Securities Act Registration No. 33-98726
Investment Company Act Reg. No. 811-9120
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SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
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FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 |X|
Pre-Effective Amendment No. [ ]
Post-Effective Amendment No. 6 |X|
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940|X|
Amendment No. 7 |X|
(Check appropriate box or boxes.)
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PRUDENT BEAR FUNDS, INC.
(Exact Name of Registrant as Specified in Charter)
8140 Walnut Hill Lane
Suite 300
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 300 777 East Wisconsin Avenue
Dallas, Texas 75231 Milwaukee, Wisconsin 53202
(Name and Address of Agent for Service)
Approximate Date of Proposed Public Offering: As soon as practicable after
the Registration Statement becomes effective.
It is proposed that this filing become effective (check appropriate box):
[ ] immediately upon filing pursuant to paragraph (b)
[ ] on (date) 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)
|X| on January 31, 2000 pursuant to paragraph (a) (2) of Rule 485
If appropriate, check the following box:
[ ] this post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
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<PAGE>
No Load Shares
P R O S P E C T U S
January 31, 2000
PRUDENT BEAR FUND PRUDENT SAFE HARBOR FUND
PRUDENT BEAR LARGE CAP FUND
The Prudent Bear Fund is a mutual fund seeking capital appreciation.
The Prudent Safe Harbor Fund is a mutual fund seeking to provide current income
and capital appreciation in a volatile economic environment. The Prudent Bear
Large Cap Fund seeks capital appreciation in a declining equity market.
Please read this Prospectus and keep it for future reference. It
contains important information, including information on how the Prudent Bear
Fund, the Prudent Bear Large Cap Fund and the Prudent Safe Harbor Fund invest
and the services they offer to shareholders.
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The Securities and Exchange Commission has not approved or disapproved these
securities or determined if this prospectus is accurate or complete. Any
representation to the contrary is a criminal offense.
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TABLE OF CONTENTS
Prudent Bear Funds, Inc. Questions Every Investor Should Ask
8140 Walnut Hill Lane Before Investing in the Prudent Bear Funds.
Suite 300 Fees and Expenses..........................
Dallas, Texas 75231 Investment Objectives and Strategies.......
Management of the Funds....................
1-888-PRU-BEAR (Fund Information) The Funds' Share Price ....................
1-888-778-2327 Purchasing No Load Shares..................
1-800-771-1848 (Account Information) Redeeming No Load Shares...................
Exchanging No Load Shares..................
http://www.prudentbear.com Dividends, Distributions and Taxes.........
Financial Highlights.......................
<PAGE>
QUESTIONS EVERY INVESTOR SHOULD ASK BEFORE
INVESTING IN THE PRUDENT BEAR FUNDS
1. What are the Funds' Goals?
Prudent Bear Fund
The Prudent Bear Fund seeks capital appreciation.
Prudent Safe Harbor Fund
The Prudent Safe Harbor Fund seeks current income and capital
appreciation.
Prudent Bear Large Cap Fund
The Prudent Bear Large Cap Fund seeks capital appreciation.
2. What are the Funds' Principal Investment Strategies?
Prudent Bear Fund
The Prudent Bear Fund seeks capital appreciation primarily through
short sales of equity securities when overall market valuations are high and
through long positions in value-oriented equity securities when overall market
valuations are low. When the dividend yield on the stocks comprising the
Standard & Poor's Composite Index of 500 Stocks ("S&P 500") is less than 3%
(i.e. overall market valuations are high), the Prudent Bear Fund will hold more
"short" equity positions than "long" equity positions. Its "short" equity
positions will primarily consist of short sales of common stocks and purchases
of put options on common stocks. In effecting short sales and purchasing put
options the Prudent Bear Fund's investment adviser, David W. Tice & Associates,
Inc. (the "Adviser") utilizes "bottom-up" investment analysis. This means the
Adviser bases investment decisions on company-specific fundamental factors.
When the S&P 500 dividend yield is greater than 6% (i.e. overall
market valuations are low), the Prudent Bear Fund will hold more "long" equity
positions than "short" equity positions. Its "long" equity positions will
primarily consist of U.S. common stocks. In selecting common stocks, the Adviser
takes a "value" investment approach utilizing "bottom-up" investment analysis.
When the S&P 500 dividend yield is between 3% and 6%, the Adviser will
allocate the Prudent Bear Fund's portfolio between "short" equity and "long"
equity positions in its discretion. At all times the Prudent Bear Fund will have
both "short" and "long" equity positions as the Adviser believes in all market
conditions there will exist some companies whose stocks are undervalued by the
market and some companies whose stocks are overvalued by the market.
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While the Adviser believes the S&P 500 dividend yield is a reasonable
long-term measure of stock price over or under valuation, the Adviser also
considers other factors in the economy in relation to the S&P 500 dividend
yield. If the S&P 500 dividend yield is within historic ranges relative to
interest rates and other economic variables, the Adviser would likely apply the
"3%" and "6%" guidelines described above. However if, for example, interest
rates rose dramatically so that a 6% S&P 500 dividend yield was not in its
historic relation to interest rates, the Adviser might hold more "short" equity
positions than "long" equity positions until it believed conditions warranted a
shift in portfolio allocation.
The Adviser actively manages the Prudent Bear Fund's portfolio. The
Prudent Bear Fund's annual portfolio turnover rate usually will exceed 100%.
Prudent Safe Harbor Fund
The Prudent Safe Harbor Fund seeks current income and capital
appreciation in a volatile economic environment. If the Prudent Safe Harbor Fund
is successful in achieving its investment objectives, investors should be able
to maintain their purchasing power on a global basis. The Prudent Safe Harbor
Fund primarily invests in:
o Liquid securities issued by the major industrialized nations
(e.g. United States, Canada, members of the European Economic
Union, Japan, Australia, New Zealand and Switzerland) as well as
other countries with sound economic and financial systems
o Equity securities of companies that mine gold
o Gold bullion
The Prudent Safe Harbor Fund's investment adviser, also David W. Tice
& Associates, Inc., believes that the current global economic environment is
highly uncertain. It believes that such an uncertain environment could be
conducive to governments making errors in fiscal and monetary policy that
represent risks to investors in dollar-denominated securities. For example,
monetary authorities could accommodate excessive credit as well as excessively
expand the supply of money. The Adviser believes that one result of such errors
could be a significant deterioration in the value of the U.S. dollar relative to
other currencies. The Prudent Safe Harbor Fund will attempt to capitalize on
currency fluctuations by investing in securities issued by governments whose
currency the Adviser believes will appreciate in relative value. In determining
whether or not a currency will appreciate in relative value, the Adviser will
consider the issuing country's economic fundamentals, particularly the
stringency of its monetary and fiscal policies.
The Adviser believes that investments in gold bullion have capital
appreciation potential in such a volatile economic environment. The Prudent Safe
Harbor Fund will invest in gold bullion when the Adviser believes its dollar
value will appreciate. The Prudent Safe Harbor Fund may also invest in equity
securities of companies that mine gold, but will concentrate on companies which
have existing projects currently in operation.
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In making investments for the Prudent Safe Harbor Fund, the Adviser
utilizes a "top-down" investment analysis. This means it bases investment
decisions on macro-economic factors such as inflationary trends, interest rate
movements, economic statistics and monetary policy.
The Adviser actively manages the Prudent Safe Harbor Fund's portfolio.
The Prudent Safe Harbor Fund's annual portfolio turnover rate usually will
exceed 100%.
Prudent Bear Large Cap Fund
The Prudent Bear Large Cap Fund seeks capital appreciation in
declining equity markets. If the Fund is successful in achieving its objective,
it will provide investment results that approximate or exceed the investment
results of the inverse of a blended average of the Standard & Poor's Index of
100 highly capitalized stocks ("S&P 100") and the NASDAQ Index of the 100
largest OTC stocks ("NDX"). To accomplish its objective, the Prudent Bear Large
Cap Fund primarily will use the following two investment tactics:
o Short Selling of Individual Common Stocks - The Adviser, David W.
Tice & Associates, Inc., will select individual stocks from among
the 200 stocks included in the S&P 100 and the NDX to sell short.
Stocks will be selected from those included in the indices using
a "bottom-up" investment analysis based on company-specific
fundamental factors. In selecting stocks for short sales, the
Adviser will endeavor to maintain an industry weighting
comparable to that of the two indices.
o Index Futures, Options on Index Futures and Options on Stock
Indices - The Prudent Bear Large Cap Fund may sell futures
contracts on the S&P 500 and NDX and may purchase put options on
those indices as well as futures contracts on those indices.
Based on the Adviser's assessment of market conditions, the Adviser
will utilize the investment tactics that best accommodate the flow of funds into
and out of the Prudent Bear Large Cap Fund. The Adviser actively manages the
Prudent Bear Large Cap Fund's portfolio. The Prudent Bear Large Cap Fund's
annual portfolio turnover rate usually will exceed 100% though the turnover is
expected to be less than that of the Prudent Bear Fund.
3. What are the Principal Risks of Investing in the Funds?
Investors in each of the Funds may lose money. There are risks
associated with the types of securities in which these Funds invest. These risks
include:
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Prudent Bear Fund
o Market Risk: The prices of the securities in which the Prudent
Bear Fund invests may change adversely compared to the Adviser's
expectations for a number of reasons.
o Asset Allocation Risk: The Prudent Bear Fund's investment results
will suffer if there is a general stock market advance when the
Fund has significant "short" equity positions, or if there is a
general stock market decline when the Fund has significant "long"
equity positions. This risk is in addition to the market risks
associated with each of the Fund's investments.
o Short Sales Risk: The Prudent Bear Fund's investment performance
will suffer if a security that it has sold short appreciates in
value. The Fund's investment performance may also suffer if it is
required to close out a short position earlier than it had
intended. This would occur if the securities lender required it
to deliver the securities the Fund borrowed at the commencement
of the short sale and the Fund was unable to borrow the
securities from other securities lenders.
o Options Investing Risk: If the Prudent Bear Fund purchases an
option and the price of the underlying stock fails to move in the
direction the Adviser expected, the Fund will lose most or all of
the amount the Fund paid for the option, plus commission costs.
If the Prudent Bear Fund writes ("sells") an option and the price
of the underlying stock fails to move in the direction the
Adviser expected, the Fund's losses could easily exceed the
proceeds it received when it wrote the option.
o Value Investing Risk: The Prudent Bear Fund's investment adviser
may be incorrect in its assessment of a company's value and the
stocks the Fund holds may not reach what the investment adviser
believes are their intrinsic value. Similarly, the stocks the
Fund sells short may not decline to the price that the investment
adviser thinks reflects their intrinsic value. From time to time,
"value" investing falls out of favor with investors. During these
periods, the Fund's relative performance will suffer.
o High Portfolio Turnover Risk: High portfolio turnover necessarily
results in correspondingly greater transaction costs (such as
brokerage commissions or markups or markdowns) which the Prudent
Bear Fund must pay and increased realized gains (or losses) to
investors. Distributions to shareholders of short-term capital
gains are taxed as ordinary income under federal income tax laws.
The Prudent Bear Fund's portfolio turnover rate is not calculated
with regard to securities, including options and futures
contracts, having a maturity of less than one year. Consequently
the transaction costs incurred by the Fund are likely to be
greater than the
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transaction costs incurred by a mutual fund investing exclusively
in common stocks that has a similar portfolio turnover rate.
Prudent Safe Harbor Fund
o Market Risk: The prices of the securities in which the Prudent
Safe Harbor Fund invests may decline for a number of reasons.
o Interest Rate Risk: In general the value of debt securities falls
when interest rates rise. Longer term obligations are usually
more sensitive to interest rate changes than shorter term
obligations.
o Foreign Currency Risk: The U.S. dollar value of securities
denominated in foreign currencies may be affected unfavorably by
changes in foreign currency exchange rates. An increase in the
U.S. dollar relative to these other currencies will adversely
affect the Prudent Safe Harbor Fund.
o Gold Investing Risk: The prices of gold and the prices of common
stocks of companies that mine gold have been subject to
substantial price fluctuations over short periods of time. They
may be adversely affected by unpredictable international monetary
and political developments such as currency devaluations or
revolutions, economic and social conditions within a country,
trade imbalances, or trade or currency restrictions between
countries.
o High Portfolio Turnover Risk: High portfolio turnover necessarily
results in correspondingly greater transaction costs (such as
brokerage commission or markups or markdowns) which the Prudent
Safe Harbor Fund must pay and increased realized gains (or
losses) to investors. Distributions to shareholders of short-term
capital gains are taxed as ordinary income under federal income
tax laws.
Prudent Bear Large Cap Fund
o Market Risk: The prices of the securities or the performance of
the target indices in which the Prudent Bear Large Cap Fund
invests may move against the Fund for a number of reasons.
o Asset Allocation Risk: The Prudent Bear Large Cap Fund will be
"short" the market in substantially all situations and its
investment results will suffer if there is a general stock market
advance. This risk is in addition to the market risks associated
with each of the Fund's investments.
o Short Sales Risk: The Prudent Bear Large Cap Fund's investment
performance will suffer if a security that it has sold short
appreciates in value.
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o Options on Indices and Index Futures Investing Risk: If the
Prudent Bear Large Cap Fund purchases an option on an index or an
index future and the index fails to move in the direction the
Adviser expected, the Fund will lose most or all of the amount
the Fund paid for the option, plus commission costs. If the
Prudent Bear Large Cap Fund writes ("sells") an option on an
index or an index future and the index fails to move in the
direction the Adviser expected, the Fund's losses could easily
exceed the proceeds it received when it wrote the option.
o Futures Contracts and Options on Futures Contracts Risk: The
Prudent Bear Large Cap Fund may purchase and sell stock index
futures and options on stock index futures contracts. Futures
contracts present risks of the possible inability to close a
future contract when desired, losses due to unanticipated market
movements which are potentially unlimited, and the possible
inability of the Adviser to correctly predict the direction of
securities prices.
o High Portfolio Turnover Risk: High portfolio turnover necessarily
results in correspondingly greater transaction costs (such as
brokerage commissions or markups or markdowns) which the Prudent
Bear Large Cap Fund must pay and increased realized gains (or
losses) to investors. Distributions to shareholders of short-term
capital gains are taxed as ordinary income under federal income
tax laws. The Prudent Bear Large Cap Fund's portfolio turnover
rate is not calculated with regard to securities, including
options and futures contracts, having a maturity of less than one
year. Consequently the transaction costs incurred by the Fund are
likely to be greater than the transaction costs incurred by a
mutual fund investing exclusively in common stocks that has a
similar portfolio turnover rate.
Because of these risks each of the Funds is a suitable investment only for those
investors who have long-term investment goals. Prospective investors who are
uncomfortable with an investment that will fluctuate in value should not invest
in these Funds.
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4. How have the Funds Performed?
The bar chart and table that follow provide some indication of the
risks of investing in the Prudent Bear Fund by showing changes in its
performance from year to year and how its average annual returns over various
periods compare to the performance of the S&P 500 and the Nasdaq Composite
Index. (The Prudent Safe Harbor Fund and the Prudent Bear Large Cap Fund will
commence operations on February 1, 2000.) Please remember that the Prudent Bear
Fund's past performance is not necessarily an indication of its future
performance. It may perform better or worse in the future.
[Graphic omitted]
Prudent Bear Fund
(Total return per calendar year)
10%
0%
--------------------------------------------------------------------
-4.33%
----------
-10%
-13.69%
----------
-20%
30%
----------
-34.08%
40%
1996 1997 1998 1999
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Note: During the four year period shown on the bar chart, the Fund's highest
total return for a quarter was ____% (quarter ended ___________, 199_)
and the lowest total return for a quarter was -_____% (quarter ended
___________, 199_).
Since the inception
Average Annual Total Returns date of the Fund
(for the periods ending December 31, 1999) Past Year (December 28, 1995)
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Prudent Bear Fund _____% _____%
S&P 500* _____% _____%
Nasdaq Composite Index ** _____% _____%
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*The S&P 500 is a widely recognized unmanaged index of common stock prices.
** The Nasdaq Composite Index covers over 4,500 stocks traded over the counter.
It represents many small company stocks but is heavily influenced by about 100
of the largest Nasdaq stocks. It is a value-weighted index calculated on price
change only and does not include income.
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FEES AND EXPENSES
The table below describes the fees and expenses that you may pay if
you buy and hold No Load shares of the Prudent Bear Fund, the Prudent Bear Large
Cap Fund or the Prudent Safe Harbor Fund.
SHAREHOLDER FEES (fees paid directly from your investment)
<TABLE>
<CAPTION>
Prudent Bear Fund Prudent Bear Prudent Safe
----------------- ------------ ------------
Large Cap Fund Harbor Fund
Maximum Sales Charge (Load) -------------- ------------
Imposed on Purchases (as a
<S> <C> <C> <C>
percentage of offering price)..............No.Sales Charge No Sales Charge No Sales Charge
Maximum Deferred Sales Charge No Deferred Sales No Deferred Sales No Deferred
(Load) Charge Charge Sales Charge
Maximum Sales Charge (Load)
Imposed on Reinvested Dividends
And Distributions..........................No.Sales Charge No Sales Charge No Sales Charge
Redemption Fee...............................None (1) None (1) None (1)
Exchange Fee.................................None (2) None (2) None (2)
</TABLE>
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(1) Our transfer agent charges a fee of $12.00 for each wire redemption.
(2) Our transfer agent charges a fee of $5.00 for each telephone exchange.
<TABLE>
<CAPTION>
ANNUAL FUND OPERATING EXPENSES
(expenses that are deducted from Fund assets)
<S> <C> <C> <C>
Management Fees................................1.25% 0.75% 0.75%
Distribution and/or Service (12b-1) Fees.......0.25% 0.25% 0.25%
Other Expenses
Dividends on Short Positions.................0.28% 0.20% 0.00%
All remaining Other Expenses.................0.47% 0.90%* 0.80%*
----- ------ -----
Total Other Expenses...........................0.75% 1.10% 0.80%*
----- ----- ------
Total Annual Fund Operating Expenses...........2.25% 2.10%* 1.80%*
===== ===== =====
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*Based on estimates for the fiscal year ending September 30, 2000.
</TABLE>
EXAMPLE
This Example is intended to help you compare the cost of investing in
each of the Funds with the cost of investing in other mutual funds.
The Example assumes that you invest $10,000 in a Fund for the time
periods indicated and then redeem all of your shares at the end of these
periods. The Example also assumes that your investment has a 5% return each year
and that the Fund's operating expenses remain the same. Although your actual
costs may be higher or lower, based on these assumptions, your costs would be:
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1 Year 3 Years 5 Years 10 Years
Prudent Bear Fund $228 $703 $1,205 $2,585
Prudent Bear Large Cap Fund $213 $658
Prudent Safe Harbor Fund $183 $566
INVESTMENT OBJECTIVES AND STRATEGIES
Investment Objectives
The Prudent Bear Fund and the Prudent Bear Large Cap Fund seek capital
appreciation. The Prudent Safe Harbor Fund seeks current income and capital
appreciation. The Prudent Bear Fund and the Prudent Safe Harbor Fund will not
take temporary defensive positions. The Prudent Bear Large Cap Fund may take
temporary defensive positions if the Adviser believes equity markets are likely
to rise significantly after having declined significantly. This means the
Prudent Bear Large Cap Fund will invest some or all of its assets in money
market instruments (like U.S. Treasury Bills, commercial paper or repurchase
agreements). The Prudent Bear Large Cap Fund will not be able to achieve its
investment objective of capital appreciation to the extent that it invests in
money market instruments since these securities earn interest but do not
appreciate in value. In order to provide a degree of flexibility, each Fund may
change its investment objective without obtaining shareholder approval. Please
remember that an investment objective is not a guarantee. An investment in the
Prudent Bear Fund, the Prudent Bear Large Cap Fund or the Prudent Safe Harbor
Fund might not appreciate and investors could lose money.
Although neither the Prudent Bear Fund and the Prudent Safe Harbor
Fund take temporary defensive positions, each of these Funds and the Prudent
Bear Large Cap Fund will invest in money market instruments and hold some cash
so that it can pay expenses, satisfy redemption requests or take advantage of
investment opportunities. As a consequence of some of the investment techniques
utilized by the Prudent Bear Fund and the Prudent Bear Large Cap Fund,
particularly effecting short sales, a significant portion of its assets (up to
100%) will be held in liquid securities, including money market instruments, as
"cover" for these investment techniques. These assets may not be sold while the
corresponding transaction, such as a short sale, is open unless they are
replaced by similar assets. As a result the commitment of a large portion of the
Prudent Bear Fund's and the Prudent Bear Large Cap Fund's assets to "cover"
investment techniques may make it more difficult for these Funds to meet
redemption requests or pay its expenses.
Principal Investment Strategies
Prudent Bear Fund
The Adviser believes that the best opportunities to make both "short"
and "long" equity investments is when the market's perception of the values of
individual
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companies (measured by the stock price) differs widely from the Adviser's
assessment of the intrinsic values of such companies. Such opportunities arise
as a result of a variety of market inefficiencies, including, among others,
imperfect information, overly optimistic or pessimistic forecasts by Wall Street
analysts, and swings in investor psychology. These inefficiencies can cause
substantially mispriced securities. The Adviser attempts to:
o Identify potential opportunities where significant market
perception/reality gaps may exist, and
o Invest in the anticipation of changes in the market perception
that will bring the stock price closer to the Adviser's estimate
of value.
The Prudent Bear Fund is not a "market timing" fund. However, it does
increase or decrease (to a degree or dramatically) the amount of its "short"
equity investments compared to its "long" equity investments in response to
changes in the Adviser's assessment of market conditions and its evaluation of
the S&P 500 dividend yield. In making investment decisions for the Prudent Bear
Fund, the Adviser primarily invests in individual stocks, put options on
individual stocks, or effects short sales in individual stocks rather than
investing in or selling short index-based securities.
From time to time the Prudent Bear Fund may utilize the following
investment tactics. These investment tactics are not principal investment
strategies of the Prudent Bear Fund.
o Index-Based Investment Companies: The Prudent Bear Fund may
invest in or sell short securities of investment companies that
hold securities comprising a recognized securities index such as
SPDRs, which hold the component stocks of the S&P 500, or WEBS
which hold stocks of specified foreign equity market indices.
These securities may trade at discounts to their net asset value.
As an investor in securities of index-based investment companies,
the Prudent Bear Fund will indirectly bear its proportionate
share of the expenses of those investment companies.
o Futures Contracts and Options on Futures Contracts: The Prudent
Bear Fund may purchase and sell stock index futures contracts as
well as other futures contracts, such as gold futures. Futures
contracts and options present risks of the possible inability to
close a future contract when desired, losses due to unanticipated
market movements which are potentially unlimited, and the
possible inability of the Adviser to correctly predict the
direction of securities prices, interest rates, currency exchange
rates and other factors.
o Private Placements: The Prudent Bear Fund may purchase restricted
securities in private placements. The Prudent Bear Fund may not
be able to sell
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these securities at the prices at which it has valued them
without experiencing delays or additional costs, if at all.
Prudent Safe Harbor Fund
The Prudent Safe Harbor Fund invests primarily in debt securities
issued by the U.S. and other developed countries, gold bullion and common stocks
of companies that mine gold. In selecting investments in debt securities, the
Prudent Safe Harbor Fund's investment adviser:
o considers whether the currency in which the debt security is
denominated is likely to rise or fall relative to the dollar
primarily by comparing economic situations, particularly whether
the issuing country has maintained prudent monetary and fiscal
policies
o evaluates the relative available interest rates
o then invests in the liquid debt securities having the most
attractive yield based on an evaluation of risk and return.
Since the Prudent Safe Harbor Fund's primary consideration in
selecting investments in debt securities is currency movements as it relates to
stability of global purchasing power, it keeps its average portfolio maturity
short. Typically the average maturity of the Prudent Safe Harbor Fund's
portfolio of debt securities will be less than three years. Similarly, the
Prudent Safe Harbor Fund attempts to minimize credit risk by only investing in
securities rated in the highest two rating categories of a nationally recognized
rating agency.
When investing in gold or in equity securities of companies that mine
gold, the Prudent Safe Harbor Fund's investment adviser first considers whether
the dollar price of gold is likely to increase. The Prudent Safe Harbor Fund
will only invest in those equity securities of gold companies which the Adviser
believes will increase if the dollar price of gold increases. The Prudent Safe
Harbor Fund will not invest in equity securities of gold mining companies that
have significantly reduced the exposure of their net income to fluctuations in
gold prices through the use of futures contracts or other hedging techniques.
From time to time the Prudent Safe Harbor Fund may invest in liquid
equity securities of companies owning significant assets (e.g. timber, oil or
other "hard assets") that the Adviser believes would increase in value if the
dollar declines in value relative to other currencies. The Prudent Safe Harbor
Fund does not expect that such securities would represent a major portion of its
portfolio.
Prudent Bear Large Cap Fund
The Prudent Bear Large Cap Fund is designed to provide a means for
investors to protect a portfolio from declines in the equity markets resulting
from the relative over-
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valuation of common stocks or other reasons. The Prudent Bear Large Cap Fund
attempts to do so by selecting investments that move inversely with recognized
common stock indices.
The Prudent Bear Large Cap Fund is not a "market timing" fund. At most
times, it will maintain a portfolio of short positions, as the Adviser believes
that the equity markets currently are, in general, over-valued and are more
likely to decline significantly than to advance significantly. In making
investment decisions for the Prudent Bear Large Cap Fund, the Adviser may sell
short index-based securities in addition to effecting short sales in individual
stocks.
From time to time the Prudent Bear Large Cap Fund may utilize the
following investment tactic. This investment tactics is not a principal
investment strategy of the Prudent Bear Large Cap Fund.
o Index-Based Investment Companies: The Prudent Bear Large Cap Fund
may sell short securities of investment companies that hold
securities comprising a recognized securities index such as
SPDRs, which hold the component stocks of the S&P 100 (as well as
the other stocks in the S&P 500) or the NDX. These securities may
trade at discounts to their net asset value. As an investor in
securities of index based investment companies, the Prudent Bear
Large Cap Fund will indirectly bear its proportionate share of
the expenses of those investment companies.
MANAGEMENT OF THE FUNDS
David W. Tice & Associates, Inc. manages the investments of the Prudent Bear
Fund, the Prudent Safe Harbor Fund and the Prudent Bear Large Cap Fund.
David W. Tice & Associates, Inc. (the "Adviser") is the investment
adviser to each of the Prudent Bear Fund, the Prudent Safe Harbor Fund and the
Prudent Bear Large Cap Fund. The Adviser's address is:
8140 Walnut Hill Lane
Suite 300
Dallas, Texas 75231
As investment adviser, the Adviser manages the investment portfolio of
each Fund. The Adviser makes the decisions as to which securities to buy and
which securities to sell. During the last fiscal year, the Prudent Bear Fund
paid the Adviser an annual investment advisory fee equal to 1.25% of the Prudent
Bear Fund's average net assets. The Prudent Safe Harbor Fund (which will
commence operations on February 1, 2000) will pay the Adviser an annual advisory
equal to 0.75% of its average net assets. The Prudent Bear Large Cap Fund (which
will commence operations on February 1, 2000) will pay the Adviser an annual
advisory fee equal to 0.75% of its average net assets.
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<PAGE>
David W. Tice is primarily responsible for the day-to-day management
of the portfolio of the Prudent Bear Fund and has been so since its inception.
He also will be the portfolio manager of the Prudent Safe Harbor Fund and the
Prudent Bear Large Cap Fund. Mr. Tice is the President and founder of the
Adviser. The Adviser has been conducting an investment advisory business since
1993. Prior to incorporating the Adviser, Mr. Tice conducted the same investment
advisory business as a sole proprietorship since 1988. Mr. Tice is a Chartered
Financial Analyst and a Certified Public Accountant. He is also president and
sole shareholder of BTN Research, Inc., a registered broker-dealer.
Year 2000
The Prudent Bear Fund, the Prudent Safe Harbor Fund and the Prudent
Bear Large Cap Fund are addressing the "Year 2000" issue. The "Year 2000" issue
stems from the use of a two-digit format to define the year in certain
date-sensitive computer application systems rather than the use of a four digit
format. As a result, date-sensitive software programs could recognize a date
using "00" as the year 1900 rather than the year 2000. This could result in
major systems or process failures or the generation of erroneous data, which
would lead to disruptions in our Funds' business operations.
The Funds have no application systems of their own and are entirely
dependent on their service providers' systems and software. The Funds are
working with their service providers (including the Adviser, their
administrator, transfer agent and custodian) to identify and remedy any Year
2000 issues. However, the Funds cannot guarantee that all Year 2000 issues will
be identified and remedied, and the failure to successfully identify and remedy
all Year 2000 issues could result in an adverse impact on the Funds. The Year
2000 issue could also have a negative impact on the companies in which the Funds
invest, which could hurt the Funds' investment returns.
Distribution Fees
Each of the Prudent Bear Fund, the Prudent Bear Large Cap Fund and the
Prudent Safe Harbor Fund has adopted a distribution plan pursuant to Rule 12b-1
under the Investment Company Act. This Plan allows each of the Funds to use up
to 0.25% of its average daily net assets to pay sales, distribution and other
fees for the sale of its shares and for services provided to investors. Because
these fees are paid out of a Fund's assets, over time these fees will increase
the cost of your investment and may cost you more than paying other types of
sales charges.
THE FUNDS' SHARE PRICE
The price at which investors purchase No Load shares of each Fund and
at which shareholders redeem No Load shares of each Fund is called its net asset
value. Each Fund calculates its net asset value as of the close of regular
trading on the New York Stock Exchange (normally 4:00 p.m. Eastern Time) on each
day the New York Stock Exchange is open for trading. The New York Stock Exchange
is closed on holidays and weekends. Each Fund calculates its net asset value
based on the market prices of the securities (other than
14
<PAGE>
money market instruments) it holds. Each Fund values most money market
instruments it holds at their amortized cost. Each Fund will process purchase
orders that it receives and accepts and redemption orders that it receives prior
to the close of regular trading on a day that the New York Stock Exchange is
open at the net asset value determined later that day. It will process purchase
orders that it receives and accepts and redemption orders that it receives after
the close of regular trading at the net asset value determined at the close of
regular trading on the next day the New York Stock Exchange is open. If an
investor sends a purchase order or redemption request to the Funds' corporate
address, instead of to its transfer agent, the Funds will forward it to the
transfer agent and the effective date of the purchase order or redemption
request will be delayed until the purchase order or redemption request is
received by the transfer agent.
The Prudent Safe Harbor Fund may hold securities that are primarily
traded in foreign securities markets that trade on weekends or other days when
the Prudent Safe Harbor Fund does not calculate its net asset value. To the
extent it does so, its net asset value may change on days when investors cannot
purchase or redeem No Load shares.
PURCHASING NO LOAD SHARES
How to Purchase No Load Shares from the Funds
1. Read this Prospectus carefully.
2. Determine how much you want to invest keeping in mind the following
minimums:
a. New accounts
* Individual Retirement Accounts $1,000
* All other Accounts $2,000
b. Existing accounts
* Dividend reinvestment No Minimum
* All other investments
(by mail) $ 100
(by wire) $ 1,000
3. Complete the New Account Application accompanying this
Prospectus, carefully following the instructions. For additional
investments, complete the remittance form attached to your
individual account statements. (The Funds have additional New
Account Applications and remittance forms if you need them.) If
you have any questions, please call 1-800-711-1848.
15
<PAGE>
4. Make your check payable to the full name of the Fund you intend
to purchase. All checks must be drawn on U.S. banks. The Funds
will not accept cash or third party checks. Firstar Mutual Fund
Services, LLC, the Funds' transfer agent, will charge a $25 fee
against a shareholder's account for any payment check returned
for insufficient funds. The shareholder will also be responsible
for any losses suffered by a Fund as a result.
5. Send the application and check to:
BY FIRST CLASS MAIL
Prudent Bear Funds, Inc.
c/o Firstar Mutual Fund Services, LLC
P.O. Box 701
Milwaukee, WI 53201-0701
BY OVERNIGHT DELIVERY SERVICE
OR EXPRESS MAIL
Prudent Bear Funds, Inc.
c/o Firstar Mutual Fund Services, LLC
3rd Floor
615 East Michigan Street
Milwaukee, WI 53202-5207
Please do not send letters by overnight delivery service or express mail to the
Post Office Box address.
