UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED
MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number 811-22077
Prospector Funds, Inc.
(Exact name of registrant as specified in charter)
370 Church St., Guilford, CT 06437
(Address of principal executive offices) (Zip code)
Prospector Partners Asset Management, LLC, 370 Church St., Guilford, CT 06437
(Name and address of agent for service)
(203) 458-1500
Registrant's telephone number, including area code
Date of fiscal year end: December 31, 2010
Date of reporting period: June 30, 2010
Item 1. Report to Stockholders.
Prospector Capital Appreciation Fund
Prospector Opportunity Fund
Semi-Annual Report
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www.prospectorfunds.com
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June 30, 2010
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PROSPECTOR FUNDS, INC.
To the Shareholders of the Prospector Capital Appreciation Fund and Prospector Opportunity Fund:
The dominant event of the first six months of 2010 was the sovereign debt crisis and subsequent bailout in Europe. Greece’s uncertain ability to service its debts precipitated the crisis. This comes as no surprise; Greece has been in default on its sovereign debt half of the time in the last hundred years! In addition to concerns over Greece, uncertainty quickly spread to the debt servicing abilities of other over leveraged European countries such as Portugal, Ireland, Italy, and Spain (collectively referred to by the acronym PIIG’s). The larger solvent countries, Germany and France, felt compelled to lead a rescue effort fearing the cross ownership of sovereign debt in the Eurozone might trigger a panicky market episode.
These troubled countries are borrowing heavily and more rapidly than they can sustainably grow their economies. This resulting imbalance could cause a painful correction at some point. Central Bank monetary policy of low short-term interest rates, both in the US and abroad, designed to stimulate economic recovery, carries significant potential long term consequences of growing the size of these imbalances and risking high future inflation.
While April’s Deepwater Horizon rig sinking was a horrible environmental disaster, our President’s constant BP Plc. bashing has cast a pall over financial markets out of proportion to the spill’s financial importance. In our view this accident was primarily one of human error. There were clearly bad decisions made by BP’s man on the spot and most were probably influenced by a corporate culture that puts profits ahead of employee safety and the environment. Regardless, we acknowledge BP is a cash rich company financially able to fund a sensible clean up. We’d heavily discount a bankruptcy that wiped out bond holders, but think a filing designed to control the legal blizzard possible although unlikely.
Only our Government can turn Macondo into a true economic cataclysm. The deep water drilling ban was a step in this direction; we believe additional funding for alternative energy schemes would be another. We can only hope that once the well’s permanently capped rational economics and the rule of law will take precedence. One more thing, we doubt anyone will be naming future exploration wells for cursed fictional towns.
The sovereign crisis in Europe, the Gulf of Mexico oil spill plus other unsettling big picture factors such as shaky US state and municipal finances, troubling “Axis of Evil” episodes in North Korea and Iran, social unrest in Thailand, etc. precipitated a sharp second quarter equity market sell off. Fear of a double dip recession also contributed. Investors aggressively derisked their portfolios.
Financial Reform
Effective July 21, 2010 President Obama signed into law the Dodd-Frank Wall Street Reform and Consumer Protection Act. The devil will be in the details. Federal agencies including the SEC, the Federal Reserve, The FDIC, the Office of the Comptroller of the Currency, the Commodity Futures Trading Commission, and the brand new Bureau of Consumer Financial Protection must now set rules for implementing the new regulations. Capital requirements will be increased. Proprietary trading and the derivatives market will be regulated. Hedge Fund and private equity advisors will need to register with the SEC.
1
PROSPECTOR FUNDS, INC.
Prospector Capital Appreciation Fund Highlights
The gold mining sector was the Prospector Capital Appreciation Fund’s most positive contributor to performance for the six months ended June 30, 2010 with Newmont Mining Corp (NEM) and Barrick Gold (ABX) the leading individual stocks. Also noteworthy were the appreciation of Millipore convertibles (takeover was key) and that of several smaller oil and gas producers, McMoran Exploration (MMR) and Cimarex Energy (XEC). Consistent with the generally weak stock market, most of our sector positions were down, although only modestly.
At the margin we continue adding recognized high quality stocks to the portfolio. A new Abbott Labs position was initiated and we bought more ADP and Walgreens. This seems almost surreal. We are used to buying mediocre companies that are getting better or good companies/securities that few have heard of, not recognized quality. The aforementioned stocks have had consistent long-term growth, high ROE’s, solid balance sheets, sustainable business models and surprisingly trade only about 25% above their March 2009 lows.
Six of our ten largest buys during the six months ended June 30, 2010 were convertible bonds, as we rotated out of appreciated positions and continually tried to raise the “bond value” of our portfolio while maintaining some upside. As of June 30, 2010, about nine tenths of our convert dollar investment matures or can be put over the next four and a half years. We believe this should limit our downside exposure should the correction continue or worsen
One last highlight. For the first time in a long time we added a housing related equity to your portfolio. First American Financial is a dominant title insurer with minimal net debt and potential share repurchase opportunities that can be funded from free cash flow and the sale of non-core assets. It sells below book and earnings projections suggest a P/E near ten. If housing begins improving or at least stabilizes, this could be an outstanding investment.
Prospector Opportunity Fund Highlights
The biggest contributor to Prospector Opportunity Fund’s performance for the six months ended June 30, 2010 was Newmont Mining Corp (NEM), which benefited from market uncertainty and the resultant strength in Gold. Other significant contributors to performance include property casualty stocks such as Zenith National (ZNT) which was acquired at a significant premium and Lancashire Holdings (LRE.LN), energy shares such as Hugoton (HGT), San Juan Basin (SJT) and Cimarex (XEC), and selected consumer stocks Church & Dwight (CHD) and YUM Brands (YUM). We continue to favor companies with solid balance sheets and strong free cash flow generation capabilities in the consumer staples and technology industries. We also maintain a significant bet in the metals area, specifically gold mining shares, and the energy sector as a potential hedge against future inflation and dollar weakness. In financial services, we favor property and casualty companies with disciplined balance sheets selling at discounts to book value, aggressively returning capital to owners, and prudently managing their exposures through the current soft pricing cycle.
2
PROSPECTOR FUNDS, INC.
Our largest purchases include shares in Oritani Financial Corp. (ORIT), a second step mutual savings bank conversion operating in New Jersey, Automatic Data Processing (ADP), and Molson Coors Brewing Company (TAP).
Outlook
No more uncertainty…all headlines are negative. But as we’ve said before, we’re so bearish we’re bullish. Policy makers have little choice but to continue the stimulative money flood. As long as our Government can keep borrowing money the long-term consequences of this stimulation will be delayed, our paper money will only gradually be debased and the positive macroeconomic background for equities should continue. In the past whenever the yield curve has been this steep we have pretty much been able to count on a strong economy nine months out. Okay, maybe “it’s different this time,” but usually it isn’t, and betting on a double dip recession seems extreme. More likely, in our opinion, we are going through a normal stop/start period of recovery augmented by the pessimism of a stock market correction.
Thanks to the recent decline, equity valuations look generally reasonable…with some, such as the seldom considered S&P 500’s price to sales, terrific. Combine this with strong earnings improvements, solid balance sheets, and very low interest rates and one would expect a bullish consensus. Not so. The problem is macroeconomic uncertainty. Extreme outcomes, often completely contradictory, seem possible. Consider one: inflation driven by an endless supply of paper money seems probable, but coherent predictions of deflation driven by long-term debt reduction aren’t crazy either. There are plenty of other paradoxes. Therefore, it seems sensible to prepare for a range of outcomes and be careful not to over bet on any one company, industry, theme, asset class or most important, one economic outcome. We have gone through a financial crisis; there will almost certainly be secondary effects.
Could we be on the cusp of another bear market? Well…it’s possible, but we doubt it. We feel that more likely it would be a period of modest stock market appreciation. A significant and extended bear market would pretty much require either a double dip recession or higher interest rates. Again these are possible but unlikely. But what if they happened? Well, for one thing, we can’t imagine that long term corporate bonds would be particularly good investments either. Would real estate returns attract investors’ dollars? Unlikely. Hopping in and out of cash never actually works despite its superficial attraction, and cash has a near zero return. No, the alternatives to equities are not appealing.
We are in the second year of Obama’s term — often a tough time. Domestic equity mutual funds are in net redemption. The stock market has suffered through a decade of subpar returns, impacting everyone’s psyche. Pessimism seems wise; optimism, naïve. But all this will pass with time. For now, we continue to believe the S&P 500 is stuck in a trading range (say 900 to 1350) that should eventually be broken on the upside.
Thank you for entrusting us with your money.
Respectfully yours,
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John D. Gillespie
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Richard P. Howard
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Kevin R. O’Brien
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3
PROSPECTOR FUNDS, INC.
Opinions expressed are those of the Funds and are subject to change, are not guaranteed, and should not be considered a recommendation to buy or sell any security.
Mutual fund investing involves risk. Principal loss is possible. Investments in debt securities typically decrease in value when interest rates rise. This risk is usually greater for longer-term debt securities. The Funds invest in foreign securities which involve greater volatility and political, economic and currency risks and differences in accounting methods. The Funds invest in smaller and mid-cap companies, which involve additional risks such as limited liquidity and greater volatility. The Funds may hold restricted securities purchased through private placements. Such securities can be difficult to sell without experiencing delays or additional costs. Derivatives involve risks different from, and in certain cases, greater than the risks presented by more traditional investments. These risks are fully disclosed in the prospectus.
