Prudent Bear Fund
Prospectus May 31, 1996
INVESTMENT OBJECTIVES AND POLICIES
Prudent Bear Funds, Inc. is a no load, open end, diversified management
investment company consisting of a single portfolio, the Prudent Bear Fund
("the Fund"). The Fund's investment objective is capital appreciation. Unlike
many mutual funds with this investment objective, the Fund will attempt to
achieve its investment objective in declining equity markets as well as in
rising equity markets. In seeking its investment objective of capital
appreciation, the Fund will invest primarily in common stocks and warrants,
engage in short sales, and effect transactions in stock index futures
contracts, options on stock index futures contracts and options on securities
and stock indexes.
TO OPEN AN ACCOUNT
Please complete and sign the New Account Application form. If you need a form
or have any questions regarding the Fund or need assistance completing the
form please call Shareholder Services at 1-800-711-1848. The minimum initial
investment is $2,000, with a minimum of $100 for additional investments.
Further details are contained in this Prospectus.
ABOUT THIS PROSPECTUS
This Prospectus concisely sets forth the information about the Fund that
prospective investors should know before investing. Please read this prospectus
and retain it for future reference. Additional information about the Fund has
been filed with the Securities and Exchange Commission in the form of a
Statement of Additional Information, dated May 31, 1996, which is and has been
incorporated by reference into this Prospectus. A copy may be obtained without
charge by writing to the Fund or by calling Shareholder Services.
SHAREHOLDER SERVICES
Questions regarding the Prudent Bear Fund can be directed to 1-888-PRU-BEAR, or
1-888-778-2327. For account inquiries please call 1-800-711-1848. For additional
information about the Prudent Bear Fund and its adviser David W. Tice and
Associates, Inc., please visit our Internet homepage at http://www.tice.com.
Table Of Contents Page
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EXPENSES 2
FINANCIAL HIGHLIGHTS 2
WHAT IS THE PRUDENT BEAR FUND? 3
WHAT IS THE FUND'S
INVESTMENT OBJECTIVE? 3
WHAT ARE THE FUND'S INVESTMENT
TECHNIQUES, POLICIES AND RISKS? 4
DOES THE FUND HAVE ANY
INVESTMENT LIMITATIONS? 10
WHAT REPORTS WILL I RECEIVE? 11
WHO MANAGES THE FUND? 11
HOW IS THE FUND'S
SHARE PRICE DETERMINED? 12
HOW DO I OPEN AN ACCOUNT AND
PURCHASE SHARES? 13
HOW DO I SELL MY SHARES? 15
WHAT ABOUT DIVIDENDS, CAPITAL GAINS
DISTRIBUTIONS AND TAXES? 16
MAY SHAREHOLDERS REINVEST DIVIDENDS? 17
WHAT RETIREMENT PLANS DOES
THE FUND OFFER? 18
WHAT ABOUT BROKER TRANSACTIONS? 18
GENERAL INFORMATION ABOUT THE FUND 18
PERFORMANCE INFORMATION 18
THESE SECURITIES HAVE NOT BEEN APPROVED OR
DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION, NOR HAS THE SECURITIES AND EXCHANGE
COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED ON THE ACCURACY OR ADEQUACY OF THE
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
EXPENSES
The following information is provided in order to assist you in understanding
the various costs and expenses that, as an investor in the Fund, you will bear
directly or indirectly. It should not be considered to be a representation of
past or future expenses. "Annual Operating Expenses" have been estimated
because the Fund is new. Actual expenses may be greater or lesser than those
shown. The example assumes a 5% annual rate of return pursuant to requirements
of the Securities and Exchange Commission. The hypothetical rate of return is
not intended to be representative of past or future performance of the Fund.
Shareholder Transaction Expenses
Maximum sales load imposed on purchases None
Maximum sales load imposed on dividends None
Deferred sales load None
Redemption fee None <F1>
Exchange fee None
Annual Operating Expenses
(as a percentage of average net assets)
Management Fees 1.25%
12b-1 Fees 0.25% <F2>
Other Expenses (net of reimbursement) 1.25% <F3>
Total Fund Operating
Expenses (net of reimbursement) 2.75% <F3>
<F1> A fee of $10.00 is charged for each wire redemption.
<F2> The maximum level of distribution expenses is 0.25% per annum of the Fund's
average net assets. See "How Do I Open an Account and Purchase Shares" for
further information. The distribution expenses for long-term shareholders may
total more than the maximum sales charge that would have been permissible if
imposed entirely as an initial sales charge.
<F3> The Fund's investment adviser, David W. Tice & Associates, Inc., has agreed
to waive its management fee and/or reimburse the Fund's operating expenses to
the extent necessary to ensure that the Fund's Total Operating Expenses do not
exceed 2.75% of the Fund's average daily net assets. "Other Expenses" are
presented net of reimbursement. Absent these reimbursements Other Expenses and
Total Fund Operating Expenses for the period ended September 30, 1996, are
expected to be 2.80% and 4.30% respectively.
Example
You would pay the following expenses on a $1,000 investment, assuming (1) a 5%
annual return and (2) redemption at the end of each time period:
1 YEAR 3 YEARS
------ ------
$28 $87
FINANCIAL HIGHLIGHTS
The financial information of a share of Prudent Bear Fund (the "Fund")
outstanding during the period from December 28, 1995 (commencement of
operations) to March 31, 1996 included in this table has been derived from the
financial records of the Fund without examination by the Fund's independent
accountants, who do not express an opinion thereon. The table should be read in
conjunction with the financial statements and related notes contained in the
Fund's Semi-Annual Report to shareholders, copies of which may be obtained,
without charge, upon request.
Net asset value, beginning of period $10.00
Income from investment operations:
Net investment income 0.02
Net realized and unrealized losses
on investments (0.50)
----------
Total from investment operations (0.48)
----------
Net asset value, end of period $9.52
==========
Total return <F4> (4.80)%
Supplemental data and ratios:
Net assets, end of period $1,000,591
Ratio of operating expenses to
average net assets <F5><F6><F7> 2.75%
Ratio of dividends on short positions to
average net assets <F6> 0.08%
Ratio of net investment income to
average net assets <F6><F7> 3.22%
Portfolio turnover rate 0.00%
Average commission rate paid $0.0573
<F4> Not annualized for the period December 28, 1995 through March 31, 1996.
<F5> For the period ended March 31, 1996, the operating expense ratio excludes
dividends on short positions. The ratio including dividends on short positions
for the period ended March 31, 1996 was 2.83%.
<F6> Annualized for the period December 28, 1995 through March 31, 1996.
<F7> Without expense reimbursements of $32,764 for the period December 28, 1995
through March 31, 1996, the ratio of operating expenses to average net assets
would have been 43.86% and the ratio of net investment income to average net
assets would have been (37.89)%.
WHAT IS THE PRUDENT BEAR FUND?
Prudent Bear Funds, Inc. (the "Company") is a no-load, open-end diversified
management investment company -- better know as a mutual fund -- registered
under the Investment Company Act of 1940 (the "Act"). The Company was
incorporated under the laws of Maryland on October 25, 1995 and consists of a
single portfolio, the Prudent Bear Fund (the "Fund"). The Fund obtains its
assets by continuously selling its shares to the public. Proceeds from the sale
of shares are invested by the Fund in securities of other companies. In this
way, the Fund:
- - Combines the resources of many investors, with each individual investor
having an interest in every one of the securities owned by the Fund;
- - Provides each individual investor with diversification by investing in the
securities of many different companies in a variety of industries; and
- - Furnishes professional portfolio management to select and watch over
investments. See "WHO MANAGES THE FUND?" for a discussion of the Fund's
investment adviser.
The Fund will redeem any of its outstanding shares on demand of the owner at
their next determined net asset value. There are no initial or deferred sales
charges or redemption fees.
WHAT IS THE FUND'S INVESTMENT OBJECTIVE?
