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, 2011
Date of reporting period: June 30, 2011
Item 1. Report to Stockholders.
Prospector Capital Appreciation Fund
Prospector Opportunity Fund
Semi-Annual Report
|
www.prospectorfunds.com
|
June 30, 2011
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PROSPECTOR FUNDS, INC.
July 28, 2011
Dear Shareholders of the Prospector Capital Appreciation Fund and Prospector Opportunity Fund:
So far 2011 has been a roller coaster ride for equity investors. In a pattern reminiscent of 2010, although more muted, the stock market rallied during the first four months before correcting in the May/June time frame. The unmanaged S&P 500 Index rose 6.0% during the first half of 2011, despite a 3.6% pullback during May and June.
Markets don’t move in straight lines, and the recent rough patch for equities isn’t shocking given the lackluster U.S. economy. Nevertheless it’s been unpleasant with significant macroeconomic concerns all around: Quantitative Easing 2 ending, the European sovereign debt turmoil, and the nasty political debate in the U.S. regarding the debt ceiling.
A significant buttress to the 27 month stock market rally from the March 2009 financial crisis lows has been Fed policy of Quantitative Easing, which resulted in easing liquidity concerns, stimulating economic growth, and enabling banks to rebuild balance sheet strength by helping to keep short term interest rates near zero. The second iteration of this policy (QE2) ended in June 2011, leaving investors less confident that short term interest rates will remain low. While the Fed may lighten it’s stimulative hand, we can’t imagine it knowingly placing the recovery at risk. We have a democracy where few voters want short-term pain for possible long-term benefit. In our experience, the Fed only countenances recessions when runaway inflation, excessive financial speculation, a dollar crisis or other unacceptable alternatives genuinely threaten.
The European sovereign debt crisis keeps returning to investor consciousness as the eurozone finance ministers’ strategies of bailouts and austerity have so far failed to convince fixed income markets of their ultimate success. As an example, The Greek Tragedy grinds on. Latest reports have the country borrowing more than current interest and principal payments. This reminds us of the aggressive lending techniques employed in the latter stages of the housing bubble in the U.S. Why default when there is zero net debt service cash outflow? Why keep giving them money when it’s likely past and future loans won’t be repaid in full? The ultimate bill keeps growing. We are starting to think that one or more painful defaults are inevitable. With all the forewarnings, however, its secondary effects may not be all that bad. Further complicating the situation is an effort by politicians and regulators to keep speculators from reaping profit.
The United States Congress is hardly distinguishing itself in the current debate over the raising of the debt ceiling. If the August 2 deadline passes without a resolution, certain bills will go unpaid and the U.S.’s credit rating is likely to lose an A. It seems unlikely that our government would allow a self-inflicted wound like this to strike our fragile recovery when so many other significant macro risks lurk.
Prospector Principles of Convertible Security Investing
One of the more distinctive characteristics of Prospector Funds is our use of convertible securities in our quest to deliver solid risk adjusted returns to our shareholders. This asset class is not homogeneous: each security has specific terms and conditions that make it unique. Despite this characterization, Prospector does have a generalized investment approach:
1. We usually reject converts where the company can force conversion, i.e. mandatories. When others control the process, a “heads-we-lose, tails-they-win” situation often develops.
1
PROSPECTOR FUNDS, INC.
2. We primarily look for bonds selling less than 15% above their “bond” value. (By this we mean their value if they couldn’t be converted into common stock.) We use this strategy to help limit downside risk.
3. We look for 2-to-5 year put or maturity dates. Less, and long-term appreciation doesn’t have time to work; more, and the bond value is at risk to higher interest rates.
4. Based upon analysis incorporating bond value and the value of shares we could obtain by converting, we calculate upside potential and downside risk for each convert. Ideally we would like the convert’s potential return from its stock rising 25% to be twice the loss from the stock falling 25% (i.e. stock up 25%, bond up 10% – stock down 25%, bond down 5%).
5. We rarely buy a truly great company’s convert – remember there may be more money to be made in its common stock. Usually it is a situation involving a decent business with a competent management team that attracts us…we’re less sure of the future and our belief is that a convert with appropriate upside/downside participation may be best for your portfolio.
Prospector Capital Appreciation Highlights
Portfolio positives in the first half included investments in Healthcare, Utilities, Energy, and Paper & Forest Products. Our utility star, First Energy, was obtained at an attractive discount through corporate action. Hopefully there will be follow-on electricity sector successes. Two of our forest/paper holdings, Domtar and Timberwest, were top 10 winners, due to strong cash flow and a takeover, respectively. Johnson and Johnson (J&J) and Pfizer were healthcare winners. J&J, a high-quality company was exceptionally cheap and seems on its way to solving operational problems and recapturing investor confidence. J&J also figured as our second largest purchase during the six month period. We continue increasing it and the portfolio’s other traditional blue chip positions. (See our February 5, 2011 letter.)
Our fourth largest purchase during the second quarter was Amgen convertible bonds. Other significant convertible purchases include USEC, Medtronic and Edison Mission. This activity was not enough to offset our sales and redemptions and, as a result, this asset class has drifted down to 21% of your portfolio. Importantly, we are focused on finding specific, attractive securities, not maintaining a strict asset class allocation. In a perfect world, however, we’d have more convertibles than currently.
Our significant investment in the shares of gold miners continued to disappoint, especially given elemental gold’s 5.6% appreciation. We stubbornly expect the long-observed price correlation of gold and gold mining stocks to eventually reassert itself.
Prospector Opportunity Fund Highlights
Portfolio positives in the first half of 2011 included investments in Managed Care and Consumer Staples. Significant gains in Wellpoint, Humana, and Molina Healthcare were driven by increased volume and price due to the Obamacare mandate that 30 million Americans enter the insured system for the first time. Cash flow generation has been prodigious at these companies, which have been selling for an average free cash flow yield of 10%. Consumer staples companies such as Church and Dwight, owner of brands such as Arm & Hammer and Trojan, as well as Foster’s Group, the Australian brewer, also helped portfolio results.
2
PROSPECTOR FUNDS, INC.
Corporate actions also played a positive role in Fund performance. Our largest individual gainer was Marathon Oil, which split itself up into two pieces. Our second largest gainer was American Medical Holdings, which was acquired in a cash transaction at a 34% premium by Endo Pharmaceuticals.
Four of our top five purchases during the first half of 2011 were financial companies. This long lagging sector of the market is brimming with cheap stocks which we are gradually accumulating. Banks have by and large weathered the credit cycle and appear poised to achieve their longer term earnings potential. Insurance pricing has improved recently as the industry recovers from massive catastrophe losses over the past two years.
Outlook
Prospector’s investor letter does more than communicate to clients. It serves as an organizational discipline and a focus point for our own reflection. What are we doing? Why? How have our core beliefs fared in the marketplace? What changes should we consider? Of course, much of this doesn’t find its way into the letter. But what really matters? Valuations appear reasonable, interest rates are low and earnings have been growing. Just as important are the background positives. Our population is expanding. Technology brings consistent productive gains. Corporations have been accumulating capital and the power of compound interest has continued to work in investors’ favor. Finally (and unfortunately) the U.S. dollar is being steadily debased. These are all powerful positives that point to the potential for higher domestic stock prices.
We look forward with confidence.
Respectfully submitted,
|
John D. Gillespie
|
Richard P. Howard
|
Kevin R. O’Brien
|
Performance data quoted represents past performance; past performance does not guarantee future results.
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.
A correlation coefficient is a measure of the interdependence of two random variables that ranges in value from -1 to +1, indicating perfect negative correlation at -1, absence of correlation at zero, and perfect positive correlation at +1.