The S&P 500 Index is a broad based unmanaged index of 500 stocks, which is widely recognized as representative of the equity market in general. You cannot invest directly in an index. Free cash flow measures the cash generating capability of a company by adding non-cash charges (e.g. depreciation) and interest expense to pretax income. The Price to Earnings (P/E) Ratio is calculated by dividing current price of the stock by the company’s trailing 12 months’ earnings per share. Earnings per share (EPS) is calculated by taking the total earnings divided by the number of shares outstanding.
Return on Equity (ROE) is a measure of a corporation’s profitability. It represents the average return on equity on the securities in the portfolio, not the actual return on equity on the portfolio. Book value is the net asset value of a company, calculated by subtracting total liabilities from total assets. The price to sales ratio is a tool for calculating a stock’s valuation relative to other companies, calculated by dividing a stock’s current price by its revenue per share.
The SEC does not endorse, indemnify, or guarantee any firm’s business practices, selling methods, the class or type of securities offered, or any specific security.
Estimated earnings per share growth rate is not a measure of the Fund’s future performance.
Fund holdings and/or security allocations are subject to change at any time and are not recommendations to buy or sell any security. Please see the Schedule of Investments section in this report for a full listing of the Funds holdings. Current and future portfolio holdings are subject to risk.
Prospector Funds, Inc. are distributed by Quasar Distributors, LLC.
4
PROSPECTOR FUNDS, INC.
Capital Appreciation Fund
The chart assumes an initial investment of $10,000. Performance reflects waivers of fee and operating expenses in effect. In the absence of such waivers, total return would be reduced. Past performance is not predictive of future performance. Investment return and principal value will fluctuate, so that your shares, when redeemed may be worth more or less than their original cost. Performance assumes the reinvestment of capital gains and income distributions. The performance does not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares.
Average Annual Rates of Return (%)
|
One Year Ended
|
Since Inception(1) to
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|
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June 30, 2010
|
June 30, 2010
|
|
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Capital Appreciation Fund
|
21.53%
|
-2.07%
|
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S&P 500 Index(2)
|
14.43%
|
-11.37%
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(1)
|
September 28, 2007
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(2)
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The Standard & Poor’s 500 Index (S&P 500) is an unmanaged, capitalization-weighted index generally representative of the U.S. market for large capitalization stocks. This Index cannot be invested in directly.
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5
PROSPECTOR FUNDS, INC.
Opportunity Fund
The chart assumes an initial investment of $10,000. Performance reflects waivers of fee and operating expenses in effect. In the absence of such waivers, total return would be reduced. Past performance is not predictive of future performance. Investment return and principal value will fluctuate, so that your shares, when redeemed may be worth more or less than their original cost. Performance assumes the reinvestment of capital gains and income distributions. The performance does not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares.
Average Annual Rates of Return (%)
|
One Year Ended
|
Since Inception(1) to
|
|
|
June 30, 2010
|
June 30, 2010
|
|
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Opportunity Fund
|
17.97%
|
-0.43%
|
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Russell 2000 Index(2)
|
21.48%
|
-8.63%
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Russell Midcap Index(3)
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25.13%
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-8.83%
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(1)
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September 28, 2007
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(2)
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An unmanaged small-cap index that measures the performance of the 2,000 smallest companies in the Russell 3000 Index. This index cannot be invested in directly.
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(3)
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An unmanaged mid-cap index that measures the performance of the 800 smallest companies in the Russell 1000 Index. This index cannot be invested in directly.
|
6
PROSPECTOR FUNDS, INC.
Expense Example
June 30, 2010
As a shareholder of the Fund, you incur two types of costs: (1) transaction costs, which may include but are not limited to, redemption fees, wire transfer fees, maintenance fee (IRA accounts), and exchange fees; and (2) ongoing costs, including management fees; distribution and/or service fees; and other Fund expenses. This Example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds. The Example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period (January 1, 2010 – June 30, 2010).
ACTUAL EXPENSES
The first line of the table below provides information about actual account values and actual expenses. Although the Fund charges no sales load or transaction fees, you will be assessed fees for outgoing wire transfers, returned checks and stop payment orders at prevailing rates charged by U.S. Bancorp Fund Services, LLC, the Fund’s transfer agent. The example below includes, but is not limited to, management fees, shareholder servicing fees and other Fund expenses. However, the example below does not include portfolio trading commissions and related expenses, interest expense and other extraordinary expenses as determined under generally accepted accounting principles. You may use the information in this line, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first line under the heading entitled “Expenses Paid During Period” to estimate the expenses you paid on your account during this period.
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
The second line of the table below provides information about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund’s actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as redemption fees or exchange fees. Therefore, the second line of the table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.
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Expenses Paid
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|||
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Beginning Account
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Ending Account
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During Period(1)
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|
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Value (01/01/10)
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Value (06/30/10)
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(01/01/10 to 06/30/10)
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Capital Appreciation Actual(2)
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$1,000.00
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$ 987.80
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$7.39
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Capital Appreciation Hypothetical
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|||
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(5% return before expenses)
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1,000.00
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1,017.36
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7.50
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Opportunity Actual(2)
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1,000.00
|
968.20
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7.32
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Opportunity Hypothetical
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|||
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(5% return before expenses)
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1,000.00
|
1,017.36
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7.50
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(1)
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Expenses are equal to the fund’s annualized expense ratio for the most recent six-month period of 1.50% and 1.50% for Capital Appreciation Fund and Opportunity Fund, respectively, multiplied by the average account value over the period, multiplied by the number of days in the most recent fiscal half year/365 (to reflect the one-half year period).
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(2)
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Based on the actual returns for the six-month period ended June 30, 2010 of -1.22% and -3.18% for Capital Appreciation Fund and Opportunity Fund, respectively.
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7
PROSPECTOR FUNDS, INC.
Sector Allocation (% of net assets)
as of June 30, 2010(1)(2)
Capital Appreciation Fund
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Top 10 Holdings (% of net assets)
as of June 30, 2010(1)(3)
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Capital Appreciation Fund
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USEC, 3.000%, 10/01/2014
|
4.0%
|
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E.I. Du Pont de Nemours
|
3.5%
|
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Barrick Gold
|
3.4%
|
|
Gold Fields – ADR
|
3.2%
|
|
Nexen
|
3.2%
|
|
Newmont Mining
|
3.1%
|
|
Automatic Data Processing
|
2.8%
|
|
Mirant
|
2.7%
|
|
Domtar
|
2.5%
|
|
Anixter International, 1.000%, 02/15/2013
|
2.5%
|
| (1) | Fund holdings and sector allocations are subject to change at any time and are not recommendations to buy or sell any security. |
| (2) | Sector allocation includes all investment types. |
| (3) | AIM Short-Term Treasury Portfolio excluded from top 10 holdings. |
8
PROSPECTOR FUNDS, INC.
Sector Allocation (% of net assets)
as of June 30, 2010(1)(2)
Opportunity Fund
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Top 10 Holdings (% of net assets)
|
|
|
as of June 30, 2010(1)(3)
|
|
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Opportunity Fund
|
|
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Newmont Mining
|
4.0%
|
|
Platinum Underwriters Holdings
|
3.4%
|
|
Clorox
|
2.5%
|
|
Nexen
|
2.3%
|
|
Alberto-Culver
|
2.2%
|
|
Kinross Gold
|
2.2%
|
|
Lancashire Holdings
|
2.2%
|
|
Leucadia National
|
2.1%
|
|
Franklin Resources
|
2.0%
|
|
Murphy Oil
|
1.9%
|
| (1) |
Fund holdings and sector allocations are subject to change at any time and are not recommendations to buy or sell any security.
|
| (2) |
Sector allocation includes all investment types.
|
| (3) |
AIM Short-Term Treasury Portfolio excluded from top 10 holdings.
|
9
PROSPECTOR FUNDS, INC.
Schedule of Investments (Unaudited)
June 30, 2010
Capital Appreciation Fund
|
Description
|
Shares
|
Value
|
||||||
|
COMMON STOCKS – 65.1%
|
||||||||
|
Banks – 0.3%
|
||||||||
|
Charter Financial
|
7,400 | $ | 73,260 | |||||
|
Waterstone Financial*
|
6,400 | 21,824 | ||||||
| 95,084 | ||||||||
|
Chemicals – 4.0%
|
||||||||
|
E.I. Du Pont de Nemours
|
33,400 | 1,155,306 | ||||||
|
International Flavors & Fragrances
|
3,400 | 144,228 | ||||||
| 1,299,534 | ||||||||
|
Consumer Discretionary – 4.2%
|
||||||||
|
Comcast, Class A
|
17,100 | 280,953 | ||||||
|
Fortune Brands
|
7,900 | 309,522 | ||||||
|
H&R Block
|
7,800 | 122,382 | ||||||
|
Meredith
|
15,500 | 482,515 | ||||||
|
New York Times, Class A*
|
9,900 | 85,635 | ||||||
|
Walt Disney
|
2,700 | 85,050 | ||||||
| 1,366,057 | ||||||||
|
Consumer Staples – 6.4%
|
||||||||
|
Campbell Soup
|
8,000 | 286,640 | ||||||
|
Coca-Cola
|
4,100 | 205,492 | ||||||
|
Coca-Cola Enterprises
|
16,000 | 413,760 | ||||||
|
Sara Lee
|
12,000 | 169,200 | ||||||
|
SUPERVALU
|
17,600 | 190,784 | ||||||
|
Tootsie Roll Industries
|
20,359 | 481,490 | ||||||
|
Viterra*
|
4,100 | 27,307 | ||||||
|
Walgreen
|
12,300 | 328,410 | ||||||
| 2,103,083 | ||||||||
|
Energy – 8.8%
|
||||||||
|
Clayton Williams Energy*
|
8,400 | 353,808 | ||||||
|
El Paso
|
12,200 | 135,542 | ||||||
|
Hess
|
4,300 | 216,462 | ||||||
|
Marathon Oil
|
17,600 | 547,184 | ||||||
|
Nexen
|
53,000 | 1,042,510 | ||||||
|
OPTI – Canada*
|
56,800 | 95,507 | ||||||
|
Repsol YPF – ADR
|
24,400 | 490,440 | ||||||
|
USEC*
|
3,800 | 18,088 | ||||||
| 2,899,541 | ||||||||
See Notes to the Financial Statements
10
PROSPECTOR FUNDS, INC.
