AMERICAN ODYSSEY FUNDS INC /MD/, 485APOS, 1998-03-02

AMERICAN ODYSSEY FUNDS INC /MD/
485APOS, 1998-03-02

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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 2, 1998

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. 8

AND
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940

AMENDMENT NO. 9

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

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

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

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

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

[X] ON MAY 1, 1998 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

PROSPECTUS AMERICAN ODYSSEY FUNDS, INC.

May 1, 1998

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

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 a Fund will achieve its objective.

AMERICAN ODYSSEY GLOBAL HIGH-YIELD BOND FUND -- seeks maximum long-term
total return (capital appreciation and income) by investing primarily in
high-yield debt securities (which are sometimes referred to as junk bonds and
which typically are rated below investment grade) from the United States and
abroad.

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.

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 that you, as a
purchaser or prospective purchaser of a variable contract or as a participant
in a qualified retirement plan, should know before directing that amounts
credited to you be invested in the Funds. You should retain this prospectus
for future reference.

American Odyssey Funds, Inc., has filed a Statement of Additional
Information with the Securities and Exchange Commission. This prospectus
incorporates the Statement of Additional Information by reference. You may
obtain the Statement of Additional Information, 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 (732) 514-2000. The date of the Statement
of Additional Information is the same as the date of this prospectus.

- - --------------------------------------------------------------------------------
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE
ADEQUACY OR ACCURACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
- - --------------------------------------------------------------------------------

1
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PROSPECTUS CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Summary of Expenses . . . . . . . . . . . . . . . . . . . . . .
Financial Highlights . . . . . . . . . . . . . . . . . . . . .
General Information . . . . . . . . . . . . . . . . . . . . . .
Investment Objectives and Programs . . . . . . . . . . . . . .
American Odyssey Global High-Yield Bond Fund . . . . . . .
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 . . . . . . .
Additional Investment Information . . . . . . . . . . . . . . .
Options . . . . . . . . . . . . . . . . . . . . . . . . .
Futures Contracts . . . . . . . . . . . . . . . . . . . .
Preferred Stocks, Convertible Securities, and Warrants . .
Short Sales Against the Box . . . . . . . . . . . . . . .
When-Issued and Delayed Delivery Securities . . . . . . .
Lending of Portfolio Securities . . . . . . . . . . . . .
Investment Restrictions . . . . . . . . . . . . . . . . .
Management of the Funds . . . . . . . . . . . . . . . . . . . .
Directors and Officers . . . . . . . . . . . . . . . . . .
Manager . . . . . . . . . . . . . . . . . . . . . . . . .
Subadvisers . . . . . . . . . . . . . . . . . . . . . . .
Custodian and Transfer Agent . . . . . . . . . . . . . . .
Purchase and Redemption of Shares . . . . . . . . . . . . . . .
Performance Information . . . . . . . . . . . . . . . . . . . .
Federal Income Taxes . . . . . . . . . . . . . . . . . . . . .
Other Information . . . . . . . . . . . . . . . . . . . . . . .
Voting Rights . . . . . . . . . . . . . . . . . . . . . .
Portfolio Brokerage . . . . . . . . . . . . . . . . . . .
Monitoring for Possible Conflict . . . . . . . . . . . . .
Conversion of Short-Term Bond Fund
to Global High-Yield Bond Fund . . . . . . . . . . .
Previous Subadviser for Emerging Opportunities Fund . . .
Additional Information . . . . . . . . . . . . . . . . . .
Appendix . . . . . . . . . . . . . . . . . . . . . .
Additional Information Regarding Money Market Instruments.
Ratings of Debt Securities . . . . . . . . . . . . . . . .
Ratings of Commercial Paper . . . . . . . . . . . . . . .
</TABLE>

2
<PAGE> 7
- - -------------------
SUMMARY OF EXPENSES

The following table shows Fund expenses, expressed as an annual
percentage of average net assets. Except where noted, expenses shown were the
Funds' actual expenses for 1997. If you have received 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>
GLOBAL LONG- INTERMEDIATE-
HIGH-YIELD INT'L EMERGING CORE TERM TERM
BOND EQUITY OPPORTUNITIES EQUITY BOND BOND
FUND FUND FUND FUND FUND 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) . . . . . . . . . . . . 0.__%(1) 0.__% 0.__%(2) 0.__% 0.__% 0.__%
Management Fees . . . . . . . . . .
12b-1 Fees . . . . . . . . . . . . None None None None None None
Other Expenses . . . . . . . . . . 0.__%(1) 0.__% 0.__% 0.__% 0.__% 0.__%
TOTAL FUND OPERATING EXPENSES . . . 0. %(1) 0. % 0. %(2) 0. % 0. % 0. %
-- -- -- -- -- --
</TABLE>

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

1 The management fee and other expenses for the Global High-Yield Bond
Fund are estimates and are not based upon 1997 Fund expenses. Prior
to May 1, 1998, the Global High-Yield Bond Fund was named the
Short-Term Bond Fund and had a substantially different investment
objective and investment program. Information about the Short-Term
Bond Fund is unlikely to be helpful to investors and potential
investors in the Global High-Yield Bond Fund. See Conversion of
Short-Term Bond Fund to Global High-Yield Bond Fund on page __.

2 The management fee listed for the Emerging Opportunities Fund is an
estimate. Actual management fees will depend upon the Fund's average
daily net assets and how the Manager allocates those assets between
the Fund's two subadvisers, one of which is new as of May 1, 1998. The
estimate that appears above assumes (a) that the Fund has average
daily net assets of $____, which equals the Fund's net assets as of
December 31, 1997, and (b) that the Manager allocates the Fund's
assets equally between the Fund's two subadvisers.

The purpose of the following example is to assist you 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>
GLOBAL LONG- INTERMEDIATE-
HIGH-YIELD INT'L EMERGING CORE TERM TERM
BOND EQUITY OPPORTUNITIES EQUITY BOND BOND
FUND FUND FUND FUND FUND FUND
------------- -------- ------------ ------ ------ -----------
<S> <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 . . . . . . . . . . . .
3 years . . . . . . . . . . . .
5 years . . . . . . . . . . . .
10 years . . . . . . . . . . . .
</TABLE>

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

3
<PAGE> 8
- - --------------------
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.

[Tables to be added by post-effective amendment]

4
<PAGE> 9
- - -------------------
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.

The Company utilizes a Manager/Subadviser structure for advisory services.
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. For those Funds with
more than one subadviser (currently, only the Emerging Opportunities Fund), the
Manager allocates the Fund's assets between or among the Fund's subadvisers.
Pursuant to an order issued by the Securities and Exchange Commission, the
Company's Board of Directors may change or add subadvisers, or amend existing
subadvisory agreements in certain respects, without shareholder approval. For
more information, see Subadvisers on page __. The current subadvisers are set
forth below.

<TABLE>
<CAPTION>
FUND SUBADVISER(S)
---- ----------------
<S> <C>
American Odyssey Global High-Yield BEA Associates
Bond Fund

American Odyssey International Equity Bank of Ireland Asset Management
Fund (U.S.) Limited

American Odyssey Emerging Cowen Asset Management and
Opportunities Fund Chartwell Investment Partners

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
</TABLE>

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

- - -------------------------------
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, which means that the
Board of Directors of the Company may change them without shareholder approval.
The Statement of Additional Information contains additional information
regarding these investment practices and their associated risks.

AMERICAN ODYSSEY GLOBAL HIGH-YIELD BOND FUND

Investment Objective. The investment objective of the Global High-Yield
Bond Fund is maximum long-term total return (capital appreciation and income)
by investing primarily in high-yield debt securities (which sometimes are
referred to as junk bonds and which typically are rated below investment grade)
from the United States and abroad.

