AMERICAN EAGLE FUNDS INC
485APOS, 2000-12-29
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                UNITED STATES SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    FORM N-1A

             REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933      |_|
                              (File No. 333-91317)

                         Pre-Effective Amendment No. ___                  |_|
                         Post-Effective Amendment No. 2                   |X|

                                     AND/OR

         REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940  |_|
                              (File No. 811-09699)

                                 Amendment No. 3                          |X|
                        (Check appropriate box or boxes.)

                           AMERICAN EAGLE FUNDS, INC.
               (Exact Name of Registrant as Specified in Charter)

            1550 UTICA AVENUE SOUTH, SUITE 950, MINNEAPOLIS, MN 55416
               (Address of Principal Executive Offices) (Zip Code)

                                 (612) 541-0677
              (Registrant's Telephone Number, including Area Code)

                                 JAMES R. JUNDT
            1550 UTICA AVENUE SOUTH, SUITE 950, MINNEAPOLIS, MN 55416
                     (Name and Address of Agent for Service)

                                   COPIES TO:
          James E. Nicholson                      Matthew L. Thompson
          Faegre & Benson LLP                     Faegre & Benson LLP
  90 South Seventh Street, Suite 2200     90 South Seventh Street, Suite 2200
     Minneapolis, Minnesota 55402            Minneapolis, Minnesota 55402

                            P. Graham van der Leeuw
                              Faegre & Benson LLP
                      90 South Seventh Street, Suite 2200
                          Minneapolis, Minnesota 55402

It is proposed that this filing will become effective (check appropriate box):
|_| Immediately upon filing pursuant to paragraph (b) of Rule 485
|_| On [date] pursuant to paragraph (b) of Rule 485
|_| 60 days after filing pursuant to paragraph (a)(1) of Rule 485
|_| On [date] pursuant to paragraph (a)(1) of Rule 485
|X| 75 days after filing pursuant to paragraph (a)(2) of Rule 485
|_| on [date] 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.

Approximate date of proposed public offering: As soon as practicable following
the effective date of this registration statement.

Pursuant to Rule 24f-2 under the Investment Company Act of 1940, Registrant has
elected to register an indefinite number of shares of common stock under the
Securities Act of 1933.

The Registrant hereby amends this Registration Statement on such date or dates
as may be necessary to delay its effective date until the Registrant shall file
a further amendment which specifically states that this Registration Statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.

===============================================================================

<PAGE>


                           AMERICAN EAGLE FUNDS, INC.

                       REGISTRATION STATEMENT ON FORM N-1A

                   EXPLANATORY NOTE TO REGISTRATION STATEMENT

         American Eagle Funds, Inc. (the "Registrant") currently is authorized
to issue its shares in two series, as follows:

               Series A - American Eagle Capital Appreciation Fund ("Capital
                          Appreciation Fund");
               Series B - American Eagle Twenty Fund ("Twenty Fund");
               Series C - American Eagle Large-Cap Growth Fund ("Large-Cap
                          Growth Fund");

         Part A consists of one prospectus for Capital Appreciation Fund, Twenty
Fund and Large-Cap Growth Fund.

         Part B consists of one Statement of Additional Information ("SAI") for
Capital Appreciation Fund, Twenty Fund and Large-Cap Growth Fund.

<PAGE>


                           AMERICAN EAGLE FUNDS, INC.


                       REGISTRATION STATEMENT ON FORM N-1A


                                     PART A


                                   PROSPECTUS


<PAGE>


                SEARCHING TODAY FOR THE GENIUSES OF TOMORROW(SM)
                    AMERICAN EAGLE CAPITAL APPRECIATION FUND
                           AMERICAN EAGLE TWENTY FUND
                      AMERICAN EAGLE LARGE-CAP GROWTH FUND

                                   PROSPECTUS

                                December 29, 2000

         AS WITH ALL MUTUAL FUNDS, THE SECURITIES AND EXCHANGE COMMISSION HAS
NOT APPROVED OR DISAPPROVED THESE SECURITIES OR PASSED UPON THE ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.

<PAGE>


                                    THE FUNDS

         The American Eagle Capital Appreciation Fund (Capital Appreciation
Fund), American Eagle Twenty Fund (Twenty Fund) and American Eagle Large-Cap
Growth Fund (Large-Cap Growth Fund) are professionally managed mutual funds. An
investor in any fund becomes a shareholder of that fund.

         BEFORE YOU INVEST, PLEASE READ THIS PROSPECTUS AND KEEP IT FOR FUTURE
REFERENCE.

                               RISK/RETURN SUMMARY

WHAT ARE THE FUNDS' INVESTMENT OBJECTIVES?

         Each fund's investment objective is capital appreciation. A fund may
not change this objective without shareholder approval. As with any mutual fund,
there is no guarantee that any fund will meet its investment objective.

WHAT ARE THE FUNDS' MAIN INVESTMENT STRATEGIES?

         The funds' investment adviser seeks to invest in stocks of the fastest
growing American companies. The investment adviser employs a fundamental bottom
up "growth" style approach to identify such companies. In other words, the
investment adviser looks at each company's revenue and earnings growth
potential, as well as its competitive, management, market and other
characteristics. In general, the investment adviser selects stocks without
regard to industry sectors and other defined selection criteria or for the
potential for dividends. In normal market conditions, the funds' investment
adviser will manage each of the funds as follows:

         *  CAPITAL APPRECIATION FUND maintains a core portfolio of 30 to 50
            stocks of primarily American growth companies, without regard to
            their size. The fund may enter into options and futures transactions
            to attempt to protect against adverse market price changes when the
            fund's investment adviser believes that market conditions make it
            advisable to do so. In addition, the fund may employ leverage sell
            securities short and buy and sell futures and options contracts on
            an opportunistic basis to generate additional investment returns.

         *  TWENTY FUND maintains a more concentrated portfolio of
            approximately, but not less than, 20 stocks of primarily American
            growth companies, without regard to their size. The fund may enter
            into options and futures transactions to attempt to protect against
            adverse market price changes when the fund's investment adviser
            believes that market conditions make it advisable to do so. In
            addition, the fund may employ leverage sell securities short and buy
            and sell futures and options contracts on an opportunistic basis to
            generate additional investment returns.

         *  LARGE-CAP GROWTH FUND maintains a core portfolio of approximately 30
            to 50 stocks of primarily large American growth companies. These
            include companies that comprise the Russell 1000 Growth Index (which
            currently have market capitalizations which average approximately
            $14.1 billion and range from approximately $1.6 billion up).
            However, the fund may also invest in companies with market
            capitalizations that fall outside this range. The fund may enter
            into options and futures transactions to attempt to protect against
            adverse market price changes when the fund's investment adviser
            believes that market conditions make it advisable to do so. In
            addition, the fund may employ leverage, sell securities short and
            buy and sell futures and options contracts on an opportunistic basis
            to generate additional investment returns.

WHAT ARE THE MAIN RISKS OF INVESTING IN THE FUNDS?

         YOUR FUND INVESTMENT WILL BE SUBJECT TO VARIOUS RISKS. THESE RISKS MAY
CAUSE YOU TO LOSE MONEY BY MAKING AN INVESTMENT IN A FUND. YOUR INVESTMENT WILL
NOT BE A BANK DEPOSIT AND WILL NOT BE INSURED OR GUARANTEED BY THE FEDERAL
DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENT AGENCY. SOME OF THE MORE
IMPORTANT RISKS OF EACH FUND, AND A BRIEF DESCRIPTION OF THESE RISKS, ARE
PROVIDED BELOW.

<PAGE>


CAPITAL APPRECIATION FUND AND TWENTY FUND
         *  General investment risk
         *  Risk of owning equity securities
         *  Risk of owning stocks of smaller and medium-sized companies
         *  Risk of being a "non-diversified" fund
         *  Risk of employing "leverage"
         *  Risks of investing in options and futures contracts to protect
            against adverse market price changes and to generate additional
            income
         *  Risk of selling securities short

LARGE-CAP GROWTH FUND.
         *  General investment risk
         *  Risk of owning equity securities
         *  Risk of being a "non-diversified" fund
         *  Risk of employing "leverage"
         *  Risks of investing in options and futures contracts to protect
            against adverse market price changes and to generate additional
            income
         *  Risk of selling securities short

         *  GENERAL INVESTMENT RISK. Mutual funds do not always meet their
            investment objectives. The value of a fund's portfolio may decrease
            if the value of an individual company in the portfolio decreases.
            The value of a fund's portfolio could also decrease if the
            securities markets go down. If the value of a fund's portfolio
            decreases, a fund's net asset value (NAV) will also decrease.
            Therefore, the biggest risk of investing in any fund is that its NAV
            could go down, and you could lose money.

         *  RISK OF OWNING EQUITY SECURITIES. Common stocks, the primary
            investment of each fund, tend to be more volatile than other
            investment choices. As a result, each fund's portfolio will likely
            be subject to sharper declines in value compared with portfolios
            comprised of other investment choices.

         *  RISK OF OWNING SMALLER AND MEDIUM-SIZE COMPANY STOCKS. Investments
            in stocks of smaller companies may fluctuate more sharply than those
            of larger, more established companies and, therefore, may expose the
            funds to greater price volatility. While stocks of medium-size
            companies may be slightly less volatile than those of smaller
            companies, they still involve substantial risk and their prices may
            be subject to more abrupt or erratic movements than those of larger,
            more established companies or the market averages in general.

         *  RISK OF INVESTING IN OPTIONS AND FUTURES CONTRACTS. The successful
            use of options and futures contracts depends on the ability of the
            funds' investment adviser to correctly forecast the market. In the
            case of an incorrect market forecast, the use of options and futures
            contracts will reduce or eliminate gains or subject a fund to
            increased risk of loss. In addition, to the extent that a fund uses
            options and futures contracts to attempt to generate additional
            income, the fund may be exposed to risks similar to the use of
            leverage which may cause the fund to incur substantial losses.

         *  RISK OF BEING NON-DIVERSIFIED. A non-diversified fund may hold
            larger positions in a smaller number of issuers than a diversified
            fund. As a result, a single security's fluctuation in value may have
            a greater impact on a fund's NAV and total return.

         *  RISK OF EMPLOYING "LEVERAGE." Leverage increases a fund's market
            exposure and its risk of loss. When a fund is "leveraged" and its
            investments fluctuate in value, the fund's NAV will normally
            fluctuate more than if it had not been leveraged. In addition, the
            interest the fund must pay on borrowed money will reduce any gains
            or increase any losses.

         *  RISK OF SELLING SECURITIES SHORT. The fund will lose money if a
            security sold short increases in price between the date of the sale
            and the date on which the fund "closes out" the short position. The
            fund's risk of loss also increaes if the fund is not able to "close
            out" the short position at any particular time or at an acceptable
            price.


<PAGE>


WHO SHOULD AND SHOULD NOT INVEST IN THE FUNDS?

         The funds are designed for long-term investors who can bear the risks
that such an investment entails. Investors looking for current income or
short-swing market gains should not invest in the funds.

HOW HAVE THE FUNDS PERFORMED OVER TIME?

         No performance information is provided the funds since the Capital
Appreciation and Twenty Fund funds do not have a full calendar year of
investment history and Large-Cap Growth Fund, as a new fund, has no investment
history.

<PAGE>


                                FEES AND EXPENSES

         The following tables describe the fees and expenses that you may pay if
you buy and hold fund shares.

<TABLE>
<CAPTION>
                                                                     CAPITAL
                                                                   APPRECIATION                  LARGE-CAP
                                                                       FUND       TWENTY FUND   GROWTH FUND
<S>                                                                    <C>           <C>            <C>
   SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT)
   Maximum Sales Charge (Load) Imposed on Purchases
    (as a percentage of offering price)..........................      None          None           None
   Maximum Deferred Sales Charge (Load) (as a percentage
    of purchase price or redemption proceeds, whichever is
    lower).......................................................      None          None           None
   Redemption Fee                                                      None*         None*          None*
   ANNUAL FUND OPERATING EXPENSES
   (EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS)
   Management Fees...............................................      1.30%         1.30%          1.30%
   Distribution and/or Service (12b-1) Fees......................      None          None           None
   Other Expenses ...............................................      1.29%**       1.59%**        1.36%***

   Total Annual Fund Operating Expenses..........................      2.59%         2.89%          2.66%
</TABLE>

-----------
*        If you request that the proceeds of any sale of your shares be sent to
         you by wire transfer, the fund's transfer agent will charge you a
         $12.50 wire fee.
**       Based on estimated amounts for fiscal year 2000.
***      Based on estimated amounts for fiscal year 2001.

EXAMPLE: We provide this example to help you compare the cost of investing in
fund shares with the cost of investing in other mutual funds. The example
assumes that you invest $10,000 in each fund's shares for the time periods
indicated and then redeem all of your shares at the end of those periods. The
example also assumes that your investment has a 5% return each year and that the
fund's operating expenses remain the same. Although your actual expenses may be
higher or lower, based on these assumptions your costs would be:

<TABLE>
<CAPTION>
                                                                    1 YEAR     3 YEARS
                                                                    ------     -------
<S>                                                                  <C>        <C>
 Capital Appreciation Fund......................................     $262       $805
 Twenty Fund....................................................     $292       $895
 Large-Cap Growth Fund..........................................     $269       $826
</TABLE>

<PAGE>


                   INVESTMENT OBJECTIVE, STRATEGIES AND RISKS

INVESTMENT OBJECTIVE OF EACH FUND

         Each fund's investment objective is long-term capital appreciation. As
with any mutual fund, the funds cannot assure you that their investment
objective will be achieved. Generation of current income is not an objective.
The funds are designed for long-term investors. If you are looking for current
income or short-swing market gains, you should not invest in the funds.

         A fund may not change its investment objective without the approval of
the fund's shareholders.

PRINCIPAL INVESTMENT STRATEGIES

         In pursuing its investment objective, each fund employs its own
principal investment strategy and policies. An investment in each fund,
therefore, involves different principal risks.

         *  CAPITAL APPRECIATION FUND is a non-diversified fund that employs an
            aggressive yet flexible investment program. In normal market
            conditions, the fund emphasizes a core portfolio of 30 to 50 stocks
            of primarily American growth companies, without regard to their
            size. The fund may enter into options and futures transactions to
            attempt to protect against adverse market price changes when the
            fund's investment adviser believes that market conditions make it
            advisable to do so. In addition, the fund may employ leverage, sell
            securities short and buy and sell futures and options contracts on
            an opportunistic basis to generate additional investment returns. As
            described below, these techniques involve additional risk.

         *  TWENTY FUND is a non-diversified fund that, in normal market
            conditions, maintains a more concentrated portfolio of
            approximately, but not less than, 20 stocks of primarily American
            growth companies, without regard to their size. The fund may enter
            into options and futures transactions to attempt to protect against
            adverse market price changes when the fund's investment adviser
            believes that market conditions make it advisable to do so. In
            addition, the fund may employ leverage, sell securities short and
            buy and sell futures and options contracts on an opportunistic basis
            to generate additional investment returns. As described below, these
            techniques involve additional risk.

