodian on each business day all information relating to
the transactions in the securities owned, purchased, or sold by each Fund.

(g) The Manager shall provide such staff assistance as the Board of
Directors of the Series Fund shall reasonably request in connection with
the conduct of meetings of the Board and otherwise.

(h) The investment management services of the Manager to the
Series Fund under this Agreement are not to be deemed exclusive, and
the Manager shall be free to render investment advisory services to
others.
<PAGE> 3
-3-

3. The Series Fund has delivered to the Manager copies of each of
the following documents and will deliver to it all future amendments and
supplements, if any:

(a) The Articles of Incorporation of the Series Fund, as filed with
the Secretary of State of Maryland;

(b) The By-Laws of the Series Fund;

(c) Certified resolutions of the Board of Directors of the Series
Fund authorizing the appointment of the Manager and approving the form of
this Agreement;

(d) The Notification of Registration of the Series Fund under the
1940 Act on Form N-8A as filed with the Securities and Exchange Commission
(the "Commission");

(e) The Registration Statement under the 1940 Act and the Securities
Act of 1933, as amended, on Form N-1A (the "Registration Statement"), as
filed with the Commission relating to the Series Fund and shares of the
Series Fund and all amendments thereto; and

(f) The Prospectus and Statement of Additional Information of the
Series Fund as currently in effect and as amended or supplemented from
time to time.

4. The Manager shall authorize and permit any of its directors, officers,
and employees who may be elected as members of the Board of Directors or
officers of the Series Fund to serve in the capacities in which they are
elected. All services to be furnished by the Manager under this Agreement may be
furnished through the medium of any such directors, officers, or employees of
the Manager.

5. The Manager shall keep the Series Fund's books and records required to
be maintained by it pursuant to paragraph 2 hereof. The Manager agrees that all
records which it maintains for the Series Fund are the property of the Series
Fund and it will surrender promptly to the Series Fund any such records upon the
Series Fund's request, provided however that the Manager may retain a copy of
such records. The Manager further agrees to preserve for the periods prescribed
by Rule 31a-2 under the 1940 Act (or any successor provision) any such records
as are required to be maintained by the Manager pursuant to paragraph 2 hereof.

6. During the term of this Agreement, the Manager shall pay the following
expenses:

(i) the salaries and expenses of all personnel of the Series Fund
and the Manager except the fees and expenses of
<PAGE> 4
-4-

members of the Board of Directors who are not interested persons of the
Series Fund, as that term is defined in the 1940 Act;

(ii) all expenses incurred by the Manager or by the Series Fund in
connection with managing the ordinary course of the Series Fund's
business, other than those stated below that will be paid by the Series
Fund;

(iii) the costs and expenses payable pursuant to any Subadvisory
agreements; and

(iv) expenses incurred in connection with meetings of the Board of
Directors of the Series Fund, including such staff assistance as the Board
shall reasonably request, but not including the fees and expenses of
directors of the Series Fund who are not interested persons of the Series
Fund, as that term is defined in the 1940 Act.

7. The Fund will pay the expenses described below:

(a) the fees and expenses incurred by the Series Fund in
connection with the management of the investment and reinvestment of
each Fund's assets;

(b) brokers' commissions and any issue or transfer taxes chargeable
to the Series Fund in connection with its securities, options, and futures
transactions;

(c) the fees and expenses of directors of the Series Fund who are
not interested persons of the Series Fund, as that term is defined in the
1940 Act;

(d) the fees and expenses of the Series Fund's custodian(s) or
accounting services agent(s) that relate to (i) the custodial function and
the recordkeeping connected therewith, (ii) preparing and maintaining the
general accounting records of the Series Fund (other than those relating
to the shares and shareholder accounts of the Series Fund) and the
providing of any such records to the Manager useful to the Manager in
connection with the Manager's responsibility for the accounting records of
the Series Fund pursuant to Section 31 of the 1940 Act and the rules
promulgated thereunder, and (iii) the pricing of the shares of the Series
Fund, including the cost of any pricing service or services which may be
retained pursuant to the authorization of the directors of the Series
Fund;

(e) the charges and expenses of legal counsel and independent
accountants for the Series Fund;
<PAGE> 5
-5-

(f) all taxes and corporate fees payable by the Series Fund to
federal, state, and other governmental agencies;

(g) the fees of any trade associations of which the Series Fund may
be a member;

(h) the cost of fidelity, directors and officers, and errors and
omissions insurance;

(i) the fees and expenses involved in registering and maintaining
registration of the Series Fund and of its shares with the Commission, and
qualifying its shares, to the extent required, under state securities
laws, including the preparation and printing of the Series Fund's
registration statements, prospectuses and statements of additional
information for filing under federal and state securities laws;

(j) communications expenses with respect to investor services and
expenses of preparing, printing, and mailing reports to shareholders in
the amount necessary for distribution to the shareholders;

(k) all expenses incurred in connection with the holding of
shareholder meetings; and

(l) litigation and indemnification expenses and other extraordinary
expenses not incurred in the ordinary course of the Series Fund's
business.

8. In the event the expenses of the Series Fund for any fiscal year
(including the fees payable to the Manager but excluding interest, taxes,
brokerage commissions and litigation and indemnification expenses and other
extraordinary expenses not incurred in the ordinary course of the Series Fund's
business) exceed the lowest applicable annual expense limitation established and
enforced pursuant to the statute or regulations of any jurisdictions in which
shares of the Series Fund are then qualified for offer and sale, the
compensation due the Manager will be reduced by the amount of such excess, and,
if such reduction exceeds the compensation payable to the Manager, the Manager
will pay to the Series Fund the amount of such reduction which exceeds the
amount of such compensation.

9. For the services provided and the expenses assumed pursuant to this
Agreement, the Series Fund will pay to the Manager as full compensation therefor
a fee at the annual rate or rates of each Fund's average daily net assets set
forth below. This fee will be computed daily and will be paid to the Manager
monthly as of the first business day of the next succeeding calendar month. Any
reduction in the fee payable and any payment by the Manager to the Fund pursuant
to paragraph 8 shall be made
<PAGE> 6
-6-

monthly. Any such reductions or payments are subject to readjustment during the
year.

<TABLE>
<CAPTION>
Annual rate as a
percentage of Annual rate as a
average daily net percentage of
assets up to average daily net
and including assets over
Fund $100 million $100 million
- ---- ----------------- ---------------

<S> <C> <C>
American Odyssey 0.60% 0.55%
Core Equity Fund

American Odyssey 0.50% 0.40%
Short-Term Bond Fund
</TABLE>

* * * *

American Odyssey
Emerging Oppor-
tunities Fund: - annual rate of 0.75% as a percentage of
average daily net assets allocated to Cowen &
Co. up to and including $50 million; plus
- annual rate of 0.70% as a percentage of average
daily net assets allocated to Cowen & Co. over
$50 million and up to and including $100
million; plus
- annual rate of 0.65% as a percentage of average
daily net assets allocated to Cowen & Co. over
$100 million; plus
- annual rate of 0.65% as a percentage of average
daily net assets allocated to Wilke/Thompson
Capital Management, Inc. ("Wilke/Thompson") up
to and including $100 million; plus
- annual rate of 0.55% as a percentage of average
daily net assets allocated to Wilke/Thompson
over $100 million.
<PAGE> 7
-7-

American Odyssey
International
Equity Fund: - annual rate of 0.70% as a
percentage of average daily net assets up to
and including $50 million; plus
- annual rate of 0.65% as a percentage of average
daily net assets over $50 million and up to and
including $100 million; plus
- annual rate of 0.55% as a percentage of daily
net assets over $100 million.

American Odyssey
Long-Term
Bond Fund: - annual rate of 0.50% as a
percentage of average daily net assets up to
and including $250 million; plus
- annual rate of 0.40% as a percentage of average
daily net assets over $250 million.

American Odyssey
Intermediate-
Term Bond Fund - annual rate of 0.50% as a percentage of
average daily net assets up to and including
$100 million; plus
- annual rate of 0.45% as a percentage of average
daily net assets over $100 million and up to
and including $200 million; plus
- annual rate of 0.40% as a percentage of average
daily net assets over $200 million.