Schedule of Investments (Unaudited) – Continued
June 30, 2010
Capital Appreciation Fund
|
Description
|
Shares
|
Value
|
||||||
|
COMMON STOCKS – 65.1% (CONTINUED)
|
||||||||
|
Healthcare – 2.5%
|
||||||||
|
Abbott Laboratories
|
5,300 | $ | 247,934 | |||||
|
Pfizer
|
39,000 | 556,140 | ||||||
| 804,074 | ||||||||
|
Industrials – 0.6%
|
||||||||
|
Tyco International
|
5,600 | 197,288 | ||||||
|
Information Technology – 4.1%
|
||||||||
|
Automatic Data Processing
|
23,000 | 925,980 | ||||||
|
Xerox
|
53,600 | 430,944 | ||||||
| 1,356,924 | ||||||||
|
Insurance – 9.0%
|
||||||||
|
Alterra Capital Holdings
|
12,700 | 238,506 | ||||||
|
Arch Capital Group*
|
3,600 | 268,200 | ||||||
|
Arthur J. Gallagher
|
2,900 | 70,702 | ||||||
|
Berkshire Hathaway, Class B*
|
6,800 | 541,892 | ||||||
|
Donegal Group, Class A
|
3,300 | 40,557 | ||||||
|
First American Financial
|
6,300 | 79,884 | ||||||
|
Loews
|
19,300 | 642,883 | ||||||
|
Mercer Insurance Group
|
2,800 | 47,376 | ||||||
|
Platinum Underwriters Holdings
|
17,400 | 631,446 | ||||||
|
State Auto Financial
|
24,600 | 381,546 | ||||||
| 2,942,992 | ||||||||
|
Metals & Mining – 10.4%
|
||||||||
|
AngloGold Ashanti – ADR
|
2,500 | 107,950 | ||||||
|
Barrick Gold
|
24,300 | 1,103,463 | ||||||
|
Gold Fields – ADR
|
78,000 | 1,042,860 | ||||||
|
Newmont Mining
|
16,700 | 1,031,058 | ||||||
|
Northgate Minerals*
|
33,000 | 99,000 | ||||||
|
RTI International Metals*
|
1,400 | 33,754 | ||||||
| 3,418,085 | ||||||||
|
Paper & Forest Products – 3.4%
|
||||||||
|
Domtar
|
16,950 | 833,093 | ||||||
|
Neenah Paper
|
14,900 | 272,670 | ||||||
| 1,105,763 | ||||||||
See Notes to the Financial Statements
11
PROSPECTOR FUNDS, INC.
Schedule of Investments (Unaudited) – Continued
June 30, 2010
Capital Appreciation Fund
|
Description
|
Shares
|
Value
|
||||||
|
COMMON STOCKS – 65.1% (CONTINUED)
|
||||||||
|
Real Estate – 2.4%
|
||||||||
|
Forestar Group*
|
12,200 | $ | 219,112 | |||||
|
Post Properties
|
25,700 | 584,161 | ||||||
| 803,273 | ||||||||
|
Telecommunication Services – 0.6%
|
||||||||
|
Telephone & Data Systems
|
6,600 | 200,574 | ||||||
|
Utilities – 8.4%
|
||||||||
|
Allegheny Energy
|
38,700 | 800,316 | ||||||
|
Calpine*
|
43,788 | 556,983 | ||||||
|
Calpine – Escrow Shares*
|
1,075,000 | 91,375 | ||||||
|
El Paso Electric*
|
1,600 | 30,960 | ||||||
|
Mirant*
|
84,500 | 892,320 | ||||||
|
NV Energy
|
20,200 | 238,562 | ||||||
|
Unisource Energy
|
4,300 | 129,774 | ||||||
| 2,740,290 | ||||||||
|
Total Common Stocks
|
||||||||
|
(Cost $23,672,262)
|
21,332,562 | |||||||
|
Par
|
||||||||
|
CONVERTIBLE CORPORATE BONDS – 27.4%
|
||||||||
|
Advanced Micro Devices
|
||||||||
|
5.750%, 08/15/2012
|
$ | 400,000 | 392,500 | |||||
|
Amgen
|
||||||||
|
0.125%, 02/01/2011
|
650,000 | 642,687 | ||||||
|
Anixter International
|
||||||||
|
1.000%, 02/15/2013
|
900,000 | 817,875 | ||||||
|
Archer Daniels
|
||||||||
|
0.875%, 02/15/2014
|
550,000 | 518,375 | ||||||
|
Century Aluminum
|
||||||||
|
1.750%, 08/01/2024
|
175,000 | 163,625 | ||||||
|
Charles River Laboratories International
|
||||||||
|
2.250%, 06/15/2013
|
275,000 | 262,968 | ||||||
|
CMS Energy
|
||||||||
|
2.875%, 12/01/2024
|
375,000 | 435,937 | ||||||
|
5.500%, 06/15/2029
|
125,000 | 145,313 | ||||||
|
Dominion Resources, Series C
|
||||||||
|
2.125%, 12/15/2023
|
200,000 | 222,750 | ||||||
See Notes to the Financial Statements
12
PROSPECTOR FUNDS, INC.
Schedule of Investments (Unaudited) – Continued
June 30, 2010
Capital Appreciation Fund
|
Description
|
Par
|
Value
|
||||||
|
CONVERTIBLE CORPORATE BONDS – 27.4% (CONTINUED)
|
||||||||
|
Greatbatch
|
||||||||
|
2.250%, 06/15/2013
|
$ | 350,000 | $ | 313,687 | ||||
|
Kinross Gold
|
||||||||
|
1.750%, 03/15/2028
|
550,000 | 530,750 | ||||||
|
1.750%, 03/15/2028 (a)
|
175,000 | 168,875 | ||||||
|
Medtronic
|
||||||||
|
1.500%, 04/15/2011
|
725,000 | 720,469 | ||||||
|
Millipore
|
||||||||
|
3.750%, 06/01/2026
|
525,000 | 655,594 | ||||||
|
Newmont Mining
|
||||||||
|
1.250%, 07/15/2014
|
150,000 | 213,750 | ||||||
|
NovaGold Resources
|
||||||||
|
5.500%, 05/01/2015
|
25,000 | 24,781 | ||||||
|
Penn Virginia
|
||||||||
|
4.500%, 11/15/2012
|
250,000 | 233,125 | ||||||
|
PHH
|
||||||||
|
4.000%, 04/15/2012
|
150,000 | 163,688 | ||||||
|
Smithfield Foods
|
||||||||
|
4.000%, 06/30/2013
|
100,000 | 97,125 | ||||||
|
Trinity Industries
|
||||||||
|
3.875%, 06/01/2036
|
425,000 | 326,188 | ||||||
|
UAL
|
||||||||
|
5.000%, 02/01/2021
|
225,000 | 222,750 | ||||||
|
Unisource Energy
|
||||||||
|
4.500%, 03/01/2035
|
425,000 | 408,000 | ||||||
|
USEC
|
||||||||
|
3.000%, 10/01/2014
|
1,825,000 | 1,314,000 | ||||||
|
Total Convertible Corporate Bonds
|
||||||||
|
(Cost $8,729,586)
|
8,994,812 | |||||||
|
Shares
|
||||||||
|
STAPLED UNIT – 0.6%
|
||||||||
|
Paper & Forest Products – 0.6%
|
||||||||
|
TimberWest Forest*
|
||||||||
|
(Cost $443,686)
|
54,300 | 202,500 | ||||||
See Notes to the Financial Statements
13
PROSPECTOR FUNDS, INC.
Schedule of Investments (Unaudited) – Continued
June 30, 2010
Capital Appreciation Fund
|
Description
|
Shares
|
Value
|
||||||
|
CONVERTIBLE PREFERRED STOCK – 0.2%
|
||||||||
|
Energy – 0.2%
|
||||||||
|
El Paso Energy Capital Trust
|
||||||||
|
(Cost $60,343)
|
2,000 | $ | 72,680 | |||||
|
WARRANT – 0.0%
|
||||||||
|
Utilities – 0.0%
|
||||||||
|
Mirant*
|
||||||||
|
(Cost $203,929)
|
67,700 | 6,763 | ||||||
|
SHORT-TERM INVESTMENT – 6.7%
|
||||||||
|
AIM Short-Term Treasury Portfolio, 0.040%
|
||||||||
|
(Cost $2,181,742)
|
2,181,742 | 2,181,742 | ||||||
|
Total Investments – 100.0%
|
||||||||
|
(Cost $35,291,548)
|
32,791,059 | |||||||
|
Other Assets and Liabilities, Net – 0.0%
|
7,581 | |||||||
|
Total Net Assets – 100.0%
|
$ | 32,798,640 | ||||||
|
*
|
Non-income producing security.
|
|
(a)
|
Security purchased within the terms of a private placement memorandum, exempt from registration under Rule 144A of the Securities Act of 1933, as amended, and may be sold only to dealers in that program or other “qualified institutional buyers.” As of June 30, 2010, the value of these investments was $168,875 or 0.5% of total net assets.
|
ADR – American Depository Receipt
See Notes to the Financial Statements
14
PROSPECTOR FUNDS, INC.