The Fund's investment objective is capital appreciation. Unlike many mutual
funds with this investment objective, the Fund will attempt to achieve its
investment objective in declining equity markets as well as in rising equity
markets. In seeking its investment objective of capital appreciation, the Fund
will invest primarily in common stocks and warrants, engage in short sales, and
effect transactions in stock index futures contracts, options on stock index
futures contracts, and options on securities and stock indexes. Warrants, stock
index futures contracts, options on stock index futures contacts and options on
securities and stock indexes are derivatives.
In selecting investments for the Fund, the Fund's investment adviser, David W.
Tice & Associates, Inc. (the "Adviser") will initially make a determination as
to whether it believes the Fund can best achieve its investment objective by
holding more "long" equity positions or "short" equity positions. "Long"
equity positions include common stocks, warrants, purchases of call options on
stocks and stock indexes, purchases of stock index futures contracts and options
to purchase stock index futures contracts. "Short" equity positions include
short sales, purchases of put options on stocks and stock indexes, sales of
stock index futures contracts and purchases of put options on stock index
futures contracts. The Adviser anticipates that the Fund will at all times hold
both "long" and "short" equity positions. The relative percentage of the
Fund's "long" and "short" equity positions will vary depending on the
dividend yield on the stocks comprising the Standard & Poor's 500 Index (the
"S&P 500"), overall market conditions and the Adviser's discretion.
The Adviser believes that the S&P 500's dividend yield varies inversely with the
market, and that the market generally has increased at a higher rate over the
next year when the dividend yield is higher. In determining whether the Fund
should hold more "long" or "short" equity positions, the Adviser will look to
the average dividend yield on stocks comprising the S&P 500. When the S&P 500's
dividend yield is less than 3%, the amount of the Fund's "short" equity
positions will generally exceed its "long" equity positions and when the S&P
500's dividend yield exceeds 6%, the amount of the Fund's "long" equity
positions will generally exceed its "short" equity positions. When the S&P
500's dividend yield is between 3.0% and 6.0%, the Adviser will allocate the
Fund's portfolio between short and long positions at its discretion.
The Fund's investment results will suffer if there is a stock market advance
when the Fund has significant "short" equity positions or if there is a stock
market decline when the Fund has a significant "long" equity position. The
risk that the Adviser may incorrectly allocate the Fund's investments between
"long" and "short" equity positions is in addition to the risks associated
with each of the Fund's investments which are discussed in "WHAT ARE THE FUND'S
INVESTMENT TECHNIQUES, POLICIES AND RISKS?"
As a result of the investment techniques used by the Fund, the Fund expects that
a significant portion (up to 100%) of its assets will be held in ultra short
term high-grade highly liquid debt securities in a segregated account as
"cover" for the investment techniques the Fund employs. The Fund anticipates
that the securities maintained in the segregated account of the Fund will be
U.S. Government Securities and repurchase agreements secured by such securities.
These assets may not be sold while the position in the corresponding instrument
or transaction (e.g. short sale, option or futures contract) is open unless they
are replaced by similar assets. As a result, the commitment of a large portion
of the Fund's assets to "cover" investment techniques could impede portfolio
management or the Fund's ability to meet redemption requests or other current
obligations.
Participation in the options or futures markets by the Fund involves investment
risks and transaction costs to which the Fund would not be subject absent the
use of these strategies. Risks inherent in the use of options, futures contracts
and options on futures contracts include: (1) adverse changes in the value of
such instruments; (2) imperfect correlation between the price of options and
futures contracts and options thereon and movements in the price of the
underlying securities, index or futures contracts; (3) the fact that the skills
needed to use these strategies are different from those needed to select
portfolio securities; (4) the possible absence of a liquid secondary market for
any particular instrument at any time; and (5) the possible need to defer
closing out certain positions to avoid adverse tax consequences. For further
information regarding these investment techniques, see "WHAT ARE THE FUND'S
INVESTMENT TECHNIQUES, POLICIES AND RISKS?"
WHAT ARE THE FUND'S INVESTMENT TECHNIQUES, POLICIES AND RISKS?
The Fund may invest in the following portfolio securities and may engage in the
following investment techniques.
Common Stocks
The Fund's long common stock investments primarily will be made in companies
where the potential value generally has been overlooked by investors. Typically
these companies include companies that are covered by a small number of analysts
and are attractively priced but which are also operating businesses that have
not been discovered or become popular, previously unpopular companies having
growth potential due to changed circumstances, companies that have declined in
value and no longer command an investor following, and previously popular
companies temporarily out of favor due to short-term factors. The Fund may
invest in common stocks of companies of all sizes, industries and geographical
location. Dividend income is not a factor in selecting common stocks.
The Fund may invest up to 20% of its total assets in securities of foreign
issuers in the form of American Depository Receipts ("ADRs") that are
regularly traded on recognized U.S. exchanges or in the U.S. over-the-counter
market. The Fund will only invest in ADRs that are issuer sponsored. Sponsored
ADRs typically are issued by a U.S. bank or trust company and evidence ownership
of underlying securities issued by a foreign corporation. Investments in foreign
securities involve risks which are in addition to the risks inherent in domestic
investments. Foreign companies are not subject to the regulatory requirements of
U.S. companies and, as such, there may be less publicly available information
about issuers than is available in the reports and ratings published about
companies in the United States. Additionally, foreign companies are not subject
to uniform accounting, auditing and financial reporting standards.
Short Sales
The Fund may engage in short sales transactions, including short sales
transactions in which the Fund sells a security the Fund does not own. 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 the security at the market price at 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 pay to
the lender amounts equal to any dividends or interest which 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 proceeds of
the short sale will be retained by the broker, to the extent necessary to meet
the margin requirements, until the short position is closed out.
Until the Fund closes its short position or replaces the borrowed security, the
Fund will: (a) maintain a segregated account containing cash or ultra short term
highly liquid high grade debt securities at such a level that the amount
deposited in the account plus the amount deposited with the broker as collateral
will equal the current value of the security sold short; or (b) otherwise cover
the Fund's short position. Up to 100% of the Fund's assets may be used to cover
the Fund's short positions.
The Fund may also engage in short sales when, at the time of the short sale, the
Fund owns or has the right to acquire an equal amount of the security being sold
at no additional cost ("selling against the box"). The Fund may make a short
sale against the box when the Fund wants to sell the security the Fund owns at a
current attractive price, but also wishes to defer recognition of a gain or loss
for Federal income tax purposes and for purposes of satisfying certain tests
applicable to regulated investment companies under the Internal Revenue Code.
Futures Contracts and Options Thereon
The Fund may purchase and write (sell) stock index futures contracts as a
substitute for a comparable market position in the underlying securities. A
futures contract obligates the seller to deliver (and the purchaser to take
delivery of) the specified commodity on the expiration date of the contract. A
stock index futures contract obligates the seller to deliver (and the purchaser
to take) an amount of cash equal to a specific dollar amount times the
difference between the value of a specific stock index at the close of the last
trading day of the contract and the price at which the agreement is made. No
physical delivery of the underlying stocks in the index is made. It is the
practice of holders of futures contracts to close out their positions on or
before the expiration date by use of offsetting contract positions and physical
delivery is thereby avoided.
The Fund may purchase put and call options and write call options on stock index
futures contracts. When the Fund purchases a put or call option on a futures
contract, the Fund pays a premium for the right to sell or purchase the
underlying futures contract for a specified price upon exercise at any time
during the option's period. By writing a call option on a futures contract the
Fund receives a premium in return for granting to the purchaser of the option
the right to buy from the Fund the underlying futures contract for a specified
price upon exercise at any time during the option period.
Some futures and options strategies tend to hedge the Fund's "long" equity
positions against price fluctuations, while other strategies tend to increase
market exposure. Whether the Fund realizes a gain or loss from futures
activities depends generally upon movements in the underlying stock index. The
extent of the Fund's loss from an unhedged short position in futures contracts
or call options on futures contracts is potentially unlimited. The Fund may
engage in related closing transactions with respect to options on futures
contracts. The Fund will purchase or write options only on futures contacts
that are traded on a United States exchange or board of trade. In addition to
the uses set forth hereunder, the Fund may also engage in futures and futures
options transactions in order to hedge or limit the exposure of its position and
for satisfying certain tests applicable to regulated investment companies under
the Internal Revenue Code.
