Securities Act Registration No. 33-98726
Investment Company Act Reg. No. 811-9120
SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
---------------------------
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 |X|
Pre-Effective Amendment No. [ ]
Post-Effective Amendment No. 4 |X|
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 |X|
Amendment No. 5 |X|
(Check appropriate box or boxes.)
-----------------------------------
PRUDENT BEAR FUNDS, INC.
(Exact Name of Registrant as Specified in Charter)
8140 Walnut Hill Lane
Suite 405
Dallas, Texas 75231
(Address of Principal Executive Offices) (Zip Code)
(214) 696-5474
(Registrant's Telephone Number, including Area Code)
Copy to:
David W. Tice
David W. Tice & Associates, Inc. Richard L. Teigen
8140 Walnut Hill Lane Foley & Lardner
Suite 405 777 East Wisconsin Avenue
Dallas, Texas 75231 Milwaukee, Wisconsin 53202
(Name and Address of Agent for Service)
Approximate Date of Proposed Public Offering: As soon as practicable after the
Registration Statement becomes effective.
It is proposed that this filing become effective (check appropriate box):
[ ] immediately upon filing pursuant to paragraph (b)
[ ] on January 30, 1998 pursuant to paragraph (b)
|X| 60 days after filing pursuant to paragraph (a) (1)
[ ] on (date) pursuant to paragraph (a) (1)
[ ] 75 days after filing pursuant to paragraph (a) (2)
[ ] on (date) pursuant to paragraph (a) (2) of rule 4 & 5
If appropriate, check the following box:
[ ] this post-effective amendment designates a new effective date
for a previously filed post-effective amendment.
<PAGE>
PRUDENT BEAR FUNDS, INC.
CROSS REFERENCE SHEET
(Pursuant to Rule 481 showing the location in the Prospectus
and the Statement of Additional Information of the responses to the Items of
Parts A and B of Form N-1A.)
Caption or Subheading in Prospectus
Item No. on Form N-1A or Statement of Additional Information
PART A - INFORMATION REQUIRED
IN PROSPECTUS
1. Cover Page Cover Page
2. Synopsis EXPENSES
3. Financial Highlights FINANCIAL HIGHLIGHTS; PERFORMANCE
INFORMATION
4. General Description of
Registrant WHAT IS THE PRUDENT BEAR FUND?; WHAT IS
THE FUND'S INVESTMENT OBJECTIVE?; WHAT
ARE THE FUND'S INVESTMENT TECHNIQUES,
POLICIES AND RISKS?; DOES THE FUND HAVE
ANY INVESTMENT LIMITATIONS?
5. Management of the Fund WHO MANAGES THE FUND?; WHAT ABOUT
BROKERAGE TRANSACTIONS?; GENERAL
INFORMATION ABOUT THE FUND
5A. Management's Discussion of Fund
Performance (INCLUDED IN ANNUAL REPORT TO
SHAREHOLDERS)
6. Capital Stock and Other Securities WHAT REPORTS WILL I RECEIVE?; WHAT ABOUT
DIVIDENDS, CAPITAL GAINS DISTRIBUTIONS
AND TAXES?; GENERAL INFORMATION ABOUT
THE FUND
7. Purchase of Securities Being
Offered HOW IS THE FUND'S SHARE PRICE
DETERMINED?; HOW DO I OPEN AN ACCOUNT
AND PURCHASE SHARES?; MAY SHAREHOLDERS
REINVEST DIVIDENDS?; WHAT RETIREMENT
PLANS DOES THE FUND OFFER?
8. Redemption or Repurchase HOW DO I SELL MY SHARES
9. Legal Proceedings *
PART B - INFORMATION REQUIRED IN STATEMENT OF ADDITIONAL INFORMATION
10. Cover Page Cover Page
11. Table of Contents Table of Contents
12. General Information and History *
13. Investment Objectives and
Policies Investment Restrictions; Investment
Considerations
14. Management of the Fund Directors and Officers of the
Corporation
15. Control Persons and Principal
Holders of Securities Directors and Officers of the
Corporation; Ownership of Management and
Principal Shareholders; Investment
Adviser, Administrator, Custodian,
Transfer Agent and Accounting Services
Agent
16. Investment Advisory and Other
Services Investment Adviser, Administrator,
Custodian, Transfer Agent and Account
Services Agent; Independent Accountants
17. Brokerage Allocation Allocation of Portfolio Brokerage
18. Capital Stock and Other Securities Included in Prospectus under "GENERAL
INFORMATION ABOUT THE FUND"
19. Purchase, Redemption and Pricing
of Securities Being Offered Included in Prospectus under "HOW IS THE
FUND'S SHARE PRICE DETERMINED?"; "HOW DO
I OPEN AN ACCOUNT AND PURCHASE SHARES?";
"HOW DO I SELL MY SHARES?";
Determination of Net Asset Value;
Distribution of Shares; Systematic
Withdrawal Plan
20. Tax Status Taxes
21. Underwriters *
22. Calculations of Performance Data Performance Information
23. Financial Statements Financial Statements
- -------
* Answer negative or inapplicable
<PAGE>
EXPLANATORY NOTE
This Post-Effective Amendment No. 4 (the "Amendment") to the
Registrant's Registration Statement on Form N-1A is being filed to reflect the
offering of Class C Shares for the Prudent Bear Fund portfolio. The Amendment
incorporates by reference in its entirety Part A of Post-Effective Amendment No.
3 to the Registrant's Registration Statement on Form N-1A with respect to the No
Load Shares of the Prudent Bear Fund, filed with the Securities and Exchange
Commission on January 27, 1998, as if set forth herein in full.
<PAGE>
PROSPECTUS NOVEMBER 27, 1998
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PRUDENT
BEAR
FUND
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PROSPECTUS NOVEMBER 27, 1998 PRUDENT BEAR FUND
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INVESTMENT OBJECTIVES AND POLICIES
Prudent Bear Funds, Inc. is an 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, 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, ($1,000 for IRA investments), 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 November 27, 1998, 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. The
Securities and Exchange Commission maintains a Website (http://www.sec.gov) that
contains the Statement of Additional Information, material incorporated by
reference, and other information regarding registrants that file electronically
with the Securities and Exchange Commission.
SHAREHOLDER SERVICES
Questions regarding the Prudent Bear Fund can be directed to 1-888-PRU-BEAR
(toll free), 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.
CLASS C SHARES
TABLE OF CONTENTS
Page
----
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? 11
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? 17
MAY SHAREHOLDERS REINVEST DIVIDENDS? 18
WHAT RETIREMENT PLANS DOES
THE FUND OFFER? 18
WHAT ABOUT BROKERAGE TRANSACTIONS? 18
GENERAL INFORMATION ABOUT THE FUND 19
PERFORMANCE INFORMATION 19
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.
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PRUDENT BEAR FUND
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EXPENSES
The following information is based on the Fund's actual expenses incurred during
the fiscal year ended September 30, 1997 by the Fund's No Load Shares but have
been restated to reflect the expense arrangements for the Class C Shares. (The
No Load Shares are described in a separate prospectus.) This information is
provided in order to assist you in understanding the various costs and expenses
that, as an investor in the Fund's Class C Shares, you will bear directly or
indirectly. IT SHOULD NOT BE CONSIDERED TO BE A REPRESENTATION OF PAST OR FUTURE
EXPENSES. 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 1.00%<F2>
Other Expenses
Dividends on short positions 0.34%
All other Other Expenses 1.09%
-----
Total Other Expenses 1.43%
-----
Total Fund Operating Expenses 3.68%<F3>
-----
<F1> A fee of $12.00 is charged for each wire redemption.
<F2> The maximum level of distribution expenses is 1.00% 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> For the fiscal year ended September 30, 1997, the Fund's average net assets
were $18,984,472. For the first three quarters of the fiscal year ending
September 30, 1998, the Fund's average net assets were $__________.
Generally Total Fund Operating Expenses as a percentage of average net
assets will decline as average net assets increase. The Class C Shares were
not offered prior to November 27, 1998.
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 5 YEARS 10 YEARS
------ -------- -------- --------
$37 $113 $190 $393
FINANCIAL HIGHLIGHTS
The financial information of a No Load Share of Prudent Bear Fund (the "Fund")
included in this table for the fiscal year ended September 30, 1997 and the
fiscal period ended September 30, 1996 has been audited by
PricewaterhouseCoopers LLP, the Fund's independent accountants. The financial
information of a No Load Share of the Fund for the fiscal period ended March 31,
1998 is unaudited. The table should be read in conjunction with the financial
statements and related notes contained in the Fund's Annual Report to
Shareholders and Semi-Annual Report to Shareholders, copies of which may be
obtained, without charge, upon request. The Fund's Annual Report to Shareholders
also contains further information about the performance of the Fund. The Class C
Shares were not offered prior to November 27, 1998.
Six Months December 28,
Ended Year Ended 1995<F1> through
March 31, September 30, September 30,
1998 1997 1996
----- ----- -----
(unaudited)
Per Share Data:
Net asset value,
beginning of
period $7.29 $8.88 $10.00
------ ------ ------
Income from
investment operations:
Net investment
income<F2> 0.17<F3> 0.62<F3> 0.09
Net realized and
unrealized
losses on
investments (0.72) (2.06) (1.21)
------ ------ ------
Total from
investment
operations (0.55) (1.44) (1.12)
------ ------ ------
Less distributions
from net
investment income (0.23) (0.15) _
------ ------ ------
NET ASSET VALUE,
END OF PERIOD $6.51 $7.29 $8.88
====== ====== ======
Total return<F4> (8.06)% (16.44)% (11.20)%
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PRUDENT BEAR FUND
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Six Months December 28,
Ended Year Ended 1995<F1> through
March 31, September 30, September 30,
1998 1997 1996
----- ----- -----
(unaudited)
Supplemental
data and ratios:
Net assets,
end of period $55,172,673 $26,499,709 $7,325,655
Ratio of operating
expenses to
average net
assets<F5><F6><F7> 1.99% 2.59% 2.75%
Ratio of dividends
on short positions
to average net
assets<F6> 0.15% 0.34% 0.34%
Ratio of net
investment
income to average
net assets<F6><F7> 4.65% 7.75% 4.07%
Portfolio
turnover rate 274.89% 413.25% 91.31%
Average commission
rate paid $0.0411 $0.0565 $0.0502
<F1> Commencement of operations.
<F2> Net investment income before dividends on short positions for the periods
ended March 31, 1998, September 30, 1997 and September 30, 1996 were $0.18,
$0.65 and $0.10, respectively.
<F3> Net investment income per share represents net investment income divided by
the average shares outstanding throughout the period.
<F4> Not annualized for the periods December 28, 1995 through September 30, 1996
and for the six months ended March 31, 1998.
<F5> The operating expense ratio excludes dividends on short positions. The
ratio including dividends on short positions for the periods ended March
31, 1998, September 30, 1997 and September 30, 1996 were 2.14%, 2.93% and
3.09%, respectively.
<F6> Annualized for the periods December 28, 1995 through September 30, 1996 and
the six months ended March 31, 1998.
<F7> Without expense reimbursements of $104,260 for the period ended September
30, 1996, the ratio of operating expenses to average net assets would have
been 8.64% and the ratio of net investment loss to average net assets would
have been (1.83)%.
WHAT IS THE PRUDENT BEAR FUND?
Prudent Bear Funds, Inc. (the "Company") is an open-end diversified management
investment company - better known 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, 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. Stock index futures
contracts, options on stock index futures contracts 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, 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
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PRUDENT BEAR FUND
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"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 in 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 liquid
securities in a segregated account as "cover" for the investment techniques the
Fund employs. 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; and (4) the possible absence of a liquid secondary market
for any particular instrument at any time. 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 ANDRISKS? 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 either
directly or in the form of American Depository Receipts ("ADRs"). 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,
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PRUDENT BEAR FUND
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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. Foreign markets or exchanges tend to have
less liquidity than U.S. markets which can affect the Fund's ability to purchase
or sell blocks of securities and obtain the best price in the foreign market.
Investing in foreign markets costs more than investing in U.S. markets because
of higher transactions and custodial fees.
The Fund may hold securities denominated or traded in foreign currencies, the
value of which may be significantly affected by changes in currency exchange
rates. To manage currency fluctuations or facilitate the purchase and sale of
foreign securities, the Fund may engage in foreign currency transactions
involving (1) the purchase and sale of forward foreign currency exchange
contracts (agreements to exchange one currency for another at a future date);
(2) options on foreign currencies; (3) currency futures contracts; or (4)
options on currency futures contracts. These foreign currency transactions
involve the risk the Adviser may not accurately predict currency movements,
which could adversely affect total return. The Fund may incur costs in
converting securities denominated in foreign currencies to U.S. dollars.