If you wish to open an account by wire, please call 1-800-711-1848 prior to
wiring funds in order to obtain a confirmation number and to ensure prompt and
accurate handling of funds. You should wire funds to:
Firstar Bank, N.A.
777 East Wisconsin Avenue
Milwaukee, WI 53202
ABA #075000022
Credit:
Firstar Mutual Fund Services, LLC
Account #112-952-137
Further Credit:
(name of Fund to be purchased)
(shareholder registration)
(shareholder account number, if known)
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<PAGE>
You should then send a properly signed New Account Application marked
"FOLLOW-UP" to either of the addresses listed above. Please remember that
Firstar Bank, N.A. must receive your wired funds prior to the close of regular
trading on the New York Stock Exchange for you to receive same day pricing. The
Funds and Firstar Bank, N.A. are not responsible for the consequences of delays
resulting from the banking or Federal Reserve Wire system, or from incomplete
wiring instructions.
Purchasing No Load Shares from Broker-dealers, Financial Institutions and Others
Some broker-dealers may sell shares of the Prudent Bear Fund, the
Prudent Bear Large Cap Fund or the Prudent Safe Harbor Fund. These
broker-dealers may charge investors 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 Funds or the Adviser. Some broker-dealers may purchase and
redeem shares on a three day settlement basis.
The Funds may enter into agreements with broker-dealers, financial
institutions or other service providers ("Servicing Agents") that may include
the Funds as investment alternatives in the programs they offer or administer.
Servicing agents may:
o Become shareholders of record of the Funds. This means all
requests to purchase additional shares and all redemption
requests must be sent through the Servicing Agent. This also
means that purchases made through Servicing Agents are not
subject to the Funds' minimum purchase requirements.
o Use procedures and impose restrictions that may be in addition
to, or different from, those applicable to investors purchasing
shares directly from the Funds.
o Charge fees to their customers for the services they provide
them. Also, the Funds and/or the Adviser may pay fees to
Servicing Agents to compensate them for the services they provide
their customers.
o Be allowed to purchase shares by telephone with payment to follow
the next day. If the telephone purchase is made prior to the
close of regular trading on the New York Stock Exchange, it will
receive same day pricing.
o Be authorized to accept purchase orders on behalf of the Funds.
This means that a Fund will process the purchase order at the net
asset value which is determined following the Servicing Agent's
acceptance of the customer's order.
If you decide to purchase No Load shares through Servicing Agents,
please carefully review the program materials provided to you by the Servicing
Agent. When you purchase No Load shares of the Funds through a Servicing Agent,
it is the responsibility of the Servicing Agent to place your order with the
Funds on a timely basis. If the Servicing Agent
17
<PAGE>
does not, or if it does not pay the purchase price to the Funds within the
period specified in its agreement with the Funds, it may be held liable for any
resulting fees or losses.
Other Information about Purchasing No Load Shares of the Funds
The Funds may reject any purchase order for any reason. The Funds will
not accept initial purchase orders made by telephone unless they are from a
Servicing Agent which has an agreement with the Fund.
The Funds will not issue certificates evidencing shares purchased
unless the investor makes a written request for a certificate. The Funds will
send investors a written confirmation for all purchases of No Load shares
whether or not evidenced by certificates.
The Funds offer an automatic investment plan allowing shareholders to
make purchases of No Load shares on a regular and convenient basis. The Funds
also offer a telephone purchase option permitting shareholders to make
additional purchases by telephone. The Funds offer the following retirement
plans:
o Traditional IRA
o Roth IRA
o SEP-IRA
Investors can obtain further information about the automatic
investment plan, the telephone purchase plan and the IRAs by calling the Funds
at 1-800-711-1848. The Funds recommend that investors consult with a competent
financial and tax advisor regarding the IRAs before investing through them.
REDEEMING NO LOAD SHARES
How to Redeem (Sell) No Load Shares by Mail
1. Prepare a letter of instruction containing:
o the name of the Fund(s)
o account number(s)
o the amount of money or number of shares being redeemed
o the name(s) on the account
o daytime phone number
o additional information that the Funds may require for redemptions
by corporations, executors, administrators, trustees, guardians,
or others who hold shares in a fiduciary
18
<PAGE>
or representative capacity. Please contact the Funds' transfer
agent, Firstar Mutual Fund Services, LLC, in advance, at
1-800-711-1848 if you have any questions.
2. Sign the letter of instruction exactly as the shares are registered.
Joint ownership accounts must be signed by all owners.
3. If there are certificates representing your shares, enclose the
certificates and execute a stock power exactly as your shares are
registered.
4. Have 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 in the following situations:
o The redemption request includes a change of address
o The redemption proceeds are to be sent to a person other than the
person in whose name the shares are registered
o The redemption proceeds are to be sent to an address other than
the address of record
A notarized signature is not an acceptable substitute for a signature
guarantee.
5. Send the letter of instruction to:
BY FIRST CLASS MAIL
Prudent Bear Funds, Inc.
c/o Firstar Mutual Fund Services, LLC
Shareholder Services Center
P. O. Box 701
Milwaukee, WI 53201-0701
BY OVERNIGHT DELIVERY SERVICE
OR EXPRESS MAIL
Prudent Bear Funds, Inc.
c/o Firstar Mutual Fund Services, LLC
3rd Floor
615 East Michigan Street
Milwaukee, WI 53202-5207
Please do not send letters of instruction by overnight delivery service or
express mail to the Post Office Box address.
19
<PAGE>
How to Redeem (Sell) No Load Shares by Telephone
1. Instruct Firstar Mutual Fund Services, LLC that you want the option of
redeeming No Load shares by telephone. This can be done by completing
the New Account Application. If you have already opened an account,
you may write to Firstar Mutual Fund Services, LLC requesting this
option. When you do so, please sign the request exactly as your
account is registered and have the signatures guaranteed. Shares held
in individual retirement accounts and shares represented by
certificates cannot be redeemed by telephone.
2. Assemble the same information that you would include in the letter of
instruction for a written redemption request.
3. Call Firstar Mutual Fund Services, LLC at 1-800-711-1848. Please do
not call the Funds or the Adviser.
How to Redeem (Sell) No Load Shares through Servicing Agents
If your No Load shares are held by a Servicing Agent, you must redeem
your shares through the Servicing Agent. Contact the Servicing Agent for
instructions on how to do so.
Redemption Price
The redemption price per share you receive for redemption requests is
the next determined net asset value after:
o Firstar Mutual Fund Services, LLC receives your written request
in proper form with all required information.
o Firstar Mutual Fund Services, LLC receives your authorized
telephone request with all required information.
o A Servicing Agent that has been authorized to accept redemption
requests on behalf of the Funds receives your request in
accordance with its procedures.
Payment of Redemption Proceeds
o For those shareholders who redeem No Load shares by mail, Firstar
Mutual Fund Services, LLC will mail a check in the amount of the
redemption proceeds no later than the seventh day after it
receives the redemption request in proper form with all required
information.
o For those shareholders who redeem by telephone, Firstar Mutual
Fund Services, LLC will either mail a check in the amount of the
redemption
20
<PAGE>
proceeds no later than the seventh day after it receives the
redemption request, or transfer the redemption proceeds to your
designated bank account if you have elected to receive redemption
proceeds by wire. Firstar Mutual Fund Services, LLC generally
wires redemption proceeds on the business day following the
calculation of the redemption price. However, the Funds may
direct Firstar Mutual Fund Services, LLC to pay the proceeds of a
telephone redemption on a date no later than the seventh day
after the redemption request.
o For those shareholders who redeem shares through Servicing
Agents, the Servicing Agent will transmit the redemption proceeds
in accordance with its redemption procedures.
Other Redemption Considerations
When redeeming No Load shares of the Funds, shareholders should
consider the following:
o The redemption may result in a taxable gain.
o Shareholders who redeem No Load shares held in an IRA must
indicate on their redemption request whether or not to withhold
federal income taxes. If not, these redemptions will be subject
to federal income tax withholding.
i The Funds may delay the payment of redemption proceeds for up to seven days in
all cases.
o If you purchased No Load shares by check, the Funds may delay the
payment of redemption proceeds until they are reasonably
satisfied the check has cleared (which may take up to 12 days
from the date of purchase).
o Firstar Mutual Fund Services, LLC will send the proceeds of
telephone redemptions to an address or account other than that
shown on its records only if the shareholder has sent in a
written request with signatures guaranteed.
o The Funds reserve the right to refuse a telephone redemption
request if they believe it is advisable to do so. The Funds and
Firstar Mutual Fund Services, LLC may modify or terminate their
procedures for telephone redemptions at any time. Neither the
Funds nor Firstar Mutual Fund Services, LLC will be liable for
following instructions for telephone redemption transactions that
they reasonably believe to be genuine, provided they use
reasonable procedures to confirm the genuineness of the telephone
instructions. They may be liable for unauthorized transactions if
they fail to follow such procedures. These procedures include
requiring
21
<PAGE>
some form of personal identification prior to acting upon the
telephone instructions and recording all telephone calls. During
periods of substantial economic or market change, you may find
telephone redemptions difficult to implement. If a shareholder
cannot contact Firstar Mutual Fund Services, LLC by telephone, he
or she should make a redemption request in writing in the manner
described earlier.
o Firstar Mutual Fund Services, LLC currently charges a fee of $12
when transferring redemption proceeds to your designated bank
account by wire.
o If your account balance falls below $1,000 because you redeem
shares, you will be given 60 days to make additional investments
so that your account balance is $1,000 or more. If you do not,
the Funds may close your account and mail the redemption proceeds
to you.
o The Funds may pay redemption requests "in kind." This means that
the Funds may pay redemption requests entirely or partially with
securities rather than with cash.
EXCHANGING NO LOAD SHARES
No Load shares of any of the Prudent Bear Fund, the Prudent Safe
Harbor Fund and the Prudent Bear Large Cap Fund may be exchanged for No Load
Shares of any other of the Prudent Bear Fund, Prudent Safe Harbor Fund and the
Prudent Bear Large Cap Fund at their relative net asset values. You may have a
taxable gain or loss as a result of an exchange because the Internal Revenue
Code treats an exchange as a sale of shares.
How to Exchange Shares
1. Read this Prospectus carefully.
2. Determine the number of shares you want to exchange keeping in mind
that exchanges are subject to a $1,000 minimum.
3. Call Firstar Mutual Fund Services, LLC at 1-800-711-1848. You may also
make an exchange by writing to the Prudent Bear Funds, Inc. c/o
Firstar Mutual Fund Services, LLC, 3rd Floor, P. O. Box 701,
Milwaukee, Wisconsin 53201-0701. Firstar Mutual Fund Services, LLC
charges a fee of $5.00 for each telephone exchange. There is no charge
for a written exchange.
DIVIDENDS, DISTRIBUTIONS AND TAXES
The Prudent Bear Fund distributes substantially all of its net
investment income and substantially all of its capital gains annually. The
Prudent Safe Harbor Fund will distribute substantially all of its net investment
income at least quarterly and substantially all of its capital gains annually.
The Prudent Bear Large Cap Fund will distribute substantially all of
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<PAGE>
its net investment income and substantially all of its capital gains annually.
You have two distribution options:
o Automatic Reinvestment Option - Both dividend and capital gains
distributions will be reinvested in additional Fund shares.
o All Cash Option - Both dividend and capital gains distributions will
be paid in cash.
You may make this election on the New Account Application. You may change your
election by writing to Firstar Mutual Fund Services, LLC or by calling
1-800-711-1848.
Each Fund's distributions, whether received in cash or additional No
Load shares of the Fund, may be subject to federal and state income tax. These
distributions may be taxed as ordinary income and capital gains (which may be
taxed at different rates depending on the length of time the Fund holds the
assets generating the capital gains).
FINANCIAL HIGHLIGHTS
The financial highlights tables are intended to help you understand
the Prudent Bear Fund's financial performance for the period of its operations.
Certain information reflects financial results for a single Fund No Load share.
The total returns in the tables represent the rate that an investor would have
earned on an investment in a Fund (assuming reinvestment of all dividends and
distributions). This information has been audited by PricewaterhouseCoopers LLP,
whose report, along with the Fund's financial statements, are included in the
1999 Annual Report which is available upon request. The Prudent Safe Harbor Fund
and the Prudent Bear Large Cap Fund will commence operations on February 1,
2000.
23
<PAGE>
<TABLE>
Prudent Bear Fund
<CAPTION>
For the Years Ended September 30,
--------------------------------
1999 1998 1997 1996(1)
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net asset value, beginning
of period................................... $7.34 $7.29 $8.88 $10.00
Income from investment operations:
Net investment income(2).................... ____ 0.29(3) 0.62(3) 0.09
Net realized and unrealized (losses)
on investments ............................ (0.01) (2.06) (1.21)
---- ----- ----- -----
Total from investment operations............ 0.28 (1.44) (1.12)
---- ---- ----- -----
Less distributions from net investment
income: (____) (0.23) (0.15) --
---- ---- ----
Net asset value, end of period ............. $ $7.34 $7.29 $8.88
==== ===== ===== =====
Total investment return .................... ____% 3.66% -16.44% -11.20%(4)
Supplemental data and ratios:
Net assets, end of period (000s)............ $____ $173,691 $26,500 $7,326
Ratio of operating expenses to average
net assets (5).............................. ____% 2.08% 2.59% 2.75%(6)(7)
Ratio of dividends on short positions to
average net assets.......................... ____% 0.28% 0.34% 0.34%(6)
Ratio of net investment income to
average net assets........................ ____% 4.34% 7.75% 4.07%(6)(7)
Portfolio turnover rate .................... ____% 480.25% 413.25% 91.31%
- ---------------
(1) The Fund commenced operations on December 28, 1995.
(2) Net investment income before dividends on short positions for the periods
ended September 30, 1999, September 30, 1998, September 30, 1997 and
September 30, 1996 was $________, $0.30, $0.65 and $0.10, respectively.
(3) Net investment income per share represents net investment income divided by
the average shares outstanding throughout the period.
(4) Not annualized.
(5) The operating expense ratio excludes dividends on short positions. The
ratio including dividends on short positions for the periods ended
September 30, 1999, September 30, 1998, September 30, 1997 and September
30,1996 was ____%, 2.36%, 2.93% and 3.09%, respectively.
(6) Annualized.
</TABLE>
24
<PAGE>
(7) 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)%.
25
<PAGE>
To learn more about the Prudent Bear Fund, the Prudent Bear Large Cap
Fund and the Prudent Safe Harbor Fund you may want to read their Statement of
Additional Information (or "SAI") which contains additional information about
these Funds. The Prudent Bear Fund, the Prudent Bear Large Cap Fund and the
Prudent Safe Harbor Fund have incorporated by reference the SAI into the
Prospectus. This means that you should consider the contents of the SAI to be
part of the Prospectus.
You also may learn more about the Funds' investments by reading their
annual and semi-annual reports to shareholders. The annual report includes a
discussion of the market conditions and investment strategies that significantly
affected the performance of the Funds during their last fiscal year.
The SAI and the annual and semi-annual reports are all available to
shareholders and prospective investors without charge, simply by calling
1-800-711-1848.
Prospective investors and shareholders who have questions about the
Prudent Bear Fund, the Prudent Bear Large Cap Fund or the Prudent Safe Harbor
Fund may also call the above number or write to the following address:
Prudent Bear Funds, Inc.
8140 Walnut Hill Lane
Suite 300
Dallas, Texas 75231
The general public can review and copy information about the Prudent
Bear Fund, the Prudent Bear Large Cap Fund and the Prudent Safe Harbor Fund
(including the SAI) at the Securities and Exchange Commission's Public Reference
Room in Washington, D.C. (Please call 1-800-SEC-0330 for information on the
operations of the Public Reference Room.) Reports and other information about
these Funds are also available at the Securities and Exchange Commission's
Internet site at http://www.sec.gov and copies of this information may be
obtained, upon payment of a duplicating fee, by writing to:
Public Reference Section
Securities and Exchange Commission
Washington, D.C. 20549-6009
Please refer to the Investment Company Act File No. 811-9120 of the
Prudent Bear Fund, the Prudent Bear Large Cap Fund and the Prudent Safe Harbor
Fund, when seeking information about these Funds from the Securities and
Exchange Commission.
26
<PAGE>
Class C Shares
P R O S P E C T U S
January 31, 2000
PRUDENT BEAR FUND
The Prudent Bear Fund is a mutual fund seeking capital appreciation.
Please read this Prospectus and keep it for future reference. It contains
important information, including information on how the Prudent Bear Fund
invests and the services it offers to shareholders.
- --------------------------------------------------------------------------------
The Securities and Exchange Commission has not approved or disapproved these
securities or determined if this prospectus is accurate or complete. Any
representation to the contrary is a criminal offense.
- --------------------------------------------------------------------------------
Prudent Bear Funds, Inc. TABLE OF CONTENTS
8140 Walnut Hill Lane
Suite 300 Questions Every Investor Should Ask
Dallas, Texas 75231 Before Investing in the Prudent Bear
Fund....................................
1-888-PRU-BEAR (Fund Information) Fees and Expenses.......................
1-888-778-2327 Investment Objective and Strategies.....
1-800-771-1848 (Account Management of the Fund..................
Information) The Fund's Share Price .................
Purchasing Class C Shares...............
http://www.prudentbear.com Redeeming Class C Shares................
Dividends, Distributions and Taxes......
Financial Highlights....................
<PAGE>
QUESTIONS EVERY INVESTOR SHOULD ASK BEFORE
INVESTING IN THE PRUDENT BEAR FUND
1. What are the Fund's Goals?
The Prudent Bear Fund seeks capital appreciation.
2. What are the Fund's Principal Investment Strategies?
The Prudent Bear Fund seeks capital appreciation primarily through
short sales of equity securities when overall market valuations are high and
through long positions in value-oriented equity securities when overall market
valuations are low. When the dividend yield on the stocks comprising the
Standard & Poor's Composite Index of 500 Stocks ("S&P 500") is less than 3%
(i.e. overall market valuations are high), the Prudent Bear Fund will hold more
"short" equity positions than "long" equity positions. Its "short" equity
positions will primarily consist of short sales of common stocks and purchases
of put options on common stocks. In effecting short sales and purchasing put
options the Prudent Bear Fund's investment adviser, David W. Tice & Associates,
Inc. (the "Adviser") utilizes "bottom-up" investment analysis. This means the
Adviser bases investment decisions on company-specific fundamental factors.
When the S&P 500 dividend yield is greater than 6% (i.e. overall
market valuations are low), the Prudent Bear Fund will hold more "long" equity
positions than "short" equity positions. Its "long" equity positions will
primarily consist of U.S. common stocks. In selecting common stocks, the Adviser
takes a "value" investment approach utilizing "bottom-up" investment analysis.
When the S&P 500 dividend yield is between 3% and 6%, the Adviser
will allocate the Prudent Bear Fund's portfolio between "short" equity and
"long" equity positions in its discretion. At all times the Prudent Bear Fund
will have both "short" and "long" equity positions as the Adviser believes in
all market conditions there will exist some companies whose stocks are
undervalued by the market and some companies whose stocks are overvalued by the
market.
While the Adviser believes the S&P 500 dividend yield is a
reasonable long-term measure of stock price over or under valuation, the Adviser
also considers other factors in the economy in relation to the S&P 500 dividend
yield. If the S&P 500 dividend yield is within historic ranges relative to
interest rates and other economic variables, the Adviser would likely apply the
"3%" and "6%" guidelines described above. However if, for example, interest
rates rose dramatically so that a 6% S&P 500 dividend yield was not in its
historic relation to interest rates, the Adviser might hold more "short" equity
positions than "long" equity positions until it believed conditions warranted a
shift in portfolio allocation.
The Adviser actively manages the Prudent Bear Fund's portfolio. The
Prudent Bear Fund's annual portfolio turnover rate usually will exceed 100%.
2
<PAGE>
3. What are the Principal Risks of Investing in the Fund?
Investors in the Fund may lose money. There are risks associated
with the types of securities in which the Fund invests. These risks include:
* Market Risk: The prices of the securities in which the Prudent
Bear Fund invests may change adversely compared to the Adviser's
expectations for a number of reasons.
* Asset Allocation Risk: The Prudent Bear Fund's investment results
will suffer if there is a general stock market advance when the
Fund has significant "short" equity positions, or if there is a
general stock market decline when the Fund has significant "long"
equity positions. This risk is in addition to the market risks
associated with each of the Fund's investments.
* Short Sales Risk: The Prudent Bear Fund's investment performance
will suffer if a security that it has sold short appreciates in
value. The Fund's investment performance may also suffer if it is
required to close out a short position earlier than it had
intended. This would occur if the securities lender required it to
deliver the securities the Fund borrowed at the commencement of
the short sale and the Fund was unable to borrow the securities
from other securities lenders.
* Options Investing Risk: If the Prudent Bear Fund purchases an
option and the price of the underlying stock fails to move in the
direction the Adviser expected, the Fund will lose most or all of
the amount the Fund paid for the option, plus commission costs. If
the Prudent Bear Fund writes ("sells") an option and the price of
the underlying stock fails to move in the direction the Adviser
expected, the Fund's losses could easily exceed the proceeds it
received when it wrote the option.
* Value Investing Risk: The Prudent Bear Fund's investment adviser
may be incorrect in its assessment of a company's value and the
stocks the Fund holds may not reach what the investment adviser
believes are their intrinsic value. Similarly the stocks the Fund
sells short may not decline to the price that the investment
adviser thinks reflects their intrinsic value. From time to time,
"value" investing falls out of favor with investors. During these
periods, the Fund's relative performance will suffer.
* High Portfolio Turnover Risk: High portfolio turnover necessarily
results in correspondingly greater transaction costs (such as
brokerage commissions or markups or markdowns) which the Prudent
Bear Fund must pay and increased realized gains (or losses) to
investors. Distributions to shareholders of short-term capital
gains are taxed as ordinary income under
3
<PAGE>
federal income tax laws. The Prudent Bear Fund's portfolio
turnover rate is not calculated with regard to securities,
including options and futures contracts, having a maturity of less
than one year. Consequently the transaction costs incurred by the
Fund are likely to be greater than the transaction costs incurred
by a mutual fund investing exclusively in common stocks that has a
similar portfolio turnover rate.
Because of these risks the Fund is a suitable investment only for those
investors who have long-term investment goals. Prospective investors who are
uncomfortable with an investment that will fluctuate in value should not invest
in the Fund.
4. How has the Fund Performed?
The bar chart and table that follow provide some indication of the
risks of investing in the Prudent Bear Fund by showing changes in its
performance from year to year and how its average annual returns over various
periods compare to the performance of the S&P 500 and the Nasdaq Composite
Index. Please remember that the Prudent Bear Fund's past performance is not
necessarily an indication of its future performance. It may perform better or
worse in the future.
Prudent Bear Fund
(Total return per calendar year)
10%
0%
--------------------------------------------------------
-------
-4.33%
-10%
------
-13.69%
-20%
30%
------
-34.08%
40%
1996 1997 1998 1999
- ------------
Note: During the four year period shown on the bar chart, the Fund's highest
total return for a quarter was ____% (quarter ended ___________, 199_) and
the lowest total return for a quarter was -_____% (quarter ended
___________, 199_). The total returns shown are for the No Load shares of
the Prudent Bear Fund which are not being offered in this Prospectus. The
annual returns for the Class C shares would have been substantially
similar, albeit lower, because the Class C shares invest in the same
portfolio of securities. The annual returns would differ only to the
extent that the Class C shares have higher annual expenses.
4
<PAGE>
Since the
inception date
Average Annual Total Returns of the Fund
(for the periods ending December 31, (December 28,
1999)* Past Year 1995)
- ------------------------------------------------------------------------
Prudent Bear Fund _____% _____%
S&P 500** _____% _____%
Nasdaq Composite Index *** _____% _____%
- ---------------
*Returns are for the Prudent Bear Fund No Load Shares.
**The S&P 500 is a widely recognized unmanaged index of common stock prices.
*** The Nasdaq Composite Index covers over 4,500 stocks traded over the counter.
It represents many small company stocks but is heavily influenced by about 100
of the largest Nasdaq stocks. It is a value-weighted index calculated on price
change only and does not include income.
FEES AND EXPENSES
The table below describes the fees and expenses that you may pay if
you buy and hold Class C shares of the Prudent Bear Fund.
SHAREHOLDER FEES (fees paid directly from your investment)
Maximum Sales Charge (Load)
Imposed on Purchases (as a
percentage of offering price)......... No Sales Charge
Maximum Deferred Sales Charge (Load) No Deferred Sales
Charge
Maximum Sales Charge (Load)
Imposed on Reinvested Dividends
And Distributions..................... No Sales Charge
Redemption Fee.......................... 1.0% (1)
Exchange Fee............................ None
- ---------------------
(1) The Fund imposes a 1% redemption fee on shares held for less than one year.
Our transfer agent charges a fee of $12.00 for each wire redemption.
ANNUAL FUND OPERATING EXPENSES
(expenses that are deducted from Fund assets)
Management Fees......................... 1.25%
Distribution and/or Service (12b-1) Fees 1.00%
Other Expenses
Dividends on Short Positions.......... 0.32%
All remaining Other Expenses.......... 0.49%
-----
Total Other Expenses.................... 0.81%
-----
Total Annual Fund Operating Expenses.... 3.06%
=====
5
<PAGE>
EXAMPLE
This Example is intended to help you compare the cost of investing
in the Fund with the cost of investing in other mutual funds.
The Example assumes that you invest $10,000 in the Fund for the time
periods indicated and then redeem all of your shares at the end of these
periods. The Example also assumes that your investment has a 5% return each year
and that the Fund's operating expenses remain the same. Although your actual
costs may be higher or lower, based on these assumptions, your costs would be:
1 Year 3 Years 5 Years 10 Years
$309 $945 $1,606 $3,374
INVESTMENT OBJECTIVE AND STRATEGIES
Investment Objective
The Prudent Bear Fund seeks capital appreciation. The Prudent Bear
Fund will not take temporary defensive positions. In order to provide a degree
of flexibility, the Fund may change its investment objective without obtaining
shareholder approval. Please remember that an investment objective is not a
guarantee. An investment in the Prudent Bear Fund might not appreciate and
investors could lose money.
Although the Prudent Bear Fund will not take temporary defensive
positions, it will invest in money market instruments and hold some cash so that
it can pay expenses, satisfy redemption requests or take advantage of investment
opportunities. As a consequence of some of the investment techniques utilized by
the Prudent Bear Fund, particularly effecting short sales, a significant portion
of its assets (up to 100%) will be held in liquid securities, including money
market instruments, as "cover" for these investment techniques. These assets may
not be sold while the corresponding transaction, such as a short sale, is open
unless they are replaced by similar assets. As a result the commitment of a
large portion of the Prudent Bear Fund's assets to "cover" investment techniques
may make it more difficult for the Fund to meet redemption requests or pay its
expenses.
Principal Investment Strategies
The Adviser believes that the best opportunities to make both
"short" and "long" equity investments is when the market's perception of the
values of individual companies (measured by the stock price) differs widely from
the Adviser's assessment of the intrinsic values of such companies. Such
opportunities arise as a result of a variety of market inefficiencies,
including, among others, imperfect information, overly optimistic or pessimistic
forecasts by Wall Street analysts, and swings in investor psychology. These
inefficiencies can cause substantially mispriced securities. The Adviser
attempts to:
* Identify potential opportunities where significant market
perception/reality gaps may exist, and
6
<PAGE>
* Invest in the anticipation of changes in the market perception
that will bring the stock price closer to the Adviser's estimate
of value.
The Prudent Bear Fund is not a "market timing" fund. However, it
does increase or decrease (to a degree or dramatically) the amount of its
"short" equity investments compared to its "long" equity investments in response
to changes in the Adviser's assessment of market conditions and its evaluation
of the S&P 500 dividend yield. In making investment decisions for the Prudent
Bear Fund, the Adviser primarily invests in individual stocks, put options on
individual stocks, or effects short sales in individual stocks rather than
investing in or selling short index-based securities.
From time to time the Prudent Bear Fund may utilize the following
investment tactics. These investment tactics are not principal investment
strategies of the Prudent Bear Fund.
* Index-Based Investment Companies: The Prudent Bear Fund may invest
in or sell short securities of investment companies that hold
securities comprising a recognized securities index such as SPDRs,
which hold the component stocks of the S&P 500, or WEBS which hold
stocks of specified foreign equity market indices. These
securities may trade at discounts to their net asset value. As an
investor in securities of index-based investment companies, the
Prudent Bear Fund will indirectly bear its proportionate share of
the expenses of those investment companies.
* Futures Contracts and Options on Futures Contracts: The Prudent
Bear Fund may purchase and sell stock index futures contracts as
well as other futures contracts, such as gold futures. Futures
contracts and options present risks of the possible inability to
close a future contract when desired, losses due to unanticipated
market movements which are potentially unlimited, and the possible
inability of the Adviser to correctly predict the direction of
securities prices, interest rates, currency exchange rates and
other factors.
* Private Placements: The Prudent Bear Fund may purchase restricted
securities in private placements. The Prudent Bear Fund may not be
able to sell these securities at the prices at which it has valued
them without experiencing delays or additional costs, if at all.
MANAGEMENT OF THE FUND
David W. Tice & Associates, Inc. manages the investments of the Prudent Bear
Fund.
David W. Tice & Associates, Inc. (the "Adviser") is the
investment adviser to the Prudent Bear Fund. The Adviser's address is:
7
<PAGE>
8140 Walnut Hill Lane
Suite 300
Dallas, Texas 75231
As investment adviser, the Adviser manages the investment portfolio
of the Fund. The Adviser makes the decisions as to which securities to buy and
which securities to sell. The Prudent Bear Fund pays the Adviser an annual
investment advisory fee equal to 1.25% of the Prudent Bear Fund's average net
assets.
David W. Tice is primarily responsible for the day-to-day
management of the portfolio of the Prudent Bear Fund and has been so since
its inception. Mr. Tice is the President and founder of the Adviser. The
Adviser has been conducting an investment advisory business since 1993.
Prior to incorporating the Adviser, Mr. Tice conducted the same investment
advisory business as a sole proprietorship since 1988. Mr. Tice is a
Chartered Financial Analyst and a Certified Public Accountant. He is also
president and sole shareholder of BTN Research, Inc., a registered
broker-dealer.
Year 2000
The Prudent Bear Fund is addressing the "Year 2000" issue. The "Year
2000" issue stems from the use of a two-digit format to define the year in
certain date-sensitive computer application systems rather than the use of a
four digit format. As a result, date-sensitive software programs could recognize
a date using "00" as the year 1900 rather than the year 2000. This could result
in major systems or process failures or the generation of erroneous data, which
would lead to disruptions in the Fund's business operations.
The Fund has no application systems of its own and is entirely
dependent on its service providers' systems and software. The Fund is working
with its service providers (including the Adviser, the administrator, transfer
agent and custodian) to identify and remedy any Year 2000 issues. However, the
Fund cannot guarantee that all Year 2000 issues will be identified and remedied,
and the failure to successfully identify and remedy all Year 2000 issues could
result in an adverse impact on the Fund. The Year 2000 issue could also have a
negative impact on the companies in which the Fund invests, which could hurt the
Fund's investment returns.
Distribution Fees
The Prudent Bear Fund has adopted a distribution plan pursuant to
Rule 12b-1 under the Investment Company Act. This Plan allows the Fund to use up
to 1.00% of its average daily net assets to pay sales, distribution and other
fees for the sale of its shares and for services provided to investors. Because
these fees are paid out of the Fund's assets, over time these fees will increase
the cost of your investment and may cost you more than paying other types of
sales charges.