The Fund may purchase and sell futures contracts and options thereon only to the
extent that such activities would be consistent with the requirements of Section
4.5 of the regulations under the Commodity Exchange Act promulgated by the
Commodity Futures Trading Commission (the "CFTC Regulations"), under which the
Fund would be excluded from the definition of a "commodity pool operator."
Under Section 4.5 of the CFTC Regulations, the Fund may engage in futures
transactions, either for "bona fide hedging" purposes, as this term is defined
in the CFTC Regulations, or for non-hedging purposes to the extent that the
aggregate initial margins and premiums required to establish such non-hedging
(i.e. speculative) positions do not exceed 5% of the liquidation value of the
Fund's portfolio. In the case of an option on a futures contract that is "in-
the-money"at the time of purchase (i.e., the amount by which the exercise
price of the put option exceeds the current market value of the underlying
instrument or the amount by which the current market value of the underlying
instrument exceeds the exercise price of the call option), the in-the-money
amount may be excluded in calculating this 5% limitation.
When the Fund purchases or sells a stock index futures contract, the Fund
"covers" its position. To cover its position, the Fund may maintain with its
custodian bank (and mark-to-market on a daily basis) a segregated account
consisting of cash or ultra short term high-quality highly liquid debt
instruments, including U.S. Government Securities or repurchase agreements
secured by U.S. Government Securities that, when added to any amounts deposited
with a futures commission merchant as margin, are equal to the market value of
the futures contract or otherwise cover its position. If the Fund continues to
engage in the described securities trading practices and properly segregates
assets, the segregated account will function as a practical limit on the amount
of leverage which the Fund may undertake and on the potential increase in the
speculative character of the Fund's outstanding portfolio securities.
Additionally, such segregated accounts will assure the availability of adequate
funds to meet the obligations of the Fund arising from such investment
activities.
The Fund may cover its long position in a futures contract by purchasing a put
option on the same futures contract with a strike price (i.e., an exercise
price) as high or higher than the price of the futures contract, or, if the
strike price of the put is less than the price of the futures contract, the Fund
will maintain in a segregated account cash or ultra short term high-grade highly
liquid debt securities equal in value to the difference between the strike price
of the put and the price of the futures contract. The Fund may also cover its
long position in a futures contract by taking a short position in the
instruments underlying the futures contract, or by taking positions in
instruments whose prices are expected to move relatively consistently with the
futures contract. The Fund may cover its short position in a futures contract by
taking a long position in the instruments underlying the futures contract, or by
taking positions in instruments whose prices are expected to move relatively
consistently with the futures contract.
The Fund may cover its sale of a call option on a futures contract by taking a
long position in the underlying futures contract at a price less than or equal
to the strike price of the call option, or, if the long position in the
underlying futures contract is established at a price greater than the strike
price of the written call, the Fund will maintain in a segregated account cash
or ultra short term high-grade highly liquid debt securities equal in value to
the difference between the strike price of the call and the price of the futures
contract. The Fund may also cover its sale of a call option by taking positions
in instruments the prices of which are expected to move relatively consistently
with the call option.
Although the Fund intends to sell futures contracts only if there is an active
market for such contracts, no assurance can be given that a liquid market will
exist for any particular contract at any particular time. Many futures exchanges
and boards of trade limit the amount of fluctuation permitted in futures
contract prices during a single trading day. Once the daily limit has been
reached in a particular contract, no trades may be made that day at a price
beyond that limit or trading may be suspended for specified periods during the
day. Futures contract prices could move to the limit for several consecutive
trading days with little or no trading, thereby preventing prompt liquidation of
futures positions and potentially subjecting the Fund to substantial losses. If
trading is not possible, or the Fund determines not to close a futures position
in anticipation of adverse price movements, the Fund will be required to make
daily cash payments of variation margin. The risk that the Fund will be unable
to close out a futures position will be minimized by entering into such
transactions on a national exchange with an active and liquid secondary market.
Index Options Transactions
The Fund may purchase put and call options and write call options on stock
indexes. A stock index fluctuates with changes in the market values of the
stocks included in the index. Options on stock indexes gives the holder the
right to receive an amount of cash upon exercise of the option. Receipt of this
cash amount will depend upon the closing level of the stock index upon which the
option is based being greater than (in the case of a call) or less than (in the
case of a put) the exercise price of the option. The amount of cash received, if
any, will be the difference between the closing price of the index and the
exercise price of the option, multiplied by a specified dollar multiple. The
writer (seller) of the option is obligated, in return for the premiums received
from the purchaser of the option, to make delivery of this amount to the
purchaser. Unlike the options on securities discussed below, all settlements of
index options transactions are in cash.
Some stock index options are based on a broad market index such as the S&P 500
Index, the NYSE Composite Index or the AMEX Major Market Index, or on a narrower
index such as the Philadelphia Stock Exchange Over-the-Counter Index. Options
currently are traded on the Chicago Board of Options Exchange, the AMEX and
other exchanges ("Exchanges"). Over-the-counter index options, purchased over-
the-counter options and the cover for any written over-the-counter options would
be subject to the Fund's 15% limitation on investment in illiquid securities.
See "Illiquid Securities."
Each of the Exchanges has established limitations governing the maximum number
of call or put options on the same index which may be bought or written (sold)
by a single investor, whether acting alone or in concert with others (regardless
of whether such options are written on the same or different Exchanges or are
held or written on one or more accounts or through one or more brokers). Under
these limitations, options positions of certain other accounts advised by the
same investment adviser are combined for purposes of these limits. Pursuant to
these limitations, an Exchange may order the liquidation of positions and may
impose other sanctions or restrictions. These position limits may restrict the
number of listed options which the Fund may buy or sell; however, the Adviser
intends to comply with all limitations.
Index options are subject to substantial risks, including the risk of imperfect
correlation between the option price and the value of the underlying securities
comprising the stock index selected and the risk that there might not be a
liquid secondary market for the option. Because the value of an index option
depends upon movements in the level of the index rather than the price of a
particular stock, whether the Fund will realize a gain or loss from the purchase
or writing of options on an index depends upon movements in the level of stock
prices in the stock market generally or, in the case of certain indexes, in an
industry or market segment, rather than upon movements in the price of a
particular stock. Trading in index options requires different skills and
techniques than are required for predicting changes in the prices of individual
stocks. The Fund will not enter into an option position that exposes the Fund to
an obligation to another party, unless the Fund either (i) owns an offsetting
position in securities or other options; and/or (ii) maintains with the Fund's
custodian bank (and marks-to-market on a daily basis) a segregated account
consisting of cash, ultra short term U.S. Government Securities, or other highly
liquid high-grade debt securities that, when added to the premiums deposited
with respect to the option, are equal to the market value of the underlying
stock index not otherwise covered.
The Adviser intends to utilize index options as a technique to leverage the
portfolio of the Fund. If the Adviser is correct in its assessment of the future
direction of stock prices, the share price of the Fund will be enhanced. If the
Adviser has the Fund take a position in options and stock prices move in a
direction contrary to the Adviser's forecast however, the Fund would incur
greater loss than the Fund would have incurred without the options position.
Options on Securities
The Fund may buy put and call options and write call options on securities. By
writing a call option and receiving a premium, the Fund may become obligated
during the term of the option to deliver the securities underlying the option at
the exercise price if the option is exercised. By buying a put option, the Fund
has the right, in return for a premium paid during the term of the option, to
sell the securities underlying the option at the exercise price. By buying a
call option, the Fund has the right, in return for a premium paid during the
term of the option, to purchase the securities underlying the option at the
exercise price. Options on securities written by the Fund will be conducted on
recognized securities exchanges.
When writing call options on securities, the Fund may cover its position by
owning the underlying security on which the option is written. Alternatively,
the Fund may cover its position by owning a call option on the underlying
security, on a share for share basis, which is deliverable under the option
contract at a price no higher than the exercise price of the call option written
by the Fund or, if higher, by owning such call option and depositing and
maintaining in a segregated account cash or ultra short term highly liquid high-
grade debt securities equal in value to the difference between the two exercise
prices. In addition, the Fund may cover its position by depositing and
maintaining in a segregated account cash or ultra short term highly liquid high-
grade debt securities equal in value to the exercise price of the call option
written by the Fund. The principal reason for a Fund to write call options on
stocks held by the Fund is to attempt to realize, through the receipt of
premiums, a greater return than would be realized on the underlying securities
alone.