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.
The Adviser believes the best opportunities to make successful short-sale
investments are created when the market's perception of the values of individual
companies (measured by the stock price) diverges widely from the Adviser's
assessment of the intrinsic values of such companies. Such opportunities arise
as the result of a variety of market inefficiencies, including, among others,
imperfect information, overly ambitious forecasts by Wall Street analysts, and
swings in investor psychology. These inefficiencies can cause substantially
mispriced securities, thereby producing investment opportunities. The investment
strategy of the Adviser is to (1) identify potential opportunities where
significant market perception/reality gaps may exist; and (2) invest in the
anticipation of changes in the market perception that will bring the stock price
more closely in alignment with the Adviser's estimate of value.
The risk and return potential of individual securities is analyzed in making
investment decisions. In-depth research of company and industry fundamentals
provides the cornerstone of the Adviser's investment methodology. The Adviser
bases its investment decisions primarily on its estimate of the intrinsic value
of a company's stock. The most attractive investment opportunities from a
potential risk/reward standpoint will be sought where the market's perception of
value is significantly different from that of the Adviser's estimate of such
value. It is vitally important, given the significant risks inherent in stock
market investing, that the Adviser have a high degree of confidence in its
estimate of the intrinsic value of a company's stock. In most cases, thorough
research of company fundamentals provides such conviction. However, it should be
realized that sometimes the stock market can assign values to companies that are
far higher than their intrinsic values for long periods of time.
While varying on a case-by-case basis, the Adviser's research of a company will
typically include: detailed analysis of current and historical financial
statements; analysis of overall industry fundamentals; analysis of information
from trade publications and other business magazines; and occasionally
discussions with competitors, customers, suppliers, governmental agencies, or
other informed industry sources as well as conversations with management.
Through experience, the Adviser has found that over-reliance on statements of
management can result in sub-par investment performance. Therefore, in most
cases, an effort is made to gather information from independent third-party
sources. This research is a dynamic process, with assumptions and
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PRUDENT BEAR FUND
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conclusions periodically reexamined as necessary in light of new information and
changing business conditions.
Until the Fund closes its short position or replaces the borrowed security, the
Fund will: (a) maintain a segregated account containing cash or liquid
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.
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" or "short"
equity positions against price fluctuations, while other strategies tend to
increase "long" or "short" 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
contracts that are traded on a United States exchange or board of trade.
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 liquid securities 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.
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PRUDENT BEAR FUND
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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 liquid 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 liquid 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 give 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
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PRUDENT BEAR FUND
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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 those 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 or liquid 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, the Fund would incur losses
greater 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.
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 liquid 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
liquid 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
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PRUDENT BEAR FUND
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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 could 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 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
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PRUDENT BEAR FUND
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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 does not presently intend to borrow for
investment purposes. Borrowing for investment is known as leveraging. 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.
Other Index Based Securities
The Fund may invest in units of beneficial interest of unit investment trusts
which hold stocks comprising a recognized securities index such as SPDRs which
hold the component stocks of the Standard & Poor's 500 Index. The Fund may also
invest in shares of registered open-end management investment companies which
invest primarily in common stocks in an effort to track the performance of a
specified foreign equity market index such as World Equity Benchmark Shares or
WEBS. SPDRs and WEBS, which trade on the American Stock Exchange and other
similar securities, may trade at a discount to their net asset value. As an
investor in SPDRs, WEBS or other similar securities, the Fund will indirectly
bear its proportionate share of the expenses of such index funds.
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
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advisory fees and other expenses, and such fees and other expenses will be borne
indirectly by the Fund's shareholders.
Illiquid Securities
The Fund may purchase illiquid securities, which are securities that are not
readily marketable. Because an active market may not exist for illiquid
securities, the Fund may experience delays and additional cost when trying to
sell illiquid securities. 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. However, an insufficient number of qualified institutional
buyers interested in purchasing Rule 144A securities held by the Fund could
adversely affect their marketability, thereby causing the Fund to sell the
securities at unfavorable prices.
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 ANDRISKS?" 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.
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 officers under the supervision of 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 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, 43, 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
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PRUDENT BEAR FUND
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institutional money managers since 1988. Mr. Tice is a Chartered Financial
Analyst and a Certified Public Accountant. Mr. Tice is also the president and
sole shareholder of BTN Research, Inc., a registered broker-dealer. 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 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 (if applicable), 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 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 Class C Share of the Fund is determined by
dividing the total value of the Fund's investments and other assets allocable to
the Class C Shares less any liabilities charged to the Class C Shares, by the
number of outstanding Class C Shares of the Fund. The net asset value per Class
C 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 Class C Shares accepted or Class C 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 Class C Shares tendered for
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PRUDENT BEAR FUND
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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; $1,000 IRA minimum; any lesser amount must be approved by the Adviser),
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)
((For new accounts, include taxpayer identification number))
ADDITIONAL INVESTMENTS. You may add to your account at any time by purchasing
shares by mail (minimum $100) or by wire (minimum $1,000) 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
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PRUDENT BEAR FUND
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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 Class C 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 Class C 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.
There are no sales commissions when you purchase Class C Shares, so all of your
investment is used to purchase shares. All Class C 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 Class C 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. When you purchase Class C Shares through a
registered broker-dealer, the registered broker-dealer 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.
You may purchase Class C Shares through programs of services offered or
administered by broker-dealers, investment advisers, financial institutions or
other service providers ("Processing Intermediaries") that have entered into
agreements with the Fund. These Processing Intermediaries may become
shareholders of record and may use procedures and impose restrictions in
addition to or different from those applicable to you if you invest directly in
the Fund. Some of the services the Fund provides may not be available to you or
may be modified in connection with the programs provided by Processing
Intermediaries. If a Processing Intermediary is the shareholder of record of
your account, the Fund may accept requests to purchase additional Class C Shares
into your account only from the Processing Intermediary. Processing
Intermediaries may charge fees or assess other charges for the services they
provide to their customers. These fees, if any, are retained by the Processing
Intermediaries and are not remitted to the Fund or the Adviser. The Adviser
and/or the Fund may pay fees to Processing Intermediaries to compensate them for
the services they provide. Before you invest in the Fund through a Processing
Intermediary, you should read the program materials provided by the Processing
Intermediary. You may purchase Class C Shares of the Fund through Processing
Intermediaries without regard to the Fund's minimum purchase requirement.
The Fund may authorize one or more Processing Intermediaries (and other
Processing Intermediaries properly designated thereby) to accept orders on the
Fund's behalf. In such event, the Fund will be deemed to have received a
purchase order when the Processing Intermediary accepts the customer's order,
and the order will be priced at the Fund's net asset value next computed after
it is accepted by the Processing Intermediary.
The Fund has adopted a Service and Distribution Plan (the "Plan") pursuant to
Rule 12b-1 under the Act for the Class C Shares. The Plan authorizes payments by
the Fund in connection with the distribution of its Class C Shares at an annual
rate, as determined from time to time by the Board of Directors, of up to 1.00%
of the Fund's average daily net assets allocable to the Class C Shares. 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 the
Class C Shares, including but not limited to, advertising, compensation for
sales and marketing activities of financial institutions and others such as
dealers and distributors,
- --------------------------------------------------------------------------------
PRUDENT BEAR FUND
- --------------------------------------------------------------------------------
shareholder account servicing, the printing and mailing of prospectuses to other
than current shareholders and the printing and mailing of sales literature. 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 ACCEPT-ANCE 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 suspensions 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 an 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 Fund may also suspend the offering of its shares during
periods when it believes the issuance of shares would be detrimental to existing
shareholders. 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 or others. 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 Class C 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 Class C Shares or the dollar amount of Class C 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).
- --------------------------------------------------------------------------------
PRUDENT BEAR FUND
- --------------------------------------------------------------------------------
- - 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 $12.00 wiring charge against your
account.
You may redeem Class C Shares 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 Class C 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 $12.00
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 Class C Shares 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.
If you purchase Class C Shares through Processing Intermediaries, you may be
required to redeem your shares through the Processing Intermediary. These
Processing Intermediaries may use procedures and impose restrictions in
- --------------------------------------------------------------------------------
PRUDENT BEAR FUND
- --------------------------------------------------------------------------------
addition to or different from those applicable to you if you invest directly in
the Fund. If a Processing Intermediary is the shareholder of record of your
account, the Fund may accept redemption requests only from the Processing
Intermediary. The Fund may authorize one or more Processing Intermediaries (and
other Processing Intermediaries properly designated thereby) to accept
redemption requests on the Fund's behalf. In such event, the Fund will be deemed
to have received a redemption request when the Processing Intermediary accepts
the shareholder's request, and the request will be priced at the net asset value
next computed after it is accepted by the Processing Intermediary.
The Fund reserves the right to redeem the Class C 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 Class C 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 net asset value.
Your right to redeem Class C 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.
- --------------------------------------------------------------------------------
PRUDENT BEAR FUND
- --------------------------------------------------------------------------------
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 Class C Shares 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 Class C
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 Class C Shares 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. The Fund offers both a traditional
IRA and a Roth IRA.
- - SIMPLIFIED EMPLOYEE PENSION PLAN (SEP/IRA). The SEP/IRA is a pension plan
in which employers contribute to IRA accounts of eligible participants. 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. The Fund may place portfolio orders
with broker-dealers who sell Fund shares if the Adviser believes the commissions
and transaction quality are comparable to that available from other brokers and
allocate portfolio brokerage in a manner that takes into account the sale of its
shares.
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
of shares of common stock and to classify or
- --------------------------------------------------------------------------------
PRUDENT BEAR FUND
- --------------------------------------------------------------------------------
reclassify any unissued shares of common stock. Currently the Fund is offering
one portfolio, the Prudent Bear Fund, having two classes, the No Load Shares and
the Class C Shares. Of the 500,000,000 shares of common stock authorized,
250,000,000 have been designated for the No Load Shares and 250,000,000 have
been designated for the Class C Shares. The No Load Shares are offered in a
separate prospectus. Both the No Load Shares and the Class C Shares are offered
to the general public.
Each class of 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. Each class of shares bears differing class-
specific expenses, such as 12b-1 fees. 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. On any
matter submitted to the vote of shareholders which only pertains to agreements,
liabilities or expenses applicable to the Class C Shares, but not the No Load
Shares, only the Class C Shares will be entitled to vote.
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.
PricewaterhouseCoopers 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
returns. Because of the differences in expenses the average annual total return
of the Class C Shares will differ from the No Load Shares. 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.
PRUDENT BEAR FUND
- --------------------------------------------------------------------------------
CLASS C SHARES
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
PricewaterhouseCoopers LLP
Milwaukee, Wisconsin
LEGAL COUNSEL
Foley & Lardner
Milwaukee, Wisconsin
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION November 27, 1998
PRUDENT BEAR FUNDS, INC.
8140 Walnut Hill Lane
Suite 405
Dallas, Texas 75231
This Statement of Additional Information is not a prospectus
and should be read in conjunction with the Prospectuses of Prudent Bear Funds,
Inc. for the No Load Shares and Class C Shares. The date of the Prospectus for
the No Load Shares is January 30, 1998 and the date of the Prospectus for the
Class C Shares is November 27, 1998. The Class C Shares were first offered on
November 27, 1998. Requests for copies of the Prospectuses should be made by
writing to Prudent Bear Funds, Inc., 8140 Walnut Hill Lane, Suite 405, Dallas,
Texas 75231, Attention: Corporate Secretary, or by calling (214) 696-5474.
<PAGE>
Prudent Bear Funds, Inc.
TABLE OF CONTENTS Page No.
INVESTMENT RESTRICTIONS....................................................1
INVESTMENT CONSIDERATIONS..................................................3
DIRECTORS AND OFFICERS OF THE CORPORATION..................................6
OWNERSHIP OF MANAGEMENT AND PRINCIPAL
SHAREHOLDERS..............................................................7
INVESTMENT ADVISER, ADMINISTRATOR,
CUSTODIAN, TRANSFER AGENT AND
ACCOUNTING SERVICES AGENT.................................................8
DETERMINATION OF NET ASSET VALUE..........................................10
DISTRIBUTION OF SHARES....................................................11
SYSTEMATIC WITHDRAWAL PLAN................................................11
ALLOCATION OF PORTFOLIO BROKERAGE.........................................12
TAXES.....................................................................13
STOCKHOLDER MEETINGS......................................................14
PERFORMANCE INFORMATION...................................................16
DESCRIPTION OF SECURITIES RATINGS.........................................17
INDEPENDENT ACCOUNTANTS...................................................18
FINANCIAL STATEMENTS......................................................18
<PAGE>
INVESTMENT RESTRICTIONS
The investment objective of the Prudent Bear Fund (the "Fund")
portfolio of Prudent Bear Funds, Inc. (the "Corporation") is capital
appreciation. Consistent with this investment objective, the Fund has adopted
the following investment restrictions which are matters of fundamental policy
and cannot be changed without approval of the holders of the lesser of: (i) 67%
of the Fund's shares present or represented at a stockholder's meeting at which
the holders of more than 50% of such shares are present or represented; or (ii)
more than 50% of the outstanding shares of the Fund.
