PRUDENT BEAR FUND
ANNUAL REPORT
September 30, 1996
September 1996
Dear Shareholders
We have just completed the first nine months of the Prudent Bear Fund. We are
excited that we are able to offer this unique investment vehicle to the public.
The Prudent Bear Fund is the ONLY mutual fund we know of that has been designed
to have its stock investments allocated either "short" or "long" depending
upon the valuation of the overall market. It is also the only fund in the
country that is heavily "short" individual common stocks. The Prudent Bear
Fund holds short positions in some of the country's most overvalued common
stocks. We have utilized our nine year experience as an advisor to major
institutional investors to select short positions in the stocks we believe
possess the most attractive risk/return potential. We believe this makes the
Prudent Bear Fund an effective "hedge" vehicle to be used in conjunction with
other traditional equity investments or as an investment to make money in an
expected market decline.
The first nine months of this year have been a trying period for the Prudent
Bear Fund because the market has risen much more than we expected. During this
time, the Prudent Bear Fund's portfolio was positioned more "short" than
"long." As a consequence, the Prudent Bear Fund declined by 11.2% for the nine
months ended 9/30/96. We remain more firmly convinced than ever that a secular
bear market lies ahead. However, timing the beginning of this bear market is
difficult because the speculative "blow-off" period that usually precedes a
bear market can last for a long time. Our performance was also hurt by the
significant rebound in technology stocks that occurred in the last two months of
the period. We believe this move is completely unjustified by fundamental
factors. Profit margins and earnings growth for many tech companies have
plummeted, but the market now values this sector at higher levels than when
profits were growing at 20%+. The Prudent Bear Fund was, and continues to be
heavily "short" technology stocks, therefore, its performance has been badly
hurt by this rebound. We believe that the technology sector will be much weaker
in the next few months as investors realize both that this "last gasp" rally
was not justified by improving fundamentals, and in fact, that the fundamentals
have deteriorated further.
We have positioned the Prudent Bear Fund to make money during a substantial
market decline. Therefore, we were encouraged by the fact that the Prudent Bear
Fund outperformed nearly every fund in the country during the June-July decline
which "peak to trough" measured 7.4% for the S&P 500 and 16.5% for the NASDAQ
Composite. Over this same period, the Prudent Bear Fund advanced by 14.0%.
We believe that the economy and corporate earnings will disappoint investors in
1997. Consumer loan balances as a percentage of income are now at an all-time
high, which we believe will lead to a slowdown in consumption expenditures over
the next six months. Delinquencies and defaults are higher now than during the
recessions of 1981 and 1991. Personal bankruptcies rose 23% in 1995, and are now
eight times the level seen during the Great Depression. Banks have begun to slow
down their extension of new credit, which should hurt consumer spending.
Additionally, a much stronger dollar has already begun to hurt corporate profit
growth, and, in our opinion, U.S. corporations do not possess the requisite
pricing power to achieve the profit growth expected by the stock market.
Looking forward, we strongly believe that the Prudent Bear Fund is positioned as
well as it can be for what we expect will be a very significant and painful bear
market in 1997. Investors forget that secular bear markets can last a long time,
and twice in the last 70 years it has taken investors who were fully invested
at secular market peak as long as 20+ years to recoup their initial investment
after inflation. This fact has been lost on most naive investors, as they have
enjoyed this 14-year "bull" market and have forgotten or ignored the lessons
of history. Such complacency always occurs at the end of secular bull markets.
The simple fact is that history has shown that when stock markets reach a mania
level, a disaster follows. With the stock market selling at record highs and
corporate earnings having peaked, we are highly confident that a major market
decline lies ahead.
We appreciate the opportunity to be able to serve you as portfolio manager of
this unique mutual fund. It becomes frustrating for all of us when the market
keeps rising while we remain prudently negatively invested in a stock market
that we believe represents nothing more than a "greater fool game." We believe
that reason will eventually win out. It always does in due time. We appreciate
your continued confidence.
