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, 2013
Date of reporting period: December 31, 2013
Item 1. Report to Stockholders.
Prospector Capital Appreciation Fund
Prospector Opportunity Fund
Annual Report
| www.prospectorfunds.com | December 31, 2013 |
February 4, 2014
Dear Shareholders of the Prospector Capital Appreciation Fund and Prospector Opportunity Fund,
The equity market rally continued unabated during the six months ended December 31, 2013 (the “second half”), with the S&P 500 capping off an impressive 32.4% total return for the year ended December 31, 2013 (the “full year”). During the second half, the S&P 500 rose 16.3% in an advance in domestic stocks that carried the index to all-time highs. Once again, cyclical sectors outperformed. Specifically, Industrials, Tech, and Consumer Discretionary were among the top performers. The market rose despite rising long-term interest rates.
Current Market Environment
We remain in the same monetary stimulus heavy, slow growth, tepid economic environment as the world slowly delevers following the financial crisis. Although we anticipate 2014 growth in GDP and corporate earnings should improve from the 2013 pace.
The major macroeconomic forces that have been drivers of the financial markets since the financial crisis of 2008 remain generally in place. Major governments in the U.S., Europe, China, and Japan are all printing money at record levels at the same time. This coordinated global monetary strategy should ultimately lead to currency debasement. In the meantime, the beneficiaries of this global liquidity, especially financial markets, have enjoyed themselves. Despite the lack of movement in the consumer price index (CPI), inflation is on the rise in the United States. Healthcare and other insurance costs, food costs, and natural gas prices are notable examples.
Changed Federal Reserve Strategy Triggers Market Response
Since Ben Bernanke indicated that the Federal Reserve would consider tapering its purchases of Treasuries and mortgage-backed securities, the yield on the benchmark 10 year Treasury note rose from 1.6% just prior to the tapering announcement to 3.0% by year end.
The necessary weaning from Quantitative easing (QE) is upon us. Recall that QE (the process of expanding the quantity of money in the economy through central bank purchases of Treasury and mortgage securities) limited the downside of the financial crisis by keeping markets liquid and offsetting the deflationary pressures. The tightening in financial conditions could dampen the economic recovery we have been in since the end of the financial crisis.
While the U.S. economy may catch a cold from the tightening, the risks to emerging markets could be worse. Emerging market currencies have reacted violently to the Fed tapering - which is viewed as the first step in a process that will lead to actual tightening. The first to stumble were the Indian rupee and Brazilian real, which sold off hard in the summer of 2013 soon after the Fed tapering strategy was unveiled. More recently the Argentine peso and the Turkish lira have slid precipitously. Central bankers in Argentina scaled back their interventions to protect the peso in currency markets and accepted an additional 15% devaluation versus the U.S. dollar. Turkish central bankers boosted short-term interest rates by over 200 basis points in an attempt to halt the slide in the lira which has lost a quarter of its value versus the dollar in the last twelve months.
We are entering a period where central bank policies around the globe are less coordinated. It’s not yet every man (or nation) for themselves, but that’s the path we are on. Emerging market policy makers are responding to capital flight precipitated by the change in Fed policy by allowing rates to rise and currencies to fall. This will harm economic growth.
Japan Sets its Own Course
Japan’s 25 year old financial malaise has lasted so long that many assume a sustainable equilibrium has been attained. Don’t be fooled. Its financial, demographic and nuclear problems remain serious, urgent and transmittable: Trade connections and Japan’s holdings of our Treasury debt mean it matters to us. Prime Minster Abe has vowed to: double the money supply over two years, cut corporate taxes, streamline regulation (easier to cut costs), reduce electricity prices (restart nuclear power plants) and generally boost fiscal stimulus. All this is underway and has been well received by the electorate, while financial markets have had a mixed but generally positive response. The yen has declined by over 20% versus the dollar, and long bond yields, while still ridiculously low, have nearly doubled. Japanese equities, in yen terms, were up 55% in 2013.