3
PROSPECTOR FUNDS, INC.
Free Cash Flow Yield is an overall return evaluation ratio of a stock, which standardizes the free cash flow per share a company is expected to earn against its market price per share. The ratio is calculated by taking the free cash flow per share divided by the share price.measures the cash generating capability of a company by adding non-cash charges (e.g. depreciation) and interest expense to pretax income.
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.
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 (%)
|
Since Inception(1) to
|
|||
|
One Year
|
Three Year
|
June 30, 2011
|
|
|
Capital Appreciation Fund
|
21.44%
|
4.42%
|
3.70%
|
|
S&P 500 Index(2)
|
30.69%
|
3.34%
|
-1.72%
|
|
(1)
|
September 28, 2007
|
|
(2)
|
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.
|
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 (%)
|
Since Inception(1) to
|
|||
|
One Year
|
Three Year
|
June 30, 2011
|
|
|
Opportunity Fund
|
26.87%
|
8.40%
|
6.20%
|
|
Russell 2000 Index(2)
|
37.41%
|
7.77%
|
1.85%
|
|
Russell Midcap Index(3)
|
38.47%
|
6.46%
|
1.89%
|
|
(1)
|
September 28, 2007
|
|
(2)
|
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)
|
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, 2011
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, 2011 – June 30, 2011).
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.
|
Expenses Paid
|
|||
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Beginning Account
|
Ending Account
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During Period(1)
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|
|
Value (01/01/11)
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Value (06/30/11)
|
(01/01/11 to 06/30/11)
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|
|
Capital Appreciation Actual(2)
|
$1,000.00
|
$1,020.70
|
$7.52
|
|
Capital Appreciation Hypothetical
|
|||
|
(5% return before expenses)
|
1,000.00
|
1,017.36
|
7.50
|
|
Opportunity Actual(2)
|
1,000.00
|
1,050.40
|
7.63
|
|
Opportunity Hypothetical
|
|||
|
(5% return before expenses)
|
1,000.00
|
1,017.36
|
7.50
|
|
(1)
|
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).
|
|
(2)
|
Based on the actual returns for the six-month period ended June 30, 2011 of 2.07% and 5.04% 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, 2011(1)(2)
Capital Appreciation Fund
Top 10 Holdings (% of net assets)
as of June 30, 2011(1)(3)
Capital Appreciation Fund
|
E.I. Du Pont de Nemours
|
4.3%
|
|
USEC, 3.000%, 10/01/2014
|
3.4%
|
|
Automatic Data Processing
|
3.3%
|
|
Nexen
|
3.2%
|
|
Gold Fields – ADR
|
3.1%
|
|
Marathon Oil
|
2.9%
|
|
Anixter International, 1.000%, 02/15/2013
|
2.9%
|
|
Newmont Mining
|
2.9%
|
|
Barrick Gold
|
2.8%
|
|
GenOn Energy
|
2.6%
|
|
(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)
|
Invesco Treasury Portfolio excluded from top 10 holdings.
|
8
PROSPECTOR FUNDS, INC.
Sector Allocation (% of net assets)
as of June 30, 2011(1)(2)
Opportunity Fund
Top 10 Holdings (% of net assets)
as of June 30, 2011(1)(3)
Opportunity Fund
|
Newmont Mining
|
3.0%
|
|
Franklin Resources
|
2.6%
|
|
Platinum Underwriters Holdings
|
2.3%
|
|
Hess
|
2.1%
|
|
Marathon Oil
|
2.1%
|
|
Nexen
|
1.8%
|
|
WellPoint
|
1.7%
|
|
Oritani Financial
|
1.7%
|
|
Church & Dwight
|
1.7%
|
|
Gold Fields – ADR
|
1.6%
|
|
(1)
|
Fund holdings and sector allocations are subject to change at any time and are not recommendations to buy or sell anysecurity.
|
|
(2)
|
Sector allocation includes all investment types.
|
|
(3)
|
Invesco Treasury Portfolio excluded from top 10 holdings
|
9
PROSPECTOR FUNDS, INC.
Schedule of Investments (Unaudited)
June 30, 2011
Capital Appreciation Fund
|
Description
|
Shares
|
Value
|
||||||
|
COMMON STOCKS – 68.3%
|
||||||||
|
Banks – 0.2%
|
||||||||
|
Charter Financial
|
8,600 | $ | 85,140 | |||||
|
Waterstone Financial*
|
6,400 | 14,400 | ||||||
| 99,540 | ||||||||
|
Chemicals – 4.3%
|
||||||||
|
E.I. Du Pont de Nemours
|
47,200 | 2,551,160 | ||||||
|
Consumer Discretionary – 1.9%
|
||||||||
|
DreamWorks Animation SKG, Class A*
|
10,200 | 205,020 | ||||||
|
Fortune Brands
|
12,700 | 809,879 | ||||||
|
New York Times, Class A*
|
3,800 | 33,136 | ||||||
|
Walt Disney
|
2,000 | 78,080 | ||||||
| 1,126,115 | ||||||||
|
Consumer Staples – 8.7%
|
||||||||
|
Campbell Soup
|
21,200 | 732,460 | ||||||
|
Coca-Cola
|
4,200 | 282,618 | ||||||
|
Coca Cola Enterprises
|
21,600 | 630,288 | ||||||
|
Sara Lee
|
34,800 | 660,852 | ||||||
|
SUPERVALU
|
30,100 | 283,241 | ||||||
|
Tootsie Roll Industries
|
33,211 | 971,754 | ||||||
|
Walgreen
|
22,700 | 963,842 | ||||||
|
Wal-Mart Stores
|
10,800 | 573,912 | ||||||
| 5,098,967 | ||||||||
|
Energy – 10.8%
|
||||||||
|
Clayton Williams Energy*
|
12,000 | 720,600 | ||||||
|
El Paso
|
14,500 | 292,900 | ||||||
|
Hess
|
7,400 | 553,224 | ||||||
|
Marathon Oil
|
32,500 | 1,712,100 | ||||||
|
Nexen
|
83,600 | 1,881,000 | ||||||
|
OPTI Canada*
|
88,800 | 10,128 | ||||||
|
Repsol YPF – ADR
|
33,400 | 1,160,984 | ||||||
|
USEC*
|
16,000 | 53,440 | ||||||
| 6,384,376 | ||||||||
|
Healthcare – 5.7%
|
||||||||
|
Abbott Laboratories
|
12,700 | 668,274 | ||||||
|
Johnson & Johnson
|
21,100 | 1,403,572 | ||||||
|
Pfizer
|
63,600 | 1,310,160 | ||||||
| 3,382,006 | ||||||||
See Notes to the Financial Statements
10
PROSPECTOR FUNDS, INC.