         *  LARGE-CAP GROWTH FUND is a diversified fund that normally maintains
            a core portfolio of approximately 30 to 50 stocks of primarily large
            American growth companies. These include the companies that comprise
            the Russell 1000 Growth Index (which currently have market
            capitalizations which average approximately $14.1 billion and range
            from approximately $1.6 billion up). However, the fund may also
            invest in companies with market capitalizations that fall outside
            this range. In normal market conditions, the fund will invest at
            least 65% of its portfolio in stock of such companies. The fund may
            enter into options and futures transactions to attempt to protect
            against adverse market price changes when the fund's investment
            adviser believes that market conditions make it advisable to do so.
            In addition, the fund may employ leverage, sell securities short and
            buy and sell futures and options contracts on an opportunistic basis
            to generate additional investment returns. As described below, these
            techniques involve additional risk.

         Jundt Associates, Inc., each fund's investment adviser, seeks to invest
in stocks of the fastest growing American companies. In normal market
conditions, at least 65% of each fund's assets must be invested in equity
investments. For each of the funds, the investment adviser seeks companies it
believes offer significant potential for growth in revenue and earnings. The
investment adviser believes that such companies offer investors the greatest
potential for long-term capital appreciation. The investment adviser employs a
fundamental "bottom up" approach to identify such companies. In other words, the
investment adviser looks at each company's revenue and earnings growth
potential, as well as its competitive, management, market and other
characteristics. In general, the investment adviser selects stocks without
regard to industry sectors and other defined selection criteria or the potential
for dividends.

         A fund's cash level (including similar investments in short-term debt
instruments) may temporarily increase without limitation when the investment
adviser believes that market conditions are unfavorable for profitable
investing, or

<PAGE>


when it is otherwise unable to locate attractive investment opportunities. In
other words, the funds do not always remain fully invested in accordance with
their primary strategies. When this occurs, the funds temporarily may not pursue
their primary strategies in that they may not participate in market advances or
declines to the same extent that they would have done if they had remained more
fully invested in stocks.

         The funds generally intend to purchase securities for long-term
investment. However, a fund may also purchase securities in anticipation of
relatively short-term gains. In addition, each fund, to a limited extent, may
sell securities short, which are short-term transactions. Short-term
transactions may also result from liquidity needs, from securities having
reached a price objective or by reason of economic or other developments not
foreseen at the time of the investment. The investment adviser makes changes in
each fund's portfolio whenever the investment adviser believes such changes are
desirable.

         A fund's "portfolio turnover rate" measures the degree of change in the
makeup of the fund's investment portfolio. A smaller, more rapidly growing fund
(such as the funds) generally will experience higher portfolio turnover. In
addition, options and futures contracts (which each fund may employ to protect
against declines in market prices and to pursue additional income) typically
produce higher portfolio turnover rates. Each fund's portfolio turnover rate has
been or is expected to be quite high from time to time. High portfolio turnover
rates may subject the funds to additional transaction costs and may also result
in faster realization of taxable capital gains. Higher costs associated with
increased portfolio turnover may offset gains or increase losses in a fund's
performance.

         Each fund is subject to various investment restrictions, which are
detailed in the Statement of Additional Information. Some of such restrictions
are designated as "fundamental" and, therefore, cannot be changed without the
approval of fund shareholders. Other "non-fundamental" restrictions may be
changed without the approval of shareholders.

         In addition to the investments described above and in the following
sections, each fund may to a more limited extent invest in other types of
securities, including but not limited to: investment grade debt securities and,
to a more limited extent, non-investment grade debt securities; repurchase
agreements; and zero coupon debt securities. The funds may also engage in
various other practices, such as securities lending. These instruments and
practices and their related risks are described in the Statement of Additional
Information.

OVERALL RISKS OF INVESTING IN THE FUNDS

         GENERAL. Mutual funds are a convenient and potentially rewarding way to
invest, but they do not always meet their investment objectives. The funds are
designed for long-term investors who can accept the risks of investing in a
portfolio with substantial common stock holdings. Common stocks tend to be more
volatile than other investment choices. The value of a fund's portfolio may
decrease if the value of an individual company in the portfolio decreases. The
value of a fund's portfolio could also decrease if the stock market goes down.
If the value of a fund's portfolio decreases, a fund's net asset value (NAV)
will also decrease. Therefore, the biggest risk of investing in any fund is that
its NAV could go down, and you could lose money.

         DIVERSIFICATION. Diversification is a way to reduce risk by investing
in a broad range of stocks. A "non-diversified" fund has the ability to take
larger positions in a smaller number of issuers. Therefore, the appreciation or
depreciation of a single stock may have a greater impact on the NAV of a
non-diversified fund. However, none of the funds may invest more than 25% of its
assets in any one issuer (excluding U.S. Government securities). Additionally,
50% of each such fund's assets must be fully diversified. This means that no one
issuer (excluding the U.S. Government) in the fully diversified half of the
portfolio may account for more than 5% of the fund's total assets.

         MARKET SECTOR CONCENTRATION. Each fund may invest more than 25% of its
assets in one or more market sectors, for example, the technology sector, but
may not invest more than 25% of its assets in any single industry. A market
sector may be made up of companies in a number of related industries. When a
fund concentrates in a market sector, financial, economic, business and other
developments affecting that sector may have a greater impact on the fund's
performance than if it had not concentrated in that sector.

<PAGE>


PRINCIPAL RISKS RELATING TO CERTAIN PRINCIPAL INVESTMENT STRATEGIES

         INVESTMENTS IN SMALLER AND MEDIUM-SIZE COMPANIES. Capital Appreciation
Fund and Twenty Fund may from time to time invest a substantial portion of their
assets in securities issued by smaller companies. Investments in such companies
may offer greater opportunities for capital appreciation than investments in
larger companies, but may involve certain special risks. Such companies may have
limited product lines, markets or financial resources and may be dependent on a
limited management group. The securities of such companies may trade less
frequently and in smaller volume than more widely held securities. Their values
may fluctuate more sharply than those of other securities. The funds may
experience difficulty in establishing or closing out positions in these
securities at prevailing market prices. There may be less publicly available
information about, and market interest in, smaller companies than is the case
with larger companies. It may take longer for the prices of such securities to
reflect the full value of their issuers' underlying earnings potential or
assets. Each of the funds may also from time to time invest a substantial
portion of their assets in securities issued by medium-size companies. While
stocks of medium-size companies may be slightly less volatile than those of
smaller companies, they still involve substantial risk and their prices may be
subject to more abrupt or erratic movements than those of larger, more
established companies or the market averages in general.

         BORROWING AND LEVERAGE. Each fund engages in the practice known as
"leverage" when it borrows money on an opportunistic basis to invest in
additional portfolio securities. Leverage increases such fund's market exposure
and risk. When a fund is "leveraged" and its investments fluctuate in value, the
fund's net asset value will normally fluctuate more than if it had not leveraged
its assets. In addition, the interest the fund must pay on borrowed money will
reduce any gains or increase any losses. Successful use of leverage depends on
the investment adviser's ability to predict market movements correctly. The
amount of money borrowed by a fund for leverage may not exceed one-third of the
fund's total assets (including the amount borrowed).

         OPTIONS AND FUTURES. Each fund may buy and sell call and put options
and futures contracts and related options to attempt to hedge or protect against
changes in the prices of portfolio opportunities. Each fund may also employ such
techniques on an opportunistic basis to attempt to realize additional investment
returns. There is no guarantee that the funds will be able to utilize them
effectively for their intended purposes. Options and futures contracts involve
certain costs and risks, which are described below and, in greater detail, in
the Statement of Additional Information.

         If a fund purchases a put option on a security, the fund acquires the
right to sell the underlying security at a specified price at any time during
the term of the option. If the fund purchases a call option on a security, it
acquires the right to purchase the underlying security at a specified price at
any time during the term of the option. Each fund also may write "covered" call
options, giving such funds the obligation to sell to the option buyer the
underlying security at a specified price at any time during the term of the
option. The call option is "covered" because the fund must own or have the right
to acquire the security underlying the option.

         If a fund sells a financial "futures" contract on an index, the fund
becomes obligated to deliver the value of the index at a specific future time
for a specified price. If a fund buys a financial futures contract on an index,
the fund becomes obligated to take delivery of the value of the index at a
specific future time at a specific price. An option on a futures contract gives
the buyer the right to buy from or sell to the seller a futures contract at a
specified price at any time during the period of the option. Upon exercise, the
writer of the option is obligated to pay the difference between the cash value
of the futures contract and the exercise price.

         Successful use of futures contracts and related options depends greatly
on the investment adviser's ability to correctly forecast the direction of
market movements. In the case of an incorrect market forecast, the use of
futures contracts will reduce or eliminate gains or subject a fund to increased
risk of loss. In addition, changes in the price of futures contracts or options
may not correlate perfectly with the changes in the market value of the
securities the investment adviser is seeking to hedge. AS A RESULT, EVEN A
CORRECT MARKET FORECAST COULD RESULT IN AN UNSUCCESSFUL HEDGING TRANSACTION.

         Other risks arise from a fund's potential inability to close out
futures contracts or options positions. Each fund will enter into options or
futures contracts transactions only if the investment adviser believes that a
liquid secondary market exists for such options or futures contracts. However,
there is no guarantee that the fund will be able to effect "closing

<PAGE>


transactions" at any particular time or at an acceptable price. In addition, if
an option contract purchased by a fund expires without being exercised, the fund
will suffer a loss equal to the purchase price of the option contract and
related transaction costs.

         Each fund may use futures contracts and related options on an
opportunistic basis to enhance investment returns in addition to hedging against
market risk. SUCH USE OF FUTURES CONTRACTS INVOLVES RISKS SIMILAR TO THE USE OF
LEVERAGE. Within applicable regulatory limits, a fund can be subject to the same
degree of market risk as if approximately twice their net assets were fully
invested in securities. This may result in substantial additional gains in
rising markets, but likewise may result in substantial additional losses in
falling markets.

         SHORT SALES. Short sales are transactions in which a fund sells a
security it does not own in anticipation of a decline in the market value of
that security. When a security is sold "short", the fund borrows the security
sold to complete the sale and must replace the borrowed security at a future
date. If the value of the borrowed security goes down between the sale date and
the scheduled replacement date, the fund makes a profit. If the value of the
security goes up between such dates, the fund incurs a loss. Moreover, there is
no guarantee that the fund will be able to close out the position at a
particular time or at an acceptable price. All short sales must be fully secured
by other securities (primarily U.S. Government securities). Further, a fund may
not sell securities short if, immediately after the sale, the value of all
securities sold short by the fund exceeds 25% of the fund's total assets. In
addition, each fund limits short sales of any one issuer's securities to 5% of
the fund's total assets and to 5% of any one class of the issuer's securities.

                             MANAGEMENT OF THE FUNDS

         Jundt Associates, Inc. serves as each fund's investment adviser and, as
such, is responsible for managing each fund's investment portfolio.

         The investment adviser employs a team approach in managing the funds'
portfolios. All investment decisions are made by one or more of the firm's
portfolio managers: James R. Jundt (Chairman and Chief Executive Officer of the
investment adviser), Marcus E. Jundt (Vice Chairman of the investment adviser)
and Paul W. Bottum.

         *  JAMES R. JUNDT, CFA, began his investment career in 1964 with
            Merrill Lynch, Pierce, Fenner & Smith Incorporated, New York, New
            York, as a security analyst before joining Investors Diversified
            Services, Inc. (now known as American Express Financial Advisers,
            Inc.) in Minneapolis, Minnesota in 1969, where he served in
            analytical and portfolio management positions until 1979. From 1979
            to 1982, Mr. Jundt was a portfolio manager for St. Paul Advisers,
            Inc. (now known as Fortis Advisers, Inc.) in Minneapolis. In
            December 1982, Mr. Jundt left St. Paul Advisers and founded the
            investment adviser. He has served as Chairman of the Board of
            American Eagle Funds, Inc. since 1999, Jundt Funds, Inc. since 1995,
            and The Jundt Growth Fund, Inc. since 1991. Mr. Jundt has
            approximately 36 years of investment experience. Mr. Jundt also
            serves as Chairman of the Board of U.S. Growth Investments, Inc.,
            each fund's distributor.

         *  MARCUS E. JUNDT, son of James R. Jundt, has been Vice Chairman of
            the investment adviser since 1992. Mr. Jundt was employed as a
            research analyst for Victoria Investors in New York, New York from
            1988 to 1992, and from 1987 to 1988 was employed by Cargill Investor
            Services, Inc., where he worked on the floor of the Chicago
            Mercantile Exchange. He has served as President of American Eagle
            Funds, Inc., Jundt Funds, Inc. and The Jundt Growth Fund, Inc. since
            1999, and has been the President of U.S. Growth Investments, Inc.
            since 1997. Mr. Jundt has served as a portfolio manager of Jundt
            Funds, Inc. since 1995 and The Jundt Growth Fund, Inc. since 1992.
            Mr. Jundt has approximately 13 years of investment and related
            experience. Mr. Jundt also serves as a director of a private
            company.

         *  PAUL W. BOTTUM, has been a portfolio manager with the investment
            adviser since March 2000 as well as an analyst with the investment
            adviser since August 1999. From March 1998 to December 1998, he was
            Vice President of Sales with cMore Medical, Inc. From July 1995 to
            February 1998, he was the Director of Marketing with Spine-Tech,
            Inc. From October 1991 to June 1995, he was a project manager with
            Scimed Life Systems. He graduated in 1985 with a B.A. degree and in
            1987 with an M.S. degree in Business

<PAGE>


              Administration from the University of Wisconsin. Mr. Bottum
              graduated from the University of Minnesota in 1992 with a Ph.D.
              in Business Administration.

         Each fund pays the investment adviser advisory fees of 1.30% per year
of the fund's average daily net assets.

         Each fund also engages various other service providers, as set forth
under "Firms that Provide Services to the Funds" below.

                             HOW TO BUY FUND SHARES

GENERAL INFORMATION

         You may purchase fund shares on any day the New York Stock Exchange
(NYSE) is open for business (generally, every week day other than customary
national holidays).

         DETERMINATION OF NAV. If you purchase fund shares, you pay the
next-determined net asset value (NAV) of such shares after your order is
received. NAV generally is calculated once daily as of 15 minutes after the
close of normal trading on the NYSE (generally 4:00 p.m., New York time) on each
day the NYSE is open for business. The NAV of each share is the value of that
share's portion of the fund's assets, minus its portion of the fund's
liabilities. The most significant asset of each fund is the fund's investments.
Each fund generally values its investments based on their closing market values.
If closing market values are not readily available for certain investments, such
investments are valued at their "fair value" as determined by or under the
supervision of the funds' Board of Directors. Debt securities may be valued
based on quotations furnished by pricing services or by dealers who make a
market in those securities.