So far, so good. The economy has ticked up and starting up the shuttered nuclear power plants should save over $20 billion a year. Yet with the yen down sharply, import prices and other cost pressures could push inflation past Abe’s 2% targets. If rates continue to rise, interest expense on a government debt that is 230% of the GDP could quickly quadruple, absorbing a frighteningly high proportion of the national budget. Finally, the world’s third largest economy won’t be allowed to export its problems without trade partner response. Searching for a way out of intractable trouble, Japan has responded with a high-risk tactic about which we remain skeptical.
Prospector Capital Appreciation Fund Highlights
Your Capital Appreciation portfolio had strong absolute performance in the second half of the year, however it modestly lagged the S&P 500 returning 13.22% versus the S&P 500 return of 16.31% for the period ending December 31, 2013. The underperformance is attributed to our lack of exposure to the more cyclical sectors of the stock market.
While paper-producer Domtar was the largest overall contributor to performance (the shutdown of a major competitor’s mill will take significant capacity out of the market, aiding pricing in the paper market), Energy was the top contributing sector. Among our Energy holdings, Hess and Clayton Williams Energy were top contributors, but the portfolio also benefited from a significant positive move in the USEC convert position, as the company announced a restructuring agreement with note holders. Financials, where our property-casualty stocks had solid gains, was the second largest contributing sector in the back half of the year. Another top performer was Corning, which makes the glass for your iPhone screen and very likely your flat-screen TV as well. Corning benefited from a very accretive restructuring of a joint venture with Samsung.
During the second half, we initiated eleven new positions, and eliminated fifteen. Annualized turnover was 31%. Two of our larger new positions were pharmaceuticals – Sanofi and Merck. Both of these companies had been under-performers, have drug pipelines that are perhaps under-appreciated by Wall Street, and have potential restructuring opportunities in front of them. We also see them as nice replacements for two of our larger sales during the period, Johnson & Johnson and Pfizer, both of which had been stellar performers, and in Pfizer��s case, have restructuring opportunities largely behind them.
Our largest sale was reinsurer Platinum Underwriters, and we also eliminated our position in Arch Capital Group. Given the increasingly competitive insurance rate environment, and the strong appreciation in stocks, we have slowly reduced the property-casualty positions through the year.
Prospector Opportunity Fund Highlights
Despite a strong absolute return in the second half, your Opportunity Fund portfolio lagged both the Russell 2000 and Russell Mid-Cap indices returning 13.53% versus 19.82% and 16.73% for the Russell 2000 and Russell Mid-Cap indices, respectively for the period ending December 31, 2013. As was true for the full year results, the comparative shortfall was largely attributable to our lack of relative exposure to the Consumer Discretionary and Industrial sectors.
The Opportunity Fund’s top performing sectors in the second half of 2013 were the Energy, Industrials, and Consumer Discretionary groups. Hess bolstered our Energy stock performance, while CIRCOR led our Industrial equities, and Gentex was a key contributor among our Consumer Discretionary holdings.
Our overweight position in the Financial Services area hurt our relative performance in the second half, as strong performance from two of our Asset Management stocks (Legg Mason and Franklin) was not enough to offset lagging performance from our other financials. Asset Managers led the group as that industry underwent an important shift during the year. For the first time since 2007, equity mutual fund flows turned positive. Interestingly, this strength in equities started with a very strong January and continued through the rest of the year with average monthly inflows for the fourth quarter higher than that for the rest of the entire year. Fixed income, however, performed far differently during 2013. Strong, consistent inflows since the financial crisis persisted through May only to reverse powerfully in June with the first mention of Bernanke’s taper. This weakness continued throughout the remainder of the year and was far more concentrated in actively-managed funds than in passively-managed fixed income ETF products.