Schedule of Investments (Unaudited) – Continued
June 30, 2011
Capital Appreciation Fund
|
Description
|
Shares
|
Value
|
||||||
|
COMMON STOCKS – 68.3% (Continued)
|
||||||||
|
Industrials – 0.8%
|
||||||||
|
Curtiss-Wright
|
6,500 | $ | 210,405 | |||||
|
Tyco International
|
4,900 | 242,207 | ||||||
| 452,612 | ||||||||
|
Information Technology – 5.3%
|
||||||||
|
Automatic Data Processing
|
37,100 | 1,954,428 | ||||||
|
Hewlett-Packard
|
5,400 | 196,560 | ||||||
|
Microsoft
|
4,200 | 109,200 | ||||||
|
Xerox
|
80,100 | 833,841 | ||||||
| 3,094,029 | ||||||||
|
Insurance – 8.9%
|
||||||||
|
Alterra Capital Holdings
|
18,500 | 412,550 | ||||||
|
Arch Capital Group*
|
12,000 | 383,040 | ||||||
|
Berkshire Hathaway, Class B*
|
11,500 | 889,985 | ||||||
|
Donegal Group, Class A
|
9,900 | 126,720 | ||||||
|
First American Financial
|
18,000 | 281,700 | ||||||
|
Loews
|
27,600 | 1,161,684 | ||||||
|
Platinum Underwriters Holdings
|
38,900 | 1,293,036 | ||||||
|
State Auto Financial
|
41,500 | 723,345 | ||||||
| 5,272,060 | ||||||||
|
Metals & Mining – 9.6%
|
||||||||
|
AngloGold Ashanti – ADR
|
9,800 | 412,482 | ||||||
|
Barrick Gold
|
36,700 | 1,662,143 | ||||||
|
Gold Fields – ADR
|
124,700 | 1,819,373 | ||||||
|
Newmont Mining
|
31,200 | 1,683,864 | ||||||
|
Northgate Minerals*
|
37,300 | 96,980 | ||||||
| 5,674,842 | ||||||||
|
Paper & Forest Products – 2.8%
|
||||||||
|
Domtar
|
13,201 | 1,250,398 | ||||||
|
Neenah Paper
|
19,700 | 419,216 | ||||||
| 1,669,614 | ||||||||
|
Real Estate – 2.3%
|
||||||||
|
Forestar Group*
|
18,600 | 305,598 | ||||||
|
Post Properties
|
25,800 | 1,051,608 | ||||||
|
Thomas Properties Group*
|
2,900 | 9,309 | ||||||
| 1,366,515 | ||||||||
See Notes to the Financial Statements
11
PROSPECTOR FUNDS, INC.
Schedule of Investments (Unaudited) – Continued
June 30, 2011
Capital Appreciation Fund
|
Description
|
Shares
|
Value
|
||||||
|
COMMON STOCKS – 68.3% (Continued)
|
||||||||
|
Telecommunication Services – 0.8%
|
||||||||
|
Telephone & Data Systems
|
14,800 | $ | 459,984 | |||||
|
Utilities – 6.2%
|
||||||||
|
Calpine – Escrow Shares*
|
1,075,000 | 115,563 | ||||||
|
FirstEnergy
|
34,454 | 1,521,144 | ||||||
|
GenOn Energy*
|
402,154 | 1,552,314 | ||||||
|
Public Service Enterprise Group
|
14,500 | 473,280 | ||||||
| 3,662,301 | ||||||||
|
Total Common Stocks
|
||||||||
|
(Cost $37,122,087)
|
40,294,121 | |||||||
|
Par
|
||||||||
|
CONVERTIBLE BONDS – 21.0%
|
||||||||
|
Consumer Staples – 2.5%
|
||||||||
|
Archer Daniels
|
||||||||
|
0.875%, 02/15/2014
|
$ | 925,000 | 975,875 | |||||
|
Chiquita Brands
|
||||||||
|
4.250%, 08/15/2016
|
100,000 | 97,250 | ||||||
|
Smithfield Foods
|
||||||||
|
4.000%, 06/30/2013
|
325,000 | 382,281 | ||||||
| 1,455,406 | ||||||||
|
Diversified Financial Services – 0.7%
|
||||||||
|
Knight Capital
|
||||||||
|
3.500%, 03/15/2015
|
100,000 | 93,625 | ||||||
|
PHH
|
||||||||
|
4.000%, 09/01/2014
|
300,000 | 325,875 | ||||||
| 419,500 | ||||||||
|
Energy – 3.4%
|
||||||||
|
USEC
|
||||||||
|
3.000%, 10/01/2014
|
2,775,000 | 1,991,063 | ||||||
|
Healthcare – 5.9%
|
||||||||
|
Amgen
|
||||||||
|
0.375%, 02/01/2013
|
825,000 | 828,094 | ||||||
|
Charles River Laboratories International
|
||||||||
|
2.250%, 06/15/2013
|
550,000 | 576,813 | ||||||
|
Chemed
|
||||||||
|
1.875%, 05/15/2014
|
275,000 | 283,250 | ||||||
See Notes to the Financial Statements
12
PROSPECTOR FUNDS, INC.
Schedule of Investments (Unaudited) – Continued
June 30, 2011
Capital Appreciation Fund
|
Description
|
Par
|
Value
|
||||||
|
CONVERTIBLE BONDS – 21.0% (Continued)
|
||||||||
|
Healthcare – 5.9% (Continued)
|
||||||||
|
Gilead Sciences
|
||||||||
|
0.625%, 05/01/2013
|
$ | 350,000 | $ | 415,187 | ||||
|
Greatbatch
|
||||||||
|
2.250%, 06/15/2013
|
750,000 | 756,563 | ||||||
|
Hologic
|
||||||||
|
2.000%, 12/15/2013
|
150,000 | 145,500 | ||||||
|
Medtronic, Series B
|
||||||||
|
1.625%, 04/15/2013
|
475,000 | 485,687 | ||||||
| 3,491,094 | ||||||||
|
Industrials – 1.2%
|
||||||||
|
Alliant Techsystems
|
||||||||
|
3.000%, 08/20/2014
|
75,000 | 83,344 | ||||||
|
AMR
|
||||||||
|
6.250%, 10/15/2014
|
75,000 | 72,750 | ||||||
|
Trinity Industries
|
||||||||
|
3.875%, 06/01/2036
|
525,000 | 547,969 | ||||||
| 704,063 | ||||||||
|
Information Technology – 4.2%
|
||||||||
|
Advanced Micro Devices
|
||||||||
|
5.750%, 08/15/2012
|
625,000 | 640,625 | ||||||
|
Anixter International
|
||||||||
|
1.000%, 02/15/2013
|
1,425,000 | 1,690,406 | ||||||
|
Comtech Telecommunications
|
||||||||
|
3.000%, 05/01/2029
|
175,000 | 183,750 | ||||||
| 2,514,781 | ||||||||
|
Metals & Mining – 1.7%
|
||||||||
|
Kinross Gold
|
||||||||
|
1.750%, 03/15/2028
|
700,000 | 696,500 | ||||||
|
1.750%, 03/15/2028 (a)
|
100,000 | 99,500 | ||||||
|
Northgate Minerals
|
||||||||
|
3.500%, 10/01/2016
|
225,000 | 222,750 | ||||||
| 1,018,750 | ||||||||
|
Real Estate – 0.2%
|
||||||||
|
Avatar Holdings
|
||||||||
|
7.500%, 02/15/2016
|
100,000 | 100,000 | ||||||
See Notes to the Financial Statements
13
PROSPECTOR FUNDS, INC.