8
<PAGE>
THE FUND'S SHARE PRICE
The price at which investors purchase Class C shares of the Fund and
at which shareholders redeem Class C shares of the Fund is called its net asset
value. The Fund calculates its net asset value as of the close of regular
trading on the New York Stock Exchange (normally 4:00 p.m. Eastern Time) on each
day the New York Stock Exchange is open for trading. The New York Stock Exchange
is closed on holidays and weekends. The Fund calculates its net asset value
based on the market prices of the securities (other than money market
instruments) it holds. The Fund values most money market instruments it holds at
their amortized cost. The Fund will process purchase orders that it receives and
accepts and redemption orders that it receives prior to the close of regular
trading on a day that the New York Stock Exchange is open at the net asset value
determined later that day. It will process purchase orders that it receives and
accepts and redemption orders that it receives after the close of regular
trading at the net asset value determined at the close of regular trading on the
next day the New York Stock Exchange is open. If an investor sends a purchase
order or redemption request to the Fund's corporate address, instead of to its
transfer agent, the Fund will forward it to the transfer agent and the effective
date of the purchase order or redemption request will be delayed until the
purchase order or redemption request is received by the transfer agent.
PURCHASING CLASS C SHARES
How to Purchase Class C Shares from the Fund
1. Read this Prospectus carefully.
2. Determine how much you want to invest keeping in mind the
following minimums:
a. New accounts
* Individual Retirement Accounts $1,000
* All other Accounts $2,000
b. Existing accounts
* Dividend reinvestment No Minimum
* All other investments
(by mail) $ 100
(by wire) $1,000
3. Complete the New Account Application accompanying this Prospectus,
carefully following the instructions. For additional investments,
complete the remittance form attached to your individual account
statements. (The Fund has additional
9
<PAGE>
New Account Applications and remittance forms if you need them.)
If you have any questions, please call 1-800-711-1848.
4. Make your check payable to the full name of the Fund. All checks
must be drawn on U.S. banks. The Fund will not accept cash or
third party checks. Firstar Mutual Fund Services, LLC, the Fund's
transfer agent, will charge a $25 fee against a shareholder's
account for any payment check returned for insufficient funds. The
shareholder will also be responsible for any losses suffered by
the Fund as a result.
5. Send the application and check to:
BY FIRST CLASS MAIL
Prudent Bear Funds, Inc.
c/o Firstar Mutual Fund Services, LLC
P.O. Box 701
Milwaukee, WI 53201-0701
BY OVERNIGHT DELIVERY SERVICE
OR EXPRESS MAIL
Prudent Bear Funds, Inc.
c/o Firstar Mutual Fund Services, LLC
3rd Floor
615 East Michigan Street
Milwaukee, WI 53202-5207
Please do not send letters by overnight delivery service or express mail to the
Post Office Box address.
If you wish to open an account by wire, please call 1-800-711-1848 prior to
wiring funds in order to obtain a confirmation number and to ensure prompt and
accurate handling of funds. You should wire funds to:
Firstar Bank, NA
777 East Wisconsin Avenue
Milwaukee, WI 53202
ABA #075000022
Credit:
Firstar Mutual Fund Services, LLC
Account #112-952-137
10
<PAGE>
Further Credit:
(name of Fund to be purchased)
(shareholder registration)
(shareholder account number, if known)
You should then send a properly signed New Account Application
marked "FOLLOW-UP" to either of the addresses listed above. Please remember that
Firstar Bank, NA must receive your wired funds prior to the close of regular
trading on the New York Stock Exchange for you to receive same day pricing. The
Fund and Firstar Bank, NA. are not responsible for the consequences of delays
resulting from the banking or Federal Reserve Wire system, or from incomplete
wiring instructions.
Purchasing Class C Shares from Broker-dealers, Financial Institutions and Others
Some broker-dealers may sell shares of the Prudent Bear Fund. These
broker-dealers may charge investors 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. Some broker-dealers may purchase and redeem
shares on a three day settlement basis.
The Fund may enter into agreements with broker-dealers, financial
institutions or other service providers ("Servicing Agents") that may include
the Fund as an investment alternative in the programs they offer or administer.
Servicing agents may:
* Become shareholders of record of the Fund. This means all requests
to purchase additional shares and all redemption requests must be
sent through the Servicing Agent. This also means that purchases
made through Servicing Agents are not subject to the Fund's
minimum purchase requirements.
* Use procedures and impose restrictions that may be in addition to,
or different from, those applicable to investors purchasing shares
directly from the Fund.
* Charge fees to their customers for the services they provide them.
Also, the Fund and/or the Adviser may pay fees to Servicing Agents
to compensate them for the services they provide their customers.
* Be allowed to purchase shares by telephone with payment to follow
the next day. If the telephone purchase is made prior to the close
of regular trading on the New York Stock Exchange, it will receive
same day pricing.
* Be authorized to accept purchase orders on behalf of the Fund.
This means that the Fund will process the purchase order at the
net asset value which is determined following the Servicing
Agent's acceptance of the customer's order.
11
<PAGE>
If you decide to purchase Class C shares through Servicing Agents,
please carefully review the program materials provided to you by the Servicing
Agent. When you purchase Class C shares of the Fund through a Servicing Agent,
it is the responsibility of the Servicing Agent to place your order with the
Fund on a timely basis. If the Servicing Agent does not, or if it does not pay
the purchase price to the Fund within the period specified in its agreement with
the Fund, it may be held liable for any resulting fees or losses.
Other Information about Purchasing Class C Shares of the Fund
The Fund may reject any purchase order for any reason. The Fund will
not accept initial purchase orders made by telephone unless they are from a
Servicing Agent which has an agreement with the Fund.
The Fund will not issue certificates evidencing shares purchased
unless the investor makes a written request for a certificate. The Fund will
send investors a written confirmation for all purchases of Class C shares
whether or not evidenced by certificates.
The Fund offers an automatic investment plan allowing shareholders
to make purchases of Class C shares on a regular and convenient basis. The Fund
also offers a telephone purchase option permitting shareholders to make
additional purchases by telephone. The Fund offers the following retirement
plans:
* Traditional IRA
* Roth IRA
* SEP-IRA
Investors can obtain further information about the automatic
investment plan, the telephone purchase plan and the IRAs by calling the Fund at
1-800-711-1848. The Fund recommends that investors consult with a competent
financial and tax advisor regarding the IRAs before investing through them.
REDEEMING CLASS C SHARES
How to Redeem (Sell) Class C Shares by Mail
1. Prepare a letter of instruction containing:
o the name of the Fund
o account number(s)
o the amount of money or number of shares being redeemed
o the name(s) on the account
o daytime phone number
12
<PAGE>
o additional information that the Fund may require for
redemptions by corporations, executors, administrators,
trustees, guardians, or others who hold shares in a
fiduciary or representative capacity. Please contact the
Fund's transfer agent, Firstar Mutual Fund Services, LLC,
in advance, at 1-800-711-1848 if you have any questions.
2. Sign the letter of instruction exactly as the shares are
registered. Joint ownership accounts must be signed by all owners.
3. If there are certificates representing your shares, enclose the
certificates and execute a stock power exactly as your shares are
registered.
4. Have 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 in the following
situations:
o The redemption request includes a change of address
o The redemption proceeds are to be sent to a person other
than the person in whose name the shares are registered
o The redemption proceeds are to be sent to an address other
than the address of record
A notarized signature is not an acceptable substitute for a
signature guarantee.
5. Send the letter of instruction to:
BY FIRST CLASS MAIL
Prudent Bear Funds, Inc.
c/o Firstar Mutual Fund Services, LLC
Shareholder Services Center
P. O. Box 701
Milwaukee, WI 53201-0701
BY OVERNIGHT DELIVERY SERVICE
OR EXPRESS MAIL
Prudent Bear Funds, Inc.
c/o Firstar Mutual Fund Services, LLC
3rd Floor
615 East Michigan Street
Milwaukee, WI 53202-5207
13
<PAGE>
Please do not send letters of instruction by overnight delivery service or
express mail to the Post Office Box address.
How to Redeem (Sell) Class C Shares by Telephone
1. Instruct Firstar Mutual Fund Services, LLC that you want the
option of redeeming Class C shares by telephone. This can be done
by completing the New Account Application. If you have already
opened an account, you may write to Firstar Mutual Fund Services,
LLC requesting this option. When you do so, please sign the
request exactly as your account is registered and have the
signatures guaranteed. Shares held in individual retirement
accounts and shares represented by certificates cannot be redeemed
by telephone.
2. Assemble the same information that you would include in the letter
of instruction for a written redemption request.
3. Call Firstar Mutual Fund Services, LLC at 1-800-711-1848. Please
do not call the Fund or the Adviser.
How to Redeem (Sell) Class C Shares through Servicing Agents
If your Class C shares are held by a Servicing Agent, you must
redeem your shares through the Servicing Agent. Contact the Servicing Agent
for instructions on how to do so.
Redemption Price
The redemption price per share you receive for redemption requests
is the next determined net asset value after:
o Firstar Mutual Fund Services, LLC receives your written request in
proper form with all required information.
o Firstar Mutual Fund Services, LLC receives your authorized
telephone request with all required information.
o A Servicing Agent that has been authorized to accept redemption
requests on behalf of the Funds receives your request in
accordance with its procedures.
Redemption Fee
The Fund imposes a 1% redemption fee on shares that are redeemed
before they have been held for one year. For purposes of calculating the one
year period, the Fund uses a "first-in, first-out" method, meaning the date of
any redemption will be compared to the
14
<PAGE>
earliest purchase date. The Fund does not impose redemption fees on shares
purchased with reinvested dividends and distributions.
Payment of Redemption Proceeds
o For those shareholders who redeem Class C shares by mail, Firstar
Mutual Fund Services, LLC will mail a check in the amount of the
redemption proceeds no later than the seventh day after it
receives the redemption request in proper form with all required
information.
o For those shareholders who redeem by telephone, Firstar Mutual
Fund Services, LLC will either mail a check in the amount of the
redemption proceeds no later than the seventh day after it
receives the redemption request, or transfer the redemption
proceeds to your designated bank account if you have elected to
receive redemption proceeds by wire. Firstar Mutual Fund Services,
LLC generally wires redemption proceeds on the business day
following the calculation of the redemption price. However, the
Funds may direct Firstar Mutual Fund Services, LLC to pay the
proceeds of a telephone redemption on a date no later than the
seventh day after the redemption request.
o For those shareholders who redeem shares through Servicing Agents,
the Servicing Agent will transmit the redemption proceeds in
accordance with its redemption procedures.
Other Redemption Considerations
When redeeming Class C shares of the Fund, shareholders should
consider the following:
o The redemption may result in a taxable gain.
o Shareholders who redeem Class C shares held in an IRA must
indicate on their redemption request whether or not to withhold
federal income taxes. If not, these redemptions will be subject to
federal income tax withholding.
o The Fund may delay the payment of redemption proceeds for up to
seven days in all cases.
o If you purchased Class C shares by check, the Fund may delay the
payment of redemption proceeds until they are reasonably satisfied
the check has cleared (which may take up to 12 days from the date
of purchase).
o Firstar Mutual Fund Services, LLC will send the proceeds of
telephone redemptions to an address or account other than that
shown on its records
15
<PAGE>
only if the shareholder has sent in a written
request with signatures guaranteed.
o The Fund reserves the right to refuse a telephone redemption
request if it believes it is advisable to do so. The Fund and
Firstar Mutual Fund Services, LLC may modify or terminate their
procedures for telephone redemptions at any time. Neither the Fund
nor Firstar Mutual Fund Services, LLC will be liable for following
instructions for telephone redemption transactions that they
reasonably believe to be genuine, provided they use reasonable
procedures to confirm the genuineness of the telephone
instructions. They may be liable for unauthorized transactions if
they fail to follow such procedures. These procedures include
requiring some form of personal identification prior to acting
upon the telephone instructions and recording all telephone calls.
During periods of substantial economic or market change, you may
find telephone redemptions difficult to implement. If a
shareholder cannot contact Firstar Mutual Fund Services, LLC by
telephone, he or she should make a redemption request in writing
in the manner described earlier.
o Firstar Mutual Fund Services, LLC currently charges a fee of $12
when transferring redemption proceeds to your designated bank
account by wire.
o If your account balance falls below $1,000 because you redeem
shares, you will be given 60 days to make additional investments
so that your account balance is $1,000 or more. If you do not, the
Fund may close your account and mail the redemption proceeds to
you.
o The Fund may pay redemption requests "in kind." This means that
the Fund may pay redemption requests entirely or partially with
securities rather than with cash.
DIVIDENDS, DISTRIBUTIONS AND TAXES
The Prudent Bear Fund distributes substantially all of its net
investment income and substantially all of its capital gains annually. You
have two distribution options:
o Automatic Reinvestment Option - Both dividend and capital gains
distributions will be reinvested in additional Fund shares.
o All Cash Option - Both dividend and capital gains distributions
will be paid in cash.
You may make this election on the New Account Application. You may change your
election by writing to Firstar Mutual Fund Services, LLC or by calling
1-800-711-1848.
16
<PAGE>
The Fund's distributions, whether received in cash or additional
Class C shares of the Fund, may be subject to federal and state income tax.
These distributions may be taxed as ordinary income and capital gains (which may
be taxed at different rates depending on the length of time the Fund holds the
assets generating the capital gains).
FINANCIAL HIGHLIGHTS
The financial highlights tables are intended to help you understand
the Prudent Bear Fund's financial performance for the period of its operations.
Certain information reflects financial results for a single Fund No Load share
and certain information reflects financial results for a single Fund Class C
share. (No Class C shares were issued until February 8, 1999.) The total returns
in the tables represent the rate that an investor would have earned on an
investment in the Fund (assuming reinvestment of all dividends and
distributions). This information has been audited by PricewaterhouseCoopers LLP,
whose report, along with the Fund's financial statements, are included in the
1999 Annual Report which is available upon request.
17
<PAGE>
<TABLE>
Prudent Bear Fund
<CAPTION>
For the Years Ended September 30,
Class C
Shares Feb.
8, 1999(1)
through No Load
Sept. 30, Shares
1999 1999 1998 1997 1996(1)
------------- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net asset value, beginning
of period..................... $____ $7.34 $7.29 $8.88 $10.00
Income from investment
operations:
Net investment income(2)...... ____ ____ 0.29(3) 0.62(3) 0.09
Net realized and unrealized
(losses)
on investments .............. ____ ____ (0.01) (2.06) (1.21)
------ ------ ------
Total from investment
operations.................... ____ ____ 0.28 (1.44) (1.12)
---- ------ ------
Less distributions from net
investment
income: (____) (____) (0.23) (0.15) --
------ ------ -- ----
Net asset value, end of
period ....................... $ $ $ 7.34 $7.29 $ 8.88
===== ===== ====== ===== ======
Total investment return ...... ____% ____% 3.66% -16.44% -11.20%(4)
Supplemental data and ratios:
Net assets, end of period
(000s)........................ $______ $______ $173,691 $26,500 $7,326
Ratio of operating expenses
to average net assets (5)..... ___% ___%(6) 2.08% 2.59% 2.75%(6)(7)
Ratio of dividends on short
positions to average net
assets........................ ___% ____%(6) 0.28% 0.34% 0.34%(6)
Ratio of net investment
income to
average net
assets..........0 ___% ___%(6) 4.34% 7.75% 4.07%(6)(7)
Portfolio turnover rate ...... ___% ____% 480.25% 413.25% 91.31%
- ---------------
(1) The Fund commenced operations on December 28, 1995. The Class C shares
were first issued on February 8, 1999.
(2) Net investment income before dividends on short positions for the periods
ended September 30, 1999, September 30, 1998, September 30, 1997 and
September 30, 1996 was $________, $0.30, $0.65 and $0.10, respectively.
(3) Net investment income per share represents net investment income divided
by the average shares outstanding throughout the period.
(4) Not annualized.
(5) The operating expense ratio excludes dividends on short positions. The
ratio including dividends on short positions for the periods ended
September 30, 1999, September 30, 1998, September 30, 1997 and September
30,1996 was ____%, 2.36%, 2.93% and 3.09%, respectively.
(6) Annualized.
(7) 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)%.
</TABLE>
18
<PAGE>
To learn more about the Prudent Bear Fund, you may want to read its
Statement of Additional Information (or "SAI") which contains additional
information about the Fund. The Prudent Bear Fund has incorporated by reference
the SAI into the Prospectus. This means that you should consider the contents of
the SAI to be part of the Prospectus.
You also may learn more about the Fund's investments by reading
their annual and semi-annual reports to shareholders. The annual report includes
a discussion of the market conditions and investment strategies that
significantly affected the performance of the Fund during their last fiscal
year.
The SAI and the annual and semi-annual reports are all available to
shareholders and prospective investors without charge, simply by calling
1-800-711-1848.
Prospective investors and shareholders who have questions about the
Prudent Bear Fund may also call the above number or write to the following
address:
Prudent Bear Funds, Inc.
8140 Walnut Hill Lane
Suite 300
Dallas, Texas 75231
The general public can review and copy information about the Prudent
Bear Fund (including the SAI) at the Securities and Exchange Commission's Public
Reference Room in Washington, D.C. (Please call 1-800-SEC-0330 for information
on the operations of the Public Reference Room.) Reports and other information
about the Fund are also available at the Securities and Exchange Commission's
Internet site at http://www.sec.gov and copies of this information may be
obtained, upon payment of a duplicating fee, by writing to:
Public Reference Section
Securities and Exchange Commission
Washington, D.C. 20549-6009
Please refer to the Investment Company Act File No. 811-9120 of the
Prudent Bear Fund when seeking information about the Fund from the Securities
and Exchange Commission.
19
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION January 31, 2000
PRUDENT BEAR FUND
PRUDENT SAFE HARBOR FUND
PRUDENT BEAR LARGE CAP FUND
PRUDENT BEAR FUNDS, INC.
8140 Walnut Hill Lane
Suite 405
Dallas, Texas 75231
This Statement of Additional Information is not a prospectus and
should be read in conjunction with the Prospectuses of Prudent Bear Funds, Inc.
for the No Load Shares and Class C Shares, both of which are dated January 31,
2000. Requests for copies of the Prospectuses should be made by writing to
Prudent Bear Funds, Inc., 8140 Walnut Hill Lane, Suite 300, Dallas, Texas 75231,
Attention: Corporate Secretary, or by calling (214) 696-5474.
The following financial statements are incorporated by reference to
the Annual Report, dated September 30, 1999 of Prudent Bear Funds, Inc. (File
No. 811-9120) as filed with the Securities and Exchange Commission on November
__, 1999:
(Prudent Bear Fund only)
* Statement of Assets and Liabilities
* Statement of Operations
* Statement of Changes in Net Assets
* Financial Highlights
* Schedule of Investments
* Schedule of Securities Sold Short
* Notes to the Financial Statements
* Report of Independent Accountants
Shareholders may obtain a copy of the Annual Report, without charge, by calling
1-800-711-1848.
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Prudent Bear Funds, Inc.
TABLE OF CONTENTS Page No.
FUND HISTORY AND CLASSIFICATION ...........................................1
INVESTMENT RESTRICTIONS ...................................................1
INVESTMENT CONSIDERATIONS .................................................3
DIRECTORS AND OFFICERS OF THE CORPORATION ................................16
OWNERSHIP OF MANAGEMENT AND PRINCIPAL SHAREHOLDERS .......................17
INVESTMENT ADVISER, ADMINISTRATOR, CUSTODIAN, TRANSFER AGENT
AND ACCOUNTING SERVICES AGENT ...........................................18
DETERMINATION OF NET ASSET VALUE .........................................22
DISTRIBUTION OF SHARES ...................................................23
AUTOMATIC INVESTMENT PLAN AND TELEPHONE PURCHASES ........................24
REDEMPTION OF SHARES .....................................................24
SYSTEMATIC WITHDRAWAL PLAN ...............................................25
ALLOCATION OF PORTFOLIO BROKERAGE ........................................25
TAXES ....................................................................27
SHAREHOLDER MEETINGS .....................................................30
PERFORMANCE INFORMATION ..................................................31
CAPITAL STRUCTURE ........................................................33
DESCRIPTION OF SECURITIES RATINGS ........................................34
INDEPENDENT ACCOUNTANTS ..................................................36
No person has been authorized to give any information or to make any
representations other than those contained in this Statement of Additional
Information and Prospectus dated January 31, 2000 and, if given or made, such
information or representations may not be relied upon as having been authorized
by Prudent Bear Funds, Inc.
This Statement of Additional Information does not constitute an
offer to sell securities.
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FUND HISTORY AND CLASSIFICATION
Prudent Bear Funds, Inc., a Maryland corporation incorporated or
October 25, 1995 (the "Corporation"), is an open-end management investment
company consisting of three diversified portfolios: the Prudent Bear Fund, the
Prudent Safe Harbor Fund, and the Prudent Bear Large Cap Fund (individually a
"Fund" and collectively the "Funds"). The Corporation is registered under the
Investment Company Act of 1940 (the "Act").
INVESTMENT RESTRICTIONS
The Funds have adopted the following investment restrictions which
are matters of fundamental policy. Each Fund's investment restrictions cannot be
changed without approval of the holders of the lesser of: (i) 67% of that Fund's
shares present or represented at a shareholder'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 that Fund.
1. No Fund will 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 each Fund's total assets may be invested without regard to these
limitations.
2. Each Fund may sell securities short to the extent permitted by the
Act.
3. No Fund will purchase securities on margin (except for such short
term credits as are necessary for the clearance of transactions); provided,
however, that each 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. Each Fund may borrow money or issue senior securities to the extent
permitted by the Act.
5. Each Fund may pledge or hypothecate its assets to secure its
borrowings.
6. No Fund will act as an underwriter or distributor of securities
other than of its shares (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 (the "Securities Act"), in the disposition of restricted
securities).
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7. No Fund will make loans, including loans of securities, except each
Fund may acquire debt securities from the issuer or others which are
publicly distributed or are of a type normally acquired by institutional
investors and each Fund may enter into repurchase agreements.
8. No Fund will 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. No Fund will make investments for the purpose of exercising control
or management of any company.
10. No Fund will purchase or sell real estate or real estate mortgage
loans or make any investments in real estate limited partnerships.
11. No Fund will purchase or sell commodities or commodity contracts
except (a) the Prudent Safe Harbor Fund may purchase or sell gold and other
precious metals and; (b) each of the Funds may enter into futures contracts
and options on futures contracts.
12. The Prudent Bear 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. This investment restriction shall not
prohibit the Prudent Bear Fund from purchasing securities of "C"
corporations or of companies that invest in "C" corporations.
The Funds have adopted certain other investment restrictions which are
not fundamental policies and which may be changed by the Corporation's Board of
Directors without shareholder approval. These additional restrictions are as
follows:
1. No Fund will acquire or retain any security issued by a company, an
officer or director of which is an officer or director of the Corporation
or an officer, director or other affiliated person of any Fund's investment
adviser.
2. No Fund will invest more than 5% of such 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. No Fund will purchase illiquid securities if, as a result of such
purchase, more than 15% of the value of its net assets would be invested in
such securities.
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4. Each Fund's investments in warrants will be limited to 5% of such
Fund's net assets. Included within such 5%, but not to exceed 2% of the
value of such Fund's net assets, may be warrants which are not listed on
either the New York Stock Exchange or the American Stock Exchange.
5. No Fund will purchase the securities of other investment companies
except: (a) as part of a plan of merger, consolidation or reorganization
approved by the shareholders of such 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) a Fund and
its affiliated persons would hold more than 3% of any class of securities,
including voting securities, of any registered investment company; (ii)
more than 5% of such Fund's net assets would be invested in shares of any
one registered investment company; and (iii) more than 25% of such 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 a Fund's investment restrictions made by
the Board of Directors will be communicated to shareholders prior to their
implementation.
INVESTMENT CONSIDERATIONS
Illiquid Securities
Each 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. Rule 144A permits certain qualified institutional buyers
to trade in privately placed securities not registered under the Securities Act.
Institutional markets for restricted securities have developed as a result of
Rule 144A, providing both ascertainable market values for Rule 144A securities
and the ability to liquidate these securities to satisfy redemption requests.
However an insufficient number of qualified institutional buyers interested in
purchasing Rule 144A securities held by a Fund could adversely affect their
marketability, causing the Fund to sell securities at unfavorable prices. The
Board of Directors of the Corporation has delegated to David W. Tice &
Associates, Inc. (the "Adviser") the day-to-day determination of the liquidity
of a security although it has retained oversight and ultimate responsibility for
such determinations. Although no definite
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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,
a 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.
Registered Investment Companies
Each Fund may invest up to 25% of its net assets in shares of
registered investment companies. However, under normal market conditions, a Fund
will not invest more than 5% of its net assets in such shares. Each Fund will
not purchase or otherwise acquire shares of any registered investment company
(except as part of a plan of merger, consolidation or reorganization approved by
the shareholders of the Fund) if (a) a Fund and its affiliated persons would own
more than 3% of any class of securities of such registered investment company or
(b) more than 5% of its net assets would be invested in the shares of any one
registered investment company. If a Fund purchases more than 1% of any class of
security of a registered open-end investment company, such investment will be
considered an illiquid investment.
Borrowing
Each Fund may borrow money for investment purposes. Borrowing for
investment purposes is known as leveraging. Leveraging investments, by
purchasing securities with borrowed money, is a speculative technique which
increases investment risk, but also increases investment opportunity. Since
substantially all of a Fund's assets will fluctuate in value, whereas the
interest obligations on borrowings may be fixed, the net asset value per share
of a Fund, when it leverages its investments, will increase more when the Fund's
portfolio assets increase in value and decrease more when the portfolio assets
decrease in value than would otherwise be the case. Interest costs on borrowings
may partially offset or exceed the returns on the borrowed funds. Under adverse
conditions, a Fund might have to sell portfolio securities to meet interest or
principal payments at a time investment considerations would not favor such
sales. As required by the Act, each 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 a Fund's assets should fail to meet this 300% coverage test, the Fund
within three business days will reduce the amount of the Fund's borrowings to
the extent necessary to meet this 300% coverage.
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Maintenance of this percentage limitation may result in the sale of portfolio
securities as a time when investment considerations otherwise indicate that it
would be disadvantageous to do so.
In addition to borrowing for investment purposes, each Fund is
authorized to borrow money from banks 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. For example a 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 investments would be inconvenient or disadvantageous.
Such borrowings will be promptly repaid and are not subject to the foregoing
300% asset coverage requirement.
Portfolio Turnover
Each 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. Each 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. Pursuant to Securities and Exchange Commission
requirements, the portfolio turnover rate of each Fund is calculated without
regard to securities, including options and futures contracts, having a maturity
of less than one year. Each Fund may 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.
Short Sales
Each Fund may seek to realize additional gains through short sale
transactions in securities listed on one or more national securities exchanges,
or in unlisted securities. Short selling involves the sale of borrowed
securities. At the time a short sale is effected, a Fund incurs an obligation to
replace the security borrowed at whatever its price may be at the time the Fund
purchases it for delivery to the lender. 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 the lender amounts equal to
any dividend 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 margin requirements,
until the short position is closed.
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Until a Fund closes its short position or replaces the borrowed
security, the Fund will: (a) maintain 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.
Futures Contracts and Options Thereon
The Prudent Bear Fund and the Prudent Bear Large Cap Fund may
purchase and write (sell) stock index futures contracts as a substitute for a
comparable market position in the underlying securities. The Prudent Safe Harbor
Fund may purchase and write (sell) Debt Futures. Debt Futures are futures
contracts on debt securities. The Prudent Bear Fund and the Prudent Safe Harbor
Fund may purchase and write (sell) futures contracts on gold ("Gold Futures"). 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 or of the debt security
with respect to a Debt Future or of gold with respect to a Gold Future 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 Prudent Bear Fund and the Prudent Bear Large Cap Fund may
purchase put and call options and write put and call options on stock index
futures contracts and the Prudent Safe Harbor Fund may purchase put and call
options and write put and call options on Debt Futures. The Prudent Bear Fund
and the Prudent Safe Harbor Fund may purchase put and call options and write put
and call options on Gold Futures. When a 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 period. By writing a call option on a futures contract, a 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. By writing a put option on a
futures contract, a Fund receives a premium in return for granting to the
purchaser of the option, the right to sell to 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 a Fund's equity,
debt or gold positions against price fluctuations, while other strategies tend
to increase market exposure. Whether a Fund realizes a gain or loss from futures
activities depends generally upon movements in the underlying stock index, Debt
Future or gold. The extent of a Fund's loss from an unhedged short position in
futures contracts or call options on futures contracts is potentially unlimited.
The Funds may engage in related closing transactions with respect to options on
futures contracts. The Funds will purchase or write options only on futures
contracts that are traded on a United States exchange or board of trade.
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Each 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, a 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 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 a Fund purchases or sells a futures contract, the Fund "covers"
its position. To cover its position, the Fund maintains (and marks-to-market on
a daily basis) cash or liquid securities that, when added to any amounts
deposited with a futures commission merchant as margin, are equal to its
obligations on the futures contract or otherwise cover its position. If a Fund
continues to engage in the described securities trading practices and properly
maintains assets, such assets 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 maintained assets will assure the availability of adequate
funds to meet the obligations of the Fund arising from such investment
activities.
Each 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 cash or high-grade liquid debt securities equal in value
to the difference between the strike price of the put and the price of the
futures contract. Each 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 the prices of which are expected
to move relatively consistently with the futures contract. Each 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 the prices of which are expected to move relatively consistently
with the futures contract.
Each 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 cash or liquid
securities equal in value to the difference between the strike price of the call
and the price of the futures contract. Each Fund may also cover its sale of a
call option by taking positions in
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instruments the prices of which are expected to move relatively consistently
with the call option. Each Fund may cover its sale of a put option on a futures
contract by taking a short position in the underlying futures contract at a
price greater than or equal to the strike price of the put option, or if the
short position in the underlying futures contract is established at a price less
than the strike price of the written put, the Fund will maintain cash or liquid
securities equal in value to the difference between the strike price of the put
and the price of the futures contract. Each Fund may also cover its sale of a
put option by taking positions in instruments the prices of which are expected
to move relatively consistently with the put option.
Although the Funds intend to purchase and 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
a 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 Prudent Bear Fund and the Prudent Bear Large Cap Fund may
purchase put and call options and write put and call options on stock indexes. A
stock index fluctuates with changes in the market values of the stock included
in the index. Options on stock indexes give the holder the right to receive an
amount of cash upon exercise of the options. 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. 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."
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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 a 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 a Fund will realize a gain or loss from
the purchase or writing of options on an index depends upon movements in the
level of stock prices in the stock market generally or, in the case of certain
indexes, in an industry or market segment, rather than upon movements in the
price of a particular stock. Trading in index options requires different skills
and techniques than are required for predicting changes in the prices of
individual stocks. The Funds will not enter into an option position that exposes
a 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 (and
marks-to-market, on a daily basis) cash or liquid securities that, when added to
the premiums deposited with respect to the option, are equal to its obligations
under the option positions that are not otherwise covered.
The Adviser may utilize index options as a technique to leverage the
portfolio of the Prudent Bear Fund or the Prudent Bear Large Cap 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 a Fund take a
position in options and stock prices move in a direction contrary to the
Adviser's forecast however, the Fund would incur losses greater than the Fund
would have incurred without the options position.
Options on Securities
Each Fund may buy put and call options and write (sell) put and 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 writing a put option and receiving a premium, the Fund may become
obligated during the term of the option to purchase 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
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the option at the exercise price. Options on securities written by the Funds
will be traded on recognized securities exchanges.
When writing call options on securities, a 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 cash or liquid securities equal in value to the difference between
the two exercise prices. In addition, a Fund may cover its position by
depositing and maintaining cash or liquid securities equal in value to the
exercise price of the call option written by the Fund. The principal reason for
the Fund to write call options on securities 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 writing put options on securities, a Fund may cover its
position by owning a put option on the underlying security, on a share for share
basis, which is deliverable under the option contract at a price no lower than
the exercise price of the put option written by the Fund or, if lower, by owning
such put option and depositing and maintaining cash or liquid securities equal
in value between the two exercise prices. In addition a Fund may cover its
position by depositing and maintaining cash or liquid securities equal in value
to the exercise price of the put option written by the Fund.
When a 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. However, a writer may not effect a
closing purchase transaction after the writer has been notified of the exercise
of an option. When a 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.