Schedule of Investments (Unaudited)
June 30, 2010
Opportunity Fund
|
Description
|
Shares
|
Value
|
||||||
|
COMMON STOCKS – 95.4%
|
||||||||
|
Banks – 8.4%
|
||||||||
|
Abington Bancorp
|
6,500 | $ | 56,680 | |||||
|
AJS Bancorp
|
2,000 | 20,020 | ||||||
|
Brooklyn Federal Bancorp
|
5,500 | 24,255 | ||||||
|
Cape Bancorp*
|
9,600 | 68,640 | ||||||
|
Chicopee Bancorp*
|
9,900 | 115,929 | ||||||
|
Clifton Savings Bancorp
|
16,400 | 141,860 | ||||||
|
First Defiance Financial
|
5,700 | 50,958 | ||||||
|
First Horizon National
|
12,571 | 143,939 | ||||||
|
Fox Chase Bancorp*
|
16,602 | 158,881 | ||||||
|
Hampden Bancorp
|
5,300 | 50,350 | ||||||
|
Hudson Valley Holding
|
3,400 | 78,608 | ||||||
|
Northern Trust
|
2,200 | 102,740 | ||||||
|
Ocean Shore Holding
|
4,572 | 47,457 | ||||||
|
OceanFirst Financial
|
3,100 | 37,417 | ||||||
|
OmniAmerican Bancorp*
|
24,400 | 275,476 | ||||||
|
Oritani Financial
|
39,750 | 397,500 | ||||||
|
Popular*
|
41,533 | 111,309 | ||||||
|
Roma Financial
|
5,004 | 54,343 | ||||||
|
Territorial Bancorp
|
7,900 | 149,705 | ||||||
|
United Financial Bancorp
|
2,700 | 36,855 | ||||||
|
ViewPoint Financial Group
|
20,000 | 197,858 | ||||||
|
Westfield Financial
|
11,700 | 97,461 | ||||||
| 2,418,241 | ||||||||
|
Brokers – 0.4%
|
||||||||
|
MF Global Holdings*
|
17,100 | 97,641 | ||||||
|
Chemicals – 1.0%
|
||||||||
|
Air Products & Chemicals
|
4,500 | 291,645 | ||||||
|
Consumer Discretionary – 6.8%
|
||||||||
|
American Eagle Outfitters
|
20,800 | 244,400 | ||||||
|
Brinker International
|
14,200 | 205,332 | ||||||
|
Fortune Brands
|
4,700 | 184,146 | ||||||
|
H&R Block
|
3,500 | 54,915 | ||||||
|
Morton’s Restaurant Group*
|
24,200 | 125,356 | ||||||
|
NVR*
|
690 | 451,971 | ||||||
|
Toll Brothers*
|
16,400 | 268,304 | ||||||
|
Yum! Brands
|
10,700 | 417,728 | ||||||
| 1,952,152 | ||||||||
See Notes to the Financial Statements
15
PROSPECTOR FUNDS, INC.
Schedule of Investments (Unaudited) – Continued
June 30, 2010
Opportunity Fund
|
Description
|
Shares
|
Value
|
||||||
|
COMMON STOCKS – 95.4% (CONTINUED)
|
||||||||
|
Consumer Staples – 11.4%
|
||||||||
|
Alberto-Culver
|
23,800 | $ | 644,742 | |||||
|
Church & Dwight
|
8,550 | 536,171 | ||||||
|
Clorox
|
11,700 | 727,272 | ||||||
|
Coca-Cola
|
4,600 | 230,552 | ||||||
|
Foster’s Group
|
38,200 | 181,675 | ||||||
|
Molson Coors Brewing, Class B
|
8,600 | 364,296 | ||||||
|
PepsiCo
|
4,200 | 255,990 | ||||||
|
Philip Morris International
|
4,600 | 210,864 | ||||||
|
SUPERVALU
|
4,500 | 48,780 | ||||||
|
Viterra*
|
10,600 | 70,597 | ||||||
| 3,270,939 | ||||||||
|
Diversified Financial Services – 5.7%
|
||||||||
|
Franklin Resources
|
6,600 | 568,854 | ||||||
|
Invesco
|
13,700 | 230,571 | ||||||
|
Leucadia National*
|
30,500 | 595,055 | ||||||
|
PICO Holdings*
|
7,900 | 236,763 | ||||||
| 1,631,243 | ||||||||
|
Energy – 7.4%
|
||||||||
|
Hess
|
9,900 | 498,366 | ||||||
|
Hugoton Royalty Trust
|
13,900 | 263,822 | ||||||
|
Murphy Oil
|
11,300 | 559,915 | ||||||
|
Nexen
|
33,000 | 649,110 | ||||||
|
San Juan Basin Royalty Trust
|
5,800 | 141,578 | ||||||
| 2,112,791 | ||||||||
|
Healthcare – 6.4%
|
||||||||
|
American Medical Systems Holdings*
|
6,800 | 150,416 | ||||||
|
Biogen Idec*
|
6,200 | 294,190 | ||||||
|
Henry Schein*
|
1,600 | 87,840 | ||||||
|
Humana*
|
4,200 | 191,814 | ||||||
|
Johnson & Johnson
|
2,400 | 141,744 | ||||||
|
Merck & Co.
|
13,148 | 459,786 | ||||||
|
Pfizer
|
9,600 | 136,896 | ||||||
|
WellPoint*
|
7,600 | 371,868 | ||||||
| 1,834,554 | ||||||||
See Notes to the Financial Statements
16
PROSPECTOR FUNDS, INC.
Schedule of Investments (Unaudited) – Continued
June 30, 2010
Opportunity Fund
|
Description
|
Shares
|
Value
|
||||||
|
COMMON STOCKS – 95.4% (CONTINUED)
|
||||||||
|
Industrials – 1.4%
|
||||||||
|
Ducommun
|
4,800 | $ | 82,080 | |||||
|
Tyco International
|
9,200 | 324,116 | ||||||
| 406,196 | ||||||||
|
Information Technology – 12.3%
|
||||||||
|
Automatic Data Processing
|
8,500 | 342,210 | ||||||
|
BMC Software*
|
8,600 | 297,818 | ||||||
|
Brocade Communications Systems*
|
24,800 | 127,968 | ||||||
|
CACI International*
|
2,140 | 90,907 | ||||||
|
EMC*
|
22,500 | 411,750 | ||||||
|
Emulex*
|
30,600 | 280,908 | ||||||
|
Marvell Technology Group*
|
9,000 | 141,840 | ||||||
|
Microsoft
|
6,200 | 142,662 | ||||||
|
Symantec*
|
10,900 | 151,292 | ||||||
|
Synopsys*
|
13,900 | 290,093 | ||||||
|
Teradata*
|
14,100 | 429,768 | ||||||
|
Xerox
|
33,670 | 270,707 | ||||||
|
Xilinx
|
12,500 | 315,750 | ||||||
|
Xyratex*
|
17,330 | 245,219 | ||||||
| 3,538,892 | ||||||||
|
Insurance – 15.5%
|
||||||||
|
Alleghany*
|
369 | 108,228 | ||||||
|
Alterra Capital Holdings
|
6,900 | 129,582 | ||||||
|
AON
|
9,200 | 341,504 | ||||||
|
Arch Capital Group*
|
4,500 | 335,250 | ||||||
|
Arthur J. Gallagher
|
6,200 | 151,156 | ||||||
|
Aspen Insurance Holdings
|
11,900 | 294,406 | ||||||
|
Assurant
|
11,700 | 405,990 | ||||||
|
Cincinnati Financial
|
14,800 | 382,876 | ||||||
|
Lancashire Holdings
|
83,590 | 622,335 | ||||||
|
Mercer Insurance Group
|
5,000 | 84,600 | ||||||
|
Penn Millers Holding*
|
11,105 | 146,586 | ||||||
|
Platinum Underwriters Holdings
|
27,300 | 990,717 | ||||||
|
Progressive
|
7,600 | 142,272 | ||||||
|
RenaissanceRe Holdings
|
3,300 | 185,691 | ||||||
|
Wesco Financial Group
|
427 | 138,006 | ||||||
| 4,459,199 | ||||||||
See Notes to the Financial Statements
17
PROSPECTOR FUNDS, INC.
Schedule of Investments (Unaudited) – Continued
June 30, 2010
Opportunity Fund
|
Description
|
Shares
|
Value
|
||||||
|
COMMON STOCKS – 95.4% (CONTINUED)
|
||||||||
|
Metals & Mining – 10.0%
|
||||||||
|
Barrick Gold
|
7,000 | $ | 317,870 | |||||
|
Gold Fields – ADR
|
41,000 | 548,170 | ||||||
|
Horsehead Holding*
|
5,500 | 41,580 | ||||||
|
Kinross Gold
|
36,700 | 627,203 | ||||||
|
Newmont Mining
|
18,800 | 1,160,712 | ||||||
|
RTI International Metals*
|
7,400 | 178,414 | ||||||
| 2,873,949 | ||||||||
|
Paper & Forest Products – 0.6%
|
||||||||
|
Domtar
|
1,258 | 61,831 | ||||||
|
Neenah Paper
|
4,500 | 82,350 | ||||||
|
TimberWest Forest*
|
6,900 | 25,732 | ||||||
| 169,913 | ||||||||
|
Real Estate – 0.4%
|
||||||||
|
Forestar Group*
|
3,600 | 64,656 | ||||||
|
Thomas Properties Group
|
12,700 | 42,037 | ||||||
| 106,693 | ||||||||
|
Utilities – 7.7%
|
||||||||
|
Allegheny Energy
|
21,100 | 436,348 | ||||||
|
Ameren
|
3,600 | 85,572 | ||||||
|
American Electric Power
|
6,500 | 209,950 | ||||||
|
Calpine – Escrow Shares*
|
125,000 | 10,625 | ||||||
|
CMS Energy
|
19,600 | 287,140 | ||||||
|
Empire District Electric
|
22,000 | 412,940 | ||||||
|
Mirant*
|
12,500 | 132,000 | ||||||
|
NV Energy
|
35,300 | 416,893 | ||||||
|
Pure Cycle*
|
11,300 | 32,205 | ||||||
|
TransAlta
|
8,500 | 157,456 | ||||||
|
Unisource Energy
|
1,400 | 42,252 | ||||||
| 2,223,381 | ||||||||
|
Total Common Stocks
|
||||||||
|
(Cost $27,464,125)
|
27,387,429 | |||||||
See Notes to the Financial Statements
18
PROSPECTOR FUNDS, INC.
