PRUDENT BEAR FUNDS INC, 485BPOS, 1998-11-30

PRUDENT BEAR FUNDS INC
485BPOS, 1998-11-30

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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. 5 |X|
and/or

REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 |X|

Amendment No. 6 |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)

|X| on November 30, 1998 pursuant to paragraph (b)

[ ] 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
Item No. on Form N-1A Prospectus 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

4. General Description of Registrant INFORMATION 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?

<PAGE>

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"

- -------------------------
*Answer negative of inapplicable

-ii-

<PAGE>

19. Purchase, Redemption and
Pricing of Securities Being Included in Prospectus under "HOW
Offered 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 of inapplicable

-iii-
<PAGE>

PRUDENT

BEAR

FUND

PROSPECTUS NOVEMBER 30, 1998 PRUDENT BEAR FUND
- -------------------------------------------------------------------------------
No Load Shares

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 30, 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

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 call 1-888-PRU-BEAR (toll free), or 1-888-778-2327 or visit our Internet
homepage at http://www.prudentbear.com.

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

YEAR 2000...........................................................20

PERFORMANCE INFORMATION ............................................20

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED ON THE
ACCURACY OR ADEQUACY OF THE PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.

EXPENSES

The following information is based on the Fund's actual expenses incurred during
the fiscal year ended September 30, 1998 and is provided in order to assist you
in understanding the various costs and expenses that, as an investor in the
Fund's No Load Shares, you will bear directly or indirectly. (On November 30,
1998 the Fund began offering Class C Shares, which are described in a separate
prospectus.) 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 0.25%<F2>
Other Expenses
Dividends on short positions 0.28%
-----
All other Other Expenses 0.58%
-----
Total Other Expenses 0.86%
-----
Total Fund Operating Expenses 2.36%
-----

<F1> A fee of $12.00 is charged for each wire redemption.

<F2> The maximum level of distribution expenses is 0.25% per annum of the Fund's
average net assets. See "How Do I Open an Account and Purchase Shares" for
further information. The distribution expenses for long-term shareholders
may total more than the maximum sales charge that would have been
permissible if imposed entirely as an initial sales charge.

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
------ ------- ------- --------
$24 $74 $126 $270

FINANCIAL HIGHLIGHTS

The financial information of a No Load Share of the Prudent Bear Fund (the
"Fund") included in this table has been audited by PricewaterhouseCoopers LLP,
the Fund's independent accountants. The table should be read in conjunction with
the financial statements and related notes contained in the Fund's 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.

December 28,
Year Ended Year Ended 1995<F1> through
September 30, September 30, September 30,
1998 1997 1996
---- ---- ----

Per Share Data:

Net asset value,
beginning of
period $7.29 $8.88 $10.00
----- ----- ------

Income from
investment operations:
Net investment
income<F2> 0.29<F3> 0.62<F3> 0.09

Net realized and
unrealized
losses on
investments (0.01) (2.06) (1.21)
----- ----- -----

Total from
investment
operations 0.28 (1.44) (1.12)
---- ----- -----

Less distributions
from net
investment income (0.23) (0.15) -
----- -----
Net asset value,
end of period $7.34 $7.29 $8.88
===== ===== =====

Total return<F4> 3.66% (16.44)% (11.20)%

Supplemental
data and ratios:
Net assets,
end of period $175,691,363 $26,499,709 $7,325,655

Ratio of operating
expenses to
average net
assets<F5><F6><F7> 2.08% 2.59% 2.75%

December 28,
Year Ended Year Ended 1995<F1> through
September 30, September 30, September 30,
1998 1997 1996
---- ---- ----

Ratio of dividends
on short positions
to average net
assets<F6> 0.28% 0.34% 0.34%

Ratio of net
investment
income to average
net assets<F6><F7> 4.34% 7.75% 4.07%

Portfolio
turnover rate 480.25% 413.25% 91.31%

<F1> Commencement of operations.
<F2> Net investment income before dividends on short positions for the periods
ended September 30, 1998, September 30, 1997 and September 30, 1996 was
$0.30, $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 period December 28, 1995 through September 30,
1996.
<F5> The operating expense ratio excludes dividends on short positions. The
ratio including dividends on short positions for the periods ended
September 30, 1998, September 30, 1997 and September 30, 1996 was 2.36%,
2.93% and 3.09%, respectively.
<F6> Annualized for the period December 28, 1995 through September 30, 1996.
<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.

The Adviser anticipates that the Fund will at all times hold both "long" and
"short" equity positions. The relative percentage of the Fund's "long" and
"short" equity positions will vary depending on the dividend yield on the stocks
comprising the Standard & Poor's 500 Index (the "S&P 500"), overall market
conditions and the Adviser's discretion.

The Adviser believes that the S&P 500's dividend yield varies inversely with the
market, and that the market generally has increased at a higher rate over the
next year when the dividend yield is higher. In determining whether the Fund
should hold more "long" or "short" equity positions, the Adviser will look to
the average dividend yield on stocks comprising the S&P 500. When the S&P 500's
dividend yield is less than 3%, the amount of the Fund's "short" equity
positions will generally exceed its "long" equity positions, and when the S&P
500's dividend yield exceeds 6%, the amount of the Fund's "long" equity
positions will generally exceed its "short" equity positions. When the S&P 500's
dividend yield is between 3.0% and 6.0%, the Adviser will allocate the Fund's
portfolio between short and long positions 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 AND RISKS?

The Fund may invest in the following portfolio securities and may engage in the
following investment techniques.

Common Stocks

The Fund's long common stock investments primarily will be made in companies
where the potential value generally has been overlooked by investors. Typically
these companies include companies that are covered by a small number of analysts
and are attractively priced but which are also operating businesses that have
not been discovered or that have not yet 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, 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 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.

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.

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 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
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 gains or losses also
may be realized upon the sale of U.S. Treasury Securities.