A Fund will realize a gain (or a loss) on a closing purchase
transaction with respect to a call or put option previously written by the Fund
if the premium, plus commission costs, paid by the Fund to purchase the call
option or put option is less (or greater) than the premium, less commission
costs, received by the Fund on the sale of the call option or put option. The
Fund also will realize a gain if a call option or put option which the Fund has
written lapses unexercised, because the Fund would retain the premium.
A 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
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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 Funds. In such event, a Fund would be unable to
realize its profits or limit its losses until the Fund would exercise options it
holds and the Fund would remain obligated until options it wrote were exercised
or expired.
Because option premiums paid or received by the Fund are small in
relation to the market value of the investments underlying the options, buying
and selling put and call options can be more speculative than investing directly
in common stocks.
Combined Option Positions
Each Fund may purchase and write options (subject to the limitations
described above) in combination with each other to adjust the risk and return
characteristics of the overall positions. Because combined options involve
multiple trades, they result in higher transaction costs and may be more
difficult to open and close out.
U.S. Treasury Securities
Each Fund may invest in U.S. Treasury Securities as "cover" for the
investment techniques the Fund employs. Each Fund may also invest in U.S.
Treasury Securities as part of a cash reserve or for liquidity purposes and the
Prudent Safe Harbor Fund may also invest in U.S. Treasury securities as part of
its principal investment strategy. 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 a Fund's portfolio investments in
U.S. Treasury Securities, while a decline in interest rates would generally
increase the market value of a Fund's portfolio investments in these securities.
U.S. Treasury Securities may be purchased at a discount. Such
securities, when retired, may include an element of capital gain. Capital gains
or losses also may be realized upon the sale of U.S. Treasury Securities.
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Warrants
Each Fund may purchase rights and warrants to purchase equity
securities. Investments in rights and warrants are pure speculation in that they
have no voting rights, pay no dividends and have no rights with respect to the
assets of the corporation issuing them. Rights and warrants basically are
options to purchase equity securities at a specific price valid for a specific
period of time. They do not represent ownership of the securities, but only the
right to buy them. Rights and warrants differ from call options in that rights
and warrants are issued by the issuer of the security which may be purchased on
their exercise, whereas call options may be written or issued by anyone. The
prices of rights (if traded independently) and warrants do not necessarily move
parallel to the prices of the underlying securities. Rights and warrants involve
the risk that a Fund could lose the purchase value of the warrant if the warrant
is not exercised prior to its expiration. They also involve the risk that the
effective price paid for the warrant added to the subscription price of the
related security may be greater than the value of the subscribed security's
market price.
Money Market Instruments
Each Fund may invest in cash and money market securities. The Fund
may do so to "cover" investment techniques, when taking a temporary defensive
position or to have assets available to pay expenses, satisfy redemption
requests or take advantage of investment opportunities. The money market
securities in which the Funds invest include U.S. Treasury Bills, commercial
paper, commercial paper master notes and repurchase agreements.
Each Fund may invest in commercial paper or commercial paper master
notes rated, at the time of purchase, A-1 or A-2 by Standard & Poor's
Corporation or Prime-1 or Prime-2 by Moody's Investors Service, Inc. Commercial
paper master notes are demand instruments without a fixed maturity bearing
interest at rates that are fixed to known lending rates and automatically
adjusted when such lending rates change.
Under a repurchase agreement, a 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 Funds 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, which 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
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<PAGE>
Fund would suffer a loss. The Funds 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 Funds to treat repurchase agreements
that do not mature within seven days as illiquid for the purposes of its
investments policies.
Each 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.
Foreign Securities and American Depository Receipts
Each of the Funds may invest in common stocks of foreign issuers
which are publicly traded on U.S. exchanges or in the U.S. over-the-counter
market either directly or in the form of American Depository Receipts ("ADRs").
ADRs are receipts issued by an American bank or trust company evidencing
ownership of underlying securities issued by a foreign issuer. ADR prices are
denominated in United States dollars; the underlying security may be denominated
in a foreign currency. Investments in such securities also involve certain
inherent risks, such as political or economic instability of the issuer or the
country of issue, the difficulty of predicting international trade patterns and
the possibility of imposition of exchange controls. Such securities may also be
subject to greater fluctuations in price than securities of domestic
corporations. In addition, there may be less publicly available information
about a foreign company than about a domestic company. Foreign companies
generally are not subject to uniform accounting, auditing and financial
reporting standards comparable to those applicable to domestic companies.
Dividends and interest on foreign securities may be subject to foreign
withholding taxes. To the extent such taxes are not offset by credits or
deductions allowed to investors under U.S. federal income tax laws, such taxes
may reduce the net return to shareholders. Although the Funds intend to invest
in securities of foreign issuers domiciled in nations which the Adviser
considers as having stable and friendly governments, there is the possibility of
expropriation, confiscation, taxation, currency blockage or political or social
instability which could affect investments of foreign issuers domiciled in such
nations.
The Funds will invest only in ADRs which are "sponsored". Sponsored
facilities are based on an agreement with the issuer that sets out rights and
duties of the issuer, the depository and the ADR holder. This agreement also
allocates fees among the parties. Most sponsored agreements also provide that
the depository will distribute shareholder notices, voting instruments and other
communications.
Foreign securities held by the Prudent Safe Harbor Fund may be held
by foreign subcustodians that satisfy certain eligibility requirements. However
foreign subcustodian arrangements are significantly more expensive than domestic
custody.
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Foreign Currency Considerations
Even though the Funds may hold securities denominated or traded in
foreign securities, a 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 a 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 a
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 a 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 a 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, a 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.
When the Adviser believes that a particular foreign currency may
suffer a substantial decline against the U.S. dollar, it may enter into a
forward contract to sell a fixed amount of the foreign currency approximating
the value of some or all of the portfolio securities of a Fund denominated in
such foreign currency ("position hedging"). The precise matching of the forward
contract amounts and the value of the securities involved will not generally be
possible since the future value of such securities in foreign currencies will
change as a consequence of market movements in the value of those securities
between the date the forward contract is entered into and the date it matures.
The projection of short-term currency market movement is extremely difficult and
the successful execution of a short-term hedging strategy is highly uncertain. A
Fund will not enter into such forward contracts or maintain a net exposure to
such contracts where the consummation of the contracts would obligate it to
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<PAGE>
deliver an amount of foreign currency in excess of the value of its securities
or other assets denominated in that currency. Under normal circumstances, the
Adviser considers the long-term prospects for a particular currency and
incorporate the prospect into its overall long-term diversification strategies.
The Adviser believes that it is important to have the flexibility to enter into
such forward contracts when it determines that the best interests of a Fund will
be served.
At the maturity of a forward contract, a Fund may either sell the
portfolio securities and make delivery of the foreign currency, or it may retain
the securities and terminate its contractual obligation to deliver the foreign
currency by purchasing an "offsetting" contract obligating it to purchase, on
the same maturity date, the same amount of foreign currency.
If a Fund retains the portfolio securities and engages in an
offsetting transaction, the Fund will incur a gain or a loss to the extent that
there has been movement in forward contract prices. If a Fund engages in an
offsetting transaction, it may subsequently enter into a forward contract to
sell the foreign currency. Should forward prices decline during the period when
a Fund entered into the forward contract for the sale of a foreign currency and
the date it entered into an offsetting contract for the purchase of the foreign
currency, the Fund will realize a gain to the extent the price of the currency
it has agreed to sell exceeds the price of the currency it has agreed to
purchase. Should forward prices increase, the Fund will suffer a loss to the
extent that the price of the currency it has agreed to purchase exceeds the
price of the currency it has agreed to sell.
Shareholders should note that: (1) foreign currency hedge
transactions do not protect against or eliminate fluctuations in the prices of
particular portfolio securities (i.e., if the price of such securities declines
due to an issuer's deteriorating credit situation); and (2) it is impossible to
forecast with precision the market value of securities at the expiration of a
forward contract. Accordingly, a Fund may have to purchase additional foreign
currency on the spot market (and bear the expense of such purchase) if the
market value of the Fund's securities is less than the amount of the foreign
currency upon expiration of the contract. Conversely, a Fund may have to sell
some of its foreign currency received upon the sale of a portfolio security if
the market value of the Fund's securities exceed the amount of foreign currency
the Fund is obligated to deliver. Each Fund's dealings in forward foreign
currency exchange contracts will be limited to the transactions described above.
Although the Funds value their assets daily in terms of U.S.
dollars, they do not intend to convert their holdings of foreign currencies into
U.S. dollars on a daily basis. The Funds 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 a Fund at one rate, while offering a lesser rate of exchange should the Fund
desire to resell that currency to the dealer.
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<PAGE>
A 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 earlier in
the Statement of Additional Information. 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.
DIRECTORS AND OFFICERS OF THE CORPORATION
As a Maryland corporation, the business and affairs of the
Corporation are managed by its officers under the direction of its Board of
Directors. The name, age, address, principal occupation(s) during the past five
years, and other information with respect to each of the directors and officers
of the Corporation are as follows:
* David W. Tice -- Director, President and Treasurer. Mr. Tice, 44,
has been President of David W. Tice & Associates, Inc. (the "Adviser") since
1993. Between 1988 and 1993 Mr. Tice conducted a predecessor investment advisory
business as a sole proprietorship. 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 300, Dallas, TX 75231.
* Gregg Jahnke -- Director, Vice President and Secretary. Mr. Jahnke,
40, has been employed by both Mr. Tice and the Adviser as an investment analyst
since 1991. Currently he is an analyst and senior strategist of the Adviser.
From 1987 through 1994 Mr. Jahnke also was a securities analyst for JKE Equity
Research, a Fort Worth, Texas investment advisory firm. His address is 8140
Walnut Hill Lane, Suite 300, Dallas, TX 75231.
David Eric Luck -- Director. Mr. Luck, 44, has been President of
Redstone Oil & Gas Company since 1988. His address is 9223 Club Glen Drive,
Dallas, TX 75243.
Jerry Marlin, M.D. -- Director. Dr. Marlin, 44, has been a
self-employed neurosurgeon for more than five years. His address is 3033
Rosedale, Dallas, TX 75205.
Buril Ragsdale -- Director. Mr. Ragsdale, 64, has been employed by
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).
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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, 1999:
COMPENSATION TABLE
Total
Compensation
Estimated from
Aggregate Pension or Annual Corporation
Name of Compensation Retirement Benefits and Fund
Person from Corporation Benefits Accrued Upon Complex Paid
As Retirement to
Part of Fund Directors*
Expenses
David W. Tice $0 $0 $0 $0
Gregg Jahnke $0 $0 $0 $0
David Eric Luck $_____ $0 $0 $_____
Jerry Marlin, $_____ $0 $0 $_____
M.D.
Buril Ragsdale $_____ $0 $0 $_____
- -------------
*The Funds are the only investment companies in the Fund Complex.
OWNERSHIP OF MANAGEMENT AND PRINCIPAL SHAREHOLDERS
Set forth below are the names and addresses of all holders of the
Prudent Bear Fund's shares who as of October 31, 1999 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., National Investor Services Corp.
and Donaldson Lufkin & Jenrette Securities Corp. were owned of record only. The
Prudent Bear Fund knows of no person who beneficially owned 5% or more of the
Fund's outstanding shares. All officers and directors of the Prudent Bear Fund
as a group beneficially owned less than 1% of the Fund's outstanding shares.
(The Prudent Safe Harbor Fund and the Prudent Bear Large Cap Fund will commence
operations on February 1, 2000.)
Name and Address of Beneficial Owner Number of Percent of
Shares Class
Charles Schwab & Co., Inc. 11,642,112 23.69%
101 Montgomery Street
San Francisco, CA 94104-4122
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Name and Address of Beneficial Owner Number of Percent of
Shares Class
National Financial Services Corp. 6,919,878 14.08%
One World Financial Center
200 Liberty Street
New York, NY 10281-1003
National Investor Services Corp. 3,479,263 7.08%
55 Water Street - Floor 32
New York, NY 10281-1003
Donaldson Lufkin & Jenrette 2,501,608 5.09%
Securities Corp.
P.O. Box 2052
Jersey City, NJ 07303-2052
INVESTMENT ADVISER, ADMINISTRATOR, CUSTODIAN,
TRANSFER AGENT AND ACCOUNTING SERVICES AGENT
The investment adviser to each Fund is David W. Tice & Associates,
Inc., 8140 Walnut Hill Lane, Suite 405, Dallas, Texas 75231 (the "Adviser"). The
Adviser is controlled by David W. Tice, its President and sole shareholder.
Pursuant to the investment advisory agreement entered into between
the Corporation and the Adviser with respect to each Fund (the "Advisory
Agreement"), the Adviser furnishes continuous investment advisory services to
each Fund. The Adviser supervises and manages the investment portfolio of each
Fund and, subject to such policies as the Board of Directors of the Corporation
may determine, directs the purchase or sale of investment securities in the
day-to-day management of each Fund. Under the Advisory Agreement, the Adviser,
at its own expense and without separate reimbursement from the Funds, furnishes
office space and all necessary office facilities, equipment and executive
personnel for managing the Funds and maintaining their organization; bears all
sales and promotional expenses of the Funds, other than distribution expenses
paid by the Funds pursuant to the Funds' Service and Distribution Plans, and
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
Corporation (except the fees paid to directors who are not officers of the
Corporation). During the fiscal years ended September 30, 1999, 1998 and 1997,
the Prudent Bear Fund incurred advisory fees of $________, $868,169 and
$237,306. (The Prudent Safe Harbor Fund and the Prudent Bear Large Cap Fund will
commence operations on February 1, 2000.)
Each Fund pays 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 Act
and any amendments thereto, the expenses of registering its shares with the
Securities and Exchange Commission and in the various states, the printing and
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<PAGE>
distribution cost of prospectuses mailed to existing shareholders, the cost of
director and officer liability insurance, reports to shareholders, reports to
government authorities and proxy statements, interest charges, brokerage
commissions and expenses incurred in connection with portfolio transactions. The
Corporation also pays the fees of directors who are not officers of the
Corporation, salaries of administrative and clerical personnel, association
membership dues, auditing and accounting services, fees and expenses of any
custodian or trustees having custody of assets of the Fund, expenses of
calculating net asset values 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 Adviser has undertaken to reimburse each Fund to the extent that
its aggregate annual operating expenses, including the investment advisory 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 Funds are qualified for sale or, if the states in which the shares of the
Funds 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 Funds. Notwithstanding the most restrictive applicable expense
limitation of state securities commissions set forth above or the terms of the
Advisory Agreements for the fiscal year ending September 30, 2000, the Adviser
has voluntarily agreed to reimburse each of the Prudent Safe Harbor Fund and the
Prudent Bear Large Cap Fund for expenses (as described above) in excess of 2.75%
of the applicable Fund's average daily net assets. Each Fund monitors its
expense ratio on a monthly basis. If the accrued amount of the expenses of a
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 fiscal
years ended September 30, 1999, 1998 and 1997, the Adviser was not required to
reimburse the Prudent Bear Fund for excess expenses. The Prudent Safe Harbor
Fund and the Prudent Bear Large Cap Fund will commence operations on February 1,
2000.
Each 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 applicable Fund, and (ii) by the vote of a
majority of the directors of the Corporation 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. Each 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 applicable Fund's shareholders on sixty (60)
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<PAGE>
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.
Each Advisory Agreement provides that the Adviser shall not be
liable to the Corporation or its shareholders for anything other than willful
misfeasance, bad faith, gross negligence or reckless disregard of its
obligations or duties. Each 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.
The administrator to the Corporation is Firstar Mutual Fund
Services, LLC, 615 East Michigan Street, Milwaukee, Wisconsin 53202 (the
"Administrator"). Pursuant to separate Fund Administration Servicing Agreements
entered into between the Corporation and the Administrator relating to each Fund
(the "Administration Agreements"), the Administrator maintains the books,
accounts and other documents required by the Act, responds to shareholder
inquiries, prepares each 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 up
and maintains each Fund's financial and accounting records and generally assists
in all aspects of the Funds' operations. The Administrator, at its own expense
and without reimbursement from the Funds, 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 Agreements.
For the foregoing, the Administrator will receive from (i) the Prudent Bear Fund
a fee, paid monthly, at an annual rate of .07% of the first $200,000,000 of such
Fund's average net assets, .05% of the next $300,000,000 of such Fund's average
net assets, .04% of the next $500,000,000 of such Fund's average net assets, and
.03% of such Fund's average net assets in excess of $1,000,000,000; and (ii)
from each of the Prudent Safe Harbor Fund and the Prudent Bear Large Cap Fund a
fee, paid monthly, at an annual rate of .08% of the first $200,000,000 of each
such Fund's average net assets, .06% of the next $300,000,000 of each such
Fund's average net assets, .05% of the next $500,000,000 of such Fund's average
net assets, and .04% of each such Fund's average net assets in excess of
$1,000,000. Notwithstanding the foregoing, the Administrator's minimum annual
fee is $50,000 for the Prudent Bear Fund and $45,000 for each of the Prudent
Safe Harbor Fund and Prudent Bear Large Cap Fund. Each Administration Agreement
will remain in effect until terminated by either party. Each 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 by
the Prudent Bear Fund pursuant to its Administration Agreement for the fiscal
years ended September 30, 1999, 1998 and 1997 were $_______, $35,798 and
$24,914, respectively. The Prudent Safe Harbor Fund and the Prudent Bear Large
Cap Fund will commence operations on February 1, 2000.
Under the Administration Agreements, the Administrator shall
exercise reasonable care and is not liable for any error or judgment or mistake
of law or for any loss
20
<PAGE>
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 Agreements.
Firstar Bank, NA, an affiliate of Firstar Mutual Fund Services, LLC,
serves as custodian of the assets of the Prudent Bear Fund, Prudent Safe Harbor
Fund and Prudent Bear Large Cap Fund pursuant to Custody Agreements. Under the
Custody Agreements, Firstar Bank, NA has agreed to (i) maintain a separate
account in the name of each Fund, (ii) make receipts and disbursements of money
on behalf of each Fund, (iii) collect and receive all income and other payments
and distributions on account of each Fund's portfolio investments, (iv) respond
to correspondence from shareholders, security brokers and others relating to its
duties and (v) make periodic reports to each Fund concerning each Fund's
operations. The Chase Manhattan Bank performs similar functions for the foreign
assets of the Prudent Safe Harbor Fund under a Global Custody Agreement among
the Corporation, Firstar Bank, NA and The Chase Manhattan Bank. Pursuant to such
Global Custody Agreement, The Chase Manhattan Bank serves as the foreign custody
manager for the Prudent Safe Harbor Fund. Neither Firstar Bank, NA nor The Chase
Manhattan Bank exercises any supervisory function over the purchase and sale of
securities.
Firstar Mutual Fund Services, LLC also serves as transfer agent and
dividend disbursing agent for the Funds under separate Shareholder Servicing
Agent Agreements. As transfer and dividend disbursing agent, Firstar Mutual Fund
Services, LLC has agreed to (i) issue and redeem shares of each Fund, (ii) make
dividend and other distributions to shareholders of each 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 Funds.
In addition the Corporation has entered into Fund Accounting
Servicing Agreements with Firstar Mutual Fund Services, LLC pursuant to which
Firstar Mutual Fund Services, LLC has agreed to maintain the financial accounts
and records of each Fund and provide other accounting services to the Funds. For
its accounting services, Firstar Mutual Fund Services, LLC is entitled to
receive fees from (i) the Prudent Bear Fund, 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);
(ii) the Prudent Safe Harbor Fund, payable monthly, based on the total annual
rate of $42,000 for the first $100 million in average net assets of the Fund,
.03% on the next $200 million of average net assets, and .015% on average net
assets exceeding $300 million (subject to an annual minimum of $42,000); and
(iii) the Prudent Bear Large Cap Fund, payable monthly, based on the total
annual rate of $39,000 for the first $100 million of average net assets, .02% on
the next $200 million of average net assets and .01% on average net assets
exceeding $300 million (subject to an annual minimum of $39,000). Firstar Mutual
Fund Services, LLC is also entitled to certain out of pocket expenses, including
pricing expenses. For the fiscal years ended September 30, 1999, 1998 and 1997,
the Prudent Bear Fund incurred fees of $_________, $35,633 and
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$25,693, respectively, pursuant to its Fund Accounting Servicing Agreement. The
Prudent Safe Harbor Fund and the Prudent Bear Large Cap Fund will commence
operations on February 1, 2000.
DETERMINATION OF NET ASSET VALUE
The net asset value of each Fund will be determined as of the close
of regular trading (currently 4:00 p.m. Eastern time) on each day the New York
Stock Exchange is open for trading. The New York Stock Exchange is open for
trading Monday through Friday except New Year's Day, Dr. Martin Luther King, Jr.
Day, President's Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day and Christmas Day. Additionally, when any of the aforementioned
holidays falls on a Saturday, the New York Stock Exchange will not be open for
trading on the preceding Friday and when any such holiday falls on a Sunday, the
New York Stock Exchange will not be open for trading on the succeeding Monday,
unless unusual business conditions exist, such as the ending of a monthly or the
yearly accounting period. The New York Stock Exchange also may be closed on
national days of mourning. The net asset value of the Prudent Bear Fund is
calculated separately for the No Load Shares and the Class C Shares by adding
the value of all portfolio securities and other assets that are allocated to the
No Load Shares or Class C Shares, as the case may be, subtracting the
liabilities charged to the No Load Shares or Class C Shares, as the case may be,
and dividing the result by the number of outstanding shares of the No Load
Shares or the Class C Shares, as the case may be. The No Load Shares and the
Class C Shares bear differing class-specific expenses, such as 12b-1 fees. (The
Prudent Safe Harbor Fund and the Prudent Bear Large Cap Fund each will initially
offer only one class of shares, No Load Shares).
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.
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 a Fund are valued
at the average of the current bid and asked
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<PAGE>
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 Corporation. Short-term instruments (those with remaining
maturities of 60 days or less) are valued at amortized cost, which approximates
market. The Funds price foreign securities in terms of U.S. dollars at the
official exchange rate. Alternatively, they may price these securities at the
average of the current bid and asked prices of such currencies against the
dollar last quoted by a major bank that is a regular participant in the foreign
exchange market, or on the basis of a pricing service that takes into account
the quotes provided by a number of such major banks. If the Funds do not have
any of these alternatives available to them or the alternatives do not provide a
suitable method for converting a foreign currency into U.S. dollars, the Adviser
in accordance with procedures approved by the Board of Directors of the
Corporation will establish a conversion rate for such currency.
DISTRIBUTION OF SHARES
The Corporation has adopted four Service and Distribution Plans (the
"Plans"). There is a Plan for each class of shares of the Corporation. The Plans
were adopted in anticipation that the Funds will benefit from the Plans through
increased sales of shares, thereby reducing each Fund's expense ratio and
providing the Adviser with greater flexibility in management. The three Plans
for the No Load Shares authorize payments by each Fund in connection with the
distribution of its No Load Shares at an annual rate, as determined from time to
time by the Board of Directors, of up to 0.25% of a Fund's average daily net
assets. The Plan for the Class C Shares authorizes payments by the Prudent Bear
Fund in connection with the distribution of its Class C Shares at an annual
rate, as determined from time to time by the Board of Directors, of up to 1.00%
of a Fund's average daily net assets. Amounts paid under a Plan by a 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 a 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.
Each Plan may be terminated by any Fund at any time by a vote of the
directors of the Corporation who are not interested persons of the Corporation
and who have no direct or indirect financial interest in the Plan or any
agreement related thereto (the "Rule 12b-1 Directors") or by a vote of a
majority of the outstanding shares of either the applicable Fund's
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<PAGE>
No Load Shares with respect to its Plan or the Prudent Bear Fund's Class C
Shares with respect to its Plan. Messrs. Luck, Marlin and Ragsdale are currently
the Rule 12b-1 Directors. Any change in a Plan that would materially increase
the distribution expenses of a Fund provided for in the Plan requires approval
of the Board of Directors, including the Rule 12b-1 Directors, and a majority of
the applicable Fund's No Load Shares with respect to its Plan and a majority of
the Prudent Bear Fund's Class C Shares with respect to its Plan.
While the Plans are in effect, the selection and nomination of
directors who are not interested persons of the Corporation will be committed to
the discretion of the directors of the Corporation who are not interested
persons of the Corporation. The Board of Directors of the Corporation must
review the amount and purposes of expenditures pursuant to the Plans quarterly
as reported to it by a Distributor, if any, or officers of the Corporation. The
Plans will continue in effect for as long as their continuance is specifically
approved at least annually by the Board of Directors, including the Rule 12b-1
Directors. During the fiscal year ended September 30, 1999, the Prudent Bear
Fund incurred fees of $______ pursuant to its Plan for the No Load Shares,
$______ of which were used to pay selling dealers, $______ of which were used to
pay printing and mailing expenses and $_____ of which were used to pay
advertising expenses. During the fiscal year ended September 30, 1999, the
Prudent Bear Fund incurred fees of $_______ pursuant to its Plan for the Class C
Shares, all of which were used to pay selling dealers. The Prudent Safe Harbor
Fund and the Prudent Bear Large Cap Fund will commence operations on February 1,
2000.
AUTOMATIC INVESTMENT PLAN AND TELEPHONE PURCHASES
The Funds offer an automatic investment option pursuant to which
money will be moved from a shareholder's bank account to the shareholder's Fund
account on the schedule (e.g., monthly, bimonthly [every other month], or
quarterly the shareholder selects. The minimum transaction amount is $100.
The Funds offer a telephone purchase option pursuant to which money
will be moved from a shareholder's bank account to the shareholder's Fund
account upon request. Only bank accounts held at domestic financial institutions
that are Automated Clearing House (ACH) members can be used for telephone
transactions. To have Fund shares purchased at net asset value determined as of
the close of regular trading on a given date, Firstar Mutual Fund Services, LLC
must receive both the 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 3 business days. The minimum amount that can be
transferred by telephone is $100.
REDEMPTION OF SHARES
A shareholder's right to redeem shares of the Funds will be
suspended and the 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
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<PAGE>
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.
SYSTEMATIC WITHDRAWAL PLAN
An investor who owns shares of any Fund worth at least $10,000 at
the current net asset value may, by completing an application which may be
obtained from the Corporation or Firstar Mutual Fund Services, LLC, create a
Systematic Withdrawal Plan from which a fixed sum will be paid to the investor
at regular intervals. To establish the Systematic Withdrawal Plan, the investor
deposits Fund shares with the Corporation and appoints it as agent to effect
redemptions of 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 frequently than monthly) selected by the investor. If a scheduled
redemption day is a weekend day or a holiday, such redemption will be made on
the next preceding business day. Establishment of a Systematic Withdrawal Plan
constitutes an election by the investor to reinvest in additional Fund shares,
at net asset value, all income dividends and capital gains distributions payable
by the Fund on shares held in such account, and shares so acquired will be added
to such account. The investor may deposit additional Fund shares in his account
at any time.
Withdrawal payments cannot be considered as yield or income on the
investor's investment, since portions of each payment will normally consist of a
return of capital. Depending on the size or the frequency of the disbursements
requested, and the fluctuation in the value of the Fund's portfolio, redemptions
for the purpose of making such disbursements may reduce or even exhaust the
investor's account.
The investor may vary the amount or frequency of withdrawal
payments, temporarily discontinue them, or change the designated payee or
payee's address, by notifying Firstar Mutual Fund Services, LLC in writing
thirty (30) days prior to the next payment.
ALLOCATION OF PORTFOLIO BROKERAGE
Each 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 each Fund are made by the
Adviser subject to review by
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the Corporation's Board of Directors. In placing purchase and sale orders for
portfolio securities for each 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 a 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 a 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 (i.e. "markups" when a market maker
sells a security and "markdowns" when the market maker purchases a security). In
some instances, the Adviser feels that better prices are available from
non-principal market makers who are paid commissions directly. The Funds 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 Funds, 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
Agreements. Other clients of the Adviser may indirectly benefit from the
availability of these services to the Adviser, and the Funds may indirectly
benefit from services available to the Adviser as a result of transactions for
other clients. The Advisory Agreements provide that the Adviser may cause the
Funds 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 Funds and the other
accounts as to which it exercises investment discretion. Brokerage commissions
paid by the Prudent Bear Fund during the fiscal year ended September 30, 1997
were $262,073 on total transactions of $101,104,010; brokerage commissions paid
by the Prudent Bear Fund during the fiscal year ended September 30, 1998 were
$2,316,276 on total transactions of $685,424,031; and brokerage commissions paid
by the Prudent Bear Fund during the fiscal year ended September 30, 1999 were
$__________ on total transactions of $_____________. During the fiscal year
ended September 30, 1999 brokerage commissions paid by the Prudent Bear Fund to
brokers who provided research services were $_______ on total transactions of
$_________________. The
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Prudent Safe Harbor Fund and the Prudent Bear Large Cap Fund will commence
operations on February 1, 2000.
TAXES
Each Fund intends 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"). The Prudent Bear Fund has so
qualified in each of its fiscal years. The Prudent Safe Harbor Fund and the
Prudent Bear Large Cap Fund will commence operations on February 1, 2000.
In order to qualify as a regulated investment company under
Subchapter M, each Fund must have at least 90% of its annual gross income
derived from qualified sources and each Fund must have at least 50% of its
assets invested in qualified assets for each quarter during a fiscal year, in
addition to meeting other Code requirements. Certain investment activity of the
Funds related to gold and precious metals may result in gross income that does
not qualify for the 90% annual gross income requirement and may result in the
Fund holding assets that do not qualify for the 50% quarterly asset test.
To reduce the risk that a Fund's investments in gold, futures on
gold, options on gold futures, and similar investments in other precious metals
may result in the Fund's failure to satisfy the requirements of Subchapter M,
the Adviser will endeavor to manage each Fund's portfolio so that (i) less than
10% of the Fund's gross income each year will be derived from such investments,
and (ii) less than 50% of the value of a Fund's assets, at the end of each
quarter, will be invested in such assets.
If a Fund fails to qualify as a regulated investment company under
Subchapter M in any fiscal year, it will be treated as a corporation for federal
income tax purposes. As such the Fund would be required to pay income taxes on
its net investment income and net realized capital gains, if any, at the rates
generally applicable to corporations. Shareholders of such a Fund would not be
liable for income tax on the Fund's net investment income or net realized
capital gains in their individual capacities. Distributions to shareholders,
whether from the Fund's net investment income or net realized capital gains,
would be treated as taxable dividends to the extent of current or accumulated
earnings and profits of the Fund.
Each Fund intends to distribute substantially all of its net
investment income and net capital gain each fiscal year. Dividends from net
investment income and short-term capital gains are taxable to investors as
ordinary income, while distributions of net long-term capital gains are taxable
as long-term capital gain regardless of the shareholder's holding period for the
shares. Distributions from each Fund are taxable to investors, whether received
in cash or in additional shares of the Fund.
If a call option written by a 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 a 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
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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 a 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 Funds may 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
a 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.
The trading strategies of the Funds may constitute "straddle"
transactions. Straddles may affect the short-term or long-term holding period of
certain investments for distribution characterization, and may cause the
postponement of recognition of losses incurred in certain closing transactions
for tax purposes.
At September 30,1999, the Prudent Bear Fund had accumulated net
realized capital loss carryovers of $________, $29,396 expiring in 2004, $9,141
expiring in 2005, $6,769,748 expiring in 2006 and $________ expiring in 2007.
The Prudent Bear Fund and the Prudent Safe Harbor Fund may be
subject to foreign withholding taxes on income and gains derived from its
investments outside the U.S. Such taxes would reduce the return on either Fund's
investments. Tax treaties between certain countries and the U.S. may reduce or
eliminate such taxes. If more than 50% of the value of a Fund's total assets at
the close of any taxable year consist of securities of foreign corporations, the
Fund may elect, for U.S. federal income tax purposes, to treat any foreign
country income or withholding taxes paid by it that can be treated as income
taxes under U.S. income tax principles, as paid by its shareholders. For any
year that a Fund makes such an election, each of its shareholders will be
required to include in his income (in addition to taxable dividends actually
received) his allocable share of such taxes paid by such Fund and will be
entitled, subject to certain limitations, to credit his portion of these foreign
taxes against his U.S. federal income tax due, if any, or to deduct it (as an
itemized deduction) from his U.S. taxable income, if any. Generally, credit for
foreign taxes is subject to the limitation that it may not exceed the
shareholder's U.S. tax attributable to his foreign source taxable income.