         MINIMUM INVESTMENTS. The minimum initial investment in fund shares is
$1,000. You may make subsequent investments of at least $50. These minimums may
not apply to certain retirement plans or custodial accounts for the benefit of
minors. Contact the funds for more information.

         OPENING AN ACCOUNT. You may open an account with and purchase fund
shares from the funds' distributor, U.S. Growth Investments (by contacting the
funds by mail or phone, as set forth below).

         *  PURCHASES BY MAIL. Complete the attached application and mail it,
            along with a check payable to the applicable fund, to: The American
            Eagle Funds, P.O. Box 701, Milwaukee, WI 53201-0701 (for regular
            mail) or The American Eagle Funds, 615 East Michigan Street, 3rd
            Floor, Milwaukee, WI 53202-5207 (for overnight delivery). YOU MAY
            NOT PURCHASE SHARES WITH A THIRD PARTY CHECK.

         *  PURCHASES BY TELEPHONE. Call 1-800-335-0333 to obtain an account
            number and instructions (including instructions for wire
            transferring your investment to the fund's bank account). You must
            then promptly complete the attached application and mail it to the
            fund (at the address set forth under "Purchases By Mail").

         You may also open and account with and purchase fund shares from firms
that have selling agreements with U.S. Growth Investments. You may be charged an
additional fee at the time you purchase or redeem fund shares through a broker
or agent. U.S. Growth Investments currently imposes no such fees (other than
wire transfer charges) if you make purchases or redemptions directly through
U.S. Growth Investments.

         AUTOMATIC INVESTMENT PLAN. You may make automatic monthly investments
of at least $50 through each fund's Automatic Investment Plan. For additional
information, call your broker or the funds.

         RETIREMENT INVESTING. You may establish a fund account as an Individual
Retirement Account (IRA). You also may be able to purchase fund shares as an
investment for other qualified retirement plans in which you participate.
Examples include a profit-sharing or money purchase plan, a 401(k) plan, a
403(b) plan, or a Simplified Employer Pension (SEP) plan. You should consult
your tax advisor, employer and/or plan administrator before investing. Call the
funds for more information and application forms.

<PAGE>


                          HOW TO SELL YOUR FUND SHARES

         You normally may sell (redeem) your fund shares on any business day at
their next-determined NAV after receipt of your redemption request. The funds
normally make payment within three days. However, if you very recently purchased
your shares by personal check, your redemption payment will be delayed (for up
to 15 days) to permit your check to clear. The value of shares redeemed may be
more or less than their original cost depending upon their NAV at the time of
redemption.

         You may not redeem your fund shares on any day that the NYSE is closed
(normally, weekends and customary national holidays). The funds also may suspend
your right of redemption if permitted by applicable laws and rules that are
designed to protect fund shareholders (for example, when emergencies or
restrictions in the securities markets make it difficult or impossible for the
funds to determine their net asset values or to sell their investments in an
orderly manner).

         If redemptions cause any of your fund accounts to fall below $1,000,
and the account remains below $1,000 for 60 days after the fund notifies you in
writing, the fund may close your account and mail you a check for your account
balance.

         SIGNATURE GUARANTEES. Your request to sell shares must be made in
writing and include a signature guarantee if any of the following situations
apply:

         *  you request to redeem more than $50,000 worth of shares;
         *  you have changed your account registration or address within the
            last 30 days;
         *  you request the check be mailed to a different address than the one
            on your account;
         *  you request the check be made payable to someone other than the
            account owner; or
         *  you request the redemption or exchange proceeds be transferred to an
            account with a different registration.

         You should be able to obtain a signature guarantee from a bank,
broker-dealer, credit union (if authorized under state law), securities exchange
or association, clearing agency or savings association. A NOTARY PUBLIC CANNOT
PROVIDE A SIGNATURE GUARANTEE.

         EXCHANGE PRIVILEGE. Except as provided below, you may exchange some or
all of your fund shares for shares of equal value of another fund. The minimum
amount which you may exchange is $1,000. The funds may restrict the frequency
of, or otherwise modify, condition, terminate or impose charges upon, exchanges.
An exchange is considered a sale of shares for income tax purposes.

         EXPEDITED TELEPHONE REDEMPTIONS. The funds currently offer certain
expedited redemption procedures. If you are redeeming shares worth at least
$1,000 but not more than $50,000, you may redeem by calling the funds at
1-800-335-0333. You must have completed the relevant section of your account
application before the telephone request is received. The proceeds of the
redemption will be paid by check mailed to your address of record or, if
requested at the time of redemption, by wire transfer to the bank designated on
your account application. The funds' transfer agent charges a $12.50 fee for
wire transfers.

         Your broker may allow you to effect an expedited redemption of fund
shares purchased through your broker by notifying him or her of the amount of
shares to be redeemed. Your broker is then responsible for promptly placing the
redemption request with the fund on your behalf.

         MONTHLY CASH WITHDRAWAL PLAN. If you own fund shares valued at $10,000
or more, you may open a Withdrawal Plan and have a designated amount of money
paid monthly to you or another person. Contact the funds for additional
information.

<PAGE>


                             DISTRIBUTIONS AND TAXES

DISTRIBUTIONS

         Substantially all of each fund's net investment income and net capital
gains, if any, will be paid to investors once a year. You may elect to receive
distributions in cash or in additional fund shares. If you do not indicate a
choice, your distributions will be reinvested in additional fund shares.

TAXES

         Distributions from a fund to you are taxable (unless you are exempt
from taxes). Distributions to you from the fund's income and short-term capital
gains will be taxable as "ordinary income." Long-term capital gain distributions
will be taxed at applicable long-term capital gains rates regardless of the
length of time you have held your fund shares. Although the investment adviser
will endeavor to have as great a portion as possible of each fund's
distributions qualify as long-term capital gains, the composition of
distributions in any year will depend upon a variety of market and other
conditions and cannot be predicted accurately. A portion of a fund's dividends
may qualify for the dividends received deduction for corporations. A fund's
distributions will be taxable when they are paid, whether you take them in cash
or reinvest them in additional fund shares, except that distributions declared
in December but paid in January are taxable as if paid on or before December 31.
The federal income tax status of all distributions will be reported to you
annually. In addition to federal income taxes, distributions may also be subject
to state or local taxes. If you live outside the United States, the dividends
and other distributions could also be taxed by the country in which you live.

"BUYING A DISTRIBUTION"

         On the date of a distribution by a fund, the price of its shares is
reduced by the amount of the distribution. If you purchase shares of a fund on
or shortly before the record date ("buying a distribution"), you will pay the
full price for the shares (which includes realized but undistributed earnings
and capital gains of the fund that accumulate throughout the year), and then
receive a portion of the purchase price back in the form of a taxable
distribution. For this reason, most taxable investors avoid buying fund shares
at or near the time of a large distribution.

         THIS TAX INFORMATION IS GENERAL IN NATURE. YOU SHOULD CONSULT YOUR TAX
ADVISER REGARDING FEDERAL, STATE, LOCAL OR FOREIGN TAX ISSUES THAT MAY RELATE TO
YOU SPECIFICALLY.

<PAGE>


                    FIRMS THAT PROVIDE SERVICES TO THE FUNDS

                               INVESTMENT ADVISER
                             Jundt Associates, Inc.
                       1550 Utica Avenue South, Suite 950
                          Minneapolis, Minnesota 55416

                                   DISTRIBUTOR
                          U.S. Growth Investments, Inc.
                       1550 Utica Avenue South, Suite 950
                          Minneapolis, Minnesota 55416

                                  ADMINISTRATOR
                        Firstar Mutual Fund Services, LLC
                       615 East Michigan Street, 3rd Floor
                         Milwaukee, Wisconsin 53202-5207

                                 TRANSFER AGENT
                        Firstar Mutual Fund Services, LLC
                       615 East Michigan Street, 3rd Floor
                         Milwaukee, Wisconsin 53202-5207

                                    CUSTODIAN
                               Firstar Bank, N.A.
                            777 East Wisconsin Avenue
                           Milwaukee, Wisconsin 53202

                              INDEPENDENT AUDITORS
                                    KPMG LLP
                               4200 Norwest Center
                          Minneapolis, Minnesota 55402

                                  LEGAL COUNSEL
                               Faegre & Benson LLP
                             2200 Wells Fargo Center
                          Minneapolis, Minnesota 55402


<PAGE>


                     ADDITIONAL INFORMATION ABOUT THE FUNDS

         The funds' annual and semi-annual shareholder reports include
additional information about each fund's investments and about market conditions
and investment strategies that significantly affected each fund's performance
during the covered period. The funds' Statement of Additional Information
contains further information about each fund and is incorporated into this
Prospectus by reference.

         You may make shareholder inquiries or obtain a free copy of the funds'
most recent annual and semi-annual shareholder report or the funds' current
Statement of Additional Information by:

         *  CALLING THE FUNDS at 1-800-335-0333; or

         *  WRITING THE FUNDS at 615 East Michigan Street, 3rd Floor, Milwaukee,
            Wisconsin 53202-5207.

         You may review or copy (for normal copying fees) information about the
funds (including the Statement of Additional Information) by visiting the SEC's
Public Reference Room in Washington, D.C. You may obtain information on the
operation of the Public Reference Room by calling the SEC at 202-420-8090. You
also may request copies by writing to the Public Reference Section of the SEC at
Washington, D.C. 20549-0102 or requests for information may be sent by
electronic request to the following e-mail address: [email protected]. Reports
and other information about the funds, including the Statement of Additional
Information, are also available free on the SEC's Internet site at
http://www.sec.gov.

                                TABLE OF CONTENTS


                                                                           PAGE
                                                                           ----
THE FUNDS...............................................................     2
RISK/RETURN SUMMARY.....................................................     2
FEES AND EXPENSES.......................................................     4
INVESTMENT OBJECTIVE, STRATEGIES AND RISKS..............................     5
MANAGEMENT OF THE FUNDS.................................................     8
HOW TO BUY FUND SHARES..................................................     8
HOW TO SELL YOUR FUND SHARES............................................     9
DISTRIBUTIONS AND TAXES.................................................    11
FIRMS THAT PROVIDE SERVICES TO THE FUNDS................................    15
ADDITIONAL INFORMATION ABOUT THE FUNDS..................................    16

         IN DECIDING WHETHER OR NOT TO INVEST, YOU SHOULD NOT RELY ON ANY
INFORMATION CONCERNING THE FUNDS OTHER THAN INFORMATION CONTAINED OR REFERENCED
IN THIS PROSPECTUS. INFORMATION INCLUDED IN THIS PROSPECTUS IS CURRENT AS OF
DECEMBER 29, 2000 BUT MAY CHANGE WITHOUT NOTICE AFTER SUCH DATE.

         Investment Company Act File No. 811-09699.

<PAGE>



                           AMERICAN EAGLE FUNDS, INC.


                       REGISTRATION STATEMENT ON FORM N-1A


                                     PART B


                       STATEMENT OF ADDITIONAL INFORMATION

<PAGE>


                    AMERICAN EAGLE CAPITAL APPRECIATION FUND
                           AMERICAN EAGLE TWENTY FUND
                      AMERICAN EAGLE LARGE-CAP GROWTH FUND
                       1550 UTICA AVENUE SOUTH, SUITE 950
                          MINNEAPOLIS, MINNESOTA 55416
                                 1-800-335-0333

                       STATEMENT OF ADDITIONAL INFORMATION
                             DATED DECEMBER 29, 2000

         The American Eagle Capital Appreciation Fund (Capital Appreciation
Fund) American Eagle Twenty Fund ("Twenty Fund") and American Eagle Large-Cap
Growth Fund (Large-Cap Growth Fund) are professionally managed open-end
management investment companies (commonly known as a mutual funds). Investors in
each fund become fund shareholders. Each fund is a separately managed series of
American Eagle Funds, Inc.

         This Statement of Additional Information is not a prospectus and should
be read in conjunction with the funds' Prospectus, dated December 29, 2000 (the
"Prospectus"), which has been filed with the Securities and Exchange Commission
(the "SEC"). To obtain a copy of the Prospectus, please call the funds at
1-800-335-0333 or your investment executive.

                                TABLE OF CONTENTS


                                                                            PAGE
                                                                            ----
Investment Policies.......................................................    2
Investment Restrictions...................................................    9
Taxes.....................................................................   10
Advisory, Administrative and Distribution Agreements......................   11
Special Purchase Plans....................................................   14
Monthly Cash Withdrawal Plan..............................................   14
Determination of Net Asset Value..........................................   15
Calculation of Performance Data...........................................   15
Directors and Officers....................................................   16
Counsel and Auditors......................................................   19
General Information.......................................................   19
Financial and Other Information...........................................   21

         NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS STATEMENT OF ADDITIONAL
INFORMATION OR IN THE PROSPECTUS, AND IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY AMERICAN
EAGLE FUNDS, INC. OR THE FUNDS' INVESTMENT ADVISER OR DISTRIBUTOR. NEITHER THIS
STATEMENT OF ADDITIONAL INFORMATION NOR THE PROSPECTUS CONSTITUTES AN OFFER TO
SELL, OR THE SOLICITATION OF AN OFFER TO BUY, SHARES OF ANY FUND IN ANY STATE OR
JURISDICTION IN WHICH SUCH OFFERING OR SOLICITATION MAY NOT LAWFULLY BE MADE.
NEITHER THE DELIVERY OF THIS STATEMENT OF ADDITIONAL INFORMATION NOR ANY SALE
MADE HEREUNDER (OR UNDER THE PROSPECTUS) SHALL CREATE ANY IMPLICATION THAT
INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE
HEREOF.

<PAGE>


                               INVESTMENT POLICIES

         Capital Appreciation Fund, Twenty Fund and Large-Cap Growth Fund are
each a "non-diversified" series of American Eagle Funds, Inc., an open-end
management investment company. Each fund's investment objective and principal
investment policies and strategies are set forth in the Prospectus. The
following information is intended to supplement the Prospectus disclosures.

OPTIONS

         Each fund may purchase and sell put and call options on its portfolio
securities to protect against changes in market prices when Jundt Associates,
Inc., the funds' investment adviser believes that market conditions make it
advisable to do so. This practice is often referred to as hedging. In addition,
each fund may purchase and sell options on an opportunistic basis to generate
additional investment returns. There is no assurance that the use of put and
call options will achieve these desired objectives and could result in losses.

         CALL OPTIONS. Each fund may sell covered call options on its securities
and on securities indices to realize a greater current return, through the
receipt of premiums, than it would realize on its securities alone. A call
option gives the holder the right to purchase, and obligates the seller to sell,
a security at the exercise price at any time before the expiration date. A call
option is "covered" if the seller, at all times while obligated as a seller,
either owns the underlying securities (or comparable securities satisfying the
cover requirements of the securities exchanges), or has the right to immediately
acquire such securities. In addition to covered call options, each fund may sell
uncovered (or "naked") call options; however, SEC rules require that the funds
segregate assets on their books and records with a value equal to the value of
the securities or the index that the holder of the option is entitled to call.