10. The Manager shall not be liable for any loss suffered by the Series
Fund as the result of any negligent act or error of judgment of the Manager in
connection with the matters to which this Agreement relates, except a loss
resulting from a breach of fiduciary duty with respect to the receipt of
compensation for services (in which case any award of damages shall be limited
to the period and the amount set forth in Section 36(b)(3) of the 1940 Act) or
loss resulting from willful misfeasance, bad faith or gross negligence on its
part in the performance of its duties or from reckless disregard by it of its
obligations and duties under this Agreement. The Series Fund shall indemnify the
Manager and hold it harmless from all cost, damage and
<PAGE> 8
-8-

expense, including reasonable expenses for legal counsel, incurred by the
Manager resulting from actions for which it is relieved of responsibility by
this paragraph. The Manager shall indemnify the Series Fund and hold it harmless
from all cost, damage and expense, including reasonable expenses for legal
counsel, incurred by the Series Fund resulting from actions for which the
Manager is not relieved of responsibility by this paragraph.

11. The words "American Odyssey" and the design set forth in Appendix A
hereto (the "Design") are service marks of the Manager. The Manager hereby
grants to the Series Fund a license to use the words "American Odyssey" in the
Series Fund's corporate name, "American Odyssey Funds, Inc.," and a license to
use the words "American Odyssey" and the Design in connection with the Series
Fund's operations as an investment company. This license is granted on a
royalty-free basis. The Manager retains the right to use, or license the use of,
the words "American Odyssey" and any derivative thereof, as well as the Design,
in connection with any other business enterprise. If the holders of the
outstanding voting securities of any Fund fail to approve this Agreement, or if
at any time after such approval the Manager ceases to be investment manager of
any Fund, the Manager shall have the absolute right to terminate the license
herein granted forthwith upon written notice to the Series Fund. Upon
termination of the license herein granted, the Series Fund shall immediately
change its corporate name to one which does not include the words "American
Odyssey" or any derivative thereof, and will discontinue all use by it of the
words "American Odyssey," the Design or anything resembling the Design, in
connection with its business. The terms of the license herein granted shall
inure to the benefit of and be binding upon any successors or assigns of the
Series Fund or the Manager.

12. This Agreement shall continue in effect for a period of more than two
years from the date hereof only so long as such continuance is specifically
approved at least annually in conformity with the requirements of the 1940 Act;
provided, however, that this Agreement may be terminated by the Series Fund
without the payment of any penalty, by the Board of Directors of the Series Fund
or by vote of a majority of the Series Fund's outstanding voting securities (as
defined in the 1940 Act), or by the Manager at any time, without the payment of
any penalty, on not more than 60 days' nor less than 30 days' written notice to
the other party. This Agreement shall terminate automatically in the event of
its assignment (as defined in the 1940 Act).

13. Nothing in this Agreement shall limit or restrict the right of any
director, officer, or employee of the Manager who may also be a director,
officer, or employee of the Series Fund to engage in any other business or to
devote his or her time and attention in part to the management or other aspects
of any business, whether of a similar or dissimilar nature, nor limit or
restrict the right of the Manager to engage in any other business or to render
services of any kind to any other corporation, firm, individual, or association.
<PAGE> 9
-9-

14. Except as otherwise provided herein or authorized by the Board of
Directors of the Series Fund from time to time, the Manager shall for all
purposes herein be deemed to be an independent contractor and shall have no
authority to act for or represent the Series Fund in any way or otherwise be
deemed an agent of the Series Fund.

15. During the term of this Agreement, the Series Fund agrees to furnish
the Manager at its principal office all prospectuses, proxy statements, reports
to shareholders, sales literature, or other material prepared for distribution
to shareholders of the Series Fund or the public, which refer in any way to the
Manager, prior to use thereof and not to use such material if the Manager
reasonably objects in writing within five business days (or such other time as
may be mutually agreed) after receipt thereof. In the event of termination of
this Agreement, the Series Fund will continue to furnish to the Manager copies
of any of the above mentioned materials which refer in any way to the Manager.
Sales literature may be furnished to the Manager hereunder by first class mail,
overnight delivery service, facsimile transmission equipment, or hand delivery.
The Series Fund shall furnish or otherwise make available to the Manager such
other information relating to the business affairs of the Series Fund as the
Manager at any time, or from time to time, reasonably requests in order to
discharge its obligations hereunder.

16. This Agreement may be amended by mutual consent, but the consent of
the Series Fund must be obtained in conformity with the requirements of the 1940
Act.

17. Any notice or other communication required to be given pursuant to
this Agreement shall be deemed duly given if delivered or mailed by certified or
registered mail, return receipt requested and postage prepaid, (1) to American
Odyssey Funds Management, Inc. at Two Tower Center, East Brunswick, NJ 08816,
Attention: Secretary; or (2) to American Odyssey Funds, Inc. at Two Tower
Center, East Brunswick, NJ 08816, Attention: President.

18. This Agreement shall be governed by and construed in accordance with
the laws of the State of New Jersey.

19. This Agreement may be executed in two or more counterparts, which
taken together shall constitute one and the same instrument.
<PAGE> 10
-10-

IN WITNESS WHEREOF, the parties hereto have caused this instrument to be
executed by their officers designated below as of the day and year first above
written.

AMERICAN ODYSSEY FUNDS, INC.

/s/ Lori M. Renzulli By: /s/ Paul S. Feinberg
- -------------------------- -----------------------------
Witness Lori M. Renzulli Paul S. Feinberg
Assistant Secretary Senior Vice President

AMERICAN ODYSSEY FUNDS MANAGEMENT, INC.

/s/ Lori M. Renzulli By: /s/ Paul S. Feinberg
- -------------------------- -----------------------------
Witness Lori M. Renzulli Paul S. Feinberg
Assistant Secretary Senior Vice President

<PAGE> 1
INVESTMENT SUBADVISORY AGREEMENT

Agreement made as of this 1st day of May, 1997, between American Odyssey
Funds, Inc., a Maryland corporation (the "Series Fund"), American Odyssey Funds
Management, Inc., a New Jersey corporation (the "Manager"), and Wilke/Thompson
Capital Management, Inc., a Minnesota corporation (the "Subadviser"). This
Agreement supersedes the Investment Subadvisory Agreement among the parties
dated February 23, 1993.

WHEREAS, American Odyssey Funds Management, Inc. has entered into a
management agreement (the "Management Agreement") with the Series Fund, a
diversified open-end management investment company registered under the
Investment Company Act of 1940 (the "1940 Act"), pursuant to which American
Odyssey Funds Management, Inc. will act as Manager of the Series Fund.

WHEREAS, the Series Fund is currently divided into six separate series or
Funds, each of which is established pursuant to a resolution of the Board of
Directors of the Series Fund, and the Series Fund may in the future add
additional Funds; and

WHEREAS, the Manager has the responsibility of evaluating, recommending,
supervising, and compensating investment advisers to each Fund and desires to
retain the Subadviser to provide investment advisory services to the American
Odyssey Emerging Opportunities Fund (the "Fund") in connection with its
management and the Subadviser is willing to render such investment advisory
services.

NOW, THEREFORE, the parties agree as follows:

1. (a) The Subadviser shall manage the investment operations of the assets
of the Fund allocated by the Manager to the Subadviser (such assets
referred to as the "Allocated Assets"), including the purchase, retention
and disposition of portfolio investments, in accordance with (A) the
Fund's investment objectives, policies, and restrictions, as set forth in
the Fund's Articles of Incorporation, Bylaws, Registration Statement,
Prospectus and Statement of Additional Information (as the same may from
time to time be amended or supplemented) (collectively, the "Investment
Policies"), and (B) any investment procedures and policies adopted from
time to time by the Series Fund's Board of Directors, including, but not
limited to, procedures and policies designed to ensure compliance with
Rules 10f-3 and 17e-1 under the 1940 Act, a code of ethics pursuant to
Rule 17j-1 under the 1940 Act, and guidelines governing repurchase
agreements, securities lending and valuation of illiquid securities, all
as the same may be in effect from time to time (collectively, the
"Procedures"); provided, however, that the Subadviser shall not be
responsible for complying with any Investment
<PAGE> 2
-2-

Policies or Procedures, or any amendments thereto, that the Manager did
not provide in writing to the Subadviser. Additionally, the Subadviser and
the Manager agree to exercise their respective best efforts to cooperate
with each other to identify all other laws, rules and regulations
applicable to the Fund (including, to the extent not covered in clauses
(A) and (B) of this paragraph, provisions and requirements of the 1940
Act, the Internal Revenue Code of 1986 and other applicable federal and
state laws and regulations) ("Rules and Regulations"), and the Subadviser
shall manage the investment operations of the Allocated Assets in
accordance with any of such identified Rules and Regulations. The
Subadviser's duties and responsibilities under this Agreement shall be
further subject to the following understandings:

(i) The Subadviser shall meet periodically with the Manager
and shall agree upon the current investment strategy for the
Allocated Assets in the light of anticipated cash flows.