Investment Program. To achieve its objective, the Fund generally invests at
least 85% of its assets in a diversified portfolio of (1) domestic high-yield
debt securities; (2) foreign high-yield debt securities, particularly from
emerging markets; (3) investment-grade debt securities; (4) equity securities
with high income potential or that are related to debt securities; (5)
mortgage-related securities; (6) asset-backed securities; (7) U.S. government
securities; and (8) money market instruments. Most securities in which the
Fund invests are characterized by high income potential, but in selecting
securities the Fund's subadviser also considers potential for growth of
capital. The Manager and the Fund's subadviser currently intend to weight the
Fund's portfolio more heavily toward domestic, rather than foreign, high-yield
debt securities.

Domestic high-yield debt. The portfolio ordinarily includes a substantial
number of bonds and other debt securities that, as a class, sell

5
<PAGE> 10

at discounts from par value. These securities, sometimes referred to as junk
bonds, are generally rated below investment grade by nationally recognized
statistical rating organizations ("NRSROs") -- for example, ratings of Ba or
lower by Moody's Investors Service, Inc. ("Moody's") or of BB or lower by
Standard & Poor's Corporation ("S&P") -- and are typically considered high
risk securities. The Fund may also purchase unrated debt securities of
comparable quality. The Fund may invest in a debt security of any rating;
i.e., there is no minimum rating. For a description of Moody's and S&P's
ratings, see the Appendix.

The Fund may purchase specialized types of high-yield securities such as,
but not limited to, zero coupon bonds, pay-in-kind ("PIK") bonds, reset bonds,
and increasing rate notes ("IRNs"), each of which is described in the Statement
of Additional Information.

Foreign high-yield debt. The portfolio ordinarily also includes a
substantial number of bonds or other debt instruments issued by foreign
companies or governmental agencies that, like domestic high-yield debt
securities, sell at discounts from par value. Some or all of these securities
may issue from emerging markets, i.e., countries with limited or developing
capital markets. The portfolio's foreign securities may be denominated in
foreign or U.S. currencies. Like their domestic counterparts, these securities
are generally rated below investment grade by NRSROs or are unrated, are
typically considered high risk securities, and may be referred to as junk
bonds.

Investment-grade debt. The Fund may also invest in investment-grade debt,
i.e., corporate and other debt securities rated at least Baa by Moody's or at
least BBB by S&P at the time of purchase, or other debt securities judged to be
of comparable quality by another NRSRO or by the subadviser. For a description
of Moody's and S&P's ratings, see the Appendix. The Fund may invest in
investment-grade debt securities issued in the United States or issued in
foreign countries. Foreign debt securities may be denominated in either U.S.
or foreign currencies.

Equity securities. The Fund may invest in equity securities, including
both preferred and common stock, that the subadviser believes has
potential to generate high dividend income. The Fund may also invest in
convertible securities, warrants, and units that combine debt and equity
securities or that share characteristics of each. The Fund may retain
equity securities acquired if the Fund exercises conversion options in
securities it holds. Equity securities held by the Fund be may issued by
domestic or foreign corporations. The risks of investing in domestic and
foreign equity securities are discussed below in connection with the
International Equity Fund, the Emerging Opportunities Fund, and the Core
Equity Fund. In addition to the risks ordinarily associated with equity
securities, the equity securities in which the Fund may invest may be
subject to some or all of the risks associated with investment-grade
and/or high-yield debt securities.

Mortgage-related securities, asset-backed securities, U.S. government
securities, and money market instruments (including repurchase agreements
and reverse repurchase agreements). The Fund may also invest in these
securities, which are described below in connection with the Long-Term
Bond Fund. The Fund generally will invest in money market instruments
only for temporary, defensive, or liquidity purposes.

Risks of Investing in Emerging Market and Other Foreign Securities. General
information about the risks of investing in foreign securities is set forth
below in connection with the International Equity Fund. The risks of
international investing may be intensified in the case of investments in
emerging markets. Security prices in emerging markets can be significantly
more volatile than in the more developed nations of the world, reflecting the
greater uncertainties of investing in less established markets and economies.
In particular, countries with emerging markets may have relatively unstable
governments, present the risk of nationalization of businesses, restrictions on
foreign ownership, or prohibitions of repatriation of assets, and may have less
protection of property rights than more developed countries. The economies of
countries with emerging markets may be predominantly based on only a few
industries, may be highly vulnerable to changes in local or global trade
conditions, and may suffer from extreme and volatile debt burdens or inflation
rates. Local securities markets may trade a small number of securities and may
be unable to respond effectively to increases in trading volume, potentially
making prompt liquidation of substantial holdings difficult or impossible at
times. Securities of issuers located in countries with emerging markets may
have limited marketability and may be subject to more abrupt or erratic price
movements. Foreign issuers, particularly those in emerging markets, are
generally not bound by uniform accounting, auditing, and financial reporting
requirements and standards of practice comparable to those applicable to U.S.
issuers.

The following countries currently are not considered to have emerging market
economies: Australia, Austria, Belgium, Canada, Denmark, Finland, France,
Germany, Ireland, Italy, Japan, the Netherlands, New Zealand, Norway, Spain,
Sweden, Switzerland, the United Kingdom, and the United States. This list may
change from time to time.

Foreign Currency Forward Contracts. To facilitate the purchase and sale of
foreign securities and to manage foreign exchange risk, the

6
<PAGE> 11

Fund may enter into forward contracts to purchase or sell foreign currencies.
Although such instruments may reduce the risk of loss due to a decline in the
value of the currency that is sold, they also limit any possible gain that
might result should the currency increase. Similarly, although such
instruments are used primarily to protect a Fund from adverse currency
movements, they also involve the risk that anticipated currency movements will
be accurately predicted, thus adversely affecting the Fund's total return.
More information is set forth below in connection with the International Equity
Fund and in the Statement of Additional Information.

In addition, the Fund may enter into such forward contracts for investment
purposes as well as for hedging purposes. Successful investment in foreign
currency forward contracts depends upon the subadviser's ability accurately to
forecast changes in foreign currency exchange rates, and such investments may
be considered speculative. Making such forecasts involves techniques and
capabilities different from those required to analyze debt or equity
securities.

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 investors. The general
risk inherent in investing in the Fund is that the net asset value will
fluctuate in response to changes in economic conditions, interest rates, and
the market's perception of the underlying portfolio securities of the Fund.
Income and yields on high-yield securities, as on all securities, will
fluctuate over time.

In addition, special considerations pertain to high-yield securities. The
Fund invests aggressively and seeks to maximize return over time from a
combination of many factors, including high current income and capital
appreciation. Such aggressive investing involves greater risk and additional
considerations than are present when investing in higher quality debt
securities. These risks and considerations relate, among other things, to:
(1) the speculative nature of high-yield securities, (2) their sensitivity to
interest rate and economic changes, (3) payment expectations, and (4) liquidity
and valuation issues. While these risks, which are described below, provide
the opportunity for maximizing return over time, they may result in greater
fluctuation of the net asset value of the Fund's shares.