Repurchase Agreements

The Fund, as part of a cash reserve or to "cover" investment strategies, may
purchase repurchase agreements secured by U.S. Government Securities. Under a
repurchase agreement, the Fund purchases a debt security and simultaneously
agrees to sell the security back to the seller at a mutually agreed-upon future
price and date, normally one day or a few days later. The resale price is
greater than the purchase price, reflecting an agreed-upon market interest rate
during the purchaser's holding period. While the maturities of the underlying
securities in repurchase transactions may be more than one year, the term of
each repurchase agreement will always be less than one year. The Fund will enter
into repurchase agreements only with member banks of the Federal Reserve system
or primary dealers of U.S. Government Securities. The Adviser will monitor the
creditworthiness of each of the firms which is a party to a repurchase agreement
with the Fund. In the event of a default or bankruptcy by the seller, the Fund
will liquidate those securities (whose market value, including accrued interest,
must be at least equal to 100% of the dollar amount invested by the Fund in each
repurchase agreement) held under the applicable repurchase agreement, as these
securities constitute collateral for the seller's obligation to pay. However,
liquidation could involve costs or delays and, to the extent proceeds from the
sale of these securities were less than the agreed-upon repurchase price, the
Fund would suffer a loss. The Fund also may experience difficulties and incur
certain costs in exercising its rights to the collateral and may lose the
interest the Fund expected to receive under the repurchase agreement. Repurchase
agreements usually are for short periods, such as one week or less, but may be
longer. It is the current policy of the Fund to treat repurchase agreements that
do not mature within seven days as illiquid for the purposes of its investment
policies.

Borrowing

The Fund may borrow money, but 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 up to 25% of its net assets in securities issued by
other investment companies including investment companies that invest in high
quality, short-term debt securities (i.e., money market instruments), as well as
SPDRs and WEBs. The Fund will not purchase or otherwise acquire shares of any
registered investment company (except as part of a plan of merger, consolidation
or reorganization approved by the shareholders of the Fund) if (a) the Fund and
its affiliated persons would own more than 3% of any class of securities of such
registered investment company or (b) more than 5% of its net assets would be
invested in the shares of any one registered investment company. If the Fund
purchases more than 1% of any class of security of a registered open-end
investment company, such investment will be considered an illiquid investment.
In addition to the advisory fees and other expenses the Fund bears directly in
connection with its own operations, as a shareholder of another investment
company, the Fund would bear its pro rata portion of the other investment
company's advisory fees and other expenses, and such fees and other expenses
will be borne indirectly by the Fund's shareholders.

Illiquid Securities

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 Mutual Fund
Services, LLC 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 Mutual Fund
Services, LLC 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, 44, 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 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 Mutual Fund Services, LLC (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 .07% of the first $200,000,000 of the Fund's average net assets,
05% of the next $300,000,000 of the Fund's average net assets, .04% of the next
$500,000,000 of the Fund's average net assets, and .03% of the Fund's net assets
in excess of $1,000,000,000. Notwithstanding the foregoing, the Administrator's
minimum annual fee is $50,000.

Firstar Mutual Fund Services, LLC also provides transfer agency and accounting
services for the Fund. Firstar Bank Milwaukee, N.A. provides custodial 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 No Load Share of the Fund is determined by
dividing the total value of the Fund's investments and other assets allocable to
the No Load Shares less any liabilities charged to the No Load Shares, by the
number of outstanding No Load Shares of the Fund. The net asset value per No
Load 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 No Load Shares accepted or No Load 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 No Load Shares tendered for redemption
after that time will be valued as of the close of regular trading on the next
trading day. Common stocks and securities sold short that are listed on a
securities exchange or quoted on the Nasdaq Stock Market are valued at the last
quoted sales price on the day the valuation is made. Price information on listed
securities is taken from the exchange where the security is primarily traded.
Common stocks and securities sold short which are listed on an exchange or the
Nasdaq Stock Market but which are not traded on the valuation date are valued at
the average of the current bid and asked prices. Unlisted equity securities for
which market quotations are readily available are valued at the average of the
current bid and asked prices. Options purchased or written by the Fund are
valued at the average of the current bid and asked prices. The value of a
futures contract equals the unrealized gain or loss on the contract that is
determined by marking the contract to the current settlement price for a like
contract acquired on the day on which the futures contract is being valued. A
settlement price may not be moved if the market makes a limit move in which
event the futures contract will be valued at its fair value as determined by the
Adviser in accordance with procedures approved by the Board of Directors. Debt
securities are valued at the latest bid prices furnished by independent pricing
services. Other assets and securities for which no quotations are readily
available are valued at fair value as determined in good faith by the Adviser in
accordance with procedures approved by the Board of Directors of the Fund.
Short-term instruments (those with remaining maturities of 60 days or less) are
valued at amortized cost, which approximates market.

HOW DO I OPEN AN ACCOUNT AND
PURCHASE SHARES?

BY MAIL. Please complete and sign the New Account Application form included with
this Prospectus and send it, together with your check or money order ($2000
minimum; $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
Mutual Fund Services, LLC, P. O. Box 701, Milwaukee, Wisconsin 53201-0701. Note:

A different procedure is used for establishing Individual Retirement Accounts.
Please call Firstar Mutual Fund Services, LLC 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 Mutual Fund Services, LLC 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 Mutual Fund Services, LLC, 3rd Floor, 615 East Michigan
Street, Milwaukee, Wisconsin 53202.

BY WIRE. To establish a new account by wire please first call Firstar Mutual
Fund Services, LLC, (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 Mutual Fund Services, LLC
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 Mutual Fund
Services, LLC at (800) 711-1848 prior to sending your wire. A remittance form
which is attached to your individual account statement should accompany any
investments made through the mail, when possible. All purchase requests must
include your account registration number in order to assure that your funds are
credited properly.

BY TELEPHONE. By using the Fund's telephone purchase option you may move money
from your bank account to your Fund account at your request. Only bank accounts
held at domestic financial institutions that are Automated Clearing House (ACH)
members may be used for telephone transactions. To have your No Load Shares
purchased at the net asset value determined as of the close of regular trading
on a given date, Firstar Mutual Fund Services, LLC must receive both your
purchase order and payment by Electronic Funds Transfer through the ACH System
before the close of regular trading on such date. Most transfers are completed
within three business days. You may not use telephone transactions for initial
purchases of Fund shares. The minimum amount that can be transferred by
telephone is $100.

