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, 2012
Date of reporting period: June 30, 2012
Item 1. Report to Stockholders.
Prospector Capital Appreciation Fund
Prospector Opportunity Fund
Semi-Annual Report
|
www.prospectorfunds.com
|
June 30, 2012
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PROSPECTOR FUNDS, INC.
July 23, 2012
Dear Shareholders of the Prospector Capital Appreciation Fund and Prospector Opportunity Fund,
The first half of 2012 was strong overall for equity markets. After a fast start from January to March, the market wobbled in April and May before recovering nicely in June. Underlying fundamentals: equity valuations, corporate interest rates and earnings estimates haven’t changed much in 2012, while all manner of external factors and news flow have driven the recent unsettling price moves. Within equities, the lower uncertainty level of growth stocks helped them extend a now four-year string of outperformance relative to their value cousins.
Frustration over Europe’s debt woes mounts as this crisis lingers without solution or even increased clarity while the region wallows in recession. Unlike the summers of 2010 and 2011 when sovereign fears were ameliorated by short term bailouts in peripheral European nations such as Portugal, Ireland, and Greece, the current version revolves around Spain and Italy, two heavyweight European nations. Elections in France and Greece remind us of the linkage between politics, policy, and even our own 401k balance in this “the world is flat” environment.
The relationship between politics and policy will likely remain on center stage during the upcoming Presidential election in the USA. Mitt Romney solidified the republican nomination after a withering, contentious primary process. We anticipate a bare knuckles campaign over the coming months, the outcome of which will either be somewhat negative (Obama) to outright positive (Romney) for US equities. Politics certainly colored the narrative surrounding the Supreme Court’s ruling on the constitutionality of pieces of the Obamacare legislation.
The risks of a serious problem with Iran seemed to drop from investors’ consciousness (though certainly not from Israel’s, Saudi Arabia’s or their neighbors’) as the price of Brent crude oil fell more than 20% during the second quarter of 2012.
Meanwhile bankruptcies of California cities such as Stockton, San Bernadino, and Mammoth Lakes chip away at the notion that bankruptcy filing is not a viable strategy for municipal entities seeking to escape financial distress, making future municipal filings more likely.
Added to these long visible macro concerns which periodically rise to the top only to recede from investors’ minds were a few negative surprises such as the $5 billion plus JP Morgan loss in its “hedging book,” the Facebook IPO mismanagement, and the Libor scandal.
Equity investors responded by favoring defensive, less cyclical equities such as consumer staples, utilities, and healthcare while punishing financials, energy, and technology. The rush to U.S. Treasuries as a safe haven continued as yields on the bellwether ten year sunk to below 1.5%.
Prospector Capital Appreciation Fund Highlights
The Capital Appreciation Fund’s top performance contributors include: Wal-Mart and Beam – two consumer related companies, Abbot Laboratories and Pfizer – healthcare powerhouses, and reinsurers Montpelier and Platinum. All generally benefitted from broad market trends rather than particular individual company progress. The first four are quality blue chips with consistent earnings and handsome yields – attributes attracting investors. Our insurance holdings, about two-thirds of the Fund’s Financial Services Sector exposure, are benefitting from industry pricing trends and their discount to book value. In July, two portfolio companies, Nexen, and GenOn, announced agreements to be acquired. Nexen, our largest energy holding, is being acquired for cash, at over a 60% premium to the prior close, while GenOn agreed to a stock deal, trading up over 25% on the news.
1
PROSPECTOR FUNDS, INC.
Performance detractors in the first six months were dominated by our oil and gas holdings (including Clayton Williams, Hess and Repsol). A sharp world crude price decline was likely the principle cause for the decline in the oil and gas stocks. Commodity traders seemingly have lost confidence in the sanctions designed to strangle Iran and its nuclear weapons program. We are not so sure. Banking and insurance restrictions aren’t a naval blockade, but can be effective. For starters, established underwriters cannot insure tankers carrying Iranian crude, and money transfers are severely inhibited. A potential Iranian bomb threatens both Israel and Saudi Arabia, something no U.S. president can ignore. Meanwhile we are happy with our oil stocks, particularly their production outlooks and valuations – even at lower oil prices. We’re not so happy with their miserable year to date share price performance.
Our gold mining stocks (including Newmont Mining, Gold Fields and Barrick Gold) declined year to date despite gold, the metal, being up slightly. The chorus of complaints towards the gold miners include: suspect capital management, rising extraction costs, and increasing political risks. However, we see no reason why the sharp divergence between the price movements of the element gold versus the gold mining shares couldn’t ease over time.
We’d prefer your portfolio’s asset allocation had more convertible bonds and modestly less cash and common stock. Unfortunately that ideal has been challenging. De minimis interest rates and the ease with which corporations are able to raise straight debt (not needing convertible issuance) has shrunk the available pool. On balance, we believe that individual security selection trumps asset allocation, even though the academics disagree.
Prospector Opportunity Fund Highlights
The Opportunity Fund’s top performance contributors include consumer companies such as Home Depot, J&J Snack Foods, Lancaster Colony and Church & Dwight. Our financial services holdings including small banks such as Viewpoint Financial, OmniAmerican Bancorp and Oritani Financial, are benefitting from low valuations, improving credit, and a rebound in investor sentiment towards the sector. Technology stalwarts such as Verisign, NCR, and BMC Software also added to performance. All generally benefitted from broad market trends rather than particular individual company progress. P.F. Chang’s China Bistro was acquired in May for a 30% premium.
On the negative side, portfolio holdings in gold miners Kinross and Newmont Mining hurt performance significantly despite a modest rise in the price of the actual gold element during the first half of 2012. The performance of the gold mining equities continues to decouple from the price of the metal. Reasons for the decoupling could include: value destructive acquisitions, soaring operating costs and ever increasing taxation. Additionally, the growing availability and acceptance of bullion backed exchange-traded funds have given investors another, and perhaps more attractive, gold participation. More than just a hoped for recovery in the trading relationship between the metal and the shares, however, supports ownership. The gold miners, who historically sold at a premium, are now priced below market multiples. Additional attractive metrics, including large ore reserves and low enterprise value per ounce of production, characterize our holdings. Beyond these quantitative measurements we see glimmers that managements might become more shareholder friendly. For example Newmont has adapted a dividend policy tied to the gold price. Budgeted projects are being reassessed, operating agreements improved, and spin-outs are being contemplated at certain companies. Strong cash flow and low stock prices are fertile ground for value enhancing capital actions.
A decline in our energy holdings (including Hess, Marathon Oil, and Murphy Oil) hurt performance as well.
2
PROSPECTOR FUNDS, INC.
Outlook
The economy has been in a choppy, slow growth recovery mode since the financial crisis ended in 2009. Admittedly we are in a softer patch right now driven by the after effects of a mild winter, seasonal destocking of inventories, China’s slowdown, and Europe’s recession. We are comforted by the historical pattern that serious recessions are precipitated by tight monetary conditions, and Chairman Bernanke stands ready to deliver a third quantitative easing program (QE3) if needed.
On the bright side, the housing sector is recovering after a long period of contraction precipitated by the financial crisis. Gasoline prices have dropped by 15% delivering a stimulus to consumers into the peak driving summer months. Corporate earnings remain solid so far. Interest and mortgage rates continue to fall to record low levels.
Our best guess is that interest rates will be materially higher in five years. This would be undoubtedly bad for bond investors. The outlook for equities in a higher interest rate scenario is less guaranteed. Higher rates will likely accompany better economic conditions and possibly higher inflation, both of which are positives for equities relative to bonds from this starting point.
Equity valuations are a positive as well. The S&P 500 first reached current levels more than 13 years ago. Although it was too high in 1999, there has been substantial cumulative retained earnings, technological innovation, and even inflation since then. Furthermore equities look extraordinarily inexpensive when comparing earnings yields of stocks to treasury or even corporate bond yields.