(ii) The Subadviser shall provide supervision of the Allocated
Asset's investments and determine from time to time what securities,
options, futures contracts, and other investments included in the
Allocated Assets will be purchased, retained, sold, or loaned by the
Fund, and what portion of the Allocated Assets will be invested or
held uninvested as cash.

(iii) In the performance of its duties and obligations under
this Agreement, the Subadviser shall act in conformity with any
written instructions and directions of the Manager and of the Board
of Directors of the Series Fund.

(iv) The Subadviser shall determine each day the securities,
options, futures contracts, and other investments to be purchased or
sold as part of the Allocated Assets, and the Subadviser will place
orders with or through such persons, brokers, dealers, or futures
commission merchants (including but not limited to persons
affiliated with the Manager) to carry out the Fund's Investment
Policies and Procedures with respect to brokerage. In providing the
Fund with investment advice and management, the Subadviser will give
primary consideration to securing the most favorable price and
efficient execution. Within the framework of this policy, the
Subadviser may consider such factors as the price of the security,
the rate of the commission, the size and difficulty of the order,
the reliability, integrity, financial condition, general execution
and operational capabilities of
<PAGE> 3
-3-

competing broker-dealers and futures commission merchants, and the
brokerage and research services they provide to the Subadviser or
the Fund. The parties agree that it is desirable for the Fund that
the Subadviser have access to supplemental investment and market
research and security and economic analysis that certain brokers or
futures commission merchants are able to provide and that such
brokers and futures commission merchants may occasionally execute
brokerage transactions at a higher cost to the Fund than would
result if orders to execute such transactions had been placed with
other brokers on the sole basis of ability to obtain the most
favorable price and efficient execution. Therefore, the Subadviser
is authorized to place orders for the purchase and sale of
securities, options, futures contracts, and other investments for
the Fund with such brokers or futures commission merchants, subject
to review by the Manager and the Series Fund's Board of Directors
from time to time with respect to the extent and continuation of
this practice. The Series Fund acknowledges that the services
provided by such brokers or futures commission merchants may be
useful to the Subadviser in connection with the Subadviser's
services to other clients.

When the Subadviser deems the purchase or sale of a security,
option, futures contract, or other investment to be in the best
interest of the Fund as well as other clients of the Subadviser, the
Subadviser, to the extent permitted by applicable laws and
regulations, may, but shall be under no obligation to, aggregate the
securities, options, futures contracts, or other investments to be
sold or purchased in order to obtain the most favorable price or
lower brokerage commissions and efficient execution and to allocate
the shares purchased or sold among the Series Fund and the
Subadviser's other clients on a fair and nondiscriminatory basis, in
a manner consistent with the Subadviser's fiduciary obligations to
the Fund and to such other clients.

(v) The Subadviser shall maintain all books and records with
respect to the portfolio transactions of the Allocated Assets
required by subparagraphs (b)(5), (6), (7), (9), (10) and (11) and
paragraph (f) of Rule 31a-1 under the 1940 Act and by Rule
17e-1(c)(2) under the 1940 Act (or successor provisions) and shall
render to the Series Fund such periodic and special reports as its
Board of Directors or the Manager may reasonably request.
<PAGE> 4
-4-

(vi) The Subadviser shall provide the Series Fund's custodian
on each business day with information relating to all transactions
concerning the Allocated Assets and shall provide the Manager with
such information upon request of the Manager.

(vii) The investment management services provided by the
Subadviser hereunder are not exclusive, and the Subadviser shall be
free to render similar services to others; provided, however, that
the Subadviser agrees that neither it nor any of its affiliated
persons (as defined in the 1940 Act) shall serve or accept retention
as investment adviser, investment manager, or similar service
provider during the term of this Agreement and, if this Agreement is
terminated by the Subadviser, for the period of one year after the
termination of this Agreement, with or for the benefit of any
investment company registered under the 1940 Act that seeks as a
primary purchaser of its shares, either by direct purchase of its
shares or by indirect purchase of its shares through sales of
variable contracts, persons who are eligible to participate in an
investment advisory asset allocation program similar in nature to
that offered by the Manager's affiliated company, Copeland Financial
Services, Inc., it being understood and agreed that an investment
company with asset allocation as its own investment objective
(commonly called a balanced fund) shall not be subject to the
foregoing restriction.

(b) Services to be furnished by the Subadviser under this Agreement may be
furnished through the medium of any of its directors, officers, or
employees.

(c) The Subadviser shall keep the books and records with respect to the
Allocated Assets required to be maintained by the Subadviser pursuant to
paragraph 1(a)(v) hereof and shall timely furnish to the Manager or the
Series Fund's custodian all information relating to the Subadviser's
services hereunder needed to keep the other books and records of the Fund
required by Rules 17e-1(c)(2) and 31a-1 under the 1940 Act (or successor
provisions). The Subadviser agrees that all records which it maintains for
the Fund are the property of the Fund and the Subadviser will surrender
promptly to the Fund any of such records upon the Fund's request, provided
however that the Subadviser may retain a copy of such records. The
Subadviser further agrees to preserve for the periods prescribed by Rules
17e-1(c)(2) and 31a-2 under the 1940 Act (or successor provisions) any
such records as are required to be maintained by it pursuant to paragraph
1(a) hereof.
<PAGE> 5
-5-

(d) The Subadviser agrees to maintain adequate compliance procedures to
ensure its compliance with the 1940 Act, the Investment Advisers Act of
1940 (the "Advisers Act"), and other applicable state and federal laws and
regulations.

(e) The Subadviser shall furnish to the Manager copies of all records
prepared in connection with (i) the performance of this Agreement and (ii)
the maintenance of compliance procedures pursuant to paragraph 1(d) hereof
as the Manager may reasonably request.

(f) The Subadviser agrees to provide upon reasonable request of the
Manager or the Series Fund, information regarding the Subadviser,
including but not limited to background information about the Subadviser
and its personnel and performance data, for use in connection with efforts
to promote the Series Fund and the sale of its shares.

2. The Manager shall continue to have responsibility for all services to
be provided to the Fund pursuant to the Management Agreement and shall oversee
and review the Subadviser's performance of its duties under this Agreement.

3. The Manager shall compensate the Subadviser, for the services provided
and the expenses assumed pursuant to this Subadvisory Agreement, a fee at an
annual rate of 0.40% of the average daily Net Allocated Assets up to and
including $100 million, plus a fee at an annual rate of 0.30% of the average
daily Net Allocated Assets over $100 million. The term "Net Allocated Assets"
means the Allocated Assets less related liabilities as determined by the Manager
or its designee. This fee will be computed daily and paid monthly.

4. The Subadviser shall not be liable for any loss suffered by the Series
Fund or the Manager as a result of any negligent act or error of judgment of the
Subadviser in connection with the matters to which this Agreement relates,
except a loss resulting from a breach of fiduciary duty with respect to the
receipt of compensation for services (in which case any award of damages shall
be limited to the period and the amount set forth in Section 36(b)(3) of the
1940 Act) or loss resulting from willful misfeasance, bad faith or gross
negligence on the Subadviser's part in the performance of its duties or from its
reckless disregard of its obligations and duties under this Agreement. The
Series Fund shall indemnify the Subadviser and hold it harmless from all cost,
damage and expense, including reasonable expenses for legal counsel, incurred by
the Subadviser resulting from actions from which it is relieved of
responsibility by this paragraph. The Subadviser shall indemnify the Series Fund
and the Manager and hold them harmless from all cost, damage and expense,
including reasonable expenses for legal
<PAGE> 6
-6-

counsel, incurred by the Series Fund and the Manager resulting from actions from
which the Subadviser is not relieved of responsibility by this paragraph.