AUTOMATIC INVESTMENT. If you choose the Automatic Investment option, you may
move money from your bank account to your Fund account on the schedule (e.g.,
monthly, bimonthly (every other month) or quarterly) 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 Mutual Fund Services, LLC at (800)
711-1848 if you have questions. Please wait three weeks before using the
service.

There are no sales commissions when you purchase No Load Shares, so all of your
investment is used to purchase shares. All No Load 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 No Load Shares purchased unless
specifically requested by you in writing. When certificates are not issued, you
are relieved of the responsibility for safekeeping of certificates and the need
to deliver them upon redemption. You may also invest in the Fund by purchasing
No Load Shares through a registered broker-dealer, who may charge you a fee,
either at the time of purchase or redemption. The fee, if charged, is retained
by the broker-dealer and not remitted to the Fund or the Adviser. The Fund may
accept telephone orders from broker-dealers who have been previously approved by
the Fund. It is the responsibility of the registered broker-dealer to promptly
remit purchase and redemption orders to Firstar Mutual Fund Services, LLC.

You may purchase No Load Shares through programs or 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 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 No Load 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 No Load Shares. The Plan authorizes payments by
the Fund in connection with the distribution of its No Load Shares at an annual
rate, as determined from time to time by the Board of Directors, of up to 0.25%
of the Fund's average daily net assets. Payments made pursuant to the Plan may
only be used to pay distribution expenses in the year incurred. Amounts paid
under the Plan by the Fund may be spent by the Fund on any activities or
expenses primarily intended to result in the sale of No Load Shares of the Fund,
including but not limited to, advertising, compensation for sales and marketing
activities of financial institutions and others such as dealers and
distributors, shareholder account servicing, the printing and mailing of
prospectuses to other than current shareholders and the printing and mailing of
sales literature. To the extent any activity is one which the Fund may finance
without a plan pursuant to Rule 12b-1, the Fund may also make payments to
finance such activity outside of the Plan and not subject to its limitations.

ALL APPLICATIONS ARE SUBJECT TO ACCEPTANCE BY THE FUND, AND ARE NOT BINDING
UNTIL SO ACCEPTED. THE FUND RESERVES THE RIGHT TO REJECT APPLICATIONS IN WHOLE
OR IN PART. The Fund will suspend the offering of its shares during any period
in which the New York Stock Exchange is closed because of financial conditions
or any other extraordinary reason and it may suspend the offering of its shares
during any period in which (a) trading on the New York Stock Exchange is
restricted pursuant to rules and regulations of the Securities and Exchange
Commission, (b) the Securities and Exchange Commission has by order permitted
such 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 Mutual Fund
Services, LLC 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 No Load Shares in whole or in part. Written redemption requests must be
directed to PRUDENT BEAR FUNDS, INC., c/o Firstar Mutual Fund Services, LLC,
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 Mutual Fund Services, LLC, but the effective date of redemption will be
delayed until the request is received by Firstar Mutual Fund Services, LLC.
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 Mutual Fund
Services, LLC 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 No Load Shares or the dollar amount of shares to be redeemed. The letter of
instruction must be signed by all registered shareholders exactly as the shares
are registered and must include your account registration number and the
additional requirements listed below that apply to the particular account.

Type of Registration Requirements
- -------------------- ------------

Individual, Joint Tenants, Redemption request signed
Sole Proprietorship, by all person(s) required to
Custodial (Uniform sign for the account, exactly
Gift To Minors Act), as it is registered.
General Partners

Corporations, Redemption request and a
Associations corporate resolution, signed by
person(s) required to sign for
the account, accompanied by
signature guarantee(s).

Trusts Redemption request signed by the
trustee(s), with a signature guarantee.
(If the Trustee's name is not registered
on the account, a copy of the trust
document certified within the past 60
days is also required).

- - Signature guarantees are required if proceeds of redemption are to be sent
by wire transfer, to a person other than the registered holder, to an
address other than the address of record, and if a redemption request
includes a change of address. Transfers of shares also require signature
guarantees. Signature guarantees may be obtained from any commercial bank
or trust company in the United States or a member of the New York Stock
Exchange and some savings and loan associations.

If you have an IRA, you must indicate on your redemption request whether or not
to withhold federal income tax. Redemption requests not indicating an election
to have federal tax withheld will be subject to withholding. If you are
uncertain of the redemption requirements, please contact, in advance, Firstar
Mutual Fund Services, LLC.

The redemption price is the next determined net asset value after Firstar Mutual
Fund Services, LLC 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 Mutual Fund Services, LLC 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 Mutual Fund Services, LLC, which will assess a $12.00 wiring
charge against your account.

You may redeem No Load Shares of the Fund by telephone. To redeem shares by
telephone, you must check the appropriate box on the New Account Application (as
the Fund does not make this feature available to shareholders automatically).
Once this feature has been requested, you may redeem shares by phoning Firstar
Mutual Fund Services, LLC at (800) 711-1848 and giving the account name, account
number and either the number of No Load 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 Mutual Fund
Services, LLC. 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 Mutual Fund
Services, LLC. 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 No Load Shares of the Fund by
telephone may be modified or terminated by the Fund at any time. Neither the
Fund nor Firstar Mutual Fund Services, LLC 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 Mutual Fund Services, LLC by telephone, you may redeem
shares by delivering the redemption request to Firstar Mutual Fund Services, LLC
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 No Load 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 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 No Load Shares held in any account if
at the time of any transfer or redemption of No Load Shares in the account, the
value of the remaining No Load Shares in the account falls below $1,000. 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 $1,000 solely because of a decline in the Fund's net asset value.

Your right to redeem No Load Shares of the Fund will be suspended and your right
to payment postponed for more than seven days for any period during which the
New York Stock Exchange is closed because of financial conditions or any other
extraordinary reason and may be suspended for any period during which (a)
trading on the New York Stock Exchange is restricted pursuant to rules and
regulations of the Securities and Exchange Commission, (b) the Securities and
Exchange Commission has by order permitted such suspension or (c) such
emergency, as defined by rules and regulations of the Securities and Exchange
Commission, exists as a result of which it is not reasonably practicable for the
Fund to dispose of its securities or fairly to determine the value of its net
assets.