Merger and acquisition activity is near record lows, down over 40% in 2012 from last year. Corporations have terrific balance sheets and are accumulating excess cash and capital. Private equity is poised as well with dry powder in hand. We are not sure exactly what the catalyst will be to energize M&A activity, but we are confident it will ensue. Perhaps the uncertain macro environment will move towards resolution, and when that happens, the values inherent in your portfolio will attract acquirers and other investors. In the meantime, we believe equities are a superior asset allocation alternative longer term.
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.
3
PROSPECTOR FUNDS, INC.
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.
Growth stocks typically are more volatile than value stocks; however, value stocks have a lower expected growth rate in earnings and sales.
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.
Book Value is the total value of the company’s assets that shareholders would theoretically receive if a company were liquidated.
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 Fund’s 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
|
|||
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One Year
|
Three Year
|
June 30, 2012
|
|
|
Capital Appreciation Fund
|
-6.58%
|
11.30%
|
1.45%
|
|
S&P 500 Index(2)
|
5.45%
|
16.40%
|
-0.19%
|
|
(1)
|
September 28, 2007
|
|
(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 (%)
|
Since Inception(1) to
|
|||
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One Year
|
Three Year
|
June 30, 2012
|
|
|
Opportunity Fund
|
0.54%
|
14.59%
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4.99%
|
|
Russell 2000 Index(2)
|
-2.08%
|
17.80%
|
1.23%
|
|
Russell Midcap Index(3)
|
-1.65%
|
19.44%
|
1.19%
|
|
(1)
|
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.
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6
PROSPECTOR FUNDS, INC.
Expense Example
June 30, 2012
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, 2012 – June 30, 2012).
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 (01/01/2012)
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Value (06/30/2012)
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(01/01/12 to 06/30/12)
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||||||||||
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Capital Appreciation Actual(2)
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$ | 1,000.00 | $ | 993.30 | $ | 7.04 | ||||||
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Capital Appreciation Hypothetical
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||||||||||||
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(5% return before expenses)
|
1,000.00 | 1,017.80 | 7.12 | |||||||||
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Opportunity Actual(2)
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1,000.00 | 1,058.40 | 7.27 | |||||||||
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Opportunity Hypothetical
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||||||||||||
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(5% return before expenses)
|
1,000.00 | 1,017.80 | 7.12 | |||||||||
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(1)
|
Expenses are equal to the fund’s annualized expense ratio for the most recent six-month period of 1.42% and 1.42% 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/366 (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, 2012 of -0.67% and 5.84% for Capital Appreciation Fund and Opportunity Fund, respectively.
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7
PROSPECTOR FUNDS, INC.
Sector Allocation (% of net assets) (Unaudited)
as of June 30, 2012(1)(2)
Capital Appreciation Fund
Top 10 Holdings (% of net assets) (Unaudited)
as of June 30, 2012(1)(3)
|
Capital Appreciation Fund
|
|||
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E.I. Du Pont de Nemours
|
4.0%
|
||
|
Automatic Data Processing
|
3.8%
|
||
|
Gold Fields – ADR
|
3.1%
|
||
|
Anixter International, 1.000%, 02/15/2013
|
2.9%
|
||
|
Nexen
|
2.8%
|
||
|
Platinum Underwriters Holdings
|
2.8%
|
||
|
USEC, 3.000%, 10/01/2014
|
2.8%
|
||
|
Loews
|
2.7%
|
||
|
Johnson & Johnson
|
2.7%
|
||
|
Pfizer
|
2.7%
|
||
| (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) (Unaudited)
as of June 30, 2012(1)(2)
Opportunity Fund
Top 10 Holdings (% of net assets) (Unaudited)
as of June 30, 2012(1)(3)
|
Opportunity Fund
|
|||
|
Platinum Underwriters Holdings
|
3.4%
|
||
|
Franklin Resources
|
3.0%
|
||
|
Newmont Mining
|
2.8%
|
||
|
Hess
|
2.2%
|
||
|
CNA Financial
|
2.2%
|
||
|
Lancaster Colony
|
1.9%
|
||
|
WellPoint
|
1.9%
|
||
|
Leucadia National
|
1.8%
|
||
|
Axis Capital Holdings
|
1.7%
|
||
|
Invesco
|
1.6%
|
||
| (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.
|
||
9
PROSPECTOR FUNDS, INC.
Schedule of Investments (Unaudited)
June 30, 2012
Capital Appreciation Fund
|
Description
|
Shares
|
Value
|
||||||
|
COMMON STOCKS – 72.4%
|
||||||||
|
Banks – 0.2%
|
||||||||
|
Charter Financial
|
5,100 | $ | 49,470 | |||||
|
Waterstone Financial*
|
5,400 | 20,520 | ||||||
| 69,990 | ||||||||
|
Chemicals – 4.0%
|
||||||||
|
E.I. Du Pont de Nemours
|
32,300 | 1,633,411 | ||||||
|
Consumer Discretionary – 2.8%
|
||||||||
|
Beam
|
9,500 | 593,655 | ||||||
|
Cablevision Systems, Class A
|
17,500 | 232,575 | ||||||
|
DreamWorks Animation SKG, Class A*
|
17,100 | 325,926 | ||||||
| 1,152,156 | ||||||||
|
Consumer Staples – 10.0%
|
||||||||
|
Campbell Soup
|
17,200 | 574,136 | ||||||
|
Coca Cola Enterprises
|
17,000 | 476,680 | ||||||
|
DE Master Blenders 1753*
|
24,400 | 280,112 | ||||||
|
Energizer Holdings
|
1,900 | 142,975 | ||||||
|
Hillshire Brands
|
4,880 | 141,471 | ||||||
|
SUPERVALU
|
19,300 | 99,974 | ||||||
|
Sysco
|
8,400 | 250,404 | ||||||
|
Tootsie Roll Industries
|
27,322 | 651,903 | ||||||
|
Walgreen
|
23,300 | 689,214 | ||||||
|
Wal-Mart Stores
|
11,800 | 822,696 | ||||||
| 4,129,565 | ||||||||
|
Diversified Financial Services – 0.1%
|
||||||||
|
CIT Group*
|
600 | 21,384 | ||||||
|
Energy – 8.5%
|
||||||||
|
Clayton Williams Energy*
|
10,700 | 517,666 | ||||||
|
ConocoPhillips
|
3,200 | 178,816 | ||||||
|
Hess
|
23,600 | 1,025,420 | ||||||
|
Marathon Oil
|
4,000 | 102,280 | ||||||
|
Murphy Oil
|
1,600 | 80,464 | ||||||
|
Nexen
|
69,400 | 1,172,166 | ||||||
|
Overseas Shipholding Group
|
400 | 4,444 | ||||||
|
Phillips 66*
|
1,900 | 63,156 | ||||||
See Notes to the Financial Statements
10
PROSPECTOR FUNDS, INC.
