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. 3 [X]
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [X]
Amendment No. 4 [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 will become effective (check appropriate
box):
[_] immediately upon filing pursuant to paragraph (b)
[X] on January 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
Prospectus or Statement of
Item No. on Form N-1A Additional Information
PART A - INFORMATION REQUIRED IN PROSPECTUS
1. Cover Page Cover Page
2. Synopsis EXPENSES
3. Financial Highlights FINANCIAL HIGHLIGHTS;
PERFORMANCE INFORMATION
4. General Description of WHAT IS THE PRUDENT BEAR
Registrant 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 (INCLUDED IN ANNUAL REPORT TO
Fund Performance SHAREHOLDERS)
6. Capital Stock and Other WHAT REPORTS WILL I RECEIVE?;
Securities WHAT ABOUT DIVIDENDS, CAPITAL
GAINS DISTRIBUTIONS AND
TAXES?; GENERAL INFORMATION
ABOUT THE FUND
7. Purchase of Securities Being HOW IS THE FUND'S SHARE PRICE
Offered DETERMINED?; HOW DO I OPEN AN
ACCOUNT AND PURCHASE SHARES?;
MAY SHAREHOLDERS REINVEST
DIVIDENDS?; WHAT RETIREMENT
PLANS DOES THE FUND OFFER?
8. Redemption or Repurchase HOW DO I SELL MY SHARES
9. Legal Proceedings *
PART B - INFORMATION REQUIRED IN STATEMENT
OF ADDITIONAL INFORMATION
10. Cover Page Cover Page
11. Table of Contents Table of Contents
12. General Information and *
History
13. Investment Objectives and Investment Restrictions;
Policies Investment Considerations
14. Management of the Fund Directors and Officers of the
Corporation
15. Control Persons and Principal Directors and Officers of the
Holders of Securities Corporation; Ownership of
Management and Principal
Shareholders; Investment
Adviser, Administrator,
Custodian, Transfer Agent and
Accounting Services Agent
16. Investment Advisory and Other Investment Adviser,
Services Administrator, Custodian,
Transfer Agent and Account
Services Agent; Independent
Accountants
17. Brokerage Allocation Allocation of Portfolio
Brokerage
18. Capital Stock and Other Included in Prospectus under
Securities "GENERAL INFORMATION ABOUT THE
FUND"
19. Purchase, Redemption and Included in Prospectus under
Pricing of Securities Being "HOW IS THE FUND'S SHARE PRICE
Offered 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 Performance Information
Data
23. Financial Statements Financial Statements
_______________________
* Answer negative or inapplicable
<PAGE>
PROSPECTUS
JANUARY 30, 1998
(LOGO)
PRUDENT
BEAR
FUND
PROSPECTUS JANUARY 30, 1998
PRUDENT BEAR FUND
INVESTMENT OBJECTIVES AND POLICIES
Prudent Bear Funds, Inc. is a no-load, open-end, diversified management
investment company consisting of a single portfolio, the Prudent Bear Fund (the
"Fund"). The Fund's investment objective is capital appreciation. Unlike many
mutual funds with this investment objective, the Fund will attempt to achieve
its investment objective in declining equity markets as well as in rising equity
markets. In seeking its investment objective of capital appreciation, the Fund
will invest primarily in common stocks, 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 January 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
Questions regarding the Prudent Bear Fund can be directed to 1-888-PRU-BEAR
(toll free), or 1-888-778-2327. For account inquiries please call 1-800-711-
1848. For additional information about the Prudent Bear Fund and its adviser,
David W. Tice and Associates, Inc., please visit our Internet homepage at
http://www.tice.com.
TABLE OF CONTENTS
Page
----
EXPENSES 2
FINANCIAL HIGHLIGHTS 2
WHAT IS THE PRUDENT BEAR FUND? 3
WHAT IS THE FUND'S
INVESTMENT OBJECTIVE? 3
WHAT ARE THE FUND'S INVESTMENT TECHNIQUES, POLICIES AND RISKS? 4
DOES THE FUND HAVE ANY
INVESTMENT LIMITATIONS? 11
WHAT REPORTS WILL I RECEIVE? 11
WHO MANAGES THE FUND? 11
HOW IS THE FUND'S
SHARE PRICE DETERMINED? 12
HOW DO I OPEN AN ACCOUNT AND
PURCHASE SHARES? 13
HOW DO I SELL MY SHARES? 15
WHAT ABOUT DIVIDENDS, CAPITAL GAINS DISTRIBUTIONS AND TAXES? 17
MAY SHAREHOLDERS REINVEST DIVIDENDS? 18
WHAT RETIREMENT PLANS DOES
THE FUND OFFER? 18
WHAT ABOUT BROKERAGE TRANSACTIONS? 18
GENERAL INFORMATION ABOUT THE FUND 19
PERFORMANCE INFORMATION 19
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED ON THE
ACCURACY OR ADEQUACY OF THE PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
EXPENSES
The following information is based on the Fund's actual expenses incurred during
the fiscal year ended September 30, 1997 and is provided in order to assist you
in understanding the various costs and expenses that, as an investor in the
Fund, you will bear directly or indirectly. IT SHOULD NOT BE CONSIDERED TO BE A
REPRESENTATION OF PAST OR FUTURE EXPENSES. 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 0.34%
All other Other Expenses 1.09%
-----
Total Other Expenses 1.43%
-----
Total Fund Operating Expenses 2.93%<F3>
-----
<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.
<F3> For the fiscal year ended September 30, 1997, the Fund's average net
assets were $18,984,472. For the first quarter of the fiscal year ending
September 30, 1998, the Fund's average net assets were $48,042,811.
Generally Total Fund Operating Expenses as a percentage of average net
assets will decline as average net assets increase.
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
------ ------- ------- --------
$30 $91 $154 $325
FINANCIAL HIGHLIGHTS
The financial information of a share of Prudent Bear Fund (the "Fund") included
in this table has been audited by Price Waterhouse 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 1995<F1> through
September 30, September 30,
1997 1996
---- ----
Per Share Data:
Net asset value, beginning
of period $8.88 $10.00
------- -------
Income from investment
operations:
Net investment income<F2> 0.62<F3> 0.09
Net realized and unrealized
losses on investments (2.06) (1.21)
------- -------
Total from investment
operations (1.44) (1.12)
------- -------
Less distributions from
net investment income (0.15) _
------- -------
Net asset value, end of period $7.29 $8.88
======= =======
Total return<F4> (16.44)% (11.20)%
Supplemental data and ratios:
Net assets, end of period $26,499,709 $7,325,655
Ratio of operating expenses
to average net assets<F5><F6><F7> 2.59% 2.75%
Ratio of dividends on short
positions to average
net assets<F6> 0.34% 0.34%
Ratio of net investment
income to average
net assets<F6><F7> 7.75% 4.07%
Portfolio turnover rate 413.25% 91.31%
Average commission
rate paid $0.0565 $0.0502
<F1> Commencement of operations.
<F2> Net investment income before dividends on short positions for the period
ended September 30, 1997 and September 30, 1996 was $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 period
ended September 30, 1997 and September 30, 1996 was 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 a no-load, 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.
The Adviser believes that the S&P 500's dividend yield varies inversely with the
market, and that the market generally has increased at a higher rate over the
next year when the dividend yield is higher. In determining whether the Fund
should hold more "long" or "short" equity positions, the Adviser will look to
the average dividend yield on stocks comprising the S&P 500. When the S&P 500's
dividend yield is less than 3%, the amount of the Fund's "short" equity
positions will generally exceed its "long" equity positions, and when the S&P
500's dividend yield exceeds 6%, the amount of the Fund's "long" equity
positions will generally exceed its "short" equity positions. When the S&P 500's
dividend yield is between 3.0% and 6.0%, the Adviser will allocate the Fund's
portfolio between short and long positions in its discretion.
The Fund's investment results will suffer if there is a stock market advance
when the Fund has significant "short" equity positions, or if there is a stock
market decline when the Fund has a significant "long" equity position. The risk
that the Adviser may incorrectly allocate the Fund's investments between "long"
and "short" equity positions is in addition to the risks associated with each of
the Fund's investments which are discussed in "WHAT ARE THE FUND'S INVESTMENT
TECHNIQUES, POLICIES AND RISKS?"
As a result of the investment techniques used by the Fund, the Fund expects that
a significant portion (up to 100%) of its assets will be held in liquid
securities in a segregated account as "cover" for the investment techniques the
Fund employs. These assets may not be sold while the position in the
corresponding instrument or transaction (e.g. short sale, option or futures
contract) is open unless they are replaced by similar assets. As a result, the
commitment of a large portion of the Fund's assets to "cover" investment
techniques could impede portfolio management or the Fund's ability to meet
redemption requests or other current obligations.
Participation in the options or futures markets by the Fund involves investment
risks and transaction costs to which the Fund would not be subject absent the
use of these strategies. Risks inherent in the use of options, futures contracts
and options on futures contracts include: (1) adverse changes in the value of
such instruments; (2) imperfect correlation between the price of options and
futures contracts and options thereon and movements in the price of the
underlying securities, index or futures contracts; (3) the fact that the skills
needed to use these strategies are different from those needed to select
portfolio securities; and (4) the possible absence of a liquid secondary market
for any particular instrument at any time. For further information regarding
these investment techniques, see "WHAT ARE THE FUND'S INVESTMENT TECHNIQUES,
POLICIES AND RISKS?"
WHAT ARE THE FUND'S INVESTMENT
TECHNIQUES, POLICIES ANDRISKS?
The Fund may invest in the following portfolio securities and may engage in the
following investment techniques.
Common Stocks
The Fund's long common stock investments primarily will be made in companies
where the potential value generally has been overlooked by investors. Typically
these companies include companies that are covered by a small number of analysts
and are attractively priced but which are also operating businesses that have
not been discovered or become popular, previously unpopular companies having
growth potential due to changed circumstances, companies that have declined in
value and no longer command an investor following, and previously popular
companies temporarily out-of-favor due to short-term factors. The Fund may
invest in common stocks of companies of all sizes, industries and geographical
location. Dividend income is not a factor in selecting common stocks.
The Fund may invest up to 20% of its total assets in securities of foreign
issuers either directly or in the form of American Depository Receipts ("ADRs").
The Fund will only invest in ADRs that are issuer-sponsored. Sponsored ADRs
typically are issued by a U.S. bank or trust company and evidence ownership of
underlying securities issued by a foreign corporation. Investments in foreign
securities involve risks which are in addition to the risks inherent in domestic
investments. Foreign companies are not subject to the regulatory requirements of
U.S. companies and, as such, 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.
Some futures and options strategies tend to hedge the Fund's "long" or "short"
equity positions against price fluctuations, while other strategies tend to
increase "long" or "short" market exposure. Whether the Fund realizes a gain or
loss from futures activities depends generally upon movements in the underlying
stock index. The extent of the Fund's loss from an unhedged short position in
futures contracts or call options on futures contracts is potentially unlimited.
The Fund may engage in related closing transactions with respect to options on
futures contracts. The Fund will purchase or write options only on futures
contracts that are traded on a United States exchange or board of trade.
The Fund may purchase and sell futures contracts and options thereon only to the
extent that such activities would be consistent with the requirements of Section
4.5 of the regulations under the Commodity Exchange Act promulgated by the
Commodity Futures Trading Commission (the "CFTC Regulations"), under which the
Fund would be excluded from the definition of a "commodity pool operator." Under
Section 4.5 of the CFTC Regulations, the Fund may engage in futures
transactions, either for "bona fide hedging" purposes, as this term is defined
in the CFTC Regulations, or for non-hedging purposes to the extent that the
aggregate initial margins and premiums required to establish such non-hedging
(i.e. speculative) positions do not exceed 5% of the liquidation value of the
Fund's portfolio. In the case of an option on a futures contract that is "in-
the-money" at the time of purchase (i.e., the amount by which the exercise price
of the put option exceeds the current market value of the underlying instrument
or the amount by which the current market value of the underlying instrument
exceeds the exercise price of the call option), the in-the-money amount may be
excluded in calculating this 5% limitation.
When the Fund purchases or sells a stock index futures contract, the Fund
"covers" its position. To cover its position, the Fund may maintain with its
custodian bank (and mark-to-market on a daily basis) a segregated account
consisting of cash or liquid securities when added to any amounts deposited with
a futures commission merchant as margin, are equal to the market value of the
futures contract or otherwise cover its position. If the Fund continues to
engage in the described securities trading practices and properly segregates
assets, the segregated account will function as a practical limit on the amount
of leverage which the Fund may undertake and on the potential increase in the
speculative character of the Fund's outstanding portfolio securities.
Additionally, such segregated accounts will assure the availability of adequate
funds to meet the obligations of the Fund arising from such investment
activities.
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 losses may be realized
when such securities purchased at a premium are redeemed at a price lower than
their purchase price. Capital gains or losses also may be realized upon the sale
of U.S. Treasury Securities.
Repurchase Agreements
The Fund, as part of a cash reserve or to "cover" investment strategies, may
purchase repurchase agreements secured by U.S. Government Securities. Under a
repurchase agreement, the Fund purchases a debt security and simultaneously
agrees to sell the security back to the seller at a mutually agreed-upon future
price and date, normally one day or a few days later. The resale price is
greater than the purchase price, reflecting an agreed-upon market interest rate
during the purchaser's holding period. While the maturities of the underlying
securities in repurchase transactions may be more than one year, the term of
each repurchase agreement will always be less than one year. The Fund will enter
into repurchase agreements only with member banks of the Federal Reserve system
or primary dealers of U.S. Government Securities. The Adviser will monitor the
creditworthiness of each of the firms which is a party to a repurchase agreement
with the Fund. In the event of a default or bankruptcy by the seller, the Fund
will liquidate those securities (whose market value, including accrued interest,
must be at least equal to 100% of the dollar amount invested by the Fund in each
repurchase agreement) held under the applicable repurchase agreement, as these
securities constitute collateral for the seller's obligation to pay. However,
liquidation could involve costs or delays and, to the extent proceeds from the
sale of these securities were less than the agreed-upon repurchase price, the
Fund would suffer a loss. The Fund also may experience difficulties and incur
certain costs in exercising its rights to the collateral and may lose the
interest the Fund expected to receive under the repurchase agreement. Repurchase
agreements usually are for short periods, such as one week or less, but may be
longer. It is the current policy of the Fund to treat repurchase agreements that
do not mature within seven days as illiquid for the purposes of its investment
policies.
Borrowing
The Fund may borrow money, but does not presently intend to borrow for
investment purposes. Borrowing for investment is known as leveraging. The Fund
may borrow money to facilitate management of the Fund's portfolio by enabling
the Fund to meet redemption requests when the liquidation of portfolio
instruments would be inconvenient or disadvantageous. Such borrowing is not for
investment purposes and will be repaid by the Fund promptly.
As required by the Act, the Fund must maintain continuous asset coverage (total
assets, including assets acquired with borrowed funds, less liabilities
exclusive of borrowings) of 300% of all amounts borrowed. If, at any time, the
value of the Fund's assets should fail to meet this 300% coverage test, the
Fund, within three days (not including Sundays and holidays), will reduce the
amount of the Fund's borrowings to the extent necessary to meet this 300%
coverage. Maintenance of this percentage limitation may result in the sale of
portfolio securities at a time when investment considerations otherwise indicate
that it would be disadvantageous to do so.
In addition to the foregoing, the Fund is authorized to borrow money from a bank
as a temporary measure for extraordinary or emergency purposes in amounts not in
excess of 5% of the value of the Fund's total assets. This borrowing is not
subject to the foregoing 300% asset coverage requirement. The Fund is authorized
to pledge portfolio securities as the Adviser deems appropriate in connection
with any borrowings.
Other Index Based Securities
The Fund may invest in units of beneficial interest of unit investment trusts
which hold stocks comprising a recognized securities index such as SPDRs which
hold the component stocks of the Standard & Poor's 500 Index. The Fund may also
invest in shares of registered open-end management investment companies which
invest primarily in common stocks in an effort to track the performance of a
specified foreign equity market index such as World Equity Benchmark Shares or
WEBS. SPDRs and WEBS, which trade on the American Stock Exchange and other
similar securities, may trade at a discount to their net asset value. As an
investor in SPDRs, WEBS or other similar securities, the Fund will indirectly
bear its proportionate share of the expenses of such index funds.
Warrants
The Fund may invest in warrants and similar rights, which are privileges issued
by corporations enabling the owners to subscribe to and purchase a specified
number of shares of the corporation at a specified price during a specified
period of time. The purchase of warrants involves the risk that the Fund could
lose the purchase value of a warrant if the right to subscribe to additional
shares is not exercised prior to the warrants' expiration. Also the purchase of
warrants involves the risk that the effective price paid for the warrants added
to the subscription price of the related security may exceed the value of the
subscribed security's market price such as when there is no movement in the
level of the underlying security.