WHAT ABOUT DIVIDENDS, CAPITAL GAINS
DISTRIBUTIONS AND TAXES?

The Fund intends to distribute at least annually any net investment income and
net realized capital gains to shareholders. In addition, in order to satisfy
certain distribution requirements of the Tax Reform Act of 1986, the Fund may
declare special year-end dividend and capital gains distributions during
December. Such distributions, if received by shareholders by January 31, are
deemed to have been paid by the Fund and received by shareholders on December
31st of the prior year. Dividend and capital gains distributions may be
automatically reinvested or received in cash.

The Fund intends to continue to qualify for taxation as a "regulated investment
company" under the Internal Revenue Code so that it will not be subject to
federal income tax to the extent its income is distributed to shareholders.
Dividends paid by the Fund from net investment income and net short-term capital
gains, whether received in cash or reinvested in additional shares, will be
taxable to shareholders as ordinary income.

Distributions paid by the Fund from long-term capital gains, whether received in
cash or reinvested in additional shares, are taxable as long-term capital gains,
regardless of the length of time you have owned shares in the Fund. Capital
gains distributions are made when the Fund realizes net capital gains on sales
of portfolio securities during the year. The Fund does not seek to realize any
particular amount of capital gains during a year; rather, realized gains are a
by-product of portfolio management activities. Consequently, capital gains
distributions may be expected to vary considerably from year to year; there will
be no capital gains distributions in years when the Fund realizes net capital
losses.

Note that if you accept capital gains distributions in cash, instead of
reinvesting them in additional shares, you are in effect reducing the capital at
work for you in the Fund. Also, keep in mind that if you purchase shares in the
Fund shortly before the record date for a dividend or capital gains
distribution, a portion of your investment will be returned to you as a taxable
distribution, regardless of whether you are reinvesting your distributions or
receiving them in cash.

The Fund will notify you annually as to the tax status of dividend and capital
gains distributions paid by the Fund.

A sale or redemption of shares of the Fund is a taxable event and may result in
a capital gain or loss.

Dividend distributions, capital gains distributions, and capital gains or losses
from redemptions may be subject to state and local taxes.

The Fund is required to withhold 31% of taxable dividends, capital gains
distributions, and redemptions paid to shareholders who have not complied with
IRS taxpayer identification regulations. You may avoid this withholding
requirement by certifying on your New Account Application your proper Social
Security or Taxpayer Identification Number and by certifying that you are not
subject to backup withholding.

The tax discussion set forth above is included for general information purposes
only. Prospective investors should consult their own tax advisers concerning the
tax consequences of an investment in the Fund. The Fund is managed without
regard to tax ramifications.

MAY SHAREHOLDERS REINVEST DIVIDENDS?

You may elect to have all income dividends and capital gains distributions
reinvested in No Load Shares of the Fund or paid in cash, or to have capital
gains distributions reinvested and income dividends paid in cash. Please refer
to the New Account Application form accompanying this Prospectus for further
information. If you do not specify an election, all dividends and capital gains
distributions will automatically be reinvested in full and fractional No Load
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 No Load Shares of the Fund registered in your name, including those
previously purchased. See "WHAT ABOUT DIVIDENDS, CAPITAL GAINS DISTRIBUTIONS AND
TAXES?" for a discussion of certain tax consequences.

You may change an election at any time by notifying the Fund in writing. If such
a notice is received between a dividend declaration date and payment date, it
will become effective on the day following the payment date. The Fund may modify
or terminate its dividend reinvestment program at any time on thirty days'
notice to participants.

WHAT RETIREMENT PLANS DOES THE
FUND OFFER?

The Fund offers the following retirement plans that may fit your needs and allow
you to shelter some of your income from taxes:

- - INDIVIDUAL RETIREMENT ACCOUNT ("IRA"). Individual shareholders may establish
their own tax-sheltered IRA. 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 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 Class C Shares are offered in a separate prospectus. Both the No
Load Shares and theClass 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. Each class of 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 No Load Shares, but not
the Class C Shares, only the No Load 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 Bank Milwaukee, N.A.,
and Firstar Mutual Fund Services, LLC, a subsidiary of Firstar Bank Milwaukee,
N.A., 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.

YEAR 2000

The Fund is aware of the "Year 2000" issue. The "Year 2000" issue stems from the
use of a two-digit format to define the year in certain date-sensitive computer
application systems rather than the use of a four-digit format. As a result,
date-sensitive software programs could recognize a date using "00" as the year
1900 rather than the year 2000. This could result in major systems or process
failures or the generation of erroneous data, which would lead to disruptions in
the Fund's business operations.

The Fund has no application systems of its own and is entirely dependent on its
service providers' systems and software. The Fund is working with its service
providers (including the Adviser, the Administrator, its transfer agent and its
custodian) to identify and remedy any Year 2000 issues. However, the Fund cannot
guarantee that all Year 2000 issues will be identified and remedied, and the
failure to successfully identify and remedy all Year 2000 issues could result in
an adverse impact on the Fund.

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.

INVESTMENT ADVISER

DAVID W. TICE & ASSOCIATES, INC.
8140 WALNUT HILL LANE, SUITE 405
DALLAS, TEXAS 75231
HTTP://WWW.PRUDENTBEAR.COM

ADMINISTRATOR, TRANSFER AGENT, DIVIDEND PAYING AGENT, SHAREHOLDER SERVICING
AGENT

FIRSTAR TRUST COMPANY
615 EAST MICHIGAN STREET
P.O. BOX 701
MILWAUKEE, WISCONSIN 53202

CUSTODIAN

FIRSTAR BANK MILWAUKEE, N.A.
777 EAST WISCONSIN AVENUE
P.O. BOX 701
MILWAUKEE, WISCONSIN 53202

INDEPENDENT ACCOUNTANTS

PRICEWATERHOUSECOOPERS LLP
MILWAUKEE, WISCONSIN

LEGAL COUNSEL

FOLEY & LARDNER
MILWAUKEE, WISCONSIN

<PAGE>

PROSPECTUS NOVEMBER 30, 1998
- -------------------------------------------------------------------------------

PRUDENT
BEAR
FUND

- -------------------------------------------------------------------------------
PROSPECTUS NOVEMBER 30, 1998 PRUDENT BEAR FUND
- -------------------------------------------------------------------------------