Schedule of Investments (Unaudited) – Continued
June 30, 2012
Capital Appreciation Fund
|
Description
|
Shares
|
Value
|
||||||
|
COMMON STOCKS – 72.4% (Continued)
|
||||||||
|
Energy – 8.5% (Continued)
|
||||||||
|
Repsol YPF – ADR
|
22,400 | $ | 357,952 | |||||
|
USEC*
|
1,500 | 1,485 | ||||||
| 3,503,849 | ||||||||
|
Healthcare – 6.9%
|
||||||||
|
Abbott Laboratories
|
9,800 | 631,806 | ||||||
|
Johnson & Johnson
|
16,400 | 1,107,984 | ||||||
|
Pfizer
|
47,600 | 1,094,800 | ||||||
| 2,834,590 | ||||||||
|
Industrials – 1.3%
|
||||||||
|
Curtiss-Wright
|
11,900 | 369,495 | ||||||
|
Fortune Brands Home & Security*
|
7,900 | 175,933 | ||||||
| 545,428 | ||||||||
|
Information Technology – 6.5%
|
||||||||
|
Automatic Data Processing
|
28,300 | 1,575,178 | ||||||
|
Corning
|
47,100 | 609,003 | ||||||
|
Microsoft
|
4,300 | 131,537 | ||||||
|
Xerox
|
44,400 | 349,428 | ||||||
| 2,665,146 | ||||||||
|
Insurance – 11.2%
|
||||||||
|
Alterra Capital Holdings
|
13,900 | 324,565 | ||||||
|
Arch Capital Group*
|
5,300 | 210,357 | ||||||
|
Berkshire Hathaway, Class B*
|
4,600 | 383,318 | ||||||
|
CNA Financial
|
6,100 | 169,092 | ||||||
|
Donegal Group, Class A
|
8,300 | 110,224 | ||||||
|
First American Financial
|
18,900 | 320,544 | ||||||
|
Loews
|
27,300 | 1,116,843 | ||||||
|
Montpelier Re Holdings
|
18,200 | 387,478 | ||||||
|
Platinum Underwriters Holdings
|
30,300 | 1,154,430 | ||||||
|
State Auto Financial
|
32,700 | 459,435 | ||||||
| 4,636,286 | ||||||||
|
Metals & Mining – 9.6%
|
||||||||
|
AngloGold Ashanti – ADR
|
14,900 | 511,666 | ||||||
|
Barrick Gold
|
26,500 | 995,605 | ||||||
|
Gold Fields – ADR
|
99,300 | 1,272,033 | ||||||
|
Kinross Gold
|
14,500 | 118,175 | ||||||
|
Newmont Mining
|
21,600 | 1,047,816 | ||||||
| 3,945,295 | ||||||||
See Notes to the Financial Statements
11
PROSPECTOR FUNDS, INC.
Schedule of Investments (Unaudited) – Continued
June 30, 2012
Capital Appreciation Fund
|
Description
|
Shares
|
Value
|
||||||
|
COMMON STOCKS – 72.4% (Continued)
|
||||||||
|
Paper & Forest Products – 2.9%
|
||||||||
|
Domtar
|
12,501 | $ | 958,952 | |||||
|
Neenah Paper
|
9,300 | 248,217 | ||||||
| 1,207,169 | ||||||||
|
Real Estate – 2.2%
|
||||||||
|
Forestar Group*
|
22,500 | 288,225 | ||||||
|
Post Properties
|
12,700 | 621,665 | ||||||
| 909,890 | ||||||||
|
Telecommunication Services – 1.1%
|
||||||||
|
Telephone & Data Systems
|
21,200 | 451,348 | ||||||
|
Utilities – 5.1%
|
||||||||
|
FirstEnergy
|
12,554 | 617,531 | ||||||
|
GenOn Energy*
|
309,200 | 528,732 | ||||||
|
Public Service Enterprise Group
|
21,000 | 682,500 | ||||||
|
UNS Energy
|
7,658 | 294,144 | ||||||
| 2,122,907 | ||||||||
|
Total Common Stocks
|
||||||||
|
(Cost $30,294,699)
|
29,828,414 | |||||||
|
Par
|
||||||||
|
CONVERTIBLE BONDS – 23.3%
|
||||||||
|
Consumer Staples – 3.7%
|
||||||||
|
Archer Daniels
|
||||||||
|
0.875%, 02/15/2014
|
$ | 1,075,000 | 1,080,374 | |||||
|
Chiquita Brands
|
||||||||
|
4.250%, 08/15/2016
|
150,000 | 108,563 | ||||||
|
Smithfield Foods
|
||||||||
|
4.000%, 06/30/2013
|
300,000 | 333,750 | ||||||
| 1,522,687 | ||||||||
|
Diversified Financial Services – 2.1%
|
||||||||
|
Janus Capital Group
|
||||||||
|
3.250%, 07/15/2014
|
125,000 | 127,344 | ||||||
|
Knight Capital
|
||||||||
|
3.500%, 03/15/2015
|
100,000 | 93,500 | ||||||
|
PHH
|
||||||||
|
4.000%, 09/01/2014
|
650,000 | 645,937 | ||||||
| 866,781 | ||||||||
See Notes to the Financial Statements
12
PROSPECTOR FUNDS, INC.
Schedule of Investments (Unaudited) – Continued
June 30, 2012
Capital Appreciation Fund
|
Description
|
Par
|
Value
|
||||||
|
CONVERTIBLE BONDS – 23.3% (Continued)
|
||||||||
|
Energy – 2.8%
|
||||||||
|
USEC
|
||||||||
|
3.000%, 10/01/2014
|
$ | 2,375,000 | $ | 1,151,875 | ||||
|
Healthcare – 8.3%
|
||||||||
|
Amgen
|
||||||||
|
0.375%, 02/01/2013
|
400,000 | 416,000 | ||||||
|
Charles River Laboratories International
|
||||||||
|
2.250%, 06/15/2013
|
575,000 | 575,000 | ||||||
|
Chemed
|
||||||||
|
1.875%, 05/15/2014
|
275,000 | 275,688 | ||||||
|
Gilead Sciences
|
||||||||
|
1.000%, 05/01/2014
|
475,000 | 590,187 | ||||||
|
Greatbatch
|
||||||||
|
2.250%, 06/15/2013
|
800,000 | 792,999 | ||||||
|
Hologic
|
||||||||
|
2.000%, 12/15/2037
|
225,000 | 219,938 | ||||||
|
Medtronic, Series B
|
||||||||
|
1.625%, 04/15/2013
|
550,000 | 551,375 | ||||||
| 3,421,187 | ||||||||
|
Industrials – 2.0%
|
||||||||
|
Alliant Techsystems
|
||||||||
|
3.000%, 08/15/2024
|
125,000 | 125,156 | ||||||
|
AMR
|
||||||||
|
6.250%, 10/15/2014 (a)
|
75,000 | 45,750 | ||||||
|
L-3 Communications
|
||||||||
|
3.000%, 08/01/2035
|
50,000 | 48,750 | ||||||
|
Trinity Industries
|
||||||||
|
3.875%, 06/01/2036
|
625,000 | 616,407 | ||||||
| 836,063 | ||||||||
|
Information Technology – 3.5%
|
||||||||
|
Anixter International
|
||||||||
|
1.000%, 02/15/2013
|
1,150,000 | 1,210,375 | ||||||
|
Comtech Telecommunications
|
||||||||
|
3.000%, 05/01/2029
|
225,000 | 237,938 | ||||||
| 1,448,313 | ||||||||
See Notes to the Financial Statements
13
PROSPECTOR FUNDS, INC.
Schedule of Investments (Unaudited) – Continued
June 30, 2012
Capital Appreciation Fund
|
Description
|
Par
|
Value
|
||||||
|
CONVERTIBLE BONDS – 23.3% (Continued)
|
||||||||
|
Metals & Mining – 0.9%
|
||||||||
|
Kinross Gold
|
||||||||
|
1.750%, 03/15/2028
|
$ | 100,000 | $ | 98,875 | ||||
|
RTI International
|
||||||||
|
3.000%, 12/01/2015
|
250,000 | 253,750 | ||||||
| 352,625 | ||||||||
|
Total Convertible Bonds
|
||||||||
|
(Cost $10,369,731)
|
9,599,531 | |||||||
|
CORPORATE BONDS – 1.5%
|
||||||||
|
Utilities – 1.5%
|
||||||||
|
Edison Mission Energy
|
||||||||
|
7.750%, 06/15/2016
|
200,000 | 112,500 | ||||||
|
7.000%, 05/15/2017
|
925,000 | 518,000 | ||||||
|
Total Corporate Bonds
|
||||||||
|
(Cost $932,683)
|
630,500 | |||||||
|
Shares
|
||||||||
|
SHORT-TERM INVESTMENT – 2.1%
|
||||||||
|
Invesco Treasury Portfolio, 0.020%
|
||||||||
|
(Cost $847,795)
|
847,795 | 847,795 | ||||||
|
Total Investments – 99.3%
|
||||||||
|
(Cost $42,444,908)
|
40,906,240 | |||||||
|
Other Assets and Liabilities, Net – 0.7%
|
294,546 | |||||||
|
Total Net Assets – 100.0%
|
$ | 41,200,786 | ||||||
|
*
|
Non-income producing security
|
|
(a)
|
Security in default
|
ADR – American Depository Receipt
See Notes to the Financial Statements
14
PROSPECTOR FUNDS, INC.