         In return for the premiums received when it sells a covered call
option, a fund gives up some or all of the opportunity to profit from an
increase in the market price of the securities covering the call option during
the life of the option. The fund retains the risk of loss should the price of
such securities decline. If the option expires unexercised, the fund realizes a
gain equal to the premium, which may be offset by a decline in price of the
underlying security. If the option is exercised, the fund realizes a gain or
loss equal to the difference between the fund's cost for the underlying security
and the proceeds of sale (exercise price minus commission) plus the amount of
the premium.

         A fund may terminate a call option that it has sold before it expires
by entering into a closing purchase transaction. The fund may enter into closing
transactions in order to free itself to sell the underlying security or to sell
another call option on the security, realize a profit or loss on a previously
written call option, or protect a security from being called in an unexpected
market rise. Any profits from a closing purchase transaction may be offset by a
decline in the value of the underlying security. Conversely, 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 is likely to be offset in whole or in part by unrealized
appreciation of the underlying security owned by the fund.

         PUT OPTIONS. Each fund may sell covered put options in order to enhance
its current return. A put option gives the holder the right to sell, and
obligates the seller to buy, a security, or the notional value of an index, at
the exercise price at any time before the expiration date. A put option is
"covered" if the seller segregates permissible collateral equal to the price to
be paid if the option is exercised.

         In addition to the receipt of premiums and the potential gains from
terminating such options in closing purchase transactions, a fund also receives
interest on the cash and debt securities maintained to cover the exercise price
of the option. By writing a put option, the fund assumes the risk that it may be
required to purchase the underlying security for an exercise price higher than
its then current market value, resulting in a potential capital loss unless the
security later appreciates in value.

         A fund may terminate a put option that it has written before it expires
by a closing purchase transaction. Any loss from this transaction may be
partially or entirely offset by the premium received on the terminated option.


                                       B-2
<PAGE>


         PURCHASING PUT AND CALL OPTIONS. Each fund may also purchase put
options to protect portfolio holdings against a decline in market value. This
protection lasts for the life of the put option because the fund, as the holder
of the option, may sell the underlying security or index at the exercise price
regardless of any decline in its market price. In order for a put option to be
profitable, the market price of the underlying security or index must decline
sufficiently below the exercise price to cover the premium and transaction costs
that the fund must pay. These costs will reduce any profit the fund might have
realized had it sold the underlying security instead of buying the put option.

         Each fund may purchase call options to hedge against an increase in the
price of securities that the fund ultimately wants to buy and to enhance its
current return. Such hedge protection is provided during the life of the call
option since the fund, as holder of the call option, is able to buy the
underlying security (or an index representative of the underlying security) at
the exercise price regardless of any increase in the underlying security's or
index's market price. In order for a call option to be profitable, the market
price of the underlying security or index must rise sufficiently above the
exercise price to cover the premium and transaction costs. These costs will
reduce any profit the fund might have realized had it bought the underlying
security at the time it purchased the call option.

         RISKS INVOLVED IN THE SALE OF OPTIONS. Options transactions involve
certain risks, including the risks that the funds' investment adviser, will not
forecast market movements correctly, that a fund may be unable at times to close
out such positions, or that hedging transactions may not accomplish their
purpose because of imperfect market correlations.

         An exchange-listed option may be closed out only on an exchange which
provides a secondary market for an option of the same series. There is no
assurance that a liquid secondary market on an exchange will exist for any
particular option or at any particular time. If no secondary market were to
exist, it would be impossible to enter into a closing transaction to close out
an option position. As a result, a fund may be forced to continue to hold, or to
purchase at a fixed price, a security on which it has sold an option at a time
when the investment adviser believes it is inadvisable to do so.

         Higher than anticipated trading activity or order flow or other
unforeseen events might cause The Options Clearing Corporation or an exchange to
institute special trading procedures or restrictions that might restrict the
funds' use of options. The exchanges have established limitations on the maximum
number of calls and puts of each class that may be held or written by an
investor or group of investors acting in concert. It is possible that the funds
and other clients of the investment adviser may be considered such a group.
These position limits may restrict a fund's ability to purchase or sell options
on particular securities.

         Options which are not traded on national securities exchanges may be
closed out only with the other party to the option transaction. For that reason,
it may be more difficult to close out unlisted options than listed options.
Furthermore, unlisted options are not subject to the protection afforded
purchasers of listed options by The Options Clearing Corporation.

         SPECIAL EXPIRATION PRICE OPTIONS. Each fund may purchase
over-the-counter ("OTC") put and call options with respect to specified
securities ("special expiration price options") pursuant to which the fund in
effect may create a custom index relating to a particular industry or sector
that the investment adviser believes will increase or decrease in value
generally as a group. In exchange for a premium, the counterparty, whose
performance is guaranteed by a broker-dealer, agrees to purchase (or sell) a
specified number of shares of a particular stock at a specified price and
further agrees to cancel the option at a specified price that decreases straight
line over the term of the option. Thus, the value of the special expiration
price option is comprised of the market value of the applicable underlying
security relative to the option exercise price and the value of the remaining
premium. However, if the value of the underlying security increases (or
decreases) by a pre-negotiated amount, the special expiration price option is
canceled and becomes worthless. A portion of the dividends during the term of
the option are applied to reduce the exercise price if the option is exercised.
Brokerage commissions and other transaction costs will reduce a fund's profits
if a special expiration price option is exercised. A fund will not purchase
special expiration price options with respect to more than 25% of the value of
its net assets.


                                       B-3
<PAGE>


FUTURES CONTRACTS

         INDEX FUTURES CONTRACTS AND OPTIONS. Each fund may buy and sell index
futures contracts and related options for to protect against changes in market
prices when the funds' investment adviser believes that market conditions make
it advisable to do so. In addition, each fund may purchase and sell such
securities on an opportunistic basis to attempt to increase investment return. A
stock index futures contract is a contract to buy or sell units of a stock index
at a specified future date at a price agreed upon when the contract is made. A
unit is the current value of the stock index.

         The following example illustrates generally the manner in which index
futures contracts operate. The Standard & Poor's 100 Stock Index (the "S&P 100
Index") is composed of 100 selected common stocks, most of which are listed on
the New York Stock Exchange. The S&P 100 Index assigns relative weightings to
the common stocks included in the Index, and the Index fluctuates with changes
in the market values of those common stocks. In the case of the S&P 100 Index,
contracts are to buy or sell 100 units. Thus, if the value of the S&P 100 Index
were $180, one contract would be worth $18,000 (100 units x $180). The stock
index futures contract specifies that no delivery of the actual stocks making up
the index will take place. Instead, settlement in cash must occur upon the
termination of the contract, with the settlement being the difference between
the contract price and the actual level of the stock index at the expiration of
the contract. For example, if a fund enters into a futures contract to buy 100
units of the S&P 100 Index at a specified future date at a contract price of
$180 and the S&P 100 Index is at $184 on that future date, the fund will gain
$400 (100 units x gain of $4). If a fund enters into a futures contract to sell
100 units of the stock index at a specified future date at a contract price of
$180 and the S&P 100 Index is at $182 on that future date, the fund will lose
$200 (100 units x loss of $2).

         Positions in index futures contracts may be closed out only on an
exchange or board of trade which provides a secondary market for such futures
contracts.

         In order to hedge its investments successfully using futures contracts
and related options, a fund must invest in futures contracts with respect to
indexes or sub-indexes the movements of which will, in the investment adviser's
judgment, have a significant correlation with movements in the prices of the
fund's securities.

         Options on index futures contracts give the purchaser the right, in
return for the premium paid, to assume a position in an index futures contract
(a long position if the option is a call and a short position if the option is a
put) at a specified exercise price at any time during the period of the option.
Upon exercise of the option, the holder would assume the underlying futures
position and would receive a variation margin payment of cash or securities
approximating the increase in the value of the holder's option position. If an
option is exercised on the last trading day prior to the expiration date of the
option, the settlement will be made entirely in cash based on the difference
between the exercise price of the option and the closing level of the index on
which the futures contract is based on the expiration date. Purchasers of
options who fail to exercise their options prior to the exercise date suffer a
loss of the premium paid.

         As an alternative to purchasing and selling call and put options on
index futures contracts, each fund may purchase and sell call and put options on
the underlying indexes themselves to the extent that such options are traded on
national securities exchanges. Index options are similar to options on
individual securities in that the purchaser of an index option acquires the
right to buy (in the case of a call) or sell (in the case of a put), and the
seller undertakes the obligation to sell or buy (as the case may be), units of
an index at a stated exercise price during the term of the option. Instead of
giving the right to take or make actual delivery of securities, the holder of an
index option has the right to receive a cash "exercise settlement amount." This
amount is equal to the amount by which the fixed exercise price of the option
exceeds (in the case of a put) or is less than (in the case of a call) the
closing value of the underlying index on the date of the exercise, multiplied by
a fixed "index multiplier."

         A fund may purchase or sell options on stock indices in order to close
out outstanding positions in options on stock indices which it has purchased or
may allow such options to expire unexercised.

         Compared to the purchase or sale of futures contracts, the purchase of
call or put options on an index involves less potential risk to a fund because
the maximum amount at risk is the premium paid for the options plus transactions
costs.


                                       B-4
<PAGE>


The writing of a put or call option on an index involves risks similar to those
risks relating to the purchase or sale of index futures contracts.

         MARGIN PAYMENTS. When a fund purchases or sells a futures contract, it
is required to deposit with its custodian an amount of cash, U.S. Treasury
bills, or other permissible collateral equal to a small percentage of the amount
of the futures contract. This amount is known as "initial margin." The nature of
the initial margin is different from that of margin in security transactions in
that it does not involve borrowing money to finance transactions. Rather,
initial margin is similar to a performance bond or good faith deposit that is
returned to the fund upon termination of the contract, assuming the fund
satisfies its contractual obligations.

         Subsequent payments to and from the broker occur on a daily basis in a
process known as "marking to market." These payments are called "variation
margin" and are made as the value of the underlying futures contract fluctuates.
For example, when a fund sells a futures contract and the price of the
underlying index rises above the delivery price, the fund's position declines in
value. The fund then pays the broker a variation margin payment equal to the
difference between the delivery price of the futures contract and the value of
the index underlying the futures contract. Conversely, if the price of the
underlying index falls below the delivery price of the contract, the fund's
future position increases in value. The broker then must make a variation margin
payment equal to the difference between the delivery price of the futures
contract and the value of the index underlying the futures contract.

         When a fund terminates a position in a futures contract, a final
determination of variation margin is made, additional cash is paid by or to the
fund, and the fund realizes a loss or a gain. Such closing transactions involve
additional commission costs.

         Consistent with the rules and regulations of the Commodity Futures
Trading Commission exempting each fund from regulation as a "commodity pool,"
each fund will not purchase or sell futures contracts or related options if, as
a result, the sum of the initial margin deposit on the fund's existing futures
contracts and related options positions and premiums paid for options on futures
contracts entered into for other than bona fide hedging purposes would exceed 5%
of the fund's assets. (For options that are "in-the-money" at the time of
purchase, the amount by which the option is "in-the-money" is excluded from this
calculation.)

SPECIAL RISKS OF TRANSACTIONS IN FUTURES CONTRACTS AND RELATED OPTIONS

         LIQUIDITY RISKS. Positions in futures contracts may be closed out only
on an exchange or board of trade which provides a secondary market for such
futures contracts. Although each fund intends to purchase or sell futures
contracts only on exchanges or boards of trade where there appears to be an
active secondary market, there is no assurance that a liquid secondary market on
an exchange or board of trade will exist for any particular futures contract or
at any particular time. If there is not a liquid secondary market at a
particular time, it may not be possible to close a futures contract position at
such time and, in the event of adverse price movements, a fund would continue to
be required to make daily variation margin payments. However, in the event
financial futures contracts are used to hedge portfolio securities, such
securities will not generally be sold until the financial futures contracts can
be terminated. In such circumstances, an increase in the price of the portfolio
securities, if any, may partially or completely offset losses on the financial
futures contracts.

         The ability to establish and close out positions in options on futures
contracts will be subject to the development and maintenance of a liquid
secondary market. It is not certain that such a market will develop. Although
each fund generally will purchase 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. In the event no such market exists for particular options, it might not be
possible to effect closing transactions in such options, with the result that a
fund would have to exercise the options in order to realize any profit.

         HEDGING RISKS. There are several risks in connection with the use by a
fund of futures contracts and related options as a hedging device. One risk
arises because of the imperfect correlation between movements in the prices of
the futures contracts and options and movements in the underlying securities or
index or movements in the prices of the fund's securities which are the subject
of the hedge. The investment adviser will attempt to reduce the risk by
purchasing and


                                       B-5
<PAGE>


selling, to the extent possible, futures contracts and related options on
securities and indexes the movements of which will, in its judgment, correlate
closely with movements in the prices of the underlying securities or index and
the fund's portfolio securities sought to be hedged.

         Successful use of futures contracts and options by a fund for hedging
purposes is also subject to the investment adviser's ability to predict
correctly movements in the direction of the market. It is possible that, where a
fund has purchased puts on futures contracts to hedge its portfolio against a
decline in the market, the securities or index on which the puts are purchased
may increase in value and the value of securities held in the portfolio may
decline. If this occurred, the fund would lose money on the puts and also
experience a decline in value in its portfolio securities. In addition, the
prices of futures contracts, for a number of reasons, may not correlate
perfectly with movements in the underlying securities or index due to certain
market distortions. All participants in the futures market are subject to margin
deposit requirements. Such requirements may cause investors to close futures
contracts through offsetting transactions which could distort the normal
relationship between the underlying security or index and futures contracts
markets. Further, the margin requirements in the futures contracts markets are
less onerous than margin requirements in the securities markets in general, and
as a result the futures contracts markets may attract more speculators than the
securities markets do. Increased participation by speculators in the futures
contracts markets may also cause temporary price distortions. Due to the
possibility of price distortion, even a correct forecast of general market
trends by the investment adviser may not result in a successful hedging
transaction over a short time period.

         Each fund may use futures contracts and related options to enhance
investment returns in addition to hedging against market risk. Such use of
futures contracts involves risk similar to the use of leverage. Within
applicable regulatory limits (which require that each fund segregate securities
and other assets on its books and records with a value equal to the value of all
long futures contracts positions, less margin deposits), each fund can be
subject to the same degree of market risk as if approximately twice its net
assets were fully invested in securities. This may result in substantial
additional gains in rising markets, but may likewise result in substantial
additional losses in falling markets.