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 30, 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
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 call 1-888-PRU-BEAR (toll free), or 1-888-778-2327 or visit our Internet
homepage at http://www.prudentbear.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

YEAR 2000 20

PERFORMANCE INFORMATION 20

- --------------------------------------------------------------------------------
PRUDENT BEAR FUND
- --------------------------------------------------------------------------------

EXPENSES
The following information is based on the Fund's actual expenses incurred during
the fiscal year ended September 30, 1998 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 0.28%
All other Other Expenses 0.58%
-----
Total Other Expenses 0.86%
-----
Total Fund Operating Expenses 3.11%
-----

<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.

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
------ -------- -------- --------
$31 $96 $163 $342

FINANCIAL HIGHLIGHTS
The financial information of a No Load Share of the Prudent Bear Fund (the
"Fund") included in this table for the fiscal years ended September 30, 1998,
September 30, 1997 and the fiscal period ended September 30, 1996 has been
audited by PricewaterhouseCoopers LLP, the Fund's independent accountants.
The table should be read in conjunction with the financial statements and
related notes contained in the Fund's 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 30, 1998.

December 28,
Year Ended Year Ended 1995<F1> through
September 30, September 30, September 30,
1998 1997 1996
----- ----- -----

Per Share Data:

Net asset value,
beginning of
period $7.29 $8.88 $10.00
------ ------ ------
Income from
investment operations:
Net investment
income<F2> 0.29<F3> 0.62<F3> 0.09
Net realized and
unrealized
losses on
investments (0.01) (2.06) (1.21)
------ ------ ------
Total from
investment
operations 0.28 (1.44) (1.12)
------ ------ ------
Less distributions
from net
investment income (0.23) (0.15) _
------ ------ ------
NET ASSET VALUE,
END OF PERIOD $7.34 $7.29 $8.88
====== ====== ======
Total return<F4> 3.66% (16.44)% (11.20)%

Supplemental
data and ratios:
Net assets,
end of period $173,691,363 $26,499,709 $7,325,655
Ratio of operating
expenses to
average net
assets<F5><F6><F7> 2.08% 2.59% 2.75%
Ratio of dividends
on short positions
to average net
assets<F6> 0.28% 0.34% 0.34%
Ratio of net
investment
income to average
net assets<F6><F7> 4.34% 7.75% 4.07%
Portfolio
turnover rate 480.25% 413.25% 91.31%

<F1> Commencement of operations.
<F2> Net investment income before dividends on short positions for the periods
ended September 30, 1998, September 30, 1997 and September 30, 1996 were
$0.30, $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 period December 28, 1995 through September 30, 1996.
<F5> The operating expense ratio excludes dividends on short positions. The
ratio including dividends on short positions for the periods
ended September 30, 1998, September 30, 1997 and September 30, 1996 were
2.36%, 2.93% and 3.09%, respectively.
<F6> Annualized for the period December 28, 1995 through September 30, 1996
<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
"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.

WHAT ARE THE FUND'S INVESTMENT TECHNIQUES, POLICIES AND RISKS?
The Fund may invest in the following portfolio securities and may engage in the
following investment techniques.

Common Stocks
The Fund's long common stock investments primarily will be made in companies
where the potential value generally has been overlooked by investors. Typically
these companies include companies that are covered by a small number of analysts
and are attractively priced but which are also operating businesses that have
not been discovered or that have not yet 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, 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.

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.

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
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.

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.

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.

Each of the Exchanges has established limitations governing the maximum number
of call or put options on the same index which may be bought or written (sold)
by a single investor, whether acting alone or in concert with others (regardless
of whether such options are written on the same or different Exchanges or are
held or written on one or more accounts or through one or more brokers). Under
these limitations, options positions of certain other accounts advised by the
same investment adviser are combined for purposes of these limits. Pursuant to
these limitations, an Exchange may order the liquidation of positions and
may impose other sanctions or restrictions. These position limits may restrict
the number of listed options which the Fund may buy or sell; however, the
Adviser intends to comply with all limitations.

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.

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.

Repurchase Agreements
The Fund, as part of a cash reserve or to "cover" investment strategies, may
purchase repurchase agreements secured by U.S. Government Securities. Under a
repurchase agreement, the Fund purchases a debt security and simultaneously
agrees to sell the security back to the seller at a mutually agreed-upon future
price and date, normally one day or a few days later. The resale price is
greater than the purchase price, reflecting an agreed-upon market interest rate
during the purchaser's holding period. While the maturities of the underlying
securities in repurchase transactions may be more than one year, the term of
each repurchase agreement will always be less than one year. The Fund will enter
into repurchase agreements only with member banks of the Federal Reserve system
or primary dealers of U.S. Government Securities. The Adviser will monitor the
creditworthiness of each of the firms which is a party to a repurchase agreement
with the Fund. In the event of a default or bankruptcy by the seller, the Fund
will liquidate those securities (whose market value, including accrued interest,
must be at least equal to 100% of the dollar amount invested by the Fund in each
repurchase agreement) held under the applicable repurchase agreement, as these
securities constitute collateral for the seller's obligation to pay. However,
liquidation could involve costs or delays and, to the extent proceeds from the
sale of these securities were less than the agreed-upon repurchase price, the
Fund would suffer a loss. The Fund also may experience difficulties and incur
certain costs in exercising its rights to the collateral and may lose the
interest the Fund expected to receive under the repurchase agreement.
Repurchase agreements usually are for short periods, such as one week or
less, but may be longer. It is the current policy of the Fund to treat
repurchase agreements that do not mature within seven days as illiquid
for the purposes of its investment policies.

Borrowing
The Fund may borrow money, but 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.