Speculative nature of high-yield securities. Bonds rated below investment
grade generally involve greater volatility of price and risk of principal and
income than bonds in the higher rating categories and are, on balance,
considered predominantly speculative. While such bonds will usually have some
quality and protective characteristics, these characteristics are outweighed by
uncertainties of major risk exposures to adverse conditions. The Fund's
subadviser will attempt to control risk through diversification, credit
analysis, review of sector and industry trends, interest rate forecasts, and
economic analysis, as well as fundamental analysis of individual securities.
The Fund's subadviser performs its own credit analyses of the Fund's
investments, obtains research from third-party sources, and does not rely
solely on ratings assigned by rating services; as a result, achievement of the
Fund's investment objective may be more dependent on the subadviser's credit
analyses than is the case for Funds that invest in higher quality bonds. The
subadviser will monitor the issuers of the Fund's securities to determine if
they will have sufficient cash flow and profits to meet required principal and
interest payments. Credit ratings are meant to evaluate the safety of bond
principal and interest payments, and do not necessarily serve as a proxy for
the market value risk of a high-yield security. The Fund may retain a security
whose NRSRO credit rating has changed.

Sensitivity to Interest Rate and Economic Changes. As a general matter, the
yields of high-yield securities will fluctuate over time. The prices of
high-yield bonds tend to be less sensitive to interest rate changes than
higher-rated debt securities, but are more sensitive to adverse economic
changes or individual corporate developments. During an economic downturn or
substantial period of rising interest rates, highly leveraged issuers may
experience financial stress that can adversely affect their ability to service
their principal and interest payment obligations, to meet projected business
goals, and to obtain additional financing. Such events could severely disrupt
the market for high-yield bonds and adversely affect the value of outstanding
bonds and the ability of the issuers to repay principal and interest, leading
to a greater incidence of default. If the issuer of a bond defaulted, the Fund
may incur additional expenses to seek recovery. Periods of economic
uncertainty and changes can be expected to result in increased volatility of
market prices of high-yield securities and therefore in the Fund's asset value.

Payment Expectations. High-yield bonds present certain risks based on
payment expectations. For example, high-yield bonds may contain redemption or
call provisions. If an issuer exercises such a provision in a declining
interest rate market, the Fund may have to replace the security with a lower
yielding security, resulting in a decreased return for investors.

Liquidity and Valuation. Some high-yield securities may lack an
established retail secondary market and therefore may be thinly traded.
This may make it more difficult to value such securities accurately or to
sell them. To the extent reliable data is unavailable from an outside
source, the subadviser's judgment will play a greater role in valuation.
Adverse publicity and investor perceptions, whether or not based on
fundamental analysis, may decrease the value and liquidity of high-yield
bonds, especially in a thinly-traded

7
<PAGE> 12

market. In addition, illiquid or restricted high-yield securities may
involve special registration responsibilities, liabilities, and costs.

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 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 investors. An investor
who selects this Fund will incur the risks generally associated with investment
in equity securities. But an investor 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

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<PAGE> 13
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.

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 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 investors. 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,
investors 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., the 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.

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 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 investors. 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

9
<PAGE> 14

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 investors 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, to the
extent the Fund invests in foreign securities, although investments in such
securities and in foreign currency forward contracts are intended to reduce
overall risk by providing further diversification, these 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.

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 corporate debt that has been
rated investment grade by a nationally recognized statistical rating
organization ("NRSRO"), e.g., 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.

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 most 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.

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<PAGE> 15
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 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 by an NRSRO, e.g., securities with a
Moody's rating of Ba or lower, or with an S&P rating of BB or lower. The Fund
may also purchase unrated corporate debt securities that the subadviser
determines to be of comparable quality. While debt securities rated below
investment grade, sometimes referred to as junk bonds, generally offer a higher
yield than higher-rated securities, they involve additional risks. More
information about high-yield debt and its risks is set forth above in
connection with the Global High-Yield Bond Fund and in the Statement of
Additional Information.

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 investors. 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 the
Intermediate-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 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.

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 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 debt securities that have been rated
investment grade by a nationally recognized statistical rating organization
("NRSRO"), e.g., corporate debt rated at least Baa by Moody's Investors
Service, Inc. ("Moody's") or at least BBB by Standard

11
<PAGE> 16

& Poor's Corporation ("S&P") at the time of purchase, or unrated debt
securities that the subadviser determines to be of comparable quality. The
Fund may invest up to 15% of its assets in high-yield debt securities with
lower ratings (or comparable unrated securities 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 Global
High-Yield Bond Fund and in the Statement of Additional Information.

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 investors. 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 less fluctuation in value 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.

----------------------------
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 Global High-Yield Bond Fund, 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; 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). The Statement of Additional
Information contains further details concerning the Funds' use of options and
the risks involved.

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 Global High-Yield Bond Fund, 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

12
<PAGE> 17

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. The Statement of
Additional Information contains further details concerning the Funds' use of
futures contracts and the risks involved.

Preferred Stocks, Convertible Securities, and Warrants. Each 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 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 Global High-Yield Bond Fund, 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 __) of the persons having
voting rights with respect to the affected Fund. Investment limitations may
also arise under state insurance laws and regulations, and each 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.

MANAGEMENT OF THE FUNDS

DIRECTORS AND OFFICERS

The affairs of the Company are managed under the direction of its Board of
Directors. The Company utilizes a Manager/Subadviser structure for advisory
services. The Directors decide upon matters of general policy and review the
actions of the Company's investment manager and subadvisers. Pursuant to an
order issued by the Securities and Exchange Commission, the Company's Board of
Directors may change or add subadvisers, or amend existing shareholder
agreements in certain respects, without shareholder approval. For more
information, see Subadvisers on page __.

The Company is responsible for the payment of certain fees and expenses
including, among others, the following: (1) management and

13
<PAGE> 18

investment advisory and subadvisory 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. The Manager continues
to have ultimate 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 subadvisers and recommending to the Directors
whether subadvisers' contracts should be renewed, modified, or terminated, and
whether new subadvisers should be hired. For those Funds with more than one
subadviser, the Manager allocates and, if appropriate, reallocates the Fund's
assets between or among the Fund's subadvisers. 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 an annual rate of 0.25% of the Fund's average net assets. Each
Fund pays its respective subadviser(s) directly, at the rates described below.
Prior to May 1, 1998, the Manager paid each of the subadvisers out of the fees
it received from the Funds. The Manager's fees (prior to any adjustment for
the expense limitation agreement) at that time were equal to an annual rate of
the amount the Manager paid each subadviser plus 0.25% of each Fund's average
daily net assets. Thus, during 1997, the Manager's net fee for each Fund,
after paying the subadviser(s) for that Fund, but prior to any adjustment for
the expense limitation agreement, was 0.25% of that Fund's average net assets.

SUBADVISERS

Each Fund pays its subadviser (or, for any Fund with more than one
subadviser, each of its subadvisers) 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 allocated to that subadviser. Thus, for a Fund with
one subadviser, the subadviser's fee is based upon the average daily net assets
of the entire Fund; for a Fund with more than one subadviser, the subadviser's
fee is based upon the average daily net assets actually allocated to that
subadviser.

14
<PAGE> 19

<TABLE>
<CAPTION>
FUND & SUBADVISER SUBADVISER'S FEE
----------------- ----------------
<S> <C>
Global High-Yield Bond Fund
- BEA Associates 0.425% of assets

International Equity Fund
- Bank of Ireland Asset Management (U.S.) 0.45% for first $50 million in assets, plus
Limited 0.40% for next $50 million in assets, plus
0.30% for assets over $100 million
Emerging Opportunities Fund
- Cowen Asset Management 0.50% for first $50 million in assets, plus
0.45% for next $50 million in assets, plus
0.40% for assets over $100 million

- Chartwell Investment Partners 0.70% for first $50 million in assets, plus
0.50% for next $50 million in assets, plus
0.45% for assets over $100 million

Core Equity Fund
- Equinox Capital Management, Inc. 0.35% for first $100 million in assets, plus
0.30% for assets over $100 million

Long-Term Bond Fund
- Western Asset Management Company 0.25% for first $250 million in assets, plus
0.15% for assets over $250 million
Intermediate-Term Bond Fund
- Travelers Asset Management International 0.25% for first $100 million in assets, plus
Corporation 0.20% for next $100 million in assets, plus
0.25% for assets over $200 million
</TABLE>

The fees the subadvisers receive are generally lower than the fees the
subadvisers charge to institutional clients to which they provide investment
services or advice. The subadvisers 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.