We believe asset managers such as current holdings Franklin Resources, Invesco, and Legg Mason should benefit from this “tipping point.” In a period of rising interest rates, demand for equities should continue to outstrip that of fixed income and fee rates for these products are typically far higher. Asset managers have a significant fixed cost element in their cost structures so margin expansion from positive operating leverage and faster revenue growth should ensue.
New purchases in the Industrials and the Consumer area were again driven by our disciplined focus on predictable and stable free cash flows. In Industrials, the purchases included Xylem and Landstar, while in the Consumer space we found good value in Denny’s and Hillshire.
Outlook
The economy has remained in slow growth recovery mode since the end of the financial crisis. We expect modestly better economic performance in 2014, but not enough to declare that the pattern has changed for the better. Europe is slowly improving off recessionary levels and the U.S. economy is benefitting from a recovery in the housing sector. Indeed the wealth effect on the U.S. consumer from rising 401k balances and home values should help spur consumer spending growth, a key driver of economic growth. Despite the 140 basis point rise in rates from the lows of early May 2013, central bank policies and interest rates remain accommodating. Budget and trade deficits in the U.S. have halved from the depths of 2009, yet remain elevated in historical terms. The budget deficit has trimmed to 4% of GDP in 2013 from about 10% in 2009.
Interest and mortgage rates continue near historically low levels despite the recent run up. Our best guess is those rates may be materially higher in five years. This should be troublesome for bond investors. The outlook for equities in a higher interest rate scenario is less certain. Higher rates will likely accompany better economic conditions and possibly higher inflation, both of which are relative positives for equities compared to bonds.
Equity valuations are starting to reach extended levels due to the strong advance. We believe we are in the latter stages of a bull market. Equities still look attractive when comparing earnings yields of stocks to Treasury or even corporate bond yields. As the benefits from aggressive buybacks diminish with higher valuations, corporations are looking to mergers and acquisitions (M&A) as preferable capital deployment opportunities. M&A activity is accelerating after an extremely quiet five year period. Private equity holds dry powder in hand. Corporations have terrific balance sheets and are accumulating excess cash and capital. Importantly they are also starting to spend on capital projects and hiring new employees. This will likely pressure profit margins in the near term which sit at all-time high levels, just under 10% for the third quarter of 2013 for example. The offset should be an improvement in revenue growth from the low single digit levels of the past few years. Perhaps the uncertain macro environment will move towards resolution, and when that happens, the values inherent in your portfolio may attract acquirers and other investors. In the meantime we believe equities are a superior asset allocation alternative longer term.
Thank you for entrusting us with your money.
Respectfully submitted,
| John D. Gillespie | Richard P. Howard | Kevin R. O’Brien | Jason A. Kish |
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. This index cannot be invested in directly.
The Russell 2000 Index is 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.
The Russell Midcap Index is 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.
Basis point is a unit that is equal to 1/100th of 1% and is used to denote the change in a financial instrument.
Consumer Price Index (CPI) is a measure that examines the weighted average of prices of a basket of consumer goods and services, such as transportation, food and medical care. The CPI is calculated by taking price changes for each item in the predetermined basket of goods and averaging them; the goods are weighted according to their importance. Changes in CPI are used to assess price changes associated with the cost of living.
Free cash flow is revenue less operating expenses including interest expenses and maintenance capital spending. It is the discretionary cash that a company has after all expenses and is available for purposes such as dividend payments, investing back into the business or share repurchases.
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.
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 (%) – As of December 31, 2013
| | One Year | Three Year | Five Year | Since Inception(1) |
| Capital Appreciation Fund | 19.10% | 6.54% | 13.19% | 5.01% |
S&P 500 Index(2) | 32.39% | 16.18% | 17.94% | 5.35% |
| (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. |
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 (%) – As of December 31, 2013
| | One Year | Three Year | Five Year | Since Inception(1) |
| Opportunity Fund | 27.25% | 13.33% | 16.50% | 9.22% |
Russell 2000 Index(2) | 38.82% | 15.67% | 20.08% | 7.37% |
Russell Midcap Index(3) | 34.76% | 15.88% | 22.36% | 7.19% |
| (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. |
| (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. |
Expense Example
December 31, 2013
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 (July 1, 2013 – December 31, 2013).