Schedule of Investments (Unaudited) – Continued
June 30, 2011
Capital Appreciation Fund
|
Description
|
Par
|
Value
|
||||||
|
CONVERTIBLE BONDS – 21.0% (Continued)
|
||||||||
|
Utilities – 1.2%
|
||||||||
|
Unisource Energy
|
||||||||
|
4.500%, 03/01/2035
|
$ | 650,000 | $ | 699,562 | ||||
|
Total Convertible Bonds
|
||||||||
|
(Cost $12,034,165)
|
12,394,219 | |||||||
|
CORPORATE BOND – 1.4%
|
||||||||
|
Utilities – 1.4%
|
||||||||
|
Edison Mission Energy
|
||||||||
|
7.000%, 05/15/2017
|
||||||||
|
(Cost $795,465)
|
975,000 | 789,750 | ||||||
|
Shares
|
||||||||
|
CONVERTIBLE PREFERRED STOCK – 0.3%
|
||||||||
|
Energy – 0.3%
|
||||||||
|
El Paso Energy Capital Trust
|
||||||||
|
(Cost $140,805)
|
4,000 | 178,080 | ||||||
|
SHORT-TERM INVESTMENT – 8.4%
|
||||||||
|
Invesco Treasury Portfolio, 0.020%
|
||||||||
|
(Cost $4,961,036)
|
4,961,036 | 4,961,036 | ||||||
|
Total Investments – 99.4%
|
||||||||
|
(Cost $55,053,558)
|
58,617,206 | |||||||
|
Other Assets and Liabilities, Net – 0.6%
|
363,777 | |||||||
|
Total Net Assets – 100.0%
|
$ | 58,980,983 | ||||||
|
*
|
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, 2011, the value of this investment was $99,500 or 0.2% of total net assets.
|
ADR – American Depository Receipt
See Notes to the Financial Statements
14
PROSPECTOR FUNDS, INC.
Schedule of Investments (Unaudited)
June 30, 2011
Opportunity Fund
|
Description
|
Shares
|
Value
|
||||||
|
COMMON STOCKS – 91.4%
|
||||||||
|
Banks – 14.6%
|
||||||||
|
AJS Bancorp
|
8,958 | $ | 71,664 | |||||
|
Cape Bancorp*
|
10,900 | 109,000 | ||||||
|
Chicopee Bancorp*
|
26,200 | 374,660 | ||||||
|
Clifton Savings Bancorp
|
22,500 | 248,400 | ||||||
|
Fifth Third Bancorp
|
62,100 | 791,775 | ||||||
|
First Connecticut Bancorp*
|
51,300 | 568,404 | ||||||
|
First Defiance Financial*
|
18,800 | 276,172 | ||||||
|
Fox Chase Bancorp
|
25,902 | 350,972 | ||||||
|
Guaranty Bancorp*
|
26,500 | 35,510 | ||||||
|
Hampden Bancorp
|
12,001 | 159,253 | ||||||
|
Metro Bancorp*
|
23,580 | 269,284 | ||||||
|
Northern Trust
|
15,500 | 712,380 | ||||||
|
Northwest Bancshares
|
53,600 | 674,288 | ||||||
|
Ocean Shore Holding
|
4,572 | 55,230 | ||||||
|
OmniAmerican Bancorp*
|
22,000 | 329,340 | ||||||
|
Oriental Financial Group
|
27,400 | 353,186 | ||||||
|
Oritani Financial
|
75,350 | 963,726 | ||||||
|
State Bancorp
|
32,314 | 431,069 | ||||||
|
Territorial Bancorp
|
21,900 | 453,768 | ||||||
|
ViewPoint Financial Group
|
47,100 | 649,980 | ||||||
|
Virginia Commerce Bancorp*
|
40,100 | 236,991 | ||||||
|
Westfield Financial
|
30,000 | 243,600 | ||||||
| 8,358,652 | ||||||||
|
Brokers – 0.7%
|
||||||||
|
MF Global Holdings*
|
54,600 | 422,604 | ||||||
|
Chemicals – 1.7%
|
||||||||
|
H.B. Fuller
|
21,900 | 534,798 | ||||||
|
RPM International
|
18,900 | 435,078 | ||||||
| 969,876 | ||||||||
|
Consumer Discretionary – 3.4%
|
||||||||
|
American Eagle Outfitters
|
15,600 | 198,900 | ||||||
|
Fortune Brands
|
800 | 51,016 | ||||||
|
Home Depot
|
18,300 | 662,826 | ||||||
|
Matthews International, Class A
|
13,600 | 546,040 | ||||||
|
Morton’s Restaurant Group*
|
14,400 | 104,256 | ||||||
|
Yum! Brands
|
7,200 | 397,728 | ||||||
| 1,960,766 | ||||||||
See Notes to the Financial Statements
15
PROSPECTOR FUNDS, INC.
Schedule of Investments (Unaudited) – Continued
June 30, 2011
Opportunity Fund
|
Description
|
Shares
|
Value
|
||||||
|
COMMON STOCKS – 91.4% (Continued)
|
||||||||
|
Consumer Staples – 10.1%
|
||||||||
|
Church & Dwight
|
23,400 | $ | 948,636 | |||||
|
Clorox
|
11,700 | 789,048 | ||||||
|
Coca-Cola
|
9,500 | 639,255 | ||||||
|
Foster’s Group
|
110,900 | 612,569 | ||||||
|
Lancaster Colony
|
3,700 | 225,034 | ||||||
|
Molson Coors Brewing, Class B
|
18,100 | 809,794 | ||||||
|
PepsiCo
|
11,400 | 802,902 | ||||||
|
Treasury Wine Estates*
|
36,966 | 134,802 | ||||||
|
Viterra
|
10,600 | 115,183 | ||||||
|
Wal-Mart Stores
|
13,800 | 733,332 | ||||||
| 5,810,555 | ||||||||
|
Containers & Packaging – 0.8%
|
||||||||
|
Silgan Holdings
|
11,300 | 462,961 | ||||||
|
Diversified Financial Services – 8.9%
|
||||||||
|
Citigroup
|
15,070 | 627,515 | ||||||
|
Franklin Resources
|
11,500 | 1,509,835 | ||||||
|
Invesco
|
38,700 | 905,580 | ||||||
|
JPMorgan Chase
|
20,100 | 822,894 | ||||||
|
Leucadia National
|
25,600 | 872,960 | ||||||
|
PICO Holdings*
|
13,200 | 382,800 | ||||||
| 5,121,584 | ||||||||
|
Energy – 6.2%
|
||||||||
|
Hess
|
16,400 | 1,226,064 | ||||||
|
Marathon Oil
|
23,100 | 1,216,908 | ||||||
|
Murphy Oil
|
1,300 | 85,358 | ||||||
|
Nexen
|
44,800 | 1,008,000 | ||||||
| 3,536,330 | ||||||||
|
Healthcare – 5.3%
|
||||||||
|
Humana
|
4,200 | 338,268 | ||||||
|
Johnson & Johnson
|
6,800 | 452,336 | ||||||
|
Merck & Co.
|
11,248 | 396,942 | ||||||
|
Molina Healthcare*
|
13,050 | 353,916 | ||||||
|
Pfizer
|
26,100 | 537,660 | ||||||
|
WellPoint
|
12,300 | 968,871 | ||||||
| 3,047,993 | ||||||||
See Notes to the Financial Statements
16
PROSPECTOR FUNDS, INC.