The Company has obtained an order from the Securities and Exchange
Commission that permits the Board of Directors to change subadvisers, hire
additional subadvisers, or amend existing subadvisory agreements without
shareholder approval. The new or amended subadvisory agreements may have
different fee structures or rates than the current agreements, subject to the
following maximum annual rates expressed as a percentage of average daily net
assets: Global High-Yield Bond Fund, 0.525%; International Equity Fund, 0.55%;
Emerging Opportunities Fund, 0.80%; Core Equity Fund, 0.45%; Long-Term Bond
Fund, 0.35%; and Intermediate-Term Bond Fund, 0.35%.. The Board of Directors
will approve a Fund's new or amended subadvisory agreement only if the Board
determines that doing so is in the best interests of the Fund and its
shareholders. In particular, the Board will not approve a new or amended
subadvisory agreement that pays a subadvisory fee within these maximums but
higher than the Fund currently pays unless the Board determines that the new or
amended subadvisory agreement is in the best interest of the Fund and its
shareholders. Any subadvisory agreement that would pay a subadvisory fee
higher than these maximum rates would require shareholder approval in addition
to the Board's approval.

In addition, no Fund will enter into a new subadvisory agreement with any
subadviser that is an "affiliated person" of the Fund, as defined in the
Investment Company Act of 1940 (the "1940 Act"), other than by reason of
serving as subadviser to one or more Funds, without that subadvisory agreement,
including the subadvisory fee rate, being approved by shareholders. This
means, in essence, that because the Manager is a wholly-owned indirect
subsidiary of Travelers Group Inc., any new subadvisory agreement with a
subadviser that is also a subsidiary of Travelers Group Inc. will require the
approval of the Fund's shareholders, regardless what fee is paid. Currently,
for example, the subadviser

15
<PAGE> 20

for the Intermediate-Term Bond Fund is Travelers Asset Management International
Corporation ("TAMIC"), which is a wholly-owned, indirect subsidiary of
Travelers Group Inc., and accordingly an "affiliated person" of the Fund and of
the Company. Any new subadvisory agreement with TAMIC would require
shareholder approval.

In the event the Board of Directors approves the hiring of a new subadviser
for a Fund without shareholder approval, the Company will, within ninety days
of the effective date of the subadvisory agreement, send all of that Fund's
shareholders an informational statement informing them of the changes. The
statement will include information about any changes caused by the addition of
the new subadviser, including any applicable changes in fees.

Pursuant to the order obtained from the Securities and Exchange Commission
granting the Board of Directors authority to enter into subadvisory agreements
without shareholder approval, the Company has agreed to comply with certain
conditions, some of which are discussed above, and all of which are set forth
in full in the Statement of Additional Information.

Set forth below is information about each of the current 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, an Irish corporation. 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, 1997, the Bank of Ireland managed
more than $_____ billion in global securities for U.S. clients. The Fund
currently pays BIAM, on a monthly basis, an annual subadvisory 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. During 1997, BIAM's fees (which were at that time
paid by the Manager rather than by the Fund) amounted to 0.__% of the Fund's
average daily net assets. 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.

BEA ASSOCIATES ("BEA") serves as subadviser for the Global High-Yield Bond
Fund. Its offices are at One Citicorp Center, 153 East 53rd Street, New York,
New York 10022. It is an indirect wholly-owned subsidiary of Credit Suisse
Group, a Swiss corporation. BEA serves as an investment adviser to a variety
of individual and institutional investors, including mutual funds. As of
December 31, 1997, BEA managed more than $34 billion of assets, and Credit
Suisse Asset Management, a group of affiliated companies of which BEA is a
member, together managed more than $128 billion of assets in the United States
and abroad. The Fund currently pays BEA, on a monthly basis, an annual
subadvisory fee at the rate of 0.425% of the average daily net assets of the
Fund. BEA first began serving as subadviser for the Global High-Yield Bond
Fund effective May 1, 1998, and thus did not receive any subadvisory fees in
1997. The following individuals are responsible for the day-to-day management
of the Global High-Yield Bond Fund:

Richard Lindquist serves as Executive Director and is a Portfolio Manager at
BEA and heads its high-yield portfolio team. Mr. Lindquist joined BEA in 1995
as a result of BEA's acquisition of CS First Boston Investment Management.
Prior to joining CS First Boston, Mr. Lindquist worked for Prudential Insurance
Company of America, where he managed high-yield portfolios totaling
approximately $1.3 billion, and T. Rowe Price Associates, where he managed a
high-yield bond mutual fund.

Gregg Diliberto serves as Managing Director and is a Portfolio Manager at
BEA, where he is responsible for the interest rate sensitivity of all BEA bond
assignments and the management of structured fixed income portfolios (domestic
and international) and insurance accounts. His work includes managing interest
rate futures, options, municipals, and convertibles, as well as more
conventional securities. Mr. Diliberto built BEA's proprietary computer models
for trading, option valuation, and asset liability modeling. Prior to joining
BEA in 1984, Mr. Diliberto spent seven years at Buck Consultants, where he
analyzed pension fund finances.

Diane Damskey serves as Senior Vice President and is a Portfolio Manager at
BEA. Ms. Damskey joined BEA in 1997 as a portfolio manager dedicated to
emerging markets fixed income. She has spent 16 years in investment or
financial capacities focused on emerging markets, and her experience spans the
entire universe of developing nations. Previously, she managed fixed income
portfolios at Global Emerging Markets Advisors; developed and marketed emerging
market debt strategies for The First National Bank of Chicago; advised and
represented the Republic of Venezuela regarding the restructuring of its
commercial bank debt into Brady bonds while at Shearson Lehman Hutton; and
served as a credit officer and risk analyst at Manufacturers Hanover Trust
Company.

16
<PAGE> 21

CHARTWELL INVESTMENT PARTNERS ("Chartwell") serves as one of the two
subadvisers for the Emerging Opportunities Fund. Its offices are at 1235
Westlakes Drive, Suite 330, Berwyn, PA 19312. Chartwell serves as an
investment adviser to a variety of individual and institutional investors,
including mutual funds. As of December 31, 1997, Chartwell managed
approximately $1.25 billion of assets. The Fund currently pays Chartwell, on a
monthly basis, an annual subadvisory fee based on the average daily net assets
of the Fund at the rate of 0.70% for the first $50 million in assets, 0.50% for
the next $50 million in assets, and 0.45% for assets over $100 million.
Chartwell first began serving as a subadviser for the Emerging Opportunities
Fund effective May 1, 1998, and thus did not receive any subadvisory fees in
1997. The following individuals are responsible for the day-to-day management
of the portion of the Emerging Opportunities Fund managed by Chartwell:

Edward N. Antoian co-founded Chartwell in 1997 and is currently a partner
there. From 1984 to 1997, Mr. Antoian was a Senior Portfolio Manager at
Delaware Investment Advisers, managing institutional assets in small and
mid-cap growth styles as well as the Trend and DelCap Funds. Prior to joining
Delaware, Mr. Antoian was employed by E.F. Hutton in the institutional equity
division. Mr. Antoian has eighteen years' experience in equity investing.