         OTHER RISKS. Each fund will incur brokerage fees in connection with its
futures contracts and options transactions. In addition, while futures contracts
and options on futures contracts will be purchased and sold to reduce certain
risks, those transactions themselves entail certain other risks. Thus, while a
fund may benefit from the use of futures contracts and related options,
unanticipated changes in market movements may result in a poorer overall
performance for the fund than if it had not entered into any futures contracts
or options transactions. Moreover, in the event of an imperfect correlation
between the futures contract position and the portfolio position which is
intended to be protected, the desired protection may not be obtained and a fund
may be exposed to risk of loss.

FOREIGN SECURITIES

         Each fund may invest up to 25% of its total assets in securities of
foreign issuers. Each fund may only purchase foreign securities that are
represented by American Depository Receipts listed on a domestic securities
exchange or included in the NASDAQ National Market System, or foreign securities
listed directly on a domestic securities exchange or included in the NASDAQ
National Market System. Interest or dividend payments on such securities may be
subject to foreign withholding taxes. The funds' investments in foreign
securities involve considerations and risks not typically associated with
investments in securities of domestic companies, including unfavorable changes
in currency exchange rates, reduced and less reliable information about issuers
and markets, different accounting standards, illiquidity of securities and
markets, local economic or political instability and greater market risk in
general.

INITIAL PUBLIC OFFERINGS

         Each fund may invest in the securities of companies making initial
public offerings of their stock. Many of the companies making initial public
offerings have limited operating histories, making prospects for future
profitability uncertain. Prices of initial public offerings may also be unstable
due to the absence of a prior public market and the small number of shares
available for trading.


                                       B-6
<PAGE>


DEBT SECURITIES

         In normal market conditions, each fund may invest up to 35% of its
total assets in "investment grade" debt securities. However, when the investment
adviser believes that a defensive investment posture is warranted, each fund may
invest without limitation in investment grade debt securities. Debt securities
are "investment grade" if they are rated Baa or higher by Moody's Investors
Service, Inc. ("Moody's") or BBB or higher by Standard & Poor's Corporation
("S&P") or, if they are unrated, if the investment adviser believes that they
are comparable in quality. Securities rated Baa or BBB (and similar unrated
securities) lack outstanding investment characteristics, have speculative
characteristics, and are subject to greater credit and market risks than
higher-rated securities. A fund will not necessarily dispose of an investment
if, after its purchase, its rating slips below investment grade. However, the
investment adviser will monitor such investments closely and will sell such
investments if the investment adviser at any time believes that it is in the
fund's best interests. Each fund may also invest in non-investment grade
"convertible" debt securities. See "Convertible Securities."

CONVERTIBLE SECURITIES

         Each fund may invest in convertible securities. A convertible security
(a bond or preferred stock) may be converted at a stated price within a
specified period of time into a certain number of common shares of the same or a
different issuer. Convertible securities are senior to common stock in an
issuer's capital structure, but are usually subordinate to similar
non-convertible securities. While providing a fixed income stream (generally
higher in yield than the income from common stocks but lower than that afforded
by a similar non-convertible security), a convertible security also affords an
investor the opportunity, through its conversion feature, to participate in the
capital appreciation of the issuer's common stock. Each fund may invest in
non-investment grade convertible debt securities. Such securities (sometimes
referred to as "junk bonds") are considered speculative and may be in poor
credit standing or even in default as to payments of principal or interest.
Moreover, such securities generally are less liquid than investment grade debt
securities.

INDEXED SECURITIES

         Each fund may purchase securities whose prices are indexed to the
prices of other securities, securities indices or other financial indicators.
Indexed securities typically, but not always, are debt securities or deposits
whose value at maturity or coupon rate is determined by reference to a specific
instrument or statistic. The performance of indexed securities depends to a
great extent on the performance of the security or other instrument to which
they are indexed. At the same time, indexed securities are subject to the credit
risks associated with the issuer of the security, and their values may decline
substantially if the issuer's creditworthiness deteriorates. Recent issuers of
indexed securities have included banks, corporations and certain U.S. Government
agencies.

REPURCHASE AGREEMENTS

         Each fund may enter into repurchase agreements. A repurchase agreement
is a contract under which a fund acquires securities for a relatively short
period (usually not more than one week) subject to the obligation of the seller
to repurchase and the fund to resell such securities at a fixed time and price
(representing the fund's cost plus interest). Each fund presently intends to
enter into repurchase agreements only with member banks of the Federal Reserve
System and securities dealers meeting certain criteria as to creditworthiness
and financial condition established by the Board of Directors and only with
respect to obligations of the U.S. Government or its agencies or
instrumentalities or other high-quality, short-term debt obligations. Repurchase
agreements may also be viewed as loans made by a fund which are collateralized
by the securities subject to repurchase. The investment adviser will monitor
such transactions to ensure that the value of the underlying securities will be
at least equal at all times to the total amount of the repurchase obligation,
including the interest factor. If the seller defaults, a fund could realize a
loss on the sale of the underlying securities to the extent that the proceeds of
sale are less than the resale price provided in the agreement including
interest. In addition, if the seller should be involved in bankruptcy or
insolvency proceedings, a fund may incur delay and costs in selling the
underlying securities or may suffer a loss of principal and interest if the fund
is treated as an unsecured creditor and required to return the underlying
collateral to the seller's estate.


                                       B-7
<PAGE>


LEVERAGE

         Each fund may borrow money on an opportunistic basis to purchase
additional portfolio securities. Leveraging a fund creates an opportunity for
increased net income but, at the same time, creates special risk considerations.
For example, leveraging may exaggerate changes in the net asset value of a
fund's shares and in the yield on the fund's portfolio. Although the principal
of such borrowings will be fixed, the fund's assets may change in value during
the time the borrowing is outstanding. Since any decline in value of the fund's
investments will be borne entirely by the fund's shareholders (and not by those
persons providing the leverage to the fund), the effect of leverage in a
declining market would be a greater decrease in net asset value than if the fund
were not so leveraged. Leveraging will create an interest expense for the fund,
which can exceed the investment return (if any) from the borrowed funds. To the
extent the investment return derived from securities purchased with borrowed
funds exceeds the interest the fund will have to pay, the fund's investment
return will be greater than if leveraging were not used. Conversely, if the
investment return from the assets retained with borrowed funds is not sufficient
to cover the cost of leveraging, the investment return of the fund will be less
than if leveraging were not used.

REVERSE REPURCHASE AGREEMENTS

         In connection with its leveraging activities, each fund may enter into
reverse repurchase agreements on an opportunistic basis. In reverse repurchase
agreements, a fund sells securities and agrees to repurchase them at a mutually
agreed date and time. A reverse repurchase agreement may be viewed as a
borrowing by the fund, secured by the securities which are the subject of the
agreement. In addition to the general risks involved in leveraging, reverse
repurchase agreements involve the risk that, in the event of the bankruptcy or
insolvency of the fund's counterparty, the fund would be unable to recover the
securities which are the subject of the agreement, that the amount of cash or
other property transferred by the counterparty to the fund under the agreement
prior to such insolvency or bankruptcy is less than the value of the securities
subject to the agreement, or that the fund may be delayed or prevented, due to
such insolvency or bankruptcy, from using such cash or property or may be
required to return it to the counterparty or its trustee or receiver.

SECURITIES LENDING

         Each fund may lend its portfolio securities, provided: (1) the loan is
secured continuously by collateral consisting of U.S. Government securities,
cash or cash equivalents adjusted daily to have a market value at least equal to
the current market value of the securities loaned; (2) the fund may at any time
call the loan and regain the securities loaned; (3) the fund will receive any
interest or dividends paid on the loaned securities; and (4) the aggregate
market value of securities of the fund loaned will not at any time exceed
one-third (or such other limit as the Board of Directors may establish) of the
total assets of the fund. In addition, it is anticipated that the fund may share
with the borrower some of the income received on the collateral for the loan or
that it will be paid a premium for the loan.

         Before a fund enters into a loan, the investment adviser considers all
relevant facts and circumstances, including the creditworthiness of the
borrower. The risks in lending portfolio securities, as with other extensions of
credit, consist of possible delay in recovery of the securities or possible loss
of rights in the collateral should the borrower fail financially. Although
voting rights or rights to consent with respect to the loaned securities pass to
the borrower, a fund retains the right to call the loans at any time on
reasonable notice, and it will do so in order that the securities may be voted
by the fund if holders of such securities are asked to vote upon or consent to
matters materially affecting the investment. The funds will not lend portfolio
securities to borrowers affiliated with the funds.

SHORT SALES

         Each fund may seek to hedge investments through short sales when the
funds' investment adviser believes that market conditions make it advisable to
do so. In addition, each fund may sell securities short on an opportunistic
basis to generate additional investment returns. Short sales are transactions in
which a fund sells a security it does not own, in anticipation of a decline in
the market value of that security. To complete such a transaction, the fund must
borrow the security to make delivery to the buyer. The fund then is obligated to
replace the security borrowed by purchasing it at the market price at or prior
to the time of replacement. The price at such time may be more or less than the
price at which the


                                       B-8
<PAGE>


security was sold by the fund. Until the security is replaced, the fund is
required to repay the lender any dividends or interest that accrue during the
period of the loan. To borrow the security, the fund also may be required to pay
a premium, which would increase the cost of the security sold. The net proceeds
of the short sale will be retained by the broker (or by the fund's custodian in
a special custody account), to the extent necessary to meet margin requirements,
until the short position is closed out. A fund also will incur transaction costs
in effecting short sales.

         In addition, each fund may invest in short sales "against the box" to
protect against a decline in the value of portfolio securities. A short sale is
"against the box" if a fund owns, or has the right to obtain at no added cost,
securities identical to those sold short.

         A fund will incur a loss as a result of a short sale if the price of
the security increases between the date of the short sale and the date on which
the fund replaces the borrowed security. The fund will generally realize a gain
if the security declines in price between those dates. The amount of any gain
will be decreased, and the amount of any loss increased, by the amount of the
premium, dividends, interest or expenses the fund may be required to pay in
connection with the short sale. An increase in the value of the security sold
short by the fund over the price at which it was sold short will result in a
loss to the fund, and there can be no assurance that the fund will be able to
close out the position at any particular time or at an acceptable price.

ZERO-COUPON DEBT SECURITIES

         Zero-coupon securities in which each fund may invest are debt
obligations which are generally issued at a discount and payable in full at
maturity, and which do not provide for current payments of interest prior to
maturity. Zero-coupon securities usually trade at a deep discount from their
face or par value and are subject to greater market value fluctuations from
changing interest rates than debt obligations of comparable maturities which
make current distributions of interest. As a result, the net asset value of
shares of a mutual fund investing in zero-coupon securities may fluctuate over a
greater range than shares of other mutual funds investing in securities making
current distributions of interest and having similar maturities.

         When debt obligations have been stripped of their unmatured interest
coupons by the holder, the stripped coupons are sold separately. The principal
is sold at a deep discount because the buyer receives only the right to receive
a future fixed payment on the security and does not receive any rights to
periodic cash interest payments. Once stripped or separated, the principal and
coupons may be sold separately. Typically, the coupons are sold separately or
grouped with other coupons with like maturity dates and sold in such bundled
form. Purchasers of stripped obligations acquire, in effect, discount
obligations that are economically identical to the zero-coupon securities issued
directly by the obligor.

         Zero-coupon securities allow an issuer to avoid the need to generate
cash to meet current interest payments. Even though zero-coupon securities do
not pay current interest in cash, a fund is nonetheless required to accrue
interest income on them and to distribute the amount of that interest at least
annually to shareholders. Thus, a fund could be required at times to liquidate
other investments in order to satisfy its distribution requirements.

                             INVESTMENT RESTRICTIONS

         Each fund has adopted certain FUNDAMENTAL INVESTMENT RESTRICTIONS that
may not be changed except by a vote of shareholders owning a "majority of the
outstanding voting securities" of the fund, as defined in the Investment Company
Act of 1940. Under the Investment Company Act, a "majority of the outstanding
voting securities" means the affirmative vote of the lesser of: (a) more than
50% of the outstanding shares of the fund; or (b) 67% or more of the shares
present at a meeting if more than 50% of the outstanding shares are represented
at the meeting in person or by proxy. In addition, each fund has adopted certain
NON-FUNDAMENTAL INVESTMENT RESTRICTIONS that may be changed by the fund's Board
of Directors without the approval of the fund's shareholders.


                                       B-9
<PAGE>


FUNDAMENTAL INVESTMENT RESTRICTIONS

         None of the funds may:

                  1. Borrow money in excess of limitations imposed by the
         Investment Company Act of 1940;

                  2. Issue senior securities in excess of limitations imposed by
         the Investment Company Act;

                  3. Concentrate its investments in a particular industry, as
         determined in accordance with the Investment Company Act. Securities
         issued or guaranteed by the U.S. Government or its agencies or
         instrumentalities shall not be considered to represent an "industry"
         within the meaning of this limitation;

                  4. Acquire or sell real estate unless acquired as a result of
         ownership of securities or another permissible instrument. This
         limitation shall not prohibit the fund from acquiring or selling
         investments that may be backed or secured by real estate or interests
         in real estate or investments in companies that deal in or own real
         estate or interests in real estate;

                  5. Acquire or sell commodities or contracts relating to
         physical commodities unless acquired as a result of the fund's
         ownership of another permissible instrument. This limitation shall not
         prohibit the fund from acquiring or selling investments that may be
         backed or secured by physical commodities or investments in companies
         that deal in or own physical commodities;

                  6. Make loans in excess of limitations imposed by the
         Investment Company Act; or

                  7. Underwrite securities of other issuers, except insofar as
         the fund may be deemed an underwriter under the Securities Act of 1933
         in selling certain of its portfolio securities.

NON-FUNDAMENTAL INVESTMENT RESTRICTIONS

         None of the funds may:

                  1. Mortgage, hypothecate, or pledge any of its assets as
         security for any of its obligations, except as required to secure
         otherwise permissible borrowings (including reverse repurchase
         agreements), short sales, financial options and other hedging
         activities;

                  2. Invest in securities issued by other investment companies
         in excess of limitations imposed by applicable law;

                  3. Make investments for the purpose of exercising control or
         management;

                  4. Invest more than 15% of its net assets in illiquid
         securities; or

                  5. Purchase equity securities in private placements.

                                      * * *

         With respect to each of the foregoing fundamental and non-fundamental
investment restrictions involving a percentage of a fund's assets, if a
percentage restriction or limitation is adhered to at the time of an investment
or sale (other than a maturity) of a security, a later increase or decrease in
such percentage resulting from a change of values or net assets will not be
considered a violation thereof.


                                      B-10
<PAGE>


                                      TAXES

         Each fund intends to qualify as a "regulated investment company" under
Subchapter M of the Internal Revenue Code of 1986, as amended (the "Code"). To
so qualify, each fund must, among other things: (a) derive in each taxable year
at least 90% of its gross income from dividends, interest, payments with respect
to securities loans, gains from the sale or other disposition of stock,
securities or foreign currencies, or other income derived with respect to its
business of investing in such stock, securities or currencies; and (b) satisfy
certain diversification requirements at the close of each quarter of the fund's
taxable year.