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 |
| | Beginning Account | Ending Account | During Period(1) |
| | Value (07/01/2013) | Value (12/31/2013) | (07/01/2013 to 12/31/2013) |
Capital Appreciation Actual(2) | $1,000.00 | $1,132.20 | $6.99 |
| Capital Appreciation Hypothetical | | | |
| (5% return before expenses) | 1,000.00 | 1,018.65 | 6.61 |
| | | | |
Opportunity Actual(2) | 1,000.00 | 1,135.30 | 7.00 |
| Opportunity Hypothetical | | | |
| (5% return before expenses) | 1,000.00 | 1,018.65 | 6.61 |
| (1) | Expenses are equal to the Fund’s annualized expense ratio for the most recent six-month period of 1.30% and 1.30% for Capital Appreciation Fund and Opportunity Fund, respectively, multiplied by the average account value over the period, multiplied by 184/365 to reflect the one-half year period. |
| (2) | Based on the actual returns for the six-month period ended December 31, 2013 of 13.22% and 13.53% for Capital Appreciation Fund and Opportunity Fund, respectively. |
Sector Allocation (% of net assets) (Unaudited)
as of December 31, 2013(1)(2)
Capital Appreciation Fund
Top 10 Holdings (% of net assets) (Unaudited)
as of December 31, 2013(1)(3)
Capital Appreciation Fund
| Domtar | | | 3.6 | % |
| Hess | | | 3.5 | |
| Loews | | | 3.0 | |
| Automatic Data Processing | | | 2.6 | |
| Post Properties | | | 2.6 | |
| Corning | | | 2.6 | |
| ConocoPhillips | | | 2.6 | |
| FirstEnergy | | | 2.2 | |
| Abbott Laboratories | | | 2.1 | |
| E.I. Du Pont de Nemours | | | 2.0 | |
| (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. |
Sector Allocation (% of net assets) (Unaudited)
as of December 31, 2013(1)(2)
Opportunity Fund
Top 10 Holdings (% of net assets) (Unaudited)
as of December 31, 2013(1)(3)
Opportunity Fund
| Invesco | | | 3.0 | % |
| Hess | | | 2.9 | |
| CNA Financial | | | 2.3 | |
| Franklin Resources | | | 2.2 | |
| Lancaster Colony | | | 2.1 | |
| Murphy Oil | | | 2.0 | |
| Platinum Underwriters Holdings | | | 1.9 | |
| Infinity Property & Casualty | | | 1.7 | |
| OceanFirst Financial | | | 1.7 | |
| Tyco International | | | 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. |
Schedule of Investments
December 31, 2013
Capital Appreciation Fund
| Description | | Shares | | | Value | |
| | | | | | | |
| COMMON STOCKS – 75.9% | | | | | | |
| | | | | | | |
| Chemicals – 2.0% | | | | | | |
| E.I. Du Pont de Nemours | | | 13,100 | | | $ | 851,107 | |
| | | | | | | | | |
| | | | | | | | | |
| Consumer Discretionary – 2.1% | | | | | | | | |
| Cablevision Systems, Class A | | | 28,100 | | | | 503,833 | |
| DreamWorks Animation SKG, Class A* | | | 10,800 | | | | 383,400 | |
| | | | | | | | 887,233 | |
| | | | | | | | | |
| Consumer Staples – 12.7% | | | | | | | | |
| Beam | | | 9,700 | | | | 660,182 | |
| Campbell Soup | | | 13,300 | | | | 575,624 | |
| Coca-Cola | | | 3,400 | | | | 140,454 | |