Schedule of Investments (Unaudited) – Continued
June 30, 2010
Opportunity Fund
|
Description
|
Par
|
Value
|
||||||
|
CORPORATE BONDS – 1.6%
|
||||||||
|
Broadridge Financial Solutions
|
||||||||
|
6.125%, 06/01/2017
|
$ | 175,000 | $ | 184,037 | ||||
|
Leucadia National
|
||||||||
|
7.000%, 08/15/2013
|
200,000 | 204,000 | ||||||
|
Mohawk Industries
|
||||||||
|
6.500%, 01/15/2011
|
75,000 | 75,750 | ||||||
|
Total Corporate Bonds
|
||||||||
|
(Cost $396,675)
|
463,787 | |||||||
|
CONVERTIBLE BONDS – 1.2%
|
||||||||
|
Kinross Gold
|
||||||||
|
1.750%, 03/15/2028 (a)
|
150,000 | 144,750 | ||||||
|
1.750%, 03/15/2028
|
75,000 | 72,375 | ||||||
|
Symantec
|
||||||||
|
0.750%, 06/15/2011
|
125,000 | 123,906 | ||||||
|
Total Convertible Bonds
|
||||||||
|
(Cost $329,637)
|
341,031 | |||||||
|
Shares
|
||||||||
|
WARRANT – 0.0%
|
||||||||
|
Utilities – 0.0%
|
||||||||
|
Mirant*
|
||||||||
|
(Cost $27,363)
|
6,000 | 599 | ||||||
|
SHORT-TERM INVESTMENT – 2.0%
|
||||||||
|
AIM Short-Term Treasury Portfolio, 0.040%
|
||||||||
|
(Cost $571,406)
|
571,406 | 571,406 | ||||||
|
Total Investments – 100.2%
|
||||||||
|
(Cost $28,789,206)
|
28,764,252 | |||||||
|
Other Assets and Liabilities, Net – (0.2)%
|
(47,079 | ) | ||||||
|
Total Net Assets – 100.0%
|
$ | 28,717,173 | ||||||
|
*
|
Non-income producing security.
|
|
(a)
|
Security purchased within the terms of a private placement memorandum, exempt from registration under Rule 144A of the Securities Act of 1933, as amended, and may be sold only to dealers in that program or other “qualified institutional buyers.” As of June 30, 2010, the value of these investments was $144,750 or 0.5% of total net assets.
|
ADR – American Depositary Receipt
See Notes to the Financial Statements
19
PROSPECTOR FUNDS, INC.
Statements of Assets and Liabilities (Unaudited)
June 30, 2010
|
Capital Appreciation Fund
|
Opportunity Fund
|
|||||||
|
ASSETS:
|
||||||||
|
Investments, at market value
|
||||||||
|
(Cost $35,291,548 and $28,789,206 respectively)
|
$ | 32,791,059 | $ | 28,764,252 | ||||
|
Cash
|
1,392 | 3,009 | ||||||
|
Receivable for investment securities sold
|
22,727 | 132,771 | ||||||
|
Receivable for dividends and interest
|
80,424 | 47,544 | ||||||
|
Receivable for capital shares sold
|
67,216 | 100,425 | ||||||
|
Prepaid expenses
|
16,711 | 15,813 | ||||||
|
Total assets
|
32,979,529 | 29,063,814 | ||||||
|
LIABILITIES:
|
||||||||
|
Payable for investment securities purchased
|
146,682 | 242,800 | ||||||
|
Payable for capital shares redeemed
|
3 | 71,344 | ||||||
|
Payable to adviser, net
|
16,611 | 13,369 | ||||||
|
Accrued distribution fees
|
4,622 | 3,247 | ||||||
|
Accrued expenses and other liabilities
|
12,971 | 15,881 | ||||||
|
Total liabilities
|
180,889 | 346,641 | ||||||
|
NET ASSETS
|
$ | 32,798,640 | $ | 28,717,173 | ||||
|
COMPOSITION OF NET ASSETS:
|
||||||||
|
Portfolio capital
|
$ | 34,833,347 | $ | 28,942,060 | ||||
|
Undistributed net investment income
|
164,598 | 61,679 | ||||||
|
Accumulated net realized gain (loss) on investments
|
301,193 | (261,580 | ) | |||||
|
Net unrealized depreciation of investments
|
(2,500,498 | ) | (24,986 | ) | ||||
|
Total net assets
|
$ | 32,798,640 | $ | 28,717,173 | ||||
|
CAPITAL STOCK, $0.0001 par value
|
||||||||
|
Authorized
|
500,000,000 | 500,000,000 | ||||||
|
Issued and outstanding
|
2,380,708 | 1,964,003 | ||||||
|
NET ASSET VALUE, REDEMPTION PRICE,
|
||||||||
|
AND OFFERING PRICE PER SHARE
|
$ | 13.78 | $ | 14.62 | ||||
See Notes to the Financial Statements
20
PROSPECTOR FUNDS, INC.
Statements of Operations (Unaudited)
For the Six Months Ended June 30, 2010
|
Capital Appreciation Fund
|
Opportunity Fund
|
|||||||
|
INVESTMENT INCOME:
|
||||||||
|
Interest income
|
$ | 221,375 | $ | 40,945 | ||||
|
Dividend income
|
215,284 | 239,924 | ||||||
|
Less: Foreign taxes withheld
|
(1,689 | ) | (1,307 | ) | ||||
|
Total investment income
|
434,970 | 279,562 | ||||||
|
EXPENSES:
|
||||||||
|
Investment advisory fees
|
175,479 | 157,044 | ||||||
|
Directors’ fees
|
26,598 | 23,883 | ||||||
|
Administration fees
|
23,928 | 23,584 | ||||||
|
Fund accounting fees
|
20,662 | 19,793 | ||||||
|
Legal fees
|
16,996 | 15,177 | ||||||
|
Transfer agent fees
|
14,407 | 13,511 | ||||||
|
Audit fees
|
13,385 | 13,385 | ||||||
|
Distribution fees
|
10,462 | 8,914 | ||||||
|
Registration fees
|
8,896 | 8,896 | ||||||
|
Other expenses
|
7,412 | 5,937 | ||||||
|
Custodian fees
|
5,819 | 5,032 | ||||||
|
Postage and printing fees
|
2,362 | 2,181 | ||||||
|
Total expenses
|
326,406 | 297,337 | ||||||
|
Less: Fee waivers
|
(87,117 | ) | (83,186 | ) | ||||
|
Total net expenses
|
239,289 | 214,151 | ||||||
|
NET INVESTMENT INCOME
|
195,681 | 65,411 | ||||||
|
REALIZED AND UNREALIZED GAINS (LOSSES):
|
||||||||
|
Net realized gain on investments
|
320,155 | 803,035 | ||||||
|
Net change in unrealized appreciation
|
||||||||
|
or depreciation of investments
|
(1,073,901 | ) | (1,935,935 | ) | ||||
|
Net loss on investments
|
(753,746 | ) | (1,132,900 | ) | ||||
|
NET DECREASE IN NET ASSETS
|
||||||||
|
RESULTING FROM OPERATIONS
|
$ | (558,065 | ) | $ | (1,067,489 | ) | ||
See Notes to the Financial Statements
21
PROSPECTOR FUNDS, INC.
Statements of Changes in Net Assets
|
Capital Appreciation Fund
|
||||||||
|
Six Months Ended
|
||||||||
|
June 30, 2010
|
Year Ended
|
|||||||
|
(Unaudited)
|
December 31, 2009
|
|||||||
|
OPERATIONS:
|
||||||||
|
Net investment income
|
$ | 195,681 | $ | 509,808 | ||||
|
Net realized gain on investments
|
320,155 | 501,382 | ||||||
|
Net change in unrealized appreciation of investments
|
(1,073,901 | ) | 5,498,306 | |||||
|
Net increase (decrease) resulting from operations
|
(558,065 | ) | 6,509,496 | |||||
|
CAPITAL SHARE TRANSACTIONS:
|
||||||||
|
Proceeds from shares sold
|
5,850,265 | 7,663,277 | ||||||
|
Proceeds from reinvestment of distributions
|
— | 487,535 | ||||||
|
Payments for shares redeemed
|
(2,217,426 | ) | (4,536,906 | ) | ||||
|
Redemption fees
|
54 | 7,179 | ||||||
|
Net increase from capital share transactions
|
3,632,893 | 3,621,085 | ||||||
|
DISTRIBUTIONS PAID FROM:
|
||||||||
|
Net investment income
|
— | (498,151 | ) | |||||
|
Net realized gains
|
— | — | ||||||
|
Total distributions to shareholders
|
— | (498,151 | ) | |||||
|
TOTAL INCREASE IN NET ASSETS
|
3,074,828 | 9,632,430 | ||||||
|
NET ASSETS:
|
||||||||
|
Beginning of period
|
29,723,812 | 20,091,382 | ||||||
|
End of period (including undistributed
|
||||||||
|
(distributions in excess of) net investment
|
||||||||
|
income of $164,598 and $(31,083), respectively)
|
$ | 32,798,640 | $ | 29,723,812 | ||||
|
TRANSACTIONS IN SHARES:
|
||||||||
|
Shares sold
|
408,283 | 631,668 | ||||||
|
Shares issued in reinvestment of distributions
|
— | 34,651 | ||||||
|
Shares redeemed
|
(157,971 | ) | (387,533 | ) | ||||
|
Net increase
|
250,312 | 278,786 | ||||||
See Notes to the Financial Statements
22
PROSPECTOR FUNDS, INC.
