AMERICAN EAGLE CAPITAL APPRECIATION FUND
AMERICAN EAGLE TWENTY FUND
1550 UTICA AVENUE SOUTH, SUITE 950
MINNEAPOLIS, MINNESOTA 55416
1-800-335-0333
STATEMENT OF ADDITIONAL INFORMATION
DATED DECEMBER 28, 1999
(SUPPLEMENTED ON NOVEMBER 1, 2000)
The American Eagle Capital Appreciation Fund ("Capital Appreciation
Fund") and American Eagle Twenty Fund ("Twenty Fund") (collectively, the
"funds") 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' applicable Prospectus, dated December 28,
1999 (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
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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........................................... 14
Calculation of Performance Data............................................ 14
Directors and Officers..................................................... 15
Counsel and Auditors....................................................... 18
General Information........................................................ 18
Financial and Other Information............................................ 19
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.
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INVESTMENT POLICIES
Capital Appreciation Fund and Twenty 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 and to generate
additional investment returns. There is no assurance that the use of put and
call options will achieve these desired objectives, and the use of put and call
options 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 also
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.
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
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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 Jundt Associates, Inc., each fund's
investment adviser (the "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.
FUTURES CONTRACTS
INDEX FUTURES CONTRACTS AND OPTIONS. Each fund may buy and sell index
futures contracts and related options for hedging purposes and 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.
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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. 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.
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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 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
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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 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 may 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.
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
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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.
LEVERAGE
Each fund may borrow money 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, in which 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
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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 or realize additional gains
through 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. 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 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.
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.
B-8
<PAGE>
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, as amended (the "Investment Company Act"). 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.
CAPITAL APPRECIATION FUND AND TWENTY FUND
FUNDAMENTAL INVESTMENT RESTRICTIONS
Neither Capital Appreciation Fund nor Twenty Fund 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 of 1940;
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. However, a Fund may concentrate
its investments in one or more market sectors which may be made up of
companies in a number of related industries;
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 investment 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 of 1940; 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.
B-9
<PAGE>
NON-FUNDAMENTAL INVESTMENT RESTRICTIONS
Neither Capital Appreciation Fund nor Twenty Fund 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.
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.
B-10
<PAGE>
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. (the "Investment Adviser"), 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.
The Investment Adviser has been retained as each fund's investment
adviser pursuant to investment advisory agreements between the Investment
Adviser and each fund (the "Investment Advisory Agreements"). Under the terms of
the Investment Advisory Agreements, the Investment 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).
B-11
<PAGE>
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 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 and equitably among the clients involved,
including the funds. When two or more clients are purchasing or selling the same
security on a given day from 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.
Under the terms of an administration agreement between the
Administrator and each fund (the "Administration Agreements"), 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
B-12
<PAGE>
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, subject to an annual
minimum fee of $20,000 for the fiscal year ending December 31, 2000, $25,000 for
the fiscal year ending December 31, 2001, and $30,000 for the fiscal year ending
December 31, 2002, 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 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 U.S. Growth
Investments, Inc. (the "Distributor"), 1550 Utica Avenue South, Suite 950,
Minneapolis, Minnesota 55416, and each of the funds (the "Distribution
Agreements"), 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, 615 East Michigan Street, 3rd Floor,
Milwaukee, WI 53202-5207, an affiliate of the fund's custodian, 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 fist 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.
B-13
<PAGE>
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 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. The net asset
value per share of each 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) = 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
B-14
<PAGE>
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.
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.
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: 58 Secretary and portfolio manager of the Investment
Suite 950 Adviser since its inception in 1982. Chairman of the
1550 Utica Avenue South Board and a portfolio manager of American Eagle Funds,
Minneapolis, MN 55416 Inc. since 1999, Jundt Growth Fund, Inc. since 1991
and Jundt Funds, Inc. since 1995. President of Jundt
Growth Fund, Inc. from 1991 to 1999 and Jundt Funds,
Inc. from 1995 to 1999. Chairman of the Board of the
Distributor since 1995. Also a trustee of Gonzaga
University and a director of three private companies.
</TABLE>
B-15
<PAGE>
<TABLE>
<S> <C> <C>
Marcus E. Jundt (1)(3) President and Director Vice Chairman of the Investment Adviser since 1992.
Age: 34 Research Analyst, Victoria Investors, New York, New
Suite 950 York from 1988 to 1992. Employed by Cargill Investor
1550 Utica Avenue South Services, Inc. from 1987 to 1988. President of
Minneapolis, MN 55416 American Eagle Funds, Inc., Jundt Funds, Inc., and
Jundt Growth Fund, Inc. since 1999. Portfolio Manager
of Jundt Funds, Inc. since 1995 and 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 School
Age: 65 of Law, since 1991; previously Senior Vice President
1221 West Riverside Avenue Human Resources and General Counsel, Boise Cascade
Spokane, WA 99201 Corporation (forest products). Director of American
Eagle Funds, Inc. since 1999, 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 of
Age: 61 K-Mart Corporation since 1995. Chairman from 1989 to
3100 West Big Beaver Road 1998 and Chief Executive Officer from 1989 to 1995 of
Troy, MI 48084 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, Jundt Growth Fund, Inc. since 1991 and
Jundt Funds, Inc. since 1995.