David C. Dalrymple co-founded Chartwell in 1997 and is currently a partner
there. From 1991 to 1997, Mr. Dalrymple was a Portfolio Manager for Delaware
Investment Advisers, managing a small-cap value mutual fund, the Value Fund,
and previously assisting in managing mutual funds and institutional assets in
small and mid-cap styles. Prior to joining Delaware, he was an assistant
portfolio manager at Lord Abbet & Co. Mr. Dalrymple has eleven years'
experience in equity investing.

COWEN ASSET MANAGEMENT. Cowen & Co., through its investment management
division, Cowen Asset Management ("Cowen"), serves as one of the Emerging
Opportunities Fund's two subadvisers. 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, 1997, Cowen managed more than $ _____ billion of assets. The Fund
currently pays Cowen, on a monthly basis, an annual subadvisory 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. During 1997, Cowen's fees (which were at
that time paid by the Manager rather than by the Fund) amounted to 0.__% of the
average daily net assets allocated to Cowen. 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, 1997, Equinox managed more than
$_____ billion of assets. The Fund currently pays Equinox, on a monthly basis,
an annual subadvisory fee based on the average daily net assets of the Fund at
the rate of 0.35% for the first $100 million in assets plus 0.30% for assets
over $100 million. During 1997, Equinox's fees (which were at that time paid
by the Manager rather than by the Fund) amounted to 0.__% of the Fund's average
daily net assets. 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.

TRAVELERS ASSET MANAGEMENT INTERNATIONAL CORPORATION ("TAMIC") serves as
subadviser for the Intermediate-Term Bond Fund. TAMIC is a wholly-owned
indirect subsidiary of Travelers Group Inc., of which the Manager is also a
wholly-owned indirect subsidiary. TAMIC's 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, 1997, TAMIC managed more than $_____
billion of assets. The Fund currently pays TAMIC, on a monthly basis, an
annual subadvisory fee based on the average daily net assets of the

17
<PAGE> 22

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. During
1997, TAMIC's fees (which were at that time paid by the Manager rather than by
the Fund) amounted to 0.__% of the Fund's average daily net assets. 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 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 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.

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, 1997, Western Asset Management managed more than $_____ billion of
assets. The Fund currently pays Western Asset Management, on a monthly basis,
an annual subadvisory 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. During 1997, Western Asset Management's fees (which were at
that time paid by the Manager rather than by the Fund) amounted to 0.__% of the
Fund's average daily net assets. 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.

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.

- - --------------------------------
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, like the Manager, 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

18
<PAGE> 23

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 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, the First Boston
High-Yield Bond Index, and industry or financial publications of general
interest such as Business Week, Forbes and Money.

If you have purchased a variable contract that offers the American Odyssey
Funds as an investment option, you 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. You should
therefore consult your 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.

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.

The provisions of the Code and the Treasury Regulations that apply to
qualified retirement plans are complex and vary according to the type

19
<PAGE> 24
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 Section 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.

Conversion of Short-Term Bond Fund to Global High-Yield Bond Fund. Prior to
May 1, 1998, the American Odyssey Global High-Yield Bond Fund was named the
American Odyssey Short-Term Bond Fund and had a substantially different
investment objective and investment program. At a special meeting on April 24,
1998, persons having voting rights with respect to the Short Term Bond Fund
approved a proposal recommended by the Board of Directors (1) to change the
Fund's investment objective to its current one of seeking maximum long-term
total return (capital appreciation and income) by investing primarily in
high-yield debt securities (which are sometimes referred to as junk bonds and
which typically are rated below investment grade) from the United States and
abroad; (2) to approve a new investment subadvisory agreement with a new
subadviser entailing a new fee structure; and (3) to make other changes
necessary to convert the Short-Term Bond Fund to the Global High-Yield Bond
Fund. Because the converted Fund has a different investment objective,
investment program, subadviser, investment portfolio, and asset base,
information about the Short-Term Bond Fund's performance, expenses, fees, asset
base, net asset value, operations, distributions, investment portfolio, and
other data is unlikely to be helpful to investors and potential investors in
the Global High-Yield Bond Fund. Smith Graham & Co. Asset Managers, L.P.,
served as subadviser for the Short-Term Bond Fund prior to its conversion to
the Global High-Yield Bond Fund. Smith Graham's Corporate offices are at 6900
Texas Commerce Tower, 600 Travis Street, Houston, TX 77002-3007. During 1997,
Smith Graham's fees (which were paid by the Manager, not the Fund) amounted to
0.__% of the Short Term Bond Fund's average daily net assets.

Previous Subadviser for Emerging Opportunities Fund. Prior to May 1, 1998,
Wilke/Thompson Capital Management, Inc. ("Wilke/Thompson") served as one of
the Emerging Opportunities Fund's two subadvisers. Its corporate offices are
at 3800 Norwest Center, 90 South 7th Street, Minneapolis, Minnesota 55402-3934.
During 1997, its fees (which were paid by the Manager, not by the Fund)
amounted to 0.__% of the Emerging Opportunities Fund's average daily net
assets. On May 1, 1998, Chartwell Investment Partners replaced Wilke/Thompson
as a subadviser for the Fund.

20
<PAGE> 25

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

- - --------
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 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 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

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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.

C -- Bonds which are rated as C are the lowest rated class of bonds and issues
so rated can be regarded as having extremely poor prospects of ever attaining
any real investment standing.

Moody's applies numerical modifiers 1, 2 and 3 in each generic rating
classification from Aa through B in its corporate bond rating system. The
modifier 1 indicates that the security ranks in the higher end of its generic
rating category; the modifier 2 indicates a mid-range ranking; and the modifier
3 indicates that the issue ranks in the lower end of its generic rating
category.

Standard & Poor's Corporation

A Standard & Poor's Corporation (S&P) corporate bond rating is a current
assessment of the creditworthiness of an obligor, including obligors outside
the U.S., with respect to a specific obligation. This assessment may take into
consideration obligors such as guarantors, insurers, or lessees. Ratings of
foreign obligors do not take into account currency exchange and related
uncertainties. The ratings are based on current information furnished by the
issuer or obtained by S&P from other sources it considers reliable. The
ratings are based, in varying degrees, on the following considerations:

- Likelihood of default -- capacity and willingness of the obligor as to
the timely payment of interest and repayment of principal in accordance
with the terms of the obligation;

- Nature of and provisions of the obligation; and

- Protection afforded by and relative position of the obligation in the
event of bankruptcy, reorganization or other arrangement under the laws
of bankruptcy and other laws affecting creditors' rights.

To provide more detailed indications of credit quality, ratings from "AA" to
"A" may be modified by the addition of a plus or minus sign to show relative
standing within the major rating categories.

Bond ratings are as follows:

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.

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<PAGE> 27
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. As discussed in
greater detail below, while such bonds will likely have some quality and
protective characteristics, these are outweighed by large uncertainties or
major risk exposures to adverse conditions.

BB -- Bonds rated BB have less near-term vulnerability to default than other
speculative issues. However, they face major ongoing uncertainties or exposure
to adverse business, financial, or economic conditions which could lead to
inadequate capacity to meet timely interest and principal payments. The BB
rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied BBB-rating.

B -- Bonds rated B have a greater vulnerability to default but currently have
the capacity to meet interest payments and principal repayments. Adverse
business, financial, or economic conditions will likely impair capacity or
willingness to pay interest and repay principal. The B rating category is also
used for debt subordinated to senior debt that is assigned an actual or implied
BB or BB- rating.

