The Bag o' Bones may be thrown at a target (range and modifiers as a Dagger). Upon striking the ground, presumably at the target's feet, its tie will fly loose and a pile of bones will spill out. The bones will form into a fully functional skeleton on the round the bag is thrown. The skeleton will be armed with a bone club.
The target must make a saving throw vs Fear. If failed, the target is frozen in fear, rooted to the spot, until attacked. Whether the attack is successful or not, the target will then flee. The fleeing target may make another saving throw each round, to shake off the fear. Obviously, if the saving throw is successful, the target acts normally.
This is a one-use item. The skeleton is in no fashion under the control of the owner of the bag. It functions as a normal skeleton. It will continue attacking should its first target be slain, moving on to a randomly determined target, including possibly the thrower or his allies. Note that subsequent targets are not subject to the Fear effect.