Schedule of Investments (Unaudited)
June 30, 2012
Opportunity Fund
|
Description
|
Shares
|
Value
|
||||||
|
COMMON STOCKS – 91.2%
|
||||||||
|
Banks – 12.6%
|
||||||||
|
AJS Bancorp (a)
|
8,958 | $ | 91,820 | |||||
|
Cape Bancorp*
|
10,900 | 90,579 | ||||||
|
Central Pacific Financial*
|
31,800 | 449,016 | ||||||
|
Chicopee Bancorp*
|
26,200 | 379,376 | ||||||
|
City National
|
6,500 | 315,770 | ||||||
|
Clifton Savings Bancorp
|
27,200 | 283,152 | ||||||
|
Fifth Third Bancorp
|
71,000 | 951,401 | ||||||
|
First Connecticut Bancorp
|
43,600 | 588,600 | ||||||
|
Fox Chase Bancorp
|
25,902 | 374,025 | ||||||
|
Greenhill & Co.
|
9,300 | 331,545 | ||||||
|
Guaranty Bancorp*
|
19,500 | 41,145 | ||||||
|
Metro Bancorp*
|
18,780 | 225,923 | ||||||
|
Northern Trust
|
8,900 | 409,578 | ||||||
|
Ocean Shore Holding
|
25,072 | 317,161 | ||||||
|
OceanFirst Financial
|
27,900 | 400,644 | ||||||
|
OmniAmerican Bancorp*
|
16,000 | 342,880 | ||||||
|
Oritani Financial
|
66,750 | 960,532 | ||||||
|
Peoples Federal Bancshares*
|
9,600 | 160,320 | ||||||
|
Territorial Bancorp
|
11,016 | 250,834 | ||||||
|
United Financial Bancorp
|
24,000 | 345,120 | ||||||
|
Virginia Commerce Bancorp*
|
35,700 | 300,951 | ||||||
|
Washington Trust Bancorp
|
8,500 | 207,230 | ||||||
|
West Coast Bancorp*
|
11,300 | 222,045 | ||||||
|
Westfield Financial
|
37,300 | 272,290 | ||||||
| 8,311,937 | ||||||||
|
Chemicals – 1.9%
|
||||||||
|
H.B. Fuller
|
19,000 | 583,300 | ||||||
|
RPM International
|
24,500 | 666,400 | ||||||
| 1,249,700 | ||||||||
|
Consumer Discretionary – 4.7%
|
||||||||
|
Gentex
|
12,600 | 262,962 | ||||||
|
Home Depot
|
19,600 | 1,038,604 | ||||||
|
Hyatt Hotels, Class A*
|
9,300 | 345,588 | ||||||
|
Matthews International, Class A
|
19,200 | 623,808 | ||||||
|
P. F. Chang’s China Bistro
|
15,700 | 808,079 | ||||||
| 3,079,041 | ||||||||
See Notes to the Financial Statements
15
PROSPECTOR FUNDS, INC.
Schedule of Investments (Unaudited) – Continued
June 30, 2012
Opportunity Fund
|
Description
|
Shares
|
Value
|
||||||
|
COMMON STOCKS – 91.2% (Continued)
|
||||||||
|
Consumer Staples – 9.9%
|
||||||||
|
Church & Dwight
|
7,800 | $ | 432,666 | |||||
|
DE Master Blenders 1753*
|
49,800 | 571,704 | ||||||
|
Hillshire Brands
|
9,960 | 288,740 | ||||||
|
J & J Snack Foods
|
11,200 | 661,920 | ||||||
|
Lancaster Colony
|
18,000 | 1,281,780 | ||||||
|
Molson Coors Brewing, Class B
|
18,100 | 753,141 | ||||||
|
PepsiCo
|
13,400 | 946,844 | ||||||
|
Post Holdings*
|
20,400 | 627,300 | ||||||
|
Wal-Mart Stores
|
13,800 | 962,136 | ||||||
| 6,526,231 | ||||||||
|
Containers & Packaging – 0.9%
|
||||||||
|
Silgan Holdings
|
14,000 | 597,660 | ||||||
|
Diversified Financial Services – 9.6%
|
||||||||
|
Citigroup
|
18,670 | 511,745 | ||||||
|
Franklin Resources
|
18,100 | 2,008,919 | ||||||
|
Invesco
|
46,300 | 1,046,380 | ||||||
|
JPMorgan Chase
|
29,100 | 1,039,743 | ||||||
|
Leucadia National
|
55,000 | 1,169,850 | ||||||
|
PICO Holdings*
|
7,900 | 177,039 | ||||||
|
Piper Jaffray*
|
16,400 | 384,252 | ||||||
| 6,337,928 | ||||||||
|
Energy – 6.0%
|
||||||||
|
Clayton Williams Energy*
|
2,700 | 130,626 | ||||||
|
Hess
|
33,600 | 1,459,920 | ||||||
|
Marathon Oil
|
29,700 | 759,429 | ||||||
|
Murphy Oil
|
20,600 | 1,035,974 | ||||||
|
Nexen
|
33,000 | 557,370 | ||||||
| 3,943,319 | ||||||||
|
Healthcare – 5.4%
|
||||||||
|
Haemonetics*
|
3,900 | 289,029 | ||||||
|
Johnson & Johnson
|
9,000 | 608,040 | ||||||
|
Merck & Co.
|
8,548 | 356,879 | ||||||
|
Meridian Bioscience
|
13,900 | 284,394 | ||||||
|
Molina Healthcare*
|
10,850 | 254,541 | ||||||
See Notes to the Financial Statements
16
PROSPECTOR FUNDS, INC.
Schedule of Investments (Unaudited)
June 30, 2012
Opportunity Fund
|
Description
|
Shares
|
Value
|
||||||
|
COMMON STOCKS – 91.2% (Continued)
|
||||||||
|
Healthcare – 5.4% (Continued)
|
||||||||
|
Pfizer
|
23,200 | $ | 533,600 | |||||
|
WellPoint
|
19,300 | 1,231,147 | ||||||
| 3,557,630 | ||||||||
|
Industrials – 3.8%
|
||||||||
|
Alliant Techsystems
|
8,500 | 429,845 | ||||||
|
Briggs & Stratton
|
15,800 | 276,342 | ||||||
|
Celadon Group
|
54,300 | 889,434 | ||||||
|
CIRCOR International
|
19,000 | 647,710 | ||||||
|
Graco
|
3,500 | 161,280 | ||||||
|
Mine Safety Appliances
|
2,900 | 116,696 | ||||||
| 2,521,307 | ||||||||
|
Information Technology – 10.1%
|
||||||||
|
Automatic Data Processing
|
10,000 | 556,600 | ||||||
|
BMC Software*
|
16,500 | 704,220 | ||||||
|
Cisco Systems
|
52,500 | 901,425 | ||||||
|
EMC*
|
12,500 | 320,375 | ||||||
|
Maxim Integrated Products
|
21,500 | 551,260 | ||||||
|
Microsoft
|
26,700 | 816,753 | ||||||
|
NetApp*
|
13,600 | 432,752 | ||||||
|
QLogic*
|
28,100 | 384,689 | ||||||
|
Symantec*
|
21,300 | 311,193 | ||||||
|
VeriSign*
|
20,700 | 901,899 | ||||||
|
Xilinx
|
23,800 | 798,966 | ||||||
| 6,680,132 | ||||||||
|
Insurance – 17.3%
|
||||||||
|
Aflac
|
12,500 | 532,375 | ||||||
|
Aon
|
19,700 | 921,566 | ||||||
|
Arthur J. Gallagher
|
27,200 | 953,904 | ||||||
|
Aspen Insurance Holdings
|
23,100 | 667,590 | ||||||
|
Axis Capital Holdings
|
33,500 | 1,090,425 | ||||||
|
Catlin Group
|
24,100 | 160,601 | ||||||
|
Chubb
|
10,800 | 786,456 | ||||||
|
Cincinnati Financial
|
20,500 | 780,435 | ||||||
|
CNA Financial
|
51,900 | 1,438,668 | ||||||
|
MetLife
|
12,500 | 385,625 | ||||||
|
Montpelier Re Holdings
|
24,100 | 513,089 | ||||||
|
Platinum Underwriters Holdings
|
58,500 | 2,228,851 | ||||||
See Notes to the Financial Statements
17
PROSPECTOR FUNDS, INC.