/s/ David W. Tice
David W. Tice
12/28/95 3/31/96 9/30/96
-------- ------- -------
PRUDENT BEAR FUND $10,000 $ 9,519 $ 8,880
S&P 500 $10,000 $10,536 $11,349
NASDAQ Composite $10,000 $10,479 $11,694
For the period ended September 30, 1996
Cumulative Since Commencement
of Operations
-----------------------------
Prudent Bear Fund (11.2)%
S&P 500 13.5%
NASDAQ Composite 16.9%
The Standard & Poor's 500 Index (S&P 500) is a capital-weighted index,
representing the aggregate market value of the common equity of 500 stocks
primarily traded on the New York Stock Exchange. The NASDAQ Composite Index is a
broad-based capitalization-weighted index of all NASDAQ stocks. This chart
assumes an initial gross investment of $10,000 made on 12/28/95 (commencement of
operations). Returns shown include the reinvestment of all dividends. Past
performance is not predictive of future performance. Investment return and
principal value will fluctuate, so that your shares, when redeemed, may be worth
more or less than the original cost.
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
and Shareholders of
Prudent Bear Fund
In our opinion, the accompanying statement of assets and liabilities, including
the schedules of investments and of securities sold short, and the related
statements of operations and of changes in net assets and the financial
highlights present fairly, in all material respects, the financial position of
Prudent Bear Fund (the "Fund") at September 30, 1996, and the results of its
operations, the changes in its net assets and the financial highlights for the
period December 28, 1995 (commencement of operations) through September 30,
1996, in conformity with generally accepted accounting principles. These
financial statements and financial highlights (hereafter referred to as
"financial statements") are the responsibility of the Fund's management; our
responsibility is to express an opinion on these financial statements based on
our audit. We conducted our audit of these financial statements in accordance
with generally accepted auditing standards which require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audit, which included confirmation of securities at
September 30, 1996 by correspondence with the custodian and brokers, provides a
reasonable basis for the opinion expressed above.
/s/ Price Waterhouse LLP
Milwaukee, Wisconsin
October 11, 1996
PRUDENT BEAR FUND
STATEMENT OF ASSETS AND LIABILITIES
SEPTEMBER 30, 1996
ASSETS:
Investments, at value (cost $8,185,658) $ 8,144,983
Receivable from broker for proceeds
on securities sold short 4,592,152
Receivable for investments sold 84,340
Interest receivable 6,831
Other receivables 27,604
Organizational expenses, net of
accumulated amortization 25,732
Other assets 29,407
-----------
Total Assets 12,911,049
-----------
LIABILITIES:
Securities sold short, at value
(Proceeds of $4,528,813) 5,008,531
Payable for securities purchased 530,059
Accrued expenses and other liabilities 46,804
-----------
Total Liabilities 5,585,394
-----------
NET ASSETS $ 7,325,655
===========
NET ASSETS CONSIST OF:
Capital stock $ 7,800,471
Accumulated undistributed net
investment income 74,973
Accumulated undistributed net realized loss
on investments sold, securities sold short
and option contracts expired or closed (29,396)
Net unrealized depreciation on:
Investments (40,675)
Short positions (479,718)
-----------
Total Net Assets $ 7,325,655
===========
Shares outstanding
(250,000,000 shares of $.0001
par value authorized) 824,834
Net Asset Value, Redemption Price
and Offering Price Per Share $8.88
=====
See notes to the financial statements.
PRUDENT BEAR FUND
STATEMENT OF OPERATIONS
DECEMBER 28, 1995<F1> THROUGH
SEPTEMBER 30, 1996
INVESTMENT INCOME:
Interest income $125,706
Dividend income on long positions 933
-----------
Total investment income 126,639
-----------
EXPENSES:
Investment advisory fee 22,220
Administration fee 18,721
Shareholder servicing and accounting costs 33,162
Custody fees 9,881
Federal and state registration 22,477
Professional fees 26,955
Reports to shareholders 5,454
Directors' fees and expenses 3,269
Amortization of organizational expenses 4,368
Distribution expense 4,445
Other 1,960
-----------
Total operating expenses before
reimbursement and dividends on
short positions 152,912
Less: Reimbursement from Adviser (104,260)
-----------
Net expenses before dividends on
short positions 48,652
Dividends on short positions 6,072
-----------
Total expenses 54,724
-----------
NET INVESTMENT INCOME 71,915
-----------
REALIZED AND UNREALIZED
LOSS ON INVESTMENTS:
Realized gain (loss) on:
Long transactions 19,578
Short transactions (16,081)
Option contracts expired or closed (32,228)
Change in unrealized depreciation on:
Investments (40,675)
Short positions (479,718)
-----------
Net realized and unrealized
loss on investments (549,124)
-----------
NET DECREASE IN NET ASSETS
RESULTING FROM OPERATIONS $(477,209)
===========
<F1> Commencement of operations.