Money Market Instruments
The Fund, as part of a cash reserve or to "cover" investment strategies, may
invest in short-term, high quality money market instruments in addition to
repurchase agreements and U.S. Treasury securities with a remaining maturity of
13 months or less. The Fund may invest in commercial paper and other cash
equivalents rated A-1 or A-2 by Standard & Poor's Corporation ("S&P") or Prime-1
or Prime-2 by Moody's Investors Service, Inc. ("Moody's"), including commercial
paper master notes (which are demand instruments bearing interest at rates which
are fixed to known lending rates and automatically adjusted when such lending
rates change) of issuers whose commercial paper is rated A-1 or A-2 by S&P or
Prime-1 or Prime-2 by Moody's.
The Fund may also invest in securities issued by other investment companies that
invest in high quality, short-term debt securities (i.e., money market
instruments). In addition to the advisory fees and other expenses the Fund bears
directly in connection with its own operations, as a shareholder of another
investment company, the Fund would bear its pro rata portion of the other
investment company's 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:
(1) The Fund will not purchase the securities of any issuer if the purchase
would cause more than 5% of the value of the Fund's total assets to be
invested in securities of such issuer (except securities of the U.S.
government or any agency or instrumentality thereof), or purchase more than
10% of the outstanding voting securities of any one issuer, except that up
to 25% of the Fund's total assets may be invested without regard to these
limitations.
(2) The Fund will not invest 25% or more of its total assets at the time of
purchase in securities of issuers whose principal business activities are
in the same industry.
A list of the Fund's policies and restrictions, both fundamental and
nonfundamental, is set forth in the Statement of Additional Information. In
order to provide a degree of flexibility, the Fund's investment objective, as
well as other policies which are not deemed fundamental, may be modified by the
Board of Directors without shareholder approval. Any change in the Fund's
investment objective may result in the Fund having an investment objective
different from the investment objective which the shareholder considered
appropriate at the time of investment in the Fund.
WHAT REPORTS WILL I RECEIVE?
As a shareholder of the Fund you will be provided at least semi-annually with a
report showing the Fund's portfolio and other information. Annually, after the
close of the Fund's September 30 fiscal year, you will be provided with an
annual report containing audited financial statements.
An individual account statement will be sent to you by Firstar Trust Company
after each purchase, including reinvestment of dividends or redemption of shares
of the Fund. You will also receive an annual statement after the end of the
calendar year listing all your transactions in shares of the Fund during the
year and a quarterly statement following the end of each calendar quarter
listing year-to-date transactions.
If you have questions about your account you may call Firstar Trust Company at
(800) 711-1848. If you have general questions about the Fund or want more
information, you may call us at (888) 778-2327 or write to us at PRUDENT BEAR
FUNDS INC., 8140 Walnut Hill Lane, Suite 405, Dallas, Texas 75231, Attention:
Corporate Secretary.
WHO MANAGES THE FUND?
As a Maryland corporation, the business and affairs of the Fund are managed by
its officers under the supervision of its Board of Directors. The Fund has
entered into an investment advisory agreement (the "Agreement") with David W.
Tice & Associates, Inc. (the "Adviser"), 8140 Walnut Hill Lane, Suite 405,
Dallas, Texas 75231, under which the Adviser furnishes continuous investment
advisory services and management to the Fund. The Adviser was incorporated in
1993 and is currently controlled by David W. Tice, who is a director and the
President of the Adviser.
David W. Tice, 43, President and founder of the Adviser, is primarily
responsible for the day-to-day management of the Fund's portfolio. He has held
this responsibility since the Fund commenced operations. Mr. Tice also has
served as President, Treasurer and a director of the Fund since it was
organized. Prior to incorporating the Adviser in 1993, Mr. Tice conducted the
same investment advisory business as a sole proprietorship since 1988. Either
through the Adviser or its predecessor, Mr. Tice has provided investment advice
to institutional money managers since 1988. Mr. Tice is a Chartered Financial
Analyst and a Certified Public Accountant. Mr. Tice is also the president and
sole shareholder of BTN Research, Inc., a registered broker-dealer.
The Adviser supervises and manages the investment portfolio of the Fund and,
subject to such policies as the Board of Directors of the Fund may determine,
directs the purchase or sale of investment securities in the day-to-day
management of the Fund. Under the Agreement, the Adviser, at its own expense and
without separate reimbursement from the Fund, furnishes office space and all
necessary office facilities, equipment and executive personnel for managing the
Fund and maintaining its organization; bears all sales and promotional expenses
of the Fund, other than expenses incurred in complying with the laws regulating
the issue or sale of securities; and pays salaries and fees of all officers and
directors of the Fund (except the fees paid to disinterested directors as such
term is defined under the Investment Company Act of 1940). For the foregoing,
the Advisor receives a monthly fee at the annual rate of 1.25% of the daily net
assets of the Fund.
The Fund will pay all of its expenses not assumed by the Adviser, including, but
not limited to, the costs of preparing and printing its registration statements
required under the Securities Act of 1933 and the Investment Company Act of 1940
and any amendments thereto, the expenses of registering its shares with the
Securities and Exchange Commission and in the various states, the printing and
distribution cost of prospectuses mailed to existing shareholders, the cost of
director and officer liability insurance (if applicable), reports to
shareholders, reports to government authorities and proxy statements, interest
charges, brokerage commissions, and expenses incurred in connection with
portfolio transactions. The Fund will also pay the fees of directors who are not
officers of the Fund, salaries of administrative and clerical personnel,
association membership dues, auditing and accounting services, fees and expenses
of any custodian or trustees having custody of Fund assets, expenses of
calculating the net asset value and repurchasing and redeeming shares, and
charges and expenses of dividend disbursing agents, registrars, and share
transfer agents, including the cost of keeping all necessary shareholder records
and accounts and handling any problems relating thereto.
The Fund also has entered into an administration agreement (the "Administration
Agreement") with Firstar Trust Company (the "Administrator"), 615 East Michigan
Street, Milwaukee, Wisconsin 53202. Under the Administration Agreement, the
Administrator maintains the books, accounts and other documents required by the
Act, responds to shareholder inquiries, prepares the Fund's financial statements
and tax returns, prepares certain reports and filings with the Securities and
Exchange Commission and with state Blue Sky authorities, furnishes statistical
and research data, clerical, accounting and bookkeeping services and stationery
and office supplies, keeps and maintains the Fund's financial and accounting
records and generally assists in all aspects of the Fund's operations. The
Administrator, at its own expense and without reimbursement from the Fund,
furnishes office space and all necessary office facilities, equipment and
executive personnel for performing the services required to be performed by it
under the Administration Agreement. For the foregoing, the Administrator
receives from the Fund a fee, paid monthly, at an annual rate of .05% of the
first $100,000,000 of the Fund's average net assets, .04% of the next
$400,000,000 of the Fund's average net assets, and .03% of the Fund's net assets
in excess of $500,000,000. Notwithstanding the foregoing, the Administrator's
minimum annual fee is $25,000.
Firstar Trust Company also provides custodial, transfer agency and accounting
services for the Fund. Information regarding these services is provided in the
Statement of Additional Information.
HOW IS THE FUND'S SHARE PRICE DETERMINED?
The net asset value (or "price") per share of the Fund is determined by dividing
the total value of the Fund's investments and other assets less any liabilities,
by the number of outstanding shares of the Fund. The net asset value per share
is determined once daily on each day that the New York Stock Exchange is open,
as of the close of regular trading on the Exchange (normally 3:00 p.m. Central
time). Purchase orders for Fund shares accepted or Fund shares tendered for
redemption prior to the close of regular trading on a day the New York Stock
Exchange is open for trading will be valued as of the close of trading, and
purchase orders accepted and Fund shares tendered for redemption after that time
will be valued as of the close of regular trading on the next trading day.
Common stocks and securities sold short that are listed on a securities exchange
or quoted on the Nasdaq Stock Market are valued at the last quoted sales price
on the day the valuation is made. Price information on listed securities is
taken from the exchange where the security is primarily traded. Common stocks
and securities sold short which are listed on an exchange or the Nasdaq Stock
Market but which are not traded on the valuation date are valued at the average
of the current bid and asked prices. Unlisted equity securities for which market
quotations are readily available are valued at the average of the current bid
and asked prices. Options purchased or written by the Fund are valued at the
average of the current bid and asked prices. The value of a futures contract
equals the unrealized gain or loss on the contract that is determined by marking
the contract to the current settlement price for a like contract acquired on the
day on which the futures contract is being valued. A settlement price may not be
moved if the market makes a limit move in which event the futures contract will
be valued at its fair value as determined by the Adviser in accordance with
procedures approved by the Board of Directors. Debt securities are valued at the
latest bid prices furnished by independent pricing services. Other assets and
securities for which no quotations are readily available are valued at fair
value as determined in good faith by the Adviser in accordance with procedures
approved by the Board of Directors of the Fund. Short-term instruments (those
with remaining maturities of 60 days or less) are valued at amortized cost,
which approximates market.
HOW DO I OPEN AN ACCOUNT AND
PURCHASE SHARES?
BY MAIL. Please complete and sign the New Account Application form included with
this Prospectus and send it, together with your check or money order ($2000
minimum; $1,000 IRA minimum; any lesser amount must be approved by the Adviser),
made payable to Prudent Bear Fund, TO: PRUDENT BEAR FUNDS, INC., c/o Firstar
Trust Company, P. O. Box 701, Milwaukee, Wisconsin 53201-0701. Note: A different
procedure is used for establishing Individual Retirement Accounts. Please call
Firstar Trust Company at (800) 711-1848 for details. All purchases must be made
in U.S. dollars and checks must be drawn on U.S. banks. No cash will be
accepted. Firstar Trust Company will charge a $20 fee against a shareholder's
account for any check returned to it for insufficient funds. The shareholder
will also be responsible for any losses suffered by the Fund as a result.
BY OVERNIGHT OR EXPRESS MAIL. Please use the following address to insure proper
delivery: Firstar Trust Company, Mutual Fund Services, 3rd Floor, 615 East
Michigan Street, Milwaukee, Wisconsin 53202.
BY WIRE. To establish a new account by wire please first call Firstar Trust
Company, (800) 711-1848, to advise it of the investment and the dollar amount.
This will ensure prompt and accurate handling of your investment. A completed
New Account Application form must also be sent to the Fund at the address above
immediately after your investment is made so the necessary remaining information
can be recorded to your account. Your purchase request should be wired through
the Federal Reserve Bank as follows:
Firstar Bank Milwaukee, N.A.
777 East Wisconsin Avenue
Milwaukee, Wisconsin 53202
ABA Number 075000022
For credit to Firstar Trust M.F.S.
Account Number 112-952-137
For further credit to Prudent Bear Fund
(Your account name and account number)
((For new accounts, include taxpayer identification number))
ADDITIONAL INVESTMENTS. You may add to your account at any time by purchasing
shares by mail (minimum $100) or by wire (minimum $1,000) according to the
aforementioned wiring instructions. You must notify Firstar Trust Company at
(800) 711-1848 prior to sending your wire. A remittance form which is attached
to your individual account statement should accompany any investments made
through the mail, when possible. All purchase requests must include your account
registration number in order to assure that your funds are credited properly.
BY TELEPHONE. By using the Fund's telephone purchase option you may move money
from your bank account to your Fund account at your request. Only bank accounts
held at domestic financial institutions that are Automated Clearing House (ACH)
members may be used for telephone transactions. To have your Fund shares
purchased at the net asset value determined as of the close of regular trading
on a given date, Firstar Trust Company must receive both your purchase order and
payment by Electronic Funds Transfer through the ACH System before the close of
regular trading on such date. Most transfers are completed within three business
days. You may not use telephone transactions for initial purchases of Fund
shares. The minimum amount that can be transferred by telephone is $100.
AUTOMATIC INVESTMENT. If you choose the Automatic Investment option, you may
move money from your bank account to your Fund account on the schedule (e.g.,
monthly, bimonthly (every other month), quarterly or yearly) you select and may
be in any amount subject to a $100 minimum. You may establish this option and
the telephone purchase option by completing the appropriate section of the New
Account Application. Please call Firstar Trust Company at (800) 711-1848 if you
have questions. Please wait three weeks before using the service.
As a no-load mutual fund, there are no sales commissions, so all of your
investment is used to purchase shares. All shares purchased will be credited to
your account and confirmed by a statement mailed to your address. The Fund does
not issue stock certificates for shares purchased unless specifically requested
by you in writing. When certificates are not issued, you are relieved of the
responsibility for safekeeping of certificates and the need to deliver them upon
redemption. You may also invest in the Fund by purchasing shares through a
registered broker-dealer, who may charge you a fee, either at the time of
purchase or redemption. The fee, if charged, is retained by the broker-dealer
and not remitted to the Fund or the Adviser. The Fund may accept telephone
orders from broker-dealers who have been previously approved by the Fund. It is
the responsibility of the registered broker-dealer to promptly remit purchase
and redemption orders to Firstar Trust Company.
You may purchase shares through programs of services offered or administered by
broker-dealers, investment advisers, financial institutions or other service
providers ("Processing Intermediaries") that have entered into agreements with
the Fund. These Processing Intermediaries may become shareholders of record and
may use procedures and impose restrictions in addition to or different from
those applicable to you if you invest directly in the Fund. Some of the services
the Fund provides may not be available to you or may be modified in connection
with the programs provided by Processing Intermediaries. If a Processing
Intermediary is the shareholder of record of your account, the Fund may accept
requests to purchase additional 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
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. The Plan authorizes payments by the Fund in connection
with the distribution of its shares at an annual rate, as determined from time
to time by the Board of Directors, of up to 0.25% of the Fund's average daily
net assets. Payments made pursuant to the Plan may only be used to pay
distribution expenses in the year incurred. Amounts paid under the Plan by the
Fund may be spent by the Fund on any activities or expenses primarily intended
to result in the sale of shares of the Fund, including but not limited to,
advertising, compensation for sales and marketing activities of financial
institutions and others such as dealers and distributors, shareholder account
servicing, the printing and mailing of prospectuses to other than current
shareholders and the printing and mailing of sales literature. To the extent any
activity is one which the Fund may finance without a plan pursuant to Rule 12b-
1, the Fund may also make payments to finance such activity outside of the Plan
and not subject to its limitations.
ALL APPLICATIONS ARE SUBJECT TO ACCEPT-ANCE BY THE FUND, AND ARE NOT BINDING
UNTIL SO ACCEPTED. THE FUND RESERVES THE RIGHT TO REJECT APPLICATIONS IN WHOLE
OR IN PART. The Fund will suspend the offering of its shares during any period
in which the New York Stock Exchange is closed because of financial conditions
or any other extraordinary reason and it may suspend the offering of its shares
during any period in which (a) trading on the New York Stock Exchange is
restricted pursuant to rules and regulations of the Securities and Exchange
Commission, (b) the Securities and Exchange Commission has by order permitted
such suspensions or (c) such emergency, as defined by rules and regulations of
the Securities and Exchange Commission, exists as a result of which it is not
reasonably practicable for the Fund to dispose of its securities or to fairly
determine the value of its net assets. In such an event the Fund will not
calculate its net asset value. Applications received by Firstar Trust Company
during periods in which the Fund has suspended the offering of its shares
because of the reasons described above will be processed at the next computed
net asset value. The Fund may also suspend the offering of its shares during
periods when it believes the issuance of shares would be detrimental to existing
shareholders. The minimum purchase amounts set forth above are subject to change
at any time and may be waived for purchases by the Adviser's employees and their
family members or others. You will be advised at least 30 days in advance of any
increases in such minimum amounts and the Fund's prospectus will be
appropriately supplemented. Applications without Social Security or Tax
Identification numbers will not be accepted.
HOW DO I SELL MY SHARES?
At any time during normal business hours you may request that the Fund redeem
your shares in whole or in part. Written redemption requests must be directed to
PRUDENT BEAR FUNDS, INC., c/o Firstar Trust Company, P.O. Box 701, Milwaukee,
Wisconsin 53201-0701. If a redemption request is inadvertently sent to the Fund
at its corporate address, it will be forwarded to Firstar Trust Company, but the
effective date of redemption will be delayed until the request is received by
Firstar Trust Company. Requests for redemption which are subject to any special
conditions or which specify an effective date other than as provided herein
cannot be honored.
A redemption request must be received in "Good Order" by Firstar Trust Company
for the request to be processed. "Good Order" means the request for redemption
must include:
Your share certificate(s), if issued, properly endorsed or accompanied by a
properly executed stock power.