1. The Fund will not purchase 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 may sell securities short to the extent permitted by
the Investment Company Act of 1940 (the "Act").
3. The Fund will not purchase securities on margin (except for
such short term credits as are necessary for the clearance of
transactions); provided, however, that the Fund may (i) borrow
money to the extent set forth in investment restriction no. 4;
(ii) purchase or sell futures contracts and options on futures
contracts; (iii) make initial and variation margin payments in
connection with purchases or sales of futures contracts or
options on futures contracts; and (iv) write or invest in put
or call options.
4. The Fund may borrow money or issue senior securities to the
extent permitted by the Act.
5. The Fund may pledge or hypothecate its assets to secure its
borrowings.
6. The Fund will not act as an underwriter or distributor of
securities other than shares of the Fund (except to the extent
that the Fund may be deemed to be an underwriter within the
meaning of the Securities Act of 1933, as amended, in the
disposition of restricted securities).
7. The Fund will not make loans, including loans of securities,
except it may acquire debt securities from the issuer or
others which are publicly distributed or are of a type
normally acquired by institutional investors and enter into
repurchase agreements.
8. 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.
9. The Fund will not make investments for the purpose of
exercising control or management of any company.
10. The Fund will not purchase or sell real estate or real estate
mortgage loans and will not make any investments in real
estate limited partnerships.
11. The Fund will not purchase or sell commodities or commodity
contracts, except that the Fund may enter into futures
contracts and options on futures contracts.
12. The Fund will not purchase or sell any interest in any oil,
gas or other mineral exploration or development program,
including any oil, gas or mineral leases.
The Fund has adopted certain other investment restrictions which are
not fundamental policies and which may be changed by the Fund's Board of
Directors without stockholder approval. These additional restrictions are as
follows:
1. The Fund will not acquire or retain any security issued
by a company, an officer or director of which is an officer
or director of the Fund or an officer, director or other
affiliated person of the Fund's investment adviser.
2. The Fund will not invest more than 5% of the Fund's total
assets in securities of any issuer which has a record of less
than three (3) years of continuous operation, including the
operation of any predecessor business of a company which came
into existence as a result of a merger, consolidation,
reorganization or purchase of substantially all of the assets
of such predecessor business.
3. The Fund will not purchase illiquid securities if, as a result
of such purchase, more than 15% of the total value of its
total assets would be invested in such securities.
4. The Fund's investments in warrants will be limited to 5% of
the Fund's net assets. Included within such 5%, but not to
exceed 2% of the value of the Fund's net assets, may be
warrants which are not listed on either the New York Stock
Exchange or the American Stock Exchange.
5. The Fund will not purchase the securities of other
investment companies except: (a) as part of a plan of
merger, consolidation or reorganization approved by the
stockholders of the Fund; (b) securities of registered
open-end investment companies; or (c) securities of
registered closed-end investment companies on the open
market where no commission results, other than the usual and
customary broker's commission. No purchases described in (b)
and (c) will be made if as a result of such purchases (i)
the Fund and its affiliated persons would hold more than 3%
of any class of securities, including voting securities, or
any registered investment company; (ii) more than 5% of the
Fund's net assets would be invested in shares of any one
registered investment company; and (iii) more than 25% of
the Fund's net assets would be invested in shares of
registered investment companies.
The aforementioned percentage restrictions on investment or
utilization of assets refer to the percentage at the time an investment is made.
If these restrictions are adhered to at the time an investment is made, and such
percentage subsequently changes as a result of changing market values or some
similar event, no violation of the Fund's fundamental restrictions willnn be
deemed to have occurred. Any changes in the Fund's investment restrictions made
by the Board of Directors will be communicated to stockholders prior to their
implementation.
INVESTMENT CONSIDERATIONS
Illiquid Securities
The Fund may invest up to 15% of its net assets in securities
for which there is no readily available market ("illiquid securities"). The 15%
limitation includes certain securities whose disposition would be subject to
legal restrictions ("restricted securities"). However certain restricted
securities that may be resold pursuant to Rule 144A under the Securities Act may
be considered liquid. The Board of Directors of the Fund has delegated to David
W. Tice & Associates, Inc. (the "Adviser") the day-to-day determination of the
liquidity of a security although it has retained oversight and ultimate
responsibility for such determinations. Although no definite quality criteria
are used, the Board of Directors has directed the Adviser to consider such
factors as (i) the nature of the market for a security (including the
institutional private resale markets); (ii) the terms of these securities or
other instruments allowing for the disposition to a third party or the issuer
thereof (e.g. certain repurchase obligations and demand instruments); (iii) the
availability of market quotations; and (iv) other permissible factors.
Restricted securities may be sold in private negotiated or
other exempt transactions or in a public offering with respect to which a
registration statement is in effect under the Securities Act. When registration
is required, the Fund may be obligated to pay all or part of the registration
expenses and a considerable time may elapse between the decision to sell and the
sale date. If, during such period, adverse market conditions were to develop,
the Fund might obtain a less favorable price than the price which prevailed when
it decided to sell. Restricted securities will be priced at fair value as
determined in good faith by the Board of Directors.
Borrowing
Although the Fund's fundamental policies permit it to borrow
money or issue senior securities to the extent permitted by the Act, the Fund's
Prospectus states that the Fund does not presently intend to borrow for
investment purposes. Borrowing for investment, or leveraging, is a speculative
technique which increases investment risk, but also increases investment
opportunity. Since substantially all of the Fund's assets will fluctuate in
value, whereas the interest obligations on borrowings may be fixed, the net
asset value per share of the Fund will increase more when the Fund's portfolio
assets increase in value and decrease more when the Fund's portfolio assets
decrease in value than would otherwise be the case. Moreover, interest costs on
borrowings may fluctuate with changing market rates of interest and may
partially offset or exceed the returns on the borrowed funds. Under adverse
conditions, the Fund might have to sell portfolio securities to meet interest or
principal payments at a time investment considerations would not favor such
sales. The Fund may use leverage during periods when the Adviser believes that
the Fund's investment objective would be furthered.
Portfolio Turnover
The Fund will generally purchase and sell securities and
effect transactions in futures contracts without regard to the length of time
the security has been held or the futures contract open and, accordingly, it can
be expected that the rate of portfolio turnover may be substantial. The Fund may
sell a given security or close a futures contract, no matter for how long or
short a period it has been held in the portfolio, and no matter whether the sale
is at a gain or loss, if the Adviser believes that it is not fulfilling its
purpose. Since investment decisions are based on the anticipated contribution of
the security in question to the Fund's investment objective, the rate of
portfolio turnover is irrelevant when the Adviser believes a change is in order
to achieve those objectives, and the Fund's annual portfolio turnover rate may
vary from year to year. The Fund's annual portfolio turnover rate for the fiscal
year ended September 30, 1997 (413.25%) was substantially higher than its annual
portfolio turnover rate for the fiscal period ended September 30, 1996 (91.31%)
because of the greater volatility of securities markets during the September 30,
1997 fiscal year and because of the greater fluctuations in net assets during
such period caused by shareholders purchasing and redeeming shares of the Fund.
Pursuant to Securities and Exchange Commission requirements, the portfolio
turnover rate of the Fund is calculated without regard to securities, including
short sales, options and futures contracts, having a maturity of less than one
year. The Fund will hold a significant portion of its assets in assets which are
excluded for purposes of calculating portfolio turnover.
High portfolio turnover in any year will result in the payment
by the Fund of above-average transaction costs and could result in the payment
by shareholders of above-average amounts of taxes on realized investment gains.
Foreign Securities
Currency Risk. Even though the Fund may hold securities
denominated or traded in foreign securities, the Fund's performance is measured
in terms of U.S. dollars, which may subject the Fund to foreign currency risk.
Foreign currency risk is the risk that the U.S. dollar value of foreign
securities (and any income generated therefrom) held by the Fund may be affected
favorably or unfavorably by changes in foreign currency exchange rates and
exchange control regulations. Therefore, the net asset value of the Fund may go
up or down as the value of the dollar rises or falls compared to a foreign
currency. To manage foreign currency fluctuations or facilitate the purchase and
sale of foreign securities for the Fund, the Adviser may engage in foreign
currency transactions involving (1) the purchase and sale of forward foreign
currency exchange contracts (agreements to exchange one currency for another at
a future date); (2) options on foreign currencies; (3) currency futures
contracts; or (4) options on currency futures contracts. Although the Fund may
use foreign currency transactions to protect against adverse currency movements,
foreign currency transactions involve the risk that The Adviser may not
accurately predict the currency movements, which could adversely affect a Fund's
total return.
A forward foreign currency contract involves an obligation to
purchase or sell a specific currency at a future date, which may be any fixed
number of days from the date of the contract agreed upon by the parties, at a
price set at the time of the contract. These contracts are principally traded in
the inter-bank market conducted directly between currency traders (usually large
commercial banks) and their customers. A forward contract generally has no
deposit requirement and no commissions are charged at any stage for trades.
When the Fund enters into a contract for the purchase or sale
of a security denominated in a foreign currency, it may desire to "lock in" the
U.S. dollar price of the security. By entering into a forward contract for the
purchase or sale of a fixed amount of U.S. dollars equal to the amount of
foreign currency involved in the underlying security transaction, the Fund can
protect itself against a possible loss, resulting from an adverse change in the
relationship between the U.S. dollar and the subject foreign currency during the
period between the date the security is purchased or sold and the date on which
the payment is made or received.
Although the Fund values its assets daily in terms of U.S.
dollars, it does not intend to convert its holdings of foreign currencies into
U.S. dollars on a daily basis. The Fund will do so from time to time and
investors should be aware of the costs of currency conversion. Although foreign
exchange dealers do not charge a fee for conversion, they realize a profit based
on the difference (the "spread") between the prices at which they are buying and
selling various currencies. Thus, a dealer may offer to sell a foreign currency
to the Fund at one rate, while offering a lesser rate of exchange should the
Fund desire to resell that currency to the dealer.
The Fund may purchase and sell currency futures and purchase
and write currency options to increase or decrease its exposure to different
foreign currencies. The uses and risks of currency options and futures are
similar to options and futures relating to securities or indices, as discussed
in the Prospectus. Currency futures contracts are similar to forward foreign
currency contracts, except that they are traded on exchanges (and have margin
requirements) and are standardized as to contract size and delivery date. Most
currency futures contracts call for payment or delivery in U.S. dollars. The
underlying instrument of a currency option may be a foreign currency, which
generally is purchased or delivered in exchange for U.S. dollars, or may be a
futures contract. The purchaser of a currency call obtains the right to purchase
the underlying currency, and the purchaser of a currency put obtains the right
to sell the underlying currency.
Other Risks. The degree of political and economic stability
varies from country to country. If a country expropriates money from foreigners
or nationalizes an industry, the Fund may lose some or all of any particular
investment in that country. Individual foreign economies may vary favorably or
unfavorably from the U.S. economy in such areas as growth of gross national
product, inflation rate, savings, balance of payments and capital investment,
which may affect the value of the Fund's investment in any foreign country. Many
foreign countries do not subject their markets to the same degree and type of
laws and regulations that cover the U.S. markets. Also, many foreign governments
impose restrictions on investments in their capital markets as well as taxes or
other restrictions on repatriation of investment income. The regulatory
differences in some foreign countries make investing or trading in their markets
more difficult and risky.
DIRECTORS AND OFFICERS OF THE CORPORATION
The name, age, address, principal occupation(s) during the
past five years, and other information with respect to each of the directors and
officers of the Corporation are as follows:
* David W. Tice -- Director, President and Treasurer. Mr. Tice, 43,
has been President of David W. Tice & Associates, Inc. (the "Adviser") since
1993. Between 1988 and 1993 Mr. Tice conducted a predecessor investment advisory
business as a sole proprietorship. Mr. Tice is also the President and sole
shareholder of BTN Research, Inc., a registered broker-dealer. His address is
8140 Walnut Hill Lane, Suite 405, Dallas, TX 75231.
* Gregg Jahnke -- Director, Vice President and Secretary. Mr. Jahnke,
39, has been employed by both Mr. Tice and the Adviser as an investment analyst
since 1991. Currently he is an analyst and senior strategist of the Adviser.