See notes to the financial statements.
PRUDENT BEAR FUND
STATEMENT OF CHANGES IN NET ASSETS
DECEMBER 28, 1995<F2> THROUGH
SEPTEMBER 30, 1996
OPERATIONS:
Net investment income $ 71,915
Net realized gain (loss):
Long transactions 19,578
Short transactions (16,081)
Option contracts expired or closed (32,228)
Change in unrealized depreciation on:
Investments (40,675)
Short positions (479,718)
-----------
Net decrease in net assets from operations (477,209)
-----------
CAPITAL SHARE TRANSACTIONS:
Proceeds from shares sold 9,649,045
Cost of shares redeemed (1,846,181)
-----------
Net increase in net assets from
capital share transactions 7,802,864
-----------
TOTAL INCREASE IN NET ASSETS 7,325,655
NET ASSETS:
Beginning of period 0
-----------
End of period (including undistributed
net investment income of $74,973) $7,325,655
===========
<F2> Commencement of operations.
See notes to the financial statements.
PRUDENT BEAR FUND
FINANCIAL HIGHLIGHTS
DECEMBER 28, 1995<F3> THROUGH
SEPTEMBER 30, 1996
Per Share Data:
Net asset value, beginning of period $10.00
-----------
Income from investment operations:
Net investment income<F4> 0.09
Net realized and unrealized losses
on investments (1.21)
-----------
Total from investment operations (1.12)
-----------
Net asset value, end of period $ 8.88
===========
Total return<F5> (11.20)%
Supplemental data and ratios:
Net assets, end of period $7,325,655
Ratio of operating expenses to
average net assets <F6><F7><F8> 2.75%
Ratio of dividends on short positions to
average net assets <F6> 0.34%
Ratio of net investment income to
average net assets <F7><F8> 4.07%
Portfolio turnover rate 91.31%
Average commission rate paid $0.0502
<F3> Commencement of operations.
<F4> Net investment income before dividends on short positions for the period
ended September 30, 1996 was $0.10.
<F5> Not annualized for the period December 28, 1995
through September 30, 1996.
<F6> For the period ended September 30, 1996, the operating expense ratio
excludes dividends on short positions. The ratio including dividends on
short positions for the period ended September 30, 1996 was 3.09%.
<F7> Annualized for the period December 28, 1995 through September 30, 1996.
<F8> Without expense reimbursements of $104,260 for the period December 28,
1995 through September 30, 1996 the ratio of operating expenses to average
net assets would have been 8.64% and the ratio of net investment income to
average net assets would have been (1.83)%.
See notes to the financial statements.
PRUDENT BEAR FUND
SCHEDULE OF INVESTMENTS
SEPTEMBER 30, 1996
SHARES VALUE
- ------ -----
MUTUAL FUNDS - 4.8% <F9>
350,477 Portico Institutional Money Market Fund
(Cost $350,477) $ 350,477
-----------
COMMON STOCKS - 11.9% <F9>
BASIC MATERIALS - 0.7% <F9>
2,700 Stillwater Mining Company <F10> 50,625
-----------
CAPITAL GOODS - 0.7% <F9>
8,300 Harding Lawson Associates Group <F10> 49,800
-----------
CONSUMER STAPLES - 1.4% <F9>
7,100 Iwerks Entertainment, Inc. <F10> 49,700
4,400 Sullivan Dental Products, Inc. 48,950
-----------
98,650
-----------
CONSUMER-CYCLICALS - 4.6% <F9>
15,600 Astrotech International Corporation <F10> 81,900
7,800 Boomtown, Inc. <F10> 32,175
8,300 Fedders Corporation 49,800
3,500 Hagger Corporation 50,750
5,000 Hollywood Park, Inc. <F10> 38,750
4,000 Jackpot Enterprises, Inc. 40,000
15,600 Serv-Tech, Inc. <F10> 45,825
-----------
339,200
-----------
ENERGY - 0.9% <F9>
1,050 Chesapeake Energy Corporation <F10> 65,756
-----------
FINANCIALS - 0.7% <F9>
3,800 Hilb, Rogal & Hamilton Company 50,350
-----------
TECHNOLOGY - 1.1% <F9>
5,600 ANTEC Corporation <F10> 81,900
-----------
TRANSPORTATION - 1.8% <F9>
7,300 America West Airlines, Inc. - Class B <F10> 85,775
5,300 Western Pacific Airlines, Inc. <F10> 46,706
-----------
132,481
-----------
TOTAL COMMON STOCKS (Cost $905,290) 868,762
-----------
CONTRACTS (100 SHARES PER CONTRACT)