CCC -- Bonds rated CCC have a currently identifiable vulnerability to default,
and are dependent upon favorable business, financial and economic conditions to
meet timely payment of interest and repayment of principal. In the event of
adverse business, financial, or economic conditions, they are not likely to
have the capacity to pay interest and repay principal. The CCC rating category
is also used for debt subordinated to senior debt that is assigned an actual or
implied B or B- rating.

CC -- The rating CC typically is applied to debt subordinated to senior debt
that is assigned an actual or implied CCC rating.

C -- The rating C typically is applied to debt subordinated to senior debt
which is assigned an actual or implied CCC- debt rating. The C rating may be
used to cover a situation where a bankruptcy petition has been filed, but debt
service payments are continued.

C1 -- The rating C1 is reserved for income bonds on which no interest is being
paid.

D -- Bonds rated D are in payment default. The D rating category is used when
interest payments or principal payments are not made on the date due even if
the applicable grace period has not expired, unless Standard & Poor's believes
that such payments will be made during such grace period. The D rating also
will be used upon the filing of a bankruptcy petition if debt service payments
are jeopardized.

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.

23
<PAGE> 28
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.

24
<PAGE> 29
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================================================

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, 1998

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. You should
read it in conjunction with the American Odyssey Funds, Inc. prospectus dated
May 1, 1998. You may obtain the prospectus without charge by writing to
American Odyssey Funds, Inc., Two Tower Center, P.O. Box 1063, East Brunswick,
New Jersey 08816-1063, or by calling (732) 514-2000.

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

American Odyssey Funds, Inc.
Two Tower Center, P.O. Box 1063
East Brunswick, New Jersey 08816-1063
Telephone: (732) 514-2000

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STATEMENT OF ADDITIONAL INFORMATION
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TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
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<S> <C>
Investment Objectives and Programs . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Options on Equity Securities . . . . . . . . . . . . . . . . . . . . . . . . . .
Options on Stock Indices . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Options on Debt Securities . . . . . . . . . . . . . . . . . . . . . . . . . . .
Options on Foreign Currencies . . . . . . . . . . . . . . . . . . . . . . . . . .
Stock Index Futures Contracts . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest Rate Futures Contracts . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign Currency Futures Contracts . . . . . . . . . . . . . . . . . . . . . . .
Options of Futures Contracts . . . . . . . . . . . . . . . . . . . . . . . . . .
Forward Foreign Currency Exchange Contracts. . . . . . . . . . . . . . . . . . . .
Additional Types of High-Yield Securities. . . . . . . . . . . . . . . . . . . . .
Investment Restrictions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Conditions for Changing Subadvisers Without Shareholder Approval. . . . . . . . . . . . . .
Management of the Funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Directors and Officers . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Investment Advisers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other Service Providers . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Portfolio Transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net Asset Value of Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Performance Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Ownership of Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
</TABLE>

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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 Global High-Yield Bond Fund, 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-share
basis a

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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 secondary market on an

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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.

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OPTIONS ON STOCK INDICES

The Global High-Yield Bond Fund, 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 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

6
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AMERICAN ODYSSEY FUNDS, INC.
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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 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

7
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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 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

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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 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

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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 __, no Fund other than the
Global High-Yield Bond Fund may invest more than 10% of its total assets
(determined at the time of investment) in illiquid securities, including debt
securities for which there is not an established market. The Global High-Yield
Bond Fund may invest up to 15% of its total assets (determined at the time of
investment) in such securities. 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 it writes for a maximum price to be
calculated by

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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.

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

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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 Global High-Yield Bond
Fund, 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 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

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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 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.

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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.

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

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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.

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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. As discussed in the prospectus, the Global High-Yield Bond fund may
also enter into forward foreign currency exchange contracts for investment
purposes. The other Funds will use forward foreign currency exchange contracts
strictly for hedging purposes.

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. No Fund other than the Global
High-Yield Bond Fund will 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 Manager believes
that it is important that the subadvisers 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's custodian will place cash or liquid,
high-grade equity or debt securities into a segregated account of the portfolio
in an amount equal to the value of the Fund's total assets committed to the
consummation of forward foreign currency exchange

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contracts. If the value of the securities placed in the segregated account
declines, additional cash or securities will be placed in the account on a
daily basis so that the value of the account will equal the amount of the
Fund's commitments with respect to such contracts.

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

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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 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.

ADDITIONAL TYPES OF HIGH-YIELD SECURITIES

In furtherance of their respective investment objectives, the Global High-Yield
Bond Fund, Long-Term Bond Fund, and Intermediate-Term Bond Fund may invest in
the following specialized types of high-yield instruments. The latter two
Funds may invest up to 15% of their assets in high-yield debt securities, which
may include those described below. The Global High-Yield Bond Fund may invest
up to 100% of its assets in high-yield debt securities, but the Manager does
not anticipate that the Fund ordinarily will invest more than 5% of its assets
in each of the specialized instruments described below.

Zero Coupon Bonds. Zero coupon bonds do not pay interest for several years,
and then pay full coupon interest until maturity. These bonds are sold at a
substantial original issue discount equal to the missing interest payment
compounded at the coupon rate. Zero coupon bonds give the issuer the
flexibility of reduced cash interest expense for several years, while giving
the purchaser the potential advantage of compounding the coupons at a higher
rate than might otherwise be available.

Zero coupon bonds bear special risks beyond those ordinarily associated with
high-yield securities. Because the bonds' cash flows are deferred and because
the bonds often represent very subordinated debt, their prices are subject to
more volatility than most other bonds and may be more greatly affected by
interest rate changes.

For federal income tax purposes, a purchaser of zero coupon bonds (either
initially or in the secondary market) is treated as if the buyer had purchased
a corporate obligation issued on the purchase date with an original issue
discount. The purchaser is required to treat as ordinary income an allocable
portion of such discounts determined on a "constant yield" method. Any such
income increases the holder's tax basis for the zero coupon bond, and any gain
or loss on a sale of the zero coupon bonds relative to the holder's basis, as
so adjusted, is a capital gain or loss. Although certain federal tax law income
and capital gain distribution requirements may have an adverse effect on some
investment companies to the

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extent they invest in zero coupon bonds, because each Fund's shares may be sold
only to life insurance companies, life insurance company separate accounts, and
qualified retirement plans, none of the Funds is likely to suffer such effects.

Step-up Bonds. Step-up bonds are a variant of zero coupon bonds. Step-up
bonds pay a low initial interest rate for several years and then pay a higher
rate until maturity. They are also issued at an original issue discount, and
bear similar risks to those associated with zero coupon bonds, although
generally to a lesser degree.

Pay-in-kind Bonds. Pay-in-kind ("PIK") bonds pay interest either in cash or in
additional securities at the issuer's option for a specified period. Like zero
coupon bonds, PIK bonds are designed to give the issuer flexibility in managing
cash flow. Unlike zero coupon bonds, however, PIK bonds offer the investor the
opportunity to sell the additional securities issued in lieu of interest and
thus obtain current income on the original investment. Interest rate changes
tend to affect the market prices of PIK bonds to a greater extent than
securities that pay interest in cash. Although certain federal tax law income
and capital gain distribution requirements may have an adverse effect on some
investment companies to the extent they invest in PIK bonds, because each
Fund's shares may be sold only to life insurance companies, life insurance
company separate accounts, and qualified retirement plans, none of the Funds is
likely to suffer such effects.