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 up to 25% of its net assets in securities issued by
other investment companies including investment companies that invest in high
quality, short-term debt securities (i.e., money market instruments), as well
as SPDRs and WEBs. The Fund will not purchase or otherwise acquire shares of
any registered investment company (except as part of a plan of merger,
consolidation or reorganization approved by the shareholders of the Fund) if
(a) the Fund and its affiliated persons would own more than 3% of any class
of securites of such registered investment company or (b) more than 5% of its
net assets would be invested in the shares of any one registered investment
company. If the Fund purchases more than 1% of any class of security of a
registered open end investment company, such investment will be considered an
illiquid investment. In addition to the advisory fees and other expenses the
Fund bears directly in connection with its own operations, as a shareholder of
another investment company, the Fund would bear its pro rata portion of the
other investment company's advisory fees and other expenses, and such fees and
other expenses will be borne indirectly by the Fund's shareholders.

Illiquid Securities
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 AND RISKS?" and
the following restrictions:

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 Mutual Fund
Services, LLC 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 Mutual Fund
Services, LLC 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.

The Fund also has entered into an administration agreement (the "Administration
Agreement") with Firstar Mutual Fund Services, LLC (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 .07% of the first $200,000,000 of the Fund's average net
assets, .05% of the next $300,000,000 of the Fund's average net assets, .04%
of the next $500,000,000 and .03% of the Fund's net assets in excess of
$1,000,000,000. Notwithstanding the foregoing, the Administrator's minimum
annual fee is $50,000.

Firstar Mutual Fund Services, LLC also provides transfer agency and
accounting services for the Fund. Firstar Bank Milwaukee, N.A. provides
custodial 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 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
Mutual Fund Services, LLC, P. O. Box 701, Milwaukee, Wisconsin 53201-0701.
Note: A different procedure is used for establishing Individual Retirement
Accounts. Please call Firstar Mutual Fund Services, LLC 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 Mutual Fund Services, LLC 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 Mutual Fund Services, LLC, 3rd Floor, 615 East
Michigan Street, Milwaukee, Wisconsin 53202.

BY TELEPHONE. By using the Fund's telephone purchase option you may move money
from your bank account to your Fund account at your request. Only bank accounts
held at domestic financial institutions that are Automated Clearing House (ACH)
members may be used for telephone transactions. To have your Class C Shares
purchased at the net asset value determined as of the close of regular trading
on a given date, Firstar Mutual Fund Services, LLC 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), or quarterly) 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 Mutual Fund Services, LLC 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 Mutual Fund Services, LLC.

You may purchase Class C Shares through programs or 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 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, 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 ACCEPTANCE BY THE FUND, AND ARE NOT BINDING
UNTIL SO ACCEPTED. THE FUND RESERVES THE RIGHT TO REJECT APPLICATIONS IN WHOLE
OR IN PART. The Fund will suspend the offering of its shares during any period
in which the New York Stock Exchange is closed because of financial conditions
or any other extraordinary reason and it may suspend the offering of its shares
during any period in which (a) trading on the New York Stock Exchange is
restricted pursuant to rules and regulations of the Securities and Exchange
Commission, (b) the Securities and Exchange Commission has by order permitted
such 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 Mutual Fund
Services, LLC 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 Mutual Fund Services, LLC,
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 Mutual Fund Services, LLC, but the effective date of redemption will
be delayed until the request is received by Firstar Mutual Fund Services, LLC.
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 Mutual Fund
Services, LLC 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).

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 Mutual
Fund Services, LLC 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 Mutual Fund
Services, LLC. 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 Mutual Fund
Services, LLC. 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
Mutual Fund Services, LLC 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.

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 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 Class C Shares in the account, the
value of the remaining Class C Shares in the account falls below $1,000. 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 $1,000 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 will notify you annually as to the tax status of dividend and capital
gains distributions paid by the Fund.

A sale or redemption of shares of the Fund is a taxable event and may result in
a capital gain or loss.

Dividend distributions, capital gains distributions, and capital gains or losses
from redemptions may be subject to state and local taxes.

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.

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.

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.

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 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. Each class of 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.

YEAR 2000
The Fund is aware of the "Year 2000" issue. The "Year 2000" issue stems from
the use of a two-digit format to define the year in certain date-sensitive
computer application systems rather than the use of a four-digit format. As a
result, date-sensitive software programs could recognize a date using "00" as
the year 1900 rather than the year 2000. This could result in major systems or
process failures or the generation of erroneous data, which would lead to
disruptions in the Fund's business operations.

The Fund has no application systems of its own and is entirely dependent
on its service providers' systems and software. The Fund is working with
its service providers (including the Adviser, the Administrator, its
transfer agent and its custodian) to identify and remedy any Year 2000
issues. However, the Fund cannot guarantee that all Year 2000 issues will be
identified and remedied, and the failure to successfully identify and remedy
all Year 2000 issues could result in an adverse impact on the Fund.

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.

PRUDENT BEAR FUND
- --------------------------------------------------------------------------------
CLASS C SHARES

INVESTMENT ADVISER
David W. Tice & Associates, Inc.
8140 Walnut Hill Lane, Suite 405
Dallas, Texas 75231
http://www.prudentbear.com

ADMINISTRATOR, TRANSFER AGENT, DIVIDEND PAYING AGENT, & SHAREHOLDER SERVICING
AGENT
Firstar Mutual Fund Services, LLC
615 East Michigan Street
P.O. Box 701
Milwaukee, Wisconsin 53202

CUSTODIAN
Firstar Bank Milwaukee, N.A.
777 East Wisconsin Avenue
P.O. Box 701
Milwaukee, WI 53202

INDEPENDENT ACCOUNTANTS
PricewaterhouseCoopers LLP
Milwaukee, Wisconsin

LEGAL COUNSEL
Foley & Lardner
Milwaukee, Wisconsin

<PAGE>

STATEMENT OF ADDITIONAL INFORMATION November 30, 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, both of which are dated November 30,
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....................8

INVESTMENT ADVISER, ADMINISTRATOR, CUSTODIAN, TRANSFER
AGENT AND ACCOUNTING SERVICES AGENT..........................8

DETERMINATION OF NET ASSET VALUE.....................................11

DISTRIBUTION OF SHARES...............................................11

SYSTEMATIC WITHDRAWAL PLAN...........................................12

ALLOCATION OF PORTFOLIO BROKERAGE....................................13

TAXES................................................................14

STOCKHOLDER MEETINGS.................................................15

PERFORMANCE INFORMATION..............................................16

DESCRIPTION OF SECURITIES RATINGS....................................17

INDEPENDENT ACCOUNTANTS..............................................18

FINANCIAL STATEMENTS.................................................19

(i)

<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.