5. This Agreement shall continue in effect for a period of more than two
years from the date hereof only so long as such continuance is specifically
approved at least annually in conformity with the requirements of the 1940 Act;
provided, however, that this Agreement may be terminated by the Fund at any
time, without the payment of any penalty, by the Board of Directors of the
Series Fund or by vote of a majority of the outstanding voting securities (as
defined in the 1940 Act) of the Fund, or by the Manager or the Subadviser at any
time, without the payment of any penalty, on not more than 60 days' nor less
than 30 days' written notice to the other party. This Agreement shall terminate
automatically in the event of its assignment (as defined in the 1940 Act) or
upon the termination of the Management Agreement.

6. Nothing in this Agreement shall limit or restrict the right of any of
the Subadviser's directors, officers, or employees to engage in any other
business or to devote his or her time and attention in part to the management or
other aspects of any business, whether of a similar or dissimilar nature, nor
limit the Subadviser's right to engage in any other business or to render
services of any kind to any other corporation, firm, individual, or association,
except as described in Paragraph 1(a)(vii) above.

7. During the term of this Agreement, the Manager agrees to furnish the
Subadviser at its principal office all prospectuses, proxy statements, reports
to shareholders, sales literature or other material prepared for distribution to
shareholders of the Fund or the public, which refer to the Subadviser in any
way, prior to use thereof and not to use material if the Subadviser reasonably
objects in writing five business days (or such other time as may be mutually
agreed) after receipt thereof. Sales literature may be furnished to the
Subadviser hereunder by first class mail, overnight delivery service, facsimile
transmission equipment, or hand delivery.

8. This Agreement may be amended by mutual consent, but the consent of the
Series Fund must be obtained in conformity with the requirements of the 1940
Act.

9. Any notice or other communication required to be given pursuant to this
Agreement shall be deemed duly given if delivered or mailed by certified or
registered mail, return receipt requested and postage prepaid, (1) to the
American Odyssey Funds, Inc. at Two Tower Center, East Brunswick, NJ 08816,
Attention: President; (2) to American Odyssey Funds Management, Inc. at Two
Tower Center, East Brunswick, NJ 08816,
<PAGE> 7
-7-

Attention: Secretary; or (3) to Wilke/Thompson Capital Management, Inc. at 3800
Norwest Center, 90 South 7th Street, Minneapolis, Minnesota 55402, Attention:
President.

10. This Agreement shall be governed by the laws of the State of New
Jersey.

11. This Agreement may be executed in two or more counterparts, which
taken together shall constitute one and the same instrument.

IN WITNESS WHEREOF, the parties hereto have caused this instrument to be
executed by their officers designated below as of the day and year first above
written.

AMERICAN ODYSSEY FUNDS, INC.

/s/ Lori M. Renzulli By: /s/ Paul S. Feinberg
- -------------------------- -----------------------------
Witness Lori M. Renzulli Paul S. Feinberg
Assistant Secretary Senior Vice President

AMERICAN ODYSSEY FUNDS MANAGEMENT, INC.

/s/ Lori M. Renzulli By: /s/ Paul S. Feinberg
- -------------------------- -----------------------------
Witness Lori M. Renzulli Paul S. Feinberg
Assistant Secretary Senior Vice President

WILKE/THOMPSON CAPITAL MANAGEMENT, INC.

By:
- ---------------------------- ----------------------------
Witness

<PAGE> 1
INVESTMENT SUBADVISORY AGREEMENT

Agreement made as of this 23rd day of February, 1993, between American
Odyssey Funds, Inc., a Maryland corporation (the "Series Fund"), American
Odyssey Funds Management, Inc., a New Jersey corporation (the "Manager"), and
Western Asset Management Company, a California corporation (the "Subadviser")
and amended effective May 1, 1997 to eliminate WLO Global Management as a party
and to eliminate the higher fee applicable to non-U.S. assets.

WHEREAS, the Series Fund is currently divided into six separate series
or Funds, each of which is established pursuant to a resolution of the Board of
Directors of the Series Fund, and the Series Fund may in the future add
additional Funds;

WHEREAS, the Manager has the responsibility of evaluating,
recommending, supervising, and compensating investment advisers to each Fund;

WHEREAS, the Subadviser is registered as an investment adviser under
the Investment Advisers Act of 1940; and

WHEREAS, the Manager desires to retain the Subadviser to provide
investment advisory services to the American Odyssey Long-Term Bond Fund (the
"Fund") in connection with its management and the Subadviser is willing to
render such investment advisory services.

NOW, THEREFORE, the parties agree as follows:

1. (a) Subject to the supervision of the Manager and of the Board of
Directors of the Series Fund, the Subadviser shall manage the
investment operations of the Fund and the composition of the Fund's
portfolio, including the purchase, retention and disposition thereof,
in accordance with that Fund's investment objectives, policies, and
restrictions as stated in the Prospectus (such Prospectus and Statement
of Additional Information as currently in effect and as amended or
supplemented from time to time, being herein called the "Prospectus")
and subject to the following understandings:

(i) The Subadviser shall meet periodically with the
Manager and shall agree upon the current investment strategy
for the Fund in the light of anticipated cash flows.
<PAGE> 2
-2-

(ii) The Subadviser shall provide supervision of the
Fund's investments and determine from time to time what
securities, options, futures contracts, and other investments
will be purchased, retained, sold, or loaned by the Fund, and
what portion of the assets will be invested or held uninvested
as cash.

(iii) In the performance of its duties and
obligations under this Agreement, the Subadviser shall act in
conformity with the Articles of Incorporation, By-Laws, and
Prospectus of the Series Fund and with the instructions and
directions of the Manager and of the Board of Directors of the
Series Fund and will conform to and comply with the
requirements of the 1940 Act, the Internal Revenue Code of
1986, and all other applicable federal and state laws and
regulations.

(iv) The Subadviser shall determine each day the
securities, options, futures contracts, and other investments
to be purchased or sold by the Fund and will place orders with
or through such persons, brokers, dealers, or futures
commission merchants (including but not limited to persons
affiliated with the Manager) to carry out the policy with
respect to brokerage as set forth in the Series Fund's
Registration Statement and Prospectus or as the Board of
Directors may direct from time to time. In providing the Fund
with investment advice and management, the Subadviser will
give primary consideration to securing the most favorable
price and efficient execution. Within the framework of this
policy, the Subadviser may consider such factors as the price
of the security, the rate of the commission, the size and
difficulty of the order, the reliability, integrity, financial
condition, general execution and operational capabilities of
competing broker-dealers and futures commission merchants, and
the brokerage and research services they provide to the
Subadviser or the Fund. The parties agree that it is desirable
for the Fund that the Subadviser have access to supplemental
investment and market research and security and economic
analysis that certain brokers or futures commission merchants
are able to provide and that such brokers and future
commission merchants may occasionally execute brokerage
transactions at a higher cost to the Fund than would result if
orders to execute such transactions had been placed with other
brokers on the sole basis of ability to obtain the most
favorable price and efficient execution. Therefore, the
Subadviser is authorized to place orders for the purchase and
sale of securities, options, futures contracts, and other
investments for the Fund with such
<PAGE> 3
-3-

brokers or futures commission merchants, subject to review by
the Manager and the Series Fund's Board of Directors from time
to time with respect to the extent and continuation of this
practice. The Series Fund acknowledges that the services
provided by such brokers or futures commission merchants may
be useful to the Subadviser in connection with its services to
other clients.

When the Subadviser deems the purchase or sale of a
security, option, futures contract, or other investment to be
in the best interest of the Fund as well as other clients of
the Subadviser, the Subadviser, to the extent permitted by
applicable laws and regulations, may, but shall be under no
obligation to, aggregate the securities, options, futures
contracts, or other investments be sold or purchased in order
to obtain the most favorable price or lower brokerage
commissions and efficient execution and to allocate the shares
purchased or sold among the Series Fund and the Subadviser's
other clients on a fair and nondiscriminatory basis, in a
manner consistent with the Subadviser's fiduciary obligations
to the Fund and to such other clients.