Your letter of instruction specifying the name of the Fund and either the number
of shares or the dollar amount of shares to be redeemed. The letter of
instruction must be signed by all registered shareholders exactly as the shares
are registered and must include your account registration number and the
additional requirements listed below that apply to the particular account.
Type of Registration Requirements
- -------------------- ------------
Individual, Joint Tenants, Redemption request signed
Sole Proprietorship, by all person(s) required to
Custodial (Uniform sign for the account, exactly
Gift To Minors Act), as it is registered.
General Partners
Corporations, Redemption request and a
Associations corporate resolution, signed by
person(s) required to sign for
the account, accompanied by
signature guarantee(s).
Trusts Redemption request signed by the
trustee(s), with a signature guarantee.
(If the Trustee's name is not registered
on the account, a copy of the trust
document certified within the past 60
days is also required).
- - Signature guarantees are required if proceeds of redemption are to be sent
by wire transfer, to a person other than the registered holder, to an
address other than the address of record, and if a redemption request
includes a change of address. Transfers of shares also require signature
guarantees. Signature guarantees may be obtained from any commercial bank or
trust company in the United States or a member of the New York Stock
Exchange and some savings and loan associations.
If you have an IRA, you must indicate on your redemption request whether or not
to withhold federal income tax. Redemption requests not indicating an election
to have federal tax withheld will be subject to withholding. If you are
uncertain of the redemption requirements, please contact, in advance, Firstar
Trust Company.
The redemption price is the next determined net asset value after Firstar Trust
Company receives a redemption request in "Good Order". The amount paid will
depend on the market value of the investments in the Fund's portfolio at the
time of determination of net asset value, and may be more or less than the cost
of the shares redeemed. Payment for shares redeemed will be mailed to you
typically within one or two days, but no later than the seventh day after
receipt by Firstar Trust Company of the redemption request in "Good Order"
unless the Fund is requested to redeem shares purchased by check. In such event
the Fund may delay the mailing of a redemption check until the purchase check
has cleared which may take up to 12 days. Wire transfers may be arranged through
Firstar Trust Company, which will assess a $12.00 wiring charge against your
account.
You may redeem shares of the Fund by telephone. To redeem shares by telephone,
you must check the appropriate box on the New Account Application (as the Fund
does not make this feature available to shareholders automatically). Once this
feature has been requested, you may redeem shares by phoning Firstar Trust
Company at (800) 711-1848 and giving the account name, account number and either
the number of shares or the dollar amount to be redeemed. For your protection,
you may be asked to give the social security number or tax identification number
listed on the account as further verification. Proceeds redeemed by telephone
will be mailed or wired only to your address or bank of record as shown on the
records of Firstar Trust Company. Telephone redemptions must be in amounts of
$1,000 or more. If the proceeds are sent by wire, a $12.00 wire fee will apply.
In order to arrange for telephone redemptions after a Fund account has been
opened or to change the bank, account or address designated to receive
redemption proceeds, you must send a written request to Firstar Trust Company.
The request must be signed by each registered holder of the account with the
signatures guaranteed by a commercial bank or trust company in the United
States, a member firm of the New York Stock Exchange or other eligible guarantor
institution. Further documentation may be requested from corporations,
executors, administrators, trustees and guardians.
The Fund reserves the right to refuse a telephone redemption if it believes it
is advisable to do so. Procedures for redeeming shares of the Fund by telephone
may be modified or terminated by the Fund at any time. Neither the Fund nor
Firstar Trust Company will be liable for following instructions for telephone
redemption transactions which they reasonably believe to be genuine, provided
reasonable procedures are used to confirm the genuineness of the telephone
instructions, but may be liable for unauthorized transactions if they fail to
follow such procedures. These procedures include requiring you to provide some
form of personal identification prior to acting upon your telephone instructions
and recording all telephone calls.
You should be aware that during periods of substantial economic or market
change, telephone or wire redemptions may be difficult to implement. If you are
unable to contact Firstar Trust Company by telephone, you may redeem shares by
delivering the redemption request to Firstar Trust Company by mail as described
above.
If you select the Fund's systematic withdrawal option, you may move money
automatically from your Fund account to your bank account according to the
schedule you select. The systematic withdrawal option may be in any amount
subject to a $100 minimum. To select the systematic withdrawal option you must
check the appropriate box on the New Account Application.
If you purchase 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 Fund's net asset value next
computed after it is accepted by the Processing Intermediary.
The Fund reserves the right to redeem the shares held in any account if at the
time of any transfer or redemption of Fund shares in the account, the value of
the remaining shares in the account falls below $1000. You will be notified in
writing that the value of your account is less than the minimum and allowed at
least 60 days to make an additional investment. The receipt of proceeds from the
redemption of shares held in an Individual Retirement Account ("IRA") will
constitute a taxable distribution of benefits from the IRA unless a qualifying
rollover contribution is made. Involuntary redemptions will not be made because
the value of shares in an account falls below $1000 solely because of a decline
in the Fund's net asset value.
Your right to redeem shares of the Fund will be suspended and your right to
payment postponed for more than seven days for any period during which the New
York Stock Exchange is closed because of financial conditions or any other
extraordinary reason and may be suspended for any period during which (a)
trading on the New York Stock Exchange is restricted pursuant to rules and
regulations of the Securities and Exchange Commission, (b) the Securities and
Exchange Commission has by order permitted such suspension or (c) such
emergency, as defined by rules and regulations of the Securities and Exchange
Commission, exists as a result of which it is not reasonably practicable for the
Fund to dispose of its securities or fairly to determine the value of its net
assets.
WHAT ABOUT DIVIDENDS, CAPITAL GAINS
DISTRIBUTIONS AND TAXES?
The Fund intends to distribute at least annually any net investment income and
net realized capital gains to shareholders. In addition, in order to satisfy
certain distribution requirements of the Tax Reform Act of 1986, the Fund may
declare special year-end dividend and capital gains distributions during
December. Such distributions, if received by shareholders by January 31, are
deemed to have been paid by the Fund and received by shareholders on December
31st of the prior year. Dividend and capital gains distributions may be
automatically reinvested or received in cash.
The Fund intends to continue to qualify for taxation as a "regulated investment
company" under the Internal Revenue Code so that it will not be subject to
federal income tax to the extent its income is distributed to shareholders.
Dividends paid by the Fund from net investment income and net short-term capital
gains, whether received in cash or reinvested in additional shares, will be
taxable to shareholders as ordinary income.
Distributions paid by the Fund from long-term capital gains, whether received in
cash or reinvested in additional shares, are taxable as long-term capital gains,
regardless of the length of time you have owned shares in the Fund. The Internal
Revenue Code provides for a three-tiered tax rate structure for long term
capital gains dependent upon the Fund's holding period of the underlying
financial instrument or capital asset. Capital gains distributions are made when
the Fund realizes net capital gains on sales of portfolio securities during the
year. The Fund does not seek to realize any particular amount of capital gains
during a year; rather, realized gains are a by-product of portfolio management
activities. Consequently, capital gains distributions may be expected to vary
considerably from year to year; there will be no capital gains distributions in
years when the Fund realizes net capital losses.
Note that if you accept capital gains distributions in cash, instead of
reinvesting them in additional shares, you are in effect reducing the capital at
work for you in the Fund. Also, keep in mind that if you purchase shares in the
Fund shortly before the record date for a dividend or capital gains
distribution, a portion of your investment will be returned to you as a taxable
distribution, regardless of whether you are reinvesting your distributions or
receiving them in cash.
The Fund will notify you annually as to the tax status of dividend and capital
gains distributions paid by the Fund.
A sale or redemption of shares of the Fund is a taxable event and may result in
a capital gain or loss.
Dividend distributions, capital gains distributions, and capital gains or losses
from redemptions may be subject to state and local taxes.
The Fund is required to withhold 31% of taxable dividends, capital gains
distributions, and redemptions paid to shareholders who have not complied with
IRS taxpayer identification regulations. You may avoid this withholding
requirement by certifying on your New Account Application your proper Social
Security or Taxpayer Identification Number and by certifying that you are not
subject to backup withholding.
The tax discussion set forth above is included for general information purposes
only. Prospective investors should consult their own tax advisers concerning the
tax consequences of an investment in the Fund. The Fund is managed without
regard to tax ramifications.
MAY SHAREHOLDERS REINVEST DIVIDENDS?
You may elect to have all income dividends and capital gains distributions
reinvested in shares of the Fund or paid in cash, or to have capital gains
distributions reinvested and income dividends paid in cash. Please refer to the
New Account Application form accompanying this Prospectus for further
information. If you do not specify an election, all dividends and capital gains
distributions will automatically be reinvested in full and fractional shares of
the Fund calculated to the nearest 1,000th of a share. Shares are purchased at
the net asset value in effect on the business day after the dividend record date
and are credited to your account on the dividend payment date. Cash dividends
are also paid on such date. You will be advised of the number of shares
purchased and the price following each reinvestment. An election to reinvest or
receive dividends and distributions in cash will apply to all shares of the Fund
registered in your name, including those previously purchased. See "WHAT ABOUT
DIVIDENDS, CAPITAL GAINS DISTRIBUTIONS AND TAXES?" for a discussion of certain
tax consequences.
You may change an election at any time by notifying the Fund in writing. If such
a notice is received between a dividend declaration date and payment date, it
will become effective on the day following the payment date. The Fund may modify
or terminate its dividend reinvestment program at any time on thirty days'
notice to participants.
WHAT RETIREMENT PLANS DOES THE
FUND OFFER?
The Fund offers the following retirement plans that may fit your needs and allow
you to shelter some of your income from taxes:
- - INDIVIDUAL RETIREMENT ACCOUNT ("IRA"). Individual shareholders may establish
their own tax-sheltered IRA. 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
("series") of shares of common stock and to classify or reclassify any unissued
shares with respect to such series. Currently the Fund is offering one series.
The shares of the Fund are fully paid and non-assessable; have no preference as
to conversion, exchange, dividends, retirement or other features; and have no
preemptive rights. Such shares have non-cumulative voting rights, meaning that
the holders of more than 50% of the shares voting for the election of Directors
can elect 100% of the Directors if they so choose.
Annual meetings of shareholders will not be held except as required by the
Investment Company Act of 1940 and other applicable law. An annual meeting will
be held to vote on the removal of a Director or Directors of the Fund if
requested in writing by the holders of not less than 10% of the outstanding
shares of the Fund.
All securities and cash of the Fund are held by Firstar Trust Company, which
also serves as the Fund's transfer and dividend disbursing agent. Price
Waterhouse LLP serves as independent accountants for the Fund and will audit its
financial statements annually. The Fund is not involved in any litigation.
PERFORMANCE INFORMATION
The Fund may provide from time to time in advertisements, reports to
shareholders and other communications with shareholders its average annual total
return. An average total return refers to the rate of return which, if applied
to an initial investment at the beginning of a stated period and compounded over
the period, would result in the redeemable value of the investment at the end of
the stated period assuming reinvestment of all dividends and distribution and
reflecting the effect of all recurring fees. When considering "average" total
return figures for periods longer than one year, you should note that the Fund's
annual total return for any one year in the period might have been greater or
less than the average for the entire period. The Fund may use "aggregate" total
return figures for various periods, representing the cumulative change in value
of an investment in the Fund for a specific period (again reflecting changes in
the Fund's share price and assuming reinvestment of dividends and
distributions).
The Fund may also compare its performance to other mutual funds with similar
investment objectives and to the industry as a whole as reported by Lipper
Analytical Services, Inc., Morningstar OnDisc, Money, Forbes, Business Week and
Barron's magazines and The Wall Street Journal, (Lipper Analytical Services,
Inc. and Morningstar OnDisc are independent ranking services that rank mutual
funds based upon total return performance.) The Fund may also compare its
performance to the Dow Jones Industrial Average, NASDAQ Composite Index, NASDAQ
Industrials Index, Value Line Composite Index, the Standard & Poor's 500 Stock
Index, and the Consumer Price Index.
Performance quotations of the Fund represent the Fund's past performance and
should not be considered as representative of future results. The investment
return and principal value of an investment in the Fund will fluctuate so that
your shares, when redeemed, may be worth more or less than their original cost.
PRUDENT BEAR FUND
INVESTMENT ADVISER
DAVID W. TICE & ASSOCIATES, INC.
8140 WALNUT HILL LANE, SUITE 405
DALLAS, TEXAS 75231
HTTP://WWW.TICE.COM
ADMINISTRATOR, TRANSFER AGENT, DIVIDEND PAYING AGENT, SHAREHOLDER SERVICING
AGENT & CUSTODIAN
FIRSTAR TRUST COMPANY
615 EAST MICHIGAN STREET
P.O. BOX 701
MILWAUKEE, WISCONSIN 53201
INDEPENDENT ACCOUNTANTS
PRICE WATERHOUSE LLP
MILWAUKEE, WISCONSIN
LEGAL COUNSEL
FOLEY & LARDNER
MILWAUKEE, WISCONSIN
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION January 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 Prospectus of Prudent Bear Funds,
Inc. dated January 30, 1998. Requests for copies of the Prospectus 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.
Prudent Bear Funds, Inc.
TABLE OF CONTENTS Page No.
INVESTMENT RESTRICTIONS . . . . . . . . . . . . . . . . . . . . . . . . 1
INVESTMENT CONSIDERATIONS . . . . . . . . . . . . . . . . . . . . . . . .
DIRECTORS AND OFFICERS OF THE CORPORATION . . . . . . . . . . . . . . . 7
OWNERSHIP OF MANAGEMENT AND PRINCIPAL SHAREHOLDERS . . . . . . . . . . 8
INVESTMENT ADVISER, ADMINISTRATOR, CUSTODIAN,
TRANSFER AGENT AND ACCOUNTING SERVICES AGENT . . . . . . . . . . . . . 9
DETERMINATION OF NET ASSET VALUE . . . . . . . . . . . . . . . . . . . 10
DISTRIBUTION OF SHARES . . . . . . . . . . . . . . . . . . . . . . . . 12
SYSTEMATIC WITHDRAWAL PLAN . . . . . . . . . . . . . . . . . . . . . . 12
ALLOCATION OF PORTFOLIO BROKERAGE . . . . . . . . . . . . . . . . . . . 13
TAXES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
STOCKHOLDER MEETINGS . . . . . . . . . . . . . . . . . . . . . . . . . 16
PERFORMANCE INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . 17
DESCRIPTION OF SECURITIES RATINGS . . . . . . . . . . . . . . . . . . . 18
INDEPENDENT ACCOUNTANTS . . . . . . . . . . . . . . . . . . . . . . . . 20
FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . 20
INVESTMENT RESTRICTIONS
As set forth in the Prospectus dated January 30, 1998 of Prudent
Bear Funds, Inc. (the "Corporation") under the caption "WHAT IS THE FUND'S
INVESTMENT OBJECTIVE?", the investment objective of the Prudent Bear Fund
(the "Fund") is capital appreciation. Consistent with this investment
objective, the Fund has adopted the following investment restrictions
which are matters of fundamental policy and cannot be changed without
approval of the holders of the lesser of: (i) 67% of the Fund's shares
present or represented at a stockholder's meeting at which the holders of
more than 50% of such shares are present or represented; or (ii) more than
50% of the outstanding shares of the Fund.
1. The Fund will not purchase securities of any issuer if
the purchase would cause more than 5% of the value of the Fund's
total assets to be invested in securities of such issuer (except
securities of the U.S. government or any agency or
instrumentality thereof), or purchase more than 10% of the
outstanding voting securities of any one issuer, except that up
to 25% of the Fund's total assets may be invested without regard
to these limitations.
2. The Fund may sell securities short to the extent
permitted by the Investment Company Act of 1940 (the "Act").
3. The Fund will not purchase securities on margin
(except for such short term credits as are necessary for the
clearance of transactions); provided, however, that the Fund may
(i) borrow money to the extent set forth in investment
restriction no. 4; (ii) purchase or sell futures contracts and
options on futures contracts; (iii) make initial and variation
margin payments in connection with purchases or sales of futures
contracts or options on futures contracts; and (iv) write or
invest in put or call options.
4. The Fund may borrow money or issue senior securities
to the extent permitted by the Act.
5. The Fund may pledge or hypothecate its assets to
secure its borrowings.
6. The Fund will not act as an underwriter or distributor
of securities other than shares of the Fund (except to the
extent that the Fund may be deemed to be an underwriter within
the meaning of the Securities Act of 1933, as amended, in the
disposition of restricted securities).
7. The Fund will not make loans, including loans of
securities, except it may acquire debt securities from the
issuer or others which are publicly distributed or are of a type
normally acquired by institutional investors and enter into
repurchase agreements.