- -----------------------------------
PUT OPTIONS PURCHASED - 1.2% <F9>
25 Micron Technology, Inc.
Expiration January 1997,
Exercise Price $15.00 469
44 Morgan Stanley & Company High Tech Index
Expiration December 1996,
Exercise Price $320.00 36,850
20 Morgan Stanley & Company High Tech Index
Expiration March 1997,
Exercise Price $280.00 13,500
50 S&P 400 Midcap Index
Expiration December 1996,
Exercise Price $200.00 3,750
CONTRACTS (100 SHARES PER CONTRACT) VALUE
- ----------------------------------- -----
25 S&P 400 Midcap Index
Expiration December 1996,
Exercise Price $215.00 $ 3,906
175 S&P 400 Midcap Index
Expiration March 1997,
Exercise Price $175.00 9,844
70 S&P 400 Midcap Index
Expiration March 1997,
Exercise Price $200.00 11,375
25 S&P 400 Midcap Index
Expiration March 1997,
Exercise Price $225.00 11,719
-----------
TOTAL PUT OPTIONS PURCHASED
(Cost $117,475) 91,413
-----------
CALL OPTIONS PURCHASED - 0.5% <F9>
100 S&P 100 Index
Expiration October 1996,
Exercise Price $675.00
(Cost $14,583) 35,625
-----------
PRINCIPAL
AMOUNT
- --------
SHORT-TERM INVESTMENTS - 92.8% <F9>
U.S. TREASURIES - 82.7% <F9><F11>
U.S. Treasury Bills:
$ 100,000 5.05%, 10/03/96 99,972
100,000 5.17%, 10/10/96 99,875
100,000 5.03%, 10/17/96 99,776
800,000 5.06%, 10/24/96 797,413
200,000 5.05%, 10/31/96 199,158
300,000 5.17%, 11/07/96 298,477
1,000,000 5.00%, 11/14/96 993,889
500,000 5.14%, 11/29/96 495,821
1,000,000 5.06%, 12/05/96 991,117
2,000,000 5.06%, 12/12/96 1,980,360
-----------
TOTAL U.S. TREASURIES 6,055,858
-----------
VARIABLE RATE DEMAND NOTES - 10.1% <F9>
2,624 American Family Financial Services, Inc. 2,624
364,069 Johnson Controls, Inc. 364,069
376,155 Wisconsin Electric Power Co. 376,155
-----------
TOTAL VARIABLE RATE DEMAND NOTES 742,848
-----------
TOTAL SHORT-TERM INVESTMENTS
(Cost $6,797,833) 6,798,706
-----------
TOTAL INVESTMENTS (Cost $8,185,658) $8,144,983
===========
<F9> Calculated as a percentage of net assets.
<F10> Non-income producing security.
<F11> All or a portion of the securities have been committed as collateral for
open short positions.
See notes to the financial statements.