From 1987 through 1994 Mr. Jahnke also was a securities analyst for JKE Equity
Research, a Fort Worth, Texas investment advisory firm. His address is 8140
Walnut Hill Lane, Suite 405, Dallas, TX 75231.
David Eric Luck -- Director. Mr. Luck, 43, has been President of
Redstone Oil & Gas Company since 1988. His address is 9223 Club Glen Drive,
Dallas, TX 75243.
Jerry Marlin, M.D. -- Director. Dr. Marlin, 43, has been a
self-employed neurosurgeon for more than five years. His address is 3033
Rosedale, Dallas, TX 75205.
Buril Ragsdale -- Director. Mr. Ragsdale, 63, has been employed by
ENSEARCH Corporation as a senior development specialist and senior economic
specialist since 1976. His address is 9149 Emberglow Lane, Dallas, TX 75243.
- ------------
* Messrs. Tice and Jahnke are interested persons of the Corporation (as
defined in the Investment Company Act of 1940).
The Corporation's standard method of compensating directors is
to pay each director who is not an interested person of the Corporation a fee of
$250 for each meeting of the Board of Directors attended. The Corporation also
may reimburse its directors for travel expenses incurred in order to attend
meetings of the Board of Directors.
The table below sets forth the compensation paid by the
Corporation to each of the current directors of the Corporation during the
fiscal year ended September 30, 1997:
<TABLE>
<CAPTION>
COMPENSATION TABLE
Total
Compensation
Estimated Annual from Corporation
Aggregate Compensation Pension or Retirement Benefits Upon and Fund
Name of from Corporation Benefits Accrued As Retirement Complex Paid to
Person Part of Fund Expenses Directors
<S> <C> <C> <C> <C>
David W. Tice $0 $0 $0 $0
Gregg Jahnke $0 $0 $0 $0
David Eric Luck $750 $0 $0 $750
Jerry Marlin, M.D. $750 $0 $0 $750
Buril Ragsdale $750 $0 $0 $750
</TABLE>
OWNERSHIP OF MANAGEMENT AND PRINCIPAL SHAREHOLDERS
Set forth below are the names and addresses of all holders of
the Fund's shares who as of August 31, 1998 held of record more than 5% of the
Fund's then outstanding shares. The shares owned by Charles Schwab & Co., Inc.,
National Financial Services Corp. and Donaldson Lufkin & Jenrette Securities
Corp. were owned of record only. The Fund knows of no person who beneficially
owned 5% or more of the Fund's outstanding shares. All officers and directors of
the Fund as a group beneficially owned less than 1%.
Name and Address of Beneficial Owner Number of Shares Percent of Class
Charles Schwab & Co., Inc. 7,475,044 41.01%
101 Montgomery Street
San Francisco, CA 94104-4122
National Financial Services Corp. 4,683,076 25.69%
One World Financial Center
200 Liberty Street
New York, NY 10281-1003
Donaldson Lufkin & Jenrette 1,697,469 9.31%
Securities Corp.
P.O. Box 2052
Jersey City, NJ 07303-2052
INVESTMENT ADVISER, ADMINISTRATOR, CUSTODIAN,
TRANSFER AGENT AND ACCOUNTING SERVICES AGENT
The investment adviser to the Fund is David W. Tice &
Associates, Inc., 8140 Walnut Hill Lane, Suite 405, Dallas, Texas 75231 (the
"Adviser"). Pursuant to the investment advisory agreement entered into between
the Corporation and the Adviser with respect to the Fund (the "Advisory
Agreement"), the Adviser furnishes continuous investment advisory services to
the Fund. The Adviser is controlled by David W. Tice, its President and sole
shareholder. During the period from December 28, 1995 (commencement of
operations) through September 30, 1996, the Fund incurred advisory fees of
$22,220, all of which were waived by the Adviser. During the fiscal year ended
September 30, 1997, the Fund incurred advisory fees of $237,306, none of which
were waived by the Adviser.
The Adviser has undertaken to reimburse the Fund to the extent
that the aggregate annual operating expenses, including the investment advisory
fee and the administration fee but excluding interest, dividends on short
positions, taxes, brokerage commissions and other costs incurred in connection
with the purchase or sale of portfolio securities, and extraordinary items,
exceed that percentage of the average net assets of the Fund for such year, as
determined by valuations made as of the close of each business day of the year,
which is the most restrictive percentage provided by the state laws of the
various states in which the shares of the Fund are qualified for sale or, if the
states in which the shares of the Fund are qualified for sale impose no such
restrictions, 3%. As of the date of this Statement of Additional Information, no
such state law provision was applicable to the Fund. The Fund monitors its
expense ratio on a monthly basis. If the accrued amount of the expenses of the
Fund exceeds the expense limitation, the Fund creates an account receivable from
the Adviser for the amount of such excess. In such a situation the monthly
payment of the Adviser's fee will be reduced by the amount of such excess (and
if the amount of such excess in any month is greater than the monthly payment of
the Adviser's fee, the Adviser will pay the Fund the amount of such difference),
subject to adjustment month by month during the balance of the Fund's fiscal
year if accrued expenses thereafter fall below this limit. During the period
from December 28, 1995 (commencement of operations) through September 30, 1996,
the Adviser reimbursed the Fund $104,260 for excess expenses, which amount
includes the investment advisory fee waivers discussed above. During the fiscal
year ended September 30, 1997, the Adviser was not required to reimburse the
Fund for excess expenses.
The Advisory Agreement will remain in effect as long as its
continuance is specifically approved at least annually (i) by the Board of
Directors of the Corporation or by the vote of a majority (as defined in the
Act) of the outstanding shares of the Fund, and (ii) by the vote of a majority
of the directors of the Fund who are not parties to the Advisory Agreement or
interested persons of the Adviser, cast in person at a meeting called for the
purpose of voting on such approval. The Advisory Agreement provides that it may
be terminated at any time without the payment of any penalty, by the Board of
Directors of the Corporation or by vote of the majority of the Fund's
stockholders on sixty (60) days' written notice to the Adviser, and by the
Adviser on the same notice to the Corporation, and that it shall be
automatically terminated if it is assigned.
The Advisory Agreement provides that the Adviser shall not be
liable to the Corporation or its stockholders for anything other than willful
misfeasance, bad faith, gross negligence or reckless disregard of its
obligations or duties. The Advisory Agreement also provides that the Adviser and
its officers, directors and employees may engage in other businesses, devote
time and attention to any other business whether of a similar or dissimilar
nature, and render services to others.
As set forth in the Prospectus under the caption "WHO MANAGES
THE FUND?", the administrator to the Corporation is Firstar Trust Company, 615
East Michigan Street, Milwaukee, Wisconsin 53202 (the "Administrator"). The Fund
Administration Servicing Agreement entered into between the Corporation and the
Administrator relating to the Fund (the "Administration Agreement") will remain
in effect until terminated by either party. The Administration Agreement may be
terminated at any time, without the payment of any penalty, by the Board of
Directors of the Corporation upon the giving of ninety (90) days' written notice
to the Administrator, or by the Administrator upon the giving of ninety (90)
days' written notice to the Corporation. The total fees incurred pursuant to the
Administration Agreement for the period from December 28, 1995 (commencement of
operations) through September 30, 1996 and for the fiscal year ended September
30, 1997 were $18,721 and $24,914, respectively.
Under the Administration Agreement, the Administrator shall
exercise reasonable care and is not liable for any error or judgment or mistake
of law or for any loss suffered by the Corporation in connection with the
performance of the Administration Agreement, except a loss resulting from
willful misfeasance, bad faith or negligence on the part of the Administrator in
the performance of its duties under the Administration Agreement.
Firstar Trust Company also serves as custodian of the
Corporation's assets pursuant to a Custody Agreement. Under the Custody
Agreement, Firstar Trust Company has agreed to (i) maintain a separate account
in the name of the Fund, (ii) make receipts and disbursements of money on behalf
of the Fund, (iii) collect and receive all income and other payments and
distributions on account of the Fund's portfolio investments, (iv) respond to
correspondence from shareholders, security brokers and others relating to its
duties and (v) make periodic reports to the Fund concerning the Fund's
operations. Firstar Trust Company does not exercise any supervisory function
over the purchase and sale of securities.
Firstar Trust Company also serves as transfer agent and
dividend disbursing agent for the Fund under a Shareholder Servicing Agent
Agreement. As transfer and dividend disbursing agent, Firstar Trust Company has
agreed to (i) issue and redeem shares of the Fund, (ii) make dividend and other
distributions to shareholders of the Fund, (iii) respond to correspondence by
Fund shareholders and others relating to its duties, (iv) maintain shareholder
accounts, and (v) make periodic reports to the Fund.
In addition the Corporation has entered into a Fund Accounting
Servicing Agreement with Firstar Trust Company pursuant to which Firstar Trust
Company has agreed to maintain the financial accounts and records of the Fund
and provide other accounting services to the Fund. For its accounting services,
Firstar Trust Company is entitled to receive fees, payable monthly, based on the
total annual rate of $22,000 for the first $40 million in average net assets of
the Fund, .01% on the next $200 million of average net assets, and .005% on
average net assets exceeding $240 million (subject to an annual minimum of
$22,000). Firstar Trust Company is also entitled to certain out of pocket
expenses, including pricing expenses. During the period from December 28, 1995
(commencement of operations) through September 30, 1996 and for the fiscal year
ended September 30, 1997, the Fund incurred $17,894 and $25,693, respectively,
pursuant to the Fund Accounting Servicing Agreement.
DETERMINATION OF NET ASSET VALUE
The net asset value of the Fund will be determined as of the
close of regular trading (currently 4:00 p.m. Eastern time) on each day the New
York Stock Exchange is open for trading. The New York Stock Exchange is open for
trading Monday through Friday except New Year's Day, Dr. Martin Luther King, Jr.
Day, President's Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day and Christmas Day. Additionally, when any of the aforementioned
holidays falls on a Saturday, the New York Stock Exchange will not be open for
trading on the preceding Friday and when any such holiday falls on a Sunday, the
New York Stock Exchange will not be open for trading on the succeeding Monday,
unless unusual business conditions exist, such as the ending of a monthly or the
yearly accounting period. The New York Stock Exchange also may be closed on
national days of mourning. The net asset value of the Fund is calculated
separately for the No Load Shares and the Class C Shares by adding the value of
all portfolio securities and other assets that are allocated to the No Load
Shares or Class C Shares, as the case may be, subtracting the liabilities
charged to the No Load Shares or Class C Shares, as the case may be, and
dividing the result by the number of outstanding shares of the No Load Shares or
the Class C Shares, as the case may be. The No Load Shares and the Class C
Shares bear differing class-specific expenses, such as 12b-1 fees.
Foreign securities trading may not take place on all days when
the New York Stock Exchange is open, or may take place on Saturdays and other
days when the New York Stock Exchange is not open and a Fund's net asset value
is not calculated. When determining net asset value, the Fund values foreign
securities primarily listed and/or traded in foreign markets at their market
value as of the close of the last primary market where the securities traded.
Securities trading in European countries and Pacific Rim countries is normally
completed well before 3:00 P.M. Central Time. Unless material, as determined by
the Adviser under the supervision of the Board of Directors, events affecting
the valuation of Fund securities occurring between the time its net asset value
is determined and the close of the New York Stock Exchange will not be reflected
in such net asset value.
DISTRIBUTION OF SHARES
The Fund has adopted two Service and Distribution Plans (the
"Plans"). One Plan is for the No Load Shares and the other Plan is for the Class
C Shares. Both Plans were adopted in anticipation that the Fund will benefit
from the Plans through increased sales of shares, thereby reducing the Fund's
expense ratio and providing the Adviser with greater flexibility in management.
Each Plan may be terminated by the Fund at any time by a vote of the directors
of the Corporation who are not interested persons of the Corporation and who
have no direct or indirect financial interest in the Plan or any agreement
related thereto (the "Rule 12b-1 Directors") or by a vote of a majority of the
outstanding shares of either the No Load Shares with respect to its Plan or the
Class C Shares with respect to its Plan. Messrs. Luck, Marlin and Ragsdale are
currently the Rule 12b-1 Directors. Any change in a Plan that would materially
increase the distribution expenses of the Fund provided for in the Plan requires
approval of the Board of Directors, including the Rule 12b-1 Directors, and a
majority of the No Load Shares with respect to its Plan and a majority of the
Class C Shares with respect to its Plan.