Schedule of Investments (Unaudited) – Continued
June 30, 2011
Opportunity Fund
|
Description
|
Shares
|
Value
|
||||||
|
COMMON STOCKS – 91.4% (Continued)
|
||||||||
|
Industrials – 3.4%
|
||||||||
|
Alliant Techsystems
|
4,800 | $ | 342,384 | |||||
|
Briggs & Stratton
|
29,800 | 591,828 | ||||||
|
Celadon Group*
|
7,900 | 110,284 | ||||||
|
Graco
|
9,800 | 496,468 | ||||||
|
Tyco International
|
8,300 | 410,269 | ||||||
| 1,951,233 | ||||||||
|
Information Technology – 9.8%
|
||||||||
|
Automatic Data Processing
|
10,500 | 553,140 | ||||||
|
BMC Software*
|
7,000 | 382,900 | ||||||
|
Cisco Systems
|
13,600 | 212,296 | ||||||
|
EMC*
|
13,800 | 380,190 | ||||||
|
Hewlett-Packard
|
10,900 | 396,760 | ||||||
|
Marvell Technology Group*
|
16,400 | 242,146 | ||||||
|
Microsoft
|
23,600 | 613,600 | ||||||
|
NCR*
|
24,500 | 462,805 | ||||||
|
NetApp*
|
10,000 | 527,800 | ||||||
|
Symantec*
|
8,800 | 173,536 | ||||||
|
Synopsys*
|
13,900 | 357,369 | ||||||
|
Visa, Class A
|
4,500 | 379,170 | ||||||
|
Xerox
|
41,270 | 429,621 | ||||||
|
Xilinx
|
13,300 | 485,051 | ||||||
| 5,596,384 | ||||||||
|
Insurance – 14.4%
|
||||||||
|
Aflac
|
8,300 | 387,444 | ||||||
|
Alleghany*
|
882 | 293,803 | ||||||
|
Alterra Capital Holdings
|
35,900 | 800,570 | ||||||
|
AON
|
13,500 | 692,550 | ||||||
|
Arch Capital Group*
|
18,000 | 574,560 | ||||||
|
Arthur J. Gallagher
|
12,600 | 359,604 | ||||||
|
Aspen Insurance Holdings
|
14,800 | 380,804 | ||||||
|
Assurant
|
9,500 | 344,565 | ||||||
|
Berkshire Hathaway, Class B*
|
2,161 | 167,240 | ||||||
|
Catlin Group
|
24,100 | 155,530 | ||||||
|
Cincinnati Financial
|
19,100 | 557,338 | ||||||
|
CNA Financial
|
18,100 | 525,805 | ||||||
|
MetLife
|
10,500 | 460,635 | ||||||
|
Penn Millers Holding*
|
21,105 | 356,674 | ||||||
See Notes to the Financial Statements
17
PROSPECTOR FUNDS, INC.
Schedule of Investments (Unaudited) – Continued
June 30, 2011
Opportunity Fund
|
Description
|
Shares
|
Value
|
||||||
|
COMMON STOCKS – 91.4% (Continued)
|
||||||||
|
Insurance – 14.4% (Continued)
|
||||||||
|
Platinum Underwriters Holdings
|
40,000 | $ | 1,329,600 | |||||
|
Progressive
|
18,800 | 401,944 | ||||||
|
Unum Group
|
16,900 | 430,612 | ||||||
| 8,219,278 | ||||||||
|
Metals & Mining – 6.0%
|
||||||||
|
Gold Fields – ADR
|
62,300 | 908,957 | ||||||
|
Kinross Gold
|
48,100 | 759,980 | ||||||
|
Newmont Mining
|
31,800 | 1,716,246 | ||||||
|
Victoria Gold*
|
96,500 | 60,034 | ||||||
| 3,445,217 | ||||||||
|
Real Estate – 0.7%
|
||||||||
|
Forestar Group*
|
10,100 | 165,943 | ||||||
|
Thomas Properties Group*
|
65,800 | 211,218 | ||||||
| 377,161 | ||||||||
|
Utilities – 5.4%
|
||||||||
|
Ameren
|
7,200 | 207,648 | ||||||
|
American Electric Power
|
6,500 | 244,920 | ||||||
|
Calpine – Escrow Shares*
|
125,000 | 13,438 | ||||||
|
Empire District Electric
|
22,000 | 423,720 | ||||||
|
FirstEnergy
|
16,875 | 745,031 | ||||||
|
GenOn Energy*
|
83,837 | 323,611 | ||||||
|
NV Energy
|
35,300 | 541,855 | ||||||
|
Unitil
|
22,000 | 578,600 | ||||||
| 3,078,823 | ||||||||
|
Total Common Stocks
|
||||||||
|
(Cost $46,956,717)
|
52,359,417 | |||||||
See Notes to the Financial Statements
18
PROSPECTOR FUNDS, INC.
Schedule of Investments (Unaudited) – Continued
June 30, 2011
Opportunity Fund
|
Description
|
Par
|
Value
|
||||||
|
CONVERTIBLE BONDS – 1.4%
|
||||||||
|
Brokers – 0.5%
|
||||||||
|
MF Global Holdings
|
||||||||
|
1.875%, 02/01/2016
|
$ | 275,000 | $ | 272,593 | ||||
|
Industrials – 0.5%
|
||||||||
|
Alliant Techsystems
|
||||||||
|
3.000%, 08/15/2024
|
275,000 | 305,594 | ||||||
|
Metals & Mining – 0.4%
|
||||||||
|
Kinross Gold
|
||||||||
|
1.750%, 03/15/2028 (a)
|
150,000 | 149,250 | ||||||
|
1.750%, 03/15/2028
|
75,000 | 74,625 | ||||||
| 223,875 | ||||||||
|
Total Convertible Bonds
|
||||||||
|
(Cost $791,281)
|
802,062 | |||||||
|
CORPORATE BONDS – 0.7%
|
||||||||
|
Diversified Financial Services – 0.4%
|
||||||||
|
Leucadia National
|
||||||||
|
7.000%, 08/15/2013
|
200,000 | 216,000 | ||||||
|
Information Technology – 0.3%
|
||||||||
|
Broadridge Financial Solutions
|
||||||||
|
6.125%, 06/01/2017
|
175,000 | 181,608 | ||||||
|
Total Corporate Bonds
|
||||||||
|
(Cost $333,285)
|
397,608 | |||||||
|
Shares
|
||||||||
|
SHORT-TERM INVESTMENT – 7.3%
|
||||||||
|
Invesco Treasury Portfolio, 0.020%
|
||||||||
|
(Cost $4,170,228)
|
4,170,228 | 4,170,228 | ||||||
|
Total Investments – 100.8%
|
||||||||
|
(Cost $52,251,511)
|
57,729,315 | |||||||
|
Other Assets and Liabilities, Net – (0.8%)
|
(443,107 | ) | ||||||
|
Total Net Assets – 100.0%
|
$ | 57,286,208 | ||||||
|
*
|
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, 2011, the value of this investment was $149,250 or 0.3% of total net assets.
|
ADR – American Depository Receipt
See Notes to the Financial Statements
19
PROSPECTOR FUNDS, INC.
Statements of Assets and Liabilities (Unaudited)
June 30, 2011
|
Capital Appreciation Fund
|
Opportunity Fund
|
|||||||
|
ASSETS:
|
||||||||
|
Investments, at market value
|
||||||||
|
(Cost $55,053,558 and $52,251,511, respectively)
|
$ | 58,617,206 | $ | 57,729,315 | ||||
|
Cash
|
3,032 | 2,352 | ||||||
|
Receivable for investment securities sold
|
604,643 | 15,985 | ||||||
|
Receivable for dividends and interest
|
128,672 | 55,374 | ||||||
|
Receivable for capital shares sold
|
3,240 | 433,315 | ||||||
|
Prepaid expenses
|
14,191 | 13,987 | ||||||
|
Total assets
|
59,370,984 | 58,250,328 | ||||||
|
LIABILITIES:
|
||||||||
|
Payable for investment securities purchased
|
195,386 | 890,174 | ||||||
|
Payable for capital shares redeemed
|
120,729 | 942 | ||||||
|
Payable to adviser, net
|
44,185 | 42,614 | ||||||
|
Accrued distribution fees
|
4,670 | 4,730 | ||||||
|
Accrued expenses and other liabilities
|
25,031 | 25,660 | ||||||
|
Total liabilities
|
390,001 | 964,120 | ||||||
|
NET ASSETS
|
$ | 58,980,983 | $ | 57,286,208 | ||||
|
COMPOSITION OF NET ASSETS:
|
||||||||
|
Portfolio capital
|
$ | 54,773,999 | $ | 49,276,961 | ||||
|
Undistributed net investment income
|
92,736 | 15,949 | ||||||
|
Accumulated net realized gain on investments
|
548,574 | 2,515,472 | ||||||
|
Net unrealized appreciation of investments
|
3,565,674 | 5,477,826 | ||||||
|
Total net assets
|
$ | 58,980,983 | $ | 57,286,208 | ||||
|
CAPITAL STOCK, $0.0001 par value
|
||||||||
|
Authorized
|
500,000,000 | 500,000,000 | ||||||
|
Issued and outstanding
|
3,628,661 | 3,125,385 | ||||||
|
NET ASSET VALUE, REDEMPTION PRICE,
|
||||||||
|
AND OFFERING PRICE PER SHARE
|
$ | 16.25 | $ | 18.33 | ||||
See Notes to the Financial Statements
20
PROSPECTOR FUNDS, INC.