When the Fund wishes to terminate the Fund's obligation with respect to an
option it has written, the Fund may effect a "closing purchase transaction."
The Fund accomplishes this by buying an option of the same series as the option
previously written by the Fund. The effect of the purchase is that the writer's
position will be canceled by the Options Clearing Corporation. However, a writer
may not effect a closing purchase transaction after the writer has been notified
of the exercise of an option. When the Fund is the holder of an option, it may
liquidate its position by effecting a "closing sale transaction." The Fund
accomplishes this by selling an option of the same series as the option
previously purchased by the Fund. There is no guarantee that either a closing
purchase or a closing sale transaction can be effected. If any call or put
option is not exercised or sold, the option will become worthless on its
expiration date.
The Fund will realize a gain (or a loss) on a closing purchase transaction with
respect to a call option previously written by the Fund if the premium, plus
commission costs, paid by the Fund to purchase the put option is less (or
greater) than the premium, less commission costs, received by the Fund on the
sale of the call option. The Fund also will realize a gain if a call option
which the Fund has written lapses unexercised, because the Fund would retain the
premium.
The Fund will realize a gain (or a loss) on a closing sale transaction with
respect to a call or a put option previously purchased by the Fund if the
premium, less commission costs, received by the Fund on the sale of the call or
the put option is greater (or less) than the premium, plus commission costs,
paid by the Fund to purchase the call or the put option. If a put or a call
option which the Fund has purchased expires out-of-the-money, the option will
become worthless on the expiration date, and the Fund will realize a loss in the
amount of the premium paid, plus commission costs.
Although certain securities exchanges attempt to provide continuously liquid
markets in which holders and writers of options can close out their positions at
any time prior to the expiration of the option, no assurance can be given that a
market will exist at all times for all outstanding options purchased or sold by
the Fund. If an options market were to become unavailable, the Fund would be
unable to realize its profits or limit its losses until the Fund would exercise
options it holds and the Fund would remain obligated until options it wrote were
exercised or expired.
Because option premiums paid or received by the Fund are small in relation to
the market value of the investments underlying the options, buying and selling
put and call options can be more speculative than investing directly in common
stocks.
U.S. Treasury Securities
The Fund may invest in U.S. Treasury securities as "cover" for the investment
techniques the Fund employs. The Fund may also invest in U.S. Treasury
Securities as part of a cash reserve or for liquidity purposes. U.S. Treasury
securities are backed by the full faith and credit of the U.S. Treasury. U.S.
Treasury securities differ only in their interest rates, maturities and dates of
issuance. Treasury Bills have maturities of one year or less. Treasury Notes
have maturities of one to ten years and Treasury bonds generally have maturities
of greater than ten years at the date of issuance. Yields on short-,
intermediate- and long-term U.S. Treasury Securities are dependent on a variety
of factors, including the general conditions of the money and bond markets, the
size of a particular offering and the maturity of the obligation. Debt
securities with longer maturities tend to produce higher yields and are
generally subject to potentially greater capital appreciation and depreciation
than obligations with shorter maturities and lower yields. The market value of
U.S. Treasury Securities generally varies inversely with changes in market
interest rates. An increase in interest rates, therefore, would generally reduce
the market value of the Fund's portfolio investments in U.S. Treasury
Securities, while a decline in interest rates would generally increase the
market value of a Fund's portfolio investments in these securities.
U.S. Treasury Securities may be purchased at a discount. Such securities, when
retired, may include an element of capital gain. Capital losses may be realized
when such securities purchased at a premium are called or redeemed at a price
lower than their purchase price. Capital gains or losses also may be realized
upon the sale of U.S. Treasury Securities.
Repurchase Agreements
The Fund, as part of a cash reserve or to "cover" investment strategies, may
purchase repurchase agreements secured by U.S. Government Securities. Under a
repurchase agreement, the Fund purchases a debt security and simultaneously
agrees to sell the security back to the seller at a mutually agreed-upon future
price and date, normally one day or a few days later. The resale price is
greater than the purchase price, reflecting an agreed-upon market interest rate
during the purchaser's holding period. While the maturities of the underlying
securities in repurchase transactions may be more than one year, the term of
each repurchase agreement will always be less than one year. The Fund will enter
into repurchase agreements only with member banks of the Federal Reserve system
or primary dealers of U.S. Government Securities. The Adviser will monitor the
creditworthiness of each of the firms which is a party to a repurchase agreement
with the Fund. In the event of a default or bankruptcy by the seller, the Fund
will liquidate those securities (whose market value, including accrued interest,
must be at least equal to 100% of the dollar amount invested by the Fund in each
repurchase agreement) held under the applicable repurchase agreement, as these
securities constitute collateral for the seller's obligation to pay. However,
liquidation could involve costs or delays and, to the extent proceeds from the
sale of these securities were less than the agreed-upon repurchase price the
Fund would suffer a loss. The Fund also may experience difficulties and incur
certain costs in exercising its rights to the collateral and may lose the
interest the Fund expected to receive under the repurchase agreement. Repurchase
agreements usually are for short periods, such as one week or less, but may be
longer. It is the current policy of the Fund to treat repurchase agreements that
do not mature within seven days as illiquid for the purposes of its investment
policies.
Borrowing
The Fund may borrow money, but may not borrow for investment purposes. Borrowing
for investment is known as leveraging, which the Fund will not do. The Fund may
borrow money to facilitate management of the Fund's portfolio by enabling the
Fund to meet redemption requests when the liquidation of portfolio instruments
would be inconvenient or disadvantageous. Such borrowing is not for investment
purposes and will be repaid by the Fund promptly.
As required by the Act, the Fund must maintain continuous asset coverage (total
assets, including assets acquired with borrowed funds, less liabilities
exclusive of borrowings) of 300% of all amounts borrowed. If, at any time, the
value of the Fund's assets should fail to meet this 300% coverage test, the
Fund, within three days (not including Sundays and holidays), will reduce the
amount of the Fund's borrowings to the extent necessary to meet this 300%
coverage. Maintenance of this percentage limitation may result in the sale of
portfolio securities at a time when investment considerations otherwise indicate
that it would be disadvantageous to do so.
In addition to the foregoing, the Fund is authorized to borrow money from a bank
as a temporary measure for extraordinary or emergency purposes in amounts not in
excess of 5% of the value of the Fund's total assets. This borrowing is not
subject to the foregoing 300% asset coverage requirement. The Fund is authorized
to pledge portfolio securities as the Adviser deems appropriate in connection
with any borrowings.
Warrants
The Fund may invest in warrants and similar rights, which are privileges issued
by corporations enabling the owners to subscribe to and purchase a specified
number of shares of the corporation at a specified price during a specified
period of time. The purchase of warrants involves the risk that the Fund could
lose the purchase value of a warrant if the right to subscribe to additional
shares is not exercised prior to the warrants' expiration. Also the purchase of
warrants involves the risk that the effective price paid for the warrants added
to the subscription price of the related security may exceed the value of the
subscribed security's market price such as when there is no movement in the
level of the underlying security.
Money Market Instruments
The Fund, as part of a cash reserve or to "cover" investment strategies, may
invest in short-term, high quality money market instruments in addition to
repurchase agreements and U.S. Treasury securities with a remaining maturity of
13 months or less. The Fund may invest in commercial paper and other cash
equivalents rated A-1 or A-2 by Standard & Poor's Corporation ("S&P") or
Prime-1 or Prime-2 by Moody's Investors Service, Inc. ("Moody's"), including
commercial paper master notes (which are demand instruments bearing interest at
rates which are fixed to known lending rates and automatically adjusted when
such lending rates change) of issuers whose commercial paper is rated A-1 or A-2
by S&P or Prime-1 or Prime-2 by Moody's.