Statements of Changes in Net Assets
|
Opportunity Fund
|
||||||||
|
Six Months Ended
|
||||||||
|
June 30, 2010
|
Year Ended
|
|||||||
|
(Unaudited)
|
December 31, 2009
|
|||||||
|
OPERATIONS:
|
||||||||
|
Net investment income
|
$ | 65,411 | $ | 143,612 | ||||
|
Net realized gain (loss) on investments
|
803,035 | (284,138 | ) | |||||
|
Net change in unrealized appreciation
|
||||||||
|
or depreciation of investments
|
(1,935,935 | ) | 4,791,653 | |||||
|
Net increase (decrease) resulting from operations
|
(1,067,489 | ) | 4,651,127 | |||||
|
CAPITAL SHARE TRANSACTIONS:
|
||||||||
|
Proceeds from shares sold
|
6,373,570 | 9,039,886 | ||||||
|
Proceeds from reinvestment of distributions
|
— | 141,283 | ||||||
|
Payments for shares redeemed
|
(2,671,165 | ) | (3,639,425 | ) | ||||
|
Redemption fees
|
40 | 6,991 | ||||||
|
Net increase from capital share transactions
|
3,702,445 | 5,548,735 | ||||||
|
DISTRIBUTIONS PAID FROM:
|
||||||||
|
Net investment income
|
— | (142,261 | ) | |||||
|
Net realized gains
|
— | — | ||||||
|
Total distributions to shareholders
|
— | (142,261 | ) | |||||
|
TOTAL INCREASE IN NET ASSETS
|
2,634,956 | 10,057,601 | ||||||
|
NET ASSETS:
|
||||||||
|
Beginning of period
|
26,082,217 | 16,024,616 | ||||||
|
End of period (including undistributed
|
||||||||
|
(distributions in excess of) net investment
|
||||||||
|
income of $61,679 and $(3,732), respectively)
|
$ | 28,717,173 | $ | 26,082,217 | ||||
|
TRANSACTIONS IN SHARES:
|
||||||||
|
Shares sold
|
410,021 | 681,323 | ||||||
|
Shares issued in reinvestment of distributions
|
— | 9,289 | ||||||
|
Shares redeemed
|
(173,835 | ) | (294,001 | ) | ||||
|
Net increase
|
236,186 | 396,611 | ||||||
See Notes to the Financial Statements
23
PROSPECTOR FUNDS, INC.
Financial Highlights
|
Capital Appreciation Fund
|
||||||||||||||||
|
Six Months
|
September 28,
|
|||||||||||||||
|
Ended
|
Year Ended
|
2007(1) through
|
||||||||||||||
|
June 30, 2010
|
December 31,
|
December 31,
|
||||||||||||||
|
(Unaudited)
|
2009
|
2008
|
2007
|
|||||||||||||
|
For a Fund share outstanding
|
||||||||||||||||
|
throughout the period
|
||||||||||||||||
|
NET ASSET VALUE:
|
||||||||||||||||
|
Beginning of period
|
$ | 13.95 | $ | 10.85 | $ | 14.94 | $ | 15.00 | ||||||||
|
OPERATIONS:
|
||||||||||||||||
|
Net investment income
|
0.08 | 0.25 | 0.08 | 0.01 | ||||||||||||
|
Net realized and unrealized
|
||||||||||||||||
|
gain (loss) on investments
|
(0.25 | ) | 3.09 | (4.08 | ) | (0.06 | ) | |||||||||
|
Total from operations
|
(0.17 | ) | 3.34 | (4.00 | ) | (0.05 | ) | |||||||||
|
LESS DISTRIBUTIONS:
|
||||||||||||||||
|
From net investment income
|
— | (0.24 | ) | (0.09 | ) | (0.01 | ) | |||||||||
|
From net realized gains
|
— | — | (0.01 | ) | — | |||||||||||
|
Total distributions
|
— | (0.24 | ) | (0.10 | ) | (0.01 | ) | |||||||||
|
Paid in capital from redemption fees
|
— | (2) | — | (2) | 0.01 | — | ||||||||||
|
NET ASSET VALUE:
|
||||||||||||||||
|
End of period
|
$ | 13.78 | $ | 13.95 | $ | 10.85 | $ | 14.94 | ||||||||
|
TOTAL RETURN
|
(1.22 | )%(3) | 30.74 | % | (26.67 | )% | (0.32 | )%(3) | ||||||||
|
SUPPLEMENTAL DATA AND RATIOS:
|
||||||||||||||||
|
Net assets, end of period (in thousands)
|
$ | 32,799 | $ | 29,724 | $ | 20,091 | $ | 8,168 | ||||||||
|
Ratio of expenses to average net assets:
|
||||||||||||||||
|
Before expense reimbursement
|
2.05 | %(4) | 2.38 | % | 3.51 | % | 11.28 | %(4) | ||||||||
|
After expense reimbursement
|
1.50 | %(4) | 1.50 | % | 1.50 | % | 1.50 | %(4) | ||||||||
|
Ratio of net investment income (loss)
|
||||||||||||||||
|
to average net assets:
|
||||||||||||||||
|
Before expense reimbursement
|
0.68 | %(4) | 1.27 | % | (1.07 | )% | (9.38 | )%(4) | ||||||||
|
After expense reimbursement
|
1.23 | %(4) | 2.15 | % | 0.94 | % | 0.40 | %(4) | ||||||||
|
Portfolio turnover rate
|
15 | %(3) | 41 | % | 21 | % | 5 | %(3) | ||||||||
(1)Inception date of the fund.
(2)Less than $0.01 per share.
(3)Not Annualized.
(4)Annualized.
See Notes to the Financial Statements
24
PROSPECTOR FUNDS, INC.
Financial Highlights
|
Opportunity Fund
|
||||||||||||||||
|
Six Months
|
September 28,
|
|||||||||||||||
|
Ended
|
Year Ended
|
2007(1) through
|
||||||||||||||
|
June 30, 2010
|
December 31,
|
December 31,
|
||||||||||||||
|
(Unaudited)
|
2009
|
2008
|
2007
|
|||||||||||||
|
For a Fund share outstanding
|
||||||||||||||||
|
throughout the period
|
||||||||||||||||
|
NET ASSET VALUE:
|
||||||||||||||||
|
Beginning of period
|
$ | 15.10 | $ | 12.04 | $ | 14.96 | $ | 15.00 | ||||||||
|
OPERATIONS:
|
||||||||||||||||
|
Net investment income
|
0.03 | 0.08 | 0.05 | 0.02 | ||||||||||||
|
Net realized and unrealized
|
||||||||||||||||
|
gain (loss) on investments
|
(0.51 | ) | 3.06 | (2.92 | ) | (0.01 | ) | |||||||||
|
Total from operations
|
(0.48 | ) | 3.14 | (2.87 | ) | 0.01 | ||||||||||
|
LESS DISTRIBUTIONS:
|
||||||||||||||||
|
From net investment income
|
— | (0.08 | ) | (0.06 | ) | (0.02 | ) | |||||||||
|
From net realized gains
|
— | — | — | (0.03 | ) | |||||||||||
|
Total distributions
|
— | (0.08 | ) | (0.06 | ) | (0.05 | ) | |||||||||
|
Paid in capital from redemption fees
|
— | (2) | — | (2) | 0.01 | — | ||||||||||
|
NET ASSET VALUE:
|
||||||||||||||||
|
End of period
|
$ | 14.62 | $ | 15.10 | $ | 12.04 | $ | 14.96 | ||||||||
|
TOTAL RETURN
|
(3.18 | )%(3) | 26.10 | % | (19.14 | )% | 0.11 | %(3) | ||||||||
|
SUPPLEMENTAL DATA AND RATIOS:
|
||||||||||||||||
|
Net assets, end of period (in thousands)
|
$ | 28,717 | $ | 26,082 | $ | 16,025 | $ | 5,896 | ||||||||
|
Ratio of expenses to average net assets:
|
||||||||||||||||
|
Before expense reimbursement
|
2.08 | %(4) | 2.51 | % | 4.11 | % | 14.50 | %(4) | ||||||||
|
After expense reimbursement
|
1.50 | %(4) | 1.50 | % | 1.50 | % | 1.50 | %(4) | ||||||||
|
Ratio of net investment income (loss)
|
||||||||||||||||
|
to average net assets:
|
||||||||||||||||
|
Before expense reimbursement
|
(0.12 | )%(4) | (0.27 | )% | (1.96 | )% | (12.27 | )%(4) | ||||||||
|
After expense reimbursement
|
0.46 | %(4) | 0.74 | % | 0.65 | % | 0.73 | %(4) | ||||||||
|
Portfolio turnover rate
|
27 | %(3) | 51 | % | 66 | % | 18 | %(3) | ||||||||
(1)Inception date of the fund.
(2)Less than $0.01 per share.
(3)Not Annualized.
(4)Annualized.