While the Plans are in effect, the selection and nomination of
directors who are not interested persons of the Corporation will be committed to
the discretion of the directors of the Corporation who are not interested
persons of the Corporation. The Board of Directors of the Corporation must
review the amount and purposes of expenditures pursuant to the Plans quarterly
as reported to it by a Distributor, if any, or officers of the Corporation. The
Plans will continue in effect for as long as their continuance is specifically
approved at least annually by the Board of Directors, including the Rule 12b-1
Directors. During the fiscal year ended September 30, 1997, the Fund incurred
fees of $47,461 pursuant to the Plan for the No Load Shares, $22,392 of which
was used to pay selling dealers, $14,021 of which was used to pay printing and
mailing expenses and $7,301 of which was used to pay advertising expenses. The
Plan for the Class C Shares did not take effect until November 27, 1998.
SYSTEMATIC WITHDRAWAL PLAN
An investor who owns Fund shares worth at least $10,000 at the
current net asset value may, by completing an application which may be obtained
from the Fund or Firstar Trust Company, create a Systematic Withdrawal Plan from
which a fixed sum will be paid to the investor at regular intervals. To
establish the Systematic Withdrawal Plan, the investor deposits Fund shares with
the Corporation and appoints it as agent to effect redemptions of Fund shares
held in the account for the purpose of making monthly or quarterly withdrawal
payments of a fixed amount to the investor out of the account. Fund shares
deposited by the investor in the account need not be endorsed or accompanied by
a stock power if registered in the same name as the account; otherwise, a
properly executed endorsement or stock power, obtained from any bank,
broker-dealer or the Corporation is required. The investor's signature should be
guaranteed by a bank, a member firm of a national stock exchange or other
eligible guarantor.
The minimum amount of a withdrawal payment is $100. These
payments will be made from the proceeds of periodic redemptions of shares in the
account at net asset value. Redemptions will be made in accordance with the
schedule (e.g., monthly, bimonthly [every other month], quarterly or yearly, but
in no event more than monthly) selected by the investor. If a scheduled
redemption day is a weekend day or a holiday, such redemption will be made on
the next preceding business day. Establishment of a Systematic Withdrawal Plan
constitutes an election by the investor to reinvest in additional Fund shares,
at net asset value, all income dividends and capital gains distributions payable
by the Fund on shares held in such account, and shares so acquired will be added
to such account. The investor may deposit additional Fund shares in his account
at any time.
Withdrawal payments cannot be considered as yield or income on
the investor's investment, since portions of each payment will normally consist
of a return of capital. Depending on the size or the frequency of the
disbursements requested, and the fluctuation in the value of the Fund's
portfolio, redemptions for the purpose of making such disbursements may reduce
or even exhaust the investor's account.
The investor may vary the amount or frequency of withdrawal
payments, temporarily discontinue them, or change the designated payee or
payee's address, by notifying Firstar Trust Company in writing thirty (30) days
prior to the next payment.
ALLOCATION OF PORTFOLIO BROKERAGE
The Fund's securities trading and brokerage policies and
procedures are reviewed by and subject to the supervision of the Corporation's
Board of Directors. Decisions to buy and sell securities for the Fund are made
by the Adviser subject to review by the Corporation's Board of Directors. In
placing purchase and sale orders for portfolio securities 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, as described in this and the following paragraphs. Many of
these transactions involve payment of a brokerage commission by the Fund. In
some cases, transactions are with firms who act as principals of their own
accounts. In selecting brokers to effect portfolio transactions, the
determination of what is expected to result in best execution at the most
favorable price involves a number of largely judgmental considerations. Among
these are the Adviser's evaluation of the broker's efficiency in executing and
clearing transactions, block trading capability (including the broker's
willingness to position securities) and the broker's reputation, financial
strength and stability. The most favorable price to the Fund means the best net
price without regard to the mix between purchase or sale price and commission,
if any. Over-the-counter securities may be purchased and sold directly with
principal market makers who retain the difference in their cost in the security
and its selling price. In some instances, the Adviser feels that better prices
are available from non-principal market makers who are paid commissions
directly. 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 may allocate portfolio brokerage on that
basis.
In allocating brokerage business for the Fund, the Adviser
also takes into consideration the research, analytical, statistical and other
information and services provided by the broker, such as general economic
reports and information, reports or analyses of particular companies or industry
groups, market timing and technical information, and the availability of the
brokerage firm's analysts for consultation. While the Adviser believes these
services have substantial value, they are considered supplemental to the
Adviser's own efforts in the performance of its duties under the Advisory
Agreement. Other clients of the Adviser may indirectly benefit from the
availability of these services to the Adviser, and the Fund may indirectly
benefit from services available to the Adviser as a result of transactions for
other clients. The Advisory Agreement provides that the Adviser may cause the
Fund to pay a broker which provides brokerage and research services to the
Adviser a commission for effecting a securities transaction in excess of the
amount another broker would have charged for effecting the transaction, if the
Adviser determines in good faith that such amount of commission is reasonable in
relation to the value of brokerage and research services provided by the
executing broker viewed in terms of either the particular transaction or the
Adviser's overall responsibilities with respect to the Fund and the other
accounts as to which he exercises investment discretion. Brokerage commissions
paid by the Fund during the period from December 28, 1995 (commencement of
operations) through September 30, 1996 totalled $19,267 on total transactions of
$5,988,814 and brokerage commissions paid by the Fund during the fiscal year
ended September 30, 1997 were $262,073 on total transactions of $101,104,010.
All of the brokers to whom commissions were paid provided research services to
the Adviser.
TAXES
As set forth in the Prospectus under the caption "TAXES," the
Fund will endeavor to qualify annually for and elect tax treatment applicable to
a regulated investment company under Subchapter M of the Internal Revenue Code
of 1986, as amended (the "Code").
If a call option written by the Fund expires, the amount of
the premium received by the Fund for the option will be short-term capital gain.
If such an option is closed by the Fund, any gain or loss realized by the Fund
as a result of the closing purchase transaction will be short-term capital gain
or loss. If the holder of a call option exercises the holder's right under the
option, any gain or loss realized by the Fund upon the sale of the underlying
security pursuant to such exercise will be short-term or long-term capital gain
or loss to the Fund depending on the Fund's holding period for the underlying
security.
With respect to call options purchased by the Fund, the Fund
will realize short-term or long-term capital gain or loss if such option is sold
and will realize short-term or long-term capital loss if the option is allowed
to expire depending on the Fund's holding period for the call option. If such a
call option is exercised, the amount paid by the Fund for the option will be
added to the basis of the stock or futures contract so acquired.
The Fund will utilize options on stock indexes. Options on
"broadbased" stock indexes are classified as "nonequity options" under the Code.
Gains and losses resulting from the expiration, exercise or closing of such
nonequity options, as well as gains and losses resulting from futures contract
transactions, will be treated as long-term capital gain or loss to the extent of
60% thereof and short-term capital gain or loss to the extent of 40% thereof
(hereinafter "blended gain or loss"). In addition, any nonequity option held by
the Fund on the last day of a fiscal year will be treated as sold for market
value on that date, and gain or loss recognized as a result of such deemed sale
will be blended gain or loss. These tax considerations may have an impact on
investment decisions made by the Fund.
Dividends from the Fund's earnings and profits, and
distributions of the Fund's net long-term realized capital gains, are taxable to
investors, whether received in cash or in additional shares of the Fund. The 70%
dividends-received deduction for corporations will apply to dividends from the
Fund's net investment income, subject to proportionate reductions if the
aggregate dividends received by the Fund from domestic corporations in any
taxable year are less than 100% of the net investment company taxable income
distributions made by the Fund.
Redemption of shares will generally result in a capital gain
or loss for income tax purposes. Such capital gain or loss will be long term or
short term, depending upon the holding period. However, if a loss is realized on
shares held for six months or less, and the investor received a capital gain
distribution during that period, then such loss is treated as a long-term
capital loss to the extent of the capital gain distribution received.
This section is not intended to be a full discussion of
present or proposed federal income tax laws and the effect of such laws on an
investor. Investors are urged to consult with their respective tax advisers for
a complete review of the tax ramifications of an investment in the Fund.
STOCKHOLDER MEETINGS
The Maryland General Corporation Law permits registered
investment companies, such as the Corporation, to operate without an annual
meeting of stockholders under specified circumstances if an annual meeting is
not required by the Act. The Corporation has adopted the appropriate provisions
in its Bylaws and may, at its discretion, not hold an annual meeting in any year
in which the election of directors is not required to be acted on by
stockholders under the Act.
The Corporation's Bylaws also contain procedures for the
removal of directors by its stockholders. At any meeting of stockholders, duly
called and at which a quorum is present, the stockholders may, by the
affirmative vote of the holders of a majority of the votes entitled to be cast
thereon, remove any director or directors from office and may elect a successor
or successors to fill any resulting vacancies for the unexpired terms of removed
directors.
Upon the written request of the holders of shares entitled to
not less than ten percent (10%) of all the votes entitled to be cast at such
meeting, the Secretary of the Corporation shall promptly call a special meeting
of stockholders for the purpose of voting upon the question of removal of any
director. Whenever ten or more stockholders of record who have been such for at
least six months preceding the date of application, and who hold in the
aggregate either shares having a net asset value of at least $25,000 or at least
one percent (1%) of the total outstanding shares, whichever is less, shall apply
to the Corporation's Secretary in writing, stating that they wish to communicate
with other stockholders with a view to obtaining signatures to a request for a
meeting as described above and accompanied by a form of communication and
request which they wish to transmit, the Secretary shall within five business
days after such application either: (1) afford to such applicants access to a
list of the names and addresses of all stockholders as recorded on the books of
the Corporation; or (2) inform such applicants as to the approximate number of
stockholders of record and the approximate cost of mailing to them the proposed
communication and form of request.
If the Secretary elects to follow the course specified in
clause (2) of the last sentence of the preceding paragraph, the Secretary, upon
the written request of such applicants, accompanied by a tender of the material
to be mailed and of the reasonable expenses of mailing, shall, with reasonable
promptness, mail such material to all stockholders of record at their addresses
as recorded on the books unless within five business days after such tender the
Secretary shall mail to such applicants and file with the Securities and
Exchange Commission, together with a copy of the material to be mailed, a
written statement signed by at least a majority of the Board of Directors to the
effect that in their opinion either such material contains untrue statements of
fact or omits to state facts necessary to make the statements contained therein
not misleading, or would be in violation of applicable law, and specifying the
basis of such opinion.
After opportunity for hearing upon the objections specified in
the written statement so filed, the Securities and Exchange Commission may, and
if demanded by the Board of Directors or by such applicants shall, enter an
order either sustaining one or more of such objections or refusing to sustain
any of them. If the Securities and Exchange Commission shall enter an order
refusing to sustain any of such objections, or if, after the entry of an order
sustaining one or more of such objections, the Securities and Exchange
Commission shall find, after notice and opportunity for hearing, that all
objections so sustained have been met, and shall enter an order so declaring,
the Secretary shall mail copies of such material to all stockholders with
reasonable promptness after the entry of such order and the renewal of such
tender.
PERFORMANCE INFORMATION
Average annual total return measures both the net investment
income generated by, and the effect of any realized or unrealized appreciation
or depreciation of, the underlying investments in the Fund's investment
portfolio. The Fund's average annual total return figures are computed in
accordance with the standardized method prescribed by the Securities and
Exchange Commission by determining the average annual compounded rates of return
over the periods indicated, that would equate the initial amount invested to the
ending redeemable value, according to the following formula:
P(1 + T)n = ERV
Where: P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value at the end of the
period of a hypothetical $1,000 payment made at
the beginning of such period
This calculation (i) assumes all dividends and distributions
are reinvested at net asset value or the appropriate reinvestment dates as
described in the Prospectus, and (ii) deducts all recurring fees, such as
advisory fees, charged as expenses to all investor accounts. Because of
differences in expenses the average annual total returns of the No Load Shares
and the Class C Shares will be different.
Total return is the cumulative rate of investment growth which
assumes that income dividends and capital gains are reinvested. It is determined
by assuming a hypothetical investment at the net asset value at the beginning of
the period, adding in the reinvestment of all income dividends and capital
gains, calculating the ending value of the investment at the net asset value as
of the end of the specified time period, subtracting the amount of the original
investment, and dividing this amount by the amount of the original investment.
This calculated amount is then expressed as a percentage by multiplying by 100.