If the pass through election described above is made, the source of
such Fund's income flows through to its shareholders. Certain gains from the
sale of securities and
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currency fluctuations will not be treated as foreign source taxable income. In
addition, this foreign tax credit limitation must be applied separately to
certain categories of foreign source income, one of which is foreign source
"passive income." For this purpose, foreign "passive income" includes dividends,
interest, capital gains and certain foreign currency gains. As a consequence,
certain shareholders may not be able to claim a foreign tax credit for the full
amount of their proportionate share of the foreign tax paid by such Fund.
The foreign tax credit can be used to offset only 90% of the
alternative minimum tax (as computed under the Code for purposes of this
limitation) imposed on corporations and individuals. If a Fund does not make the
pass through election described above, the foreign taxes it pays will reduce its
income and distributions by the Fund will be treated as U.S.
source income.
Each shareholder will be notified within 60 days after the close of
a Fund's taxable year whether, pursuant to the election described above, the
foreign taxes paid by such Fund will be treated as paid by its shareholders for
that year and, if so, such notification will designate: (i) the foreign taxes
paid; and (ii) such Fund's dividends and distributions that represent income
derived from foreign sources.
Any dividend or capital gain distribution paid shortly after a
purchase of shares of a Fund, will have the effect of reducing the per share net
asset value of such shares by the amount of the dividend or distribution.
Furthermore, if the net asset value of the shares of a Fund immediately after a
dividend or distribution is less than the cost of such shares to the
shareholder, the dividend or distribution will be taxable to the shareholder
even though it results in a return of capital to him.
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.
The Funds may be required to withhold Federal income tax at a rate
of 31% ("backup withholding") from dividend payments and redemption proceeds if
a shareholder fails to furnish the Funds with his social security or other tax
identification number and certify under penalty of perjury that such number is
correct and that he is not subject to backup withholding due to the under
reporting of income. The certification form is included as part of the share
purchase application and should be completed when the account is opened.
This section is not intended to be a complete 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 Funds.
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SHAREHOLDER MEETINGS
The Maryland General Corporation Law permits registered investment
companies, such as the Corporation, to operate without an annual meeting of
shareholders 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 shareholders under the
Act.
The Corporation's Bylaws also contain procedures for the removal of
directors by its shareholders. At any meeting of shareholders, duly called and
at which a quorum is present, the shareholders 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 shareholders for the purpose of voting upon the question of removal of any
director. Whenever ten or more shareholders 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 shareholders 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 shareholders as recorded on the books of
the Corporation; or (2) inform such applicants as to the approximate number of
shareholders 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 shareholders 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
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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 shareholders with reasonable promptness after the entry of such
order and the renewal of such tender.
PERFORMANCE INFORMATION
Each Fund may provide from time to time in advertisements, reports
to shareholders and other communications with shareholders its average annual
total returns. Because of the differences in expenses, the average annual total
return of the Class C Shares will differ from the No Load Shares. An average
total return refers to the rate of return which, if applied to an initial
investment at the beginning of a stated period and compounded over the period,
would result in the redeemable value of the investment at the end of the stated
period assuming reinvestment of all dividends and distribution and reflecting
the effect of all recurring fees. When considering "average" total return
figures for periods longer than one year, shareholders should note that a 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 Funds may provide "aggregate"
total return figures for various periods, representing the cumulative change in
value of an investment in a Fund for a specific period (again reflecting changes
in a Fund's share price and assuming reinvestment of dividends and
distributions). The Prudent Safe Harbor Fund may cite its yield in
advertisements, reports to shareholders and other communications with
shareholders. A quotation of a yield will reflect the Fund's income over a
stated period expressed as a percentage of the Fund's share price. Again because
of the differences in expenses, the yield of the Class C Shares will differ from
the yield of the No Load Shares.
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 a Fund's investment portfolio.
Each 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
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ERV = ending redeemable value at the end of the period of a
hypothetical $1,000 payment at the beginning of such
period
This calculation (i) assumes all dividends and distributions are
reinvested at net asset value on 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 average annual total return of the Prudent Bear Fund No Load
Shares for the period from the Fund's commencement of operations (December 28,
1995) through September 30, 1999 was (__________%) and for the one year period
ended September 30, 1999 was (__________%). The foregoing performance results
are based on historical earnings and should not be considered as representative
of the performance of the Prudent Bear Fund No Load Shares or the Prudent Bear
Fund Class C Shares in the future. Such performance results also reflect
reimbursements made by the Adviser during the period from December 28, 1995
through September 30, 1996 to keep aggregate annual operating expenses of the
Prudent Bear Fund at or below 2.75% of daily net assets. An investment in the No
Load Shares or the Class C Shares of each Fund will fluctuate in value and at
redemption its value may be more or less than the initial investment. The
Prudent Bear Fund Class C Shares were not offered until November 27, 1998. The
Prudent Safe Harbor Fund and the Prudent Bear Large Cap Fund will not commence
operations until February 1, 2000.
The Prudent Safe Harbor Fund's yield is based on a 30-day period and
is computed by dividing the net investment income per share earned during the
period by the net asset value per share on the last day of the period, according
to the following formula:
a-b
YIELD = 2[(--- + 1)6-1]
cd
Where: a = dividends and interest earned during the
period.
b = expenses accrued for the period (net of
reimbursements).
c = the average daily number of shares outstanding during
the period that were entitled to receive dividends.
32
<PAGE>
d = the net asset value per share on the
last day of the period.
Capital gains and losses are not included in the yield calculation.
The Prudent Safe Harbor Fund will not commence operations until
February 1, 2000. Yield fluctuations may reflect changes in the Prudent Safe
Harbor Fund's net income, and portfolio changes resulting from net purchases or
net redemptions of its shares may affect the yield. Accordingly, the Prudent
Safe Harbor Fund's yield may vary from day to day, and the yield stated for a
particular past period is not necessarily representative of its future yield.
The Prudent Safe Harbor Fund's yield is not guaranteed, nor is its principal
insured.
Each 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.) Each 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.
CAPITAL STRUCTURE
The Corporation's Articles of Incorporation permit the Board of
Directors to issue 1,000,000,000 shares of common stock, with a $.0001 par
value. The Board of Directors has the power to designate one or more classes of
shares of common stock and to classify or reclassify any unissued shares of
common stock. Currently the Corporation is offering three portfolios, the
Prudent Bear Fund, the Prudent Safe Harbor Fund and the Prudent Bear Large Cap
Fund. The Prudent Bear Fund has two classes, the No Load Shares and the Class C
Shares. The Prudent Safe Harbor Fund and the Prudent Bear Large Cap Fund have
one class only, the No Load Shares. Of the 1,000,000,000 shares of common stock
authorized, 250,000,000 have been designated for each of the four classes.
Each class of shares of each Fund are fully paid and non-assessable;
have no preferences as to conversion, exchange, dividends, retirement or other
features; and have no preemptive rights. Each class of shares bears differing
class specific expenses such as 12b-1 fees. Each class of shares of each Fund
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. Generally shares are voted in the aggregate and not by each
class or Fund, except where class voting rights (i.e. by Fund or class) is
required by Maryland law or the Act.
The shares of each Fund have the same preferences, limitations and
rights, except that all consideration received from the sale of shares of each
Fund, together with all
33
<PAGE>
income, earnings, profits and proceeds thereof, belong to that Fund and are
charged with the liabilities in respect of that Fund and of that Fund's share of
the general liabilities of the Corporation in the proportion that the total net
assets of the Fund bears to the total net assets of all of the Funds. However
the Board of Directors of the Corporation may, in its discretion direct that any
one or more general liabilities of the Corporation be allocated among the Funds
on a different basis. The net asset value per share of each Fund is based on the
assets belonging to that Fund less the liabilities charged to that Fund, and
dividends are paid on shares of each Fund only out of lawfully available assets
belonging to that Fund. In the event of liquidation or dissolution of the
Corporation, the shareholders of each Fund will be entitled, out of the assets
of the Corporation available for distribution, to the assets belonging to such
Fund.
DESCRIPTION OF SECURITIES RATINGS
Each of the Funds 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:
34
<PAGE>
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.
The Prudent Safe Harbor Fund may invest in debt securities of
foreign countries rated AAA or AA by Standard & Poor's.
Standard & Poor's Characteristics of Sovereign Debt of Foreign
Countries.
AAA Stable, predictable governments with demonstrated track record of
responding flexibly to changing economic and political
circumstances.
Prosperous and resilient economies, high per capita incomes.
Low fiscal deficits and government debt, low inflation.
Low external debt.
AA Stable, predictable governments with demonstrated track record of
responding flexibly to changing economic and political
circumstances.
35
<PAGE>
Tightly integrated into global trade and financial system.
Differ from AAAs only to a small degree because:
* Economies are smaller, less prosperous and generally
more vulnerable to adverse external influences (e.g.,
protection and terms of trade shocks).
* More variable fiscal deficits, government debt and
inflation.
* Moderate to high external debt.
A Politics evolving toward more open, predictable forms of governance in
environment of rapid economic and social change.
Established trend of integration into global trade and financial
system.
Economies are smaller, less prosperous and generally more vulnerable
to adverse external influences (e.g., protection and terms of trade
shocks).
Usually rapid growth in output and per capita incomes.
Manageable through variable fiscal deficits, government debt and
inflation.
Usually low but variable debt.
INDEPENDENT ACCOUNTANTS
PricewaterhouseCoopers LLP, 100 East Wisconsin Avenue, Suite 1500,
Milwaukee, Wisconsin 53202, has been selected as the independent accountants for
each of the Funds. As such PricewaterhouseCoopers LLP performs an audit of each
Fund's financial statements and considers each Fund's internal control
structure.
36
<PAGE>
PART C
OTHER INFORMATION
Item 23. Exhibits
(a)(i) Registrant's Articles of Incorporation.(1)
(a)(ii) Articles Supplementary.(3)
(a)(iii) Articles Supplementary (to be filed by amendment).
(a)(iv) Articles Supplementary (to be filed by amendment).
(b) Registrant's Bylaws.(1)
(c) None.
(d)(i) Investment Advisory Agreement (Prudent Bear Fund).(1)
(d)(ii) Investment Advisory Agreement (Prudent Safe Harbor Fund).
(d)(iii) Investment Advisory Agreement (Prudent Bear Large Cap
Fund).
(e) None.
(f) None.
(g)(i) Custodian Agreement with Firstar Trust Company
(predecessor to Firstar Bank, NA) (Prudent Bear Fund).(1)
(g)(ii) Custodian Agreement with Firstar Bank, NA (Prudent Safe
Harbor Fund).
(g)(iii) Custodian Agreement with Firstar Bank, NA (Prudent Bear
Large Cap Fund).
(g)(iv) Global Custody Agreement with Firstar Bank, N.A. and The
Chase Manhattan Bank, N.A. (Prudent Safe Harbor Fund) (to
be filed by amendment)
(h)(i) Fund Administration Servicing Agreement with Firstar Trust
Company (predecessor to Firstar Mutual Fund Services, LLC)
(Prudent Bear Fund).(1)
S-1
<PAGE>
(h)(ii) Fund Administration Servicing Agreement with Firstar
Mutual Fund Services, LLC (Prudent Safe Harbor Fund).
(h)(iii) Fund Administration Servicing Agreement with Firstar
Mutual Fund Services, LLC (Prudent Bear Large Cap Fund).
(h)(iv) Transfer Agent Agreement with Firstar Trust Company
(predecessor to Firstar Mutual Fund Services, LLC)
(Prudent Bear Fund).(1)
(h)(v) Transfer Agent Agreement with Firstar Mutual Fund
Services, LLC (Prudent Safe Harbor Fund).
(h)(vi) Transfer Agent Agreement with Firstar Mutual Fund
Services, LLC (Prudent Bear Large Cap Fund).
(h)(vii) Fund Accounting Servicing Agreement with Firstar Trust
Company (predecessor to Firstar Mutual Fund Services, LLC)
(Prudent Bear Fund).(1)
(h)(viii) Fund Accounting Servicing Agreement with Firstar Mutual
Fund Services, LLC (Prudent Safe Harbor Fund).
(h)(ix) Fund Accounting Servicing Agreement with Firstar Mutual
Fund Services, LLC (Prudent Bear Large Cap Fund).
(i) Opinion of Foley & Lardner, counsel for Registrant (to be
filed by amendment).
(j) Consent of PricewaterhouseCoopers LLP.
(k) None.
(l) Subscription Agreement.(1)
(m)(i) Service and Distribution Plan for Prudent Bear Fund No
Load Shares.(3)
(m)(ii) Service and Distribution Plan for Prudent Bear Fund
Class C Shares.(3)
(m)(iii) Service and Distribution Plan for Prudent Safe Harbor Fund
No Load Shares.
(m)(iv) Service and Distribution Plan for Prudent Bear Large Cap
Fund No Load Shares.
S-2
<PAGE>
(n) Rule 18f-3 Multi-Class Plan.
(p) Code of Ethics (to be filed by amendment).
- ---------------
(1) Previously filed as an exhibit to Pre-Effective Amendment No. 1 to the
Registration Statement and incorporated by reference thereto. Pre-Effective
Amendment No. 1 was filed on December 18, 1995 and its accession number is
0000897069-95-000208.
(2) Previously filed as an exhibit to Post-Effective Amendment No. 3 to the
Registration Statement and incorporated by reference thereto. Post-Effective
Amendment No. 3 was filed on January 27, 1998 and its accession number is
0000897069-98-000014.
(3) Previously filed as an exhibit to Post-Effective Amendment No. 4 to the
Registration Statement and incorporated by reference thereto. Post-Effective
Amendment No. 4 was filed on September 28, 1998 and its accession number is
0000897069-98-000479.
Item 24. 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 25. 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
S-3
<PAGE>
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.
S-4
<PAGE>
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 26. Business and Other Connections of the Investment Adviser
Incorporated by reference to pages 16 through 17 of the Statement of
Additional Information pursuant to Rule 411 under the Securities Act of 1933.
Item 27. Principal Underwriters
Not Applicable.
Item 28. Location of Accounts and Records
The accounts, books and other documents required to be maintained by
Registrant pursuant to Section 31(a) of the Investment Company Act of 1940 and
the rules promulgated thereunder are in the physical possession of Registrant
and Registrant's Administrator as follows: the documents required to be
maintained by paragraphs (5), (6), (7), (10) and (11) of Rule 31a-1(b) will be
maintained by the Registrant at 8140 Walnut Hill Lane, Suite 405, Dallas, Texas
75231; and all other records will be maintained by the Registrant's
Administrator, Firstar Mutual Fund Services, LLC, 615 East Michigan Street,
Milwaukee, Wisconsin.
S-5
<PAGE>
Item 29. Management Services
All management-related service contracts entered into by Registrant
are discussed in Parts A and B of this Registration Statement.
Item 30. Undertakings
Registrant undertakes to furnish each person to whom a prospectus is
delivered with a copy of Registrant's latest annual report to shareholders, upon
request and without charge.
S-6
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant 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
November, 1999.
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 November 16, 1999
- ---------------------- Treasurer (Principal
David W. Tice Executive, Financial and
Accounting Officer) and a
Director
/s/ Gregg Jahnke Director
- ---------------------- November 16, 1999
Gregg Jahnke
/s/ David Eric Luck Director
- ---------------------- November 16, 1999
David Eric Luck
Director
- ---------------------- November __, 1999
Jerry Marlin, M.D.
/s/ Buril Ragsdale Director
- ---------------------- November 16, 1999
Buril Ragsdale
S-7
<PAGE>
EXHIBIT INDEX
Exhibit No. Exhibit
(a)(i) Registrant's Articles of Incorporation.*
(a)(ii) Articles Supplementary.*
(a)(iii) Articles Supplementary (to be filed by amendment).
(a)(iv) Articles Supplementary (to be filed by amendment).
(b) Registrant's Bylaws.*
(c) None.
(d)(i) Investment Advisory Agreement (Prudent Bear Fund).*
(d)(ii) Investment Advisory Agreement (Prudent Safe Harbor Fund).
(d)(iii) Investment Advisory Agreement (Prudent Bear Large Cap
Fund).
(e) None.
(f) None.
(g)(i) Custodian Agreement with Firstar Trust Company
(predecessor to Firstar Bank, NA) (Prudent Bear Fund).*
(g)(ii) Custodian Agreement with Firstar Bank, NA (Prudent Safe
Harbor Fund).
(g)(iii) Custodian Agreement with Firstar Bank, NA (Prudent Bear
Large Cap Fund).
(g)(iv) Global Custody Agreement with Firstar Bank, N.A. and The
Chase Manhattan Bank, N.A. (Prudent Safe Harbor Fund) (to
be filed by amendment)
(h)(i) Fund Administration Servicing Agreement with Firstar Trust
Company (predecessor to Firstar Mutual Fund Services, LLC)
(Prudent Bear Fund).*
(h)(ii) Fund Administration Servicing Agreement with Firstar
Mutual Fund Services, LLC (Prudent Safe Harbor Fund).
<PAGE>
(h)(iii) Fund Administration Servicing Agreement with Firstar
Mutual Fund Services, LLC (Prudent Bear Large Cap Fund).
(h)(iv) Transfer Agent Agreement with Firstar Trust Company
(predecessor to Firstar Mutual Fund Services, LLC)
(Prudent Bear Fund).*
(h)(v) Transfer Agent Agreement with Firstar Mutual Fund
Services, LLC (Prudent Safe Harbor Fund).
(h)(vi) Transfer Agent Agreement with Firstar Mutual Fund
Services, LLC (Prudent Bear Large Cap Fund).
(h)(vii) Fund Accounting Servicing Agreement with Firstar Trust
Company (predecessor to Firstar Mutual Fund Services, LLC)
(Prudent Bear Fund).*
(h)(viii) Fund Accounting Servicing Agreement with Firstar Mutual
Fund Services, LLC (Prudent Safe Harbor Fund).
(h)(ix) Fund Accounting Servicing Agreement Firstar Mutual Fund
Services, LLC (Prudent Bear Large Cap Fund).
(i) Opinion of Foley & Lardner, counsel for Registrant (to be
filed by amendment).
(j) Consent of PricewaterhouseCoopers LLP.
(k) None.
(l) Subscription Agreement.*
(m)(i) Service and Distribution Plan for Prudent Bear Fund No
Load Shares.*
(m)(ii) Service and Distribution Plan for Prudent Bear Fund
Class C Shares.*
(m)(iii) Service and Distribution Plan for Prudent Safe Harbor Fund
No Load Shares.
(m)(iv) Service and Distribution Plan for Prudent Bear Large Cap
Fund No Load Shares.
(n) Rule 18f-3 Multi-Class Plan.
(p) Code of Ethics (to be filed by amendment).
- --------------
* Incorporated by reference.
INVESTMENT ADVISORY AGREEMENT
Agreement made this 31st day of January, 2000 between Prudent Bear
Funds, Inc., a Maryland corporation (the "Company"), and David W. Tice &
Associates, Inc., a Texas corporation (the "Adviser").
W I T N E S S E T H:
WHEREAS, the Company is registered with the Securities and Exchange
Commission under the Investment Company Act of 1940 (the "Act") as an open-end
management investment company consisting of three series, including the Prudent
Safe Harbor Fund (the "Fund"); and
WHEREAS, the Company desires to retain the Adviser, which is an
investment adviser registered under the Investment Advisers Act of 1940, as the
investment adviser for the Fund.
NOW, THEREFORE, the Company and the Adviser do mutually promise and
agree as follows:
1. Employment. The Company hereby employs the Adviser to manage the
investment and reinvestment of the assets of the Fund for the period and on the
terms set forth in this Agreement. The Adviser hereby accepts such employment
for the compensation herein provided and agrees during such period to render the
services and to assume the obligations herein set forth.
2. Authority of the Adviser. The Adviser shall supervise and manage
the investment portfolio of the Fund, and, subject to such policies as the board
of directors of the Company may determine, direct the purchase and sale of
investment securities in the day to day management of the Fund. The Adviser
shall for all purposes herein be deemed to be an
<PAGE>
independent contractor and shall, unless otherwise expressly provided or
authorized, have no authority to act for or represent the Company or the Fund in
any way or otherwise be deemed an agent of the Company or the Fund. However, one
or more shareholders, officers, directors or employees of the Adviser may serve
as directors and/or officers of the Company, but without compensation or
reimbursement of expenses for such services from the Company. Nothing herein
contained shall be deemed to require the Company to take any action contrary to
its Articles of Incorporation, as amended, restated or supplemented from time to
time, or any applicable statute or regulation, or to relieve or deprive the
board of directors of the Company of its responsibility for and control of the
affairs of the Fund.
3. Expenses. The Adviser, at its own expense and without reimbursement
from the Company or the Fund, shall furnish office space, and all necessary
office facilities, equipment and executive personnel for managing the
investments of the Fund. The Adviser shall not be required to pay any expenses
of the Fund except as provided herein if the total expenses borne by the Fund,
including the Adviser's fee and the fees paid to the Fund's Administrator but
excluding all federal, state and local taxes, interest, reimbursement payments
to securities lenders for dividend and interest payments on securities sold
short, brokerage commissions and extraordinary items, in any year 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, which is the most
restrictive percentage provided by the state laws of the various states in which
the Fund's shares are qualified for sale or, if the states in which the Fund's
shares are qualified for sale impose no such restrictions, 3%. The expenses of
the Fund's operations borne by the Fund include by way of illustration and not
limitation, directors fees paid to those directors who are not officers of the
Company, the costs of preparing and
-2-
<PAGE>
printing registration statements required under the Securities Act of 1933 and
the Act (and amendments thereto), the expense 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
stock certificates (if any), director and officer liability insurance, reports
to shareholders, reports to government authorities and proxy statements,
interest charges, reimbursement payments to securities lenders for dividend and
interest payments on securities sold short, taxes, legal expenses, salaries of
administrative and clerical personnel, association membership dues, auditing and
accounting services, insurance premiums, brokerage and other expenses connected
with the execution of portfolio securities transactions, fees and expenses of
the custodian of the Fund's assets, expenses of calculating the net asset value
and repurchasing and redeeming shares, printing and mailing expenses, charges
and expenses of dividend disbursing agents, registrars and stock transfer agents
and the cost of keeping all necessary shareholder records and accounts.
The Company shall monitor the expense ratio of the Fund on a monthly
basis. If the accrued amount of the expenses of the Fund exceeds the expense
limitation established herein, the Company shall create an account receivable
from the Adviser in 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,
subject to adjustment month by month during the balance of the Company's fiscal
year if accrued expenses thereafter fall below the expense limitation.
4. Compensation of the Adviser. For the services to be rendered by the
Adviser hereunder, the Company, through and on behalf of the Fund, shall pay to
the Adviser an advisory fee, paid monthly, based on the average net assets of
the Fund, as determined by valuations made as of the close of each business day
of the month. The monthly advisory fee
-3-
<PAGE>
shall be 1/12 of 0.75% (0.75% per annum) on the average daily net assets of the
Fund. For any month in which this Agreement is not in effect for the entire
month, such fee shall be reduced proportionately on the basis of the number of
calendar days during which it is in effect and the fee computed upon the average
net asset value of the business days during which it is so in effect.
5. Ownership of Shares of the Fund. The Adviser shall not take an
ownership position in the Fund, and shall not permit any of its shareholders,
officers, directors or employees to take a long or short position in the shares
of the Fund, except for the purchase of shares of the Fund for investment
purposes at the same price as that available to the public at the time of
purchase or in connection with the initial capitalization of the Fund.
6. Exclusivity. The services of the Adviser to the Fund hereunder are
not to be deemed exclusive and the Adviser shall be free to furnish similar
services to others as long as the services hereunder are not impaired thereby.
Although the Adviser has agreed to permit the Fund and the Company to use the
name "Prudent Bear" or "Prudent", if they so desire, it is understood and agreed
that the Adviser reserves the right to use and to permit other persons, firms or
corporations, including investment companies, to use such names, and that the
Fund and the Company will not use such names if the Adviser ceases to be the
Fund's sole investment adviser. During the period that this Agreement is in
effect, the Adviser shall be the Fund's sole investment adviser.
7. Liability. In the absence of willful misfeasance, bad faith, gross
negligence or reckless disregard of obligations or duties hereunder on the part
of the Adviser, the Adviser shall not be subject to liability to the Fund or to
any shareholder of the Fund for any act or omission in the course of, or
connected with, rendering services hereunder, or for
-4-
<PAGE>
any losses that may be sustained in the purchase, holding or sale of any
security.
8. Brokerage Commissions. The Adviser, subject to the control and
direction of the Company's Board of Directors, shall have authority and
discretion to select brokers and dealers to execute portfolio transactions for
the Fund and for the selection of the markets on or in which the transactions
will be executed. The Adviser may cause the Fund to pay a broker-dealer which
provides brokerage and research services, as such services are defined in
Section 28(e) of the Securities Exchange Act of 1934 (the "Exchange Act"), to
the Adviser a commission for effecting a securities transaction in excess of the
amount another broker-dealer would have charged for effecting such 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-dealer viewed in terms of either that particular
transaction or his overall responsibilities with respect to the accounts as to
which he exercises investment discretion (as defined in Section 3(a)(35) of the
Exchange Act). The Adviser shall provide such reports as the Company's Board of
Directors may reasonable request with respect to the Fund's total brokerage and
the manner in which that brokerage was allocated.
9. Code of Ethics. The Adviser has adopted a written code of ethics
complying with the requirements of Rule 17j-1 under the Act and has provided the
Company with a copy of the code of ethics and evidence of its adoption. Upon the
written request of the Company, the Adviser shall permit the Company to examine
any reports required to be made by the Adviser pursuant to Rule 17j-1(d) under
the Act.
10. Amendments. This Agreement may be amended by the mutual consent of
the parties; provided, however, that in no event may it be amended without the
approval of
-5-
<PAGE>
the board of directors of the Company in the manner required by the Act, and, if
required by the Act, by the vote of the majority of the outstanding voting
securities of the Fund, as defined in the Act.
11. Termination. This Agreement may be terminated at any time, without
the payment of any penalty, by the board of directors of the Company or by a
vote of the majority of the outstanding voting securities of the Fund, as
defined in the Act, upon giving sixty (60) days' written notice to the Adviser.
This Agreement may be terminated by the Adviser at any time upon the giving of
sixty (60) days' written notice to the Company. This Agreement shall terminate
automatically in the event of its assignment (as defined in Section 2(a)(4) of
the Act). Subject to prior termination as hereinbefore provided, this Agreement
shall continue in effect for an initial period beginning as of the date hereof
and ending January 31, 2002 and indefinitely thereafter, but only so long as the
continuance after such initial period is specifically approved annually by (i)
the board of directors of the Company or by the vote of the majority of the
outstanding voting securities of the Fund, as defined in the Act, and (ii) the
board of directors of the Company in the manner required by the Act, provided
that any such approval may be made effective not more than sixty (60) days
thereafter.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed on the day first above written.
DAVID W. TICE & ASSOCIATES, INC.
(the "Adviser")
By:______________________________________
President
-6-
<PAGE>
PRUDENT BEAR FUNDS, INC.
(the "Company")
By:______________________________________
President
-7-
INVESTMENT ADVISORY AGREEMENT
Agreement made this 31st day of January, 2000 between Prudent Bear
Funds, Inc., a Maryland corporation (the "Company"), and David W. Tice &
Associates, Inc., a Texas corporation (the "Adviser").
W I T N E S S E T H:
WHEREAS, the Company is registered with the Securities and Exchange
Commission under the Investment Company Act of 1940 (the "Act") as an open-end
management investment company consisting of three series, including the Prudent
Bear Large Cap Fund (the "Fund"); and
WHEREAS, the Company desires to retain the Adviser, which is an
investment adviser registered under the Investment Advisers Act of 1940, as the
investment adviser for the Fund.
NOW, THEREFORE, the Company and the Adviser do mutually promise and
agree as follows:
1. Employment. The Company hereby employs the Adviser to manage the
investment and reinvestment of the assets of the Fund for the period and on the
terms set forth in this Agreement. The Adviser hereby accepts such employment
for the compensation herein provided and agrees during such period to render the
services and to assume the obligations herein set forth.
2. Authority of the Adviser. The Adviser shall supervise and manage
the investment portfolio of the Fund, and, subject to such policies as the board
of directors of the Company may determine, direct the purchase and sale of
investment securities in the day to day management of the Fund. The Adviser
shall for all purposes herein be deemed to be an
<PAGE>
independent contractor and shall, unless otherwise expressly provided or
authorized, have no authority to act for or represent the Company or the Fund in
any way or otherwise be deemed an agent of the Company or the Fund. However, one
or more shareholders, officers, directors or employees of the Adviser may serve
as directors and/or officers of the Company, but without compensation or
reimbursement of expenses for such services from the Company. Nothing herein
contained shall be deemed to require the Company to take any action contrary to
its Articles of Incorporation, as amended, restated or supplemented from time to
time, or any applicable statute or regulation, or to relieve or deprive the
board of directors of the Company of its responsibility for and control of the
affairs of the Fund.
3. Expenses. The Adviser, at its own expense and without reimbursement
from the Company or the Fund, shall furnish office space, and all necessary
office facilities, equipment and executive personnel for managing the
investments of the Fund. The Adviser shall not be required to pay any expenses
of the Fund except as provided herein if the total expenses borne by the Fund,
including the Adviser's fee and the fees paid to the Fund's Administrator but
excluding all federal, state and local taxes, interest, reimbursement payments
to securities lenders for dividend and interest payments on securities sold
short, brokerage commissions and extraordinary items, in any year 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, which is the most
restrictive percentage provided by the state laws of the various states in which
the Fund's shares are qualified for sale or, if the states in which the Fund's
shares are qualified for sale impose no such restrictions, 3%. The expenses of
the Fund's operations borne by the Fund include by way of illustration and not
limitation, directors fees paid to those directors who are not officers of the
Company, the costs of preparing and
-2-
<PAGE>
printing registration statements required under the Securities Act of 1933 and
the Act (and amendments thereto), the expense 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
stock certificates (if any), director and officer liability insurance, reports
to shareholders, reports to government authorities and proxy statements,
interest charges, reimbursement payments to securities lenders for dividend and
interest payments on securities sold short, taxes, legal expenses, salaries of
administrative and clerical personnel, association membership dues, auditing and
accounting services, insurance premiums, brokerage and other expenses connected
with the execution of portfolio securities transactions, fees and expenses of
the custodian of the Fund's assets, expenses of calculating the net asset value
and repurchasing and redeeming shares, printing and mailing expenses, charges
and expenses of dividend disbursing agents, registrars and stock transfer agents
and the cost of keeping all necessary shareholder records and accounts.
The Company shall monitor the expense ratio of the Fund on a monthly
basis. If the accrued amount of the expenses of the Fund exceeds the expense
limitation established herein, the Company shall create an account receivable
from the Adviser in 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,
subject to adjustment month by month during the balance of the Company's fiscal
year if accrued expenses thereafter fall below the expense limitation.
4. Compensation of the Adviser. For the services to be rendered by the
Adviser hereunder, the Company, through and on behalf of the Fund, shall pay to
the Adviser an advisory fee, paid monthly, based on the average net assets of
the Fund, as determined by valuations made as of the close of each business day
of the month. The monthly advisory fee
-3-
<PAGE>
shall be 1/12 of 0.75% (0.75% per annum) on the average daily net assets of the
Fund. For any month in which this Agreement is not in effect for the entire
month, such fee shall be reduced proportionately on the basis of the number of
calendar days during which it is in effect and the fee computed upon the average
net asset value of the business days during which it is so in effect.
5. Ownership of Shares of the Fund. The Adviser shall not take an
ownership position in the Fund, and shall not permit any of its shareholders,
officers, directors or employees to take a long or short position in the shares
of the Fund, except for the purchase of shares of the Fund for investment
purposes at the same price as that available to the public at the time of
purchase or in connection with the initial capitalization of the Fund.
6. Exclusivity. The services of the Adviser to the Fund hereunder are
not to be deemed exclusive and the Adviser shall be free to furnish similar
services to others as long as the services hereunder are not impaired thereby.