See Notes to the Financial Statements
25
PROSPECTOR FUNDS, INC.
Notes to the Financial Statements (Unaudited)
June 30, 2010
1. ORGANIZATION
Prospector Funds, Inc. (the “Corporation”) was organized as a Maryland corporation on June 6, 2007 and is registered under the Investment Company Act of 1940 (the “1940 Act”), as amended, as an open-end diversified management investment company. The Corporation issues its shares in series, each series representing a distinct portfolio with its own investment objectives and policies. There are two series presently authorized, the Prospector Capital Appreciation Fund and the Prospector Opportunity Fund (individually a “Fund” and collectively the “Funds”). The Funds commenced operations on September 28, 2007.
2. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently followed by each Fund:
Security Valuation – Portfolio securities which are traded on an exchange are valued at the last sales price reported by the exchange on which the securities are primarily traded on the day of valuation. If there are no sales on a given day for securities traded on an exchange or for securities not traded or dealt on any securities exchange for which over-the-counter market quotations are readily available, the latest bid quotation will be used. Debt securities with remaining maturities of 60 days or less may be valued on an amortized cost basis, which involves valuing an instrument at its cost and thereafter assuming a constant amortization to maturity of any discount or premium, regardless of the impact of fluctuating rates on the market value of the instrument. Any securities or other assets for which market quotations are not readily available are valued at fair value as determined in good faith by Prospector Partners Asset Management, LLC (the “Adviser” or “Investment Manager”) pursuant to procedures established under the general supervision and responsibility of the Funds’ Board of Directors.
Generally accepted accounting principles (“GAAP”) require disclosures regarding the inputs and valuation techniques used to measure fair value and any changes in valuation inputs or technique. These principles establish a three-tier hierarchy for inputs used in measuring fair value. Fair value inputs are summarized in the three broad levels listed below:
|
Level 1 –
|
Quoted prices in active markets for identical securities.
|
|
Level 2 –
|
Other significant observable inputs (including quoted prices for similar securities, interest rates, prepayment speeds, credit risk, etc.).
|
|
Level 3 –
|
Significant unobservable inputs (including the Funds’ own assumptions in determining the fair value of investments).
|
The inputs or methodology used for valuing securities are not an indication of the risk associated with investing in those securities.
26
PROSPECTOR FUNDS, INC.
Notes to the Financial Statements (Unaudited) – Continued
June 30, 2010
As of June 30, 2010, each fund’s investments in securities were classified as follows:
|
Level 1
|
Level 2
|
Level 3
|
Total
|
|||||||||||||
|
Capital Appreciation Fund
|
||||||||||||||||
|
Common Stocks
|
$ | 21,241,187 | $ | — | $ | 91,375 | $ | 21,332,562 | ||||||||
|
Convertible Bonds
|
— | 8,994,812 | — | 8,994,812 | ||||||||||||
|
Stapled Units
|
202,500 | — | — | 202,500 | ||||||||||||
|
Convertible Preferred Stocks
|
72,680 | — | — | 72,680 | ||||||||||||
|
Warrants
|
6,763 | — | — | 6,763 | ||||||||||||
|
Short-Term Investments
|
2,181,742 | — | — | 2,181,742 | ||||||||||||
|
Total Investments
|
$ | 23,704,872 | $ | 8,994,812 | $ | 91,375 | $ | 32,791,059 | ||||||||
|
Opportunity Fund
|
||||||||||||||||
|
Common Stocks
|
$ | 27,376,804 | $ | — | $ | 10,625 | $ | 27,387,429 | ||||||||
|
Corporate Bonds
|
— | 463,787 | — | 463,787 | ||||||||||||
|
Convertible Bonds
|
— | 341,031 | — | 341,031 | ||||||||||||
|
Warrants
|
599 | — | — | 599 | ||||||||||||
|
Short-Term Investments
|
571,406 | — | — | 571,406 | ||||||||||||
|
Total Investments
|
$ | 27,948,809 | $ | 804,818 | $ | 10,625 | $ | 28,764,252 | ||||||||
The following is a reconciliation of Level 3 assets for which significant unobservable inputs were used to determine fair value.
|
Capital
|
Opportunity
|
|||||||||||
|
Appreciation Fund
|
Fund
|
|||||||||||
|
Common
|
Common
|
|||||||||||
|
Stocks –
|
Convertible
|
Stocks –
|
||||||||||
|
Utilities
|
Bonds
|
Utilities
|
||||||||||
|
Balance as of 12/31/2009
|
$ | 61,812 | $ | 156,480 | $ | 7,188 | ||||||
|
Accrued discounts/premiums
|
— | — | — | |||||||||
|
Realized gain (loss)
|
— | — | — | |||||||||
|
Change in net unrealized appreciation (depreciation)
|
29,563 | — | 3,437 | |||||||||
|
Net purchases (sales)
|
— | — | — | |||||||||
|
Transfers in and/or out of Level 3
|
— | (156,480 | ) | — | ||||||||
|
Balance as of 6/30/2010
|
$ | 91,375 | $ | — | $ | 10,625 | ||||||
|
Net unrealized appreciation of
|
||||||||||||
|
Level 3 securities as of June 30, 2010
|
$ | 5,250 | $ | — | $ | 10,625 | ||||||
Transfers between levels are recognized at the end of the reporting period. During the six months ended June 30, 2010, the Funds recognized no significant transfers to/from Level 1 or Level 2.
The Funds may invest in derivative financial instruments in order to manage risk or gain exposure to various other investments or markets. The Funds’ investment objectives allow the Funds to enter into various types of derivative contracts, including, but not limited to, futures contracts, forward foreign exchange contracts, and purchased and written options. Derivatives may contain various risks including the potential inability of the counterparty to ful-
27
PROSPECTOR FUNDS, INC.
Notes to the Financial Statements (Unaudited) – Continued
June 30, 2010
fill their obligations under the terms of the contract, the potential for an illiquid secondary market, and the potential for market movements which may expose the funds to gains or losses in excess of the amounts shown on the Statements of Assets and Liabilities. As of and for the six months ended June 30, 2010, the Funds held no derivative instruments.
Distributions to Shareholders – Dividends from net investment income and distributions of net realized capital gains, if any, will be declared and paid at least annually. The character of distributions made during the period from net investment income or net realized gains may differ from the characterization for federal income tax purposes due to differences in the recognition of income, expense and gain items for financial statement and tax purposes. All short-term capital gains are included in ordinary income for tax purposes.
Use of Estimates – The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Federal Income Taxes – The Funds intend to meet the requirements of subchapter M of the Internal Revenue Code applicable to regulated investment companies and to distribute substantially all net taxable investment income and net realized gains to shareholders in a manner which results in no tax cost to the Funds. Therefore, no federal income or excise tax provision is required. As of December 31, 2009, the Funds did not have any tax positions that did not meet the “more-likely-than-not” threshold of being sustained by the applicable tax authority. Generally, tax authorities can examine all the tax returns filed for the last three years.
Foreign Currency Translation – The books and records relating to the Funds’ non-U.S. dollar denominated investments are maintained in U.S. dollars on the following bases: (1) market value of investment securities, assets, and liabilities are translated at the current rate of exchange; and (2) purchases and sales of investment securities, income, and expenses are translated at the relevant rates of exchange prevailing on the respective dates of such transactions. The Funds do not isolate the portion of gains and losses on investments in equity securities that is due to changes in the foreign exchange rates from that which is due to changes in market prices of equity securities. The Funds report certain foreign currency-related transactions as components of realized gains for financial reporting purposes, whereas such components are treated as ordinary income for federal income tax purposes.
Expenses – Expenses directly attributable to a Fund are charged to that Fund, while expenses attributable to more than one Fund are allocated among the respective Funds based on relative net assets or another appropriate basis.
Other – Investment and shareholder transactions are recorded on the trade date. Each Fund determines the gain or loss realized from the investment transactions on the basis of identified cost. Dividend income is recognized on the ex-dividend date. Interest income, including amortization of bond premium and discount, is recognized on an accrual basis.
28
PROSPECTOR FUNDS, INC.
Notes to the Financial Statements (Unaudited) – Continued
June 30, 2010
3. INVESTMENT TRANSACTIONS
During the six months ended June 30, 2010, purchases of securities and proceeds from sales of securities, other than temporary investments in short-term securities, were as follows:
|
Purchases
|
Sales
|
|||||||
|
Capital Appreciation Fund
|
$ | 8,032,819 | $ | 4,355,604 | ||||
|
Opportunity Fund
|
12,085,303 | 7,082,554 | ||||||
There were no purchases or sales of long-term U.S. Government securities.
The aggregate gross unrealized appreciation and depreciation of securities held by the Funds and the total cost of securities for federal income tax purposes at June 30, 2010, were as follows:
|
Aggregate
|
Aggregate
|
Federal
|
||||||||||||||
|
Gross
|
Gross
|
Income
|
||||||||||||||
|
Appreciation
|
Depreciation
|
Net
|
Tax Cost
|
|||||||||||||
|
Capital Appreciation Fund
|
$ | 2,640,960 | $ | (5,141,449 | ) | $ | (2,500,489 | ) | $ | 35,291,548 | ||||||
|
Opportunity Fund
|
2,393,070 | (2,418,024 | ) | (24,954 | ) | 28,789,206 | ||||||||||
At December 31, 2009, the Funds’ most recently completed fiscal year-end, components of accumulated earnings (deficit) on a tax-basis were as follows:
|
Undistributed
|
Other
|
Unrealized
|
Total
|
|||||||||||||
|
Ordinary
|
Accumulated
|
Appreciation
|
Accumulated
|
|||||||||||||
|
Income
|
Losses
|
(Depreciation)
|
Earnings (Deficit)
|
|||||||||||||
|
Capital Appreciation Fund
|
$ | 78,238 | $ | (18,955 | ) | $ | (1,535,925 | ) | $ | (1,476,642 | ) | |||||
|
Opportunity Fund
|
489 | (1,030,743 | ) | 1,872,856 | 842,602 | |||||||||||
As of December 31, 2009, Opportunity Fund had capital loss carryovers of $1,015,488, which if not offset by subsequent capital gains, $311,833 will expire in 2016 and $703,655 will expire in 2017. As of December 31, 2009, Capital Appreciation Fund and Opportunity Fund had $0 and $0, respectively, of deferred, on a tax basis, post-October losses.