Statements of Operations (Unaudited)
For the Six Months Ended June 30, 2011
|
Capital Appreciation Fund
|
Opportunity Fund
|
|||||||
|
INVESTMENT INCOME:
|
||||||||
|
Interest income
|
$ | 270,203 | $ | 27,862 | ||||
|
Dividend income
|
359,463 | 415,882 | ||||||
|
Less: Foreign taxes withheld
|
(8,379 | ) | — | |||||
|
Total investment income
|
621,287 | 443,744 | ||||||
|
EXPENSES:
|
||||||||
|
Investment advisory fees
|
309,365 | 280,050 | ||||||
|
Directors’ fees
|
27,153 | 23,978 | ||||||
|
Administration fees
|
26,085 | 24,613 | ||||||
|
Fund accounting fees
|
20,186 | 19,551 | ||||||
|
Legal fees
|
17,106 | 15,112 | ||||||
|
Transfer agent fees
|
16,293 | 15,928 | ||||||
|
Distribution fees
|
15,120 | 13,943 | ||||||
|
Audit fees
|
13,394 | 13,394 | ||||||
|
Registration fees
|
12,397 | 12,305 | ||||||
|
Other expenses
|
7,421 | 6,154 | ||||||
|
Custodian fees
|
6,157 | 5,347 | ||||||
|
Postage and printing fees
|
2,442 | 2,172 | ||||||
|
Total expenses
|
473,119 | 432,547 | ||||||
|
Less: Fee waivers
|
(51,258 | ) | (50,661 | ) | ||||
|
Total net expenses
|
421,861 | 381,886 | ||||||
|
NET INVESTMENT INCOME
|
199,426 | 61,858 | ||||||
|
REALIZED AND UNREALIZED GAINS:
|
||||||||
|
Net realized gain on investments
|
771,543 | 2,286,035 | ||||||
|
Net change in unrealized
|
||||||||
|
appreciation of investments
|
49,912 | 15,466 | ||||||
|
Net gain on investments
|
821,455 | 2,301,501 | ||||||
|
NET INCREASE IN NET ASSETS
|
||||||||
|
RESULTING FROM OPERATIONS
|
$ | 1,020,881 | $ | 2,363,359 | ||||
See Notes to the Financial Statements
21
PROSPECTOR FUNDS, INC.
Statements of Changes in Net Assets
|
Capital Appreciation Fund
|
||||||||
|
Six Months Ended
|
||||||||
|
June 30, 2011
|
Year Ended
|
|||||||
|
(Unaudited)
|
December 31, 2010
|
|||||||
|
OPERATIONS:
|
||||||||
|
Net investment income
|
$ | 199,426 | $ | 369,052 | ||||
|
Net realized gain on investments
|
771,543 | 614,148 | ||||||
|
Net change in unrealized appreciation of investments
|
49,912 | 4,942,359 | ||||||
|
Net increase resulting from operations
|
1,020,881 | 5,925,559 | ||||||
|
CAPITAL SHARE TRANSACTIONS:
|
||||||||
|
Proceeds from shares sold
|
16,742,997 | 13,237,074 | ||||||
|
Proceeds from reinvestment of distributions
|
–– | 1,236,930 | ||||||
|
Payments for shares redeemed
|
(2,317,865 | ) | (5,327,060 | ) | ||||
|
Redemption fees
|
–– | 1,469 | ||||||
|
Net increase from capital share transactions
|
14,425,132 | 9,148,413 | ||||||
|
DISTRIBUTIONS PAID FROM:
|
||||||||
|
Net investment income
|
–– | (435,315 | ) | |||||
|
Net realized gains
|
–– | (827,499 | ) | |||||
|
Total distributions to shareholders
|
–– | (1,262,814 | ) | |||||
|
TOTAL INCREASE IN NET ASSETS
|
15,446,013 | 13,811,158 | ||||||
|
NET ASSETS:
|
||||||||
|
Beginning of period
|
43,534,970 | 29,723,812 | ||||||
|
End of period (including undistributed
|
||||||||
|
(distributions in excess of) net investment
|
||||||||
|
income of $92,736 and $(106,690), respectively)
|
$ | 58,980,983 | $ | 43,534,970 | ||||
|
TRANSACTIONS IN SHARES:
|
||||||||
|
Shares sold
|
1,035,583 | 883,030 | ||||||
|
Shares issued in reinvestment of distributions
|
–– | 77,794 | ||||||
|
Shares redeemed
|
(141,874 | ) | (356,268 | ) | ||||
|
Net increase
|
893,709 | 604,556 | ||||||
See Notes to the Financial Statements
22
PROSPECTOR FUNDS, INC.
Statements of Changes in Net Assets
|
Opportunity Fund
|
||||||||
|
Six Months Ended
|
||||||||
|
June 30, 2011
|
Year Ended
|
|||||||
|
(Unaudited)
|
December 31, 2010
|
|||||||
|
OPERATIONS:
|
||||||||
|
Net investment income
|
$ | 61,858 | $ | 185,084 | ||||
|
Net realized gain on investments
|
2,286,035 | 1,502,770 | ||||||
|
Net change in unrealized appreciation of investments
|
15,466 | 3,551,411 | ||||||
|
Net increase resulting from operations
|
2,363,359 | 5,239,265 | ||||||
|
CAPITAL SHARE TRANSACTIONS:
|
||||||||
|
Proceeds from shares sold
|
19,414,990 | 11,571,265 | ||||||
|
Proceeds from reinvestment of distributions
|
–– | 417,731 | ||||||
|
Payments for shares redeemed
|
(2,067,951 | ) | (5,299,701 | ) | ||||
|
Redemption fees
|
478 | 534 | ||||||
|
Net increase from capital share transactions
|
17,347,517 | 6,689,829 | ||||||
|
DISTRIBUTIONS PAID FROM:
|
||||||||
|
Net investment income
|
–– | (248,189 | ) | |||||
|
Net realized gains
|
–– | (187,790 | ) | |||||
|
Total distributions to shareholders
|
–– | (435,979 | ) | |||||
|
TOTAL INCREASE IN NET ASSETS
|
19,710,876 | 11,493,115 | ||||||
|
NET ASSETS:
|
||||||||
|
Beginning of period
|
37,575,332 | 26,082,217 | ||||||
|
End of period (including undistributed
|
||||||||
|
(distributions in excess of) net investment
|
||||||||
|
income of $15,949 and $(45,909), respectively)
|
$ | 57,286,208 | $ | 37,575,332 | ||||
|
TRANSACTIONS IN SHARES:
|
||||||||
|
Shares sold
|
1,086,961 | 731,881 | ||||||
|
Shares issued in reinvestment of distributions
|
–– | 23,925 | ||||||
|
Shares redeemed
|
(114,377 | ) | (330,822 | ) | ||||
|
Net increase
|
972,584 | 424,984 | ||||||
See Notes to the Financial Statements
23
PROSPECTOR FUNDS, INC.