Reset Bonds. The interest rate on reset bonds is adjusted periodically to a
level which should allow the bonds to trade at a specified dollar level,
generally par or $101. The rate can usually be raised, but the bonds have a
low call premium, limiting the opportunity for capital gains by the Fund. Some
resets have a maximum rate, generally 2.5% or 3% above the initial rate.

Increasing Rate Notes. Increasing rate notes ("IRNs") have interest rates that
increase periodically (by 1/4% per quarter, for example). IRNs are generally
used as a temporary financing instrument, because the increasing rate provides
an incentive for the issuer to refinance with longer-term debt. Thus,
principal is likely to be repaid more quickly than with other types of
high-yield securities, and it may not be possible for a Fund to reinvest the
proceeds at the same rates.

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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, the Core
Equity Fund, and the Global High-Yield Bond 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.

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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
except for the Global High-Yield Bond Fund, and loans of up to 100% of the
value of the Global High-Yield Bond 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.

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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.

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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, except that up to 15% of the Global High-Yield Bond
Fund's assets may 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.

In addition, the Board of Directors has adopted the following restriction for
the Global High-Yield Bond Fund as a nonfundamental investment policy, which
means that the Board of Directors may change it without shareholder approval:

The Global High-Yield Bond Fund may not invest more than 15% of its net
assets in lliquid securities, i.e., securities 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.

CONDITIONS FOR CHANGING SUBADVISERS WITHOUT SHAREHOLDER APPROVAL

As described in the prospectus, the Securities and Exchange Commission has
granted an order permitting the Board of Directors (the "Board") to enter into
new or amended subadvisory agreements without shareholder approval. In their
application to the Securities and Exchange Commission requesting that order,
American Odyssey Funds, Inc. (the "Company") and the Manager consented to the
following conditions:

1. Before any Fund may rely on the order requested in the application,
the operation of the Fund in the manner described in the application will be
approved by a majority vote of persons having voting rights with respect to the
Fund or, in the case of a new Fund whose prospectus contains the disclosure
contemplated by condition 2 below, by the sole initial shareholder(s) before
offering shares of such Fund to the public.

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AMERICAN ODYSSEY FUNDS, INC.
STATEMENT OF ADDITIONAL INFORMATION
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2. Any Fund relying on the requested relief will disclose in its
prospectus the existence, substance, and effect of any order granted pursuant
to the application. In addition, any such Fund will hold itself out to the
public as employing the "manager/subadviser" structure described in the
application. The prospectus will prominently disclose that the Manager has
ultimate responsibility to oversee the subadvisers and recommend their hiring,
termination, and replacement.

3. The Manager will provide management and administrative services to the
Company and, subject to the review and approval by the Board, will: (i) set
each Fund's overall investment strategies; (ii) evaluate, select, and recommend
subadvisers to manage all or part of a Fund's assets; (iii) allocate and, when
appropriate, reallocate each Fund's assets among subadvisers; (iv) monitor and
evaluate subadviser performance; and (v) oversee subadviser compliance with the
applicable Fund's investment objective, policies and restrictions.

4. A majority of the Board will be persons who are not "interested
persons" (as defined in section 2(a)(19) of the Investment Company Act of 1940,
as amended) of the Company ("Independent Directors"), and the nomination of new
or additional Independent Directors will be placed within the discretion of the
then existing Independent Directors.

5. The Company will not enter into a subadvisory agreement with any
subadviser that is an "affiliated person" of the Fund (as defined in section
2(a)(3) of the Investment Company Act of 1940, as amended) ("Affiliated
Subadviser") other than by reason of serving as subadviser to one or more Funds
without such subadvisory agreement, including the compensation to be paid
thereunder, being approved by the persons having voting rights with respect to
the applicable Fund.

6. When a subadviser change is proposed for a Fund with an Affiliated
Subadviser, the Board, including a majority of the Independent Directors, will
make a separate finding, reflected in the Board minutes, that such change is in
the best interests of the applicable Fund and persons having voting rights with
respect to that Fund and that such change does not involve a conflict of
interest from which the Manager or the Affiliated Subadviser derives an
inappropriate advantage.

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AMERICAN ODYSSEY FUNDS, INC.
STATEMENT OF ADDITIONAL INFORMATION
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7. No director, trustee, or officer of the Company or the Manager will
own directly or indirectly (other than through a pooled investment vehicle that
is not controlled by any such director, trustee or officer) any interest in a
subadviser except for ownership of (i) interests in the Manager or any entity
that controls, is controlled by, or is under common control with the Manager,
or (ii) less than 1% of the outstanding securities of any class of equity or
debt of a publicly-traded company that is either a subadviser or an entity that
controls, is controlled by, or is under common control with a subadviser.

8. Within 90 days of the hiring of any new subadviser, the Manager will
furnish persons having voting rights with respect to the appropriate Fund with
all information about the new subadviser or subadvisory agreement that would be
included in a proxy statement. Such information will include any changes
caused by the addition of the new subadviser. To meet this condition, the
Manager will provide persons having voting rights with an information statement
meeting the requirements of Regulation 14C, Schedule 14C, and Item 22 of
Schedule 14A under the Securities Exchange Act of 1934.

25
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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 Executive Officer, The Copeland
East Brunswick, NJ Companies. Also: Chairman of the
08816 Board 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>

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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
Chicago, IL Environmental Law Dept., Katten Muchin
60601 & Zavis.

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

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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.
East Brunswick, NJ Also: Senior Vice President and
08816 General Counsel of CFS, the Manager,
and Copeland Equities, Inc.

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

As of May 1, 1998, the directors and officers owned in the aggregate less than
1% of the outstanding shares of each Fund.

INVESTMENT ADVISERS

For the years 1995, 1996, and 1997, the International Equity Fund paid the
Manager fees of $488,474, $823,891, and $_____ respectively, and the Manager
paid the subadviser $310,189, $506,087, and $_____ respectively. In 1995, the
Fund also paid the Manager $69,257 as a repayment of expenses previously
reimbursed under an expense limitation agreement.

For the years 1995 and 1996, the Emerging Opportunities Fund paid the Manager
fees of $811,641 and $1,169,885 respectively, and the Manager paid the
subadviser $487,651 and $683,573 respectively. In 1997, the Fund paid the
Manager $_____, and the Manager paid Wilke/Thompson Capital Management, Inc.,
one of the Fund's subadvisers during 1997, $_____, and paid Cowen & Co., the
Fund's other subadviser in 1997, $____.

For the years 1995, 1996, and 1997, the Core Equity Fund paid the Manager fees
of $855,725, $1,362,267, and $_____ respectively, and the Manager paid the
subadviser $489,333, $765,782, and $_____ respectively.

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AMERICAN ODYSSEY FUNDS, INC.
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For the years 1995, 1996, and 1997, the Long-Term Bond Fund paid the Manager
fees of $486,896, $718,488, and $_____ respectively, and the Manager paid the
subadviser $243,334, $359,244, and $_____ respectively. In 1995, the Fund also
paid the Manager $40,770 as a repayment of expenses previously reimbursed under
an expense limitation agreement.

For the years 1995, 1996, and 1997, the Intermediate-Term Bond Fund paid the
Manager fees of $317,000, $442,594, and $_____ respectively, and the Manager
paid the subadviser $158,441, $221,298, and $_____ respectively. In 1995, the
Fund also paid the Manager $46,612 as a repayment of expenses previously
reimbursed under an expense limitation agreement.

For the years 1995, 1996, and 1997, the Short-Term Bond Fund paid the Manager
fees of $113,867, $161,395, and $_____ respectively, and the Manager paid the
subadviser $56,916, $80,698, and $_____ respectively. In 1995, 1996, and 1997,
the Fund also paid the Manager $1,531, $10,895, and $_____ respectively, as a
repayment of expenses previously reimbursed under an expense limitation
agreement.