The average annual total return of the No Load Shares for the
period from the Fund's commencement of operations (December 28, 1995) through
March 31, 1998 was (-15.7%) and for the one year period ended March 31, 1998 was
(-24.35%). The foregoing performance results are based on historical earnings
and should not be considered as representative of the performance of the No Load
Shares or the Class C Shares in the future. Such performance results also
reflect reimbursements made by the Adviser during the period from December 28,
1995 through March 31, 1998 to keep aggregate annual operating expenses at or
below 2.75% of daily net assets. Investment in the No Load Shares or the Class C
Shares will fluctuate in value and at redemption its value may be more or less
than the initial investment. The Class C Shares were not offered until November
27, 1998.
DESCRIPTION OF SECURITIES RATINGS
As set forth in the Corporation's Prospectus, the Fund may
invest in commercial paper and commercial paper master notes assigned ratings of
either Standard & Poor's Corporation ("Standard & Poor's") or Moody's Investors
Service, Inc. ("Moody's"). A brief description of the ratings symbols and their
meanings follows.
Standard & Poor's Commercial Paper Ratings. A Standard &
Poor's commercial paper rating is a current assessment of the likelihood of
timely payment of debt considered short-term in the relevant market. Ratings are
graded into several categories, ranging from A-1 for the highest quality
obligations to D for the lowest. The categories rated A-3 or higher are as
follows:
A-1. This highest category indicates that the degree of safety
regarding timely payment is strong. Those issuers determined to possess
extremely strong safety characteristics are denoted with a plus sign (+)
designation.
A-2. Capacity for timely payment on issues with this
designation is satisfactory. However the relative degree of safety is not as
high as for issuers designed "A-1".
A-3. Issues carrying this designation have adequate capacity
for timely payment. They are, however, more vulnerable to the adverse effects of
changes in circumstances than obligations carrying the higher designation.
Moody's Short-Term Debt Ratings. Moody's short-term debt
ratings are opinions of the ability of issuers to repay punctually senior debt
obligations which have an original maturity not exceeding one year. Obligations
relying upon support mechanisms such as letters-of-credit and bonds of indemnity
are excluded unless explicitly rated.
Moody's employs the following three designations, all judged
to be investment grade, to indicate the relative repayment ability of rated
issuers:
Prime-1. Issuers rated Prime-1 (or supporting institutions)
have a superior ability for repayment of senior short-term debt obligations.
Prime-1 repayment ability will often be evidenced by many of the following
characteristics:
- Leading market positions in well-established industries.
- High rates of return on funds employed.
- Conservative capitalization structure with moderate reliance
on debt and ample asset protection.
- Broad margins in earnings coverage of fixed financial charges
and high internal cash generation.
- Well-established access to a range of financial markets and
assured sources of alternate liquidity.
Prime-2. Issuers rated Prime-2 (or supporting institutions) have a
strong ability for repayment of senior short-term debt obligations. This will
normally be evidenced by many of the characteristics cited above but to a lesser
degree. Earnings trends and coverage ratios, while sound, may be more subject to
variation. Capitalization characteristics, while still appropriate, may be more
affected by external conditions. Ample alternate liquidity is maintained.
Prime-3. Issuers rated Prime-3 (or supporting institutions) have an
acceptable ability for repayment of senior short-term obligations. The effect of
industry characteristics and market compositions may be more pronounced.
Variability in earnings and profitability may result in changes in the level of
debt protection measurements and may require relatively high financial leverage.
Adequate alternate liquidity is maintained.
INDEPENDENT ACCOUNTANTS
PricewaterhouseCoopers LLP, 100 East Wisconsin Avenue, Suite
1500, Milwaukee, Wisconsin 53202, has been selected as the independent
accountants for the Fund. As such PricewaterhouseCoopers LLP performs an audit
of the Fund's financial statements and considers the Fund's internal control
structure.
FINANCIAL STATEMENTS
The following financial statements are incorporated by
reference to the Annual Report, dated September 30, 1997, of the Fund (File No.
811-9120), as filed with the Securities and Exchange Commission on December 4,
1997:
- Statement of Assets and Liabilities as of September 30, 1997
- Statement of Operations For the Fiscal Year Ended September 30, 1997.
- Statement of Changes in Net Assets For the Period From December 28,
1995 (Commencement of Operations) through September 30, 1996 and For
the Fiscal Year Ended September 30, 1997.
- Financial Highlights.
Schedule of Investments as of September 30, 1997.
- Schedule of Call Options Written as of September 30, 1997.
- Schedule of Securities Sold Short as of September 30, 1997.
- Notes to the Financial Statements.
- Report of Independent Accountants.
The following unaudited financial statements are incorporated by
reference to the Semi-Annual Report, dated March 31, 1998, of the Fund (File No.
811-9120), as filed with the Securities and Exchange Commission on June 4, 1998:
- Statement of Assets and Liabilities as of March 31, 1998.
- Statement of Operations For the Six Months Ended March 31, 1998.
- Statement of Changes in Net Assets For the Six Months ended March 31,
1998 and For the Fiscal Year Ended September 30, 1997.
- Financial Highlights.
- Schedule of Investments as of March 31, 1998. Schedule of Call Options
Written as of March 31, 1998.
- Schedule of Securities Sold Short as of March 31, 1998.
- Notes to the Financial Statements.
<PAGE>
PART C
OTHER INFORMATION
Financial Statements and Exhibits
(a) Financial Statements (Financial Highlights included in Part
A) and all incorporated by reference to the Annual Report,
dated September 30, 1997 (File No. 811-9120), of Prudent
Bear Funds, Inc. (and filed with the Securities and Exchange
Commission on December 4, 1997) or the Semi-Annual Report,
dated March 31, 1998 (File No. 811-9120), of Prudent Bear
Funds, Inc. (and filed with the Securities and Exchange
Commission on June 4, 1998)
Financial Statement Incorporated by reference to Annual Report
Report of Independent Accountants
Statement of Assets and Liabilities
Statement of Operations
Statement of Changes in Net Assets
Financial Highlights
Schedule of Investments
Schedule of Call Options Written
Schedule of Securities Sold
Short Notes to the Financial Statement
Financial Statements Incorporated by reference to the Semi-
Annual Report
Statement of Assets and Liabilities
Statement of Operations
Statement of Changes in Net Assets
Financial Highlights
Schedule of Investments
Schedule of Call Options Written
Schedule of Securities Sold Short
Notes to the Financial Statement
(b) Exhibits
(1) Registrant's Articles of Incorporation.(1)
(1.1) Articles Supplementary
(2) Registrant's Bylaws.(1)
(3) None
(4) None
(5) Investment Advisory Agreement.(1)
(6) None
(7) None
(8) Custodian Agreement with Firstar Trust Company.(1)
(9.1) Fund Administration Servicing Agreement with Firstar
Trust Company.(1)
(9.2) Transfer Agent Agreement with Firstar Trust Company.
(1)
(9.3) Fund Accounting Servicing Agreement with Firstar
Trust Company.(1)
(10) Opinion of Foley & Lardner, counsel for Registrant
(11) Consent of PricewaterhouseCoopers LLP.
(12) None
(13) Subscription Agreement.(1)
(14) Individual Retirement Custodial Accounts.(3)
(15.1) Service and Distribution Plan for No Load Shares
(15.2) Service and Distribution Plan for Class C Shares
(16) Schedule for Computation of Performance Quotations(2)
(17) Financial Data Schedules.
(18) Rule 18f-3 Multi-Class Plan
- ----------
(1) Previously filed as an exhibit to Pre-Effective Amendment No. 1 to the
Registration Statement and incorporated by reference thereto. Pre-Effective
Amendment No. 1 was filed on December 18, 1995 and its accession number is
0000897069-95-000208.
(2) Previously filed as an exhibit to Post-Effective Amendment No. 1 to the
Registration Statement and incorporated by reference thereto. Post-Effective
Amendment No. 1 was filed on May 31, 1996 and its accession number is
0000897069-96-000150.
(3) Previously filed as an exhibit to Post-Effective Amendment No. 3 to the
Registration Statement and incorporated by reference thereto. Post-Effective
Amendment No. 3 was filed on January 27, 1998 and its accession number is
0000897069-98-000014.
[/R]
Item 25. Persons Controlled by or under Common Control with Registrant
Registrant is not controlled by any person. Registrant neither
controls any person nor is under common control with any other person.
Item 26. Number of Holders of Securities
Number of Record Holders
Title of Class as of August 31, 1998
Prudent Bear fund No Load Shares 1,876
Item 27 Indemnification
Pursuant to the authority of the Maryland General Corporation
Law, particularly Section 2-418 thereof, Registrant's Board of Directors has
adopted the following bylaw which is in full force and effect and has not been
modified or cancelled:
Article VII
GENERAL PROVISIONS
Section 7. Indemnification.
A. The Corporation shall indemnify all of its corporate
representatives against expenses, including attorneys fees, judgments,
fines and amounts paid in settlement actually and reasonably incurred
by them in connection with the defense of any action, suit or
proceeding, or threat or claim of such action, suit or proceeding,
whether civil, criminal, administrative, or legislative, no matter by
whom brought, or in any appeal in which they or any of them are made
parties or a party by reason of being or having been a corporate
representative, if the corporate representative acted in good faith
and in a manner reasonably believed to be in or not opposed to the
best interests of the corporation and with respect to any criminal
proceeding, if he had no reasonable cause to believe his conduct was
unlawful provided that the corporation shall not indemnify corporate
representatives in relation to matters as to which any such corporate
representative shall be adjudged in such action, suit or proceeding to
be liable for gross negligence, willful misfeasance, bad faith,
reckless disregard of the duties and obligations involved in the
conduct of his office, or when indemnification is otherwise not
permitted by the Maryland General Corporation Law.
B. In the absence of an adjudication which expressly
absolves the corporate representative, or in the event of a
settlement, each corporate representative shall be indemnified
hereunder only if there has been a reasonable determination based on a
review of the facts that indemnification of the corporate
representative is proper because he has met the applicable standard of
conduct set forth in paragraph A. Such determination shall be made:
(i) by the board of directors, by a majority vote of a quorum which
consists of directors who were not parties to the action, suit or
proceeding, or if such a quorum cannot be obtained, then by a majority
vote of a committee of the board consisting solely of two or more
directors, not, at the time, parties to the action, suit or proceeding
and who were duly designated to act in the matter by the full board in
which the designated directors who are parties to the action, suit or
proceeding may participate; or (ii) by special legal counsel selected
by the board of directors or a committee of the board by vote as set
forth in (i) of this paragraph, or, if the requisite quorum of the
full board cannot be obtained therefor and the committee cannot be
established, by a majority vote of the full board in which directors
who are parties to the action, suit or proceeding may participate.
C. The termination of any action, suit or proceeding by
judgment, order, settlement, conviction, or upon a plea of nolo
contendere or its equivalent, shall create a rebuttable presumption
that the person was guilty of willful misfeasance, bad faith, gross
negligence or reckless disregard to the duties and obligations
involved in the conduct of his or her office, and, with respect to any
criminal action or proceeding, had reasonable cause to believe that
his or her conduct was unlawful.
D. Expenses, including attorneys' fees, incurred in the
preparation of and/or presentation of the defense of a civil or
criminal action, suit or proceeding may be paid by the corporation in
advance of the final disposition of such action, suit or proceeding as
authorized in the manner provided in Section 2-418(F) of the Maryland
General Corporation Law upon receipt of: (i) an undertaking by or on
behalf of the corporate representative to repay such amount unless it
shall ultimately be determined that he or she is entitled to be
indemnified by the corporation as authorized in this bylaw; and (ii) a
written affirmation by the corporate representative of the corporate
representative's good faith belief that the standard of conduct
necessary for indemnification by the corporation has been met.
E. The indemnification provided by this bylaw shall not be
deemed exclusive of any other rights to which those indemnified may be
entitled under these bylaws, any agreement, vote of stockholders or
disinterested directors or otherwise, both as to action in his or her
official capacity and as to action in another capacity while holding
such office, and shall continue as to a person who has ceased to be a
director, officer, employee or agent and shall inure to the benefit of
the heirs, executors and administrators of such a person subject to
the limitations imposed from time to time by the Investment Company
Act of 1940, as amended.
F. This corporation shall have power to purchase and
maintain insurance on behalf of any corporate representative against
any liability asserted against him or her and incurred by him or her
in such capacity or arising out of his or her status as such, whether
or not the corporation would have the power to indemnify him or her
against such liability under this bylaw provided that no insurance may
be purchased or maintained to protect any corporate representative
against liability for gross negligence, willful misfeasance, bad faith
or reckless disregard of the duties and obligations involved in the
conduct of his or her office.