Schedule of Investments (Unaudited)
June 30, 2012
Opportunity Fund
|
Description
|
Shares
|
Value
|
||||||
|
COMMON STOCKS – 91.2% (Continued)
|
||||||||
|
Insurance – 17.3% (Continued)
|
||||||||
|
Progressive
|
29,300 | $ | 610,319 | |||||
|
W.R. Berkley
|
8,400 | 326,928 | ||||||
| 11,396,832 | ||||||||
|
Metals & Mining – 4.3%
|
||||||||
|
Gold Fields – ADR
|
39,800 | 509,838 | ||||||
|
Kinross Gold
|
54,300 | 442,545 | ||||||
|
Newmont Mining
|
37,900 | 1,838,529 | ||||||
|
Victoria Gold*
|
134,500 | 40,350 | ||||||
| 2,831,262 | ||||||||
|
Paper & Forest Products – 0.6%
|
||||||||
|
Domtar
|
5,400 | 414,234 | ||||||
|
Real Estate – 1.7%
|
||||||||
|
Forestar Group*
|
37,100 | 475,251 | ||||||
|
Howard Hughes*
|
3,300 | 203,412 | ||||||
|
Thomas Properties Group
|
83,000 | 451,520 | ||||||
| 1,130,183 | ||||||||
|
Utilities – 2.4%
|
||||||||
|
American Electric Power
|
6,500 | 259,350 | ||||||
|
Empire District Electric
|
22,000 | 464,200 | ||||||
|
NV Energy
|
18,800 | 330,504 | ||||||
|
Public Service Enterprise Group
|
16,400 | 533,000 | ||||||
| 1,587,054 | ||||||||
|
Total Common Stocks
|
||||||||
|
(Cost $56,485,040)
|
60,164,450 | |||||||
|
Par
|
||||||||
|
CONVERTIBLE BOND – 0.5%
|
||||||||
|
Industrials – 0.5%
|
||||||||
|
Alliant Techsystems
|
||||||||
|
3.000%, 08/15/2024
|
||||||||
|
(Cost $344,864)
|
$ | 325,000 | 325,406 | |||||
See Notes to the Financial Statements
18
PROSPECTOR FUNDS, INC.
Schedule of Investments (Unaudited)
June 30, 2012
Opportunity Fund
|
Description
|
Par
|
Value
|
||||||
|
CORPORATE BONDS – 0.6%
|
||||||||
|
Diversified Financial Services – 0.3%
|
||||||||
|
Leucadia National
|
||||||||
|
7.000%, 08/15/2013
|
$ | 200,000 | $ | 208,250 | ||||
|
Information Technology – 0.3%
|
||||||||
|
Broadridge Financial Solutions
|
||||||||
|
6.125%, 06/01/2017
|
175,000 | 183,919 | ||||||
|
Total Corporate Bonds
|
||||||||
|
(Cost $342,803)
|
392,169 | |||||||
|
Shares
|
||||||||
|
SHORT-TERM INVESTMENT – 7.9%
|
||||||||
|
Invesco Treasury Portfolio, 0.020%
|
||||||||
|
(Cost $5,193,468)
|
5,193,468 | 5,193,468 | ||||||
|
Total Investments – 100.2%
|
||||||||
|
(Cost $62,366,175)
|
66,075,493 | |||||||
|
Other Assets and Liabilities, Net – (0.2%)
|
(145,788 | ) | ||||||
|
Total Net Assets – 100.0%
|
$ | 65,929,705 | ||||||
|
*
|
Non-income producing security
|
|
(a)
|
Illiquid Security – A security is considered illiquid if it may not be sold or disposed of in the ordinary course of business within seven days at approximately the price at which it is valued. As of June 30, 2012, the fair value of this investment was $91,820 or 0.1% of total net assets. See note 2 in Notes to Financial Statements.
|
ADR – American Depository Receipt
See Notes to the Financial Statements
19
PROSPECTOR FUNDS, INC.
Statements of Assets and Liabilities (Unaudited)
June 30, 2012
|
Capital Appreciation Fund
|
Opportunity Fund
|
|||||||
|
ASSETS:
|
||||||||
|
Investments, at market value
|
||||||||
|
(Cost $42,444,908 and $62,366,175 respectively)
|
$ | 40,906,240 | $ | 66,075,493 | ||||
|
Cash
|
1,859 | 4,680 | ||||||
|
Receivable for investment securities sold
|
182,637 | 132,034 | ||||||
|
Receivable for dividends and interest
|
189,670 | 220,865 | ||||||
|
Receivable for capital shares sold
|
33,110 | 48,691 | ||||||
|
Prepaid expenses
|
18,714 | 18,525 | ||||||
|
Total assets
|
41,332,230 | 66,500,288 | ||||||
|
LIABILITIES:
|
||||||||
|
Payable for investment securities purchased
|
25,470 | 448,329 | ||||||
|
Payable for capital shares redeemed
|
26,333 | 22,824 | ||||||
|
Payable to adviser, net
|
21,357 | 40,288 | ||||||
|
Accrued distribution fees
|
8,960 | 8,222 | ||||||
|
Accrued expenses and other liabilities
|
49,324 | 50,920 | ||||||
|
Total liabilities
|
131,444 | 570,583 | ||||||
|
NET ASSETS
|
$ | 41,200,786 | $ | 65,929,705 | ||||
|
COMPOSITION OF NET ASSETS:
|
||||||||
|
Portfolio capital
|
$ | 42,354,271 | $ | 60,025,011 | ||||
|
Undistributed net investment income
|
234,651 | 258,568 | ||||||
|
Accumulated net realized gain on investments
|
150,532 | 1,936,782 | ||||||
|
Net unrealized appreciation or depreciation of investments
|
(1,538,668 | ) | 3,709,344 | |||||
|
Total net assets
|
$ | 41,200,786 | $ | 65,929,705 | ||||
|
CAPITAL STOCK, $0.0001 par value
|
||||||||
|
Authorized
|
500,000,000 | 500,000,000 | ||||||
|
Issued and outstanding
|
2,783,370 | 3,748,994 | ||||||
|
NET ASSET VALUE, REDEMPTION PRICE, AND
|
||||||||
|
OFFERING PRICE PER SHARE
|
$ | 14.80 | $ | 17.59 | ||||
See Notes to the Financial Statements
20
PROSPECTOR FUNDS, INC.