8. The Fund will not invest 25% or more of its total
assets at the time of purchase in securities of issuers whose
principal business activities are in the same industry.
9. The Fund will not make investments for the purpose of
exercising control or management of any company.
10. The Fund will not purchase or sell real estate or real
estate mortgage loans and will not make any investments in real
estate limited partnerships.
11. The Fund will not purchase or sell commodities or
commodity contracts, except that the Fund may enter into futures
contracts and options on futures contracts.
12. The Fund will not purchase or sell any interest in any
oil, gas or other mineral exploration or development program,
including any oil, gas or mineral leases.
The Fund has adopted certain other investment restrictions which
are not fundamental policies and which may be changed by the Fund's Board
of Directors without stockholder approval. These additional restrictions
are as follows:
1. The Fund will not acquire or retain any security
issued by a company, an officer or director of which is an
officer or director of the Fund or an officer, director or other
affiliated person of the Fund's investment adviser.
2. The Fund will not invest more than 5% of the Fund's
total assets in securities of any issuer which has a record of
less than three (3) years of continuous operation, including the
operation of any predecessor business of a company which came
into existence as a result of a merger, consolidation,
reorganization or purchase of substantially all of the assets of
such predecessor business.
3. The Fund will not purchase illiquid securities if, as
a result of such purchase, more than 15% of the total value of
its total assets would be invested in such securities.
4. The Fund's investments in warrants will be limited to
5% of the Fund's net assets. Included within such 5%, but not
to exceed 2% of the value of the Fund's net assets, may be
warrants which are not listed on either the New York Stock
Exchange or the American Stock Exchange.
5. The Fund will not purchase the securities of other
investment companies except: (a) as part of a plan of merger,
consolidation or reorganization approved by the stockholders of
the Fund; (b) securities of registered open-end investment
companies; or (c) securities of registered closed-end investment
companies on the open market where no commission results, other
than the usual and customary broker's commission. No purchases
described in (b) and (c) will be made if as a result of such
purchases (i) the Fund and its affiliated persons would hold
more than 3% of any class of securities, including voting
securities, or any registered investment company; (ii) more than
5% of the Fund's net assets would be invested in shares of any
one registered investment company; and (iii) more than 10% 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 the Adviser the day-to-day determination of the
liquidity of a security although it has retained oversight and ultimate
responsibility for such determinations. Although no definite quality
criteria are used, the Board of Directors has directed the Adviser to
consider such factors as (i) the nature of the market for a security
(including the institutional private resale markets); (ii) the terms of
these securities or other instruments allowing for the disposition to a
third party or the issuer thereof (e.g. certain repurchase obligations and
demand instruments); (iii) the availability of market quotations; and (iv)
other permissible factors.
Restricted securities may be sold in private negotiated or other
exempt transactions or in a public offering with respect to which a
registration statement is in effect under the Securities Act. When
registration is required, the Fund may be obligated to pay all or part of
the registration expenses and a considerable time may elapse between the
decision to sell and the sale date. If, during such period, adverse
market conditions were to develop, the Fund might obtain a less favorable
price than the price which prevailed when it decided to sell. Restricted
securities will be priced at fair value as determined in good faith by the
Board of Directors.
Borrowing
Although the Fund's fundamental policies permit it to borrow
money or issue senior securities to the extent permitted by the Act, the
Fund's Prospectus states that the Fund does not presently intend to borrow
for investment purposes. Borrowing for investment, or leveraging, is a
speculative technique which increases investment risk, but also increases
investment opportunity. Since substantially all of the Fund's assets will
fluctuate in value, whereas the interest obligations on borrowings may be
fixed, the net asset value per share of the Fund will increase more when
the Fund's portfolio assets increase in value and decrease more when the
Fund's portfolio assets decrease in value than would otherwise be the
case. Moreover, interest costs on borrowings may fluctuate with changing
market rates of interest and may partially offset or exceed the returns on
the borrowed funds. Under adverse conditions, the Fund might have to sell
portfolio securities to meet interest or principal payments at a time
investment considerations would not favor such sales. The Fund may use
leverage during periods when the Adviser believes that the Fund's
investment objective would be furthered.
Portfolio Turnover
The Fund will generally purchase and sell securities and effect
transactions in futures contracts without regard to the length of time the
security has been held or the futures contract open and, accordingly, it
can be expected that the rate of portfolio turnover may be substantial.
The Fund may sell a given security or close a futures contract, no matter
for how long or short a period it has been held in the portfolio, and no
matter whether the sale is at a gain or loss, if the Adviser believes that
it is not fulfilling its purpose. Since investment decisions are based on
the anticipated contribution of the security in question to the Fund's
investment objective, the rate of portfolio turnover is irrelevant when
the Adviser believes a change is in order to achieve those objectives, and
the Fund's annual portfolio turnover rate may vary from year to year. The
Fund's annual portfolio turnover rate for the fiscal year ended September
30, 1997 (413.25%) was substantially higher than its annual portfolio
turnover rate for the fiscal period ended September 30, 1996 (91.31%)
because of the greater volatility of securities markets during the
September 30, 1997 fiscal year and because of the greater fluctuations in
net assets during such period caused by shareholders purchasing and
redeeming shares of the Fund. Pursuant to Securities and Exchange
Commission requirements, the portfolio turnover rate of the Fund is
calculated without regard to securities, including short sales, options
and futures contracts, having a maturity of less than one year. The Fund
will hold a significant portion of its assets in assets which are excluded
for purposes of calculating portfolio turnover.
High portfolio turnover in any year will result in the payment
by the Fund of above-average transaction costs and could result in the
payment by shareholders of above-average amounts of taxes on realized
investment gains.
Foreign Securities
Currency Risk. Even though the Fund may hold securities
denominated or traded in foreign securities, the Fund's performance is
measured in terms of U.S. dollars, which may subject the Fund to foreign
currency risk. Foreign currency risk is the risk that the U.S. dollar
value of foreign securities (and any income generated therefrom) held by
the Fund may be affected favorably or unfavorably by changes in foreign
currency exchange rates and exchange control regulations. Therefore, the
net asset value of the Fund may go up or down as the value of the dollar
rises or falls compared to a foreign currency. To manage foreign currency
fluctuations or facilitate the purchase and sale of foreign securities for
the Fund, the Adviser may engage in foreign currency transactions
involving (1) the purchase and sale of forward foreign currency exchange
contracts (agreements to exchange one currency for another at a future
date); (2) options on foreign currencies; (3) currency futures contracts;
or (4) options on currency futures contracts. Although the Fund may use
foreign currency transactions to protect against adverse currency
movements, foreign currency transactions involve the risk that The Adviser
may not accurately predict the currency movements, which could adversely
affect a Fund's total return.
A forward foreign currency contract involves an obligation to
purchase or sell a specific currency at a future date, which may be any
fixed number of days from the date of the contract agreed upon by the
parties, at a price set at the time of the contract. These contracts are
principally traded in the inter-bank market conducted directly between
currency traders (usually large commercial banks) and their customers. A
forward contract generally has no deposit requirement and no commissions
are charged at any stage for trades.
When the Fund enters into a contract for the purchase or sale of
a security denominated in a foreign currency, it may desire to "lock in"
the U.S. dollar price of the security. By entering into a forward
contract for the purchase or sale of a fixed amount of U.S. dollars equal
to the amount of foreign currency involved in the underlying security
transaction, the Fund can protect itself against a possible loss,
resulting from an adverse change in the relationship between the U.S.
dollar and the subject foreign currency during the period between the date
the security is purchased or sold and the date on which the payment is
made or received.
Although the Fund values its assets daily in terms of U.S.
dollars, it does not intend to convert its holdings of foreign currencies
into U.S. dollars on a daily basis. The Fund will do so from time to time
and investors should be aware of the costs of currency conversion.
Although foreign exchange dealers do not charge a fee for conversion, they
realize a profit based on the difference (the "spread") between the prices
at which they are buying and selling various currencies. Thus, a dealer
may offer to sell a foreign currency to the Fund at one rate, while
offering a lesser rate of exchange should the Fund desire to resell that
currency to the dealer.
The Fund may purchase and sell currency futures and purchase and
write currency options to increase or decrease its exposure to different
foreign currencies. The uses and risks of currency options and futures
are similar to options and futures relating to securities or indices, as
discussed in the Prospectus. Currency futures contracts are similar to
forward foreign currency contracts, except that they are traded on
exchanges (and have margin requirements) and are standardized as to
contract size and delivery date. Most currency futures contracts call for
payment or delivery in U.S. dollars. The underlying instrument of a
currency option may be a foreign currency, which generally is purchased or
delivered in exchange for U.S. dollars, or may be a futures contract. The
purchaser of a currency call obtains the right to purchase the underlying
currency, and the purchaser of a currency put obtains the right to sell
the underlying currency.
Other Risks. The degree of political and economic stability
varies from country to country. If a country expropriates money from
foreigners or nationalizes an industry, the Fund may lose some or all of
any particular investment in that country. Individual foreign economies
may vary favorably or unfavorably from the U.S. economy in such areas as
growth of gross national product, inflation rate, savings, balance of
payments and capital investment, which may affect the value of the Fund's
investment in any foreign country. Many foreign countries do not subject
their markets to the same degree and type of laws and regulations that
cover the U.S. markets. Also, many foreign governments impose
restrictions on investments in their capital markets as well as taxes or
other restrictions on repatriation of investment income. The regulatory
differences in some foreign countries make investing or trading in their
markets more difficult and risky.
DIRECTORS AND OFFICERS OF THE CORPORATION
The name, age, address, principal occupation(s) during the past
five years, and other information with respect to each of the directors
and officers of the Corporation are as follows:
* David W. Tice -- Director, President and Treasurer. Mr.
Tice, 43, has been President of David W. Tice & Associates, Inc. (the
"Adviser") since 1993. Between 1988 and 1993 Mr. Tice conducted a
predecessor investment advisory business as a sole proprietorship. Mr.
Tice is also the President and sole shareholder of BTN Research, Inc., a
registered broker-dealer. His address is 8140 Walnut Hill Lane, Suite
405, Dallas, TX 75231.
* Gregg Jahnke -- Director, Vice President and Secretary. Mr.
Jahnke, 39, has been employed by both Mr. Tice and the Adviser as an
investment analyst since 1991. Currently he is an analyst and senior
strategist of the Adviser. From 1987 through 1994 Mr. Jahnke also was a
securities analyst for JKE Equity Research, a Fort Worth, Texas investment
advisory firm. His address is 8140 Walnut Hill Lane, Suite 405, Dallas,
TX 75231.
David Eric Luck -- Director. Mr. Luck, 43, has been President
of Redstone Oil & Gas Company since 1988. His address is 9223 Club Glen
Drive, Dallas, TX 75243.
Jerry Marlin, M.D. -- Director. Dr. Marlin, 43, has been a
self-employed neurosurgeon for more than five years. His address is 3033
Rosedale, Dallas, TX 75205.
Buril Ragsdale -- Director. Mr. Ragsdale, 63, has been employed
by ENSEARCH Corporation as a senior development specialist and senior
economic specialist since 1976. His address is 9149 Emberglow Lane,
Dallas, TX 75243.
-------------
* Messrs. Tice and Jahnke are interested persons of the Corporation (as
defined in the Investment Company Act of 1940).
The Corporation's standard method of compensating directors is
to pay each director who is not an interested person of the Corporation a
fee of $250 for each meeting of the Board of Directors attended. The
Corporation also may reimburse its directors for travel expenses incurred
in order to attend meetings of the Board of Directors.
The table below sets forth the compensation paid by the
Corporation to each of the current directors of the Corporation during the
fiscal year ended September 30, 1997:
<TABLE>
<CAPTION>
COMPENSATION TABLE
Total
Pension or Compensation
Retirement Estimated from Corporation
Aggregate Benefits Accrued Annual and Fund
Compensation As Part of Fund Benefits Upon Complex Paid to
Name of Person from Corporation Expenses Retirement Directors
<S> <C> <C> <C> <C>
David W. Tice $0 $0 $0 $0
Gregg Jahnke $0 $0 $0 $0
David Eric Luck $750 $0 $0 $750
Jerry Marlin, M.D. $750 $0 $0 $750
Buril Ragsdale $750 $0 $0 $750
</TABLE>
OWNERSHIP OF MANAGEMENT AND PRINCIPAL SHAREHOLDERS
Set forth below are the names and addresses of all holders of
the Fund's shares who as of December 31, 1997 held of record more than 5%
of the Fund's then outstanding shares. The shares owned by Charles Schwab
& Co., Inc., National Financial Services Corp. and Donaldson Lufkin &
Jenrette Securities Corp. were owned of record only. The Fund knows of no
person who beneficially owned 5% or more of the Fund's outstanding shares.
All officers and directors of the Fund as a group beneficially owned less
than 1%.
Name and Address of Beneficial Owner Number of Percent of
Shares Class
Charles Schwab & Co., Inc.
101 Montgomery Street
San Francisco, CA 94104-4122 2,081,261 29.32%
National Financial Services Corp.
One World Financial Center
200 Liberty Street
New York, NY 10281-1003 1,660,236 23.39%
Donaldson Lufkin & Jenrette
Securities Corp.
P.O. Box 2052
Jersey City, NJ 07303-2052 915,897 12.90%
INVESTMENT ADVISER, ADMINISTRATOR, CUSTODIAN,
TRANSFER AGENT AND ACCOUNTING SERVICES AGENT
As set forth in the Prospectus under the caption "MANAGEMENT OF
THE FUND," the investment adviser to the Fund is David W. Tice &
Associates, Inc., 8140 Walnut Hill Lane, Suite 405, Dallas, Texas 75231
(the "Adviser"). Pursuant to the investment advisory agreement entered
into between the Corporation and the Adviser with respect to the Fund (the
"Advisory Agreement"), the Adviser furnishes continuous investment
advisory services to the Fund. The Adviser is controlled by David W.
Tice, its President and sole shareholder. During the period from December
28, 1995 (commencement of operations) through September 30, 1996, the Fund
incurred advisory fees of $22,220, all of which were waived by the
Adviser. During the fiscal year ended September 30, 1997, the Fund
incurred advisory fees of $237,306, none of which were waived by the
Adviser.
The Adviser has undertaken to reimburse the Fund to the extent
that the aggregate annual operating expenses, including the investment
advisory fee and the administration fee but excluding interest, dividends
on short positions, taxes, brokerage commissions and other costs incurred
in connection with the purchase or sale of portfolio securities, and
extraordinary items, exceed that percentage of the average net assets of
the Fund for such year, as determined by valuations made as of the close
of each business day of the year, which is the most restrictive percentage
provided by the state laws of the various states in which the shares of
the Fund are qualified for sale or, if the states in which the shares of
the Fund are qualified for sale impose no such restrictions, 3%. As of
the date of this Statement of Additional Information, no such state law
provision was applicable to the Fund. The Fund monitors its expense ratio
on a monthly basis. If the accrued amount of the expenses of the Fund
exceeds the expense limitation, the Fund creates an account receivable
from the Adviser for the amount of such excess. In such a situation the
monthly payment of the Adviser's fee will be reduced by the amount of such
excess (and if the amount of such excess in any month is greater than the
monthly payment of the Adviser's fee, the Adviser will pay the Fund the
amount of such difference), subject to adjustment month by month during
the balance of the Fund's fiscal year if accrued expenses thereafter fall
below this limit. During the period from December 28, 1995 (commencement
of operations) through September 30, 1996, the Adviser reimbursed the Fund
$104,260 for excess expenses, which amount includes the investment
advisory fee waivers discussed above. During the fiscal year ended
September 30, 1997, the Adviser was not required to reimburse the Fund for
excess expenses.
The Advisory Agreement will remain in effect as long as its
continuance is specifically approved at least annually (i) by the Board of
Directors of the Corporation or by the vote of a majority (as defined in
the Act) of the outstanding shares of the Fund, and (ii) by the vote of a
majority of the directors of the Fund who are not parties to the Advisory
Agreement or interested persons of the Adviser, cast in person at a
meeting called for the purpose of voting on such approval. The Advisory
Agreement provides that it may be terminated at any time without the
payment of any penalty, by the Board of Directors of the Corporation or by
vote of the majority of the Fund's stockholders on sixty (60) days'
written notice to the Adviser, and by the Adviser on the same notice to
the Corporation, and that it shall be automatically terminated if it is
assigned.
The Advisory Agreement provides that the Adviser shall not be
liable to the Corporation or its stockholders for anything other than
willful misfeasance, bad faith, gross negligence or reckless disregard of
its obligations or duties. The Advisory Agreement also provides that the
Adviser and its officers, directors and employees may engage in other
businesses, devote time and attention to any other business whether of a
similar or dissimilar nature, and render services to others.