The Fund may also invest in securities issued by other investment companies that
invest in high quality, short-term debt securities (i.e., money market
instruments). In addition to the advisory fees and other expenses the Fund bears
directly in connection with its own operations, as a shareholder of another
investment company, the Fund would bear its pro rata portion of the other
investment company's advisory fees and other expenses, and such fees and other
expenses will be borne indirectly by the Fund's shareholders.
Illiquid Securities
While the Fund does not anticipate doing so, it may purchase illiquid
securities, which are securities that are not readily marketable. The Fund will
not invest more than 15% of its net assets in illiquid securities and securities
of unseasoned issuers. Securities eligible to be resold pursuant to Rule 144A
under the Securities Act may be considered liquid.
DOES THE FUND HAVE ANY INVESTMENT LIMITATIONS?
The Fund has adopted certain fundamental investment restrictions that may be
changed only with the approval of a majority of the Fund's outstanding shares.
These restrictions include the Fund's limitations on borrowing described under
the caption "WHAT ARE THE FUND'S INVESTMENT TECHNIQUES, POLICIES AND RISKS?"
and the following restrictions:
(1) The Fund will not purchase the securities of any issuer if the purchase
would cause more than 5% of the value of the Fund's total assets to be invested
in securities of such issuer (except securities of the U.S. government or any
agency or instrumentality thereof), or purchase more than 10% of the outstanding
voting securities of any one issuer, except that up to 25% of the Fund's total
assets may be invested without regard to these limitations.
(2) The Fund will not invest 25% or more of its total assets at the time of
purchase in securities of issuers whose principal business activities are in the
same industry.
A list of the Fund's policies and restrictions, both fundamental and
nonfundamental, is set forth in the Statement of Additional Information. In
order to provide a degree of flexibility, the Fund's investment objective, as
well as other policies which are not deemed fundamental, may be modified by the
Board of Directors without shareholder approval. Any change in the Fund's
investment objective may result in the Fund having an investment objective
different from the investment objective which the shareholder considered
appropriate at the time of investment in the Fund. However the Fund will not
change its investment objective without sending written notice to shareholders
at least 30 days in advance of any such change.
WHAT REPORTS WILL I RECEIVE?
As a shareholder of the Fund you will be provided at least semi-annually with a
report showing the Fund's portfolio and other information. Annually, after the
close of the Fund's September 30 fiscal year, you will be provided with an
annual report containing audited financial statements.
An individual account statement will be sent to you by Firstar Trust Company
after each purchase, including reinvestment of dividends or redemption of shares
of the Fund. You will also receive an annual statement after the end of the
calendar year listing all your transactions in shares of the Fund during the
year and a quarterly statement following the end of each calendar quarter
listing year-to-date transactions.
If you have questions about your account you may call Firstar Trust Company at
(800) 711-1848. If you have general questions about the Fund or want more
information, you may call us at (888) 778-2327 or write to us at PRUDENT BEAR
FUNDS INC., 8140 Walnut Hill Lane, Suite 405, Dallas, Texas 75231, Attention:
Corporate Secretary.
WHO MANAGES THE FUND?
As a Maryland corporation, the business and affairs of the Fund are managed by
its Board of Directors. The Fund has entered into an investment advisory
agreement (the "Agreement") with David W. Tice & Associates, Inc. (the
"Adviser"), 8140 Walnut Hill Lane, Suite 405, Dallas, Texas 75231, under which
the Adviser furnishes continuous investment advisory services and management to
the Fund. The Adviser has no previous experience managing the investment
portfolio of a registered investment company. The Adviser's lack of such
experience should be considered a distinct risk factor of investing in the Fund.
The Adviser was incorporated in 1993 and is currently controlled by David W.
Tice, who is a director and the President of the Adviser.
David W. Tice, 41, President and founder of the Adviser, is primarily
responsible for the day-to-day management of the Fund's portfolio. He has held
this responsibility since the Fund commenced operations. Mr. Tice also has
served as President, Treasurer and a director of the Fund since it was
organized. Prior to incorporating the Adviser in 1993, Mr. Tice conducted the
same investment advisory business as a sole proprietorship since 1988. Either
through the Adviser or its predecessor, Mr. Tice has provided investment advice
to more than 100 institutional money managers since 1988. Mr. Tice is a
Chartered Financial Analyst and a Certified Public Accountant. Mr. Tice provides
investment advice to an investment partnership which engages in short sales,
employs leverage and effects transactions in index options and options on
securities. Mr. Tice has no experience with respect to futures transactions and
options thereon. Mr. Tice is also the president and sole shareholder of BTN
Research, Inc., a registered broker-dealer. Gregg Jahnke, 38, 8140 Walnut
Hill Lane, Suite 405, Dallas, Texas, 75231, is Vice President and Secretary of
the Fund. Mr Jahnke has been employed by both Mr. Tice and the Adviser
as an investment analyst since 1991. Currently he is an analyst and
senior strategist for the Adviser. From 1987 - 1994, Mr. Jahnke also was a
securities analyst for JKE Equity Research, a Fort Worth, Texas investment
advisory firm.
The Adviser supervises and manages the investment portfolio of the Fund and,
subject to such policies as the Board of Directors of the Fund may determine,
directs the purchase or sale of investment securities in the day-to-day
management of the Fund. Under the Agreement, the Adviser, at its own expense and
without separate reimbursement from the Fund, furnishes office space and all
necessary office facilities, equipment and executive personnel for managing the
Fund and maintaining its organization; bears all sales and promotional expenses
of the Fund, other than expenses incurred in complying with the laws regulating
the issue or sale of securities; and pays salaries and fees of all officers and
directors of the Fund (except the fees paid to disinterested directors as such
term is defined under the Investment Company Act of 1940). For the foregoing,
the Advisor receives a monthly fee at the annual rate of 1.25% of the daily net
assets of the Fund. The rate of the annual advisory fee is higher than that paid
by most mutual funds.
The Fund will pay all of its expenses not assumed by the Adviser, including, but
not limited to, the costs of preparing and printing its registration statements
required under the Securities Act of 1933 and the Investment Company Act of 1940
and any amendments thereto, the expenses of registering its shares with the
Securities and Exchange Commission and in the various states, the printing and
distribution cost of prospectuses mailed to existing shareholders, the cost of
director and officer liability insurance, reports to shareholders, reports to
government authorities and proxy statements, interest charges, brokerage
commissions, and expenses incurred in connection with portfolio transactions.
The Fund will also pay the fees of directors who are not officers of the Fund,
salaries of administrative and clerical personnel, association membership dues,
auditing and accounting services, fees and expenses of any custodian or trustees
having custody of Fund assets, expenses of calculating the net asset value and
repurchasing and redeeming shares, and charges and expenses of dividend
disbursing agents, registrars, and share transfer agents, including the cost of
keeping all necessary shareholder records and accounts and handling any problems
relating thereto.
The Fund also has entered into an administration agreement (the "Administration
Agreement') with Firstar Trust Company (the "Administrator"), 615 East
Michigan Street, Milwaukee, Wisconsin 53202. Under the Administration Agreement,
the Administrator maintains the books, accounts and other documents required by
the Act, responds to shareholder inquiries, prepares the Fund's financial
statements and tax returns, prepares certain reports and filings with the
Securities and Exchange Commission and with state Blue Sky authorities,
furnishes statistical and research data, clerical, accounting and bookkeeping
services and stationery and office supplies, keeps and maintains the Fund's
financial and accounting records and generally assists in all aspects of the
Fund's operations. The Administrator, at its own expense and without
reimbursement from the Fund, furnishes office space and all necessary office
facilities, equipment and executive personnel for performing the services
required to be performed by it under the Administration Agreement. For the
foregoing, the Administrator receives from the Fund a fee, paid monthly, at an
annual rate of .05% of the first $100,000,000 of the Fund's average net assets,
.04% of the next $400,000,000 of the Fund's average net assets, and .03% of the
Fund's net assets in excess of $500,000,000. Notwithstanding the foregoing, the
Administrator's minimum annual fee is $25,000.