Statements of Operations (Unaudited)
For the Six Months Ended June 30, 2012
| Capital Appreciation Fund | Opportunity Fund | |||||||
|
INVESTMENT INCOME:
|
||||||||
|
Interest income
|
$ | 279,329 | $ | 20,615 | ||||
|
Dividend income
|
534,256 | 710,307 | ||||||
|
Less: Foreign taxes withheld
|
(10,431 | ) | (1,493 | ) | ||||
|
Total investment income
|
803,154 | 729,429 | ||||||
|
EXPENSES:
|
||||||||
|
Investment advisory fees
|
290,046 | 355,389 | ||||||
|
Directors’ fees
|
26,208 | 25,540 | ||||||
|
Administration fees
|
26,168 | 29,291 | ||||||
|
Fund accounting fees
|
20,292 | 19,841 | ||||||
|
Transfer agent fees
|
17,762 | 19,344 | ||||||
|
Distribution fees
|
15,973 | 17,373 | ||||||
|
Legal fees
|
15,540 | 16,853 | ||||||
|
Audit fees
|
13,869 | 13,869 | ||||||
|
Registration fees
|
11,848 | 12,252 | ||||||
|
Other expenses
|
8,673 | 7,844 | ||||||
|
Custodian fees
|
5,281 | 4,340 | ||||||
|
Postage and printing fees
|
3,374 | 3,602 | ||||||
|
Total expenses
|
455,034 | 525,538 | ||||||
|
Less: Fee waivers
|
(79,594 | ) | (67,373 | ) | ||||
|
Total net expenses
|
375,440 | 458,165 | ||||||
|
NET INVESTMENT INCOME
|
427,714 | 271,264 | ||||||
|
REALIZED AND UNREALIZED GAINS (LOSSES):
|
||||||||
|
Net realized gain on investments
|
36,378 | 1,719,282 | ||||||
|
Net change in unrealized appreciation
|
||||||||
|
or depreciation of investments
|
(1,026,830 | ) | 1,476,429 | |||||
|
Net gain (loss) on investments
|
(990,452 | ) | 3,195,711 | |||||
|
NET INCREASE (DECREASE) IN NET ASSETS RESULTING
|
||||||||
|
FROM OPERATIONS
|
$ | (562,738 | ) | $ | 3,466,975 | |||
See Notes to the Financial Statements
21
PROSPECTOR FUNDS, INC.
Statements of Changes in Net Assets
|
Capital Appreciation Fund
|
||||||||
|
Six Months Ended
|
||||||||
|
June 30, 2012
|
Year Ended
|
|||||||
|
(Unaudited)
|
December 31, 2011
|
|||||||
|
OPERATIONS:
|
||||||||
|
Net investment income
|
$ | 427,714 | $ | 467,793 | ||||
|
Net realized gain on investments
|
36,378 | 1,136,387 | ||||||
|
Net change in unrealized depreciation of investments
|
(1,026,830 | ) | (4,027,600 | ) | ||||
|
Net decrease resulting from operations
|
(562,738 | ) | (2,423,420 | ) | ||||
|
CAPITAL SHARE TRANSACTIONS:
|
||||||||
|
Proceeds from shares sold
|
2,377,891 | 20,818,037 | ||||||
|
Proceeds from reinvestment of distributions
|
— | 1,324,588 | ||||||
|
Payments for shares redeemed
|
(14,353,062 | ) | (8,165,386 | ) | ||||
|
Redemption fees
|
1,873 | 1,463 | ||||||
|
Net increase (decrease) from capital share transactions
|
(11,973,298 | ) | 13,978,702 | |||||
|
DISTRIBUTIONS PAID FROM:
|
||||||||
|
Net investment income
|
— | (598,607 | ) | |||||
|
Net realized gains
|
— | (754,823 | ) | |||||
|
Total distributions to shareholders
|
— | (1,353,430 | ) | |||||
|
TOTAL INCREASE (DECREASE) IN NET ASSETS
|
(12,536,036 | ) | 10,201,852 | |||||
|
NET ASSETS:
|
||||||||
|
Beginning of period
|
53,736,822 | 43,534,970 | ||||||
|
End of period (including undistributed
|
||||||||
|
(distributions in excess of) net investment
|
||||||||
|
income of $234,651 and $(193,063), respectively)
|
$ | 41,200,786 | $ | 53,736,822 | ||||
|
TRANSACTIONS IN SHARES:
|
||||||||
|
Shares sold
|
155,415 | 1,306,362 | ||||||
|
Shares issued in reinvestment of distributions
|
— | 88,661 | ||||||
|
Shares redeemed
|
(978,381 | ) | (523,639 | ) | ||||
|
Net increase (decrease)
|
(822,966 | ) | 871,384 | |||||
See Notes to the Financial Statements
22
PROSPECTOR FUNDS, INC.
Statements of Changes in Net Assets
|
Opportunity Fund
|
||||||||
|
Six Months Ended
|
||||||||
|
June 30, 2012
|
Year Ended
|
|||||||
|
(Unaudited)
|
December 31, 2011
|
|||||||
|
OPERATIONS:
|
||||||||
|
Net investment income
|
$ | 271,264 | $ | 217,478 | ||||
|
Net realized gain on investments
|
1,719,282 | 2,550,201 | ||||||
|
Net change in unrealized appreciation
|
||||||||
|
or depreciation of investments
|
1,476,429 | (3,229,445 | ) | |||||
|
Net increase (decrease) resulting from operations
|
3,466,975 | (461,766 | ) | |||||
|
CAPITAL SHARE TRANSACTIONS:
|
||||||||
|
Proceeds from shares sold
|
5,745,172 | 27,510,295 | ||||||
|
Proceeds from reinvestment of distributions
|
— | 2,590,150 | ||||||
|
Payments for shares redeemed
|
(2,997,088 | ) | (4,754,057 | ) | ||||
|
Redemption fees
|
— | 1,095 | ||||||
|
Net increase from capital share transactions
|
2,748,084 | 25,347,483 | ||||||
|
DISTRIBUTIONS PAID FROM:
|
||||||||
|
Net investment income
|
— | (177,445 | ) | |||||
|
Net realized gains
|
— | (2,568,958 | ) | |||||
|
Total distributions to shareholders
|
— | (2,746,403 | ) | |||||
|
TOTAL INCREASE IN NET ASSETS
|
6,215,059 | 22,139,314 | ||||||
|
NET ASSETS:
|
||||||||
|
Beginning of period
|
59,714,646 | 37,575,332 | ||||||
|
End of period (including undistributed
|
||||||||
|
(distributions in excess of) net investment
|
||||||||
|
income of $258,568 and $(12,696), respectively)
|
$ | 65,929,705 | $ | 59,714,646 | ||||
|
TRANSACTIONS IN SHARES:
|
||||||||
|
Shares sold
|
326,375 | 1,558,575 | ||||||
|
Shares issued in reinvestment of distributions
|
— | 155,471 | ||||||
|
Shares redeemed
|
(171,264 | ) | (272,964 | ) | ||||
|
Net increase
|
155,111 | 1,441,082 | ||||||
See Notes to the Financial Statements
23
PROSPECTOR FUNDS, INC.