Although the Adviser has agreed to permit the Fund and the Company to use the
name "Prudent Bear" or "Prudent", if they so desire, it is understood and agreed
that the Adviser reserves the right to use and to permit other persons, firms or
corporations, including investment companies, to use such names, and that the
Fund and the Company will not use such names if the Adviser ceases to be the
Fund's sole investment adviser. During the period that this Agreement is in
effect, the Adviser shall be the Fund's sole investment adviser.
7. Liability. In the absence of willful misfeasance, bad faith, gross
negligence or reckless disregard of obligations or duties hereunder on the part
of the Adviser, the Adviser shall not be subject to liability to the Fund or to
any shareholder of the Fund for any act or omission in the course of, or
connected with, rendering services hereunder, or for
-4-
<PAGE>
any losses that may be sustained in the purchase, holding or sale of any
security.
8. Brokerage Commissions. The Adviser, subject to the control and
direction of the Company's Board of Directors, shall have authority and
discretion to select brokers and dealers to execute portfolio transactions for
the Fund and for the selection of the markets on or in which the transactions
will be executed. The Adviser may cause the Fund to pay a broker-dealer which
provides brokerage and research services, as such services are defined in
Section 28(e) of the Securities Exchange Act of 1934 (the "Exchange Act"), to
the Adviser a commission for effecting a securities transaction in excess of the
amount another broker-dealer would have charged for effecting such 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-dealer viewed in terms of either that particular
transaction or his overall responsibilities with respect to the accounts as to
which he exercises investment discretion (as defined in Section 3(a)(35) of the
Exchange Act). The Adviser shall provide such reports as the Company's Board of
Directors may reasonable request with respect to the Fund's total brokerage and
the manner in which that brokerage was allocated.
9. Code of Ethics. The Adviser has adopted a written code of ethics
complying with the requirements of Rule 17j-1 under the Act and has provided the
Company with a copy of the code of ethics and evidence of its adoption. Upon the
written request of the Company, the Adviser shall permit the Company to examine
any reports required to be made by the Adviser pursuant to Rule 17j-1(d) under
the Act.
10. Amendments. This Agreement may be amended by the mutual consent of
the parties; provided, however, that in no event may it be amended without the
approval of
-5-
<PAGE>
the board of directors of the Company in the manner required by the Act, and, if
required by the Act, by the vote of the majority of the outstanding voting
securities of the Fund, as defined in the Act.
11. Termination. This Agreement may be terminated at any time, without
the payment of any penalty, by the board of directors of the Company or by a
vote of the majority of the outstanding voting securities of the Fund, as
defined in the Act, upon giving sixty (60) days' written notice to the Adviser.
This Agreement may be terminated by the Adviser at any time upon the giving of
sixty (60) days' written notice to the Company. This Agreement shall terminate
automatically in the event of its assignment (as defined in Section 2(a)(4) of
the Act). Subject to prior termination as hereinbefore provided, this Agreement
shall continue in effect for an initial period beginning as of the date hereof
and ending January 31, 2002 and indefinitely thereafter, but only so long as the
continuance after such initial period is specifically approved annually by (i)
the board of directors of the Company or by the vote of the majority of the
outstanding voting securities of the Fund, as defined in the Act, and (ii) the
board of directors of the Company in the manner required by the Act, provided
that any such approval may be made effective not more than sixty (60) days
thereafter.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed on the day first above written.
DAVID W. TICE & ASSOCIATES, INC.
(the "Adviser")
By:___________________________________
President
-6-
<PAGE>
PRUDENT BEAR FUNDS, INC.
(the "Company")
By:___________________________________
President
-7-
CUSTODIAN AGREEMENT
-------------------
THIS AGREEMENT made on January 31, 2000, between PRUDENT BEAR FUNDS,
INC., a Maryland Corporation, on behalf of Prudent Safe Harbor Fund (hereinafter
called the ("Fund"), and FIRSTAR BANK, N.A., a national banking association
(hereinafter called "Custodian"),
W I T N E S S E T H
WHEREAS, the Fund desires that its securities and cash shall be
hereafter held and administered by Custodian pursuant to the terms of this
Agreement;
NOW, THEREFORE, in consideration of the mutual agreements herein made,
the Fund and Custodian agree as follows:
1. Definitions
-----------
The word "securities" as used herein includes stocks, shares, bonds,
debentures, notes, mortgages or other obligations, and any certificates,
receipts, warrants or other instruments representing rights to receive, purchase
or subscribe for the same, or evidencing or representing any other rights or
interests therein, or in any property or assets.
The words "officers' certificate" shall mean a request or direction or
certification in writing signed in the name of the Fund by any two of the
President, a Vice President, the Secretary and the Treasurer of the Fund, or any
other persons duly authorized to sign by the Board of Directors.
The word "Board" shall mean Board of Directors of Prudent Bear Funds,
Inc.
2. Names, Titles and Signatures of the Fund's Officers
---------------------------------------------------
An officer of the Fund will certify to Custodian the names and
signatures of those persons authorized to sign the officers' certificates
described in Section 1 hereof, and the names of the members of the Board of
Directors, together with any changes which may occur from time to time.
3. Receipt and Disbursement of Money
---------------------------------
A. Custodian shall open and maintain a separate account or accounts in
the name of the Fund, subject only to draft or order by Custodian acting
pursuant to the terms of this Agreement. Custodian shall hold in such account or
accounts, subject to the provisions hereof, all cash received by it from or for
the account of the Fund. Custodian shall make payments of cash to, or for the
account of, the Fund from such cash only:
(a) for the purchase of securities for the portfolio of the Fund upon
the delivery of such securities to Custodian, registered in the name of the
Fund
<PAGE>
or of the nominee of Custodian referred to in Section 7 or in proper form
for transfer;
(b) for the purchase or redemption of shares of the common stock of
the Fund upon delivery thereof to Custodian, or upon proper instructions
from Prudent Bear Funds, Inc.;
(c) for the payment of interest, dividends, taxes, investment
adviser's fees or operating expenses (including, without limitation
thereto, fees for legal, accounting, auditing and custodian services and
expenses for printing and postage);
(d) for payments in connection with the conversion, exchange or
surrender of securities owned or subscribed to by the Fund held by or to be
delivered to Custodian; or
(e) for other proper corporate purposes certified by resolution of the
Board of Directors of the Fund.
Before making any such payment, Custodian shall receive (and may rely
upon) an officers' certificate requesting such payment and stating that it is
for a purpose permitted under the terms of items (a), (b), (c), or (d) of this
Subsection A, and also, in respect of item (e), upon receipt of an officers'
certificate specifying the amount of such payment, setting forth the purpose for
which such payment is to be made, declaring such purpose to be a proper
corporate purpose, and naming the person or persons to whom such payment is to
be made, provided, however, that an officers' certificate need not precede the
disbursement of cash for the purpose of purchasing a money market instrument, or
any other security with same or next-day settlement, if the President, a Vice
President, the Secretary or the Treasurer of the Fund issues appropriate oral or
facsimile instructions to Custodian and an appropriate officers' certificate is
received by Custodian within two business days thereafter.
B. Custodian is hereby authorized to endorse and collect all checks,
drafts or other orders for the payment of money received by Custodian for the
account of the Fund.
C. Custodian shall, upon receipt of proper instructions, make federal
funds available to the Fund as of specified times agreed upon from time to time
by the Fund and the custodian in the amount of checks received in payment for
shares of the Fund which are deposited into the Fund's account.
4. Segregated Accounts
-------------------
Upon receipt of proper instructions, the Custodian shall establish and
maintain a segregated account(s) for and on behalf of the portfolio, into which
account(s) may be transferred cash and/or securities.
2
<PAGE>
5. Transfer, Exchange, Redelivery, etc. of Securities
--------------------------------------------------
Custodian shall have sole power to release or deliver any securities
of the Fund held by it pursuant to this Agreement. Custodian agrees to transfer,
exchange or deliver securities held by it hereunder only:
(a) for sales of such securities for the account of the Fund upon
receipt by Custodian of payment therefore;
(b) when such securities are called, redeemed or retired or otherwise
become payable;
(c) for examination by any broker selling any such securities in
accordance with "street delivery" custom;
(d) in exchange for, or upon conversion into, other securities alone
or other securities and cash whether pursuant to any plan of merger,
consolidation, reorganization, recapitalization or readjustment, or
otherwise;
(e) upon conversion of such securities pursuant to their terms into
other securities;
(f) upon exercise of subscription, purchase or other similar rights
represented by such securities;
(g) for the purpose of exchanging interim receipts or temporary
securities for definitive securities;
(h) for the purpose of redeeming in kind shares of common stock of the
Fund upon delivery thereof to Custodian; or
(i) for other proper corporate purposes.
As to any deliveries made by Custodian pursuant to items (a), (b),
(d), (e), (f), and (g), securities or cash receivable in exchange therefore
shall be deliverable to Custodian.
Before making any such transfer, exchange or delivery, Custodian shall
receive (and may rely upon) an officers' certificate requesting such transfer,
exchange or delivery, and stating that it is for a purpose permitted under the
terms of items (a), (b), (c), (d), (e), (f), (g), or (h) of this Section 5 and
also, in respect of item (i), upon receipt of an officers' certificate
specifying the securities to be delivered, setting forth the purpose for which
such delivery is to be made, declaring such purpose to be a proper corporate
purpose, and naming the person or persons to whom delivery of such securities
shall be made, provided, however, that an officers' certificate need not precede
any such transfer, exchange or delivery of a money market instrument, or any
other security with same or next-day settlement, if the President, a Vice
President, the Secretary or the Treasurer of the Fund issues appropriate oral or
facsimile
3
<PAGE>
instructions to Custodian and an appropriate officers' certificate is received
by Custodian within two business days thereafter.
6. Custodian's Acts Without Instructions
-------------------------------------
Unless and until Custodian receives an officers' certificate to the
contrary, Custodian shall: (a) present for payment all coupons and other income
items held by it for the account of the Fund, which call for payment upon
presentation and hold the cash received by it upon such payment for the account
of the Fund; (b) collect interest and cash dividends received, with notice to
the Fund, for the account of the Fund; (c) hold for the account of the Fund
hereunder all stock dividends, rights and similar securities issued with respect
to any securities held by it hereunder; and (d) execute, as agent on behalf of
the Fund, all necessary ownership certificates required by the Internal Revenue
Code or the Income Tax Regulations of the United States Treasury Department or
under the laws of any state now or hereafter in effect, inserting the Fund's
name on such certificates as the owner of the securities covered thereby, to the
extent it may lawfully do so.
7. Registration of Securities
--------------------------
Except as otherwise directed by an officers' certificate, Custodian
shall register all securities, except such as are in bearer form, in the name of
a registered nominee of Custodian as defined in the Internal Revenue Code and
any Regulations of the Treasury Department issued hereunder or in any provision
of any subsequent federal tax law exempting such transaction from liability for
stock transfer taxes, and shall execute and deliver all such certificates in
connection therewith as may be required by such laws or regulations or under the
laws of any state. Custodian shall use its best efforts to the end that the
specific securities held by it hereunder shall be at all times identifiable in
its records.
The Fund shall from time to time furnish to Custodian appropriate
instruments to enable Custodian to hold or deliver in proper form for transfer,
or to register in the name of its registered nominee, any securities which it
may hold for the account of the Fund and which may from time to time be
registered in the name of the Fund.
8. Voting and Other Action
-----------------------
Neither Custodian nor any nominee of Custodian shall vote any of the
securities held hereunder by or for the account of the Fund, except in
accordance with the instructions contained in an officers' certificate.
Custodian shall deliver, or cause to be executed and delivered, to the
Corporation all notices, proxies and proxy soliciting materials with relation to
such securities, such proxies to be executed by the registered holder of such
securities (if registered otherwise than in the name of the Fund), but without
indicating the manner in which such proxies are to be voted.
4
<PAGE>
9. Transfer Tax and Other Disbursements
------------------------------------
The Fund shall pay or reimburse Custodian from time to time for any
transfer taxes payable upon transfers of securities made hereunder, and for all
other necessary and proper disbursements and expenses made or incurred by
Custodian in the performance of this Agreement.
Custodian shall execute and deliver such certificates in connection
with securities delivered to it or by it under this Agreement as may be required
under the provisions of the Internal Revenue Code and any Regulations of the
Treasury Department issued thereunder, or under the laws of any state, to exempt
from taxation any exemptible transfers and/or deliveries of any such securities.
10. Custodian
---------
Custodian shall be paid as compensation for its services pursuant to
this Agreement such compensation as may from time to time be agreed upon in
writing between the two parties. Until modified in writing, such compensation
shall be as set forth in Exhibit A attached hereto.
Custodian shall not be liable for any action taken in good faith upon
any certificate herein described or certified copy of any resolution of the
Board, and may rely on the genuineness of any such document which it may in good
faith believe to have been validly executed.
The Fund agrees to indemnify and hold harmless Custodian and its
nominee from all taxes, charges, expenses, assessments, claims and liabilities
(including counsel fees) incurred or assessed against it or by its nominee in
connection with the performance of this Agreement, except such as may arise from
its or its nominee's own negligent action, negligent failure to act or willful
misconduct. Custodian is authorized to charge any account of the Fund for such
items. In the event of any advance of cash for any purpose made by Custodian
resulting from orders or instructions of the Fund, or in the event that
Custodian or its nominee shall incur or be assessed any taxes, charges,
expenses, assessments, claims or liabilities in connection with the performance
of this Agreement, except such as may arise from its or its nominee's own
negligent action, negligent failure to act or willful misconduct, any property
at any time held for the account of the Fund shall be security therefore.
11. Subcustodians
-------------
Custodian is hereby authorized to engage another bank or trust company
as a Subcustodian for all or any part of the Fund's assets, so long as any such
bank or trust company is a bank or trust company organized under the laws of any
state of the United States, having an aggregate capital, surplus and undivided
profit, as shown by its last published report, of not less than Two Million
Dollars ($2,000,000) and provided further that, if the Custodian utilizes the
services of a Subcustodian, the Custodian shall remain fully liable and
5
<PAGE>
responsible for any losses caused to the Fund by the Subcustodian as fully as if
the Custodian was directly responsible for any such losses under the terms of
the Custodian Agreement.
Notwithstanding anything contained herein, if the Fund requires the
Custodian to engage specific Subcustodians for the safekeeping and/or clearing
of assets, the Fund agrees to indemnify and hold harmless Custodian from all
claims, expenses and liabilities incurred or assessed against it in connection
with the use of such Subcustodian in regard to the Fund's assets, except as may
arise from its own negligent action, negligent failure to act or willful
misconduct.
12. Reports by Custodian
--------------------
Custodian shall furnish the Fund periodically as agreed upon with a
statement summarizing all transactions and entries for the account of Fund.
Custodian shall furnish to the Fund, at the end of every month, a list of the
portfolio securities showing the aggregate cost of each issue. The books and
records of Custodian pertaining to its actions under this Agreement shall be
open to inspection and audit at reasonable times by officers of, and of auditors
employed by, the Fund.
13. Termination or Assignment
-------------------------
This Agreement may be terminated by the Fund, or by Custodian, on
ninety (90) days notice, given in writing and sent by registered mail to
Custodian at P.O. Box 2054, Milwaukee, Wisconsin 53201, or to the Fund at David
W. Tice & Associates, Inc., 8140 Walnut Hill Lane, Suite 300, Dallas, Texas
75231, as the case may be. Upon any termination of this Agreement, pending
appointment of a successor to Custodian or a vote of the shareholders of the
Fund to dissolve or to function without a custodian of its cash, securities and
other property, Custodian shall not deliver cash, securities or other property
of the Fund to the Fund, but may deliver them to a bank or trust company of its
own selection, having an aggregate capital, surplus and undivided profits, as
shown by its last published report of not less than Two Million Dollars
($2,000,000) as a Custodian for the Fund to be held under terms similar to those
of this Agreement, provided, however, that Custodian shall not be required to
make any such delivery or payment until full payment shall have been made by the
Fund of all liabilities constituting a charge on or against the properties then
held by Custodian or on or against Custodian, and until full payment shall have
been made to Custodian of all its fees, compensation, costs and expenses,
subject to the provisions of Section 10 of this Agreement.
In the event that the Fund elects to terminate its relationship with
Custodian prior to the first anniversary of this Agreement, the Fund agrees to
reimburse Custodian for those fees representing a discount to Custodian's
standard fee schedule as provided to the Fund and given as a concession to the
Fund as part of a one year fee arrangement.
This Agreement may not be assigned by Custodian without the consent of
the Fund, authorized or approved by a resolution of its Board of Directors.
6
<PAGE>
14. Deposits of Securities in Securities Depositories
-------------------------------------------------
No provision of this Agreement shall be deemed to prevent the use by
Custodian of a central securities clearing agency or securities depository,
provided, however, that Custodian and the central securities clearing agency or
securities depository meet all applicable federal and state laws and
regulations, and the Board of Directors of the Fund approves by resolution the
use of such central securities clearing agency or securities depository.
15. Records
-------
To the extent that Custodian in any capacity prepares or maintains any
records required to be maintained and preserved by the Fund pursuant to the
provisions of the Investment Company Act of 1940, as amended, or the rules and
regulations promulgated thereunder, Custodian agrees to make any such records
available to the Fund upon request and to preserve such records for the periods
prescribed in Rule 31a-2 under the Investment Company Act of 1940, as amended.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed and their respective corporate seals to be affixed hereto as of the
date first above-written by their respective officers thereunto duly authorized.
Executed in several counterparts, each of which is an original.
FIRSTAR BANK, N.A.
By___________________________________
Vice President
PRUDENT BEAR FUNDS, INC.
By___________________________________
7
CUSTODIAN AGREEMENT
-------------------
THIS AGREEMENT made on January 31, 2000, between PRUDENT BEAR FUNDS,
INC., a Maryland Corporation, on behalf of Prudent Bear Large Cap Fund
(hereinafter called the ("Fund"), and FIRSTAR BANK, N.A., a national banking
association (hereinafter called "Custodian"),
W I T N E S S E T H
WHEREAS, the Fund desires that its securities and cash shall be
hereafter held and administered by Custodian pursuant to the terms of this
Agreement;
NOW, THEREFORE, in consideration of the mutual agreements herein made,
the Fund and Custodian agree as follows:
1. Definitions
-----------
The word "securities" as used herein includes stocks, shares, bonds,
debentures, notes, mortgages or other obligations, and any certificates,
receipts, warrants or other instruments representing rights to receive, purchase
or subscribe for the same, or evidencing or representing any other rights or
interests therein, or in any property or assets.
The words "officers' certificate" shall mean a request or direction or
certification in writing signed in the name of the Fund by any two of the
President, a Vice President, the Secretary and the Treasurer of the Fund, or any
other persons duly authorized to sign by the Board of Directors.
The word "Board" shall mean Board of Directors of Prudent Bear Funds,
Inc.
2. Names, Titles and Signatures of the Fund's Officers
---------------------------------------------------
An officer of the Fund will certify to Custodian the names and
signatures of those persons authorized to sign the officers' certificates
described in Section 1 hereof, and the names of the members of the Board of
Directors, together with any changes which may occur from time to time.
3. Receipt and Disbursement of Money
---------------------------------
A. Custodian shall open and maintain a separate account or accounts in
the name of the Fund, subject only to draft or order by Custodian acting
pursuant to the terms of this Agreement. Custodian shall hold in such account or
accounts, subject to the provisions hereof, all cash received by it from or for
the account of the Fund. Custodian shall make payments of cash to, or for the
account of, the Fund from such cash only:
(a) for the purchase of securities for the portfolio of the Fund upon
the delivery of such securities to Custodian, registered in the name of the
Fund
<PAGE>
or of the nominee of Custodian referred to in Section 7 or in proper form
for transfer;
(b) for the purchase or redemption of shares of the common stock of
the Fund upon delivery thereof to Custodian, or upon proper instructions
from Prudent Bear Funds, Inc.;
(c) for the payment of interest, dividends, taxes, investment
adviser's fees or operating expenses (including, without limitation
thereto, fees for legal, accounting, auditing and custodian services and
expenses for printing and postage);
(d) for payments in connection with the conversion, exchange or
surrender of securities owned or subscribed to by the Fund held by or to be
delivered to Custodian; or
(e) for other proper corporate purposes certified by resolution of the
Board of Directors of the Fund.
Before making any such payment, Custodian shall receive (and may rely
upon) an officers' certificate requesting such payment and stating that it is
for a purpose permitted under the terms of items (a), (b), (c), or (d) of this
Subsection A, and also, in respect of item (e), upon receipt of an officers'
certificate specifying the amount of such payment, setting forth the purpose for
which such payment is to be made, declaring such purpose to be a proper
corporate purpose, and naming the person or persons to whom such payment is to
be made, provided, however, that an officers' certificate need not precede the
disbursement of cash for the purpose of purchasing a money market instrument, or
any other security with same or next-day settlement, if the President, a Vice
President, the Secretary or the Treasurer of the Fund issues appropriate oral or
facsimile instructions to Custodian and an appropriate officers' certificate is
received by Custodian within two business days thereafter.
B. Custodian is hereby authorized to endorse and collect all checks,
drafts or other orders for the payment of money received by Custodian for the
account of the Fund.
C. Custodian shall, upon receipt of proper instructions, make federal
funds available to the Fund as of specified times agreed upon from time to time
by the Fund and the custodian in the amount of checks received in payment for
shares of the Fund which are deposited into the Fund's account.
4. Segregated Accounts
-------------------
Upon receipt of proper instructions, the Custodian shall establish and
maintain a segregated account(s) for and on behalf of the portfolio, into which
account(s) may be transferred cash and/or securities.
2
<PAGE>
5. Transfer, Exchange, Redelivery, etc. of Securities
--------------------------------------------------
Custodian shall have sole power to release or deliver any securities
of the Fund held by it pursuant to this Agreement. Custodian agrees to transfer,
exchange or deliver securities held by it hereunder only:
(a) for sales of such securities for the account of the Fund upon
receipt by Custodian of payment therefore;
(b) when such securities are called, redeemed or retired or otherwise
become payable;
(c) for examination by any broker selling any such securities in
accordance with "street delivery" custom;
(d) in exchange for, or upon conversion into, other securities alone
or other securities and cash whether pursuant to any plan of merger,
consolidation, reorganization, recapitalization or readjustment, or
otherwise;
(e) upon conversion of such securities pursuant to their terms into
other securities;
(f) upon exercise of subscription, purchase or other similar rights
represented by such securities;
(g) for the purpose of exchanging interim receipts or temporary
securities for definitive securities;
(h) for the purpose of redeeming in kind shares of common stock of the
Fund upon delivery thereof to Custodian; or
(i) for other proper corporate purposes.
As to any deliveries made by Custodian pursuant to items (a), (b),
(d), (e), (f), and (g), securities or cash receivable in exchange therefore
shall be deliverable to Custodian.
Before making any such transfer, exchange or delivery, Custodian shall
receive (and may rely upon) an officers' certificate requesting such transfer,
exchange or delivery, and stating that it is for a purpose permitted under the
terms of items (a), (b), (c), (d), (e), (f), (g), or (h) of this Section 5 and
also, in respect of item (i), upon receipt of an officers' certificate
specifying the securities to be delivered, setting forth the purpose for which
such delivery is to be made, declaring such purpose to be a proper corporate
purpose, and naming the person or persons to whom delivery of such securities
shall be made, provided, however, that an officers' certificate need not precede
any such transfer, exchange or delivery of a money market instrument, or any
other security with same or next-day settlement, if the President, a Vice
President, the Secretary or the Treasurer of the Fund issues appropriate oral or
facsimile
3
<PAGE>
instructions to Custodian and an appropriate officers' certificate is received
by Custodian within two business days thereafter.
6. Custodian's Acts Without Instructions
-------------------------------------
Unless and until Custodian receives an officers' certificate to the
contrary, Custodian shall: (a) present for payment all coupons and other income
items held by it for the account of the Fund, which call for payment upon
presentation and hold the cash received by it upon such payment for the account
of the Fund; (b) collect interest and cash dividends received, with notice to
the Fund, for the account of the Fund; (c) hold for the account of the Fund
hereunder all stock dividends, rights and similar securities issued with respect
to any securities held by it hereunder; and (d) execute, as agent on behalf of
the Fund, all necessary ownership certificates required by the Internal Revenue
Code or the Income Tax Regulations of the United States Treasury Department or
under the laws of any state now or hereafter in effect, inserting the Fund's
name on such certificates as the owner of the securities covered thereby, to the
extent it may lawfully do so.
7. Registration of Securities
--------------------------
Except as otherwise directed by an officers' certificate, Custodian
shall register all securities, except such as are in bearer form, in the name of
a registered nominee of Custodian as defined in the Internal Revenue Code and
any Regulations of the Treasury Department issued hereunder or in any provision
of any subsequent federal tax law exempting such transaction from liability for
stock transfer taxes, and shall execute and deliver all such certificates in
connection therewith as may be required by such laws or regulations or under the
laws of any state. Custodian shall use its best efforts to the end that the
specific securities held by it hereunder shall be at all times identifiable in
its records.
The Fund shall from time to time furnish to Custodian appropriate
instruments to enable Custodian to hold or deliver in proper form for transfer,
or to register in the name of its registered nominee, any securities which it
may hold for the account of the Fund and which may from time to time be
registered in the name of the Fund.
8. Voting and Other Action
-----------------------
Neither Custodian nor any nominee of Custodian shall vote any of the
securities held hereunder by or for the account of the Fund, except in
accordance with the instructions contained in an officers' certificate.
Custodian shall deliver, or cause to be executed and delivered, to the
Corporation all notices, proxies and proxy soliciting materials with relation to
such securities, such proxies to be executed by the registered holder of such
securities (if registered otherwise than in the name of the Fund), but without
indicating the manner in which such proxies are to be voted.
4
<PAGE>
9. Transfer Tax and Other Disbursements
------------------------------------
The Fund shall pay or reimburse Custodian from time to time for any
transfer taxes payable upon transfers of securities made hereunder, and for all
other necessary and proper disbursements and expenses made or incurred by
Custodian in the performance of this Agreement.
Custodian shall execute and deliver such certificates in connection
with securities delivered to it or by it under this Agreement as may be required
under the provisions of the Internal Revenue Code and any Regulations of the
Treasury Department issued thereunder, or under the laws of any state, to exempt
from taxation any exemptible transfers and/or deliveries of any such securities.
10. Custodian
---------
Custodian shall be paid as compensation for its services pursuant to
this Agreement such compensation as may from time to time be agreed upon in
writing between the two parties. Until modified in writing, such compensation
shall be as set forth in Exhibit A attached hereto.
Custodian shall not be liable for any action taken in good faith upon
any certificate herein described or certified copy of any resolution of the
Board, and may rely on the genuineness of any such document which it may in good
faith believe to have been validly executed.
The Fund agrees to indemnify and hold harmless Custodian and its
nominee from all taxes, charges, expenses, assessments, claims and liabilities
(including counsel fees) incurred or assessed against it or by its nominee in
connection with the performance of this Agreement, except such as may arise from
its or its nominee's own negligent action, negligent failure to act or willful
misconduct. Custodian is authorized to charge any account of the Fund for such
items. In the event of any advance of cash for any purpose made by Custodian
resulting from orders or instructions of the Fund, or in the event that
Custodian or its nominee shall incur or be assessed any taxes, charges,
expenses, assessments, claims or liabilities in connection with the performance
of this Agreement, except such as may arise from its or its nominee's own
negligent action, negligent failure to act or willful misconduct, any property
at any time held for the account of the Fund shall be security therefore.
11. Subcustodians
-------------
Custodian is hereby authorized to engage another bank or trust company
as a Subcustodian for all or any part of the Fund's assets, so long as any such
bank or trust company is a bank or trust company organized under the laws of any
state of the United States, having an aggregate capital, surplus and undivided
profit, as shown by its last published report, of not less than Two Million
Dollars ($2,000,000) and provided further that, if the Custodian utilizes the
services of a Subcustodian, the Custodian shall remain fully liable and
5
<PAGE>
responsible for any losses caused to the Fund by the Subcustodian as fully as if
the Custodian was directly responsible for any such losses under the terms of
the Custodian Agreement.
Notwithstanding anything contained herein, if the Fund requires the
Custodian to engage specific Subcustodians for the safekeeping and/or clearing
of assets, the Fund agrees to indemnify and hold harmless Custodian from all
claims, expenses and liabilities incurred or assessed against it in connection
with the use of such Subcustodian in regard to the Fund's assets, except as may
arise from its own negligent action, negligent failure to act or willful
misconduct.
12. Reports by Custodian
--------------------
Custodian shall furnish the Fund periodically as agreed upon with a
statement summarizing all transactions and entries for the account of Fund.
Custodian shall furnish to the Fund, at the end of every month, a list of the
portfolio securities showing the aggregate cost of each issue. The books and
records of Custodian pertaining to its actions under this Agreement shall be
open to inspection and audit at reasonable times by officers of, and of auditors
employed by, the Fund.
13. Termination or Assignment
-------------------------
This Agreement may be terminated by the Fund, or by Custodian, on
ninety (90) days notice, given in writing and sent by registered mail to
Custodian at P.O. Box 2054, Milwaukee, Wisconsin 53201, or to the Fund at David
W. Tice & Associates, Inc., 8140 Walnut Hill Lane, Suite 300, Dallas, Texas
75231, as the case may be. Upon any termination of this Agreement, pending
appointment of a successor to Custodian or a vote of the shareholders of the
Fund to dissolve or to function without a custodian of its cash, securities and
other property, Custodian shall not deliver cash, securities or other property
of the Fund to the Fund, but may deliver them to a bank or trust company of its
own selection, having an aggregate capital, surplus and undivided profits, as
shown by its last published report of not less than Two Million Dollars
($2,000,000) as a Custodian for the Fund to be held under terms similar to those
of this Agreement, provided, however, that Custodian shall not be required to
make any such delivery or payment until full payment shall have been made by the
Fund of all liabilities constituting a charge on or against the properties then
held by Custodian or on or against Custodian, and until full payment shall have
been made to Custodian of all its fees, compensation, costs and expenses,
subject to the provisions of Section 10 of this Agreement.
In the event that the Fund elects to terminate its relationship with
Custodian prior to the first anniversary of this Agreement, the Fund agrees to
reimburse Custodian for those fees representing a discount to Custodian's
standard fee schedule as provided to the Fund and given as a concession to the
Fund as part of a one year fee arrangement.
This Agreement may not be assigned by Custodian without the consent of
the Fund, authorized or approved by a resolution of its Board of Directors.
6
<PAGE>
14. Deposits of Securities in Securities Depositories
-------------------------------------------------
No provision of this Agreement shall be deemed to prevent the use by
Custodian of a central securities clearing agency or securities depository,
provided, however, that Custodian and the central securities clearing agency or
securities depository meet all applicable federal and state laws and
regulations, and the Board of Directors of the Fund approves by resolution the
use of such central securities clearing agency or securities depository.
15. Records
-------
To the extent that Custodian in any capacity prepares or maintains any
records required to be maintained and preserved by the Fund pursuant to the
provisions of the Investment Company Act of 1940, as amended, or the rules and
regulations promulgated thereunder, Custodian agrees to make any such records
available to the Fund upon request and to preserve such records for the periods
prescribed in Rule 31a-2 under the Investment Company Act of 1940, as amended.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed and their respective corporate seals to be affixed hereto as of the
date first above-written by their respective officers thereunto duly authorized.
Executed in several counterparts, each of which is an original.
FIRSTAR BANK, N.A.
By__________________________________
Vice President
PRUDENT BEAR FUNDS, INC.
By__________________________________
FUND ADMINISTRATION SERVICING AGREEMENT
---------------------------------------
THIS AGREEMENT is made and entered into on this 31st day of January,
2000, by and between PRUDENT BEAR FUNDS, INC., on behalf of Prudent Safe Harbor
Fund (hereinafter referred to as the "Fund") and FIRSTAR MUTUAL FUND SERVICES,
LLC, a limited liability company organized under the laws of the State of
Wisconsin (hereinafter referred to as "Firstar").