Firstar Trust Company also provides custodial, transfer agency and accounting
services for the Fund. Information regarding the fees payable by the Fund to
Firstar Trust Company for these services is provided in the Statement of
Additional Information.
HOW IS THE FUND'S SHARE PRICE DETERMINED?
The net asset value (or "price") per share of the Fund is determined by
dividing the total value of the Fund's investments and other assets less any
liabilities, by the number of outstanding shares of the Fund. The net asset
value per share is determined once daily on each day that the New York Stock
Exchange is open, as of the close of regular trading on the Exchange (normally
3:00 p.m. Central time). Purchase orders for Fund shares accepted or Fund shares
tendered for redemption prior to the close of regular trading on a day the New
York Stock Exchange is open for trading will be valued as of the close of
trading, and purchase orders accepted and Fund shares tendered for redemption
after that time will be valued as of the close of regular trading on the next
trading day.
Common stocks and securities sold short that are listed on a securities exchange
or quoted on the NASDAQ Stock Market are valued at the last quoted sales price
on the day the valuation is made. Price information on listed securities is
taken from the exchange where the security is primarily traded. Common stocks
and securities sold short which are listed on an exchange or the NASDAQ Stock
Market but which are not traded on the valuation date are valued at the average
of the current bid and asked prices. Unlisted equity securities for which market
quotations are readily available are valued at the average of the current bid
and asked prices. Options purchased or written by the Fund are valued at the
average of the current bid and asked prices. The value of a futures contract
equals the unrealized gain or loss on the contract that is determined by marking
the contract to the current settlement price for a like contract acquired on the
day on which the futures contract is being valued. A settlement price may not be
moved if the market makes a limit move in which event the futures contract will
be valued at its fair value as determined by the Adviser in accordance with
procedures approved by the Board of Directors. Debt securities are valued at the
latest bid prices furnished by independent pricing services. Other assets and
securities for which no quotations are readily available are valued at fair
value as determined in good faith by the Adviser in accordance with procedures
approved by the Board of Directors of the Fund. Short-term instruments (those
with remaining maturities of 60 days or less) are valued at amortized cost,
which approximates market.
HOW DO I OPEN AN ACCOUNT AND PURCHASE SHARES?
BY MAIL. Please complete and sign the New Account Application form included with
this Prospectus and send it, together with your check or money order ($2000
minimum), made payable to Prudent Bear Fund, TO: PRUDENT BEAR FUNDS, INC., c/o
/Firstar Trust Company, P. O. Box 701, Milwaukee, Wisconsin 53201-0701. Note: A
different procedure is used for establishing Individual Retirement Accounts.
Please call Firstar Trust Company at (800) 711-1848 for details. All purchases
must be made in U.S. dollars and checks must be drawn on U.S. banks. No cash
will be accepted. Firstar Trust Company will charge a $20 fee against a
shareholder's account for any check returned to it for insufficient funds. The
shareholder will also be responsible for any losses suffered by the Fund as a
result.
BY OVERNIGHT OR EXPRESS MAIL. Please use the following address to insure proper
delivery: Firstar Trust Company, Mutual Fund Services, 3rd Floor, 615 East
Michigan Street, Milwaukee, Wisconsin 53202.
BY WIRE. To establish a new account by wire please first call Firstar Trust
Company, (800) 711-1848, to advise it of the investment and the dollar amount.
This will ensure prompt and accurate handling of your investment. A completed
New Account Application form must also be sent to the Fund at the address above
immediately after your investment is made so the necessary remaining information
can be recorded to your account. Your purchase request should be wired through
the Federal Reserve Bank as follows:
Firstar Bank Milwaukee, N.A.
777 East Wisconsin Avenue
Milwaukee, Wisconsin 53202
ABA Number 075000022
For credit to Firstar Trust M.F.S.
Account Number 112-952-137
For further credit to Prudent Bear Fund
(Your account name and account number)
ADDITIONAL INVESTMENTS. You may add to your account at any time by purchasing
shares by mail (minimum $100) or by wire (minimum $100) according to the
aforementioned wiring instructions. You must notify Firstar Trust Company at
(800) 711-1848 prior to sending your wire. A remittance form which is attached
to your individual account statement should accompany any investments made
through the mail, when possible. All purchase requests must include your account
registration number in order to assure that your funds are credited properly.
BY TELEPHONE. By using the Fund's telephone purchase option you may move money
from your bank account to your Fund account at your request. Only bank accounts
held at domestic financial institutions that are Automated Clearing House (ACH)
members may be used for telephone transactions. To have your Fund shares
purchased at the net asset value determined as of the close of regular trading
on a given date, Firstar Trust Company must receive both your purchase order and
payment by Electronic Funds Transfer through the ACH System before the close of
regular trading on such date. Most transfers are completed within three business
days. You may not use telephone transactions for initial purchases of Fund
shares. The minimum amount that can be transferred by telephone is $100.
AUTOMATIC INVESTMENT. If you choose the Automatic Investment option, you may
move money from your bank account to your Fund account on the schedule (e.g.,
monthly, bimonthly (every other month), quarterly or yearly) you select and may
be in any amount subject to a $100 minimum. You may establish this option and
the telephone purchase option by completing the appropriate section of the New
Account Application. Please call Firstar Trust Company at (800) 711-1848 if you
have questions. Please wait three weeks before using the service.
As a no-load mutual fund, there are no sales commissions, so all of your
investment is used to purchase shares. All shares purchased will be credited to
your account and confirmed by a statement mailed to your address. The Fund does
not issue stock certificates for shares purchased unless specifically requested
by you in writing. When certificates are not issued, you are relieved of the
responsibility for safekeeping of certificates and the need to deliver them upon
redemption. You may also invest in the Fund by purchasing shares through a
registered broker-dealer, who may charge you a fee, either at the time of
purchase or redemption. The fee, if charged, is retained by the broker-dealer
and not remitted to the Fund or the Adviser. The Fund may accept telephone
orders from broker-dealers who have been previously approved by the Fund. It is
the responsibility of the registered broker-dealer to promptly remit purchase
and redemption orders to Firstar Trust Company.
The Fund has adopted a Service and Distribution Plan (the "Plan") pursuant to
Rule 12b-1 under the Act. The Plan authorizes payments by the Fund in connection
with the distribution of its shares at an annual rate, as determined from time
to time by the Board of Directors, of up to 0.25% of the Fund's average daily
net assets. Payments made pursuant to the Plan may only be used to pay
distribution expenses in the year incurred. Amounts paid under the Plan by the
Fund may be spent by the Fund on any activities or expenses primarily intended
to result in the sale of shares of the Fund, including but not limited to,
advertising, compensation for sales and marketing activities of financial
institutions and others such as dealers and distributors, shareholder account
servicing, the printing and mailing of prospectuses to other than current
shareholders and the printing and mailing of sales literature. The Plan permits
the Fund to employ a distributor of its shares, in which event payments under
the Plan will be made to the distributor and may be spent by the distributor on
any activities or expenses primarily intended to result in the sale of shares of
the Fund, including but not limited to, compensation to, and expenses (including
overhead and telephone expenses) of, employees of the distributor who engage in
or support distribution of the Fund's shares, printing of prospectuses and
reports for other than existing shareholders, advertising and preparation and
distribution of sales literature. Allocation of overhead (rent, utilities, etc.)
and salaries will be based on the percentage of utilization in, and time devoted
to, distribution activities. If a distributor is employed by the Fund, the
distributor will directly bear all sales and promotional expenses of the Fund,
other than expenses incurred in complying with laws regulating the issue or sale
of securities. (In such event, the Fund will indirectly bear sales and
promotional expenses to the extent it makes payments under the Plan.) The Fund
has no present plans to employ a distributor. Pending the employment of a
distributor, the Fund's distribution expenses will be authorized by the officers
of the Company. To the extent any activity is one which the Fund may finance
without a plan pursuant to Rule 12b-1, the Fund may also make payments to
finance such activity outside of the Plan and not subject to its limitations.