| Coca-Cola Enterprises | | | 7,000 | | | | 308,910 | |
| Energizer Holdings | | | 4,000 | | | | 432,960 | |
| Hillshire Brands | | | 9,380 | | | | 313,667 | |
| Sysco | | | 16,400 | | | | 592,040 | |
| Tootsie Roll Industries | | | 23,296 | | | | 758,052 | |
| Walgreen | | | 12,900 | | | | 740,976 | |
| Wal-Mart Stores | | | 9,600 | | | | 755,424 | |
| | | | | | | | 5,278,289 | |
| | | | | | | | | |
| Diversified Financial Services – 2.2% | | | | | | | | |
| Legg Mason | | | 14,200 | | | | 617,416 | |
| PHH* | | | 13,000 | | | | 316,550 | |
| | | | | | | | 933,966 | |
| | | | | | | | | |
| Energy – 11.8% | | | | | | | | |
| Clayton Williams Energy* | | | 8,100 | | | | 663,795 | |
| ConocoPhillips | | | 15,100 | | | | 1,066,815 | |
| Hess | | | 17,800 | | | | 1,477,400 | |
| Murphy Oil | | | 10,100 | | | | 655,288 | |
| Talisman Energy | | | 70,400 | | | | 820,160 | |
| WPX Energy* | | | 10,600 | | | | 216,028 | |
| | | | | | | | 4,899,486 | |
| | | | | | | | | |
| Healthcare – 8.7% | | | | | | | | |
| Abbott Laboratories | | | 23,300 | | | | 893,089 | |
| Hospira* | | | 8,700 | | | | 359,136 | |
| Johnson & Johnson | | | 8,900 | | | | 815,151 | |
| Merck & Co. | | | 8,200 | | | | 410,410 | |
| Pfizer | | | 20,100 | | | | 615,663 | |
See Notes to the Financial Statements
Schedule of Investments – Continued
December 31, 2013
Capital Appreciation Fund
| Description | | Shares | | | Value | |
| | | | | | | |
COMMON STOCKS – 75.9% (CONTINUED) | | | | | | |
| | | | | | | |
| Healthcare – 8.7% (Continued) | | | | | | |
| Sanofi – ADR | | | 9,900 | | | $ | 530,937 | |
| | | | | | | | 3,624,386 | |
| | | | | | | | | |
| Industrials – 1.4% | | | | | | | | |
| Briggs & Stratton | | | 1,600 | | | | 34,816 | |
| Curtiss-Wright | | | 8,200 | | | | 510,286 | |
| Fortune Brands Home & Security | | | 900 | | | | 41,130 | |
| | | | | | | | 586,232 | |
| | | | | | | | | |
| Information Technology – 6.7% | | | | | | | | |
| Automatic Data Processing | | | 13,600 | | | | 1,099,016 | |
| Comtech Telecommunications | | | 900 | | | | 28,368 | |
| Corning | | | 61,400 | | | | 1,094,148 | |
| Paychex | | | 4,600 | | | | 209,438 | |
| Xerox | | | 28,600 | | | | 348,062 | |
| | | | | | | | 2,779,032 | |
| | | | | | | | | |
| Insurance – 10.9% | | | | | | | | |
| American International Group | | | 7,200 | | | | 367,560 | |
| Aspen Insurance Holdings | | | 11,400 | | | | 470,934 | |
| Berkshire Hathaway, Class B* | | | 5,300 | | | | 628,368 | |
| CNA Financial | | | 9,900 | | | | 424,611 | |
| Donegal Group, Class A | | | 7,900 | | | | 125,610 | |
| First American Financial | | | 9,300 | | | | 262,260 | |
| Loews | | | 25,900 | | | | 1,249,416 | |
| Montpelier Re Holdings | | | 8,500 | | | | 247,350 | |
| Platinum Underwriters Holdings | | | 1,800 | | | | 110,304 | |
| State Auto Financial | | | 30,700 | | | | 652,068 | |
| | | | | | | | 4,538,481 | |