PRUDENT BEAR FUND
SCHEDULE OF SECURITIES SOLD SHORT
SEPTEMBER 30, 1996
SHARES VALUE
- ------ -----
1,050 Advanta Corporation - Class B $ 44,888
5,450 America Online, Inc. 194,156
3,200 American Power Conversion Corporation 46,800
800 Applebee's International, Inc. 21,200
200 Arrow International, Inc. 6,900
3,400 Atmel Corporation 104,975
250 Bard (C.R.), Inc. 7,781
3,500 Belco Oil & Gas Corporation 93,625
350 CMAC Investment Corporation 22,225
9,300 CNS, Inc. 165,075
1,400 Capital One Financial Corporation 42,000
520 Caterpillar Inc. 39,195
3,750 Chesapeake Energy Corporation 234,844
1,800 Circuit City Stores, Inc. 65,025
5,400 Cirrus Logic, Inc. 112,725
700 Clorox Company 67,112
4,400 COMFORCE Corporation 81,400
1,250 Compaq Computers Corporation 80,156
3,000 ContiFinancial Corporation 85,500
150 Crown Cork & Seal Company, Inc. 6,919
630 Diana Corporation 25,830
750 First Data Corporation 61,219
2,500 First USA, Inc. 138,438
2,900 Foundation Health Corporation 98,237
1,500 Franklin Resources, Inc. 99,563
2,900 Gateway 2000, Inc. 138,837
2,900 Gentex Corporation 65,975
100 Great Lakes Chemical Corporation 5,700
800 Hershey Foods Corporation 40,200
1,100 IDEXX Laboratories, Inc. 49,775
1,700 International Flavors & Fragrances 74,162
1,500 Iomega Corporation 36,375
900 Kellogg Company 61,987
4,500 Komag, Inc. 94,500
900 MBIA, Inc. 77,175
4,000 MBNA Corporation 139,000
2,000 Mattel, Inc. 51,750
650 Micro Warehouse, Inc. 16,738
9,150 Micron Technology, Inc. 279,075
4,400 The Money Store, Inc. 116,600
1,200 Motorola, Inc. 61,950
2,100 North American Vaccine, Inc. 58,800
3,200 Novellus Systems, Inc. 136,400
SHARES VALUE
- ------ -----
3,800 Olympic Financial Ltd. $ 93,575
3,500 PLC Systems, Inc. 96,250
550 The PMI Group, Inc. 29,219
10,000 Paging Network, Inc. 200,000
600 Papa John's International, Inc. 31,500
1,200 Patterson Dental Company 32,100
700 Philip Morris Companies, Inc. 62,825
1,000 Platinum Software Corporation 11,125
1,800 Polaroid Corporation 79,200
1,000 Sawtek Inc. 26,000
1,650 The Sports Authority, Inc. 43,931
2,600 Texas Instruments, Inc. 143,325
2,000 Tyson Foods, Inc. - Class A 53,375
2,200 U.S. Robotics Corporation 142,175
1,800 Ultratech Stepper, Inc. 33,975
2,000 United Companies Financial Corporation 66,250
7,800 USAir Group, Inc. 128,700
300 ValuJet, Inc. 3,619
3,000 Western Digital Corporation 120,375
500 Wrigley (Wm) Jr Company 30,125
1,200 Xylan Corporation 65,100
16,000 Zycad Corporation 65,000
-----------
TOTAL SECURITIES SOLD SHORT
(Proceeds $4,528,813) $5,008,531
===========
See notes to the financial statements.
PRUDENT BEAR FUND
NOTES TO THE FINANCIAL STATEMENTS
SEPTEMBER 30, 1996
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Prudent Bear Funds, Inc. (the "Company") was incorporated on October 25,
1995, as a Maryland Corporation and is registered as an open-end management
investment company under the Investment Company Act of 1940 ("1940 Act"). The
Company currently consists of one series, Prudent Bear Fund (the "Fund"). The
investment objective of the Fund is capital appreciation. 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 futures contracts, options on stock index futures contracts and options
on securities and stock indexes. The Fund issued and sold 10,000 shares of its
capital stock at $10 per share on December 13, 1995. The Fund commenced
operations on December 28, 1995.
The costs incurred in connection with the organization, initial
registration and public offering of shares, aggregating $27,849, have been paid
by the Adviser. The Fund will reimburse the Adviser. These costs are being
amortized over the period of benefit, but not to exceed sixty months from the
Fund's commencement of operations.