         As a regulated investment company, each fund will not be liable for
federal income taxes on the part of its taxable net investment income and net
capital gains, if any, that it distributes to shareholders, provided it
distributes at least 90% of its "investment company taxable income" (as that
term is defined in the Code) to fund shareholders in each taxable year. However,
if for any taxable year a fund does not satisfy the requirements of Subchapter M
of the Code, all of its taxable income will be subject to tax at regular
corporate rates without any deduction for distributions to shareholders, and
such distributions will be taxable to shareholders as ordinary income to the
extent of the fund's current or accumulated earnings and profits.

         Each fund will be liable for a nondeductible 4% excise tax on amounts
not distributed on a timely basis in accordance with a calendar year
distribution requirement. To avoid the tax, during each calendar year each fund
must distribute: (a) at least 98% of its taxable ordinary income (not taking
into account any capital gains or losses) for the calendar year; (b) at least
98% of its capital gain net income for the twelve month period ending on October
31 (or December 31, if the fund so elects); and (c) any portion (not taxed to
the fund) of the respective balances from the prior year. To the extent
possible, each fund intends to make sufficient distributions to avoid this 4%
excise tax.

         Each fund, or the shareholder's broker with respect to the fund, is
required to withhold federal income tax at a rate of 31% of dividends, capital
gains distributions and proceeds of redemptions if a shareholder fails to
furnish the fund with a correct taxpayer identification number ("TIN") or to
certify that he or she is exempt from such withholding, or if the Internal
Revenue Service notifies the fund or broker that the shareholder has provided
the fund with an incorrect TIN or failed to properly report dividend or interest
income for federal income tax purposes. Any such withheld amount will be fully
creditable on the shareholder's federal income tax return. An individual's TIN
is his or her social security number.

         Each fund may write, purchase or sell options or futures contracts.
Generally, options and futures contracts that are "Section 1256 contracts" will
be "marked to market" for federal income tax purposes at the end of each taxable
year, I.E., each option or futures contract will be treated as sold for its fair
market value on the last day of the taxable year. Gain or loss from transactions
in options and futures contracts that are subject to the "marked to market" rule
will be 60% long-term and 40% short-term capital gain or loss. However, a fund
may be eligible to make a special election under which certain "Section 1256
contracts" would not be subject to the "marked to market" rule.

         Code Section 1092, which applies to certain "straddles," may affect the
taxation of each fund's transactions in options and futures contracts. Under
Section 1092, a fund may be required to postpone recognition for tax purposes of
losses incurred in certain closing transactions in options and futures
contracts.

              ADVISORY, ADMINISTRATIVE AND DISTRIBUTION AGREEMENTS

INVESTMENT ADVISORY AGREEMENT

         Jundt Associates, Inc., 1550 Utica Avenue South, Suite 950,
Minneapolis, Minnesota 55416, serves as each fund's investment adviser. James R.
Jundt serves as Chairman of the Board and Chief Executive Officer of the
investment adviser and Marcus E. Jundt serves and Vice Chairman of the
investment adviser. Marcus E. Jundt owns 95% of the investment adviser's stock.
A trust benefiting James R. Jundt's children and grandchildren owns the
remaining 5% of the investment adviser's stock. The investment adviser was
incorporated in December 1982.

         Jundt Associates has been retained as each fund's investment adviser
pursuant to investment advisory agreements between the investment adviser and
each fund. Under the terms of the investment advisory agreements, the investment


                                      B-11
<PAGE>


adviser furnishes continuing investment supervision to each fund and is
responsible for the management of each fund's portfolio. The responsibility for
making decisions to buy, sell or hold a particular security rests with the
investment adviser, subject to review by the Board of Directors.

         The investment adviser furnishes office space, equipment and personnel
to each fund in connection with the performance of its investment management
responsibilities. In addition, the investment adviser pays the salaries and fees
of all officers and directors of each fund who are affiliated persons of the
investment adviser.

         Each fund pays all other expenses incurred in its operation including,
but not limited to, brokerage and commission expenses; interest charges; fees
and expenses of legal counsel and independent auditors; the fund's
organizational and offering expenses, whether or not advanced by the investment
adviser; taxes and governmental fees; expenses (including clerical expenses) of
issuance, sale or repurchase of the fund's shares; membership fees in trade
associations; expenses of registering and making notice filings with respect to
shares of the fund for sale under federal and state securities laws; expenses of
printing and distributing reports, notices and proxy materials to existing
shareholders; expenses of regular and special shareholders meetings; expenses of
filing reports and other documents with governmental agencies; charges and
expenses of the fund's administrator, custodian and registrar, transfer agent
and dividend disbursing agent; expenses of disbursing dividends and
distributions; compensation of officers, directors and employees who are not
affiliated with the investment adviser; travel expenses of directors for
attendance at meetings of the Board of Directors; insurance expenses;
indemnification and other expenses not expressly provided for in the investment
advisory agreement; costs of stationery and supplies; and any extraordinary
expenses of a non-recurring nature.

         For its services, the investment adviser receives from each fund a
monthly fee at an annual rate of 1.3% of the fund's average daily net assets.

         The investment advisory agreements continue in effect from year to
year, if specifically approved at least annually by a majority of the Board of
Directors, including a majority of the directors who are not "interested
persons" (as defined in the Investment Company Act) of American Eagle Funds,
Inc. or the investment adviser ("Independent Directors") at a meeting in person.
Each investment advisory agreement may be terminated by either party, by the
Independent Directors or by a vote of the holders of a majority of the
outstanding securities of the fund that is a party thereto, at any time, without
penalty, upon 60 days' written notice, and automatically terminates in the event
of its "assignment" (as defined in the Investment Company Act).

PORTFOLIO TRANSACTIONS, BROKERAGE COMMISSIONS AND PORTFOLIO TURNOVER RATE

         The investment adviser is responsible for investment decisions and for
executing each fund's portfolio transactions. The funds have no obligation to
execute transactions with any particular broker-dealer. The investment adviser
seeks to obtain the best combination of price and execution for each fund's
transactions. However, the funds do not necessarily pay the lowest commission.

         Where best price and execution may be obtained from more than one
broker-dealer, the investment adviser may purchase and sell securities through
broker-dealers that provide research and other valuable information to the
investment adviser. Such information may be useful to the investment adviser in
providing services to clients other than the funds.

         Consistent with the rules and regulations of the National Association
of Securities Dealers, Inc., the investment adviser may, from time to time,
consider the distribution of the shares of other fund companies managed by the
investment adviser, and referrals of investors to investment partnerships
managed by the investment adviser, when allocating transactions among
broker-dealers that otherwise offer best price and execution. The investment
adviser may also agree from time to time to direct a portion of a client's
brokerage transactions to a particular broker-dealer if such broker-dealer is
among those that offer best price and execution. Because the investment adviser
frequently aggregates multiple contemporaneous client purchase or sell orders
into a block order for execution, such considerations and directions may
influence the Registrant's allocation of brokerage transactions for all client
accounts.

         Other clients of the investment adviser have investment objectives
similar to those of the funds. The investment adviser, therefore, may combine
the purchase or sale of investments for the funds and its other clients. Such
simultaneous


                                      B-12
<PAGE>


transactions may increase the demand for the investments being purchased or the
supply of the investments being sold, which may have an adverse effect on price
or quantity. The investment adviser's policy is to allocate investment
opportunities fairly among the clients involved, including the funds. When two
or more clients are purchasing or selling the same security on a given day from,
to or through the same broker-dealer, such transactions are averaged as to
price.

         For its clients, the investment adviser regularly purchases and
receives allocations of new issue stocks. New issue shares consist of both
initial public offerings and additional offerings of issues already publicly
traded (i.e., secondary offerings). The investment adviser's total allocation of
such stocks typically is not large enough to permit each of the investment
adviser's suitable clients to participate in a meaningful way. In such cases,
the investment adviser will determine which of its client accounts are the most
appropriate participants and will allocate any such shares equitably among such
clients. The investment adviser has a policy to ensure that, over time, each of
its clients for which new issue stocks are suitable investments will participate
fairly and equitably in allocations of such stocks.

ADMINISTRATION AGREEMENT

         Firstar Mutual Fund Services, LLC (the "Administrator"), 615 East
Michigan Street, 3rd Floor, Milwaukee, WI 53202-5207, an affiliate of the funds'
custodian, performs various administrative and accounting services for the
funds.

         Each fund has entered into an administration agreement with the
Administrator. The administration agreements will remain in effect unless and
until terminated in accordance with their terms. They may be terminated at any
time, without the payment of any penalty, by American Eagle Funds, Inc. on 90
days' written notice to the Administrator and by the Administrator on 90 days'
written notice to American Eagle Funds, Inc. The Administration Agreements
terminate automatically in the event of their assignment.

         Under the terms of the administration agreement between the
Administrator and each fund, the Administrator performs or arranges for the
performance of the following administrative services to each fund: (a)
maintenance and keeping of certain books and records of the fund; (b)
preparation or review and filing of certain reports and other documents required
by federal, state and other applicable U.S. laws and regulations to maintain the
funds' registrations as open-end investment companies; (c) coordination of tax
related matters; (d) responses to inquiries from fund shareholders; (e)
calculation and dissemination for publication of the net asset value of the
fund's shares; (f) oversight and, as the Board of Directors may request,
preparation of reports and recommendations to the Board of Directors on the
performance of administrative and professional services rendered to the fund by
others, including the funds' custodian and any subcustodian, registrar, transfer
agency, and dividend disbursing agent, as well as accounting, auditing and other
services; (g) provision of competent personnel and administrative offices
necessary to perform its services under the administration agreement; (h)
arrangement for the payment of fund expenses; (i) consultations with fund
officers and various service providers in establishing the accounting policies
of the fund; (j) preparation of such financial information and reports as may be
required by any banks from which the fund borrows funds; and (k) provision of
such assistance to the investment adviser, the custodian and any subcustodian,
and the fund's counsel and auditors as generally may be required to carry on
properly the business and operations of the fund.

         The Administrator is obligated, at its expense, to provide office
space, facilities, equipment and necessary personnel in connection with its
provision of services under the administration agreements; however, each fund
(in addition to the fees payable to the Administrator under the administration
agreement, as described below) has agreed to pay reasonable travel expenses of
persons who perform administrative, clerical and bookkeeping functions on behalf
of the fund. Additionally, the expenses of legal counsel and accounting experts
retained by the Administrator, after consulting with the fund's counsel and
independent auditors, as may be necessary or appropriate in connection with the
Administrator's provision of services to the fund, are deemed expenses of, and
shall be paid by, the fund.

         For administration services rendered to each fund and the facilities
furnished, each fund is obliged to pay the Administrator in the case of Capital
Appreciation Fund and Twenty Fund a monthly fee at an annual rate of .06% of the
first $200 million of the fund's average daily net assets, .05% of the next $500
million of the fund's average daily net assets and .03% of the fund's average
daily net assets in excess of $500 million . The administration fee is subject
to an annual minimum of, in the case of Capital Appreciation Fund and Twenty
Fund,$20,000 for the year ending December 31, 2000, $25,000 for the year ending
December 31,2001 and $30,000 for the year ending December 31, 2002,


                                      B-13
<PAGE>


and, in the case of Large-Cap Growth Fund, $20,000 for the year ending December
31, 2001, $25,000 for the year ending December 31, 2002, and $30,000 for the
year ending December 31, 2003.

         The administration agreements will remain in effect unless and until
terminated in accordance with their terms. They may be terminated at any time,
without the payment of any penalty, by American Eagle Funds, Inc. on 60 days'
written notice to the Administrator and by the Administrator on 90 days' written
notice to American Eagle Funds, Inc. The administration agreements terminate
automatically in the event of their assignment.

         The principal address of the Administrator is 615 East Michigan Street,
3rd Floor, Milwaukee, WI 53202-5207.

DISTRIBUTOR

         Pursuant to distribution agreements by and between the funds'
distributor, U.S. Growth Investments, Inc., 1550 Utica Avenue South, Suite 950,
Minneapolis, Minnesota 55416, and each of the funds, the distributor serves as
the principal underwriter of each fund's shares. Each fund's shares are offered
continuously by and through the distributor. As agent of each fund, the
distributor accepts orders for the purchase and redemption of fund shares. The
distributor may enter into selling agreements with other dealers and financial
institutions, pursuant to which such dealers and/or financial institutions also
may sell fund shares.

TRANSFER AGENT, DIVIDEND DISBURSING AGENT, FUND ACCOUNTANT AND CUSTODIAN

         Firstar Mutual Fund Services, LLC, 615 East Michigan Street, 3rd Floor,
Milwaukee, WI 53202-5207, an affiliate of the fund's custodian, serves as the
fund's transfer agent and dividend disbursing agent. For the services rendered
to each fund, each fund is obliged to pay the fund's transfer agent and dividend
disbursing agent, subject to an annual minimum fee of $10,000, an annual fee of
$16.00 per shareholder account.

         Firstar Mutual Fund Services, LLC serves as the fund's accountant. For
the services rendered to each fund, each fund is obliged to pay the fund's
accountant an annual minimum fee of $18,000 for the first 12 months of
operations (or until the net assets of the funds exceed $10 million), thereafter
$30,000 for the first $100 million of the fund's average daily net assets,
 .0125% of the next $200 million of the fund's average daily net assets and
 .0075% of the fund's average daily net assets in excess of $200 million.

         Firstar Bank, N.A., 777 East Wisconsin Avenue, Milwaukee, WI 53202,
serves as the funds' custodian. For the services rendered to each fund, each
fund is obliged to pay the fund's custodian, subject to an annual minimum fee of
$3,000, an annual fee at an annual rate of .01% of the fund's average daily net
assets. In addition, the funds may compensate certain broker-dealers that sell
fund shares for performing various accounting and administrative services with
respect to large street-name accounts maintained by such broker-dealers.

                             SPECIAL PURCHASE PLANS

         AUTOMATIC INVESTMENT PLAN. As a convenience to investors, shares may be
purchased through an automatic investment plan. Under such a plan, the investor
authorizes a fund to withdraw a specific amount (minimum dollars $50 per
withdrawal) from the investor's bank account and to invest such amount in shares
of the fund. Such purchases are normally made on the 5th day of each month, or
the next business day thereafter. Further information is available from the
Distributor.