WHEREAS, the Fund is an open-end management investment company which
is registered under the Investment Company Act of 1940;
WHEREAS, Firstar is in the business of providing fund administration
services for the benefit of its customers;
NOW, THEREFORE, the Fund and Firstar do mutually promise and agree as
follows:
I. Duties and Responsibilities of Firstar
--------------------------------------
A. General Fund Management
1. Act as liaison among all fund service providers
2. Coordinate board communication by:
a. Assisting fund counsel in establishing meeting agendas
b. Preparing board reports based on financial and
administrative data
c. Evaluating independent auditor
d. Securing and monitoring fidelity bond and director and
officers liability coverage, if requested
3. Audits
a. Prepare appropriate schedules and assist independent
auditors
b. Provide information to SEC and facilitate audit process
c. Provide office facilities
4. Assist in overall operations of the Fund
B. Compliance
1. Regulatory Compliance
<PAGE>
a. Periodically monitor compliance with Investment Company Act
of 1940 requirements
1) Asset diversification tests
2) Total return and SEC yield calculations
3) Maintenance of books and records under Rule 31a-3
4) Code of ethics
b. Periodically monitor prospectus investment limitations
2. Blue Sky Compliance
a. File initial state application and all subsequent reports
b. Monitor status in each state
3. SEC Registration and Reporting
a. Assisting Fund's counsel in updating prospectus, statement
of additional information, proxy statements, and Rule 24f-2
notice
b. Annual and semiannual reports
4. IRS Compliance
a. Periodically monitor Fund's status as a regulated investment
company under Subchapter M through review of the following:
1) Asset diversification requirements
2) Qualifying income requirements
3) Distribution requirements
b. Calculate required distributions (including excise tax
distributions)
C. Financial Reporting
1. Provide financial data required by fund prospectus and statement
of additional information
2. Prepare financial reports for shareholders, the board, the SEC,
and independent auditors
2
<PAGE>
3. Monitor expense accruals and payments
D. Tax Reporting
1. Prepare appropriate federal and state tax returns including forms
1120/8610 with any necessary schedules
2. Prepare state income breakdowns where relevant
3. File 1099 Miscellaneous for payments to directors and other
service providers
4. Monitor wash losses
5. Calculate eligible dividend income for corporate shareholders
II. Compensation
------------
The Fund agrees to pay Firstar for performance of the duties listed in
this Agreement and the fees and out-of-pocket expenses as set forth in the
attached Schedule A.
These fees may be changed from time to time, subject to mutual written
Agreement between the Fund and Firstar.
The Fund agrees to pay all fees and reimbursable expenses within ten
(10) business days following the mailing of the billing notice.
III. Performance of Service; Limitation of Liability
-----------------------------------------------
Firstar shall exercise reasonable care in the performance of its
duties under the Agreement. The Fund agrees to reimburse and make Firstar whole
for any loss or damages (including reasonable fees and expenses of legal
counsel) arising out of or in connection with its actions under this Agreement
so long as Firstar acts in good faith and is not negligent or guilty of any
willful misconduct.
Firstar shall not be liable or responsible for delays or errors
occurring by reason of circumstances beyond its control, including acts of civil
or military authority, natural or state emergencies, fire, mechanical breakdown,
flood or catastrophe, act of God, insurrection, war, riots, or failure of
transportation, communication, or power supply.
In the event of a mechanical breakdown beyond its control, Firstar
shall take all reasonable steps to minimize service interruptions for any period
that such interruption continues beyond Firstar's control. Firstar will make
every reasonable effort to restore any lost or damaged data and correct any
errors resulting from such a breakdown at the expense of Firstar. Firstar agrees
that it shall, at all times, have reasonable contingency plans with appropriate
parties, making reasonable provisions for emergency use of electrical data
processing equipment to the extent appropriate equipment is available.
Representatives of the
3
<PAGE>
Fund shall be entitled to inspect Firstar's premises and operating capabilities
at any time during regular business hours of Firstar, upon reasonable notice to
Firstar.
This indemnification includes any act, omission to act, or delay by
Firstar in reliance upon, or in accordance with, any written or oral instruction
it receives from any duly authorized officer of the Fund.
Regardless of the above, Firstar reserves the right to reprocess and
correct administrative errors at its own expense.
IV. Confidentiality
---------------
Firstar shall handle, in confidence, all information relating to the
Fund's business which is received by Firstar during the course of rendering any
service hereunder.
V. Data Necessary to Perform Service
---------------------------------
The Fund or its agent, which may be Firstar, shall furnish to Firstar
the data necessary to perform the services described herein at times and in such
form as mutually agreed upon.
VI. Terms of Agreement
------------------
This Agreement shall become effective as of the date hereof.
Thereafter, if not terminated, this Agreement shall continue automatically in
effect for successive annual periods unless otherwise terminated by either party
upon giving ninety (90) days prior written notice to the other party or such
shorter period as is mutually agreed upon by the parties.
VII. Duties in the Event of Termination
----------------------------------
In the event that, in connection with termination, a successor to any
of Firstar's duties or responsibilities hereunder is designated by the Fund by
written notice to Firstar, Firstar will promptly, upon such termination and at
the expense of the Fund, transfer to such successor all relevant books, records,
correspondence, and other data established or maintained by Firstar under this
Agreement in a form reasonably acceptable to the Fund (if such form differs from
the form in which Firstar has maintained, the Fund shall pay any expenses
associated with transferring the data to such form), and will cooperate in the
transfer of such duties and responsibilities, including provision for assistance
from Firstar's personnel in the establishment of books, records, and other data
by such successor.
4
<PAGE>
VIII.Choice of Law
-------------
This Agreement shall be construed in accordance with the laws of the
State of Wisconsin.
PRUDENT BEAR FUNDS, INC FIRSTAR MUTUAL FUND SERVICES, LLC
By:_________________________________ By:________________________________
Attest______________________________ Attest_____________________________
5
FUND ADMINISTRATION SERVICING AGREEMENT
---------------------------------------
THIS AGREEMENT is made and entered into on this 31st day of January,
2000, by and between PRUDENT BEAR FUNDS, INC., on behalf of Prudent Bear Large
Cap Fund (hereinafter referred to as the "Fund") and FIRSTAR MUTUAL FUND
SERVICES, LLC, a limited liability company organized under the laws of the State
of Wisconsin (hereinafter referred to as "Firstar").
WHEREAS, the Fund is an open-end management investment company which
is registered under the Investment Company Act of 1940;
WHEREAS, Firstar is in the business of providing fund administration
services for the benefit of its customers;
NOW, THEREFORE, the Fund and Firstar do mutually promise and agree as
follows:
I. Duties and Responsibilities of Firstar
A. General Fund Management
1. Act as liaison among all fund service providers
2. Coordinate board communication by:
a. Assisting fund counsel in establishing meeting agendas
b. Preparing board reports based on financial and
administrative data
c. Evaluating independent auditor
d. Securing and monitoring fidelity bond and director and
officers liability coverage, if requested
3. Audits
a. Prepare appropriate schedules and assist independent
auditors
b. Provide information to SEC and facilitate audit process
c. Provide office facilities
4. Assist in overall operations of the Fund
B. Compliance
1. Regulatory Compliance
<PAGE>
a. Periodically monitor compliance with Investment Company Act
of 1940 requirements
1) Asset diversification tests
2) Total return and SEC yield calculations
3) Maintenance of books and records under Rule 31a-3
4) Code of ethics
b. Periodically monitor prospectus investment limitations
2. Blue Sky Compliance
a. File initial state application and all subsequent reports
b. Monitor status in each state
3. SEC Registration and Reporting
a. Assisting Fund's counsel in updating prospectus, statement
of additional information, proxy statements, and Rule 24f-2
notice
b. Annual and semiannual reports
4. IRS Compliance
a. Periodically monitor Fund's status as a regulated investment
company under Subchapter M through review of the following:
1) Asset diversification requirements
2) Qualifying income requirements
3) Distribution requirements
b. Calculate required distributions (including excise tax
distributions)
C. Financial Reporting
1. Provide financial data required by fund prospectus and statement
of additional information
2. Prepare financial reports for shareholders, the board, the SEC,
and independent auditors
2
<PAGE>
3. Monitor expense accruals and payments
D. Tax Reporting
1. Prepare appropriate federal and state tax returns including forms
1120/8610 with any necessary schedules
2. Prepare state income breakdowns where relevant
3. File 1099 Miscellaneous for payments to directors and other
service providers
4. Monitor wash losses
5. Calculate eligible dividend income for corporate shareholders
II. Compensation
------------
The Fund agrees to pay Firstar for performance of the duties listed in
this Agreement and the fees and out-of-pocket expenses as set forth in the
attached Schedule A.
These fees may be changed from time to time, subject to mutual written
Agreement between the Fund and Firstar.
The Fund agrees to pay all fees and reimbursable expenses within ten
(10) business days following the mailing of the billing notice.
III. Performance of Service; Limitation of Liability
-----------------------------------------------
Firstar shall exercise reasonable care in the performance of its
duties under the Agreement. The Fund agrees to reimburse and make Firstar whole
for any loss or damages (including reasonable fees and expenses of legal
counsel) arising out of or in connection with its actions under this Agreement
so long as Firstar acts in good faith and is not negligent or guilty of any
willful misconduct.
Firstar shall not be liable or responsible for delays or errors
occurring by reason of circumstances beyond its control, including acts of civil
or military authority, natural or state emergencies, fire, mechanical breakdown,
flood or catastrophe, act of God, insurrection, war, riots, or failure of
transportation, communication, or power supply.
In the event of a mechanical breakdown beyond its control, Firstar
shall take all reasonable steps to minimize service interruptions for any period
that such interruption continues beyond Firstar's control. Firstar will make
every reasonable effort to restore any lost or damaged data and correct any
errors resulting from such a breakdown at the expense of Firstar. Firstar agrees
that it shall, at all times, have reasonable contingency plans with appropriate
parties, making reasonable provisions for emergency use of electrical data
processing equipment to the extent appropriate equipment is available.
Representatives of the
3
<PAGE>
Fund shall be entitled to inspect Firstar's premises and operating capabilities
at any time during regular business hours of Firstar, upon reasonable notice to
Firstar.
This indemnification includes any act, omission to act, or delay by
Firstar in reliance upon, or in accordance with, any written or oral instruction
it receives from any duly authorized officer of the Fund.
Regardless of the above, Firstar reserves the right to reprocess and
correct administrative errors at its own expense.
IV. Confidentiality
---------------
Firstar shall handle, in confidence, all information relating to the
Fund's business which is received by Firstar during the course of rendering any
service hereunder.
V. Data Necessary to Perform Service
---------------------------------
The Fund or its agent, which may be Firstar, shall furnish to Firstar
the data necessary to perform the services described herein at times and in such
form as mutually agreed upon.
VI. Terms of Agreement
------------------
This Agreement shall become effective as of the date hereof.
Thereafter, if not terminated, this Agreement shall continue automatically in
effect for successive annual periods unless otherwise terminated by either party
upon giving ninety (90) days prior written notice to the other party or such
shorter period as is mutually agreed upon by the parties.
VII. Duties in the Event of Termination
----------------------------------
In the event that, in connection with termination, a successor to any
of Firstar's duties or responsibilities hereunder is designated by the Fund by
written notice to Firstar, Firstar will promptly, upon such termination and at
the expense of the Fund, transfer to such successor all relevant books, records,
correspondence, and other data established or maintained by Firstar under this
Agreement in a form reasonably acceptable to the Fund (if such form differs from
the form in which Firstar has maintained, the Fund shall pay any expenses
associated with transferring the data to such form), and will cooperate in the
transfer of such duties and responsibilities, including provision for assistance
from Firstar's personnel in the establishment of books, records, and other data
by such successor.
4
<PAGE>
VIII.Choice of Law
-------------
This Agreement shall be construed in accordance with the laws of the
State of Wisconsin.
PRUDENT BEAR FUNDS, INC FIRSTAR MUTUAL FUND SERVICES, LLC
By:__________________________________ By:__________________________________
Attest_______________________________ Attest_______________________________
5
TRANSFER AGENT AGREEMENT
------------------------
THIS AGREEMENT is made and entered into on this 31st day of January,
2000, by and between PRUDENT BEAR FUNDS, INC., on behalf of Prudent Safe Harbor
Fund (hereinafter referred to as the "Fund") and FIRSTAR MUTUAL FUND SERVICES,
LLC, a limited liability company organized under the laws of the State of
Wisconsin (hereinafter referred to as the "Agent").
W I T N E S S E T H :
- - - - - - - - - -
WHEREAS, the Fund is an open-end management investment company which
is registered under the Investment Company Act of 1940; and
WHEREAS, the Agent is in the business of administering transfer and
dividend disbursing agent functions for the benefit of its customers;
NOW, THEREFORE, the Fund and the Agent do mutually promise and agree
as follows:
1. Terms of Appointment; Duties of the Agent
-----------------------------------------
Subject to the terms and conditions set forth in this Agreement, the
Fund hereby employs and appoints the Agent to act as transfer agent and dividend
disbursing agent.
The Agent shall perform all of the customary services of a transfer
agent and dividend disbursing agent, and as relevant, agent in connection with
accumulation, open account or similar plans (including without limitation any
periodic investment plan or periodic withdrawal program), including but not
limited to:
A. Receive orders for the purchase of shares;
B. Process purchase orders and issue the appropriate number of
certificated or uncertificated shares with such uncertificated shares
being held in the appropriate shareholder account;
C. Process redemption requests received in good order;
D. Pay monies in accordance with the instructions of redeeming
shareholders;
E. Process transfers of shares in accordance with the shareowner's
instructions;
F. Process exchanges between funds within the same family of funds;
G. Issue and/or cancel certificates as instructed; replace lost, stolen
or destroyed certificates upon receipt of satisfactory indemnification
or surety bond;
<PAGE>
H. Prepare and transmit payments for dividends and distributions declared
by the Fund;
I. Make changes to shareholder records, including, but not limited to,
address changes in plans (i.e., systematic withdrawal, automatic
investment, dividend reinvestment, etc.);
J. Record the issuance of shares of the Fund and maintain, pursuant to
Section Rule 17Ad-10(e), a record of the total number of shares of the
Fund which are authorized, issued and outstanding;
K. Prepare shareholder meeting lists and, if applicable, mail, receive
and tabulate proxies;
L. Mail shareholder reports and prospectuses to current shareholders;
M. Prepare and file U.S. Treasury Department forms 1099 and other
appropriate information returns required with respect to dividends and
distributions for all shareholders;
N. Provide shareholder account information upon request and prepare and
mail confirmations and statements of account to shareholders for all
purchases, redemptions and other confirmable transactions as agreed
upon with the Fund; and
O. Provide a Blue Sky System which will enable the Fund to monitor the
total number of shares sold in each state. In addition, the Fund shall
identify to the Agent in writing those transactions and assets to be
treated as exempt from the Blue Sky reporting to the Fund for each
state. The responsibility of the Agent for the Fund's Blue Sky state
registration status is solely limited to the initial compliance by the
Fund and the reporting of such transactions to the Fund.
2. Compensation
------------
The Fund agrees to pay the Agent for performance of the duties listed
in this Agreement; the fees and out-of-pocket expenses include, but are not
limited to the following: printing, postage, forms, stationery, record
retention, mailing, insertion, programming, labels, shareholder lists and proxy
expenses.
These fees and reimbursable expenses may be changed from time to time
subject to mutual written agreement between the Fund and the Agent.
The Fund agrees to pay all fees and reimbursable expenses within ten
(10) business days following the mailing of the billing notice.
2
<PAGE>
3. Representations of Agent
------------------------
The Agent represents and warrants to the Fund that:
A. It is a limited liability company duly organized, existing and in good
standing under the laws of Wisconsin;
B. It is duly qualified to carry on its business in the state of
Wisconsin;
C. It is empowered under applicable laws and by its organizational and
operational documents to enter into and perform this Agreement;
D. All requisite corporate proceedings have been taken to authorize it to
enter and perform this Agreement; and
E. It has and will continue to have access to the necessary facilities,
equipment and personnel to perform its duties and obligations under
this Agreement.
4. Representations of the Fund
---------------------------
A. The Fund represents and warrants to the Agent that:
B. The Fund is an open-end diversified investment company under the
Investment Company Act of 1940;
C. The Fund is a corporation or business organized, existing, and in good
standing under the laws of Maryland;
D. The Fund is empowered under applicable laws and by its Corporate
Charter and bylaws to enter into and perform this Agreement;
E. All necessary proceedings required by the Corporate Charter have been
taken to authorize it to enter into and perform this Agreement;
F. The Fund will comply with all applicable requirements of the
Securities and Exchange Acts of 1933 and 1934, as amended, the
Investment Company Act of 1940, as amended, and any laws, rules and
regulations of governmental authorities having jurisdiction; and
3
<PAGE>
Z. A registration statement under the Securities Act of 1933 is currently
effective and will remain effective, and appropriate state securities
law filings have been made and will continue to be made, with respect
to all shares of the Fund being offered for sale.
5. Covenants of Fund and Agent
---------------------------
The Fund shall furnish the Agent a certified copy of the resolution of
the Board of Directors of the Fund authorizing the appointment of the Agent and
the execution of this Agreement. The Fund shall provide to the Agent a copy of
the Corporate Charter, bylaws of the Corporation, and all amendments.
The Agent shall keep records relating to the services to be performed
hereunder, in the form and manner as it may deem advisable. To the extent
required by Section 31 of the Investment Company Act of 1940, as amended, and
the rules thereunder, the Agent agrees that all such records prepared or
maintained by the Agent relating to the services to be performed by the Agent
hereunder are the property of the Fund and will be preserved, maintained and
made available in accordance with such section and rules and will be surrendered
to the Fund on and in accordance with its request.
6. Indemnification; Remedies Upon Breach
-------------------------------------
The Agent agrees to use reasonable care and act in good faith in
performing its duties hereunder.
Notwithstanding the foregoing, the Agent shall not be liable or
responsible for delays or errors occurring by reason of circumstances beyond its
control, including acts of civil or military authority, national or state
emergencies, fire, mechanical or equipment failure, flood or catastrophe, acts
of God, insurrection or war. In the event of a mechanical breakdown beyond its
control, the Agent shall take all reasonable steps to minimize service
interruptions for any period that such interruption continues beyond the Agent's
control. The Agent will make every reasonable effort to restore any lost or
damaged data, and the correcting of any errors resulting from such a breakdown
will be at the Agent's expense. The Agent agrees that it shall, at all times,
have reasonable contingency plans with appropriate parties, making reasonable
provision for emergency use of electrical data processing equipment to the
extent appropriate equipment is available. Representatives of The Prudent Bear
Fund, Inc. shall be entitled to inspect the Agent's premises and operating
capabilities at any time during regular business hours of the Agent, upon
reasonable notice to the Agent.
The Fund will indemnify and hold the Agent harmless against any and
all losses, claims, damages, liabilities or expenses (including reasonable
counsel fees and expenses) resulting from any claim, demand, action or suit not
resulting from the Agent's bad faith or negligence, and arising out of or in
connection with the Agent's duties on behalf of the Fund hereunder.
Further, the Fund will indemnify and hold the Agent harmless against
any and all losses, claims, damages, liabilities or expenses (including
reasonable counsel fees and expenses) resulting from any claim, demand, action
or suit as a result of the negligence of the Fund or the principal underwriter
(unless contributed to by the Agent's own negligence or bad faith); or as a
result of the Agent acting upon telephone instructions relating to the exchange
or redemption of shares received by the Agent and reasonably believed by the
Agent to have
4
<PAGE>
originated from the record owner of the subject shares; or as a result of the
Agent acting upon any instructions executed or orally communicated by a duly
authorized officer or employee of the Fund, according to such lists of
authorized officers and employees furnished to the Agent and as amended from
time to time in writing by a resolution of the Board of Directors of the Fund;
or as a result of acting in reliance upon any genuine instrument or stock
certificate signed, countersigned or executed by any person or persons
authorized to sign, countersign or execute the same.
In order for this section to apply, it is understood that if in any
case the Fund may be asked to indemnify or hold harmless the Agent, the Fund
shall be advised of all pertinent facts concerning the situation in question,
and it is further understood that the Agent will use reasonable care to notify
the Fund promptly concerning any situation which presents or appears likely to
present a claim for indemnification against the Fund. The Fund shall have the
option to defend the Agent against any claim which may be the subject of this
indemnification and, in the event that the Fund so elects, the Agent will so
notify the Fund, and thereupon the Fund shall take over complete defense of the
claim and the Agent shall sustain no further legal or other expenses in such
situation for which the Agent shall seek indemnification under this section. The
Agent will in no case confess any claim or make any compromise in any case in
which the Fund will be asked to indemnify the Agent, except with the Fund's
prior written consent.
7. Confidentiality
---------------
The Agent agrees on behalf of itself and its employees to treat
confidentially all records and other information relative to the Fund and its
shareholders and shall not be disclosed to any other party, except after prior
notification to and approval in writing by the Fund, which approval shall not be
unreasonably withheld and may not be withheld where the Agent may be exposed to
civil or criminal contempt proceedings for failure to comply after being
requested to divulge such information by duly constituted authorities.
8. Wisconsin Law to Apply
----------------------
This Agreement shall be construed and the provisions thereof
interpreted under and in accordance with the laws of the state of Wisconsin.
9. Amendment, Assignment, Termination and Notice
---------------------------------------------
A. This Agreement may be amended by the mutual written consent of the
parties.
B. This Agreement may be terminated upon ninety (90) day's written notice
given by one party to the other.
C. This Agreement and any right or obligation hereunder may not be
assigned by either party without the signed, written consent of the
other party.
5
<PAGE>
D. Any notice required to be given by the parties to each other under the
terms of this Agreement shall be in writing, addressed and delivered,
or mailed to the principal place of business of the other party.
E. In the event that the Fund gives to the Agent its written intention to
terminate and appoint a successor transfer agent, the Agent agrees to
cooperate in the transfer of its duties and responsibilities to the
successor, including any and all relevant books, records and other
data established or maintained by the Agent under this Agreement.
F. Should the Fund exercise its right to terminate, all out-of-pocket
expenses associated with the movement of records and material will be
paid by the Fund.
PRUDENT BEAR FUNDS, INC. FIRSTAR MUTUAL FUND SERVICES,
LLC
By:__________________________________ By:______________________________
6
TRANSFER AGENT AGREEMENT
------------------------
THIS AGREEMENT is made and entered into on this 31st day of January,
2000, by and between PRUDENT BEAR FUNDS, INC., on behalf of Prudent Bear Large
Cap Fund (hereinafter referred to as the "Fund") and FIRSTAR MUTUAL FUND
SERVICES, LLC, a limited liability company organized under the laws of the State
of Wisconsin (hereinafter referred to as the "Agent").
W I T N E S S E T H :
- - - - - - - - - -
WHEREAS, the Fund is an open-end management investment company which
is registered under the Investment Company Act of 1940; and
WHEREAS, the Agent is in the business of administering transfer and
dividend disbursing agent functions for the benefit of its customers;
NOW, THEREFORE, the Fund and the Agent do mutually promise and agree
as follows:
1. Terms of Appointment; Duties of the Agent
-----------------------------------------
Subject to the terms and conditions set forth in this Agreement, the
Fund hereby employs and appoints the Agent to act as transfer agent and dividend
disbursing agent.
The Agent shall perform all of the customary services of a transfer
agent and dividend disbursing agent, and as relevant, agent in connection with
accumulation, open account or similar plans (including without limitation any
periodic investment plan or periodic withdrawal program), including but not
limited to:
A. Receive orders for the purchase of shares;
B. Process purchase orders and issue the appropriate number of
certificated or uncertificated shares with such uncertificated shares
being held in the appropriate shareholder account;
C. Process redemption requests received in good order;
D. Pay monies in accordance with the instructions of redeeming
shareholders;
E. Process transfers of shares in accordance with the shareowner's
instructions;
F. Process exchanges between funds within the same family of funds;
G. Issue and/or cancel certificates as instructed; replace lost, stolen
or destroyed certificates upon receipt of satisfactory indemnification
or surety bond;
<PAGE>
H. Prepare and transmit payments for dividends and distributions declared
by the Fund;
I. Make changes to shareholder records, including, but not limited to,
address changes in plans (i.e., systematic withdrawal, automatic
investment, dividend reinvestment, etc.);
J. Record the issuance of shares of the Fund and maintain, pursuant to
Section Rule 17Ad-10(e), a record of the total number of shares of the
Fund which are authorized, issued and outstanding;
K. Prepare shareholder meeting lists and, if applicable, mail, receive
and tabulate proxies;
L. Mail shareholder reports and prospectuses to current shareholders;
M. Prepare and file U.S. Treasury Department forms 1099 and other
appropriate information returns required with respect to dividends and
distributions for all shareholders;
N. Provide shareholder account information upon request and prepare and
mail confirmations and statements of account to shareholders for all
purchases, redemptions and other confirmable transactions as agreed
upon with the Fund; and
O. Provide a Blue Sky System which will enable the Fund to monitor the
total number of shares sold in each state. In addition, the Fund shall
identify to the Agent in writing those transactions and assets to be
treated as exempt from the Blue Sky reporting to the Fund for each
state. The responsibility of the Agent for the Fund's Blue Sky state
registration status is solely limited to the initial compliance by the
Fund and the reporting of such transactions to the Fund.
2. Compensation
------------
The Fund agrees to pay the Agent for performance of the duties listed
in this Agreement; the fees and out-of-pocket expenses include, but are not
limited to the following: printing, postage, forms, stationery, record
retention, mailing, insertion, programming, labels, shareholder lists and proxy
expenses.
These fees and reimbursable expenses may be changed from time to time
subject to mutual written agreement between the Fund and the Agent.
The Fund agrees to pay all fees and reimbursable expenses within ten
(10) business days following the mailing of the billing notice.
2
<PAGE>
3. Representations of Agent
------------------------
The Agent represents and warrants to the Fund that:
A. It is a limited liability company duly organized, existing and in good
standing under the laws of Wisconsin;
B. It is duly qualified to carry on its business in the state of
Wisconsin;
C. It is empowered under applicable laws and by its organizational and
operational documents to enter into and perform this Agreement;
D. All requisite corporate proceedings have been taken to authorize it to
enter and perform this Agreement; and
E. It has and will continue to have access to the necessary facilities,
equipment and personnel to perform its duties and obligations under
this Agreement.
4. Representations of the Fund
---------------------------
The Fund represents and warrants to the Agent that:
A. The Fund is an open-end diversified investment company under the
Investment Company Act of 1940;
B. The Fund is a corporation or business organized, existing, and in good
standing under the laws of Maryland;
C. The Fund is empowered under applicable laws and by its Corporate
Charter and bylaws to enter into and perform this Agreement;
D. All necessary proceedings required by the Corporate Charter have been
taken to authorize it to enter into and perform this Agreement;
E. The Fund will comply with all applicable requirements of the
Securities and Exchange Acts of 1933 and 1934, as amended, the
Investment Company Act of 1940, as amended, and any laws, rules and
regulations of governmental authorities having jurisdiction; and
F. A registration statement under the Securities Act of 1933 is currently
effective and will remain effective, and appropriate state securities
law filings have been made and will continue to be made, with respect
to all shares of the Fund being offered for sale.
3
<PAGE>
5. Covenants of Fund and Agent
---------------------------
The Fund shall furnish the Agent a certified copy of the resolution of
the Board of Directors of the Fund authorizing the appointment of the Agent and
the execution of this Agreement. The Fund shall provide to the Agent a copy of
the Corporate Charter, bylaws of the Corporation, and all amendments.
The Agent shall keep records relating to the services to be performed
hereunder, in the form and manner as it may deem advisable. To the extent
required by Section 31 of the Investment Company Act of 1940, as amended, and
the rules thereunder, the Agent agrees that all such records prepared or
maintained by the Agent relating to the services to be performed by the Agent
hereunder are the property of the Fund and will be preserved, maintained and
made available in accordance with such section and rules and will be surrendered
to the Fund on and in accordance with its request.
6. Indemnification; Remedies Upon Breach
-------------------------------------
The Agent agrees to use reasonable care and act in good faith in
performing its duties hereunder.
Notwithstanding the foregoing, the Agent shall not be liable or
responsible for delays or errors occurring by reason of circumstances beyond its
control, including acts of civil or military authority, national or state
emergencies, fire, mechanical or equipment failure, flood or catastrophe, acts
of God, insurrection or war. In the event of a mechanical breakdown beyond its
control, the Agent shall take all reasonable steps to minimize service
interruptions for any period that such interruption continues beyond the Agent's
control. The Agent will make every reasonable effort to restore any lost or
damaged data, and the correcting of any errors resulting from such a breakdown
will be at the Agent's expense. The Agent agrees that it shall, at all times,
have reasonable contingency plans with appropriate parties, making reasonable
provision for emergency use of electrical data processing equipment to the
extent appropriate equipment is available. Representatives of The Prudent Bear
Fund, Inc. shall be entitled to inspect the Agent's premises and operating
capabilities at any time during regular business hours of the Agent, upon
reasonable notice to the Agent.
The Fund will indemnify and hold the Agent harmless against any and
all losses, claims, damages, liabilities or expenses (including reasonable
counsel fees and expenses) resulting from any claim, demand, action or suit not
resulting from the Agent's bad faith or negligence, and arising out of or in
connection with the Agent's duties on behalf of the Fund hereunder.
Further, the Fund will indemnify and hold the Agent harmless against
any and all losses, claims, damages, liabilities or expenses (including
reasonable counsel fees and expenses) resulting from any claim, demand, action
or suit as a result of the negligence of the Fund or the principal underwriter
(unless contributed to by the Agent's own negligence or bad faith); or as a
result of the Agent acting upon telephone instructions relating to the exchange
or redemption of shares received by the Agent and reasonably believed by the
Agent to have
4
<PAGE>
originated from the record owner of the subject shares; or as a result of the
Agent acting upon any instructions executed or orally communicated by a duly
authorized officer or employee of the Fund, according to such lists of
authorized officers and employees furnished to the Agent and as amended from
time to time in writing by a resolution of the Board of Directors of the Fund;
or as a result of acting in reliance upon any genuine instrument or stock
certificate signed, countersigned or executed by any person or persons
authorized to sign, countersign or execute the same.
In order for this section to apply, it is understood that if in any
case the Fund may be asked to indemnify or hold harmless the Agent, the Fund
shall be advised of all pertinent facts concerning the situation in question,
and it is further understood that the Agent will use reasonable care to notify
the Fund promptly concerning any situation which presents or appears likely to
present a claim for indemnification against the Fund. The Fund shall have the
option to defend the Agent against any claim which may be the subject of this
indemnification and, in the event that the Fund so elects, the Agent will so
notify the Fund, and thereupon the Fund shall take over complete defense of the
claim and the Agent shall sustain no further legal or other expenses in such
situation for which the Agent shall seek indemnification under this section. The
Agent will in no case confess any claim or make any compromise in any case in
which the Fund will be asked to indemnify the Agent, except with the Fund's
prior written consent.
7. Confidentiality
---------------
The Agent agrees on behalf of itself and its employees to treat
confidentially all records and other information relative to the Fund and its
shareholders and shall not be disclosed to any other party, except after prior
notification to and approval in writing by the Fund, which approval shall not be
unreasonably withheld and may not be withheld where the Agent may be exposed to
civil or criminal contempt proceedings for failure to comply after being
requested to divulge such information by duly constituted authorities.
8. Wisconsin Law to Apply
----------------------
This Agreement shall be construed and the provisions thereof
interpreted under and in accordance with the laws of the state of Wisconsin.
9. Amendment, Assignment, Termination and Notice
---------------------------------------------
A. This Agreement may be amended by the mutual written consent of the
parties.
B. This Agreement may be terminated upon ninety (90) day's written notice
given by one party to the other.
C. This Agreement and any right or obligation hereunder may not be
assigned by either party without the signed, written consent of the
other party.
5
<PAGE>
D. Any notice required to be given by the parties to each other under the
terms of this Agreement shall be in writing, addressed and delivered,
or mailed to the principal place of business of the other party.
E. In the event that the Fund gives to the Agent its written intention to
terminate and appoint a successor transfer agent, the Agent agrees to
cooperate in the transfer of its duties and responsibilities to the
successor, including any and all relevant books, records and other
data established or maintained by the Agent under this Agreement.