Financial Highlights
|
Capital Appreciation Fund
|
||||||||||||||||||||
|
Six Months
|
September 28, 2007(1)
|
|||||||||||||||||||
|
Ended June 30, 2011
|
Year Ended December 31,
|
through
|
||||||||||||||||||
|
(Unaudited)
|
2010
|
2009
|
2008
|
December 31, 2007
|
||||||||||||||||
|
For a Fund share outstanding
|
||||||||||||||||||||
|
throughout the period
|
||||||||||||||||||||
|
NET ASSET VALUE:
|
||||||||||||||||||||
|
Beginning of period
|
$ | 15.92 | $ | 13.95 | $ | 10.85 | $ | 14.94 | $ | 15.00 | ||||||||||
|
OPERATIONS:
|
||||||||||||||||||||
|
Net investment income
|
0.06 | 0.14 | 0.25 | 0.08 | 0.01 | |||||||||||||||
|
Net realized and unrealized
|
||||||||||||||||||||
|
gain (loss) on investments
|
0.27 | 2.30 | 3.09 | (4.08 | ) | (0.06 | ) | |||||||||||||
|
Total from operations
|
0.33 | 2.44 | 3.34 | (4.00 | ) | (0.05 | ) | |||||||||||||
|
LESS DISTRIBUTIONS:
|
||||||||||||||||||||
|
From net investment income
|
–– | (0.16 | ) | (0.24 | ) | (0.09 | ) | (0.01 | ) | |||||||||||
|
From net realized gains
|
–– | (0.31 | ) | –– | (0.01 | ) | –– | |||||||||||||
|
Total distributions
|
–– | (0.47 | ) | (0.24 | ) | (0.10 | ) | (0.01 | ) | |||||||||||
|
Paid in capital from redemption fees
|
–– | –– | (2) | –– | (2) | 0.01 | –– | |||||||||||||
|
NET ASSET VALUE:
|
||||||||||||||||||||
|
End of period
|
$ | 16.25 | $ | 15.92 | $ | 13.95 | $ | 10.85 | $ | 14.94 | ||||||||||
|
TOTAL RETURN
|
2.07 | %(3) | 17.52 | % | 30.74 | % | (26.67 | )% | (0.32 | )%(3) | ||||||||||
|
SUPPLEMENTAL DATA AND RATIOS:
|
||||||||||||||||||||
|
Net assets, end of period (in thousands)
|
$ | 58,981 | $ | 43,535 | $ | 29,724 | $ | 20,091 | $ | 8,168 | ||||||||||
|
Ratio of expenses to average net assets:
|
||||||||||||||||||||
|
Before expense reimbursement
|
1.68 | %(4) | 2.01 | % | 2.38 | % | 3.51 | % | 11.28 | %(4) | ||||||||||
|
After expense reimbursement
|
1.50 | %(4) | 1.50 | % | 1.50 | % | 1.50 | % | 1.50 | %(4) | ||||||||||
|
Ratio of net investment income (loss)
|
||||||||||||||||||||
|
to average net assets:
|
||||||||||||||||||||
|
Before expense reimbursement
|
0.53 | %(4) | 0.55 | % | 1.27 | % | (1.07 | )% | (9.38 | )%(4) | ||||||||||
|
After expense reimbursement
|
0.71 | %(4) | 1.06 | % | 2.15 | % | 0.94 | % | 0.40 | %(4) | ||||||||||
|
Portfolio turnover rate
|
12 | %(3) | 27 | % | 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, 2007(1)
|
|||||||||||||||||||
|
Ended June 30, 2011
|
Year Ended December 31,
|
through
|
||||||||||||||||||
|
(Unaudited)
|
2010
|
2009
|
2008
|
December 31, 2007
|
||||||||||||||||
|
For a Fund share outstanding
|
||||||||||||||||||||
|
throughout the period
|
||||||||||||||||||||
|
NET ASSET VALUE:
|
||||||||||||||||||||
|
Beginning of period
|
$ | 17.45 | $ | 15.10 | $ | 12.04 | $ | 14.96 | $ | 15.00 | ||||||||||
|
OPERATIONS:
|
||||||||||||||||||||
|
Net investment income
|
0.03 | 0.09 | 0.08 | 0.05 | 0.02 | |||||||||||||||
|
Net realized and unrealized
|
||||||||||||||||||||
|
gain (loss) on investments
|
0.85 | 2.47 | 3.06 | (2.92 | ) | (0.01 | ) | |||||||||||||
|
Total from operations
|
0.88 | 2.56 | 3.14 | (2.87 | ) | 0.01 | ||||||||||||||
|
LESS DISTRIBUTIONS:
|
||||||||||||||||||||
|
From net investment income
|
–– | (0.12 | ) | (0.08 | ) | (0.06 | ) | (0.02 | ) | |||||||||||
|
From net realized gains
|
–– | (0.09 | ) | –– | –– | (0.03 | ) | |||||||||||||
|
Total distributions
|
–– | (0.21 | ) | (0.08 | ) | (0.06 | ) | (0.05 | ) | |||||||||||
|
Paid in capital from redemption fees
|
–– | (2) | –– | (2) | –– | (2) | 0.01 | –– | ||||||||||||
|
NET ASSET VALUE:
|
||||||||||||||||||||
|
End of period
|
$ | 18.33 | $ | 17.45 | $ | 15.10 | $ | 12.04 | $ | 14.96 | ||||||||||
|
TOTAL RETURN
|
5.04 | %(3) | 16.94 | % | 26.10 | % | (19.14 | )% | 0.11 | %(3) | ||||||||||
|
SUPPLEMENTAL DATA AND RATIOS:
|
||||||||||||||||||||
|
Net assets, end of period (in thousands)
|
$ | 57,286 | $ | 37,575 | $ | 26,082 | $ | 16,025 | $ | 5,896 | ||||||||||
|
Ratio of expenses to average net assets:
|
||||||||||||||||||||
|
Before expense reimbursement
|
1.70 | %(4) | 2.05 | % | 2.51 | % | 4.11 | % | 14.50 | %(4) | ||||||||||
|
After expense reimbursement
|
1.50 | %(4) | 1.50 | % | 1.50 | % | 1.50 | % | 1.50 | %(4) | ||||||||||
|
Ratio of net investment income (loss)
|
||||||||||||||||||||
|
to average net assets:
|
||||||||||||||||||||
|
Before expense reimbursement
|
0.04 | %(4) | 0.04 | % | (0.27 | )% | (1.96 | )% | (12.27 | )%(4) | ||||||||||
|
After expense reimbursement
|
0.24 | %(4) | 0.59 | % | 0.74 | % | 0.65 | % | 0.73 | %(4) | ||||||||||
|
Portfolio turnover rate
|
22 | %(3) | 45 | % | 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, 2011
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, 2011
As of June 30, 2011, each fund’s investments in securities were classified as follows:
|
Level 1
|
Level 2
|
Level 3
|
Total
|
|||||||||||||
|
Capital Appreciation Fund
|
||||||||||||||||
|
Common Stocks
|
$ | 40,178,558 | $ | –– | $ | 115,563 | $ | 40,294,121 | ||||||||
|
Convertible Bonds
|
–– | 12,394,219 | –– | 12,394,219 | ||||||||||||
|
Corporate Bond
|
–– | 789,750 | –– | 789,750 | ||||||||||||
|
Convertible Preferred Stocks
|
178,080 | –– | –– | 178,080 | ||||||||||||
|
Short-Term Investments
|
4,961,036 | –– | –– | 4,961,036 | ||||||||||||
|
Total Investments
|
$ | 45,317,674 | $ | 13,183,969 | $ | 115,563 | $ | 58,617,206 | ||||||||
|
Opportunity Fund
|
||||||||||||||||
|
Common Stocks
|
$ | 52,345,979 | $ | –– | $ | 13,438 | $ | 52,359,417 | ||||||||
|
Corporate Bonds
|
–– | 397,608 | –– | 397,608 | ||||||||||||
|
Convertible Bonds
|
–– | 802,062 | –– | 802,062 | ||||||||||||
|
Short-Term Investment
|
4,170,228 | –– | –– | 4,170,228 | ||||||||||||
|
Total Investments
|
$ | 56,516,207 | $ | 1,199,670 | $ | 13,438 | $ | 57,729,315 | ||||||||
Refer to each Fund’s Schedule of Investments for further sector breakout.