                          MONTHLY CASH WITHDRAWAL PLAN

         Any investor who owns or buys shares of the funds valued at $10,000 or
more at the current offering prices may open a Withdrawal Plan and have a
designated sum of money paid monthly to the investor or another person. Shares
are deposited in a Withdrawal Plan account and all distributions are reinvested
at net asset value in additional shares of the fund to which such distributions
relate. Shares in a Withdrawal Plan account are then redeemed at net asset value
to make each withdrawal payment. Redemptions for the purpose of withdrawal are
made on the 20th day of the month (or on the preceding business day if the 20th
day falls on a weekend or is a holiday) at that day's closing net asset value,
and checks


                                      B-14
<PAGE>


are mailed on the next business day. Payments will be made to the registered
shareholder or to another party if preauthorized by the registered shareholder.
As withdrawal payments may include a return on principal, they cannot be
considered a guaranteed annuity or actual yield of income to the investor. The
redemption of shares in connection with a Withdrawal Plan may result in a gain
or loss for tax purposes. Continued withdrawals in excess of income will reduce
and possibly exhaust invested principal, especially in the event of a market
decline. Each fund or the distributor may terminate or change the terms of the
Withdrawal Plan at any time. The Withdrawal Plan is fully voluntary and may be
terminated by the shareholder at any time without the imposition of any penalty.

         Since the Withdrawal Plan may involve invasion of capital, investors
should consider carefully with their own financial advisers whether the
Withdrawal Plan and the specified amounts to be withdrawn are appropriate in
their circumstances. The funds make no recommendations or representations in
this regard.

                        DETERMINATION OF NET ASSET VALUE

         The net asset value per share of each fund is determined in accordance
with generally accepted accounting principles and applicable SEC rules and
regulations.

         The portfolio securities in which each fund invests fluctuate in value,
and hence each fund's net asset value per share also fluctuates. On December 31,
1999, the net asset value of Capital Appreciation Fund and Twenty Fund was
calculated as follows:

CAPITAL APPRECIATION FUND

             Net Assets       $74,486      =    Net Asset Value Per Share $10
         ---------------------
         Shares Outstanding     7,450

TWENTY FUND

             Net Assets       $74,486      =    Net Asset Value Per Share $10
         ---------------------
         Shares Outstanding     7,450

         The net asset value per share of Large-Cap Growth Fund's shares will be
calculated by dividing the fund's net asset value by the number of its shares
outstanding.

                         CALCULATION OF PERFORMANCE DATA

         For purposes of quoting and comparing the performance of each fund's
shares to that of other mutual funds and to other relevant market indices in
advertisements or in reports to shareholders, performance may be stated in terms
of "average annual total return" or "cumulative total return." Under the rules
of the SEC, funds advertising performance must include average annual total
return quotations calculated according to the following formula:

                                  P(1+T)n = ERV

     Where: P   =  a hypothetical initial payment of $1,000;
            T   =  average annual total return;
            n   =  number of years; and
            ERV =  ending redeemable value at the end of the period of a
                   hypothetical $1,000 payment made at the beginning of such
                   period.


         This calculation assumes all dividends and capital gains distributions
are reinvested at net asset value on the appropriate reinvestment dates as
described in the Prospectus, and includes all recurring fees, such as investment
advisory and management fees, charged to all shareholder accounts.


                                      B-15
<PAGE>


         Cumulative total return is computed by finding the cumulative
compounded rate of return over the period indicated in the advertisement that
would equate the initial amount invested to the ending redeemable value,
according to the following formula:

                            CTR = ( ERV - P ) x 100
                                   ---------
                                       P

     Where: CTR =  Cumulative total return;
            ERV =  ending redeemable value at the end of the period of a
                   hypothetical $1,000 payment made at the beginning of such
                   period; and
              P =  initial payment of $1,000.


         This calculation assumes all dividends and capital gain distributions
are reinvested at net asset value on the appropriate reinvestment dates as
described in the Prospectus, and includes all recurring fees, such as investment
advisory and management fees, charged to all shareholder accounts.

         Under each of the above formulas, the time periods used in advertising
will be based on rolling calendar quarters, updated to the last day of the most
recent quarter prior to submission of the advertisement for publication.

         Past performance is not predictive of future performance. All
advertisements containing performance data of any kind will include a legend
disclosing that such performance data represent past performance and that the
investment return and principal value of an investment will fluctuate so that an
investor's shares, when redeemed, may be worth more or less than their original
cost.


                                      B-16
<PAGE>


                             DIRECTORS AND OFFICERS

         The Board of Directors of American Eagle Funds, Inc. is responsible for
the overall management and operation of each fund. The officers of American
Eagle Funds, Inc. employed by the Investment Adviser are responsible for the
day-to-day operations of the fund under the Board's supervision. Directors and
officers of American Eagle Funds, Inc., together with information as to their
principal occupations during the past five years, are set forth below.

<TABLE>
<CAPTION>
                                                             PRINCIPAL OCCUPATION DURING
    NAME AND ADDRESS           POSITIONS HELD            PAST 5 YEARS AND OTHER AFFILIATIONS
    ----------------           --------------            -----------------------------------
<S>                        <C>                      <C>
James R. Jundt (1)(2)      Chairman of the Board    Chairman of the Board, Chief Executive Officer,
Age: 59                                             Secretary and portfolio manager of Jundt
1550 Utica Avenue South                             Associates, Inc. since its inception in 1982.
Suite 950                                           Chairman of the Board and a portfolio manager of
Minneapolis, MN 55416                               American Eagle Funds, Inc. since 1999, The Jundt
                                                    Growth Fund, Inc. since 1991 and Jundt Funds,
                                                    Inc. since 1995. President of The Jundt Growth
                                                    Fund, Inc. from 1991 to 1999 and Jundt Funds,
                                                    Inc. from 1995 to 1999. Chairman of the Board of
                                                    U.S. Growth Investments, Inc. since 1995. Also a
                                                    trustee of Gonzaga University and a director of
                                                    three private companies.

Marcus E. Jundt (1)(3)     President and Director   Vice Chairman of the Jundt Associates, Inc.
Age: 35                                             since 1992. Research Analyst, Victoria
1550 Utica Avenue South                             Investors, New York, New York from 1988 to 1992.
Suite 950                                           Employed by Cargill Investor Services, Inc. from
Minneapolis, MN 55416                               1987 to 1988. President since 1999 and Director
                                                    since 2000, of American Eagle Funds, Inc., Jundt
                                                    Funds, Inc., and The Jundt Growth Fund, Inc.
                                                    Portfolio manager of Jundt Funds, Inc. since
                                                    1995 and The Jundt Growth Fund since 1992.
                                                    President of U.S. Growth Investments, Inc. since
                                                    1997. Also a director of a private company.

John E. Clute              Director                 Dean and Professor of Law, Gonzaga University
Age: 66                                             School of Law, since 1991; previously Senior
1221 West Riverside Avenue                          Vice President Human Resources and General
Spokane, WA 99201                                   Counsel, Boise Cascade Corporation (forest
                                                    products). Director of American Eagle Funds,
                                                    Inc. since 1999, The Jundt Growth Fund, Inc.
                                                    since 1991 and Jundt Funds, Inc. since 1995.
                                                    Also a director of Hecla Mining Company (mining)
                                                    and two private companies.

Floyd Hall                 Director                 Chairman, President and Chief Executive Officer
Age: 62                                             of K-Mart Corporation since 1995. Chairman from
3100 West Big Beaver Road                           1989 to 1998 and Chief Executive Officer from
Troy, MI 48084                                      1989 to 1995 of The Museum Company and Alva
                                                    Replicas. Chairman and Chief Executive Officer
                                                    from 1984 to 1989 of The Grand Union Company.
                                                    Chairman and Chief Executive Officer from 1981
                                                    to 1984 of Target Stores. President and Chief
                                                    Executive Officer from 1974 to 1981 of B. Dalton
                                                    Bookseller. Director of American Eagle Funds,
                                                    Inc. since 1999, The Jundt Growth Fund, Inc.
                                                    since 1991 and Jundt Funds, Inc. since 1995.
</TABLE>


                                      B-17
<PAGE>


<TABLE>
<CAPTION>
                                                             PRINCIPAL OCCUPATION DURING
    NAME AND ADDRESS           POSITIONS HELD            PAST 5 YEARS AND OTHER AFFILIATIONS
    ----------------           --------------            -----------------------------------
<S>                        <C>                      <C>
Demetre M. Nicoloff        Director                 Cardiac and thoracic surgeon, Cardiac Surgical
Age: 67                                             Associates, P.A., Minneapolis, Minnesota.
1492 Hunter Drive                                   Director of American Eagle Funds, Inc. since
Wayzata, MN 55391                                   1999, The Jundt Growth Fund, Inc. since 1991 and
                                                    Jundt Funds, Inc. since 1995. Also a director of
                                                    Optical Sensors Incorporated (patient monitoring
                                                    equipment); Micromedics, Inc. (instrument trays,
                                                    ENT specialty products and fibrin glue
                                                    applicators); Applied Biometrics, Inc. (cardiac
                                                    output measuring devices); and Sonometrics, Inc.
                                                    (ultrasound imaging equipment).

Darrell R. Wells           Director                 Managing Director, Security Management Company
Age: 58                                             (asset management firm) in Louisville, Kentucky.
4350 Brownsboro Road,                               Director of American Eagle Funds, Inc. since
Suite 310                                           1999, The Jundt Growth Fund, Inc. since 1991 and
Louisville, KY 40207                                Jundt Funds, Inc. since 1995. Also a director of
                                                    Churchill Downs Inc. (race track operator) and
                                                    Citizens Financial Inc. (insurance holding
                                                    company), as well as several private companies.

Clark W. Jernigan          Director                 Product Engineering Director, Cirrus Logic,
Age: 40                                             Inc., Crystal Industrial & Communications
1201 Verdant Way                                    Division, Austin, Texas since 1997; Research
Austin, TX 78746                                    Associate Analyst, Alex. Brown & Sons
                                                    Incorporated., New York, New York from 1996 to
                                                    1997; Product Development Engineering Manager,
                                                    Advanced Micro Devices, Inc., Embedded Processor
                                                    Division, Austin, Texas from June 1991 to 1996;
                                                    Director of the American Eagle Funds, Inc., The
                                                    Jundt Growth Fund, Inc. and Jundt Funds, Inc.
                                                    since 1999.

Jon C. Essen, CPA          Treasurer                Chief Financial Officer of Jundt Associates,
Age: 37                                             Inc. since 1998. Treasurer of American Eagle
1550 Utica Avenue South                             Funds, Inc., The Jundt Growth Fund, Inc. and
Suite 950                                           Jundt Funds, Inc. since 1999. Senior Financial
Minneapolis, MN 55416                               Analyst, Norwest Investment Services, Inc., 1997
                                                    to 1998. Fund Reporting and Control Supervisor,
                                                    Voyageur Funds Inc., 1994 to 1997. Also a
                                                    director of a private company.

James E. Nicholson         Secretary                Partner with the law firm of Faegre & Benson
Age: 49                                             LLP, Minneapolis, Minnesota, which has served as
2200 Wells Fargo Center                             general counsel Jundt Associates, Inc., American
Minneapolis, MN 55402                               Eagle Funds, Inc., The Jundt Growth Fund, Inc.,
                                                    Jundt Funds, Inc. and U.S. Growth Investments
                                                    Inc. since their inception. Secretary of
                                                    American Eagle Funds, Inc. since 1999, The Jundt
                                                    Growth Fund, Inc. since 1991 and Jundt Funds,
                                                    Inc. since 1995.
</TABLE>

-----------

(1)      Director who is an "interested person" of each fund, as defined in the
         Investment Company Act.


                                      B-18
<PAGE>


(2)      James R. Jundt owns 100% of the stock of the distributor and is,
         therefore, a controlling person of the distributor, as defined in the
         Investment Company Act.

(3)      Marcus E. Jundt owns 95% of the stock of the investment adviser and is,
         therefore, a controlling person of the investment adviser, as defined
         in the Investment Company Act.

         Each of the directors of American Eagle Funds, Inc. is also a director
of The Jundt Growth Fund, Inc. and Jundt Funds, Inc., other fund companies
managed by the investment adviser. American Eagle Funds, Inc., The Jundt Growth
Fund, Inc. and Jundt Funds, Inc., has each agreed to pay its pro rata share
(based on the relative net assets of each fund company) of the fees payable to
each director who is not an "interested person" of The Jundt Growth Fund, Inc.
and Jundt Funds, Inc. any other fund company managed by the investment adviser.
In the aggregate, American Eagle Funds, Inc. The Jundt Growth Fund, Inc. and
Jundt Funds, Inc. have agreed to pay each such director a fee of $15,000 per
year plus $1,500 for each meeting attended and to reimburse each director for
the expenses of attendance at meetings. No compensation is paid to officers or
directors who are "interested persons" of American Eagle Funds, Inc., The Jundt
Growth Fund, Inc. and Jundt Funds, Inc.

                               COMPENSATION TABLE

<TABLE>
<CAPTION>
                                                                                               TOTAL COMPENSATION
                                          AGGREGATE         PENSION OR                          FROM FUND COMPANY
                                        COMPENSATION   RETIREMENT BENEFITS   ESTIMATED ANNUAL   AND FUND COMPLEX
                                          FROM FUND    ACCRUED AS PART OF      BENEFITS UPON    (9 FUNDS) PAID TO
       NAME OF PERSON, POSITION           COMPANY*        FUND EXPENSES          RETIREMENT        DIRECTORS**
<S>                                         <C>                <C>                  <C>              <C>
James R. Jundt, Chairman of the Board       $  0               $0                   $0               $     0
Marcus E. Jundt,  Director                  $  0               $0                   $0               $     0
John E. Clute, Director                     $243               $0                   $0               $21,000
Floyd Hall, Director                        $243               $0                   $0               $21,000
Demetre M. Nicoloff, Director               $243               $0                   $0               $21,000
Darrell R. Wells, Director                  $243               $0                   $0               $21,000
Clark W. Jernigan, Director                 $243               $0                   $0               $21,000
</TABLE>

* Estimated payments for the fiscal year ending December 31, 2000 based on the
projected relative net assets of each fund company for the same fiscal year.

** Total Compensation projected to be paid to directors for services on the
board of American Eagle Funds, Inc. and the boards of The Jundt Growth Fund,
Inc. and Jundt Funds, Inc., the two other investment companies in the fund
complex managed by the investment adviser.

                              COUNSEL AND AUDITORS

         Faegre & Benson LLP, 2200 Wells Fargo Center, 90 South Seventh Street,
Minneapolis, Minnesota 55402, serves as the funds' general counsel. KPMG LLP,
4200 Wells Fargo Center, 90 South Seventh Street, Minneapolis, Minnesota 55402,
has been selected as the funds' independent auditors for the fiscal years ending
December 31, 2000 and December 31, 2001.

                               GENERAL INFORMATION

         American Eagle Funds, Inc. was organized as a Minnesota corporation on
November 3, 1999. Although American Eagle Funds, Inc. is registered with the
Securities and Exchange Commission, the SEC does not supervise its management or
investments.