As set forth in the Prospectus under the caption "WHO MANAGES
THE FUND?", the administrator to the Corporation is Firstar Trust Company,
615 East Michigan Street, Milwaukee, Wisconsin 53202 (the
"Administrator"). The Fund Administration Servicing Agreement entered
into between the Corporation and the Administrator relating to the Fund
(the "Administration Agreement") will remain in effect until terminated by
either party. The Administration Agreement may be terminated at any time,
without the payment of any penalty, by the Board of Directors of the
Corporation upon the giving of ninety (90) days' written notice to the
Administrator, or by the Administrator upon the giving of ninety (90)
days' written notice to the Corporation. The total fees incurred pursuant
to the Administration Agreement for the period from December 28, 1995
(commencement of operations) through September 30, 1996 and for the fiscal
year ended September 30, 1997 were $18,721 and $24,914, respectively.
Under the Administration Agreement, the Administrator shall
exercise reasonable care and is not liable for any error or judgment or
mistake of law or for any loss suffered by the Corporation in connection
with the performance of the Administration Agreement, except a loss
resulting from willful misfeasance, bad faith or negligence on the part of
the Administrator in the performance of its duties under the
Administration Agreement.
Firstar Trust Company also serves as custodian of the
Corporation's assets pursuant to a Custody Agreement. Under the Custody
Agreement, Firstar Trust Company has agreed to (i) maintain a separate
account in the name of the Fund, (ii) make receipts and disbursements of
money on behalf of the Fund, (iii) collect and receive all income and
other payments and distributions on account of the Fund's portfolio
investments, (iv) respond to correspondence from shareholders, security
brokers and others relating to its duties and (v) make periodic reports to
the Fund concerning the Fund's operations. Firstar Trust Company does not
exercise any supervisory function over the purchase and sale of
securities.
Firstar Trust Company also serves as transfer agent and dividend
disbursing agent for the Fund under a Shareholder Servicing Agent
Agreement. As transfer and dividend disbursing agent, Firstar Trust
Company has agreed to (i) issue and redeem shares of the Fund, (ii) make
dividend and other distributions to shareholders of the Fund, (iii)
respond to correspondence by Fund shareholders and others relating to its
duties, (iv) maintain shareholder accounts, and (v) make periodic reports
to the Fund.
In addition the Corporation has entered into a Fund Accounting
Servicing Agreement with Firstar Trust Company pursuant to which Firstar
Trust Company has agreed to maintain the financial accounts and records of
the Fund and provide other accounting services to the Fund. For its
accounting services, Firstar Trust Company is entitled to receive fees,
payable monthly, based on the total annual rate of $22,000 for the first
$40 million in average net assets of the Fund, .01% on the next $200
million of average net assets, and .005% on average net assets exceeding
$240 million (subject to an annual minimum of $22,000). Firstar Trust
Company is also entitled to certain out of pocket expenses, including
pricing expenses. During the period from December 28, 1995 (commencement
of operations) through September 30, 1996 and for the fiscal year ended
September 30, 1997, the Fund incurred $17,894 and $25,693, respectively,
pursuant to the Fund Accounting Servicing Agreement.
DETERMINATION OF NET ASSET VALUE
As set forth in the Prospectus under the caption "HOW IS THE
FUND'S SHARE PRICE DETERMINED?", the net asset value of the Fund will be
determined as of the close of regular trading (currently 4:00 p.m. Eastern
time) on each day the New York Stock Exchange is open for trading. The
New York Stock Exchange is open for trading Monday through Friday except
New Year's Day, Dr. Martin Luther King, Jr. Day, President's Day, Good
Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day and
Christmas Day. Additionally, when any of the aforementioned holidays
falls on a Saturday, the New York Stock Exchange will not be open for
trading on the preceding Friday and when any such holiday falls on a
Sunday, the New York Stock Exchange will not be open for trading on the
succeeding Monday, unless unusual business conditions exist, such as the
ending of a monthly or the yearly accounting period. The New York Stock
Exchange also may be closed on national days of mourning.
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 a Service and Distribution Plan (the
"Plan") in anticipation that the Fund will benefit from the Plan through
increased sales of shares, thereby reducing the Fund's greater flexibility
in management. The 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 the Fund. Messrs.
Luck, Marlin and Ragsdale are currently the Rule 12b-1 Directors. Any
change in the Plan that would materially increase the distribution
expenses of the Fund provided for in the Plan requires approval of the
shareholders of such Fund and the Board of Directors, including the Rule
12b-1 Directors.
While the Plan is in effect, the selection and nomination of
directors who are not interested persons of the Corporation will be
committed to the discretion of the directors of the Corporation who are
not interested persons of the Corporation. The Board of Directors of the
Corporation must review the amount and purposes of expenditures pursuant
to the Plan quarterly as reported to it by a Distributor, if any, or
officers of the Corporation. The Plan will continue in effect for as long
as its continuance is specifically approved at least annually by the Board
of Directors, including the Rule 12b-1 Directors. During the fiscal year
ended September 30, 1997, the Fund incurred fees of $47,461 pursuant to
the Plan, $22,392 of which was used to pay selling dealers, $14,021 of
which was used to pay printing and mailing expenses and $7,301 of which
was used to pay advertising expenses.
SYSTEMATIC WITHDRAWAL PLAN
An investor who owns Fund shares worth at least $10,000 at the
current net asset value may, by completing an application which may be
obtained from the Fund or Firstar Trust Company, create a Systematic
Withdrawal Plan from which a fixed sum will be paid to the investor at
regular intervals. To establish the Systematic Withdrawal Plan, the
investor deposits Fund shares with the Corporation and appoints it as
agent to effect redemptions of Fund shares held in the account for the
purpose of making monthly or quarterly withdrawal payments of a fixed
amount to the investor out of the account. Fund shares deposited by the
investor in the account need not be endorsed or accompanied by a stock
power if registered in the same name as the account; otherwise, a properly
executed endorsement or stock power, obtained from any bank, broker-dealer
or the Corporation is required. The investor's signature should be
guaranteed by a bank, a member firm of a national stock exchange or other
eligible guarantor.
The minimum amount of a withdrawal payment is $100. These
payments will be made from the proceeds of periodic redemptions of shares
in the account at net asset value. Redemptions will be made in accordance
with the schedule (e.g., monthly, bimonthly [every other month], quarterly
or yearly, but in no event more than monthly) selected by the investor.
If a scheduled redemption day is a weekend day or a holiday, such
redemption will be made on the next preceding business day. Establishment
of a Systematic Withdrawal Plan constitutes an election by the investor to
reinvest in additional Fund shares, at net asset value, all income
dividends and capital gains distributions payable by the Fund on shares
held in such account, and shares so acquired will be added to such
account. The investor may deposit additional Fund shares in his account
at any time.
Withdrawal payments cannot be considered as yield or income on
the investor's investment, since portions of each payment will normally
consist of a return of capital. Depending on the size or the frequency of
the disbursements requested, and the fluctuation in the value of the
Fund's portfolio, redemptions for the purpose of making such disbursements
may reduce or even exhaust the investor's account.
The investor may vary the amount or frequency of withdrawal
payments, temporarily discontinue them, or change the designated payee or
payee's address, by notifying Firstar Trust Company in writing thirty (30)
days prior to the next payment.
ALLOCATION OF PORTFOLIO BROKERAGE
The Fund's securities trading and brokerage policies and
procedures are reviewed by and subject to the supervision of the
Corporation's Board of Directors. Decisions to buy and sell securities
for the Fund are made by the Adviser subject to review by the
Corporation's Board of Directors. In placing purchase and sale orders for
portfolio securities for the Fund, it is the policy of the Adviser to seek
the best execution of orders at the most favorable price in light of the
overall quality of brokerage and research services provided, as described
in this and the following paragraphs. Many of these transactions involve
payment of a brokerage commission by the Fund. In some cases,
transactions are with firms who act as principals of their own accounts.
In selecting brokers to effect portfolio transactions, the determination
of what is expected to result in best execution at the most favorable
price involves a number of largely judgmental considerations. Among these
are the Adviser's evaluation of the broker's efficiency in executing and
clearing transactions, block trading capability (including the broker's
willingness to position securities) and the broker's reputation, financial
strength and stability. The most favorable price to the Fund means the
best net price without regard to the mix between purchase or sale price
and commission, if any. Over-the-counter securities may be purchased and
sold directly with principal market makers who retain the difference in
their cost in the security and its selling price. In some instances, the
Adviser feels that better prices are available from non-principal market
makers who are paid commissions directly. Although the Fund does not
initially intend to market its shares through intermediary broker-dealers,
the Fund may place portfolio orders with broker-dealers who recommend the
purchase of Fund shares to clients (if the Adviser believes the
commissions and transaction quality are comparable to that available from
other brokers) and may allocate portfolio brokerage on that basis.
In allocating brokerage business for the Fund, the Adviser also
takes into consideration the research, analytical, statistical and other
information and services provided by the broker, such as general economic
reports and information, reports or analyses of particular companies or
industry groups, market timing and technical information, and the
availability of the brokerage firm's analysts for consultation. While the
Adviser believes these services have substantial value, they are
considered supplemental to the Adviser's own efforts in the performance of
its duties under the Advisory Agreement. Other clients of the Adviser may
indirectly benefit from the availability of these services to the Adviser,
and the Fund may indirectly benefit from services available to the Adviser
as a result of transactions for other clients. The Advisory Agreement
provides that the Adviser may cause the Fund to pay a broker which
provides brokerage and research services to the Adviser a commission for
effecting a securities transaction in excess of the amount another broker
would have charged for effecting the transaction, if the Adviser
determines in good faith that such amount of commission is reasonable in
relation to the value of brokerage and research services provided by the
executing broker viewed in terms of either the particular transaction or
the Adviser's overall responsibilities with respect to the Fund and the
other accounts as to which he exercises investment discretion. Brokerage
commissions paid by the Fund during the period from December 28, 1995
(commencement of operations) through September 30, 1996 totalled $19,267
on total transactions of $5,988,814 and brokerage commissions paid by the
Fund during the fiscal year ended September 30, 1997 were $262,073 on
total transactions of $101,104,010. All of the brokers to whom
commissions were paid provided research services to the Adviser.
TAXES
As set forth in the Prospectus under the caption "TAXES," the
Fund will endeavor to qualify annually for and elect tax treatment
applicable to a regulated investment company under Subchapter M of the
Internal Revenue Code of 1986, as amended (the "Code").
If a call option written by the Fund expires, the amount of the
premium received by the Fund for the option will be short-term capital
gain. If such an option is closed by the Fund, any gain or loss realized
by the Fund as a result of the closing purchase transaction will be
short-term capital gain or loss. If the holder of a call option exercises
the holder's right under the option, any gain or loss realized by the Fund
upon the sale of the underlying security pursuant to such exercise will be
short-term or long-term capital gain or loss to the Fund depending on the
Fund's holding period for the underlying security.
With respect to call options purchased by the Fund, the Fund
will realize short-term or long-term capital gain or loss if such option
is sold and will realize short-term or long-term capital loss if the
option is allowed to expire depending on the Fund's holding period for the
call option. If such a call option is exercised, the amount paid by the
Fund for the option will be added to the basis of the stock or futures
contract so acquired.
The Fund will utilize options on stock indexes. Options on
"broadbased" stock indexes are classified as "nonequity options" under the
Code. Gains and losses resulting from the expiration, exercise or closing
of such nonequity options, as well as gains and losses resulting from
futures contract transactions, will be treated as long-term capital gain
or loss to the extent of 60% thereof and short-term capital gain or loss
to the extent of 40% thereof (hereinafter "blended gain or loss"). In
addition, any nonequity option held by the Fund on the last day of a
fiscal year will be treated as sold for market value on that date, and
gain or loss recognized as a result of such deemed sale will be blended
gain or loss. These tax considerations may have an impact on investment
decisions made by the Fund.
Dividends from the Fund's earnings and profits, and
distributions of the Fund's net long-term realized capital gains, are
taxable to investors, whether received in cash or in additional shares of
the Fund. The 70% dividends-received deduction for corporations will
apply to dividends from the Fund's net investment income, subject to
proportionate reductions if the aggregate dividends received by the Fund
from domestic corporations in any taxable year are less than 100% of the
net investment company taxable income distributions made by the Fund.
Redemption of shares will generally result in a capital gain or
loss for income tax purposes. Such capital gain or loss will be long term
or short term, depending upon the holding period. However, if a loss is
realized on shares held for six months or less, and the investor received
a capital gain distribution during that period, then such loss is treated
as a long-term capital loss to the extent of the capital gain distribution
received.
This section is not intended to be a full discussion of present
or proposed federal income tax laws and the effect of such laws on an
investor. Investors are urged to consult with their respective tax
advisers for a complete review of the tax ramifications of an investment
in the Fund.
STOCKHOLDER MEETINGS
The Maryland General Corporation Law permits registered
investment companies, such as the Corporation, to operate without an
annual meeting of stockholders under specified circumstances if an annual
meeting is not required by the Act. The Corporation has adopted the
appropriate provisions in its Bylaws and may, at its discretion, not hold
an annual meeting in any year in which the election of directors is not
required to be acted on by stockholders under the Act.
The Corporation's Bylaws also contain procedures for the removal
of directors by its stockholders. At any meeting of stockholders, duly
called and at which a quorum is present, the stockholders may, by the
affirmative vote of the holders of a majority of the votes entitled to be
cast thereon, remove any director or directors from office and may elect a
successor or successors to fill any resulting vacancies for the unexpired
terms of removed directors.
Upon the written request of the holders of shares entitled to
not less than ten percent (10%) of all the votes entitled to be cast at
such meeting, the Secretary of the Corporation shall promptly call a
special meeting of stockholders for the purpose of voting upon the
question of removal of any director. Whenever ten or more stockholders of
record who have been such for at least six months preceding the date of
application, and who hold in the aggregate either shares having a net
asset value of at least $25,000 or at least one percent (1%) of the total
outstanding shares, whichever is less, shall apply to the Corporation's
Secretary in writing, stating that they wish to communicate with other
stockholders with a view to obtaining signatures to a request for a
meeting as described above and accompanied by a form of communication and
request which they wish to transmit, the Secretary shall within five
business days after such application either: (1) afford to such
applicants access to a list of the names and addresses of all stockholders
as recorded on the books of the Corporation; or (2) inform such applicants
as to the approximate number of stockholders of record and the approximate
cost of mailing to them the proposed communication and form of request.
If the Secretary elects to follow the course specified in clause
(2) of the last sentence of the preceding paragraph, the Secretary, upon
the written request of such applicants, accompanied by a tender of the
material to be mailed and of the reasonable expenses of mailing, shall,
with reasonable promptness, mail such material to all stockholders of
record at their addresses as recorded on the books unless within five
business days after such tender the Secretary shall mail to such
applicants and file with the Securities and Exchange Commission, together
with a copy of the material to be mailed, a written statement signed by at
least a majority of the Board of Directors to the effect that in their
opinion either such material contains untrue statements of fact or omits
to state facts necessary to make the statements contained therein not
misleading, or would be in violation of applicable law, and specifying the
basis of such opinion.
After opportunity for hearing upon the objections specified in
the written statement so filed, the Securities and Exchange Commission
may, and if demanded by the Board of Directors or by such applicants
shall, enter an order either sustaining one or more of such objections or
refusing to sustain any of them. If the Securities and Exchange
Commission shall enter an order refusing to sustain any of such
objections, or if, after the entry of an order sustaining one or more of
such objections, the Securities and Exchange Commission shall find, after
notice and opportunity for hearing, that all objections so sustained have
been met, and shall enter an order so declaring, the Secretary shall mail
copies of such material to all stockholders with reasonable promptness
after the entry of such order and the renewal of such tender.
PERFORMANCE INFORMATION
Average annual total return measures both the net investment
income generated by, and the effect of any realized or unrealized
appreciation or depreciation of, the underlying investments in the Fund's
investment portfolio. The Fund's average annual total return figures are
computed in accordance with the standardized method prescribed by the
Securities and Exchange Commission by determining the average annual
compounded rates of return over the periods indicated, that would equate
the initial amount invested to the ending redeemable value, according to
the following formula:
n
P(1 + T) = 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.
Total return is the cumulative rate of investment growth which
assumes that income dividends and capital gains are reinvested. It is
determined by assuming a hypothetical investment at the net asset value at
the beginning of the period, adding in the reinvestment of all income
dividends and capital gains, calculating the ending value of the
investment at the net asset value as of the end of the specified time
period, subtracting the amount of the original investment, and dividing
this amount by the amount of the original investment. This calculated
amount is then expressed as a percentage by multiplying by 100.