G. "Corporate Representative" means an individual who is or
was a director, officer, agent or employee of the corporation or who
serves or served another corporation, partnership, joint venture,
trust or other enterprise in one of these capacities at the request of
the corporation and who, by reason of his or her position, is, was, or
is threatened to be made, a party to a proceeding described herein.
Insofar as indemnification for and with respect to
liabilities arising under the Securities Act of 1933 may be permitted
to directors, officers and controlling persons of Registrant pursuant
to the foregoing provisions or otherwise, Registrant has been advised
that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and
is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by
Registrant of expenses incurred or paid by a director, officer or
controlling person or Registrant in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered,
Registrant will, unless in the opinion of its counsel the matter has
been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question of whether such indemnification
is against public policy as expressed in the Act and will be governed
by the final adjudication of such issue.
Incorporated by reference to pages 5 through 6 of the
Statement of Additional Information pursuant to Rule 411 under the Securities
Act of 1933.
Item 28 Principal Underwriters
Not Applicable.
Item 29 Location of Accounts and Records
The accounts, books and other documents required to be
maintained by Registrant pursuant to Section 31(a) of the Investment Company Act
of 1940 and the rules promulgated thereunder are in the physical possession of
Registrant and Registrant's Administrator as follows: the documents required to
be maintained by paragraphs (5), (6), (7), (10) and (11) of Rule 31a-1(b) will
be maintained by the Registrant at 8140 Walnut Hill Lane, Suite 405, Dallas,
Texas 75231; and all other records will be maintained by the Registrant's
Administrator, Firstar Trust Company, 615 East Michigan Street, Milwaukee,
Wisconsin.
Item 30. Management Services
All management-related service contracts entered into by
Registrant are discussed in Parts A and B of this Registration Statement.
Item 31. Undertakings
Registrant undertakes to furnish each person to whom a
prospectus is delivered with a copy of Registrant's latest annual report to
shareholders, upon request and without charge.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and
the Investment Company Act of 1940, the Registrant has duly caused this Amended
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Dallas and State of Texas on the 23rd day of
September, 1998.
PRUDENT BEAR FUNDS, INC.
(Registrant)
By: /s/ David W. Tice
David W. Tice, President
Pursuant to the requirements of the Securities Act of 1933,
this Amended Registration Statement has been signed below by the following
persons in the capacities and on the date(s) indicated.
Name Title Date
/s/ David W. Tice President and Treasurer September 23, 1998
David W. Tice (Principal Executive,
Financial and Accounting
Officer) and a Director
Director September 23, 1998
/s/ Gregg Jahnke
Gregg Jahnke
Director September __, 1998
David Eric Luck
Director September __, 1998
Jerry Marlin, M.D.
Director September 23, 1998
/s/ Buril Ragsdale
Buril Ragsdale
<PAGE>
EXHIBIT INDEX
Exhibit No. Exhibit
(1) Registrant's Articles of Incorporation*
(1.1) Articles Supplementary
(2) Registrant's Bylaws*
(3) None
(4) None
(5) Investment Advisory Agreement with David W. Tice &
Associates, Inc.*
(6) None
(7) None
(8) Custodian Agreement with Firstar Trust Company*
(9.1) Fund Administration Servicing Agreement with Firstar Trust
Company*
(9.2) Transfer Agent Agreement with Firstar Trust Company*
(9.3) Fund Accounting Servicing Agreement with Firstar Trust
Company*
(10) Opinion of Foley & Lardner, counsel for Registrant
(11) Consent of PricewaterhouseCoopers LLP
(12) None
(13) Subscription Agreement*
(14) Individual Retirement Custodial Accounts*
(15) Service and Distribution Plan*
(15.1) Service and Distribution Plan for No Load Shares
(15.2) Service and Distribution Plan for Class C Shares
(16) Schedule for Computation of Performance Quotations*
(17) Financial Data Schedules
(18) Rule 18f-3 Multi-Class Plan
- ---------
* Incorporated by reference.
ARTICLES SUPPLEMENTARY
PRUDENT BEAR FUNDS, INC.
CLASS C COMMON STOCK
(PAR VALUE $.0001 PER SHARE)
Pursuant to Section 2-208 of the Maryland General Corporation Law (the
"MGCL"), Prudent Bear Funds, Inc., a Maryland corporation (the "Corporation"),
hereby certifies to the Department of Assessments and Taxation of the State of
Maryland (the "Department") that:
FIRST: The Corporation is registered as an open-end investment company
under the Investment Company Act of 1940.
SECOND: Pursuant to Section 2-105(a)(9) of the MGCL and Article IV of
the charter of the Corporation, the Board of Directors of the Corporation duly
adopted resolutions (a) designating Two Hundred Fifty Million ($250,000,000)
unissued and undesignated shares of Common Stock of the Corporation, par value
$.0001 per share, as "Class C Common Stock," and (b) authorizing and directing
the filing of these Articles Supplementary for record with the Department.
THIRD: The Class C Common Stock of the Corporation created by the
resolutions duly adopted by the Board of Directors of the Corporation shall have
the same preferences, conversion or other rights, voting powers, restrictions,
limitations as to dividends, qualifications and terms or conditions of
redemption as the other classes of Common Stock of the Corporation, as set forth
in Article IV of the Corporation's charter.
FOURTH: These Articles Supplementary shall become effective as of the
time they are accepted by the Department for record.
IN WITNESS WHEREOF, the Corporation has caused these presents to be
signed in its name and on its behalf by its President and witnessed by its
Secretary on this ____ day of September, 1998.
---------------------------------------
David Tice, President
---------------------------------------
Gregg Jahnke, Secretary
THE UNDERSIGNED, President of Prudent Bear Funds, Inc., who
executed on behalf of the Corporation the Articles Supplementary of which this
Certificate is made a part, hereby acknowledges in the name and on behalf of the
Corporation the foregoing Articles Supplementary to be the corporate act of said
Corporation and hereby certifies that the matters and facts set forth herein
with respect to the authorization and approval thereof are true in all material
respects under the penalties of perjury.
---------------------------------------
David Tice, President
CHICAGO FIRSTAR CENTER SACRAMENTO
DENVER 777 EAST WISCONSIN AVENUE SAN DIEGO
JACKSONVILLE MILWAUKEE, WISCONSIN 53202-5367 SAN FRANCISCO
LOS ANGELES TELEPHONE (414) 271-2400 TALLAHASSEE
MADISON FACSIMILE (414) 297-4900 TAMPA
MILWAUKEE WASHINGTON, D.C.
ORLANDO WEST PALM BEACH
September 28, 1998
Prudent Bear Funds, Inc.
8140 Walnut Hill Lane
Suite 405
Dallas, TX 75231
Gentlemen:
We have acted as counsel for you in connection with the
preparation of an amendment to your Registration Statement on Form N-1A relating
to the sale by you of an indefinite amount of Prudent Bear Funds, Inc. Common
Stock (such Common Stock being hereinafter referred to as the "Stock") in the
manner set forth in the Amended Registration Statement to which reference is
made. In this connection we have examined: (a) the Amended Registration
Statement on Form N-1A; (b) your Articles of Incorporation and Bylaws, as
amended to date; (c) corporate proceedings relative to the authorization for
issuance of the Stock; and (d) such other proceedings, documents and records as
we have deemed necessary to enable us to render this opinion.
Based upon the foregoing, we are of the opinion that the
shares of Stock when sold as contemplated in the Amended Registration Statement
will be legally issued, fully paid and nonassessable.
We hereby consent to the use of this opinion as an exhibit to
the Form N-1A Registration Statement. In giving this consent, we do not admit
that we are experts within the meaning of Section 11 of the Securities Act of
1933, as amended, or within the category of persons whose consent is required by
Section 7 of said Act.
Very truly yours,
/s/ Foley & Larnder
Foley & Lardner
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Prospectus and
Statement of Additional Information constituting parts of this Post-Effective
Amendment No. 4 to the registration statement on Form N-1A (the "Registration
Statement") of our report dated November 7, 1997, relating to the financial
statements and financial highlights appearing in the September 30, 1997 Annual
Report to Shareholders of the Prudent Bear Fund, which is also incorporated by
reference into the Registration Statement. We also consent to the references to
us under the heading "Financial Highlights" in the Prospectus and under the
heading "Independent Accountants" in the Statement of Additional Information.
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Milwaukee, Wisconsin
September 30, 1998
AMENDED AND RESTATED SERVICE AND DISTRIBUTION PLAN
FOR CLASS A COMMON STOCK
OF
PRUDENT BEAR FUNDS, INC.
WHEREAS, Prudent Bear Funds, Inc. (the "Fund") is registered with the
Securities and Exchange Commission as an open-end management investment company
under the Investment Company Act of 1940, as amended (the "Act");
WHEREAS, the Fund intends to act as a distributor of shares of its
Common Stock, $.0001 par value ("Common Stock"), as defined in Rule 12b-1 under
the Act, and has adopted a distribution plan pursuant to such Rule, and the
Board of Directors has determined that there is a reasonable likelihood that
adoption of this Service and Distribution Plan will benefit the Fund and its
shareholders;
WHEREAS, the Fund intends that this Service and Distribution Plan
cover only its Class A Common Stock and that any subsequently authorized classes
of its Common Stock be covered by separate Service and Distribution Plans; and
WHEREAS, the Fund may enter into agreements with dealers and other
financial service organizations to obtain various distribution-related and/or
shareholder services for the Fund, all as permitted and contemplated by Rule
12b-1 under the Act; it being understood that to the extent any activity is one
in which the Fund may finance without a Rule 12b-1 plan, the Fund may also make
payments to finance such activity outside such plan and not subject to its
limitations.
NOW, THEREFORE, the Fund hereby amends and restates this Service and
Distribution Plan (the Plan) in accordance with Rule 12b-1 under the Act to have
the following terms and conditions:
1. Distribution and Service Fee. The Fund may charge a distribution
expense and service fee on an annualized basis of 0.25% of the average daily net
assets of the Class A Common Stock. Such fee shall be calculated and accrued
daily and paid at such intervals as the Board of Directors of the Fund shall
determine, subject to any applicable restriction imposed by rules of the
National Association of Securities Dealers, Inc.
2. Permitted Expenditures. The amount set forth in paragraph 1 of this
Plan shall be paid for services or expenses primarily intended to result in the
sale of shares of the Class A Common Stock. The Fund may pay all or a portion of
this fee to any securities dealer, financial institution or any other person
(the "Shareholder Organization(s)") who renders personal service to Class A
shareholders, assists in the maintenance of Class A shareholder
<PAGE>
accounts or who renders assistance in distributing or promoting the sale of
shares of the Class A Common Stock pursuant to a written agreement approved by
the Board of Directors (the "Related Agreement"). To the extent such fee is not
paid to such persons, the Fund may use the fee for its expenses of distribution
of shares of Class A Common Stock including, but not limited to, payment by the
Fund of the cost of preparing, printing and distributing Prospectuses and
Statements of Additional Information to prospective investors and of
implementing and operating the Plan as well as payment of capital or other
expenses of associated equipment, rent, salaries, bonuses, interest and other
overhead costs.
3. Effective Date of Plan. This Plan shall not take effect until (a)
it has been approved by a vote of at least a majority (as defined in the Act) of
the outstanding shares of Class A Common Stock and (b) (together with any
related agreements) by votes of a majority of both (i) the Board of Directors of
the Fund and (ii) those Directors of the Fund who are not "interested persons"
of the Fund (as defined in the Act) and have no direct or indirect financial
interest in the operation of this Plan or any agreements related to it (the
"Rule 12b-1 Directors"), cast in person at a meeting (or meetings) called for
the purpose of voting on this Plan and such related agreements.
4. Continuance. Unless otherwise terminated pursuant to paragraph 6
below, this Plan shall continue in effect for as long as such continuance is
specifically approved at least annually in the manner provided for approval of
this Plan in paragraph 3(b).
5. Reports. Any person authorized to direct the disposition of monies
paid or payable by the Fund pursuant to this Plan or any related agreement shall
provide to the Fund's Board of Directors and the Board shall review, at least
quarterly, a written report of the amounts so expended and the purposes for
which such expenditures were made.
6. Termination. This Plan may be terminated at any time by vote of a
majority of the Rule 12b-1 Directors, or by vote of a majority of the
outstanding shares of the Class A Common Stock.
7. Amendments. This Plan may not be amended to increase materially the
amount of payments provided for in paragraph 1 hereof unless such amendment is
approved in the manner provided for initial approval in paragraph 3 hereof. No
other amendment to the Plan may be made unless approved in the manner provided
for approval of this Plan in paragraph 3(b).