         Shares of each fund generally have the same voting, dividend,
liquidation and other rights. Shares of all funds generally vote together (with
each share being entitled to one vote) with respect to the Board of Directors,
independent auditors and other general matters affecting American Eagle Funds,
Inc. Each fund's shares are freely transferable. The Board of Directors may
designate additional classes of shares of each fund, each with different sales
arrangements and


                                      B-19
<PAGE>


expenses, but has no current intention of doing so. In addition, the Board of
Directors may designate additional series of American Eagle Funds, Inc., each to
represent a new mutual fund.

         As of December 29, 2000, Marcus E. Jundt, Vice Chairman of Jundt
Associates, 1550 Utica Avenue South, Suite 950, Minneapolis, Minnesota 55416,
was the beneficial owner of 100% of Large-Cap Growth Fund shares. Depending on
prevailing economic and market conditions, the presence of one or more large
beneficial owners in a fund could pose certain risks to the fund and its other
shareholders. For example, the presence of such a shareholder could raise
liquidity concerns which could require the fund to invest in a manner that may
not optimize investment returns. As of the date of this Statement of Additional
Information, the investment adviser does not believe that the presence of the
aforementioned beneficial owner poses such a risk.

         Under Minnesota law, the Board of Directors has overall responsibility
for managing the funds. In doing so, the directors must act in good faith, in
the funds' best interests and with ordinary prudence.

         Under Minnesota law, each director of a company, such as American Eagle
Funds, Inc., owes certain fiduciary duties to the company and to its
shareholders. Minnesota law provides that a director "shall discharge the duties
of the position of director in good faith, in a manner the director reasonably
believes to be in the best interest of the corporation, and with the care an
ordinary prudent person in a like position would exercise under similar
circumstances." Fiduciary duties of a director of a Minnesota corporation
include, therefore, both a duty of "loyalty" (to act in good faith and act in a
manner reasonably believed to be in the best interests of the corporation) and a
duty of "care" (to act with the care an ordinarily prudent person in a like
position would exercise under similar circumstances). Minnesota law authorizes a
corporation to eliminate or limit the liability of directors to the corporation
or its shareholders for monetary damages for breaches of fiduciary duty as a
director. However, a corporation cannot eliminate or limit the liability of a
director: (a) for any breach of the director's duty of "loyalty" to the
corporation or its shareholders; (b) for acts or omissions not in good faith or
that involve intentional misconduct or a knowing violation of law, for certain
illegal distributions or for violation of certain provisions of Minnesota
securities laws; or (c) for any transaction from which the director derived an
improper personal benefit. The Articles of Incorporation of American Eagle
Funds, Inc. limit the liability of its directors to the fullest extent permitted
by the Minnesota statutes, except to the extent that such liability cannot be
limited as provided in the Investment Company Act (which prohibits any
provisions which purport to limit the liability of directors arising from such
directors' willful misfeasance, bad faith, gross negligence or reckless
disregard of the duties involved in the conduct of their role as directors).

         Minnesota law does not permit a corporation to eliminate the duty of
"care" imposed upon a director. It only authorizes a corporation to eliminate
monetary liability for violations of that duty. Minnesota law, further, does not
permit elimination or limitation of liability of "officers" to the corporation
for breach of their duties as officers (including the liability of directors who
serve as officers for breach of their duties as officers). Minnesota law does
not permit elimination of the availability of equitable relief, such as
injunctive or rescissionary relief. These remedies, however, may be ineffective
in situations where shareholders become aware of such a breach after a
transaction has been consummated and rescission has become impractical. Further,
Minnesota state law does not affect a director's liability under the Securities
Act or the Securities Exchange Act of 1934, as amended, both of which are
federal statutes. It is also uncertain whether and to what extent the
elimination of monetary liability would extend to violations of duties imposed
on directors by the Investment Company Act and the rules and regulations
thereunder.

         American Eagle Funds, Inc. is not required under Minnesota law to hold
annual or periodically scheduled regular meetings of shareholders. Regular and
special shareholder meetings are held only at such times and with such frequency
as required by law. Minnesota corporation law provides for the Board of
Directors to convene shareholder meetings when it deems appropriate. In
addition, if a regular meeting of shareholders has not been held during the
immediately preceding 15 months, a shareholder or shareholders holding three
percent or more of the voting shares of a company may demand a regular meeting
of shareholders of the company by written notice of demand given to the chief
executive officer or the chief financial officer of the company. Within 90 days
after receipt of the demand, a regular meeting of shareholders must be held at
the expense of the company. Irrespective of whether a regular meeting of
shareholders has been held during the immediately preceding 15 months, in
accordance with Section 16(c) under the Investment Company Act, the Board of
Directors of American Eagle Funds, Inc. is required to promptly call a meeting
of shareholders for the purpose of voting upon the question of removal of any
director when requested in writing to do so by the record holders of not less


                                      B-20
<PAGE>


than 10% of the outstanding shares of the company. Additionally, the Investment
Company Act requires shareholder votes for all amendments to fundamental
investment policies and restrictions and for all investment advisory contracts
and amendments thereto.

         Upon issuance and sale in accordance with the terms of the Prospectus
and Statement of Additional Information, each fund share will be fully paid and
non-assessable. Shares have no preemptive, subscription or conversion rights and
are redeemable as set forth under "How To Sell Your Fund Shares" in the
Prospectus.

         The funds, the investment adviser and the distributor have adopted a
Code of Ethics under Rule 17j-1 of the Investment Company Act, which prohibits
the Investment Adviser's employees (and members of their households) from
purchasing any security in which the funds may invest. The Code strictly
regulates other personal investments (other than investments in mutual funds and
certain other securities) and requires quarterly reporting of all such
investments.

                         FINANCIAL AND OTHER INFORMATION

         The Prospectus and this Statement of Additional Information do not
contain all the information included in the registration statement of American
Eagle Funds, Inc. filed with the SEC under the Securities Act and the Investment
Company Act with respect to the securities offered by the Prospectus and this
Statement of Additional Information. Certain portions of the registration
statement have been omitted from the Prospectus and this Statement of Additional
Information pursuant to the rules and regulations of the SEC. The registration
statement, including the exhibits filed therewith, may be examined at the SEC's
Public Reference Room in Washington, D.C. You may obtain information on the
operation of the Public Reference Room by calling the SEC at 202-942-8090. You
also may request copies by writing to the Public Reference Section of the SEC at
Washington, D.C. 20549-0102 or requests for information may be sent
electronically to the following email address: [email protected]. Reports and
other information about the funds are also available free on the SEC's Internet
site at http://www.sec.gov.

         Statements contained in the Prospectus or in this Statement of
Additional Information as to any contract or other document referred to are not
necessarily complete, and, in each instance, reference is made to the copy of
such contract or other document filed as an exhibit to the Registration
Statement of which the Prospectus and this Statement of Additional Information
form a part, each such statement being qualified in all respects by such
reference.


                                      B-21
<PAGE>


                           AMERICAN EAGLE FUNDS, INC.


                       REGISTRATION STATEMENT ON FORM N-1A


                                     PART C


                                OTHER INFORMATION

<PAGE>


                                     PART C
                                OTHER INFORMATION

Item 23 -- Exhibits

                (a)     Articles of Incorporation(1)
                (b)     Bylaws(2)
                (c)     Not applicable
                (d)(1)  American Eagle Capital Appreciation Fund Investment
                        Advisory Agreement(1)
                (d)(2)  American Eagle Twenty Fund Investment Advisory
                        Agreement(1)
                (d)(3)  American Eagle Large-Cap Growth Fund Investment Advisory
                        Agreement(2)
                (e)(1)  American Eagle Capital Appreciation Fund Distribution
                        Agreement(1)
                (e)(2)  American Eagle Twenty Fund Distribution Agreement(1)
                (e)(3)  American Eagle Large-Cap Growth Fund Distribution
                        Agreement(2)
                (f)     Not applicable
                (g)     Custody Agreement(2)
                (h)(1)  Transfer Agent Servicing Agreement(2)
                (h)(2)  Fund Administration Servicing Agreement(2)
                (h)(3)  Fund Accounting Servicing Agreement(2)
                (i)     Opinion and Consent of Faegre & Benson LLP(1)
                (j)     Consent of KPMG LLP(2)
                (k)     Not applicable(2)
                (l)     Initial Capital Agreement(1)
                (m)     Not applicable
                (n)     Not applicable
                (o)     Code of Ethics(1)
                (p)     Power of Attorney(2)

         (1) (Incorporated by reference to the Registration Statement filed on
         or about November 19, 1999.)
         (2) (Incorporated by reference to the Registration Statement filed on
         or about December 5, 2000.)

Item 24 -- Persons Controlled by or Under Common Control with Registrant

         See the information set forth under the caption "Management of the
Funds" in the accompanying Prospectuses (Part A of this Registration Statement)
and under the captions "Advisory, Administrative and Distribution Agreements"
and "Directors and Officers" in the accompanying Statements of Additional
Information (Part B of this Registration Statement).

Item 25 -- Indemnification

         The Articles of Incorporation (Exhibit (a)) and Bylaws (Exhibit (b)) of
the Registrant provide that the Registrant shall indemnify such persons, for
such expenses and liabilities, in such manner, under such circumstances, and to
the full extent permitted by Section 302A.521 of the Minnesota Statutes, as now
enacted or hereafter amended, provided that no such


                                      C-1
<PAGE>


indemnification may be made if it would be in violation of Section 17(h) of the
Investment Company Act of 1940, as now enacted or hereafter amended. Section
302A.521 of the Minnesota Statutes, as now enacted, provides that a corporation
shall indemnify a person made or threatened to be made a party to a proceeding
against judgments, penalties, fines, settlements and reasonable expenses,
including attorneys' fees and disbursements, incurred by the person in
connection with the proceeding, if, with respect to the acts or omissions of the
person complained of in the proceeding, the person: (a) has not been indemnified
by another organization for the same judgments, penalties, fines, settlements
and reasonable expenses incurred by the person in connection with the proceeding
with respect to the same acts or omissions; (b) acted in good faith; (c)
received no improper personal benefit; (d) complied with the Minnesota Statute
dealing with directors' conflicts of interest, if applicable; (e) in the case of
a criminal proceeding, had no reasonable cause to believe the conduct was
unlawful; and (f) reasonably believed that the conduct was in the best interests
of the corporation or, in certain circumstances, reasonably believed that the
conduct was not opposed to the best interests of the corporation.

         Insofar as indemnification for liabilities 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 26 -- Business and Other Connections of Investment Adviser

         Information on the business of the Registrant's investment adviser and
on the officers and directors of the investment adviser is set forth under the
caption "Management of the Funds" in the accompanying Prospectus (Part A of this
Registration Statement) and under the captions "Advisory, Administrative and
Distribution Agreements" and "Directors and Officers" in the accompanying
Statement of Additional Information (Part B of this Registration Statement).

Item 27 -- Principal Underwriters

         (a) As set forth in the accompanying Prospectus and Statement of
Additional Information, U.S. Growth Investments, Inc. ("U.S. Growth
Investments") serves as the principal underwriter of the Registrant's shares of
common stock. As of the date of this filing, U.S. Growth Investments also serves
as a principal underwriter for Jundt U.S. Emerging Growth Fund, Jundt
Opportunity Fund and Jundt Twenty-Five Fund, each of which is a series of Jundt
Funds, Inc., and for The Jundt Growth Fund, Inc.


                                      C-2
<PAGE>


         (b) The principal business address of U.S. Growth Investments, and of
each director and officer of U.S. Growth Investments, is 1550 Utica Avenue
South, Suite 950, Minneapolis, Minnesota 55416. The names, positions and offices
of the directors and senior officers of U.S. Growth Investments are set forth
below.

Name                       Positions and Offices with Underwriter
----                       --------------------------------------
James R. Jundt             Chairman of the Board
Marcus E. Jundt            President
Jon C. Essen               Treasurer

         (c) Not applicable.

Item 28 -- Location of Accounts and Records

         The custodian of the Registrant is Firstar Bank, N.A., 777 East
Wisconsin Avenue, Milwaukee, Wisconsin 53202. The dividend disbursing agent,
transfer agent and fund accounting agent of the Registrant is Firstar Mutual
Fund Services, LLC, 615 East Michigan Street, 3rd Floor, Milwaukee, Wisconsin
53202-5207. Other records will be maintained by the Registrant at its principal
offices, which are located at 1550 Utica Avenue South, Suite 950, Minneapolis,
Minnesota 55416.

Item 29 -- Management Services

         Not applicable.

Item 30 -- Undertakings

         Not applicable.


                                       C-3
<PAGE>


                                   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 on Form N-1A to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Minneapolis, and State of Minnesota, on the 28th
day of December, 1999.

                                       AMERICAN EAGLE FUNDS, INC.


                                       By     /s/ James R. Jundt
                                          --------------------------------------
                                              James R. Jundt
                                              Chief Executive Officer

         Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement on Form N-1A has been signed below by the following
persons in the capacities and on the date indicated.

Name/Signature                      Title                           Date
--------------                      -----                           ----

  /s/ James R. Jundt               Chairman of the Board       December 28, 2000
-----------------------------
James R. Jundt

Marcus E. Jundt*                    Director

John E. Clute*                      Director

Floyd Hall*                         Director

Demetre M. Nicoloff*                Director

Darrell R. Wells*                   Director

Clark W. Jernigan*                  Director

*By    /s/ James R. Jundt                                      December 28, 2000
    -------------------------
     James R. Jundt,
     Attorney-in-Fact

(Pursuant to Powers of Attorney filed as Exhibit (p) to the Registration
Statement)

<PAGE>



                                  EXHIBIT INDEX

  Exhibit          Description
  -------          -----------
    (a)            Articles of Incorporation(1)
    (b)            Bylaws(2)
    (c)            Not applicable
    (d)(1)         American Eagle Capital Appreciation Fund
                   Investment Advisory Agreement(1)
    (d)(2)         American Eagle Twenty Fund
                   Investment Advisory Agreement(1)
    (d)(3)         American Eagle Large-Cap Growth Fund
                   Investment Advisory Agreement(2)
    (e)(1)         American Eagle Capital Appreciation Fund
                   Distribution Agreement(1)
    (e)(2)         American Eagle Twenty Fund
                   Distribution Agreement(1)
    (e)(3)         American Eagle Large-Cap Growth Fund
                   Distribution Agreement(2)
    (f)            Not applicable
    (g)            Custody Agreement(2)
    (h)(1)         Transfer Agent Servicing Agreement(2)
    (h)(2)         Fund Administration Servicing Agreement(2)
    (h)(3)         Fund Accounting Servicing Agreement(2)
    (i)            Opinion and Consent of Faegre & Benson LLP(1)
    (j)            Consent of KPMG LLP(2)
    (k)            Not applicable
    (l)            Initial Capital Agreement(1)
    (m)            Not applicable
    (n)            Not applicable
    (o)            Code of Ethics(1)
    (p)            Power of Attorney(2)


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

(1) Incorporated by reference to the Registration Statement filed on or about
November 19, 1999.
(2) Incorporated by reference to the Registration Statement filed on or about
December 5, 2000.



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