The Fund's average annual total return for the period from the
Fund's commencement of operations (December 28, 1995) through September
30, 1997 was (15.6%) and for the one year period ended September 30, 1997
was (16.4%). The foregoing performance results are based on historical
earnings and should not be considered as representative of the performance
of the Fund in the future. Such performance results also reflect
reimbursements made by the Adviser during the period from December 28,
1995 through September 30, 1997 to keep aggregate annual operating
expenses at or below 2.75% of daily net assets. An investment in the Fund
will fluctuate in value and at redemption its value may be more or less
than the initial investment.
DESCRIPTION OF SECURITIES RATINGS
As set forth in the Corporation's Prospectus, the Fund may
invest in commercial paper and commercial paper master notes assigned
ratings of either Standard & Poor's Corporation ("Standard & Poor's") or
Moody's Investors Service, Inc. ("Moody's"). A brief description of the
ratings symbols and their meanings follows.
Standard & Poor's Commercial Paper Ratings. A Standard & Poor's
commercial paper rating is a current assessment of the likelihood of
timely payment of debt considered short-term in the relevant market.
Ratings are graded into several categories, ranging from A-1 for the
highest quality obligations to D for the lowest. The categories rated A-3
or higher are as follows:
A-1. This highest category indicates that the degree of safety
regarding timely payment is strong. Those issuers determined to possess
extremely strong safety characteristics are denoted with a plus sign (+)
designation.
A-2. Capacity for timely payment on issues with this
designation is satisfactory. However the relative degree of safety is not
as high as for issuers designed "A-1".
A-3. Issues carrying this designation have adequate capacity
for timely payment. They are, however, more vulnerable to the adverse
effects of changes in circumstances than obligations carrying the higher
designation.
Moody's Short-Term Debt Ratings. Moody's short-term debt
ratings are opinions of the ability of issuers to repay punctually senior
debt obligations which have an original maturity not exceeding one year.
Obligations relying upon support mechanisms such as letters-of-credit and
bonds of indemnity are excluded unless explicitly rated.
Moody's employs the following three designations, all judged to
be investment grade, to indicate the relative repayment ability of rated
issuers:
Prime-1. Issuers rated Prime-1 (or supporting institutions)
have a superior ability for repayment of senior short-term debt
obligations. Prime-1 repayment ability will often be evidenced by many of
the following characteristics:
- Leading market positions in well-established industries.
- High rates of return on funds employed.
- Conservative capitalization structure with moderate reliance on
debt and ample asset protection.
- Broad margins in earnings coverage of fixed financial charges
and high internal cash generation.
- Well-established access to a range of financial markets and
assured sources of alternate liquidity.
Prime-2. Issuers rated Prime-2 (or supporting institutions)
have a strong ability for repayment of senior short-term debt obligations.
This will normally be evidenced by many of the characteristics cited above
but to a lesser degree. Earnings trends and coverage ratios, while sound,
may be more subject to variation. Capitalization characteristics, while
still appropriate, may be more affected by external conditions. Ample
alternate liquidity is maintained.
Prime-3. Issuers rated Prime-3 (or supporting institutions)
have an acceptable ability for repayment of senior short-term obligations.
The effect of industry characteristics and market compositions may be more
pronounced. Variability in earnings and profitability may result in
changes in the level of debt protection measurements and may require
relatively high financial leverage. Adequate alternate liquidity is
maintained.
INDEPENDENT ACCOUNTANTS
Price Waterhouse LLP, 100 East Wisconsin Avenue, Suite 1500,
Milwaukee, Wisconsin 53202, has been selected as the independent
accountants for the Fund. As such Price Waterhouse LLP performs an audit
of the Fund's financial statements and considers the Fund's internal
control structure.
FINANCIAL STATEMENTS
The following financial statements are incorporated by reference
to the Annual Report, dated September 30, 1997, of the Fund (File No. 811-
9120), as filed with the Securities and Exchange Commission on December 4,
1997:
- Statement of Assets and Liabilities as of September 30,
1997.
- Statement of Operations For the Fiscal Year Ended September
30, 1997.
- Statement of Changes in Net Assets For the Period From
December 28, 1995 (Commencement of Operations) through
September 30, 1996 and For the Fiscal Year Ended September
30, 1997.
- Financial Highlights.
- Schedule of Investments as of September 30, 1997.
- Schedule of Call Options Written as of September 30, 1997.
- Schedule of Securities Sold Short as of September 30, 1997.
- Notes to the Financial Statements.
- Report of Independent Accountants.
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, 1997 (File No. 811-9120), of Prudent Bear Funds,
Inc. (and filed with the Securities and Exchange Commission on
December 4, 1997)
Report of Independent Accountants
Statement of Assets and Liabilities
Statement of Operations
Statement of Changes in Net Assets
Financial Highlights
Schedule of Investments
Schedule of Call Options Written
Schedule of Securities Sold Short
Notes to the Financial Statement
(b.) Exhibits
(1) Registrant's Articles of Incorporation. (Exhibit 1 to
Amendment No. 1 to Registrant's Registration Statement
on Form N-1A (Amendment No. 1") is incorporated by
reference pursuant to Rule 411 under the Securities Act
of 1933).
(2) Registrant's Bylaws. (Exhibit 2 to Amendment No. 1 is
incorporated by reference pursuant to Rule 411 under the
Securities Act of 1933).
(3) None
(4) None
(5) Investment Advisory Agreement with David W. Tice &
Associates, Inc. (Exhibit 5 to Amendment No. 1 is
incorporated by reference pursuant to Rule 411 under the
Securities Act of 1933).
(6) None
(7) None
(8) Custodian Agreement with Firstar Trust Company.
(Exhibit 8 to Amendment No. 1 is incorporated by
reference pursuant to Rule 411 under the Securities Act
of 1933).
(9.1) Fund Administration Servicing Agreement with Firstar
Trust Company. (Exhibit 9.1 to Amendment No. 1 is
incorporated by reference pursuant to Rule 411 under the
Securities Act of 1933).
(9.2) Transfer Agent Agreement with Firstar Trust Company.
(Exhibit 9.2 to Amendment No. 1 is incorporated by
reference pursuant to Rule 411 under the Securities Act
of 1933).
(9.3) Fund Accounting Servicing Agreement with Firstar Trust
Company. (Exhibit 9.3 to Amendment No. 1 is
incorporated by reference pursuant to Rule 411 under the
Securities Act of 1933).
(10) Opinion of Foley & Lardner, counsel for Registrant.
(Exhibit 10 to Amendment No. 1 is incorporated by
reference pursuant to Rule 411 under the Securities Act
of 1933).
(11) Consent of Price Waterhouse LLP.
(12) None
(13) Subscription Agreement. (Exhibit 13 to Amendment No. 1
is incorporated by reference pursuant to Rule 411 under
the Securities Act of 1933).
(14) Individual Retirement Custodial Accounts.
(15) Service and Distribution Plan. (Exhibit 15 to Amendment
No. 1 is incorporated by reference pursuant to Rule 411
under the Securities Act of 1933).
(16) Schedule for Computation of Performance Quotations
(Exhibit No. 16 to Amendment No. 2 to Registrant's
Registration Statement on Form N-1A is incorporated by
reference pursuant to Rule 411 under the Securities Act
of 1933).
(17) Financial Data Schedule.
(18) None.
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 December 31, 1997
Class A Common Stock, $0.0001 1,186
par value (Prudent Bear Fund)
Item 27. Indemnification
Pursuant to the authority of the Maryland General Corporation
Law, particularly Section 2-418 thereof, Registrant's Board of Directors
has adopted the following bylaw which is in full force and effect and has
not been modified or cancelled:
Article VII
GENERAL PROVISIONS
Section 7. Indemnification.
A. The Corporation shall indemnify all of its corporate
representatives against expenses, including attorneys fees, judgments,
fines and amounts paid in settlement actually and reasonably incurred by
them in connection with the defense of any action, suit or proceeding, or
threat or claim of such action, suit or proceeding, whether civil,
criminal, administrative, or legislative, no matter by whom brought, or in
any appeal in which they or any of them are made parties or a party by
reason of being or having been a corporate representative, if the
corporate representative acted in good faith and in a manner reasonably
believed to be in or not opposed to the best interests of the corporation
and with respect to any criminal proceeding, if he had no reasonable cause
to believe his conduct was unlawful provided that the corporation shall
not indemnify corporate representatives in relation to matters as to which
any such corporate representative shall be adjudged in such action, suit
or proceeding to be liable for gross negligence, willful misfeasance, bad
faith, reckless disregard of the duties and obligations involved in the
conduct of his office, or when indemnification is otherwise not permitted
by the Maryland General Corporation Law.
B. In the absence of an adjudication which expressly absolves the
corporate representative, or in the event of a settlement, each corporate
representative shall be indemnified hereunder only if there has been a
reasonable determination based on a review of the facts that
indemnification of the corporate representative is proper because he has
met the applicable standard of conduct set forth in paragraph A. Such
determination shall be made: (i) by the board of directors, by a majority
vote of a quorum which consists of directors who were not parties to the
action, suit or proceeding, or if such a quorum cannot be obtained, then
by a majority vote of a committee of the board consisting solely of two or
more directors, not, at the time, parties to the action, suit or
proceeding and who were duly designated to act in the matter by the full
board in which the designated directors who are parties to the action,
suit or proceeding may participate; or (ii) by special legal counsel
selected by the board of directors or a committee of the board by vote as
set forth in (i) of this paragraph, or, if the requisite quorum of the
full board cannot be obtained therefor and the committee cannot be
established, by a majority vote of the full board in which directors who
are parties to the action, suit or proceeding may participate.
C. The termination of any action, suit or proceeding by judgment,
order, settlement, conviction, or upon a plea of nolo contendere or its
equivalent, shall create a rebuttable presumption that the person was
guilty of willful misfeasance, bad faith, gross negligence or reckless
disregard to the duties and obligations involved in the conduct of his or
her office, and, with respect to any criminal action or proceeding, had
reasonable cause to believe that his or her conduct was unlawful.
D. Expenses, including attorneys' fees, incurred in the preparation
of and/or presentation of the defense of a civil or criminal action, suit
or proceeding may be paid by the corporation in advance of the final
disposition of such action, suit or proceeding as authorized in the manner
provided in Section 2-418(F) of the Maryland General Corporation Law upon
receipt of: (i) an undertaking by or on behalf of the corporate
representative to repay such amount unless it shall ultimately be
determined that he or she is entitled to be indemnified by the corporation
as authorized in this bylaw; and (ii) a written affirmation by the
corporate representative of the corporate representative's good faith
belief that the standard of conduct necessary for indemnification by the
corporation has been met.
E. The indemnification provided by this bylaw shall not be deemed
exclusive of any other rights to which those indemnified may be entitled
under these bylaws, any agreement, vote of stockholders or disinterested
directors or otherwise, both as to action in his or her official capacity
and as to action in another capacity while holding such office, and shall
continue as to a person who has ceased to be a director, officer, employee
or agent and shall inure to the benefit of the heirs, executors and
administrators of such a person subject to the limitations imposed from
time to time by the Investment Company Act of 1940, as amended.
F. This corporation shall have power to purchase and maintain
insurance on behalf of any corporate representative against any liability
asserted against him or her and incurred by him or her in such capacity or
arising out of his or her status as such, whether or not the corporation
would have the power to indemnify him or her against such liability under
this bylaw provided that no insurance may be purchased or maintained to
protect any corporate representative against liability for gross
negligence, willful misfeasance, bad faith or reckless disregard of the
duties and obligations involved in the conduct of his or her office.
G. "Corporate Representative" means an individual who is or was a
director, officer, agent or employee of the corporation or who serves or
served another corporation, partnership, joint venture, trust or other
enterprise in one of these capacities at the request of the corporation
and who, by reason of his or her position, is, was, or is threatened to be
made, a party to a proceeding described herein.
Insofar as indemnification for and with respect to liabilities
arising under the Securities Act of 1933 may be permitted to directors,
officers and controlling persons of Registrant pursuant to the foregoing
provisions or otherwise, Registrant has been advised that in the opinion
of the Securities and Exchange Commission such indemnification is against
public policy as expressed in the Act and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities
(other than the payment by Registrant of expenses incurred or paid by a
director, officer or controlling person or Registrant in the successful
defense of any action, suit or proceeding) is asserted by such director,
officer or controlling person in connection with the securities being
registered, Registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question of whether such indemnification is
against public policy as expressed in the Act and will be governed by the
final adjudication of such issue.
Item 28. Business and Other Connections of Investment Adviser
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 29. Principal Underwriters
Not Applicable.
Item 30. Location of Accounts and Records
The accounts, books and other documents required to be
maintained by Registrant pursuant to Section 31ad(a) of the Investment
Company Act of 1940 and the rules promulgated thereunder are in the
physical possession of Registrant and Registrant's Administrator as
follows: the documents required to be maintained by paragraphs (5), (6),
(7), (10) and (11) of Rule 31a-1(b) will be maintained by the Registrant
at 8140 Walnut Hill Lane, Suite 405, Dallas, Texas 75231; and all other
records will be maintained by the Registrant's Administrator, Firstar
Trust Company, 615 East Michigan Street, Milwaukee, Wisconsin.
Item 31. Management Services
All management-related service contracts entered into by
Registrant are discussed in Parts A and B of this Registration Statement.
Item 32. Undertakings
With respect to stockholder meetings, Registrant undertakes to
call stockholder meetings in accordance with the provisions of Article II
of its Bylaws, which are discussed in Parts A and B of this Registration
Statement.
Registrant undertakes to furnish each person to whom a
prospectus is delivered with a copy of Registrant's latest annual report
to shareholders, upon request and without charge.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and
the Investment Company Act of 1940, the Registrant certifies that it meets
all of the requirements for effectiveness of this Amended Registration
Statement pursuant to Rule 485(b) under the Securities Act of 1933 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 16th day of January, 1998.
PRUDENT BEAR FUNDS, INC.
(Registrant)
By: /s/ David W. Tice
David W. Tice, President
Pursuant to the requirements of the Securities Act of 1933, this
Amended Registration Statement has been signed below by the following
persons in the capacities and on the date(s) indicated.
Name Title Date
/s/ David W. Tice President and Treasurer January 16, 1998
David W. Tice (Principal Executive,
Financial and Accounting
Officer) and a Director
/s/ Gregg Jahnke Director January 16, 1998
Gregg Jahnke
/s/ David Eric Luck Director January 16, 1998
David Eric Luck
/s/ Jerry Marlin, M.D. Director January 19, 1998
Jerry Marlin, M.D.
/s/ Buril Ragsdale Director January 21, 1998
Buril Ragsdale
<PAGE>
EXHIBIT INDEX
Exhibit No. Exhibit
(1) Registrant's Articles of
Incorporation*
(2) Registrant's Bylaws*
(3) None
(4) None
(5) Investment Advisory Agreement with
David W. Tice & Associates, Inc.*
(6) None
(7) None
(8) Custodian Agreement with Firstar
Trust Company*
(9.1) Fund Administration Servicing
Agreement with Firstar Trust
Company*
(9.2) Transfer Agent Agreement with
Firstar Trust Company*
(9.3) Fund Accounting Servicing
Agreement with Firstar Trust
Company*
(10) Opinion of Foley & Lardner,
counsel for Registrant*
(11) Consent of Price Waterhouse LLP
(12) None
(13) Subscription Agreement*
(14) Individual Retirement Custodial
Accounts
(15) Service and Distribution Plan*
(16) Schedule for Computation of
Performance Quotations*
(17) Financial Data Schedule
(18) None
__________________________________
* Incorporated by reference.
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference into the Prospectus and
Statement of Additional Information constituting parts of this Post-Effective
Amendment No. 3 to the registration statement on Form N-1A (the "Registration
Statement") of our report dated November 7, 1997, relating to the financial
statements and financial highlights appearing in the September 30, 1997 Annual
Report to Shareholders of the Prudent Bear Fund, which is also incorporated
by reference into the Registration Statement. We also consent to the
references to us under the heading "Financial Highlights" in the Prospectus
and under the heading "Independent Accountants" in the Statement of Additional
Information.
PRICE WATERHOUSE LLP
Milwaukee, Wisconsin
January 26, 1998
PRUDENT BEAR FUND
INDIVIDUAL RETIREMENT CUSTODIAL ACCOUNT
The following constitutes an agreement establishing an
Individual Retirement Account (under Section 408(a) of the Internal
Revenue Code) between the Depositor and the Custodian.