The expense limitation agreement is no longer in effect for any of the Funds.
Each Fund has repaid the Manager for all expenses previously reimbursed.

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, 1996, and 1997, the Company paid $_____, $671,232, and $_____
respectively to Investors Bank & Trust Company as custodian and accounting
services agent.

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AMERICAN ODYSSEY FUNDS, INC.
STATEMENT OF ADDITIONAL INFORMATION
- - --------------------------------------------------------------------------------

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 1995, the Company paid $117,045 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 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 ("RogersCasey"), 85 Old Kings Highway North,
Darien, CT 06520, 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 RogersCasey
a fee of approximately $50,000 in 1995, $135,000 in 1996, and $_____ in 1997.

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 and
$_____ in 1997. Investors Bank & Trust Company did not serve in this capacity
before 1996.

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AMERICAN ODYSSEY FUNDS, INC.
STATEMENT OF ADDITIONAL INFORMATION
- - --------------------------------------------------------------------------------

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.

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,

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AMERICAN ODYSSEY FUNDS, INC.
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- - --------------------------------------------------------------------------------

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-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

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STATEMENT OF ADDITIONAL INFORMATION
- - --------------------------------------------------------------------------------

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.

INTERNATIONAL EQUITY FUND

<TABLE>
<CAPTION>
% of Transactions
% Paid to Brokers through Brokers
Year Total Commissions Providing Research Providing Research
---- ----------------- ------------------ ------------------
<S> <C> <C> <C>
1995 $161,675 0% 0%
1996 $249,106 0% 0%
1997 $______ % %
</TABLE>

Commissions in the amount of $_____ in 1997 were paid to __________, 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>
1995 $65,993 100% 100%
1996 $90,013 60% 60%
1997 $______ % %
</TABLE>

Commissions in the amount of $273 in 1996 and $_____ in 1997 were paid to The
Robinson-Humphrey Company, Inc., an affiliate of the Manager.

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AMERICAN ODYSSEY FUNDS, INC.
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CORE EQUITY FUND

<TABLE>
<CAPTION>
% of Transactions
% Paid to Brokers through Brokers
Year Total Commissions Providing Research Providing Research
---- ----------------- ------------------ ------------------
<S> <C> <C> <C>
1995 $207,159 78% 78%
1996 $333,930 63% 63%
1997 $______ % %
</TABLE>

The Fund paid commissions in the amount of $186 in 1996 and $_____ in 1997 to
Smith Barney Inc., an affiliate of the Manager.

LONG-TERM BOND FUND

<TABLE>
<CAPTION>
% of Transactions
% Paid to Brokers through Brokers
Year Total Commissions Providing Research Providing Research
---- ----------------- ------------------ ------------------
<S> <C> <C> <C>
1995 $30,903 0% 0%
1996 $66,218 0% 0%
1997 $______ % %
</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>
1995 $0 0% 0%
1996 $0 0% 0%
1997 $_ % %
</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>
1995 $1,447 100% 100%
1996 $0 0% 0%
1997 $____ % %
</TABLE>

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STATEMENT OF ADDITIONAL INFORMATION
- - --------------------------------------------------------------------------------

On May 1, 1998, the Short-Term Bond Fund was renamed the Global High-Yield Bond
Fund and adopted a substantially different investment objective and investment
program. Information about commissions paid by the Short-Term Bond Fund is
unlikely to be helpful to investors and potential investors in the Global
High-Yield Bond Fund. For more information, see CONVERSION OF SHORT-TERM BOND
FUND TO GLOBAL HIGH-YIELD BOND FUND in the prospectus.

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 Global High-Yield 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 rates for all of the Funds
other than the Global High-Yield Bond Fund, see FINANCIAL HIGHLIGHTS in the
prospectus.

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

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

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 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.

36
<PAGE> 65
============================
AMERICAN ODYSSEY FUNDS, INC.
STATEMENT OF ADDITIONAL INFORMATION
- - --------------------------------------------------------------------------------

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 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

37
<PAGE> 66
============================
AMERICAN ODYSSEY FUNDS, INC.
STATEMENT OF ADDITIONAL INFORMATION
- - --------------------------------------------------------------------------------

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.

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

38
<PAGE> 67
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.

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 Global High-Yield Bond Fund Stock. For more
information, see GENERAL INFORMATION in the prospectus.

[Financial statements to be added by post-effective amendment pursuant to Rule
485(b).]

39
<PAGE> 68
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> 69
(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> 70

11. Consent of Independent Accountants (11)

12. Not Applicable

13. Not Applicable

14. Not Applicable

15. Not Applicable

16. Not Applicable

17. Financial Data Schedules (11)

18. Not Applicable

19. Powers of Attorney:

Robert C. Dughi (1)
Kent A. Kelley (1)
Steven I. Weinstein (1)
William A. Arnold(10)
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) Incorporated by reference to Post-Effective Amendment No. 7 filed
April 30, 1997.

(10) Filed herewith.

(11) To be filed by post-effective amendment.

3
<PAGE> 71
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> 72
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> 73
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

William A. Arnold Senior Vice President, Chief Senior Vice President, Chief Financial
Financial Officer, and Treasurer Officer, and Treasurer, The Copeland
Companies and various affiliates

Michael R. Zarelli Senior Vice President, Senior Vice President, The Copeland
Finance, and Director Companies and various affiliates
</TABLE>

6
<PAGE> 74
(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> 75
(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> 76

<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> 77
<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> 78
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 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 27th day of February, 1998.

AMERICAN ODYSSEY FUNDS, INC.

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

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 February 27, 1998.

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> 79
/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/ William A. Arnold By: /s/ Paul S. Feinberg
- - ------------------------ --------------------
William A. Arnold Paul S. Feinberg
Senior Vice President and Treasurer; (Attorney-in-Fact)
Principal Financial Officer;
Principal Accounting Officer

12
<PAGE> 80
EXHIBIT INDEX

<TABLE>
<CAPTION>
EXHIBIT NUMBER DESCRIPTION PAGE NUMBERS
-------------- ----------- ------------
<S> <C> <C>
19 Power of Attorney C-14
</TABLE>

<PAGE> 1
EXHIBIT 19

POWER OF ATTORNEY

KNOW BY ALL THESE PRESENTS:

That I, William A. Arnold, of Belle Mead, New Jersey, as Senior
Vice President and Treasurer, Principal Financial Officer, and Principal
Accounting Officer of AMERICAN ODYSSEY FUNDS, INC., do hereby make, constitute
and appoint as my true and lawful attorneys in fact Paul S. Feinberg, Mark E.
Freemyer, and Lori M. Renzulli, or any of them severally for me and in my name,
place and stead to sign registration statements under the Securities Act of
1933 and/or the Investment Company Act of 1940 and any and all amendments
thereto executed on behalf of AMERICAN ODYSSEY FUNDS, INC., and filed with the
Securities and Exchange Commission.

IN WITNESS WHEREOF, I have hereunto set my hand this 27th day of February,
1998.

/s/ William A. Arnold
---------------------
Signature

STATE OF NEW JERSEY )
)ss
COUNTY OF MIDDLESEX )

On this 27th day of February, 1998, before me personally appeared William
A. Arnold, to me known and known to me to be the person mentioned and described
in and who excuted the foregoing instrument and he duly acknowledged to me that
he executed the same.

/s/ Linda K. Dingle
---------------------
Notary Public