ALL APPLICATIONS ARE SUBJECT TO ACCEPTANCE BY THE FUND, AND ARE NOT BINDING
UNTIL SO ACCEPTED. THE FUND RESERVES THE RIGHT TO REJECT APPLICATIONS IN WHOLE
OR IN PART. The Fund will suspend the offering of its shares during any period
in which the New York Stock Exchange is closed because of financial conditions
or any other extraordinary reason and it may suspend the offering of its shares
during any period in which (a) trading on the New York Stock Exchange is
restricted pursuant to rules and regulations of the Securities and Exchange
Commission, (b) the Securities and Exchange Commission has by order permitted
such suspension or (c) such emergency, as defined by rules and regulations of
the Securities and Exchange Commission, exists as a result of which it is not
reasonably practicable for the Fund to dispose of its securities or to fairly
determine the value of its net assets. In such event the Fund will not
calculate its net asset value. Applications received by Firstar Trust Company
during periods in which the Fund has suspended the offering of its shares
because of the reasons described above will be processed at the next computed
net asset value. The minimum purchase amounts set forth above are subject to
change at any time and may be waived for purchases by the Adviser's employees
and their family members. You will be advised at least 30 days in advance of
any increases in such minimum amounts and the Fund's prospectus will be
appropriately supplemented. Applications without Social Security or Tax
Identification numbers will not be accepted.
HOW DO I SELL MY SHARES?
At any time during normal business hours you may request that the Fund redeem
your shares in whole or in part. Written redemption requests must be directed to
PRUDENT BEAR FUNDS, INC., c/o Firstar Trust Company, P.O. Box 701, Milwaukee,
Wisconsin 53201-0701. If a redemption request is inadvertently sent to the Fund
at its corporate address, it will be forwarded to Firstar Trust Company, but the
effective date of redemption will be delayed until the request is received by
Firstar Trust Company. Requests for redemption which are subject to any special
conditions or which specify an effective date other than as provided herein
cannot be honored.
A redemption request must be received in "Good Order" by Firstar Trust Company
for the request to be processed. "Good Order" means the request for redemption
must include:
Your share certificate(s), if issued, properly endorsed or accompanied by a
properly executed stock power.
Your letter of instruction specifying the name of the Fund and either the number
of shares or the dollar amount of shares to be redeemed. The letter of
instruction must be signed by all registered shareholders exactly as the shares
are registered and must include your account registration number and the
additional requirements listed below that apply to the particular account.
Type of
Registration Requirements
- ------------ ------------
Individual, Joint Tenants, Redemption request signed
Sole Proprietorship, by all person(s) required to
Custodial (Uniform sign for the account, exactly
Gift To Minors Act), as it is registered.
General Partners
Corporations, Redemption request and a
Associations corporate resolution, signed by person(s)
required to sign for the account,
accompanied by signature
guarantee(s).
Trusts Redemption request signed by the
trustee(s), with a signature guarantee.
(If the Trustee's name is not registered
on the account, a copy of the trust
document certified within the past
60 days is also required).
- - Signature guarantees are required if proceeds of redemption are to be sent by
wire transfer, to a person other than the registered holder, to an address other
than the address of record, and if a redemption request includes a change of
address. Transfers of shares also require signature guarantees. Signature
guarantees may be obtained from any commercial bank or trust company in the
United States or a member of the New York Stock Exchange and some savings and
loan associations.
If you have an IRA, you must indicate on your redemption request whether or not
to withhold federal income tax. Redemption requests not indicating an election
to have federal tax withheld will be subject to withholding. If you are
uncertain of the redemption requirements, please contact, in advance, Firstar
Trust Company.
The redemption price is the next determined net asset value after Firstar Trust
Company receives a redemption request in "Good Order". The amount paid will
depend on the market value of the investments in the Fund's portfolio at the
time of determination of net asset value, and may be more or less than the cost
of the shares redeemed. Payment for shares redeemed will be mailed to you
typically within one or two days, but no later than the seventh day after
receipt by Firstar Trust Company of the redemption request in "Good Order"
unless the Fund is requested to redeem shares purchased by check. In such event
the Fund may delay the mailing of a redemption check until the purchase check
has cleared which may take up to 12 days. Wire transfers may be arranged through
Firstar Trust Company, which will assess a $10.00 wiring charge against your
account.
You may redeem shares of the Fund by telephone. To redeem shares by telephone,
you must check the appropriate box on the New Account Application (as the Fund
does not make this feature available to shareholders automatically). Once this
feature has been requested, you may redeem shares by phoning Firstar Trust
Company at (800) 711-1848 and giving the account name, account number and either
the number of shares or the dollar amount to be redeemed. For your protection,
you may be asked to give the social security number or tax identification number
listed on the account as further verification. Proceeds redeemed by telephone
will be mailed or wired only to your address or bank of record as shown on the
records of Firstar Trust Company. Telephone redemptions must be in amounts of
$1,000 or more. If the proceeds are sent by wire, a $10.00 wire fee will apply.
In order to arrange for telephone redemptions after a Fund account has been
opened or to change the bank, account or address designated to receive
redemption proceeds, you must send a written request to Firstar Trust Company.
The request must be signed by each registered holder of the account with the
signatures guaranteed by a commercial bank or trust company in the United
States, a member firm of the New York Stock Exchange or other eligible guarantor
institution. Further documentation may be requested from corporations,
executors, administrators, trustees and guardians.
The Fund reserves the right to refuse a telephone redemption if it believes it
is advisable to do so. Procedures for redeeming shares of the Fund by telephone
may be modified or terminated by the Fund at any time. Neither the Fund nor
Firstar Trust Company will be liable for following instructions for telephone
redemption transactions which they reasonably believe to be genuine, provided
reasonable procedures are used to confirm the genuineness of the telephone
instructions, but may be liable for unauthorized transactions if they fail to
follow such procedures. These procedures include requiring you to provide some
form of personal identification prior to acting upon your telephone instructions
and recording all telephone calls.
You should be aware that during periods of substantial economic or market
change, telephone or wire redemptions may be difficult to implement. If you are
unable to contact Firstar Trust Company by telephone, you may redeem shares by
delivering the redemption request to Firstar Trust Company by mail as described
above.
If you select the Fund's systematic withdrawal option, you may move money
automatically from your Fund account to your bank account according to the
schedule you select. The systematic withdrawal option may be in any amount
subject to a $100 minimum. To select the systematic withdrawal option you must
check the appropriate box on the New Account Application.
The Fund reserves the right to redeem the shares held in any account if at the
time of any transfer or redemption of Fund shares in the account, the value of
the remaining shares in the account falls below $1000. You will be notified in
writing that the value of your account is less than the minimum and allowed at
least 60 days to make an additional investment. The receipt of proceeds from the
redemption of shares held in an Individual Retirement Account ("IRA") will
constitute a taxable distribution of benefits from the IRA unless a qualifying
rollover contribution is made. Involuntary redemptions will not be made because
the value of shares in an account falls below $1000 solely because of a decline
in the Fund's net asset value.
Your right to redeem shares of the Fund will be suspended and your right to
payment postponed for more than seven days for any period during which the New
York Stock Exchange is closed because of financial conditions or any other
extraordinary reason and may be suspended for any period during which (a)
trading on the New York Stock Exchange is restricted pursuant to rules and
regulations of the Securities and Exchange Commission, (b) the Securities and
Exchange Commission has by order permitted such suspension or (c) such
emergency, as defined by rules and regulations of the Securities and Exchange
Commission, exists as a result of which it is not reasonably practicable for the
Fund to dispose of its securities or fairly to determine the value of its net
assets.
WHAT ABOUT DIVIDENDS, CAPITAL GAINS DISTRIBUTIONS AND TAXES?
The Fund intends to distribute at least annually any net investment income and
net realized capital gains to shareholders. In addition, in order to satisfy
certain distribution requirements of the Tax Reform Act of 1986, the Fund may
declare special year-end dividend and capital gains distributions during
December. Such distributions, if received by shareholders by January 31, are
deemed to have been paid by the Fund and received by shareholders on December
31st of the prior year. Dividend and capital gains distributions may be
automatically reinvested or received in cash.
The Fund intends to continue to qualify for taxation as a "regulated investment
company"under the Internal Revenue Code so that it will not be subject to
federal income tax to the extent its income is distributed to shareholders.