ARTICLE I
The Custodian may accept additional cash contributions on behalf
of the Depositor for a tax year of the Depositor. The total cash
contributions are limited to $2,000 for the tax year unless the
contribution is a rollover contribution described in Section 402(c) (but
only after December 31, 1992), 403(a)(4), 403(b)(8), 408(d)(3), or an
employer contribution to a simplified employee pension plan as described
in Section 408(k). Rollover contributions before January 1, 1993, include
rollovers described in Section 402(a)(5), 402(a)(6), 402(a)(7), 403(a)(4),
403(b)(8), 408(d)(3), or an employer contribution to a simplified employee
pension plan as described in Section 408(k).
ARTICLE II
The Depositor's interest in the balance in the custodial account
is nonforfeitable.
ARTICLE III
1. No part of the custodial funds may be invested in life
insurance contracts, nor may the assets of the custodial account be
commingled with other property except in a common trust fund or common
investment fund (within the meaning of Section 408(a)(5)).
2. No part of the custodial funds may be invested in
collectibles (within the meaning of Section 408(m)) except as otherwise
permitted by Section 408(m)(3) which provides an exception for certain
gold and silver coins and coins issued under the laws of any state.
ARTICLE IV
1. Notwithstanding any provision of this agreement to the
contrary, the distribution of the Depositor's interest in the custodial
account shall be made in accordance with the following requirements and
shall otherwise comply with Section 408(a)(6) and Proposed Regulations
Section 1.408-8, including the incidental death benefit provisions of
Proposed Regulations Section 1.401(a)(9)-2, the provisions of which are
incorporated by reference.
2. Unless otherwise elected by the time distributions are
required to begin to the Depositor under Paragraph 3, or to the surviving
spouse under Paragraph 4, other than in the case of a life annuity, life
expectancies shall be recalculated annually. Such election shall be
irrevocable as to the Depositor and the surviving spouse and shall apply
to all subsequent years. The life expectancy of a nonspouse beneficiary
may not be recalculated.
3. The Depositor's entire interest in the custodial account
must be, or begin to be, distributed by the Depositor's required beginning
date, (April 1 following the calendar year end in which the Depositor
reaches age 70 1/2). By that date, the Depositor may elect, in a manner
acceptable to the Custodian, to have the balance in the custodial account
distributed in:
(a) A single sum payment.
(b) An annuity contract that provides equal or substantially
equal monthly, quarterly, or annual payments over the life of the
Depositor.
(c) An annuity contract that provides equal or substantially
equal monthly, quarterly, or annual payments over the joint and last
survivor lives of the Depositor and his or her designated beneficiary.
(d) Equal or substantially equal annual payments over a
specified period that may not be longer than the Depositor's life
expectancy.
(e) Equal or substantially equal annual payments over a
specified period that may not be longer than the joint life and last
survivor expectancy of the Depositor and his or her designated
beneficiary.
4. If the Depositor dies before his or her entire interest is
distributed to him or her, the entire remaining interest will be
distributed as follows:
(a) If the Depositor dies on or after distribution of his or
her interest has begun, distribution must continue to be made in
accordance with Paragraph 3.
(b) If the Depositor dies before distribution of his or her
interest has begun, the entire remaining interest will, at the election of
the Depositor or, if the Depositor has not so elected, at the election of
the beneficiary or beneficiaries, either
(i) Be distributed by the December 31 of the year
containing the fifth anniversary of the Depositor's
death, or
(ii) Be distributed in equal or substantially equal
payments over the life or life expectancy of the
designated beneficiary or beneficiaries starting by
December 31 of the year following the year of the
Depositor's death. If, however, the beneficiary is
the Depositor's surviving spouse, then this
distribution is not required to begin before December
31 of the year in which the Depositor would have
turned age 70 1/2.
(c) Except where distribution in the form of an annuity meeting
the requirements of Section 408(b)(3) and its related regulations has
irrevocably commenced, distributions are treated as having begun on the
Depositor's required beginning date, even though payments may actually
have been made before that date.
(d) If the Depositor dies before his or her entire interest has
been distributed and if the beneficiary is other than the surviving
spouse, no additional cash contributions or rollover contributions may be
accepted in the account.
5. In the case of a distribution over life expectancy in equal
or substantially equal annual payments, to determine the minimum annual
payment for each year, divide the Depositor's entire interest in the
custodial account as of the close of business on December 31 of the
preceding year by the life expectancy of the Depositor (or the joint life
and last survivor expectancy of the Depositor and the Depositor's
designated beneficiary, or the life expectancy of the designated
beneficiary, whichever applies). In the case of distributions under
Paragraph 3, determine the initial life expectancy (or joint life and last
survivor expectancy) using the attained ages of the Depositor and designed
beneficiary as of their birthdays in the year the Depositor reaches age 70
1/2. In the case of a distribution in accordance with Paragraph 4(b)(ii),
determine life expectancy using the attained age of the designated
beneficiary as of the beneficiary's birthday in the year distributions are
required to commence.
6. The owner of two or more individual retirement accounts may
use the "alternative method" described in Notice 88-38, 1988-1 C.B. 524,
to satisfy the minimum distribution requirements described above. This
method permits an individual to satisfy these requirements by taking from
one individual retirement account the amount required to satisfy the
requirement for another.
ARTICLE V
1. The Depositor agrees to provide the Custodian with
information necessary for the Custodian to prepare any reports required
under Section 408(i) and Regulations Section 1.408-5 and 1.408-6.
2. The Custodian agrees to submit reports to the Internal
Revenue Service and the Depositor prescribed by the Internal Revenue
Service.
ARTICLE VI
Notwithstanding any other articles which may be added or
incorporated, the provisions of Articles I through III and this sentence
will be controlling. Any additional articles that are not consistent with
Section 408(a) and related regulations will be invalid.
ARTICLE VII
This agreement will be amended from time to time to comply with
the provisions of the Code and related regulations. Other amendments may
be made with the consent of the persons whose signatures appear below.
ARTICLE VIII
1. Investment of Account Assets. (a) All contributions to the
custodial account shall be invested in the shares of any regulated
investment company ("Investment Company") for which David W. Tice &
Associates, Inc. serves as investment advisor, or any other regulated
investment company designated by the investment advisor. Shares of stock
of an Investment Company shall be referred to as Investment Company
Shares."
(b) Each contribution to the custodial account shall identify
the Depositor's account number and be accompanied by a signed statement
directing the investment of that contribution. The Custodian may return
to the Depositor, without liability for interest thereon, any contribution
which is not accompanied by adequate account identification or an
appropriate signed statement directing investment of that contribution.
(c) Contributions shall be invested in whole and fractional
Investment Company Shares at the price and in the manner such shares are
offered to the public. All distributions received on Investment Company
Shares held in the custodial account shall be reinvested in like shares.
If any distribution of Investment Company Shares may be received in
additional like shares or in cash or other property, the Custodian shall
elect to receive such distribution in additional like Investment Company
Shares.
(d) All Investment Company Shares acquired by the Custodian
shall be registered in the name of the Custodian or its nominee. The
Depositor shall be the beneficial owner of all Investment Company Shares
held in the custodial account and the Custodian shall not vote any such
shares, except upon written direction of the Depositor. The Custodian
agrees to forward to the Depositor each prospectus, report, notice, proxy
and related proxy soliciting materials applicable to Investment Company
Shares held in the custodial account received by the Custodian.
(e) The Depositor may, at any time, by written notice to the
Custodian, redeem any number of shares held in the custodial account and
reinvest the proceeds in the shares of any other Investment Company. Such
redemptions and reinvestments shall be done at the price and in the manner
such shares are then being redeemed or offered by the respective
Investment Companies.
2. Amendment and Termination. (a) The Custodian may amend
the Custodial Account (including retroactive amendments) by delivering to
the Depositor written notice of such amendment setting forth the substance
and effective date of the amendment. The Depositor shall be deemed to
have consented to any such amendment not objected to in writing by the
Depositor within thirty (30) days of receipt of the notice, provided that
no amendment shall cause or permit any part of the assets of the custodial
account to be diverted to purposes other than for the exclusive benefit of
the Depositor or his or her beneficiaries.
(b) The Depositor may terminate the custodial account at any
time by delivering to the Custodian a written notice of such termination.
(c) The custodial account shall automatically terminate upon
distribution to the Depositor or his or her beneficiaries of its entire
balance.
3. Taxes and Custodial Fees. Any income taxes or other taxes
levied or assessed upon or in respect of the assets or income of the
custodial account and any transfer taxes incurred shall be paid from the
custodial account. All administrative expenses incurred by the Custodian
in the performance of its duties, including fees for legal services
rendered to the Custodian, and the Custodian's compensation shall be paid
from the custodial account, unless otherwise paid by the Depositor or his
or her beneficiaries.
The Custodian's fees are set forth in a schedule provided to the
Depositor. Extraordinary charges resulting from unusual administrative
responsibilities not contemplated by the schedule will be subject to such
additional charges as will reasonably compensate the Custodian. Fees for
refund of excess contributions, transferring to a successor trustee or
custodian, or redemption/reinvestment of Investment Company Shares will be
deducted from the refund or redemption proceeds and the remaining balance
will be remitted to the Depositor, or reinvested or transferred in
accordance with the Depositor's instructions.
4. Reports and Notices. (a) The Custodian shall keep
adequate records of transactions it is required to perform hereunder.
After the close of each calendar year, the Custodian shall provide to the
Depositor or his or her legal representative a written report or reports
reflecting the transactions effected by it during such year and the assets
and liabilities of the Custodial Account at the close of the year.
(b) All communications or notices shall be deemed to be given
upon receipt by the Custodian at Prudent Bear Fund, c/o Firstar Trust
Company, Mutual Fund Services, 615 East Michigan Street, 3rd Floor, P.O.
Box 701, Milwaukee, WI 53201-0701, or the Depositor at his most recent
address shown in the Custodian's records. The Depositor agrees to advise
the Custodian promptly, in writing, of any change of address.
5. Designation of Beneficiary. The Depositor may designate a
beneficiary or beneficiaries to receive benefits from the custodial
account in the event of the Depositor's death. In the event the Depositor
has not designated a beneficiary, or if all beneficiaries shall predecease
the Depositor, the following persons shall take in the order named:
(a) The spouse of the Depositor;
(b) If the spouse shall predecease the Depositor or if the
Depositor does not have a spouse, then to the personal representative of
the Depositor's estate.
6. Multiple Individual Retirement Accounts. In the event the
Depositor maintains more than one individual retirement account (as
defined in Section 408(a)) and elects to satisfy his or her minimum
distribution requirements described in Article IV above by making a
distribution for another individual retirement account in accordance with
Paragraph 6 thereof, the Depositor shall be deemed to have elected to
calculate the amount of his or her minimum distribution under this
custodial account in the same manner as under the individual retirement
account from which the distribution is made.
7. Inalienability of Benefits. The benefits provided under
this custodial account shall not be subject to alienation, assignment,
garnishment, attachment, execution or levy of any kind and any attempt to
cause such benefits to be so subjected shall not be recognized except to
the extent as may be required by law.
8. Rollover Contributions and Transfers. The Custodian shall
have the right to receive rollover contributions and to receive direct
transfers from other custodians or trustees. All contributions must be
made in cash or check.
9. Conflict in Provisions. To the extent that any provisions
of this Article VIII shall conflict with the provisions of Articles IV, V
and/or VII, the provisions of this Article VIII shall govern.
10. Applicable State Law. This custodial account shall be
construed, administered and enforced according to the laws of the State of
Wisconsin.
<PAGE>
PRUDENT BEAR FUND
ROTH INDIVIDUAL RETIREMENT CUSTODIAL ACCOUNT
The following constitutes an agreement establishing a Roth IRA
(under Section 408A of the Internal Revenue Code) between the depositor
and the custodian.
ARTICLE I
1. If this Roth IRA is not designated as a Roth Conversion IRA,
then, except in the case of a rollover contribution described in section
408A(e), the custodian will accept only cash contributions and only up to
a maximum amount of $2,000 for any tax year of the depositor.
2. If this Roth IRA is designated as a Roth Conversion IRA, no
contributions other than IRA Conversion Contributions made during the same
tax year will be accepted.
ARTICLE II
The $2,000 limit described in Article I is gradually reduced
to $0 between certain levels of adjusted gross income (AGI). For a single
depositor, the $2,000 annual contribution is phased out between AGI of
$95,000 and $110,000; for a married depositor who files jointly, between
AGI of $150,000 and $160,000; and for a married depositor who files
separately, between $0 and $10,000. In the case of a conversion, the
custodian will not accept IRA Conversion Contributions in a tax year if
the depositor's AGI for that tax year exceeds $100,000 or if the depositor
is married and files a separate return. Adjusted gross income is defined
in section 408A(c)(3) and does not include IRA Conversion Contributions.
ARTICLE III
The depositor's interest in the balance in the custodial account
if nonforfeitable.
ARTICLE IV
1. No part of the custodial funds may be invested in life insurance
contracts, nor may the assets of the custodial account be commingled with
other property except in a common trust fund or common investment fund
(within the meaning of section 408(a)(5)).
2. No part of the custodial funds may be invested in collectibles
(within the meaning of section 408(m) except as otherwise permitted by
section 408(m)(3), which provides an exception for certain gold, silver,
and platinum coins, coins issued under the laws of any state, and certain
bullion.
ARTICLE V
1. If the depositor dies before his or her entire interest is
distributed to him or her and the grantor's surviving spouse is not the
sole beneficiary, the entire remaining interest will, at the election of
the depositor or, if the depositor has not so elected, at the election of
the beneficiary or beneficiaries, either.
(a) Be distributed by December 31 of the year containing the
fifth anniversary of the depositor's death, or
(b) Be distributed over the life expectancy of the designated
beneficiary starting no later than December 31 of the year following the
year of the depositor's death.
If distributions do not begin by the date described in (b),
distribution method (a) will apply.
2. In the case of distribution method 1.(b) above, to determine the
minimum annual payment for each year, divide the grantor's entire interest
in the trust as of the close of business on December 31 of the preceding
year by the life expectancy of the designated beneficiary using the
attained age of the designated beneficiary as of the beneficiary's
birthday in the year distributions are required to commence and subtract 1
for each subsequent year.
3. If the depositor's spouse is the sole beneficiary on the
depositor's date of death, such spouse will then be treated as the
depositor.
ARTICLE VI
1. The depositor agrees to provide the custodian with information
necessary for the custodian to prepare any reports required under section
408(i) and 408A(d)(3)(E), regulations sections 1.408-5 and 1.408-6, and
under guidance published by the Internal Revenue Service.
2. The custodian agrees to submit reports to the Internal Revenue
Service and the depositor prescribed by the Internal Revenue Service.
ARTICLE VII
Notwithstanding any other articles which may be added or
incorporated, the provisions of Articles I through IV and this sentence
will be controlling. Any additional articles that are not consistent with
section 408A, the related regulations, and other published guidance will
be invalid.
ARTICLE VIII
This Agreement will be amended from time to time to comply with
the provisions of the Code, related regulations, and other published
guidance. Other amendments may be made with the consent of the persons
whose signatures appear below.
ARTICLE IX
1. Investment of Account Assets. a. All contributions to the
custodial account shall be invested in the shares of any regulated
investment company ("Investment Company") for which David W. Tice &
Associates, Inc. serves as investment advisor, or any other regulated
investment company designated by the investment advisor. Shares of stock
of an Investment Company shall be referred to as "Investment Company
Shares."
b. Each contribution to the custodial account shall identify the
depositor's account number and be accompanied by a signed statement
directing the investment of that contribution. The custodian may return
to the depositor, without liability for interest thereon, any contribution
which is not accompanied by adequate account identification or an
appropriate signed statement directing investment of that contribution.
c. Contributions shall be invested in whole and fractional
Investment Company Shares at the price and in the manner such shares are
offered to the public. All distributions received on Investment Company
Shares held in the custodial account shall be reinvested in like shares.
If any distribution of Investment Company Shares may be received in
additional like shares or in cash or other property, the custodian shall
elect to receive such distribution in additional like Investment Company
Shares.
d. All Investment Company Shares acquired by the custodian shall
be registered in the name of the custodian or its nominee. The depositor
shall be the beneficial owner of all Investment Company Shares held in the
custodial account and the custodian shall not vote any such shares, except
upon written direction of the depositor. The custodian agrees to forward
to the depositor each prospectus, report, notice, proxy and related proxy
soliciting materials applicable to Investment Company Shares held in the
custodial account received by the custodian.
e. The depositor may, at any time, by written notice to the
custodian, redeem any number of shares held in the custodial account and
reinvest the proceeds in the shares of any other Investment Company. Such
redemptions and reinvestments shall be done at the price and in the manner
such shares are then being redeemed or offered by the respective
Investment Companies.