(v) The Subadviser shall maintain all books and
records with respect to the Fund's portfolio transactions
required by subparagraphs (b)(5), (6), (7), (9), (10) and (11)
and paragraph (f) of Rule 31a-1 under the 1940 Act and by Rule
17e-1(c)(2) under the 1940 Act and shall render to the Series
Fund such periodic and special reports as its Board of
Directors or the Manager may reasonably request.

(vi) The Subadviser shall provide the Series Fund's
custodian on each business day with information relating to
all transactions concerning the Fund's assets and shall
provide the Manager with such information upon request of the
Manager.

(vii) The investment management services provided by
the Subadviser hereunder are not exclusive, and the Subadviser
shall be free to render similar services to others.

(b) Services to be furnished by the Subadviser under this Agreement may
be furnished through the medium of any of its directors, officers, or
employees.

(c) The Subadviser shall keep the Fund's books and records required to
be maintained by the Subadviser pursuant to paragraph 1(a)(iv) hereof
and shall timely furnish to the
<PAGE> 4
-4-

Manager or the Series Fund's custodian all information relating to the
Subadviser's services hereunder needed to keep the other books and
records of the Fund required by Rules 17e-1(c)(2) and 31a-1 under the
1940 Act. The Subadviser agrees that all records which it maintains for
the Fund are the property of the Fund and the Subadviser will surrender
promptly to the Fund any of such records upon the Fund's request,
provided however that the Subadviser may retain a copy of such records.
The Subadviser further agrees to preserve for the periods prescribed by
Rules 17e-1(c)(2) and 31a-2 under the 1940 Act any such records as are
required to be maintained by them pursuant to paragraph 1(a) hereof.

(e) The Subadviser shall furnish to the Manager copies of all records
prepared in connection with (i) the performance of this Agreement and
(ii) the maintenance of compliance procedures pursuant to paragraph
1(d) hereof as the Manager may reasonably request.

(f) The Subadviser agrees to provide upon reasonable request of the
Manager or the Series Fund, information regarding the Subadviser,
including but not limited to background information about the
Subadviser and its personnel and performance data, for use in
connection with efforts to promote the Series Fund and the sale of its
shares.

2. The Manager shall continue to have responsibility for all services
to be provided to the Fund pursuant to the Management Agreement and shall
oversee and review the Subadviser's performance of its duties under this
Agreement.

3. The Manager shall compensate the Subadviser, for the services
provided and the expenses assumed pursuant to this Subadvisory Agreement, a fee
at an annual rate of 0.25% of the average daily net assets of the Fund up to and
including $250 million, plus a fee at an annual rate of 0.15% of the average
daily net assets of the Fund over $250 million. The fee will be computed daily
and paid monthly.

case any award of damages shall be limited to the period and the amount set
forth in Section 36(b)(3) of the 1940 Act) or loss resulting from willful
misfeasance, bad faith or gross negligence on the Subadviser's part in the
performance of its duties or from its reckless disregard of its obligations and
duties under this Agreement. The Series Fund shall indemnify the Subadviser and
hold it harmless from all cost, damage and expense, including reasonable
expenses for legal counsel, incurred by the Subadviser resulting from actions
from which it is relieved of responsibility by this paragraph. The Subadviser
shall indemnify the Series Fund and the Manager and hold them harmless from all
cost, damage and expense, including reasonable expenses for legal counsel,
incurred by the Series Fund and the Manager resulting from actions from which
the Subadviser is not relieved of responsibility by this paragraph.

5. The Series Fund shall throughout the period during which this
Agreement is in force maintain a custodian agreement with a custodian (the
"Custodian"). No money of the Fund shall be received by or retained by the
Subadviser in the course of or ancillary to its duties under this Agreement. No
documents of title in respect of any investment of the Fund shall be held by,
forwarded to, or held to the order of the Subadviser. The Series Fund, the
Custodian, or the Series Fund's Accounting Agent, not the Subadviser, shall be
responsible for payment of all Fund income or other taxes, and the making of all
relevant Fund tax claims (including claims relating to withholding taxes)
whether for exemption or otherwise, for filing or causing to be filed any and
all prescribed Fund tax returns and for providing the competent tax authorities
with all relevant information relating to transactions pertaining to the Fund.

6. This Agreement shall continue in effect for a period of more than
two years from the date hereof only so long as such continuance is specifically
approved at least annually in conformity with the requirements of the 1940 Act;
provided, however, that this Agreement may be terminated by the Fund at any
time, without the payment of any penalty, by the Board of Directors of the
Series Fund or by vote of a majority of the outstanding voting securities (as
defined in the 1940 Act) of the Fund, or by the Manager or the Subadviser at any
time, without the payment of any penalty, on not more than 60 days' nor less
than 30 days' written notice to the other party. This Agreement shall terminate
automatically in the event of its assignment (as defined in the 1940 Act) or
upon the termination of the Management Agreement.

7. Nothing in this Agreement shall limit or restrict the right of any
of the Subadviser's directors, officers, or employees to engage in any other
business or to devote their time and attention in part to the management or
other aspects of any business, whether of a similar or dissimilar nature, nor
limit
<PAGE> 6
-6-

the Subadviser's right to engage in any other business or to render services of
any kind to any other corporation, firm, individual, or association.

8. During the term of this Agreement, the Manager agrees to furnish the
Subadviser at its principal office all prospectuses, proxy statements, reports
to shareholders, sales literature or other material prepared for distribution to
shareholders of the Fund or the public, which refer to the Subadviser in any
way, prior to use thereof and not to use material if the Subadviser reasonably
objects in writing five business days (or such other time as may be mutually
agreed) after receipt thereof. Sales literature may be furnished to the
Subadviser hereunder by first class mail, overnight delivery service, facsimile
transmission equipment, or hand delivery.

9. This Agreement may be amended by mutual consent, but the consent of
the Series Fund must be obtained in conformity with the requirements of the 1940
Act.

10. Any notice or other communication required to be given pursuant to
this Agreement shall be deemed duly given if delivered or mailed by certified or
registered mail, return receipt requested and postage prepaid, (1) to American
Odyssey Funds, Inc. at Two Tower Center, East Brunswick, NJ 08816, Attention:
President; (2) to American Odyssey Funds Management, Inc. at Two Tower Center,
East Brunswick, NJ 08816, Attention: Secretary; or (3) to the Western Asset
Management Company at 117 East Colorado Blvd., Pasadena, CA 91105, Attention:
President.

11. This Agreement shall be governed by the laws of the State of New
Jersey.

12. This Agreement may be executed in two or more counterparts, which
taken together shall constitute one and the same instrument.
<PAGE> 7
-7-

IN WITNESS WHEREOF, the parties hereto have caused this instrument to
be executed by their officers designated below as of the day and year first
above written.

AMERICAN ODYSSEY FUNDS, INC.

/s/ Lori M. Renzulli By: /s/ Paul S. Feinberg
- -------------------------- -----------------------------
Witness Lori M. Renzulli Paul S. Feinberg
Assistant Secretary Senior Vice President

AMERICAN ODYSSEY FUNDS MANAGEMENT, INC.

/s/ Lori M. Renzulli By: /s/ Paul S. Feinberg
- -------------------------- -----------------------------
Witness Lori M. Renzulli Paul S. Feinberg
Assistant Secretary Senior Vice President

WESTERN ASSET MANAGEMENT COMPANY

By:
- ---------------------------- ------------------------------
Witness

<PAGE> 1
INVESTMENT SUBADVISORY AGREEMENT

Agreement made as of this 1st day of May, 1997, between American
Odyssey Funds, Inc., a Maryland corporation (the "Series Fund"), American
Odyssey Funds Management, Inc., a New Jersey corporation (the "Manager"), and
Cowen & Co, a partnership, doing business as Cowen Asset Management (the
"Subadviser").