Financial Highlights
|
Capital Appreciation Fund
|
||||||||||||||||||||||||
|
Six Months
|
September 28,
|
|||||||||||||||||||||||
|
Ended
|
2007(1)
|
|||||||||||||||||||||||
|
June 30,
|
through
|
|||||||||||||||||||||||
|
2012
|
Year Ended December 31,
|
December 31,
|
||||||||||||||||||||||
|
(Unaudited)
|
2011
|
2010
|
2009
|
2008
|
2007
|
|||||||||||||||||||
|
For a Fund share outstanding
|
||||||||||||||||||||||||
|
throughout the period
|
||||||||||||||||||||||||
|
NET ASSET VALUE:
|
||||||||||||||||||||||||
|
Beginning of period
|
$ | 14.90 | $ | 15.92 | $ | 13.95 | $ | 10.85 | $ | 14.94 | $ | 15.00 | ||||||||||||
|
OPERATIONS:
|
||||||||||||||||||||||||
|
Net investment income
|
0.14 | 0.15 | 0.14 | 0.25 | 0.08 | 0.01 | ||||||||||||||||||
|
Net realized and unrealized
|
||||||||||||||||||||||||
|
gain (loss) on investments
|
(0.24 | ) | (0.79 | ) | 2.30 | 3.09 | (4.08 | ) | (0.06 | ) | ||||||||||||||
|
Total from operations
|
(0.10 | ) | (0.64 | ) | 2.44 | 3.34 | (4.00 | ) | (0.05 | ) | ||||||||||||||
|
LESS DISTRIBUTIONS:
|
||||||||||||||||||||||||
|
From net investment income
|
— | (0.17 | ) | (0.16 | ) | (0.24 | ) | (0.09 | ) | (0.01 | ) | |||||||||||||
|
From net realized gains
|
— | (0.21 | ) | (0.31 | ) | — | (0.01 | ) | — | |||||||||||||||
|
Total distributions
|
— | (0.38 | ) | (0.47 | ) | (0.24 | ) | (0.10 | ) | (0.01 | ) | |||||||||||||
|
Paid in capital from redemption fees
|
— | (2) | — | (2) | — | (2) | — | (2) | 0.01 | — | ||||||||||||||
|
NET ASSET VALUE:
|
||||||||||||||||||||||||
|
End of period
|
$ | 14.80 | $ | 14.90 | $ | 15.92 | $ | 13.95 | $ | 10.85 | $ | 14.94 | ||||||||||||
|
TOTAL RETURN
|
(0.67 | )%(3) | (4.00 | )% | 17.52 | % | 30.74 | % | (26.67 | )% | (0.32 | )%(3) | ||||||||||||
|
SUPPLEMENTAL DATA AND RATIOS:
|
||||||||||||||||||||||||
|
Net assets, end of period (in thousands)
|
$ | 41,201 | $ | 53,737 | $ | 43,535 | $ | 29,724 | $ | 20,091 | $ | 8,168 | ||||||||||||
|
Ratio of expenses to average net assets:
|
||||||||||||||||||||||||
|
Before expense reimbursement
|
1.72 | %(4) | 1.70 | % | 2.01 | % | 2.38 | % | 3.51 | % | 11.28 | %(4) | ||||||||||||
|
After expense reimbursement
|
1.42 | %(4) | 1.50 | % | 1.50 | % | 1.50 | % | 1.50 | % | 1.50 | %(4) | ||||||||||||
|
Ratio of net investment income (loss)
|
||||||||||||||||||||||||
|
to average net assets:
|
||||||||||||||||||||||||
|
Before expense reimbursement
|
1.32 | %(4) | 0.63 | % | 0.55 | % | 1.27 | % | (1.07 | )% | (9.38 | )%(4) | ||||||||||||
|
After expense reimbursement
|
1.62 | %(4) | 0.83 | % | 1.06 | % | 2.15 | % | 0.94 | % | 0.40 | %(4) | ||||||||||||
|
Portfolio turnover rate
|
6 | %(3) | 24 | % | 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,
|
|||||||||||||||||||||||
|
Ended
|
2007(1)
|
|||||||||||||||||||||||
|
June 30,
|
through
|
|||||||||||||||||||||||
|
2012
|
Year Ended December 31,
|
December 31,
|
||||||||||||||||||||||
|
(Unaudited)
|
2011
|
2010
|
2009
|
2008
|
2007
|
|||||||||||||||||||
|
For a Fund share outstanding
|
||||||||||||||||||||||||
|
throughout the period
|
||||||||||||||||||||||||
|
NET ASSET VALUE:
|
||||||||||||||||||||||||
|
Beginning of period
|
$ | 16.62 | $ | 17.45 | $ | 15.10 | $ | 12.04 | $ | 14.96 | $ | 15.00 | ||||||||||||
|
OPERATIONS:
|
||||||||||||||||||||||||
|
Net investment income
|
0.07 | 0.07 | 0.09 | 0.08 | 0.05 | 0.02 | ||||||||||||||||||
|
Net realized and unrealized
|
||||||||||||||||||||||||
|
gain (loss) on investments
|
0.90 | (0.11 | ) | 2.47 | 3.06 | (2.92 | ) | (0.01 | ) | |||||||||||||||
|
Total from operations
|
0.97 | (0.04 | ) | 2.56 | 3.14 | (2.87 | ) | 0.01 | ||||||||||||||||
|
LESS DISTRIBUTIONS:
|
||||||||||||||||||||||||
|
From net investment income
|
— | (0.05 | ) | (0.12 | ) | (0.08 | ) | (0.06 | ) | (0.02 | ) | |||||||||||||
|
From net realized gains
|
— | (0.74 | ) | (0.09 | ) | — | — | (0.03 | ) | |||||||||||||||
|
Total distributions
|
— | (0.79 | ) | (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
|
$ | 17.59 | $ | 16.62 | $ | 17.45 | $ | 15.10 | $ | 12.04 | $ | 14.96 | ||||||||||||
|
TOTAL RETURN
|
5.84 | %(3) | (0.21 | )% | 16.94 | % | 26.10 | % | (19.14 | )% | 0.11 | %(3) | ||||||||||||
|
SUPPLEMENTAL DATA AND RATIOS:
|
||||||||||||||||||||||||
|
Net assets, end of period (in thousands)
|
$ | 65,930 | $ | 59,715 | $ | 37,575 | $ | 26,082 | $ | 16,025 | $ | 5,896 | ||||||||||||
|
Ratio of expenses to average net assets:
|
||||||||||||||||||||||||
|
Before expense reimbursement
|
1.63 | %(4) | 1.70 | % | 2.05 | % | 2.51 | % | 4.11 | % | 14.50 | %(4) | ||||||||||||
|
After expense reimbursement
|
1.42 | %(4) | 1.50 | % | 1.50 | % | 1.50 | % | 1.50 | % | 1.50 | %(4) | ||||||||||||
|
Ratio of net investment income (loss)
|
||||||||||||||||||||||||
|
to average net assets:
|
||||||||||||||||||||||||
|
Before expense reimbursement
|
0.63 | %(4) | 0.20 | % | 0.04 | % | (0.27 | )% | (1.96 | )% | (12.27 | )%(4) | ||||||||||||
|
After expense reimbursement
|
0.84 | %(4) | 0.40 | % | 0.59 | % | 0.74 | % | 0.65 | % | 0.73 | %(4) | ||||||||||||
|
Portfolio turnover rate
|
20 | %(3) | 45 | % | 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, 2012
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 – The Fund has adopted fair value accounting standards which establish an authoritative definition of fair value and set out a hierarchy for measuring fair value. These standards require additional disclosures about the various inputs and valuation techniques used to develop the measurements of fair value, a discussion in changes in valuation techniques and related inputs during the period and expanded disclosure of valuation levels for major security types. These inputs are summarized in the three broad levels listed below:
|
Level 1 –
|
Unadjusted quoted prices in active markets for identical assets or liabilities that the Fund has the ability to access.
|
|
Level 2 –
|
Observable inputs other than quoted prices included in level 1 that are observable for the asset or liability, either directly or indirectly. These inputs may include quoted prices for the identical instrument on an inactive market, prices for similar instruments, interest rates, prepayment speeds, credit risk, yield curves, default rates and similar data.
|
|
Level 3 –
|
Unobservable inputs for the asset or liability, to the extent relevant observable inputs are not available, representing the Fund’s own assumptions about the assumptions a market participant would use in valuing the asset or liability, and would be based on the best information available.
|
Following is a description of the valuation techniques applied to the Fund’s major categories of assets and liabilities measured at fair value on a recurring basis. The Fund’s investments are carried at fair value.
Common stock – Securities that are primarily traded on a national securities exchange shall be valued at the last sale price on the exchange on which they are primarily traded on the day of valuation or, if there has been no sale on such day, at the last bid price on the day of valuation. Securities traded primarily on the Nasdaq Global Market System for which market quotations are readily available shall be valued using the Nasdaq Official Closing Price (“NOCP”). If the NOCP is not available, such securities shall be valued at the last sale price on the day of valuation, or if there has been no sale on such day, at the last bid price on the day of valuation. To the extent these securities are actively traded and valuation adjustments are not applied, they are categorized in Level 1 of the fair value hierarchy.
Convertible and Corporate Bonds – Convertible and corporate bonds, including listed issues, are valued at fair value on the basis of valuations furnished by an independent pricing service which utilizes both dealer-supplied valuations and formula-based techniques. The pricing service may consider recently executed transactions in securities of the issuer or comparable issuers, market price quotations (where observable), bond spreads, and fundamental data relating to the issuer. Convertible and corporate bonds are categorized in Level 2 of the fair value hierarchy.
26
PROSPECTOR FUNDS, INC.