Dividends paid by the Fund from net investment income and net short-term capital
gains, whether received in cash or reinvested in additional shares, will be
taxable to shareholders as ordinary income.
Distributions paid by the Fund from long-term capital gains, whether received in
cash or reinvested in additional shares, are taxable as long-term capital gains,
regardless of the length of time you have owned shares in the Fund. Capital
gains distributions are made when the Fund realizes net capital gains on sales
of portfolio securities during the year. The Fund does not seek to realize any
particular amount of capital gains during a year; rather, realized gains are a
by-product of portfolio management activities. Consequently, capital gains
distributions may be expected to vary considerably from year to year; there will
be no capital gains distributions in years when the Fund realizes net capital
losses.
Note that if you accept capital gains distributions in cash, instead of
reinvesting them in additional shares, you are in effect reducing the capital at
work for you in the Fund. Also, keep in mind that if you purchase shares in the
Fund shortly before the record date for a dividend or capital gains
distribution, a portion of your investment will be returned to you as a taxable
distribution, regardless of whether you are reinvesting your distributions or
receiving them in cash.
The Fund will notify you annually as to the tax status of dividend and capital
gains distributions paid by the Fund.
A sale or redemption of shares of the Fund is a taxable event and may result in
a capital gain or loss.
Dividend distributions, capital gains distributions, and capital gains or losses
from redemptions may be subject to state and local taxes.
The Fund is required to withhold 31% of taxable dividends, capital gains
distributions, and redemptions paid to shareholders who have not complied with
IRS taxpayer identification regulations. You may avoid this withholding
requirement by certifying on your New Account Application your proper Social
Security or Taxpayer Identification Number and by certifying that you are not
subject to backup withholding.
The tax discussion set forth above is included for general information purposes
only. Prospective investors should consult their own tax advisers concerning the
tax consequences of an investment in the Fund. The Fund is managed without
regard to tax ramifications.
MAY SHAREHOLDERS REINVEST DIVIDENDS?
You may elect to have all income dividends and capital gains distributions
reinvested in shares of the Fund or paid in cash, or to have capital gains
distributions reinvested and income dividends paid in cash. Please refer to the
New Account Application form accompanying this Prospectus for further
information. If you do not specify an election, all dividends and capital gains
distributions will automatically be reinvested in full and fractional shares of
the Fund calculated to the nearest 1,000th of a share. Shares are purchased at
the net asset value in effect on the business day after the dividend record date
and are credited to your account on the dividend payment date. Cash dividends
are also paid on such date. You will be advised of the number of shares
purchased and the price following each reinvestment. An election to reinvest or
receive dividends and distributions in cash will apply to all shares of the Fund
registered in your name, including those previously purchased. See "WHAT ABOUT
DIVIDENDS, CAPITAL GAINS DISTRIBUTIONS AND TAXES?"for a discussion of certain
tax consequences.
You may change an election at any time by notifying the Fund in writing. If such
a notice is received between a dividend declaration date and payment date, it
will become effective on the day following the payment date. The Fund may modify
or terminate its dividend reinvestment program at any time on thirty days'
notice to participants.
WHAT RETIREMENT PLANS DOES THE FUND OFFER?
The Fund offers the following retirement plans that may fit your needs and allow
you to shelter some of your income from taxes:
- - INDIVIDUAL RETIREMENT ACCOUNT ("IRA"). Individual shareholders may establish
their own tax-sheltered IRA. Earnings on amounts held in the IRA are not taxed
until withdrawal.
- - SIMPLIFIED EMPLOYEE PENSION PLAN (SEP/IRA). The SEP/IRA is a pension plan in
which both the employer and the employee may contribute to an IRA. The SEP/IRA
is also available to self-employed individuals.
Contact the Fund for complete information kits, including forms, concerning the
above plans, their benefits, provisions and fees. Consultation with a competent
financial and tax adviser regarding these plans is recommended.
WHAT ABOUT BROKERAGE TRANSACTIONS?
The Agreement authorizes the Adviser to select the brokers or dealers that will
execute the purchases and sales of the Fund's portfolio securities. In placing
purchase and sale orders for the Fund, it is the policy of the Adviser to seek
the best execution of orders at the most favorable price in light of the overall
quality of brokerage and research services provided.
The Agreement permits the Adviser to cause the Fund to pay a broker which
provides brokerage and research services to the Adviser a commission for
effecting securities transactions in excess of the amount another broker would
have charged for executing the transaction, provided the Adviser believes this
to be in the best interests of the Fund. Although the Fund does not initially
intend to market its shares through intermediary broker-dealers, the Fund may
place portfolio orders with broker-dealers who recommend the purchase of Fund
shares to clients if the Adviser believes the commissions and transaction
quality are comparable to that available from other brokers and allocate
portfolio brokerage on that basis.
GENERAL INFORMATION ABOUT THE FUND
The Fund is a Maryland corporation. The Articles of Incorporation permit the
Board of Directors to issue 500,000,000 shares of common stock, with a $.0001
par value. The Board of Directors has the power to designate one or more classes
("series") of shares of common stock and to classify or reclassify any
unissued shares with respect to such series. Currently the Fund is offering one
class of shares.
The shares of the Fund are fully paid and non-assessable; have no preference as
to conversion, exchange, dividends, retirement or other features; and have no
preemptive rights. Such shares have non-cumulative voting rights, meaning that
the holders of more than 50% of the shares voting for the election of Directors
can elect 100% of the Directors if they so choose.
Annual meetings of shareholders will not be held except as required by the
Investment Company Act of 1940 and other applicable law. An annual meeting will
be held to vote on the removal of a Director or Directors of the Fund if
requested in writing by the holders of not less than 10% of the outstanding
shares of the Fund.
All securities and cash of the Fund are held by Firstar Trust Company, which
also serves as the Fund's transfer and dividend disbursing agent. Price
Waterhouse LLP serves as independent accountants for the Fund and will audit its
financial statements annually. The Fund is not involved in any litigation.
PERFORMANCE INFORMATION
The Fund may provide from time to time in advertisements, reports to
shareholders and other communications with shareholders its average annual total
return. An average total return refers to the rate of return which, if applied
to an initial investment at the beginning of a stated period and compounded over
the period, would result in the redeemable value of the investment at the end of
the stated period assuming reinvestment of all dividends and distribution and
reflecting the effect of all recurring fees. When considering "average" total
return figures for periods longer than one year, you should note that the Fund's
annual total return for any one year in the period might have been greater or
less than the average for the entire period. The Fund may use "aggregate"
total return figures for various periods, representing the cumulative change in
value of an investment in the Fund for a specific period (again reflecting
changes in the Fund's share price and assuming reinvestment of dividends and
distributions).
The Fund may also compare its performance to other mutual funds with similar
investment objectives and to the industry as a whole as reported by Lipper
Analytical Services, Inc., Morningstar OnDisc, Money, Forbes, Business Week and
Barron's magazines and The Wall Street Journal, (Lipper Analytical Services,
Inc. and Morningstar OnDisc are independent ranking services that rank mutual
funds based upon total return performance.) The Fund may also compare its
performance to the Dow Jones Industrial Average, NASDAQ Composite Index, NASDAQ
Industrials Index, Value Line Composite Index, the Standard & Poor's 500 Stock
Index, and the Consumer Price Index.
Performance quotations of the Fund represent the Fund's past performance and
should not be considered as representative of future results. The investment
return and principal value of an investment in the Fund will fluctuate so that
your shares, when redeemed, may be worth more or less than their original cost.
Investment Adviser
David W. Tice & Associates, Inc.
8140 Walnut Hill Lane, Suite 405
Dallas, Texas 75231
http://www.tice.com
Administrator, Transfer Agent, Dividend Paying Agent,
Shareholder Servicing Agent & Custodian
Firstar Trust Company
615 East Michigan Street
P.O. Box 701
Milwaukee, Wisconsin 53201
Independent Accountants
Price Waterhouse LLP
Milwaukee, Wisconsin
Legal Counsel
Foley & Lardner
Milwaukee, Wisconsin