Demetre M. Nicoloff Director Cardiac and thoracic surgeon, Cardiac Surgical
Age: 66 Associates, P.A., Minneapolis, Minnesota. Director of
1492 Hunter Drive American Eagle Funds, Inc. since 1999, Jundt Growth
Wayzata, MN 55391 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 (asset
Age: 57 management firm) in Louisville, Kentucky. Director of
Suite 310 American Eagle Funds, Inc. since 1999, Jundt Growth
4350 Brownsboro Road, Fund, Inc. since 1991 and Jundt Funds, Inc. since
Louisville, KY 40207 1995. Also a director of Churchill Downs Inc. (race
track operator) and Citizens Financial Inc. (insurance
holding company), as well as several private
companies.
</TABLE>
B-16
<PAGE>
<TABLE>
<S> <C> <C>
Clark W. Jernigan Director Product Engineering Director, Cirrus Logic, Inc.,
Age: 38 Crystal Industrial & Communications Division, Austin,
1201 Verdant Way Texas since 1997; Research Associate Analyst, Alex.
Austin, TX 78746 Brown & Sons Incoporated., 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., Jundt
Growth fund, Inc. and Jundt Funds, Inc. since 1999.
Jon C. Essen, CPA Treasurer Chief Financial Officer of the Investment Adviser
Age: 36 since 1998. Treasurer of American Eagle Funds, Inc.
Suite 950 since 1999 and Treasurer of Jundt Growth Fund, Inc.
1550 Utica Avenue South and 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.
James E. Nicholson Secretary Partner with the law firm of Faegre & Benson LLP,
Age: 48 Minneapolis, Minnesota, which has served as general
2200 Norwest Center counsel to the Investment Adviser, American Eagle
Minneapolis, MN 55402 Funds, Inc., Jundt Growth Fund, Inc., Jundt Funds,
Inc. and the Distributor since their inception.
Secretary of American Eagle Funds, Inc. since 1999,
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.
(2) James R. Jundt owns 100% of the stock of the Distributor and is,
therefore, a controlling person of the Distributor, as defined by the
Investment Company Act of 1940.
(3) Marcus E. Jundt owns 95% of the stock of the Investment Advisor and is,
therefore, a controlling person of the Investment Advisor, as defined
by the Investment Company Act of 1940
Each of the directors of American Eagle Funds, Inc. is also a director
of other fund companies managed by the Investment Adviser. American Eagle Funds,
Inc., and each of the other fund companies managed by the Investment Adviser,
has 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 American Eagle Funds, Inc. or any other fund company managed by the
Investment Adviser. In the aggregate, the American Eagle Funds, Inc. and the
other fund companies 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 such director
for the expenses of attendance at such meetings. No compensation is paid to
officers or directors who are "interested persons" of American Eagle Funds, Inc.
or the other fund companies managed by the Investment Adviser.
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<PAGE>
COMPENSATION TABLE
<TABLE>
<CAPTION>
---------------------------------------- ----------------- ----------------------- -------------------- ----------------------
PENSION OR TOTAL COMPENSATION
AGGREGATE RETIREMENT BENEFITS ESTIMATED ANNUAL FROM FUND AND FUND
COMPENSATION ACCRUED AS PART OF BENEFITS UPON COMPLEX PAID TO
NAME OF PERSON, POSITION FROM FUND* FUND EXPENSES RETIREMENT DIRECTORS*/**
---------------------------------------- ----------------- ----------------------- -------------------- ----------------------
<S> <C> <C> <C> <C>
James R. Jundt, Chairman of the Board $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 the Fund and the boards of two other investment companies in the Fund
Complex managed by the Investment Adviser.
COUNSEL AND AUDITORS
Faegre & Benson LLP, 2200 Norwest Center, 90 South Seventh Street,
Minneapolis, Minnesota 55402, serves as the funds' general counsel. KPMG LLP,
4200 Norwest Center, 90 South Seventh Street, Minneapolis, Minnesota 55402, has
been selected as the funds' independent auditors for the fiscal years ending
December 31, 1999 and December 31, 2000.
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 their management
or investments.
Shares of each fund generally have the same voting, dividend,
liquidation and other rights. Shares of both 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 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 21, 1999, Marcus E. Jundt of the Investment Adviser,
1550 Utica Avenue South, Suite 950, Minneapolis, Minnesota 55416, was the
beneficial owner of 100% of Capital Appreciation Fund and 100% of Twenty 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 Manager does not believe
that the presence of any of the aforementioned beneficial owners 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
B-18
<PAGE>
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. limits the liability of its
directors to the fullest extent permitted by 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
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 and the Investment Adviser have adopted a Code of Ethics,
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 (the "Registration Statement") 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
B-19
<PAGE>
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 1-800-SEC-0330. You also may request copies
by writing to the Public Reference Section of the SEC at Washington, D.C.
20549-6009. 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-20