WHEREAS, the Series Fund is currently divided into six separate series
or Funds, each of which is established pursuant to a resolution of the Board of
Directors of the Series Fund, and the Series Fund may in the future add
additional Funds; and

WHEREAS, the Manager has the responsibility of evaluating,
recommending, supervising, and compensating investment advisers to each Fund and
desires to retain the Subadviser to provide investment advisory services to the
American Odyssey Emerging Opportunities Fund (the "Fund") in connection with its
management and the Subadviser is willing to render such investment advisory
services.

NOW, THEREFORE, the parties agree as follows:

1. (a) The Subadviser shall manage the investment operations of the
assets of the Fund allocated by the Manager to the Subadviser (such
assets referred to as the "Allocated Assets"), including the purchase,
retention and disposition of portfolio investments, in accordance with
(A) the Fund's investment objectives, policies, and restrictions, as
set forth in the Fund's Articles of Incorporation, Bylaws, Registration
Statement, Prospectus and Statement of Additional Information (as the
same may from time to time be amended or supplemented) (collectively,
the "Investment Policies"), and (B) any investment procedures and
policies adopted from time to time by the Series Fund's Board of
Directors, including, but not limited to, procedures and policies
designed to ensure compliance with Rules 10f-3 and 17e-1 under the 1940
Act, a code of ethics pursuant to Rule 17j-1 under the 1940 Act, and
guidelines governing repurchase agreements, securities lending and
valuation of illiquid securities, all as the same may be in effect from
time to time (collectively, the "Procedures"); provided, however, that
the Subadviser shall not be responsible for complying with any
Investment Policies or Procedures, or any amendments thereto, that the
Manager did not provide in writing to the Subadviser.
<PAGE> 2
-2-

Additionally, the Subadviser and the Manager agree to exercise their
respective best efforts to cooperate with each other to identify all
other laws, rules and regulations applicable to the Fund (including, to
the extent not covered in clauses (A) and (B) of this paragraph,
provisions and requirements of the 1940 Act, the Internal Revenue Code
of 1986 and other applicable federal and state laws and regulations)
("Rules and Regulations"), and the Subadviser shall manage the
investment operations of the Allocated Assets in accordance with any of
such identified Rules and Regulations. The Subadviser's duties and
responsibilities under this Agreement shall be further subject to the
following understandings:

(i) The Subadviser shall meet periodically with the
Manager and shall agree upon the current investment strategy
for the Allocated Assets in the light of anticipated cash
flows.

(ii) The Subadviser shall provide supervision of the
Allocated Asset's investments and determine from time to time
what securities, options, futures contracts, and other
investments included in the Allocated Assets will be
purchased, retained, sold, or loaned by the Fund, and what
portion of the Allocated Assets will be invested or held
uninvested as cash.

(iii) In the performance of its duties and
obligations under this Agreement, the Subadviser shall act in
conformity with any written instructions and directions of the
Manager and of the Board of Directors of the Series Fund.

(iv) The Subadviser shall determine each day the
securities, options, futures contracts, and other investments
to be purchased or sold as part of the Allocated Assets, and
the Subadviser will place orders with or through such persons,
brokers, dealers, or futures commission merchants (including
but not limited to persons affiliated with the Manager) to
carry out the Fund's Investment Policies and Procedures with
respect to brokerage. In providing the Fund with investment
advice and management, the Subadviser will give primary
consideration to securing the most favorable price and
efficient execution. Within the framework of this policy, the
Subadviser may consider such factors as the price of the
security, the rate of the commission, the size and difficulty
of the order, the reliability, integrity, financial condition,
general execution and operational capabilities of competing
broker-dealers and futures commission merchants, and the
brokerage and research services they
<PAGE> 3
-3-

provide to the Subadviser or the Fund. The parties agree that
it is desirable for the Fund that the Subadviser have access
to supplemental investment and market research and security
and economic analysis that certain brokers or futures
commission merchants are able to provide and that such brokers
and futures commission merchants may occasionally execute
brokerage transactions at a higher cost to the Fund than would
result if orders to execute such transactions had been placed
with other brokers on the sole basis of ability to obtain the
most favorable price and efficient execution. Therefore, the
Subadviser is authorized to place orders for the purchase and
sale of securities, options, futures contracts, and other
investments for the Fund with such brokers or futures
commission merchants, subject to review by the Manager and the
Series Fund's Board of Directors from time to time with
respect to the extent and continuation of this practice. The
Series Fund acknowledges that the services provided by such
brokers or futures commission merchants may be useful to the
Subadviser in connection with the Subadviser's services to
other clients.

When the Subadviser deems the purchase or sale of a
security, option, futures contract, or other investment to be
in the best interest of the Fund as well as other clients of
the Subadviser, the Subadviser, to the extent permitted by
applicable laws and regulations, may, but shall be under no
obligation to, aggregate the securities, options, futures
contracts, or other investments to be sold or purchased in
order to obtain the most favorable price or lower brokerage
commissions and efficient execution and to allocate the shares
purchased or sold among the Series Fund and the Subadviser's
other clients on a fair and nondiscriminatory basis, in a
manner consistent with the Subadviser's fiduciary obligations
to the Fund and to such other clients.

(v) The Subadviser shall maintain all books and
records with respect to the portfolio transactions of the
Allocated Assets required by subparagraphs (b)(5), (6), (7),
(9), (10) and (11) and paragraph (f) of Rule 31a-1 under the
1940 Act and by Rule 17e-1(c)(2) under the 1940 Act (or
successor provisions) and shall render to the Series Fund such
periodic and special reports as its Board of Directors or the
Manager may reasonably request.

(vi) The Subadviser shall provide the Series Fund's
custodian on each business day with information relating to
all transactions concerning the Allocated
<PAGE> 4
-4-

Assets and shall provide the Manager with such information
upon request of the Manager.

(vii) The investment management services provided by
the Subadviser hereunder are not exclusive, and the Subadviser
shall be free to render similar services to others.

(b) Services to be furnished by the Subadviser under this Agreement may
be furnished through the medium of any of its directors, officers, or
employees.

(c) The Subadviser shall keep the books and records with respect to the
Allocated Assets required to be maintained by the Subadviser pursuant
to paragraph 1(a)(v) hereof and shall timely furnish to the Manager or
the Series Fund's custodian all information relating to the
Subadviser's services hereunder needed to keep the other books and
records of the Fund required by Rules 17e-1(c)(2) and 31a-1 under the
1940 Act (or successor provisions). The Subadviser agrees that all
records which it maintains for the Fund are the property of the Fund
and the Subadviser will surrender promptly to the Fund any of such
records upon the Fund's request, provided however that the Subadviser
may retain a copy of such records. The Subadviser further agrees to
preserve for the periods prescribed by Rules 17e-1(c)(2) and 31a-2
under the 1940 Act (or successor provisions) any such records as are
required to be maintained by it pursuant to paragraph 1(a) hereof.

(e) The Subadviser shall furnish to the Manager copies of all records
prepared in connection with (i) the performance of this Agreement and
(ii) the maintenance of compliance procedures pursuant to paragraph
1(d) hereof as the Manager may reasonably request.

(f) The Subadviser agrees to provide upon reasonable request of the
Manager or the Series Fund, information regarding the Subadviser,
including but not limited to background information about the
Subadviser and its personnel and performance data, for use in
connection with efforts to promote the Series Fund and the sale of its
shares.

2. The Manager shall continue to have responsibility for all services
to be provided to the Fund pursuant to the
<PAGE> 5
-5-

Management Agreement and shall oversee and review the Subadviser's performance
of its duties under this Agreement.

3. The Manager shall compensate the Subadviser, for the services
provided and the expenses assumed pursuant to this Subadvisory Agreement, a fee
at an annual rate of 0.50% of the average daily Net Allocated Assets up to and
including $50 million, plus a fee at an annual rate of 0.45% of the average
daily Net Allocated Assets over $50 million and up to and including $100
million, plus a fee at an annual rate of 0.40% of the average daily Net
Allocated Assets over $100 million. The term "Net Allocated Assets" means the
Allocated Assets less related liabilities as determined by the Manager or its
designee. This fee will be computed daily and paid monthly.