<PAGE>

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

<PAGE>

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 will 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.

<PAGE>

The Fund may invest up to 25% of its net assets in shares of
registered investment companies. The Fund will not purchase or otherwise acquire
shares of any registered investment company (except as part of a plan of merger,
consolidation or reorganization approved by the shareholders of the Fund) if (a)
the fund and its affiliated persons would own more than 3% of any class of
securities of such registered investment company or (b) more than 5% of its net
assets would be invested in the shares of any one registered investment company.
If the Fund purchases more than 1% of any class of security of a registered
open-end investment company, such investment will be considered an illiquid
investment.

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 (i) the
fiscal year ended September 30, 1998 (480.25%) was higher than its annual
portfolio turnover rate for the fiscal period ended September 30, 1997 (413.25%)
and (ii) 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, 1998 fiscal year and September 30, 1997 fiscal
year, respectively, and because of the greater fluctuations in net assets during
such periods caused by

<PAGE>

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.

<PAGE>

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, 44,
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.

- -----------------------------------
*Messrs. Tice and Jahnke are interestred persons of the Corporation (as
defined in the Investment Company Act of 1940).

<PAGE>

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,
40, 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, 44, 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, 44, has been a
self-employed neurosurgeon for more than five years. His address is 3033
Rosedale, Dallas, TX 75205.

Buril Ragsdale -- Director. Mr. Ragsdale, 64, has been employed by
ENSERCH Corporation as a senior development specialist and senior economic
specialist since 1976. He is currently employed as a consultant to TU Integrated
Solutions. His address is 7235 Haverford Drive, Dallas, TX 75214.

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, 1998:

<TABLE>
COMPENSATION TABLE
<CAPTION>

Total
Compensation
from Corporation
Pension or Retirement Estimated Annual and Fund
Name of Aggregate Compensation Benefits Accrued As Benefits Upon Complex Paid to
Person from Corporation Part of Fund Expenses Retirement Directors
------ ---------------------- --------------------- ----------------- ---------
<S> <C> <C> <C> <C>
David W. Tice $0 $0 $0 $0
Gregg Jahnke $0 $0 $0 $0

David Eric Luck $1,000 $0 $0 $1,000
Jerry Marlin, M.D. $1,000 $0 $0 $1,000
Buril Ragsdale $1,000 $0 $0 $1,000

</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 October 31, 1998 held of record more than 5% of the
Fund's then outstanding

<PAGE>

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. 7,488,585 31.71%
101 Montgomery Street
San Francisco, CA 94104-4122

National Financial Services Corp. 4,871,138 20.62%
One World Financial Center
200 Liberty Street
New York, NY 10281-1003

Donaldson Lufkin & Jenrette 2,645,574 11.20%
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. During the fiscal year ended September 30, 1998, the Fund incurred
advisory fees of $868,169, 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

<PAGE>

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 years
ended September 30, 1997 and September 30, 1998, 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 Mutual Fund Services,
LLC, 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, for the fiscal year
ended

<PAGE>

September 30, 1997 and for the fiscal year ended September 30, 1998 were
$18,721, $24,914 and $35,798, 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 Bank Milwaukee, N.A., an affiliate of Firstar Mutual Fund
Services, LLC, also serves as custodian of the Corporation's assets pursuant to
a Custody Agreement. Under the Custody Agreement, Firstar Bank Milwaukee, N.A.
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 Bank Milwaukee, N.A. does
not exercise any supervisory function over the purchase and sale of securities.

Firstar Mutual Fund Services, LLC 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 Mutual Fund
Services, LLC 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 Mutual Fund Services, LLC pursuant to which
Firstar Mutual Fund Services, LLC 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 Mutual Fund Services, LLC is entitled to
receive fees, payable monthly, based on the total annual rate of $31,250 for the
first $40 million in average net assets of the Fund, .025% on the next $200
million of average net assets, and .0125% on average net assets exceeding $240
million (subject to an annual minimum of $31,250). Firstar Mutual Fund Services,
LLC 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, for the fiscal year ended September 30, 1997 and for
the fiscal year ended September 30, 1998, the Fund incurred $17,894, $25,693 and
$35,633, 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

<PAGE>

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

<PAGE>

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, 1998, the Fund incurred fees of $173,634 pursuant to the Plan for
the No Load Shares, $124,962 of which was used to pay selling dealers, $23,456
of which was used to pay printing and mailing expenses and $25,216 of which was
used to pay advertising expenses. The Plan for the Class C Shares did not take
effect until November 30, 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 Mutual Fund Services, LLC, 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 Mutual Fund Services, LLC in writing thirty (30) days prior
to the next payment.

<PAGE>

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. 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 totaled $19,267 on total
transactions of $5,988,814; brokerage commissions paid by the Fund during the
fiscal year ended September 30, 1997 were $262,073 on total transactions of

<PAGE>

$101,104,010; and brokerage commissions paid by the Fund during the fiscal year
ended September 30, 1998 were $2,316,276 on total transactions of $685,424,031.
During the fiscal year ended September 30, 1998, brokerage commissions paid by
the Fund to brokers who provided research services were $227,461 on total
transactions of $118,794,010.

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

<PAGE>

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

<PAGE>

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

<PAGE>

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 September
30, 1998 was (-9.07%) and for the one year period ended September 30, 1998 was
(+3.66%). 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 September 30, 1996 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 30, 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.

<PAGE>

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 audited financial statements are incorporated by
reference to the Annual Report, dated September 30, 1998, of the Fund (File No.
811-9120), as filed with the Securities and Exchange Commission on November 24,
1998:

* Statement of Assets and Liabilities as of September 30, 1998.

<PAGE>

* Statement of Operations For the Fiscal Year Ended September 30, 1998.