2. Amendment and Termination. a. The custodian may amend the
Custodial Account (including retroactive amendments) by delivering to the
depositor written notice of such amendment setting forth the substance and
effective date of the amendment. The depositor shall be deemed to have
consented to any such amendment not objected to in writing by the
depositor within thirty (30) days of receipt of the notice, provided that
no amendment shall cause or permit any part of the assets of the custodial
account to be diverted to purposes other than for the exclusive benefit of
the depositor or his or her beneficiaries.
b. The depositor may terminate the custodial account at any time
by delivering to the custodian a written notice of such termination.
c. The custodial account shall automatically terminate upon
distribution to the depositor or his or her beneficiaries of its entire
balance.
3. Taxes and Custodial Fees. Any income taxes or other taxes
levied or assessed upon or in respect of the assets or income of the
custodial account and any transfer taxes incurred shall be paid from the
custodial account. All administrative expenses incurred by the custodian
in the performance of its duties, including fees for legal services
rendered to the custodian, and the custodian's compensation shall be paid
from the custodial account, unless otherwise paid by the depositor or his
or her beneficiaries.
The custodian's fees are set forth in a schedule provided to the
depositor. Extraordinary charges resulting from unusual administrative
responsibilities not contemplated by the schedule will be subject to such
additional charges as will reasonably compensate the custodian. Fees for
refund of excess contributions, transferring to a successor trustee or
custodian, or redemption/reinvestment of Investment Company Shares will be
deducted from the refund or redemption proceeds and the remaining balance
will be remitted to the depositor, or reinvested or transferred in
accordance with the depositor's instructions.
4. Reports and Notices. a. The custodian shall keep adequate
records of transactions it is required to perform hereunder. After the
close of each calendar year, the custodian shall provide to the depositor
or his or her legal representative a written report or reports reflecting
the transactions effected by it during such year and the assets and
liabilities of the Custodial Account at the close of the year.
b. All communications or notices shall be deemed to be given
upon receipt by the custodian at Prudent Bear Fund, c/o Firstar Trust
Company, Mutual Fund Services, 615 East Michigan Street, 3rd Floor, P.O.
Box 701, Milwaukee, WI 53201-0701, or the depositor at his most recent
address shown in the custodian's records. The depositor agrees to advise
the custodian promptly, in writing, of any change of address.
5. Designation of Beneficiary. The depositor may designate a
beneficiary or beneficiaries to receive benefits from the custodial
account in the event of the depositor's death. In the event the depositor
has not designated a beneficiary, or if all beneficiaries shall predecease
the depositor, the following persons shall take in the order named:
a. The spouse of the depositor;
b. If the spouse shall predecease the depositor or if the
depositor does not have a spouse, then to the personal representative of
the depositor's estate.
6. Inalienability of Benefits. The benefits provided under this
custodial account shall not be subject to alienation, assignment,
garnishment, attachment, execution or levy of any kind and any attempt to
cause such benefits to be so subjected shall not be recognized except to
the extent as may be required by law.
7. Rollover Contributions and Transfers. Subject to the
restrictions in Article I, the custodian shall have the right to receive
rollover contributions and to receive direct transfers from other
custodians or trustees. All contributions must be made in cash or check.
8. Conflict in Provisions. To the extent that any provisions of
this Article VIII shall conflict with the provisions of Articles V, VI
and/or VIII, the provisions of this Article IX shall govern.
9. Applicable State Law. This custodial account shall be
construed, administered and enforced according to the laws of the State of
Wisconsin.
<PAGE>
PRUDENT FEAR FUND
SIMPLE INDIVIDUAL RETIREMENT CUSTODIAL ACCOUNT
The participant whose name appears above is establishing a
savings incentive match plan for employees of small employers individual
retirement account (SIMPLE IRA) under sections 408(a) and 408(p) to
provide for his or her retirement and for the support of his or her
beneficiaries after death.
The custodian named above has given the participant the
disclosure statement required under Regulations section 1.408-6.
The participant and the custodian make the following agreement:
ARTICLE I
The custodian will accept cash contributions made on behalf of
the participant by the participant's employer under the terms of a SIMPLE
plan described in section 408(p). In addition, the custodian will accept
transfers or rollovers from other SIMPLE IRAs of the participant. No
other contributions will be accepted by the custodian.
ARTICLE II
The participant's interest in the balance in the custodial
account is nonforfeitable.
ARTICLE III
1. No part of the custodial funds may be invested in life
insurance contracts, nor may the assets of the custodial account be
commingled with other property except in a common trust fund or common
investment fund (within the meaning of section 408(a)(5)).
2. No part of the custodial funds may be invested in
collectibles (within the meaning of section 408(m)) except as otherwise
permitted by section 408(m)(3), which provides an exception for certain
gold, silver, and platinum coins, coins issued under the laws of any
state, and certain bullion.
ARTICLE IV
1. Notwithstanding any provision of this agreement to the
contrary, the distribution of the participant's interest in the custodial
account shall be made in accordance with the following requirements and
shall otherwise comply with section 408(a)(6) and Proposed Regulations
section 1.408-8, including the incidental death benefit provisions of
Proposed Regulations section 1.401(a)(9)-2, the provisions of which are
incorporated by reference.
2. Unless otherwise elected by the time distributions are
required to begin to the participant under paragraph 3, or to the
surviving spouse under paragraph 4, other than in the case of a life
annuity, life expectancies shall be recalculated annually. Such election
shall be irrevocable as to the participant and the surviving spouse and
shall apply to all subsequent years. The life expectancy of a nonspouse
beneficiary may not be recalculated.
3. The participant's entire interest in the custodial account
must be, or begin to be, distributed by the participant's requested
beginning date (April 1 following the calendar year end in which the
participant reaches age 70-1/2). By that date, the participant may elect, in
a manner acceptable to the custodian, to have the balance in the custodial
account distributed in:
(a) A single sum payment.
(b) An annuity contract that provides equal or substantially
equal monthly, quarterly, or annual payments over the life of the
participant.
(c) An annuity contract that provides equal or substantially
equal monthly, quarterly, or annual payments over the joint and last
survivor lives of the participant and his or her designated beneficiary.
(d) Equal or substantially equal annual payments over a
specified period that may not be longer than the participant's life
expectancy.
(e) Equal or substantially equal annual payments over a
specified period that may not be longer than the joint life and last
survivor expectancy of the participant and his or her designated
beneficiary.
4. If the participant dies before his or her entire interest
is distributed to him or her, the entire remaining interest will be
distributed as follows:
(a) If the participant dies on or after distribution of his or
her interest has begun, distribution must continue to be made in
accordance with paragraph 3.
(b) If the participant dies before distribution of his or her
interest has begun, the entire remaining interest will, at the election of
the participant or, if the participant has not so elected, at the election
of the beneficiary or beneficiaries, either
(i) Be distributed by the December 31 of the year containing
the fifth anniversary of the participant's death, or
(ii) Be distributed in equal or substantially equal payments
over the life or life expectancy of the designated
beneficiary or beneficiaries starting by December 31 of the
year following the year of the participant's death. If,
however, the beneficiary is the participant's surviving
spouse, then this distribution is not required to begin
before December 31 of the year in which the participant
would have reached age 70-1/2.
(c) Except where distribution in the form of an annuity meeting
the requirements of section 408(b0(3) and its related regulations has
irrevocably commenced, distributions are treated as having begun on the
participant's required beginning date, even though payments may actually
have been made before that date.
(d) If the participant dies before his or her entire interest
has been distributed and if the beneficiary is other than the surviving
spouse, no additional cash contributions or rollover contributions may be
accepted in the account.
5. In the case of a distribution over life expectancy in equal
or substantially equal annual payments, to determine the minimum annual
payment for each year, divide the participant's entire interest in the
custodial account as of the close of business on December 31 of the
preceding year by the life expectancy of the participant (or the joint
life and last survivor expectancy of the participant and the participant's
designated beneficiary, or the life expectancy of the designated
beneficiary, whichever applies). In the case of distributions under
paragraph 3, determine the initial life expectancy (or joint life and last
survivor expectancy) using the attained ages of the participant and
designated beneficiary as of their birthdays in the year the participant
reaches age 70-1/2. In the case of a distribution in accordance with
paragraph 4(b)(ii), determine life expectancy using the attained age of
the designated beneficiary as of the beneficiary's birthday in the year
distributions are required to commence.
6. The owner of two or more individual retirement accounts may
use the "alternative method" described in Notice 88-38, 1988-1 C.B. 524,
to satisfy the minimum distribution requirements described above. This
method permits an individual to satisfy these requirements by taking from
one individual retirement account the amount required to satisfy the
requirement for another.
ARTICLE V
1. The participant agrees to provide the custodian with
information necessary for the custodian to prepare any report required
under sections 408(i) and 408(l)(2) and Regulations sections 1.408-5 and
1.408-6.
2. The custodian agrees to submit reports to the Internal
Revenue Service and the participant as prescribed by the Internal Revenue
Service.
3. The custodian also agrees to provide the participant's
employer the summary description described in section 408(l)(2) unless
this SIMPLE IRA is a transfer SIMPLE IRA.
ARTICLE VI
Notwithstanding any other articles which may be added or
incorporated, the provisions of Articles I through III and this sentence
will be controlling. Any additional articles that are not consistent with
sections 408(a) and 408(p) and the related regulations will be invalid.
ARTICLE VII
This agreement will be amended from time to time to comply with
the provisions of the Code and related regulations. Other amendments may
be made with the consent of the persons whose signatures appear below.
ARTICLE VIII
1. Investment of Account Assets. (a) All contributions to
the custodial account shall be invested in the shares of any regulated
investment company ("Investment Company") for which David W. Tice &
Associates, Inc. serves as investment advisor, or any other regulated
investment company designated by the investment advisor. Shares of stock
of an Investment Company shall be referred to as Investment Company
Shares."
(b) Each contribution to the custodial account shall identify
the Depositor's account number and be accompanied by a signed statement
directing the investment of that contribution. The Custodian may return
to the Depositor, without liability for interest thereon, any contribution
which is not accompanied by adequate account identification or an
appropriate signed statement directing investment of that contribution.
(c) Contributions shall be invested in whole and fractional
Investment Company Shares at the price and in the manner such shares are
offered to the public. All distributions received on Investment Company
Shares held in the custodial account shall be reinvested in like shares.
If any distribution of Investment Company Shares may be received in
additional like shares or in cash or other property, the Custodian shall
elect to receive such distribution in additional like Investment Company
Shares.
(d) All Investment Company Shares acquired by the Custodian
shall be registered in the name of the Custodian or its nominee. The
Depositor shall be the beneficial owner of all Investment Company Shares
held in the custodial account and the Custodian shall not vote any such
shares, except upon written direction of the Depositor. The Custodian
agrees to forward to the Depositor each prospectus, report, notice, proxy
and related proxy soliciting materials applicable to Investment Company
Shares held in the custodial account received by the Custodian.
(e) The Depositor may, at any time, by written notice to the
Custodian, redeem any number of shares held in the custodial account and
reinvest the proceeds in the shares of any other Investment Company. Such
redemptions and reinvestments shall be done at the price and in the manner
such shares are then being redeemed or offered by the respective
Investment Companies.
2. Amendment and Termination. (a) The Custodian may amend
the Custodial Account (including retroactive amendments) by delivering to
the Depositor written notice of such amendment setting forth the substance
and effective date of the amendment. The Depositor shall be deemed to
have consented to any such amendment not objected to in writing by the
Depositor within thirty (30) days of receipt of the notice, provided that
no amendment shall cause or permit any part of the assets of the custodial
account to be diverted to purposes other than for the exclusive benefit of
the Depositor or his or her beneficiaries.
(b) The Depositor may terminate the custodial account at any
time by delivering to the Custodian a written notice of such termination.
(c) The custodial account shall automatically terminate upon
distribution to the Depositor or his or her beneficiaries of its entire
balance.
3. Taxes and Custodial Fees. Any income taxes or other taxes
levied or assessed upon or in respect of the assets or income of the
custodial account and any transfer taxes incurred shall be paid from the
custodial account. All administrative expenses incurred by the Custodian
in the performance of its duties, including fees for legal services
rendered to the Custodian, and the Custodian's compensation shall be paid
from the custodial account, unless otherwise paid by the Depositor or his
or her beneficiaries.
The Custodian's fees are set forth in a schedule provided to the
Depositor. Extraordinary charges resulting from unusual administrative
responsibilities not contemplated by the schedule will be subject to such
additional charges as will reasonably compensate the Custodian. Fees for
refund of excess contributions, transferring to a successor trustee or
custodian, or redemption/reinvestment of Investment Company Shares will be
deducted from the refund or redemption proceeds and the remaining balance
will be remitted to the Depositor, or reinvested or transferred in
accordance with the Depositor's instructions.
4. Reports and Notices. (a) The Custodian shall keep adequate
records of transactions it is required to perform hereunder. After the
close of each calendar year, the Custodian shall provide to the Depositor
or his or her legal representative a written report or reports reflecting
the transactions effected by it during such year and the assets and
liabilities of the Custodial Account at the close of the year.
(b) All communications or notices shall be deemed to be given
upon receipt by the Custodian at Prudent Bear Fund, c/o Firstar Trust
Company, Mutual Fund Services, 615 East Michigan Street, 3rd Floor, P.O.
Box 701, Milwaukee, WI 53201-0701, or the Depositor at his most recent
address shown in the Custodian's records. The Depositor agrees to advise
the Custodian promptly, in writing, of any change of address.
5. Designation of Beneficiary. The Depositor may designate a
beneficiary or beneficiaries to receive benefits from the custodial
account in the event of the Depositor's death. In the event the Depositor
has not designated a beneficiary, or if all beneficiaries shall predecease
the Depositor, the following persons shall take in the order named:
(a) The spouse of the Depositor;
(b) If the spouse shall predecease the Depositor or if the
Depositor does not have a spouse, then to the personal representative of
the Depositor's estate.
6. Multiple Individual Retirement Accounts. In the event the
Depositor maintains more than one individual retirement account (as
defined in Section 408(a)) and elects to satisfy his or her minimum
distribution requirements described in Article IV above by making a
distribution for another individual retirement account in accordance with
Paragraph 6 thereof, the Depositor shall be deemed to have elected to
calculate the amount of his or her minimum distribution under this
custodial account in the same manner as under the individual retirement
account from which the distribution is made.
7. Inalienability of Benefits. The benefits provided under
this custodial account shall not be subject to alienation, assignment,
garnishment, attachment, execution or levy of any kind and any attempt to
cause such benefits to be so subjected shall not be recognized except to
the extent as may be required by law.
8. Rollover Contributions and Transfers. The Custodian shall
have the right to receive rollover contributions and to receive direct
transfers from other custodians or trustees. All contributions must be
made in cash or check.
9. Conflict in Provisions. To the extent that any provisions
of this Article VIII shall conflict with the provisions of Articles IV, V
and/or VII, the provisions of this Article VIII shall govern.
10. Applicable State Law. This custodial account shall be
construed, administered and enforced according to the laws of the State of
Wisconsin.
<TABLE> <S> <C>
<ARTICLE> 6
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-START> OCT-01-1996
<PERIOD-END> SEP-30-1997
<INVESTMENTS-AT-COST> 23,449,973
<INVESTMENTS-AT-VALUE> 24,400,574
<RECEIVABLES> 24,740,516
<ASSETS-OTHER> 52,096
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 49,193,186
<PAYABLE-FOR-SECURITIES> 940,956
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 21,752,521
<TOTAL-LIABILITIES> 22,693,477
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 32,501,485
<SHARES-COMMON-STOCK> 3,634,136
<SHARES-COMMON-PRIOR> 824,834
<ACCUMULATED-NII-CURRENT> 1,367,233
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (8,851,136)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 1,482,127
<NET-ASSETS> 26,499,709
<DIVIDEND-INCOME> 709,341
<INTEREST-INCOME> 1,317,909
<OTHER-INCOME> 0
<EXPENSES-NET> 555,368
<NET-INVESTMENT-INCOME> 1,471,882
<REALIZED-GAINS-CURRENT> (8,822,405)
<APPREC-INCREASE-CURRENT> 2,002,520
<NET-CHANGE-FROM-OPS> (5,348,003)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 183,831
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 9,323,074
<NUMBER-OF-SHARES-REDEEMED> 6,553,696
<SHARES-REINVESTED> 16,193
<NET-CHANGE-IN-ASSETS> 19,174,054
<ACCUMULATED-NII-PRIOR> 74,973
<ACCUMULATED-GAINS-PRIOR> (29,396)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 237,306
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 555,368
<AVERAGE-NET-ASSETS> 18,984,472
<PER-SHARE-NAV-BEGIN> 8.88
<PER-SHARE-NII> 0.62
<PER-SHARE-GAIN-APPREC> (2.06)
<PER-SHARE-DIVIDEND> (0.15)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 7.29
<EXPENSE-RATIO> 2.59
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