There were no distributions paid during the six months ended June 30, 2010.
The tax character of distributions paid during the fiscal year ended December 31, 2009 were as follows:
|
Ordinary
|
Long Term
|
|||||||||||
|
Income
|
Capital Gains
|
Total
|
||||||||||
|
Capital Appreciation Fund
|
$ | 498,151 | $ | — | $ | 498,151 | ||||||
|
Opportunity Fund
|
142,261 | — | 142,261 | |||||||||
29
PROSPECTOR FUNDS, INC.
Notes to the Financial Statements (Unaudited) – Continued
June 30, 2010
4. AGREEMENTS
The Funds have entered into an Investment Advisory Agreement with the Adviser, with whom certain directors and officers of the Corporation are affiliated, to furnish investment advisory services to the Funds. Pursuant to this Agreement, the Adviser is entitled to receive a fee, calculated daily and payable monthly, at the annual rate of 1.10% as applied to each Fund’s daily net assets.
The Adviser has contractually agreed to waive, through September 30, 2011 its management fee and/or reimburse each Fund’s other expenses to the extent necessary to ensure that each Fund’s operating expenses do not exceed 1.50% of its average daily net assets. Any such waiver or reimbursement may be subject to later adjustment to allow the Adviser to recoup amounts waived or reimbursed to the extent actual fees and expenses for a fiscal year are less than the respective expense cap limitations, provided, however, that the Adviser shall only be entitled to recoup such amounts for a period of three years from the date such amount was waived or reimbursed. Waived/reimbursed fees and expenses subject to potential recovery by year of expiration are as follows:
|
Expiration
|
Capital Appreciation Fund
|
Opportunity Fund
|
||||||
|
12/31/10
|
$ | 156,132 | $ | 156,522 | ||||
|
12/31/11
|
316,194 | 287,941 | ||||||
|
12/31/12
|
209,174 | 194,762 | ||||||
|
12/31/13
|
87,117 | 83,186 | ||||||
|
Total
|
$ | 768,617 | $ | 722,411 | ||||
As of June 30, 2010, it was possible, but not probable, those amounts would be recovered by the Adviser. At the end of each fiscal year in the future, the Funds will continue to assess the potential recovery of waived/reimbursed fees and expenses for financial reporting purposes.
Quasar Distributors, LLC (“Quasar”), a subsidiary of U.S. Bancorp, serves as distributor of the Funds’ shares pursuant to a Distribution Agreement with the Corporation. Each Fund’s shares are sold on a no-load basis and, therefore, Quasar receives no sales commission or sales load for providing services to the Funds. The Corporation has adopted a plan pursuant to Rule 12b-1 under the 1940 Act (the “12b-1 Plan”), which authorizes the Corporation to reimburse Quasar and certain financial intermediaries who assist in distributing each Fund’s shares or who provide shareholder services to Fund shareholders a distribution and/or shareholder servicing fee of up to 0.25% of each Fund’s average daily net assets (computed on an annual basis). All or a portion of the fee may be used by the Funds or Quasar to pay the Fund’s distribution fees and costs of printing reports and prospectuses for potential investors and the costs of other distribution and shareholder services expenses. During the six months ended June 30, 2010, Capital Appreciation Fund and Opportunity Fund incurred expenses of $10,462 and $8,914, respectively, pursuant to the 12b-1 Plan.
U.S. Bancorp Fund Services, LLC serves as transfer agent, administrator and fund accountant for the Funds. U.S. Bank, N.A. serves as custodian for the Funds.
5. INDEMNIFICATIONS
The Funds enter into contracts that contain a variety of indemnifications. The Funds’ maximum exposure under these arrangements is unknown. However, the Funds have not had prior claims or losses pursuant to these contracts and expect the risk of loss to be remote.
30
PROSPECTOR FUNDS, INC.
Notes to the Financial Statements (Unaudited) – Continued
June 30, 2010
6. SUBSEQUENT EVENTS
Management has evaluated fund related events and transactions that occurred subsequent to June 30, 2010, through the date of issuance of the Funds’ financial statements. There were no events or transactions that occurred during this period that materially impacted the amounts or disclosures in the Funds’ financial statements.
31
PROSPECTOR FUNDS, INC.
Additional Information (Unaudited)
June 30, 2010
AVAILABILITY OF FUND PORTFOLIO INFORMATION
The Funds file complete schedules of portfolio holdings with the SEC for the first and third quarters of each fiscal year on Form N-Q, which is available on the SEC’s website at www.sec.gov. The Funds’ Form N-Q may be reviewed and copied at the SEC’s Public Reference Room in Washington, D.C. For information on the Public Reference Room call 1-800-SEC-0330. In addition, the Funds’ Form N-Q is available without charge upon request by calling 1-877-PFI-STOCK or 1-877-734-7862.
AVAILABILITY OF PROXY VOTING INFORMATION
A description of the Funds’ Proxy Voting Policies and Procedures is available without charge, upon request, by calling 1-877-PFI-STOCK or 1-877-734-7862. Information regarding how the Funds voted proxies relating to portfolio securities during the most recent 12 month period ended June 30, is available (1) without charge, upon request, by calling 1-877-PFI-STOCK or 1-877-734-7862, or (2) on the SEC’s website at www.sec.gov.
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DIRECTORS
John D. Gillespie
Harvey D. Hirsch
Joseph Klein III
Roy L. Nersesian
John T. Rossello, Jr.
INVESTMENT ADVISER
Prospector Partners Asset Management, LLC
370 Church Street
Guilford, CT 06437
DISTRIBUTOR
Quasar Distributors, LLC
615 East Michigan Street
Milwaukee, WI 53202
CUSTODIAN
U.S. Bank, N.A.
1555 North River Center Drive
Milwaukee, WI 53212
ADMINISTRATOR AND TRANSFER AGENT
U.S. Bancorp Fund Services, LLC
Third Floor
615 E. Michigan Street
Milwaukee, WI 53202
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Ernst & Young LLP
220 South Sixth Street, Suite 1400
Minneapolis, MN 55402
LEGAL COUNSEL
Seward & Kissel LLP
One Battery Plaza
New York, NY 10004
This report should be accompanied or preceded by a prospectus.
The Funds’ Statement of Additional Information contains additional information about the
Funds’ directors and is available without charge upon request by calling 1-877-PFI-STOCK.
Item 2. Code of Ethics.
Not applicable for semi-annual reports.
Item 3. Audit Committee Financial Expert.
Not applicable for semi-annual reports.
Item 4. Principal Accountant Fees and Services.
Not applicable for semi-annual reports.
Item 5. Audit Committee of Listed Registrants.
Not applicable.
Item 6. Schedule of Investments.
Schedule of Investments is included as part of the report to shareholders filed under Item 1 of this Form.
Item 7. Disclosure of Proxy Voting Policies and Procedures for Closed-End Management Investment Companies.
Not applicable to open-end investment companies.
Item 8. Portfolio Managers of Closed-End Management Investment Companies.
Not applicable to open-end investment companies.
Item 9. Purchases of Equity Securities by Closed-End Management Investment Company and Affiliated Purchases.
Not applicable to open-end investment companies.
Item 10. Submission of Matters to a Vote of Security Holders.
Not Applicable.
Item 11. Controls and Procedures.
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(a)
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The Registrant’s President and Treasurer have reviewed the Registrant's disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940 (the “Act”)) as of a date within 90 days of the filing of this report, as required by Rule 30a-3(b) under the Act and Rules 13a-15(b) or 15d-15(b) under the Securities Exchange Act of 1934. Based on their review, such officers have concluded that the disclosure controls and procedures are effective in ensuring that information required to be disclosed in this report is appropriately recorded, processed, summarized and reported and made known to them by others within the Registrant and by the Registrant’s service provider.
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(b)
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There were no significant changes in the Registrant's internal control over financial reporting (as defined in Rule 30a-3(d) under the Act) that occurred during the second fiscal quarter of the period covered by this report that has materially affected, or is reasonably likely to materially affect, the Registrant's internal control over financial reporting.
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Item 12. Exhibits.
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(a)
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(1) Any code of ethics or amendment thereto, that is subject of the disclosure required by Item 2, to the extent that the registrant intends to satisfy Item 2 requirements through filing an exhibit. Not applicable for semi-annual reports.
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(2) Certifications pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. Filed herewith.
(3) Any written solicitation to purchase securities under Rule 23c-1 under the Act sent or given during the period covered by the report by or on behalf of the registrant to 10 or more persons. Not applicable to open-end investment companies.
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(b)
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Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. Furnished herewith.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
(Registrant) Prospector Funds, Inc.
By (Signature and Title)* /s/John D. Gillespie
John D. Gillespie, President
Date September 8, 2010
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
By (Signature and Title)* /s/John D. Gillespie
John D. Gillespie, President
Date September 8, 2010
By (Signature and Title)* /s/Peter N. Perugini, Jr
Peter N. Perugini, Jr., Treasurer
Date September 8, 2010
* Print the name and title of each signing officer under his or her signature.