The following is a summary of significant accounting policies consistently
followed by the Fund.
a) Investment Valuation - Common stocks and securities sold short that are
listed on a security 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 stocks 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 price. Unlisted equity securities for which
market quotations are readily available are valued at the latest quoted
bid price. Debt securities are valued at the latest bid price. Mutual
fund investments are valued at the net asset value on the day the
valuation is made. Other assets and securities for which no quotations
are readily available are valued at fair value as determined in good
faith by management in accordance with procedures approved by the Board
of Directors. Short-term instruments (those with remaining maturities
of 60 days or less) are valued at amortized cost, which approximates
market value.
b) Transactions with Brokers for Short Sales - Treasury securities in the
amount of $5,560,768 have been committed as collateral for open short
investment positions and are on deposit in a segregated account with
the custodian. The Fund's receivable from broker for proceeds on
securities sold short is with one major security dealer. The Fund does
not require the broker to maintain collateral in support of the
receivable from broker for proceeds on securities sold short.
c) Federal Income Taxes - No provision for federal income taxes has been
made since the Fund intends to comply with the provisions of the
Internal Revenue Code applicable to regulated investment companies and
intends to distribute investment company net taxable income and net
capital gains to shareholders.
d) Purchased Option Accounting - Premiums paid for option contracts
purchased are included in the Statement of Assets and Liabilities as an
asset. Option contracts are valued at the average of the current bid
and asked price reported on the day of valuation. When option contracts
expire or are closed, realized gains or losses are recognized without
regard to any unrealized gains or losses on the underlying securities.
Put option contracts are held by the Fund for trading purposes and call
option contracts are held by the Fund for hedging purposes.
e) Distributions to Shareholders - Dividends from net investment income
are declared and paid annually. Distributions of net realized capital
gains, if any, will be declared at least annually.
f) Use of Estimates - The preparation of financial state ments in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
PRUDENT BEAR FUND
Notes to the Financial Statements (continued)
g) Other - Investment and shareholder transactions are recorded no later
than the first business day after the trade date. The Fund determines
the gain or loss realized from investment transactions by comparing
the original cost of the security lot sold with the net sales proceeds.
Dividend income is recognized on the ex-dividend date or as soon as
information is available to the Fund, and interest income is recognized
on an accrual basis. Investment income includes $39,395 of interest
earned on receivables from brokers for proceeds on securities sold
short. Generally accepted accounting principles require that permanent
financial reporting and tax differences be reclassified to capital
stock.
2. CAPITAL SHARE TRANSACTIONS
Transactions in shares of the Fund for the period December 28, 1995
through September 30, 1996 were as follows:
Shares sold 1,026,211
Shares redeemed (201,377)
---------
Net increase 824,834
=========
3. INVESTMENT TRANSACTIONS
The aggregate purchases and sales of investments, excluding short-term
investments, options and short positions, by the Fund for the period December
28, 1995 through September 30, 1996, were $1,015,362 and $129,649,
respectively.
At September 30, 1996, gross unrealized appreciation and depreciation of
investments for tax purposes were as follows:
Appreciation $ 20,844
(Depreciation) (60,854)
---------
Net depreciation on investments $(40,010)
=========
At September 30, 1996, the cost of investments for federal income tax
purposes was $8,184,993.
At September 30, 1996, the Fund had accumulated net realized capital loss
carryovers of $29,396 expiring in 2004. To the extent the Fund realizes future
net capital gains, taxable distributions to its shareholders will be offset by
any unused capital loss carryover.
4. INVESTMENT ADVISORY AND OTHER AGREEMENTS
The Fund has entered into an Investment Advisory Agreement with David W.
Tice & Associates, Inc. Pursuant to its advisory agreement with the Fund, the
Investment Adviser is entitled to receive a fee, calculated daily and payable
monthly, at the annual rate of 1.25% as applied to the Fund's daily net assets.
The Investment Adviser agrees to reimburse its management fee and other
expenses to the extent that total operating expenses (exclusive of interest,
taxes, brokerage commissions and other costs incurred in connection with the
purchase or sale of portfolio securities, and extraordinary items) exceed the
annual rate of 2.75% of the net assets of the Fund, computed on a daily basis.
Firstar Trust Company, a subsidiary of Firstar Corporation, a publicly
held bank holding company, serves as custodian, transfer agent, administrator
and accounting services agent for the Fund.