8. Selection of Directors. While this Plan is in effect, the selection
and nomination of Directors who are not interested persons (as defined in the
Act) of the Fund shall be committed to the discretion of the Directors who are
not interested persons.
9. Records. The Fund shall preserve copies of this Plan and any
related agreements and all reports made pursuant to paragraph 6 hereof, for a
period of not less than six years form the date of this Plan, or the agreements
or such report, as the case may be, the first two years in an easily accessible
place.
SERVICE AND DISTRIBUTION PLAN
FOR
CLASS C COMMON STOCK
OF
PRUDENT BEAR FUNDS, INC.
WHEREAS, Prudent Bear Funds, Inc. (the "Fund") is registered with the
Securities and Exchange Commission as an open-end management investment company
under the Investment Company Act of 1940, as amended (the "Act");
WHEREAS, the Fund intends to act as a distributor of shares of its
Class C Common Stock, $.0001 par value ("Class C Common Stock"), as defined in
Rule 12b-1 under the Act, and desires to adopt a distribution plan pursuant to
such Rule, and the Board of Directors has determined that there is a reasonable
likelihood that adoption of this Service and Distribution Plan will benefit the
Fund and the shareholders of Class C Common Stock (collectively, the
"Shareholders" and singularly "Shareholder"); and
WHEREAS, the Fund may enter into agreements with dealers and other
financial service organizations to obtain various distribution-related and/or
Shareholder services for the Fund, all as permitted and contemplated by Rule
12b-1 under the Act; it being understood that to the extent any activity is one
in which the Fund may finance without a Rule 12b-1 plan, the Fund may also make
payments to finance such activity outside such plan and not subject to its
limitations.
NOW, THEREFORE, the Fund hereby adopts this Service and Distribution
Plan (the Plan) in accordance with Rule 12b-1 under the Act on the following
terms and conditions:
1. Distribution and Service Fee. The Fund may charge a distribution
expense and service fee on an annualized basis of 1.00% of the average daily net
assets of the Class C Common Stock. Such fee shall be calculated and accrued
daily and paid at such intervals as the Board of Directors of the Fund shall
determine, subject to any applicable restriction imposed by rules of the
National Association of Securities Dealers, Inc.
2. Permitted Expenditures. The amount set forth in paragraph 1 of this
Plan shall be paid for services or expenses primarily intended to result in the
sale of the Fund's Class C Common Stock. The Fund may pay all or a portion of
this fee to any securities dealer, financial institution or any other person
(the "Shareholder Organization(s)") who renders personal service to
Shareholders, assists in the maintenance of Shareholder accounts or who renders
assistance in distributing or promoting the sale of the Fund's Class C Common
Stock
<PAGE>
pursuant to a written agreement approved by the Board of Directors (the "Related
Agreement"). To the extent such fee is not paid to such persons, the Fund may
use the fee for its expenses of distribution of its Class C Common Stock
including, but not limited to, payment by the Fund of the cost of preparing,
printing and distributing Prospectuses and Statements of Additional Information
to prospective investors and of implementing and operating the Plan as well as
payment of capital or other expenses of associated equipment, rent, salaries,
bonuses, interest and other overhead costs.
3. Effective Date of Plan. This Plan shall not take effect until (a)
it has been approved by votes of a majority of both (i) the Board of Directors
of the Fund and (ii) those Directors of the Fund who are not "interested
persons" of the Fund (as defined in the Act) and have no direct or indirect
financial interest in the operation of this Plan or any agreements related to it
(the "Rule 12b-1 Directors"), cast in person at a meeting (or meetings) called
for the purpose of voting on this Plan and such related agreements.
4. Continuance. Unless otherwise terminated pursuant to paragraph 6
below, this Plan shall continue in effect for as long as such continuance is
specifically approved at least annually in the manner provided for approval of
this Plan in paragraph 3.
5. Reports. Any person authorized to direct the disposition of monies
paid or payable by the Fund pursuant to this Plan or any related agreement shall
provide to the Fund's Board of Directors and the Board shall review, at least
quarterly, a written report of the amounts so expended and the purposes for
which such expenditures were made.
6. Termination. This Plan may be terminated at any time by vote of a
majority of the Rule 12b-1 Directors, or by vote of a majority of the
outstanding shares of Class C Common Stock.
7. Amendments. This Plan may not be amended to increase materially the
amount of payments provided for in paragraph 1 hereof unless such amendment is
approved in the manner provided for initial approval in paragraph 3 hereof and
by a vote of at least a majority of the outstanding shares of Class C Common
Stock. No other amendment to the Plan may be made unless approved in the manner
provided for approval of this Plan in paragraph 3.
8. Selection of Directors. While this Plan is in effect, the selection
and nomination of Directors who are not interested persons (as defined in the
Act) of the Fund shall be committed to the discretion of the Directors who are
not interested persons.
9. Records. The Fund shall preserve copies of this Plan and any
related agreements and all reports made pursuant to paragraph 6 hereof, for a
period of not less than six years form the date of this Plan, or the agreements
or such report, as the case may be, the first two years in an easily accessible
place.
PRUDENT BEAR FUNDS, INC.
RULE 18f-3 MULTI-CLASS PLAN
November 27, 1998
I. Introduction.
Pursuant to Rule 18f-3 under the Investment Company Act of 1940, as
amended (the "1940 Act"), the following sets forth the method for allocating
fees and expenses among each class of shares of Prudent Bear Funds, Inc. (the
"Company" or "Multi-Class Fund"). In addition, this Rule 18f-3 Multi-Class Plan
(the "Plan") sets forth the front-end sales charges, Rule 12b-1 distribution
expenses and service fees and other charges and fees of each class of shares in
the Multi-Class Fund.
The Company is an open-end management investment company registered
under the 1940 Act, the shares of which are registered on Form N-1A under the
Securities Act of 1933 (Reg. No. 333-98726). Upon the effective date of this
Plan, the Company hereby elects to offer multiple classes pursuant to the
provisions of Rule 18f-3 and this Plan.
II. Allocation of Expenses.
Pursuant to Rule 18f-3 under the 1940 Act, the Company shall allocate
to each class of shares any fees and expenses incurred by the Company in
connection with the distribution of such class of shares under a service and
distribution plan adopted for such class of shares pursuant to Rule 12b-1. In
addition, pursuant to rule 18f-3, the Company may allocate the following fees
and expenses to a particular class of shares:
(i) transfer agent fees and related expenses identified by the
transfer agent as being attributable to such class of
shares;
(ii) printing and postage expenses related to preparing and
distributing materials such as shareholder reports,
prospectuses, reports, and proxies to current shareholders
of such class of shares or to regulatory agencies with
respect to such class of shares;
(iii) blue sky registration or qualification fees incurred by such
class of shares;
(iv) Securities and Exchange Commission registration fees
incurred by such class of shares;
(v) the expense of administrative personnel and services
(including, but not limited to, those of a fund accountant,
or dividend paying agent charged with calculating net asset
values or determining or paying dividends<F1>), as required
to support the shareholders of such class of shares;
- ----------
<F1> Rule 18f-3 requires that services related to the management of the
portfolio's assets, such as custodial fees, be borne by the Company
and not by class.
(vi) litigation or other legal expenses relating solely to such
class of shares;
(vii) fees of the Company's Directors incurred as a result of
issues relating to such class of shares; and
(viii) independent accountants' fees relating solely to such class
of shares.
The initial determination of the class expenses that will be allocated
by the Company to a particular class of shares and any subsequent
changes thereto will be reviewed by the Board of Directors and
approved by a vote of the Directors of the Company, including a
majority of the Directors who are not interested persons of the
Company.
Income, realized and unrealized capital gains and losses, and any
expenses of the Multi-Class Fund not allocated to a particular class
of the Company pursuant to this Plan shall be allocated to each class
of the Company on the basis of the net asset value of that class in
relation to the net asset value of the Company.
III. Class Arrangements.
The following summarizes the Rule 12b-1 distribution expenses and
service fees, exchange fees, and other fees and charges applicable to
each class of shares of the Multi-Class Fund. Additional details
regarding such fees and services are set forth in the Fund's current
Prospectus and Statement of Additional Information.
A. Class A Shares -
1. Maximum Sales Load Imposed on Purchases: None.
2. Maximum Sales Load Imposed on Dividends: None.
3. Deferred Sales Load: None.
4. Redemption Fee: None.
5. Exchange Fee: None.
6. Rule 12b-1 Distribution Expenses and Service Fees: 0.25%.
7. Management Fees: 1.25%.
<PAGE>
B. Class C Shares -
1. Maximum Sales Load Imposed on Purchases: None.
2. Maximum Sales Load Imposed on Dividends: None.
3. Deferred Sales Load: None.
4. Redemption Fee: None.
5. Exchange Fee: None.
6. Rule 12b-1 Distribution Expenses and Service Fees: 1.00%.
7. Management Fees: 1.25%.
IV. Board Review.
The Board of Directors of the Company shall review this Plan as
frequently as it deems necessary. Prior to any material amendments to
this Plan, the Company's Board of Directors, including a majority of
the Directors that are not interested persons of the Company, shall
find that the Plan, as proposed to be amended (including any proposed
amendments to create a conversion feature or alter the method of
allocating class and/or fund expenses), is in the best interest of
each class of shares of a Multi-Class Fund individually and the Fund
as a whole. In considering whether to approve any proposed amendment
to the Plan, the Directors of the Company shall request and evaluate
such information as they consider reasonably necessary to evaluate the
proposed amendment to the Plan.
In making its initial determination to approve this Plan, the Board
focused on, among other things, the relationship between or among the
classes and examined potential conflicts of interest between classes
regarding the allocation of fees, services, reimbursement of expenses
and voting rights. The Board evaluated the level of services provided
to each class and the cost of those services to ensure that the
services are appropriate and the allocation of expenses is reasonable.
In approving any subsequent amendments to this Plan, the Board shall
focus on and evaluate the above-referenced factors as well as any
others deemed necessary by the Board.
<TABLE> <S> <C>
<ARTICLE> 6
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-START> OCT-01-1997
<PERIOD-END> MAR-31-1998
<INVESTMENTS-AT-COST> 54,333,896
<INVESTMENTS-AT-VALUE> 51,684,484
<RECEIVABLES> 48,319,131
<ASSETS-OTHER> 64,505
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 100,068,120
<PAYABLE-FOR-SECURITIES> 788,263
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 44,107,184
<TOTAL-LIABILITIES> 44,895,447
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<ACCUMULATED-NET-GAINS> (15,957,988)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (1,896,196)
<NET-ASSETS> 55,172,673
<DIVIDEND-INCOME> 8,734
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<EXPENSES-NET> 573,006
<NET-INVESTMENT-INCOME> 1,241,782
<REALIZED-GAINS-CURRENT> (7,106,852)
<APPREC-INCREASE-CURRENT> (3,378,322)
<NET-CHANGE-FROM-OPS> (9,243,392)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 1,895,943
<DISTRIBUTIONS-OF-GAINS> 0
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<NUMBER-OF-SHARES-SOLD> 19,543,234
<NUMBER-OF-SHARES-REDEEMED> 14,887,976
<SHARES-REINVESTED> 189,644
<NET-CHANGE-IN-ASSETS> 28,672,964
<ACCUMULATED-NII-PRIOR> 1,367,233
<ACCUMULATED-GAINS-PRIOR> (8,851,136)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 333,939
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<GROSS-EXPENSE> 573,006
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<PER-SHARE-NAV-BEGIN> 7.29
<PER-SHARE-NII> 0.17
<PER-SHARE-GAIN-APPREC> (0.72)
<PER-SHARE-DIVIDEND> (0.23)
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<PER-SHARE-NAV-END> 6.51
<EXPENSE-RATIO> 1.99
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<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-START> OCT-01-1996
<PERIOD-END> SEP-30-1997
<INVESTMENTS-AT-COST> 23,449,973
<INVESTMENTS-AT-VALUE> 24,400,574
<RECEIVABLES> 24,740,516
<ASSETS-OTHER> 52,096
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 49,193,186
<PAYABLE-FOR-SECURITIES> 940,956
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 21,752,521
<TOTAL-LIABILITIES> 22,693,477
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 32,501,485
<SHARES-COMMON-STOCK> 3,634,136
<SHARES-COMMON-PRIOR> 824,834
<ACCUMULATED-NII-CURRENT> 1,367,233
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (8,851,136)
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<NET-CHANGE-FROM-OPS> (5,348,003)
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<DISTRIBUTIONS-OF-INCOME> 183,831
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