Notes to the Financial Statements (Unaudited) – Continued
June 30, 2012
Investment Companies – Investments in other mutual funds, including money market funds, are valued at their net asset value per share. To the extent these securities are actively traded and valuation adjustments are not applied, they are categorized in Level 1 of the fair value hierarchy.
Securities for which market quotations are not readily available, or if the closing price does not represent fair value, are valued following procedures approved by the Board of Directors. These procedures consider many factors, including the type of security, size of holding, trading volume and news events. There can be no assurance that the Fund could obtain the fair value assigned to a security if they were to sell the security at approximately the time at which the Fund determines their net asset values per share.
The inputs or methodology used for valuing securities are not an indication of the risk associated with investing in those securities.
As of June 30, 2012, each Fund's investments in securities were classified as follows:
|
Level 1
|
Level 2
|
Level 3
|
Total
|
|||||||||||||
|
Capital Appreciation Fund
|
||||||||||||||||
|
Common Stocks
|
$ | 29,828,414 | $ | — | $ | — | $ | 29,828,414 | ||||||||
|
Convertible Bonds
|
— | 9,599,531 | — | 9,599,531 | ||||||||||||
|
Corporate Bond
|
— | 630,500 | — | 630,500 | ||||||||||||
|
Short-Term Investment
|
847,795 | — | — | 847,795 | ||||||||||||
|
Total Investments
|
$ | 30,676,209 | $ | 10,230,031 | $ | — | $ | 40,906,240 | ||||||||
|
Opportunity Fund
|
||||||||||||||||
|
Common Stocks
|
$ | 60,164,450 | $ | — | $ | — | $ | 60,164,450 | ||||||||
|
Convertible Bonds
|
— | 325,406 | — | 325,406 | ||||||||||||
|
Corporate Bonds
|
— | 392,169 | — | 392,169 | ||||||||||||
|
Short-Term Investment
|
5,193,468 | — | — | 5,193,468 | ||||||||||||
|
Total Investments
|
$ | 65,357,918 | $ | 717,575 | $ | — | $ | 66,075,493 | ||||||||
Refer to each Fund’s Schedule of Investments for further sector breakout.
Transfers between levels are recognized at the beginning of the reporting period. During the six months ended June 30, 2012, the Fund recognized no transfers between levels.
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 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, 2012, 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
27
PROSPECTOR FUNDS, INC.
Notes to the Financial Statements (Unaudited) – Continued
June 30, 2012
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, 2011, 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.
Illiquid or Restricted Securities – A security may be considered illiquid if it lacks a readily available market. Securities are generally considered liquid if they can be sold or disposed of in the ordinary course of business within seven days at approximately the price at which the security is valued by the Fund. Illiquid securities may be valued under methods approved by the Funds’ Board of Directors as reflecting fair value. Each Fund intends to invest no more than 15% of its total assets in illiquid securities. Certain restricted securities may be considered illiquid. Restricted securities are often purchased in private placement transactions, are not registered under the Securities Act of 1933, may have contractual restrictions on resale, and may be valued under methods approved by the Funds’ board of directors as reflecting fair value. Certain restricted securities eligible for resale to qualified institutional investors, including Rule 144A securities, are not subject to the limitation on a Fund’s investment in illiquid securities if they are determined to be liquid in accordance with procedures adopted by the Funds’ Board of Directors. At June 30, 2012, Prospector Opportunity Fund had investments in illiquid securities with a total value of $91,820 or 0.1% of total net assets.
28
PROSPECTOR FUNDS, INC.
Notes to the Financial Statements (Unaudited) – Continued
June 30, 2012
Information concerning illiquid securities is as follows:
|
Prospector Opportunity Fund
|
Shares
|
Dates Acquired
|
Cost Basis
|
|
AJS Bancorp
|
8,958
|
8/08 – 1/11
|
$119,698
|
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, 2012, 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.
3. INVESTMENT TRANSACTIONS
During the six months ended June 30, 2012, 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
|
$ | 3,143,736 | $ | 13,494,753 | ||||
|
Opportunity Fund
|
14,909,350 | 11,549,216 | ||||||
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, 2012, were as follows:
|
Aggregate
|
Aggregate
|
Federal
|
||||||||||||||
|
Gross
|
Gross
|
Income
|
||||||||||||||
|
Appreciation
|
Depreciation
|
Net
|
Tax Cost
|
|||||||||||||
|
Capital Appreciation Fund
|
$ | 3,832,137 | $ | (5,370,805 | ) | $ | (1,538,668 | ) | $ | 42,444,908 | ||||||
|
Opportunity Fund
|
6,991,180 | (3,281,862 | ) | 3,709,318 | 62,366,175 | |||||||||||
At December 31, 2011, the Funds’ most recently completed fiscal year end, components of accumulated earnings (deficit) on a tax-basis were as follows:
|
Undistributed
|
Undistributed
|
Other
|
Unrealized
|
Total
|
||||||||||||||||
|
Ordinary
|
Long-Term
|
Accumulated
|
Appreciation
|
Accumulated
|
||||||||||||||||
|
Income
|
Capital Gains
|
Losses
|
(Depreciation)
|
Earnings
|
||||||||||||||||
|
Capital Appreciation Fund
|
$ | 7,973 | $ | 217,715 | $ | (15,961 | ) | $ | (800,474 | ) | $ | (590,747 | ) | |||||||
|
Opportunity Fund
|
151 | 218,694 | (12,846 | ) | 2,231,720 | 2,437,719 | ||||||||||||||
29
PROSPECTOR FUNDS, INC.
Notes to the Financial Statements (Unaudited) – Continued
June 30, 2012
As of December 31, 2011, the Funds did not have any capital loss carryovers. A regulated investment company may elect for any taxable year to treat any portion of any qualified late year loss as arising on the first day of the next taxable year. Qualified late year losses are certain capital, and ordinary losses which occur during the portion of the Fund’s taxable year subsequent to October 31. For the taxable year ended December 31, 2011, the Funds do not plan to defer any late year losses.
There were no distributions paid during the six months ended June 30, 2012.
The tax character of distributions paid during the fiscal year ended December 31, 2011 were as follows:
|
Ordinary
|
Long Term
|
|||||||||||
|
Income
|
Capital Gains
|
Total
|
||||||||||
|
Capital Appreciation Fund
|
$ | 738,372 | $ | 615,058 | $ | 1,353,430 | ||||||
|
Opportunity Fund
|
177,445 | 2,568,958 | 2,746,403 | |||||||||
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 management 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, 2013 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 1.30% of its average daily net assets. Prior to April 18, 2012, this ratio was 1.50% of its average daily net assets for each fund. 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
|
||||||
|
12/31/12
|
$ | 209,174 | $ | 194,762 | ||||
|
12/31/13
|
177,007 | 171,081 | ||||||
|
12/31/14
|
114,442 | 105,613 | ||||||
|
12/31/15
|
79,594 | 67,373 | ||||||
|
Total
|
$ | 580,217 | $ | 538,829 | ||||
As of June 30, 2012, 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
30
PROSPECTOR FUNDS, INC.
Notes to the Financial Statements (Unaudited) – Continued
June 30, 2012
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, 2012, Capital Appreciation Fund and Opportunity Fund incurred expenses of $15,973 and $17,373, 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.
31
PROSPECTOR FUNDS, INC.
Additional Information (Unaudited)
June 30, 2012
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 1-877-734-7862.
AVAILABILITY OF PROXY VOTING INFORMATION
A description of the Funds’ Proxy Voting Policies and Procedures is available without charge, upon request, by calling 1-877-734-7862. 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 1-877-734-7862, 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 1-877-734-7862.
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.
|
(a)
|
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.
|
|
(b)
|
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.
|
Item 12. Exhibits.
|
(a)
|
(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.
|
(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.
|
(b)
|
Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. Furnished herewith.
|
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, 2012
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, 2012
By (Signature and Title)* /s/Peter N. Perugini, Jr.
Peter N. Perugini, Jr., Treasurer
Date September 7, 2012
* Print the name and title of each signing officer under his or her signature.