5. SHORT POSITIONS
For financial statement purposes, an amount equal to the settlement
amount is included in the Statement of Assets and Liabilities as an asset and
an equivalent liability. The amount of the liability is subsequently marked-to-
market to reflect the current value of the short position. Subsequent
fluctuations in the market prices of securities sold, but not yet purchased,
may require purchasing the securities at prices which may differ from the
market value reflected on the Statement of Assets and Liabilities. The Fund is
liable for any dividends payable on securities while those securities are in a
short position. As collateral for its short positions, the Fund is required
under the 1940 Act to maintain segregated assets consisting of cash or liquid
high-grade debt obligations. These segregated assets are required to be
adjusted daily to reflect changes in the value of the securities sold short.
PRUDENT BEAR FUND
Notes to the Financial Statements (continued)
6. SERVICE AND DISTRIBUTION PLAN
The Fund has adopted a Service and Distribution Plan (the "Plan")
pursuant to Rule 12b-1 under the 1940 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 Fund
made payments of $3,633 pursuant to the Plan for the period ended September 30,
1996.
PRUDENT BEAR FUND
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
[ARTICLE] 6
[CIK] 0001002903
[NAME] PRUDENT BEAR FUNDS, INC.
<TABLE>
<S> <C>
[PERIOD-TYPE] 10-MOS
[FISCAL-YEAR-END] SEP-30-1996
[PERIOD-START] DEC-28-1995
[PERIOD-END] SEP-30-1996
[INVESTMENTS-AT-COST] 8,185,658
[INVESTMENTS-AT-VALUE] 8,144,983
[RECEIVABLES] 4,710,927
[ASSETS-OTHER] 55,139
[OTHER-ITEMS-ASSETS] 0
[TOTAL-ASSETS] 12,911,049
[PAYABLE-FOR-SECURITIES] 530,059
[SENIOR-LONG-TERM-DEBT] 0
[OTHER-ITEMS-LIABILITIES] 5,055,335
[TOTAL-LIABILITIES] 5,585,394
[SENIOR-EQUITY] 0
[PAID-IN-CAPITAL-COMMON] 7,800,389
[SHARES-COMMON-STOCK] 824,834
[SHARES-COMMON-PRIOR] 0
[ACCUMULATED-NII-CURRENT] 74,973
[OVERDISTRIBUTION-NII] 0
[ACCUMULATED-NET-GAINS] (29,396)
[OVERDISTRIBUTION-GAINS] 0
[ACCUM-APPREC-OR-DEPREC] (520,393)
[NET-ASSETS] 7,325,655
[DIVIDEND-INCOME] 933
[INTEREST-INCOME] 125,706
[OTHER-INCOME] 0
[EXPENSES-NET] 54,724
[NET-INVESTMENT-INCOME] 71,915
[REALIZED-GAINS-CURRENT] (28,731)
[APPREC-INCREASE-CURRENT] (520,393)
[NET-CHANGE-FROM-OPS] (477,209)
[EQUALIZATION] 0
[DISTRIBUTIONS-OF-INCOME] 0
[DISTRIBUTIONS-OF-GAINS] 0
[DISTRIBUTIONS-OTHER] 0
[NUMBER-OF-SHARES-SOLD] 1,026,211
[NUMBER-OF-SHARES-REDEEMED] 201,377
[SHARES-REINVESTED] 0
[NET-CHANGE-IN-ASSETS] 7,325,655
[ACCUMULATED-NII-PRIOR] 0
[ACCUMULATED-GAINS-PRIOR] 0
[OVERDISTRIB-NII-PRIOR] 0
[OVERDIST-NET-GAINS-PRIOR] 0
[GROSS-ADVISORY-FEES] 22,220
[INTEREST-EXPENSE] 0
[GROSS-EXPENSE] 158,984
[AVERAGE-NET-ASSETS] 2,389,120
[PER-SHARE-NAV-BEGIN] 10.00
[PER-SHARE-NII] 0.09
[PER-SHARE-GAIN-APPREC] (1.21)
[PER-SHARE-DIVIDEND] 0
[PER-SHARE-DISTRIBUTIONS] 0
[RETURNS-OF-CAPITAL] 0
[PER-SHARE-NAV-END] 8.88
[EXPENSE-RATIO] 2.75
[AVG-DEBT-OUTSTANDING] 0
[AVG-DEBT-PER-SHARE] 0
</TABLE>