4. The Subadviser shall not be liable for any loss suffered by the
Series Fund or the Manager as a result of any negligent act or error of judgment
of the Subadviser in connection with the matters to which this Agreement
relates, except a loss resulting from a breach of fiduciary duty with respect to
the receipt of compensation for services (in which case any award of damages
shall be limited to the period and the amount set forth in Section 36(b)(3) of
the 1940 Act) or loss resulting from willful misfeasance, bad faith or gross
negligence on the Subadviser's part in the performance of its duties or from its
reckless disregard of its obligations and duties under this Agreement. The
Series Fund shall indemnify the Subadviser and hold it harmless from all cost,
damage and expense, including reasonable expenses for legal counsel, incurred by
the Subadviser resulting from actions from which it is relieved of
responsibility by this paragraph. The Subadviser shall indemnify the Series Fund
and the Manager and hold them harmless from all cost, damage and expense,
including reasonable expenses for legal counsel, incurred by the Series Fund and
the Manager resulting from actions from which the Subadviser is not relieved of
responsibility by this paragraph.

5. This Agreement shall continue in effect for a period of more than
two years from the date hereof only so long as such continuance is specifically
approved at least annually in conformity with the requirements of the 1940 Act;
provided, however, that this Agreement may be terminated by the Fund at any
time, without the payment of any penalty, by the Board of Directors of the
Series Fund or by vote of a majority of the outstanding voting securities (as
defined in the 1940 Act) of the Fund, or by the Manager or the Subadviser at any
time, without the payment of any penalty, on not more than 60 days' nor less
than 30 days' written notice to the other party. This Agreement shall terminate
automatically in the event of its assignment (as defined in the 1940 Act) or
upon the termination of the Management Agreement.
<PAGE> 6
-6-

6. Nothing in this Agreement shall limit or restrict the right of any
of the Subadviser's directors, officers, or employees to engage in any other
business or to devote his or her time and attention in part to the management or
other aspects of any business, whether of a similar or dissimilar nature, nor
limit the Subadviser's right to engage in any other business or to render
services of any kind to any other corporation, firm, individual, or association.

8. This Agreement may be amended by mutual consent, but the consent of
the Series Fund must be obtained in conformity with the requirements of the 1940
Act.

9. Any notice or other communication required to be given pursuant to
this Agreement shall be deemed duly given if delivered or mailed by certified or
registered mail, return receipt requested and postage prepaid, (1) to the
American Odyssey Funds, Inc. at Two Tower Center, East Brunswick, NJ 08816,
Attention: President; (2) to American Odyssey Funds Management, Inc. at Two
Tower Center, East Brunswick, NJ 08816, Attention: Secretary; or (3) to Cowen &
Co. at Financial Square, New York, New York 10005, Attention: President.

10. This Agreement shall be governed by the laws of the State of New
Jersey.

11. This Agreement may be executed in two or more counterparts, which
taken together shall constitute one and the same instrument.
<PAGE> 7
-7-

IN WITNESS WHEREOF, the parties hereto have caused this instrument to
be executed by their officers designated below as of the day and year first
above written.

AMERICAN ODYSSEY FUNDS, INC.

/s/ Lori M. Renzulli By: /s/ Paul S. Feinberg
- -------------------------- -----------------------------
Witness Lori M. Renzulli Paul S. Feinberg
Assistant Secretary Senior Vice President

AMERICAN ODYSSEY FUNDS MANAGEMENT, INC.

/s/ Lori M. Renzulli By: /s/ Paul S. Feinberg
- -------------------------- -----------------------------
Witness Lori M. Renzulli Paul S. Feinberg
Assistant Secretary Senior Vice President

COWEN & CO.

By:
- ---------------------------- -------------------------------
Witness

<PAGE> 1
[COOPERS & LYBRAND, LETTERHEAD]

CONSENT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors of
American Odyssey Funds, Inc.:

We consent to the inclusion in Post-Effective Amendment No. 7 to the
Registration Statement of the American Odyssey Funds, Inc., comprising,
respectively, the International Equity Fund, Emerging Opportunities fund, Core
Equity Fund, Long-Term Bond Fund, Intermediate-Term Bond Fund, and Short-Term
Bond Fund, (the "Funds"), on Form N-1A (File No. 33-57536) of our report dated
February 12, 1997, on our audits of the financial statements and financial
highlights of the Funds, which report is included in the Annual Report to
Shareholders for the year ended December 31, 1996 which is included in the
Post-Effective Amendment to the Registration Statement.

We also consent to the reference to our Firm in the Prospectus under the
caption, "Financial Highlights" and in the Statement of Additional Information
under the caption, "Other Service Providers".

/s/ Coopers & Lybrand L.L.P.
------------------------------
COOPERS & LYBRAND L.L.P.

Boston, Massachusetts
April 28, 1997

<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM AMERICAN
ODYSSEY FUNDS, INC. FORM N-SAR FOR THE PERIOD ENDED DECEMBER 31, 1996 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<SERIES>
<NUMBER> 1
<NAME> AMERICAN ODYSSEY INTERNATIONAL EQUITY FUND

<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<INVESTMENTS-AT-COST> 146,581,610
<INVESTMENTS-AT-VALUE> 177,519,861
<RECEIVABLES> 15,519,175
<ASSETS-OTHER> 6,873
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 193,045,909
<PAYABLE-FOR-SECURITIES> 897,748
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 5,038,913
<TOTAL-LIABILITIES> 5,936,661
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 154,421,520
<SHARES-COMMON-STOCK> 12,410,280
<SHARES-COMMON-PRIOR> 7,264,073
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 19,402
<ACCUMULATED-NET-GAINS> 862,014
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 31,845,116
<NET-ASSETS> 187,109,248
<DIVIDEND-INCOME> 2,759,372
<INTEREST-INCOME> 247,119
<OTHER-INCOME> 0
<EXPENSES-NET> 1,054,502
<NET-INVESTMENT-INCOME> 1,951,989
<REALIZED-GAINS-CURRENT> 3,823,733
<APPREC-INCREASE-CURRENT> 22,072,465
<NET-CHANGE-FROM-OPS> 27,848,187
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 3,751,066
<DISTRIBUTIONS-OF-GAINS> 903,958
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 6,422,181
<NUMBER-OF-SHARES-REDEEMED> 1,346,257
<SHARES-REINVESTED> 70,283
<NET-CHANGE-IN-ASSETS> 94,994,703
<ACCUMULATED-NII-PRIOR> 48,120
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 341,067
<GROSS-ADVISORY-FEES> 823,891
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,089,100
<AVERAGE-NET-ASSETS> 127,124,894
<PER-SHARE-NAV-BEGIN> 12.68
<PER-SHARE-NII> 0.29
<PER-SHARE-GAIN-APPREC> 2.48
<PER-SHARE-DIVIDEND> 0.30
<PER-SHARE-DISTRIBUTIONS> 0.07
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 15.08
<EXPENSE-RATIO> 0.86
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.00

</TABLE>

<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM AMERICAN
ODYSSEY FUNDS, INC. FORM N-SAR FOR THE PERIOD ENDED DECEMBER 31, 1996 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<SERIES>
<NUMBER> 2
<NAME> AMERICAN ODYSSEY EMERGING OPPORTUNITIES FUND

<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<INVESTMENTS-AT-COST> 158,790,825
<INVESTMENTS-AT-VALUE> 178,951,995
<RECEIVABLES> 11,842,173
<ASSETS-OTHER> 6,739
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 190,800,907
<PAYABLE-FOR-SECURITIES> 4,810,030
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 14,712,661
<TOTAL-LIABILITIES> 19,522,691
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 156,694,765
<SHARES-COMMON-STOCK> 12,764,369
<SHARES-COMMON-PRIOR> 10,462,738
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 5,577,719
<ACCUM-APPREC-OR-DEPREC> 20,161,170
<NET-ASSETS> 171,278,216
<DIVIDEND-INCOME> 228,948
<INTEREST-INCOME> 510,750
<OTHER-INCOME> 0
<EXPENSES-NET> 1,401,308
<NET-INVESTMENT-INCOME> (661,610)
<REALIZED-GAINS-CURRENT> 9,311,902
<APPREC-INCREASE-CURRENT> (16,078,616)
<NET-CHANGE-FROM-OPS> (7,428,324)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 14,364,919
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 6,669,075
<NUMBER-OF-SHARES-REDEEMED> 4,810,444
<SHARES-REINVESTED> 443,000
<NET-CHANGE-IN-ASSETS> 14,085,332
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 524,702
<GROSS-ADVISORY-FEES> 1,169,885
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,401,308
<AVERAGE-NET-ASSETS> 194,524,424
<PER-SHARE-NAV-BEGIN> 15.02
<PER-SHARE-NII> 0.00
<PER-SHARE-GAIN-APPREC> 0.47
<PER-SHARE-DIVIDEND> 0.00
<PER-SHARE-DISTRIBUTIONS> 1.13
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 13.42
<EXPENSE-RATIO> 0.72
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.00