* Statement of Changes in Net Assets For the Fiscal Year Ended September
30, 1998 and For the Fiscal Year Ended September 30, 1997.

* Financial Highlights.

* Schedule of Investments as of September 30, 1998.

* Schedule of Call Options Written as of September 30, 1998.

* Schedule of Securities Sold Short as of September 30, 1998.

* Notes to the Financial Statements.

<PAGE>

PART C

OTHER INFORMATION

Item 24. 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,
1998 (File No. 811-9120), of Prudent Bear Funds, Inc. (and filed with
the Securities and Exchange Commission on November 24, 1998)

Financial Statements Incorporated by reference to the 1998 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.(4)

(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 (predecessor
to Firstar Bank Milwaukee, N.A.).(1)

(9.1) Fund Administration Servicing Agreement with Firstar Trust
Company (predecessor to Firstar Mutual Fund Services, LLC).
(1)

S-1

<PAGE>

(9.2) Transfer Agent Agreement with Firstar Trust Company
(predecessor to Firstar Mutual Fund Services, LLC).(1)

(9.3) Fund Accounting Servicing Agreement with Firstar Trust
Company (predecessor to Firstar Mutual Fund Services, LLC).
(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.(4)

(15.2) Service and Distribution Plan for Class C Shares.(4)

(16) Schedule for Computation of Performance Quotations.(2)

(17) Financial Data Schedules.

(18) Rule 18f-3 Multi-Class Plan.(4)

- ----------

(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.

(4) Previously filed as an exhibit to Post-Effective Amendment No. 4 to the
Registration Statement and incorporated by reference thereto. Post-Effective
Amendment No. 4 was filed on September 28, 1998 and its accession number is
0000897069-98-000479.

S-2

<PAGE>

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 October 31, 1998
-------------- ----------------------

Prudent Bear Fund No Load Shares 2,584

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

S-3

<PAGE>

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.

S-4

<PAGE>

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 Mutual Fund Services, LLC, 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.

S-5

<PAGE>

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.

S-6

<PAGE>

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it meets all of
the requirements for effectiveness of this registration statement under rule
485(b) under the Securities Act and 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
November, 1998.

PRUDENT BEAR FUNDS, INC.
(Registrant)

/S/David W. Tice, President
By: _________________________________
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 November 23, 1998
David W. Tice (Principal Executive,
Financial and Accounting
Officer) and a Director

/S/Gregg Jahnke Director
_________________________ November 23, 1998
Gregg Jahnke

/S/ David Eric Luck Director
________________________ November 23, 1998
David Eric Luck

/S/Jerry Marlin, M.D. Director
________________________ November 23, 1998
Jerry Marlin, M.D.

/S/Buril Ragsdale Director
________________________ November 23, 1998
Buril Ragsdale

S-7

<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 (predecessor to
Firstar Bank Milwaukee, N.A.)*

(9.1) Fund Administration Servicing Agreement with Firstar Trust Company
(predecessor to Firstar Mutual Fund Services, LLC)*

(9.2) Transfer Agent Agreement with Firstar Trust Company (predecessor to

Firstar Mutual Fund Services, LLC)*
(9.3) Fund Accounting Servicing Agreement with Firstar Trust Company
(predecessor to Firstar
Mutual Fund Services, LLC)*

(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.

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

November 25, 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,

Foley & Lardner

CONSENT OF INDEPENDENT ACCOUNTANTS

We hereby consent to the incorporation by reference in the Prospectuses and the
Statement of Additional Information constituting parts of this Post-Effective
Amendment No. 5 to the registration statement on Form N-1A (the "Registration
Statement") of our report dated November 19, 1998, relating to the financial
statements and financial highlights appearing in the September 30, 1998 Annual
Report to Shareholders of Prudent Bear Fund, which is also incorporated by
reference into the Registration Statement. We also consent to the reference to
us under the headings "Financial Highlights" in such Prospectuses and
"Independent Accountants" in such Statement of Additional Information.

PricewaterhouseCoopers LLP
Milwaukee, Wisconsin
November 25, 1998

<ARTICLE> 6
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF PRUDENT BEAR BUNDS, INC. AS OF AND FOR THE YEAR
ENDED SEPTEMBER 30, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1

<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-START> OCT-01-1997
<PERIOD-END> SEP-30-1998
<INVESTMENTS-AT-COST> 146,241,948
<INVESTMENTS-AT-VALUE> 139,615,913
<RECEIVABLES> 179,390,638
<ASSETS-OTHER> 545,842
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 319,552,393
<PAYABLE-FOR-SECURITIES> 11,155,349
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 134,705,681
<TOTAL-LIABILITIES> 145,861,030
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 178,902,175
<SHARES-COMMON-STOCK> 23,662,896
<SHARES-COMMON-PRIOR> 3,634,136
<ACCUMULATED-NII-CURRENT> 2,492,208
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (20,488,012)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 12,784,992
<NET-ASSETS> 173,691,363
<DIVIDEND-INCOME> 27,430
<INTEREST-INCOME> 4,628,421
<OTHER-INCOME> 0
<EXPENSES-NET> (1,639,145)
<NET-INVESTMENT-INCOME> 3,016,706
<REALIZED-GAINS-CURRENT> (11,636,875)
<APPREC-INCREASE-CURRENT> 11,302,865
<NET-CHANGE-FROM-OPS> 2,682,696
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (1,895,943)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 64,975,126
<NUMBER-OF-SHARES-REDEEMED> (45,136,010)
<SHARES-REINVESTED> 189,644
<NET-CHANGE-IN-ASSETS> 147,191,654
<ACCUMULATED-NII-PRIOR> 1,367,233
<ACCUMULATED-GAINS-PRIOR> (8,851,136)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 868,169
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,639,145
<AVERAGE-NET-ASSETS> 69,453,537
<PER-SHARE-NAV-BEGIN> 7.29
<PER-SHARE-NII> 0.29
<PER-SHARE-GAIN-APPREC> (0.01)
<PER-SHARE-DIVIDEND> (0.23)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 7.34
<EXPENSE-RATIO> 2.08
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0

</TABLE>