| | | | | | | | | |
| Metals & Mining – 2.8% | | | | | | | | |
| AuRico Gold | | | 18,820 | | | | 68,881 | |
| Barrick Gold | | | 16,500 | | | | 290,895 | |
| Gold Fields – ADR | | | 107,500 | | | | 344,000 | |
| Newmont Mining | | | 15,100 | | | | 347,753 | |
| Sibanye Gold – ADR | | | 21,900 | | | | 105,339 | |
| | | | | | | | 1,156,868 | |
| | | | | | | | | |
| Paper & Forest Products – 3.6% | | | | | | | | |
| Domtar | | | 16,001 | | | | 1,509,534 | |
See Notes to the Financial Statements
Schedule of Investments – Continued
December 31, 2013
Capital Appreciation Fund
| Description | | Shares | | | Value | |
| | | | | | | |
COMMON STOCKS – 75.9% (CONTINUED) | | | | | | |
| | | | | | | |
| Real Estate – 4.0% | | | | | | |
| Forestar Group* | | | 26,100 | | | $ | 555,147 | |
| Post Properties | | | 24,200 | | | | 1,094,566 | |
| | | | | | | | 1,649,713 | |
| | | | | | | | | |
| Telecommunication Services – 2.0% | | | | | | | | |
| Telephone & Data Systems | | | 32,200 | | | | 830,116 | |
| | | | | | | | | |
| | | | | | | | | |
| Utilities – 5.0% | | | | | | | | |
| FirstEnergy | | | 27,300 | | | | 900,354 | |
| NRG Energy | | | 21,701 | | | | 623,253 | |
| Public Service Enterprise Group | | | 13,500 | | | | 432,540 | |
| UNS Energy | | | 2,358 | | | | 141,126 | |
| | | | | | | | 2,097,273 | |
| | | | | | | | | |
| Total Common Stocks | | | | | | | | |
| (Cost $26,527,465) | | | | | | | 31,621,716 | |
| | | Par | | | | | |
| | | | | | | | | |
| CONVERTIBLE BONDS – 18.0% | | | | | | | | |
| | | | | | | | | |
| Consumer Staples – 1.6% | | | | | | | | |
| Archer Daniels | | | | | | | | |
| 0.875%, 02/15/2014 | | $ | 500,000 | | | | 529,063 | |
| Chiquita Brands | | | | | | | | |
| 4.250%, 08/15/2016 | | | 150,000 | | | | 145,500 | |
| | | | | | | | 674,563 | |
| | | | | | | | | |
| Diversified Financial Services – 3.3% | | | | | | | | |
| Janus Capital Group | | | | | | | | |
| 0.750%, 07/15/2018 | | | 425,000 | | | | 540,281 | |
| PHH | | | | | | | | |
| 4.000%, 09/01/2014 | | | 775,000 | | | | 826,828 | |
| | | | | | | | 1,367,109 | |
| | | | | | | | | |
| Energy – 2.3% | | | | | | | | |
| InterOil | | | | | | | | |
| 2.750%, 11/15/2015 | | | 175,000 | | | | 160,781 | |
| USEC | | | | | | | | |
| 3.000%, 10/01/2014 | | | 2,375,000 | | | | 789,688 | |
| | | | | | | | 950,469 | |
See Notes to the Financial Statements
Schedule of Investments – Continued
December 31, 2013
Capital Appreciation Fund
| Description | | Par | | | Value | |
| | | | | | | |
CONVERTIBLE BONDS – 18.0% (CONTINUED) | | | | | | |
| | | | | | | |
| Healthcare – 1.7% | | | | | | |
| Auxilium Pharmaceuticals | | | | | | |
| 1.500%, 07/15/2018 | | $ | 75,000 | | | $ | 82,969 | |
| Chemed | | | | | | | | |
| 1.875%, 05/15/2014 | | | 275,000 | | | | 284,797 | |
| Hologic | | | | | | | | |
| 2.000%, 12/15/2037 | | | 275,000 | | | | 320,547 | |
| | | | | | | | 688,313 | |