</TABLE>

<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<INVESTMENTS-AT-COST> 216,790,498
<INVESTMENTS-AT-VALUE> 282,684,881
<RECEIVABLES> 7,677,560
<ASSETS-OTHER> 6,674
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 290,369,115
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 16,597,589
<TOTAL-LIABILITIES> 16,597,589
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 203,531,175
<SHARES-COMMON-STOCK> 17,673,755
<SHARES-COMMON-PRIOR> 13,795,844
<ACCUMULATED-NII-CURRENT> 47,896
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 4,298,072
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 65,894,383
<NET-ASSETS> 273,771,526
<DIVIDEND-INCOME> 5,967,921
<INTEREST-INCOME> 272,595
<OTHER-INCOME> 0
<EXPENSES-NET> 1,577,030
<NET-INVESTMENT-INCOME> 4,660,486
<REALIZED-GAINS-CURRENT> 15,834,337
<APPREC-INCREASE-CURRENT> 30,480,771
<NET-CHANGE-FROM-OPS> 50,975,594
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 4,697,100
<DISTRIBUTIONS-OF-GAINS> 11,536,265
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 6,205,107
<NUMBER-OF-SHARES-REDEEMED> 2,966,421
<SHARES-REINVESTED> 639,225
<NET-CHANGE-IN-ASSETS> 90,036,717
<ACCUMULATED-NII-PRIOR> 84,510
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 4,829
<GROSS-ADVISORY-FEES> 1,362,267
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,624,640
<AVERAGE-NET-ASSETS> 238,594,097
<PER-SHARE-NAV-BEGIN> 13.32
<PER-SHARE-NII> 0.26
<PER-SHARE-GAIN-APPREC> 2.83
<PER-SHARE-DIVIDEND> 0.27
<PER-SHARE-DISTRIBUTIONS> 0.65
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 15.49
<EXPENSE-RATIO> 0.68
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.00

</TABLE>

<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<INVESTMENTS-AT-COST> 163,518,452
<INVESTMENTS-AT-VALUE> 162,673,605
<RECEIVABLES> 37,130,331
<ASSETS-OTHER> 6,729
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 199,810,665
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 39,116,149
<TOTAL-LIABILITIES> 39,116,149
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 161,137,614
<SHARES-COMMON-STOCK> 15,828,492
<SHARES-COMMON-PRIOR> 10,887,947
<ACCUMULATED-NII-CURRENT> 242,735
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 207,536
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (893,369)
<NET-ASSETS> 160,694,516
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 9,353,294
<OTHER-INCOME> 0
<EXPENSES-NET> 903,120
<NET-INVESTMENT-INCOME> 8,450,174
<REALIZED-GAINS-CURRENT> (650,445)
<APPREC-INCREASE-CURRENT> (4,201,977)
<NET-CHANGE-FROM-OPS> 3,597,752
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 8,175,364
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 6,272,737
<NUMBER-OF-SHARES-REDEEMED> 2,305,243
<SHARES-REINVESTED> 973,051
<NET-CHANGE-IN-ASSETS> 46,082,094
<ACCUMULATED-NII-PRIOR> 1,552,790
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 1,077,489
<GROSS-ADVISORY-FEES> 718,488
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 903,120
<AVERAGE-NET-ASSETS> 143,700,290
<PER-SHARE-NAV-BEGIN> 10.53
<PER-SHARE-NII> 0.50
<PER-SHARE-GAIN-APPREC> 0.36
<PER-SHARE-DIVIDEND> 0.52
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 10.15
<EXPENSE-RATIO> 0.63
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.00

</TABLE>

<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM AMERICAN
ODYSSEY FUNDS, INC. FORM N-SAR FOR THE PERIOD ENDED DECEMBER 31, 1996 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<SERIES>
<NUMBER> 5
<NAME> AMERICAN ODYSSEY INTERMEDIATE-TERM BOND FUND

<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<INVESTMENTS-AT-COST> 90,894,771
<INVESTMENTS-AT-VALUE> 90,696,685
<RECEIVABLES> 831,865
<ASSETS-OTHER> 6,776
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 91,535,326
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 5,150,252
<TOTAL-LIABILITIES> 5,150,252
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 85,941,589
<SHARES-COMMON-STOCK> 8,470,117
<SHARES-COMMON-PRIOR> 7,081,020
<ACCUMULATED-NII-CURRENT> 165,695
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 475,876
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (198,086)
<NET-ASSETS> 86,385,074
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 5,693,888
<OTHER-INCOME> 0
<EXPENSES-NET> 582,585
<NET-INVESTMENT-INCOME> 5,111,303
<REALIZED-GAINS-CURRENT> 488,591
<APPREC-INCREASE-CURRENT> (1,945,622)
<NET-CHANGE-FROM-OPS> 3,654,272
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 4,980,334
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 3,298,559
<NUMBER-OF-SHARES-REDEEMED> 2,367,065
<SHARES-REINVESTED> 457,603
<NET-CHANGE-IN-ASSETS> 12,904,592
<ACCUMULATED-NII-PRIOR> 2,125
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 370,385
<GROSS-ADVISORY-FEES> 442,594
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 582,585
<AVERAGE-NET-ASSETS> 88,518,834
<PER-SHARE-NAV-BEGIN> 10.38
<PER-SHARE-NII> 0.61
<PER-SHARE-GAIN-APPREC> 0.20
<PER-SHARE-DIVIDEND> 0.59
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 10.20
<EXPENSE-RATIO> 0.66
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.00

</TABLE>

<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM AMERICAN
ODYSSEY FUNDS, INC. FORM N-SAR FOR THE PERIDO ENDED DECEMBER 31, 1996 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<SERIES>
<NUMBER> 6
<NAME> AMERICAN ODYSSEY SHORT-TERM BOND FUND

<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<INVESTMENTS-AT-COST> 49,684,540
<INVESTMENTS-AT-VALUE> 49,595,185
<RECEIVABLES> 926,905
<ASSETS-OTHER> 6,853
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 50,528,943
<PAYABLE-FOR-SECURITIES> 7,907
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1,848,120
<TOTAL-LIABILITIES> 1,856,027
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 48,820,342
<SHARES-COMMON-STOCK> 4,754,313
<SHARES-COMMON-PRIOR> 2,530,211
<ACCUMULATED-NII-CURRENT> 45,487
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 103,597
<ACCUM-APPREC-OR-DEPREC> (89,316)
<NET-ASSETS> 48,672,916
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 2,009,975
<OTHER-INCOME> 0
<EXPENSES-NET> 242,270
<NET-INVESTMENT-INCOME> 1,767,705
<REALIZED-GAINS-CURRENT> 75,014
<APPREC-INCREASE-CURRENT> (585,095)
<NET-CHANGE-FROM-OPS> 1,257,624
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 1,745,696
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 2,826,896
<NUMBER-OF-SHARES-REDEEMED> 729,123
<SHARES-REINVESTED> 126,329
<NET-CHANGE-IN-ASSETS> 22,817,603
<ACCUMULATED-NII-PRIOR> 18,374
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 213,064
<GROSS-ADVISORY-FEES> 161,395
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 220,972
<AVERAGE-NET-ASSETS> 32,279,024
<PER-SHARE-NAV-BEGIN> 10.22
<PER-SHARE-NII> 0.37
<PER-SHARE-GAIN-APPREC> 0.02
<PER-SHARE-DIVIDEND> 0.37
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 10.24
<EXPENSE-RATIO> 0.68
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.00

</TABLE>