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 –
|
Stocks –
|
|||||||
|
Utilities
|
Utilities
|
|||||||
|
Balance as of 12/31/2010
|
$ | 86,000 | $ | 10,000 | ||||
|
Accrued discounts/premiums
|
–– | –– | ||||||
|
Realized gain (loss)
|
–– | –– | ||||||
|
Change in net unrealized appreciation
|
29,563 | 3,438 | ||||||
|
Net purchases (sales)
|
–– | –– | ||||||
|
Transfers in and/or out of Level 3
|
–– | –– | ||||||
|
Balance as of 6/30/2011
|
$ | 115,563 | $ | 13,438 | ||||
|
Net unrealized appreciation
|
||||||||
|
of Level 3 securities as of June 30, 2011
|
$ | 29,438 | $ | 13,438 | ||||
Transfers in and/or out of Level 3 are shown using beginning of period values. During the six months ended June 30, 2011, 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 fulfill their obligations under the terms of the contract, the potential for an illiquid secondary market, and the poten-
27
PROSPECTOR FUNDS, INC.
Notes to the Financial Statements (Unaudited) – Continued
June 30, 2011
tial 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, 2011, 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, 2010, 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.
Subsequent Events – Management has evaluated fund related events and transactions that occurred subsequent to June 30, 2011, 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.
28
PROSPECTOR FUNDS, INC.
Notes to the Financial Statements (Unaudited) – Continued
June 30, 2011
3. INVESTMENT TRANSACTIONS
During the six months ended June 30, 2011, 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
|
$18,461,607
|
$5,934,005
|
|
Opportunity Fund
|
27,294,980
|
10,443,842
|
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, 2011, were as follows:
|
Aggregate
|
Aggregate
|
Federal
|
||
|
Gross
|
Gross
|
Income
|
||
|
Appreciation
|
Depreciation
|
Net
|
Tax Cost
|
|
|
Capital Appreciation Fund
|
$7,139,641
|
$(3,575,993)
|
$3,563,648
|
$55,053,558
|
|
Opportunity Fund
|
6,778,811
|
(1,301,007)
|
5,477,804
|
52,251,511
|
At December 31, 2010, the Funds’ most recently completed fiscal year-end, components of accumulated earnings (deficit) on a tax-basis were as follows:
|
Undistributed
|
Undistributed
|
Other
|
Total
|
||
|
Ordinary
|
Long-Term
|
Accumulated
|
Unrealized
|
Accumulated
|
|
|
Income
|
Capital Gains
|
Losses
|
Appreciation
|
Earnings
|
|
|
Capital Appreciation Fund
|
$4,850
|
$—
|
$(72,375)
|
$3,253,628
|
$3,186,103
|
|
Opportunity Fund
|
––
|
231,357
|
(14,268)
|
5,428,799
|
5,645,888
|
As of December 31, 2010, the Funds did not have any capital loss carryovers. During the year ended December 31, 2010, the Opportunity Fund utilized $1,015,488 in capital loss carryforwards. As of December 31, 2010, Capital Appreciation Fund and Opportunity Fund had $54,917 and $217, respectively, of deferred, on a tax basis, post-October losses.
There were no distributions paid during the six months ended June 30, 2011.
29
PROSPECTOR FUNDS, INC.
Notes to the Financial Statements (Unaudited) – Continued
June 30, 2011
The tax character of distributions paid during the fiscal year ended December 31, 2010 were as follows:
|
Ordinary
|
Long Term
|
||
|
Income
|
Capital Gains
|
Total
|
|
|
Capital Appreciation Fund
|
$814,694
|
$448,120
|
$1,262,814
|
|
Opportunity Fund
|
210,919
|
225,060
|
435,979
|
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, 2012 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
|
||||||
|
12/31/11
|
$ | 316,194 | $ | 287,941 | ||||
|
12/31/12
|
209,174 | 194,762 | ||||||
|
12/31/13
|
177,007 | 171,081 | ||||||
|
12/31/14
|
51,258 | 50,661 | ||||||
|
Total
|
$ | 753,633 | $ | 704,445 | ||||
As of June 30, 2011, 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, 2011, Capital Appreciation Fund and Opportunity Fund incurred expenses of $15,120 and $13,943, respectively, pursuant to the 12b-1 Plan.
30
PROSPECTOR FUNDS, INC.
Notes to the Financial Statements (Unaudited) – Continued
June 30, 2011
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.
6. THE REGULATED INVESTMENT COMPANY MODERNIZATION ACT
On December 22, 2010, The Regulated Investment Company Modernization Act of 2010 (the “Modernization Act”) was signed by The President. The Modernization Act is the first major piece of legislation affecting Regulated Investment Companies (“RICs”) since 1986 and it modernizes several of the federal income and excise tax provisions related to RICs. Some highlights of the enacted provisions are as follows:
Capital losses incurred after December 31, 2010 may now be carried forward indefinitely, and retain the character of the original loss. Under pre-enactment law, capital losses could be carried forward for eight years, and carried forward as short-term capital, irrespective of the character of the original loss.
The Modernization Act contains simplification provisions, which are aimed at preventing disqualification of a RIC for “inadvertent” failures of the asset diversification and/or qualifying income tests. Additionally, the Modernization Act exempts RICs from the preferential dividend rule, and repealed the 60-day designation requirement for certain types of pay-through income and gains.
Finally, the Modernization Act contains several provisions aimed at preserving the character of distributions made by a fiscal year RIC during the portion of its taxable year ending after October 31 or December 31, reducing the circumstances under which a RIC might be required to file amended Forms 1099 to restate previously reported distributions.
Except for the simplification provisions related to RIC qualification, the Modernization Act is effective for taxable years beginning after December 22, 2010. The provisions related to RIC qualification are effective for taxable years for which the extended due date of the tax return is after December 22, 2010.
31
PROSPECTOR FUNDS, INC.
Additional Information (Unaudited)
June 30, 2011
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.
32
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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 to open-end investment companies.
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 7, 2011
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 7, 2011
By (Signature and Title)* /s/Peter N. Perugini, Jr.
Peter N. Perugini, Jr., Treasurer
Date September 7, 2011
* Print the name and title of each signing officer under his or her signature.