F. Should the Fund exercise its right to terminate, all out-of-pocket
expenses associated with the movement of records and material will be
paid by the Fund.
PRUDENT BEAR FUNDS, INC. FIRSTAR MUTUAL FUND SERVICES,
LLC
By:__________________________________ By:_______________________________
6
FUND ACCOUNTING SERVICING AGREEMENT
-----------------------------------
THIS AGREEMENT between Prudent Bear Funds, Inc., a Maryland
Corporation, on behalf of Prudent Safe Harbor Fund, hereinafter called the
"Fund," and Firstar Mutual Fund Services, LLC, a Wisconsin limited liability
company, hereinafter called "Firstar," is entered into on this 31st day of
January, 2000.
W I T N E S S E T H :
- - - - - - - - - -
WHEREAS, the Fund is an open-end management investment company which
is registered under the Investment Company Act of 1940; and
WHEREAS, Firstar is in the business of providing, among other things,
mutual fund accounting services to investment companies;
NOW, THEREFORE, the parties do mutually promise and agree as follows:
1. Services. Firstar agrees to provide the following mutual fund
accounting services to the Fund:
A. Portfolio Accounting Services:
(1) Maintain portfolio records on a trade date +1 basis using
security trade information communicated from the investment
manager on a timely basis.
(2) For each valuation date, obtain prices from a pricing source
approved by the Board of Directors and apply those prices to
the portfolio positions. For those securities where market
quotations are not readily available, the Board of Directors
shall approve, in good faith, the method for determining the
fair value for such securities.
(3) Identify interest and dividend accrual balances as of each
valuation date and calculate gross earnings on investments
for the accounting period.
(4) Determine gain/loss on security sales and identify them as
to short- or long-term status; account for periodic
distributions of gains or losses to shareholders and
maintain undistributed gain or loss balances as of each
valuation date.
B. Expense Accrual and Payment Services:
(1) For each valuation date, calculate the expense accrual
amounts as directed by the Fund as to methodology, rate or
dollar amount.
<PAGE>
(2) Record payments for Fund expenses upon receipt of written
authorization from the Fund.
(3) Account for fund expenditures and maintain expense accrual
balances at the level of accounting detail, as agreed upon
by Firstar and the Fund.
(4) Provide expense accrual and payment reporting.
C. Fund Valuation and Financial Reporting Services:
(1) Account for fund share purchases, sales, exchanges,
transfers, dividend reinvestments, and other fund share
activity as reported by the transfer agent on a timely
basis.
(2) Apply equalization accounting as directed by the Fund.
(3) Determine net investment income (earnings) for the Fund as
of each valuation date. Account for periodic distributions
of earnings to shareholders and maintain undistributed net
investment income balances as of each valuation date.
(4) Maintain a general ledger for the Fund in the form as agreed
upon.
(5) For each day the Fund is open as defined in the prospectus
determine the net asset value according to the accounting
policies and procedures set forth in the prospectus.
(6) Calculate per share net asset value, per share net earnings,
and other per share amounts reflective of fund operation at
such time as required by the nature and characteristics of
the Fund.
(7) Communicate, at an agreed upon time, the per share price for
each valuation date to parties as agreed upon from time to
time.
(8) Prepare monthly reports which document the adequacy of
accounting detail to support month-end ledger balances.
D. Tax Accounting Services:
(1) Maintain tax accounting records for the investment portfolio
of the Fund to support the tax reporting required for
IRS-defined regulated investment companies.
(2) Maintain tax lot detail for the investment portfolio.
2
<PAGE>
(3) Calculate taxable gain/loss on security sales using the tax
cost basis designated by the Fund.
(4) Provide the necessary financial information to support the
taxable components of income and capital gains distributions
to the transfer agent to support tax reporting to the
shareholders.
E. Compliance Control Services:
(1) Support reporting to regulatory bodies and support financial
statement preparation by making the fund accounting records
available to the Fund, David W. Tice & Associates, Inc., the
Securities and Exchange Commission, and the outside
auditors.
(2) Maintain accounting records according to the Investment
Company Act of 1940 and regulations provided thereunder.
2. Changes in Accounting Procedures. Any resolution passed by the
Board of Directors that affects accounting practices and procedures under this
agreement shall be effective upon written receipt and acceptance by Firstar.
3. Changes in Equipment, Systems, Service, Etc. Firstar reserves the
right to make changes from time to time, as it deems advisable, relating to its
services, systems, programs, rules, operating schedules and equipment, so long
as such changes do not adversely affect the service provided to the Fund under
this Agreement.
4. Compensation. Firstar shall be compensated for providing the
services set forth in this Agreement in accordance with the Fee Schedule
attached hereto as Exhibit A and as mutually agreed upon and amended from time
to time.
5. Performance of Service. Firstar shall exercise reasonable care in
the performance of its duties under the Agreement. The Fund agrees to reimburse
and make Firstar whole for any loss or damages (including reasonable fees and
expenses of legal counsel) arising out of or in connection with its actions
under this Agreement so long as Firstar acts in good faith and is not negligent
or guilty of any willful misconduct.
Firstar shall not be liable or responsible for delays or errors
occurring by reason of circumstances beyond its control, including acts of civil
or military authority, natural or state emergencies, fire, mechanical breakdown,
flood or catastrophe, acts of God, insurrection, war, riots or failure of
transportation, communication or power supply.
In the event of a mechanical breakdown beyond its control, Firstar
shall take all reasonable steps to minimize service interruptions for any period
that such interruption continues beyond Firstar's control. Firstar will make
every reasonable effort to restore any lost or damaged data and the correcting
of any errors resulting from such a breakdown will be at the expense of Firstar.
Firstar agrees that it shall at all times have reasonable contingency
3
<PAGE>
plans with appropriate parties, making reasonable provision for emergency use of
electrical data processing equipment to the extent appropriate equipment is
available. Representatives of the Fund shall be entitled to inspect Firstar's
premises and operating capabilities at any time during regular business hours of
Firstar, upon reasonable notice to Firstar.
This indemnification includes any act, omission to act, or delay by
Firstar in reliance upon, or in accordance with, any written or oral instruction
it receives from any duly authorized officer of the Fund.
Regardless of the above, Firstar reserves the right to reprocess and
correct administrative errors at its own expense.
6. No Agency Relationship. Nothing herein contained shall be deemed to
authorize or empower Firstar to act as agent for any other party to this
Agreement, or to conduct business in the name of, or for the account of, any
other party to this Agreement.
7. Ownership of Records. All records prepared or maintained by Firstar
on behalf of the Fund remain the property of the Fund and will be surrendered
promptly on the written request of an authored officer of the Fund.
8. Confidentiality. Firstar shall handle in confidence all information
relating to the Fund's business, which is received by Firstar during the course
of rendering any service hereunder.
9. Data Necessary to Perform Services. The Fund or its agent, which
may be Firstar, shall furnish to Firstar the data necessary to perform the
services described herein at times and in such form as mutually agreed upon.
10. Notification of Error. The Fund will notify Firstar of any
balancing or control error caused by Firstar within three (3) business days
after receipt of any reports rendered by Firstar to the Fund, or within three
(3) business days after discovery of any error or omission not covered in the
balancing or control procedure, or within three (3) business days of receiving
notice from any shareholder.
11. Term of Agreement. This Agreement may be terminated by either
party upon giving ninety (90) days prior written notice to the other party or
such shorter period as is mutually agreed upon by the parties. However, this
Agreement may be replaced or modified by a subsequent agreement between the
parties.
12. Duties in the Event of Termination. In the event that in
connection with termination a Successor to any of Firstar's duties or
responsibilities hereunder is designated by the Fund by written notice to
Firstar, Firstar will promptly, upon such termination and at the expense of the
Fund, transfer to such Successor all relevant books, records, correspondence and
other data established or maintained by Firstar under this Agreement in a form
reasonably acceptable to the Fund (if such form differs from the form in which
Firstar has maintained the same, the Fund shall pay any expenses associated with
4
<PAGE>
transferring the same to such form), and will cooperate in the transfer of such
duties and responsibilities, including provision for assistance from Firstar's
personnel in the establishment of books, records and other data by such
successor.
13. Choice of Law. This Agreement shall be construed in accordance
with the laws of the State of Wisconsin.
IN WITNESS WHEREOF, the due execution hereof on the date first above
written.
FIRSTAR MUTUAL FUND SERVICES, LLC
By___________________________________
PRUDENT BEAR FUNDS, INC.
By___________________________________
5
FUND ACCOUNTING SERVICING AGREEMENT
-----------------------------------
THIS AGREEMENT between Prudent Bear Funds, Inc., a Maryland
Corporation, on behalf of Prudent Bear Large Cap Fund, hereinafter called the
"Fund," and Firstar Mutual Fund Services, LLC, a Wisconsin limited liability
company, hereinafter called "Firstar," is entered into on this 31st day of
January, 2000.
W I T N E S S E T H :
- - - - - - - - - -
WHEREAS, the Fund is an open-end management investment company which
is registered under the Investment Company Act of 1940; and
WHEREAS, Firstar is in the business of providing, among other things,
mutual fund accounting services to investment companies;
NOW, THEREFORE, the parties do mutually promise and agree as
follows:
1. Services. Firstar agrees to provide the following mutual fund
accounting services to the Fund:
A. Portfolio Accounting Services:
(1) Maintain portfolio records on a trade date +1 basis using
security trade information communicated from the investment
manager on a timely basis.
(2) For each valuation date, obtain prices from a pricing source
approved by the Board of Directors and apply those prices to
the portfolio positions. For those securities where market
quotations are not readily available, the Board of Directors
shall approve, in good faith, the method for determining the
fair value for such securities.
(3) Identify interest and dividend accrual balances as of each
valuation date and calculate gross earnings on investments
for the accounting period.
(4) Determine gain/loss on security sales and identify them as
to short- or long-term status; account for periodic
distributions of gains or losses to shareholders and
maintain undistributed gain or loss balances as of each
valuation date.
B. Expense Accrual and Payment Services:
(1) For each valuation date, calculate the expense accrual
amounts as directed by the Fund as to methodology, rate or
dollar amount.
<PAGE>
(2) Record payments for Fund expenses upon receipt of written
authorization from the Fund.
(3) Account for fund expenditures and maintain expense accrual
balances at the level of accounting detail, as agreed upon
by Firstar and the Fund.
(4) Provide expense accrual and payment reporting.
C. Fund Valuation and Financial Reporting Services:
(1) Account for fund share purchases, sales, exchanges,
transfers, dividend reinvestments, and other fund share
activity as reported by the transfer agent on a timely
basis.
(2) Apply equalization accounting as directed by the Fund.
(3) Determine net investment income (earnings) for the Fund as
of each valuation date. Account for periodic distributions
of earnings to shareholders and maintain undistributed net
investment income balances as of each valuation date.
(4) Maintain a general ledger for the Fund in the form as agreed
upon.
(5) For each day the Fund is open as defined in the prospectus
determine the net asset value according to the accounting
policies and procedures set forth in the prospectus.
(6) Calculate per share net asset value, per share net earnings,
and other per share amounts reflective of fund operation at
such time as required by the nature and characteristics of
the Fund.
(7) Communicate, at an agreed upon time, the per share price for
each valuation date to parties as agreed upon from time to
time.
(8) Prepare monthly reports which document the adequacy of
accounting detail to support month-end ledger balances.
D. Tax Accounting Services:
(1) Maintain tax accounting records for the investment portfolio
of the Fund to support the tax reporting required for
IRS-defined regulated investment companies.
(2) Maintain tax lot detail for the investment portfolio.
2
<PAGE>
(3) Calculate taxable gain/loss on security sales using the tax
cost basis designated by the Fund.
(4) Provide the necessary financial information to support the
taxable components of income and capital gains distributions
to the transfer agent to support tax reporting to the
shareholders.
E. Compliance Control Services:
(1) Support reporting to regulatory bodies and support financial
statement preparation by making the fund accounting records
available to the Fund, David W. Tice & Associates, Inc., the
Securities and Exchange Commission, and the outside
auditors.
(2) Maintain accounting records according to the Investment
Company Act of 1940 and regulations provided thereunder.
2. Changes in Accounting Procedures. Any resolution passed by the
Board of Directors that affects accounting practices and procedures under this
agreement shall be effective upon written receipt and acceptance by Firstar.
3. Changes in Equipment, Systems, Service, Etc. Firstar reserves the
right to make changes from time to time, as it deems advisable, relating to its
services, systems, programs, rules, operating schedules and equipment, so long
as such changes do not adversely affect the service provided to the Fund under
this Agreement.
4. Compensation. Firstar shall be compensated for providing the
services set forth in this Agreement in accordance with the Fee Schedule
attached hereto as Exhibit A and as mutually agreed upon and amended from time
to time.
5. Performance of Service. Firstar shall exercise reasonable care in
the performance of its duties under the Agreement. The Fund agrees to reimburse
and make Firstar whole for any loss or damages (including reasonable fees and
expenses of legal counsel) arising out of or in connection with its actions
under this Agreement so long as Firstar acts in good faith and is not negligent
or guilty of any willful misconduct.
Firstar shall not be liable or responsible for delays or errors
occurring by reason of circumstances beyond its control, including acts of civil
or military authority, natural or state emergencies, fire, mechanical breakdown,
flood or catastrophe, acts of God, insurrection, war, riots or failure of
transportation, communication or power supply.
In the event of a mechanical breakdown beyond its control, Firstar
shall take all reasonable steps to minimize service interruptions for any period
that such interruption continues beyond Firstar's control. Firstar will make
every reasonable effort to restore any lost or damaged data and the correcting
of any errors resulting from such a breakdown will be at the expense of Firstar.
Firstar agrees that it shall at all times have reasonable contingency
3
<PAGE>
plans with appropriate parties, making reasonable provision for emergency use of
electrical data processing equipment to the extent appropriate equipment is
available. Representatives of the Fund shall be entitled to inspect Firstar's
premises and operating capabilities at any time during regular business hours of
Firstar, upon reasonable notice to Firstar.
This indemnification includes any act, omission to act, or delay by
Firstar in reliance upon, or in accordance with, any written or oral instruction
it receives from any duly authorized officer of the Fund.
Regardless of the above, Firstar reserves the right to reprocess and
correct administrative errors at its own expense.
6. No Agency Relationship. Nothing herein contained shall be deemed to
authorize or empower Firstar to act as agent for any other party to this
Agreement, or to conduct business in the name of, or for the account of, any
other party to this Agreement.
7. Ownership of Records. All records prepared or maintained by Firstar
on behalf of the Fund remain the property of the Fund and will be surrendered
promptly on the written request of an authored officer of the Fund.
8. Confidentiality. Firstar shall handle in confidence all information
relating to the Fund's business, which is received by Firstar during the course
of rendering any service hereunder.
9. Data Necessary to Perform Services. The Fund or its agent, which
may be Firstar, shall furnish to Firstar the data necessary to perform the
services described herein at times and in such form as mutually agreed upon.
10. Notification of Error. The Fund will notify Firstar of any
balancing or control error caused by Firstar within three (3) business days
after receipt of any reports rendered by Firstar to the Fund, or within three
(3) business days after discovery of any error or omission not covered in the
balancing or control procedure, or within three (3) business days of receiving
notice from any shareholder.
11. Term of Agreement. This Agreement may be terminated by either
party upon giving ninety (90) days prior written notice to the other party or
such shorter period as is mutually agreed upon by the parties. However, this
Agreement may be replaced or modified by a subsequent agreement between the
parties.
12. Duties in the Event of Termination. In the event that in
connection with termination a Successor to any of Firstar's duties or
responsibilities hereunder is designated by the Fund by written notice to
Firstar, Firstar will promptly, upon such termination and at the expense of the
Fund, transfer to such Successor all relevant books, records, correspondence and
other data established or maintained by Firstar under this Agreement in a form
reasonably acceptable to the Fund (if such form differs from the form in which
Firstar has maintained the same, the Fund shall pay any expenses associated with
4
<PAGE>
transferring the same to such form), and will cooperate in the transfer of such
duties and responsibilities, including provision for assistance from Firstar's
personnel in the establishment of books, records and other data by such
successor.
13. Choice of Law. This Agreement shall be construed in accordance
with the laws of the State of Wisconsin.
IN WITNESS WHEREOF, the due execution hereof on the date first above
written.
FIRSTAR MUTUAL FUND SERVICES, LLC
By__________________________________
PRUDENT BEAR FUNDS, INC.
By__________________________________
5
CONSENT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors of
Prudent Bear Funds, Inc.
We consent to the incorporation by reference in Post-Effective Amendment No. 6
to the Registration Statement of Prudent Bear Funds, Inc., on Form N-1A of our
report dated November 19, 1998, on our audit of the financial statements and
financial highlights of Prudent Bear Fund (one of the portfolios constituting
Prudent Bear Funds, Inc.), which report is included in the Annual Report to
Shareholders for the year ended September 30, 1998, which is incorporated by
reference in the Post-Effective Amendment to the Registration Statement. We also
consent to the references to our Firm under the captions "Independent
Accountants" in the Statement of Additional Information and "Financial
Highlights" in the Prospectus.
PricewaterhouseCoopers LLP
Milwaukee, Wisconsin
November 16, 1999
SERVICE AND DISTRIBUTION PLAN
FOR
CLASS D COMMON STOCK
(PRUDENT SAFE HARBOR FUND - NO LOAD SHARES)
OF
PRUDENT BEAR FUNDS, INC.
WHEREAS, Prudent Bear Funds, Inc. (the "Fund") is registered with the
Securities and Exchange Commission as an open-end management investment company
under the Investment Company Act of 1940, as amended (the "Act");
WHEREAS, the Fund intends to act as a distributor of shares of its
Class D Common Stock, $.0001 par value ("Class D Common Stock"), as defined in
Rule 12b-1 under the Act, and desires to adopt a distribution plan pursuant to
such Rule, and the Board of Directors has determined that there is a reasonable
likelihood that adoption of this Service and Distribution Plan will benefit the
Fund and the shareholders of Class D Common Stock (collectively, the
"Shareholders" and singularly "Shareholder"); and
WHEREAS, the Fund may enter into agreements with dealers and other
financial service organizations to obtain various distribution-related and/or
Shareholder services for the Fund, all as permitted and contemplated by Rule
12b-1 under the Act; it being understood that to the extent any activity is one
in which the Fund may finance without a Rule 12b-1 plan, the Fund may also make
payments to finance such activity outside such plan and not subject to its
limitations.
NOW, THEREFORE, the Fund hereby adopts this Service and Distribution
Plan (the Plan) in accordance with Rule 12b-1 under the Act on the following
terms and conditions:
1. Distribution and Service Fee. The Fund may charge a distribution
expense and service fee on an annualized basis of 0.25% of the average daily net
assets of the Class D Common Stock. Such fee shall be calculated and accrued
daily and paid at such intervals as the Board of Directors of the Fund shall
determine, subject to any applicable restriction imposed by rules of the
National Association of Securities Dealers, Inc.
2. Permitted Expenditures. The amount set forth in paragraph 1 of this
Plan shall be paid for services or expenses primarily intended to result in the
sale of the Fund's Class D Common Stock. The Fund may pay all or a portion of
this fee to any securities dealer, financial institution or any other person
(the "Shareholder Organization(s)") who renders personal service to
Shareholders, assists in the maintenance of Shareholder accounts or who
<PAGE>
renders assistance in distributing or promoting the sale of the Fund's Class D
Common Stock pursuant to a written agreement approved by the Board of Directors
(the "Related Agreement"). To the extent such fee is not paid to such persons,
the Fund may use the fee for its expenses of distribution of its Class D Common
Stock including, but not limited to, payment by the Fund of the cost of
preparing, printing and distributing Prospectuses and Statements of Additional
Information to prospective investors and of implementing and operating the Plan
as well as payment of capital or other expenses of associated equipment, rent,
salaries, bonuses, interest and other overhead costs.
3. Effective Date of Plan. This Plan shall not take effect until (a)
it has been approved by votes of a majority of both (i) the Board of Directors
of the Fund and (ii) those Directors of the Fund who are not "interested
persons" of the Fund (as defined in the Act) and have no direct or indirect
financial interest in the operation of this Plan or any agreements related to it
(the "Rule 12b-1 Directors"), cast in person at a meeting (or meetings) called
for the purpose of voting on this Plan and such related agreements.
4. Continuance. Unless otherwise terminated pursuant to paragraph 6
below, this Plan shall continue in effect for as long as such continuance is
specifically approved at least annually in the manner provided for approval of
this Plan in paragraph 3.
5. Reports. Any person authorized to direct the disposition of monies
paid or payable by the Fund pursuant to this Plan or any related agreement shall
provide to the Fund's Board of Directors and the Board shall review, at least
quarterly, a written report of the amounts so expended and the purposes for
which such expenditures were made.
6. Termination. This Plan may be terminated at any time by vote of a
majority of the Rule 12b-1 Directors, or by vote of a majority of the
outstanding shares of Class D Common Stock.
7. Amendments. This Plan may not be amended to increase materially the
amount of payments provided for in paragraph 1 hereof unless such amendment is
approved in the manner provided for initial approval in paragraph 3 hereof and
by a vote of at least a majority of the outstanding shares of Class D Common
Stock. No other amendment to the Plan may be made unless approved in the manner
provided for approval of this Plan in paragraph 3.
8. Selection of Directors. While this Plan is in effect, the selection
and nomination of Directors who are not interested persons (as defined in the
Act) of the Fund shall be committed to the discretion of the Directors who are
not interested persons.
9. Records. The Fund shall preserve copies of this Plan and any
related agreements and all reports made pursuant to paragraph 6 hereof, for a
period of not less than six years form the date of this Plan, or the agreements
or such report, as the case may be, the first two years in an easily accessible
place.
2
SERVICE AND DISTRIBUTION PLAN
FOR
CLASS E COMMON STOCK
(PRUDENT BEAR LARGE CAP FUND - NO LOAD SHARES)
OF
PRUDENT BEAR FUNDS, INC.
WHEREAS, Prudent Bear Funds, Inc. (the "Fund") is registered with the
Securities and Exchange Commission as an open-end management investment company
under the Investment Company Act of 1940, as amended (the "Act");
WHEREAS, the Fund intends to act as a distributor of shares of its
Class E Common Stock, $.0001 par value ("Class E Common Stock"), as defined in
Rule 12b-1 under the Act, and desires to adopt a distribution plan pursuant to
such Rule, and the Board of Directors has determined that there is a reasonable
likelihood that adoption of this Service and Distribution Plan will benefit the
Fund and the shareholders of Class E Common Stock (collectively, the
"Shareholders" and singularly "Shareholder"); and
WHEREAS, the Fund may enter into agreements with dealers and other
financial service organizations to obtain various distribution-related and/or
Shareholder services for the Fund, all as permitted and contemplated by Rule
12b-1 under the Act; it being understood that to the extent any activity is one
in which the Fund may finance without a Rule 12b-1 plan, the Fund may also make
payments to finance such activity outside such plan and not subject to its
limitations.
NOW, THEREFORE, the Fund hereby adopts this Service and Distribution
Plan (the Plan) in accordance with Rule 12b-1 under the Act on the following
terms and conditions:
1. Distribution and Service Fee. The Fund may charge a distribution
expense and service fee on an annualized basis of 0.25% of the average daily net
assets of the Class E Common Stock. Such fee shall be calculated and accrued
daily and paid at such intervals as the Board of Directors of the Fund shall
determine, subject to any applicable restriction imposed by rules of the
National Association of Securities Dealers, Inc.
2. Permitted Expenditures. The amount set forth in paragraph 1 of this
Plan shall be paid for services or expenses primarily intended to result in the
sale of the Fund's Class E Common Stock. The Fund may pay all or a portion of
this fee to any securities dealer, financial institution or any other person
(the "Shareholder Organization(s)") who renders personal service to
Shareholders, assists in the maintenance of Shareholder accounts or who
<PAGE>
renders assistance in distributing or promoting the sale of the Fund's Class E
Common Stock pursuant to a written agreement approved by the Board of Directors
(the "Related Agreement"). To the extent such fee is not paid to such persons,
the Fund may use the fee for its expenses of distribution of its Class E Common
Stock including, but not limited to, payment by the Fund of the cost of
preparing, printing and distributing Prospectuses and Statements of Additional
Information to prospective investors and of implementing and operating the Plan
as well as payment of capital or other expenses of associated equipment, rent,
salaries, bonuses, interest and other overhead costs.
3. Effective Date of Plan. This Plan shall not take effect until (a)
it has been approved by votes of a majority of both (i) the Board of Directors
of the Fund and (ii) those Directors of the Fund who are not "interested
persons" of the Fund (as defined in the Act) and have no direct or indirect
financial interest in the operation of this Plan or any agreements related to it
(the "Rule 12b-1 Directors"), cast in person at a meeting (or meetings) called
for the purpose of voting on this Plan and such related agreements.
4. Continuance. Unless otherwise terminated pursuant to paragraph 6
below, this Plan shall continue in effect for as long as such continuance is
specifically approved at least annually in the manner provided for approval of
this Plan in paragraph 3.
5. Reports. Any person authorized to direct the disposition of monies
paid or payable by the Fund pursuant to this Plan or any related agreement shall
provide to the Fund's Board of Directors and the Board shall review, at least
quarterly, a written report of the amounts so expended and the purposes for
which such expenditures were made.
6. Termination. This Plan may be terminated at any time by vote of a
majority of the Rule 12b-1 Directors, or by vote of a majority of the
outstanding shares of Class E Common Stock.
7. Amendments. This Plan may not be amended to increase materially the
amount of payments provided for in paragraph 1 hereof unless such amendment is
approved in the manner provided for initial approval in paragraph 3 hereof and
by a vote of at least a majority of the outstanding shares of Class E Common
Stock. No other amendment to the Plan may be made unless approved in the manner
provided for approval of this Plan in paragraph 3.
8. Selection of Directors. While this Plan is in effect, the selection
and nomination of Directors who are not interested persons (as defined in the
Act) of the Fund shall be committed to the discretion of the Directors who are
not interested persons.
9. Records. The Fund shall preserve copies of this Plan and any
related agreements and all reports made pursuant to paragraph 6 hereof, for a
period of not less than six years form the date of this Plan, or the agreements
or such report, as the case may be, the first two years in an easily accessible
place.
2
PRUDENT BEAR FUNDS, INC.
RULE 18f-3 MULTI-CLASS PLAN
as amended November 16, 1999
I. Introduction.
Pursuant to Rule 18f-3 under the Investment Company Act of 1940, as amended
(the "1940 Act"), the following sets forth the method for allocating fees
and expenses among each class of shares of Prudent Bear Funds, Inc. (the
"Company" or "Multi-Class Fund"). In addition, this Rule 18f-3 Multi-Class
Plan (the "Plan") sets forth the front-end sales charges, Rule 12b-1
distribution expenses and service fees and other charges and fees of each
class of shares in the Multi-Class Fund.
The Company is an open-end management investment company registered under
the 1940 Act, the shares of which are registered on Form N-1A under the
Securities Act of 1933 (Reg. No. 333-98726). Upon the effective date of
this Plan, the Company hereby elects to offer multiple classes pursuant to
the provisions of Rule 18f-3 and this Plan.
II. Allocation of Expenses.
Pursuant to Rule 18f-3 under the 1940 Act, the Company shall allocate to
each class of shares any fees and expenses incurred by the Company in
connection with the distribution of such class of shares under a service
and distribution plan adopted for such class of shares pursuant to Rule
12b-1. In addition, pursuant to rule 18f-3, the Company may allocate the
following fees and expenses to a particular class of shares:
(i) transfer agent fees and related expenses identified by the transfer
agent as being attributable to such class of shares;
(ii) printing and postage expenses related to preparing and distributing
materials such as shareholder reports, prospectuses, reports, and
proxies to current shareholders of such class of shares or to
regulatory agencies with respect to such class of shares;
(iii)blue sky registration or qualification fees incurred by such class of
shares;
(iv) Securities and Exchange Commission registration fees incurred by such
class of shares;
(v) the expense of administrative personnel and services (including, but
not limited to, those of a fund accountant, or dividend paying agent
charged with
<PAGE>
calculating net asset values or determining or paying dividends1), as
required to support the shareholders of such class of shares;
(vi) litigation or other legal expenses relating solely to such class of
shares;
(vii)fees of the Company's Directors incurred as a result of issues
relating to such class of shares; and
(viii) independent accountants' fees relating solely to such class of
shares.
The initial determination of the class expenses that will be allocated by
the Company to a particular class of shares and any subsequent changes
thereto will be reviewed by the Board of Directors and approved by a vote
of the Directors of the Company, including a majority of the Directors who
are not interested persons of the Company.
Income, realized and unrealized capital gains and losses, and any expenses
of the Multi-Class Fund not allocated to a particular class of the Company
pursuant to this Plan shall be allocated to each class of the Company on
the basis of the net asset value of that class in relation to the net asset
value of the Company.
III. Class Arrangements.
The following summarizes the Rule 12b-1 distribution expenses and service
fees, exchange fees, and other fees and charges applicable to each class of
shares of the Multi-Class Fund. Additional details regarding such fees and
services are set forth in the Fund's current Prospectus and Statement of
Additional Information.
A. Class A Shares (Prudent Bear Fund No Load Shares)
1. Maximum Sales Load Imposed on Purchases: None.
2. Maximum Sales Load Imposed on Dividends: None.
3. Deferred Sales Load: None.
4. Redemption Fee: None.
5. Exchange Fee: None.
6. Rule 12b-1 Distribution Expenses and Service Fees: 0.25%.
7. Management Fees: 1.25%.
- -------------------
1 Rule 18f-3 requires that services related to the management of the
portfolio's assets, such as custodial fees, be borne by the Company and not by
class.
-2-
<PAGE>
B. Class C Shares (Prudent Bear Fund Class C Shares)
1. Maximum Sales Load Imposed on Purchases: None.
2. Maximum Sales Load Imposed on Dividends: None.
3. Deferred Sales Load: None.
4. Redemption Fee: 1.00%.
5. Exchange Fee: None.
6. Rule 12b-1 Distribution Expenses and Service Fees: 1.00%.
7. Management Fees: 1.25%.
C. Class D Shares (Prudent Safe Harbor Fund No Load Shares)
1. Maximum Sales Load Imposed on Purchases: None.
2. Maximum Sales Load Imposed on Dividends: None.
3. Deferred Sales Load: None.
4. Redemption Fee: None.
5. Exchange Fee: None.
6. Rule 12b-1 Distribution Expenses and Services Fees: 0.25%.
7. Management Fees: 0.75%.
D. Class E Shares (Prudent Bear Large Cap Fund No Load Shares)
1. Maximum Sales Load Imposed on Purchases: None.
2. Maximum Sales Load Imposed on Dividends: None.
3. Deferred Sales Load: None.
4. Redemption Fee: None.
5. Exchange Fee: None.
6. Rule 12b-1 Distribution Expenses and Services Fees: 0.25%.
7. Management Fees: 0.75%.
-3-
<PAGE>
IV. Board Review.
The Board of Directors of the Company shall review this Plan as frequently
as it deems necessary. Prior to any material amendments to this Plan, the
Company's Board of Directors, including a majority of the Directors that
are not interested persons of the Company, shall find that the Plan, as
proposed to be amended (including any proposed amendments to create a
conversion feature or alter the method of allocating class and/or fund
expenses), is in the best interest of each class of shares of a Multi-Class
Fund individually and the Fund as a whole. In considering whether to
approve any proposed amendment to the Plan, the Directors of the Company
shall request and evaluate such information as they consider reasonably
necessary to evaluate the proposed amendment to the Plan.
In making its initial determination to approve this Plan, the Board focused
on, among other things, the relationship between or among the classes and
examined potential conflicts of interest between classes regarding the
allocation of fees, services, reimbursement of expenses and voting rights.
The Board evaluated the level of services provided to each class and the
cost of those services to ensure that the services are appropriate and the
allocation of expenses is reasonable. In approving any subsequent
amendments to this Plan, the Board shall focus on and evaluate the
above-referenced factors as well as any others deemed necessary by the
Board.
-4-