| | | | | | | | | |
| Industrials – 2.1% | | | | | | | | |
| L-3 Communications | | | | | | | | |
| 3.000%, 08/01/2035 | | | 250,000 | | | | 301,094 | |
| Trinity Industries | | | | | | | | |
| 3.875%, 06/01/2036 | | | 450,000 | | | | 592,594 | |
| | | | | | | | 893,688 | |
| | | | | | | | | |
| Information Technology – 1.3% | | | | | | | | |
| Comtech Telecommunications | | | | | | | | |
| 3.000%, 05/01/2029 | | | 525,000 | | | | 551,906 | |
| | | | | | | | | |
| | | | | | | | | |
| Metals & Mining – 4.9% | | | | | | | | |
| Horsehead Holding | | | | | | | | |
| 3.800%, 07/01/2017 | | | 100,000 | | | | 126,938 | |
| Newmont Mining | | | | | | | | |
| 1.250%, 07/15/2014 | | | 150,000 | | | | 149,906 | |
| 1.625%, 07/15/2017 | | | 600,000 | | | | 611,999 | |
| Northgate Minerals | | | | | | | | |
| 3.500%, 10/01/2016 | | | 225,000 | | | | 215,438 | |
| RTI International | | | | | | | | |
| 3.000%, 12/01/2015 | | | 300,000 | | | | 339,938 | |
| 1.625%, 10/15/2019 | | | 575,000 | | | | 604,108 | |
| | | | | | | | 2,048,327 | |
| | | | | | | | | |
| Real Estate – 0.8% | | | | | | | | |
| Forestar Group | | | | | | | | |
| 3.750%, 03/01/2020 | | | 275,000 | | | | 316,938 | |
| Total Convertible Bonds | | | | | | | | |
| (Cost $8,500,774) | | | | | | | 7,491,313 | |
See Notes to the Financial Statements
Schedule of Investments – Continued
December 31, 2013
Capital Appreciation Fund
| Description | | Shares | | | Value | |
| EXCHANGE TRADED FUND – 0.1% | | | | | | |
| SPDR Gold Trust* | | | | | | |
| (Cost $51,779) | | | 400 | | | $ | 46,468 | |
| | | | | | | | | |
| SHORT-TERM INVESTMENT – 5.8% | | | | | | | | |
| Invesco Treasury Portfolio, 0.020%^ | | | | | | | | |
| (Cost $2,411,105) | | | 2,411,105 | | | | 2,411,105 | |
| Total Investments – 99.8% | | | | | | | | |
| (Cost $37,491,123) | | | | | | | 41,570,602 | |
| Other Assets and Liabilities, Net – 0.2% | | | | | | | 88,332 | |
| Total Net Assets – 100.0% | | | | | | $ | 41,658,934 | |
| | | | | | | | | |
| * | Non-income producing security |
| ADR | – American Depository Receipt |
| ^ | Variable Rate Security – the rate shown is the annualized seven-day effective yield as of December 31, 2013. |
See Notes to the Financial Statements
Schedule of Investments
December 31, 2013
Opportunity Fund
| Description | | Shares | | | Value | |
| | | | | | | |
| COMMON STOCKS – 92.0% | | | | | | |
| | | | | | | |
| Banks – 13.5% | | | | | | |
| BSB Bancorp* | | | 19,600 | | | $ | 295,764 | |
| Cape Bancorp | | | 3,700 | | | | 37,592 | |
| Capital Bank Financial, Class A* | | | 10,100 | | | | 229,775 | |
| Central Pacific Financial | | | 31,800 | | | | 638,544 | |
| Chicopee Bancorp | | | 26,200 | | | | 456,142 | |
| City National | | | 6,900 | | | | 546,618 | |
| Clifton Savings Bancorp | | | 27,200 | | | | 348,160 | |
| CU Bancorp* | | | 25,100 | | | | 438,748 | |
| Fifth Third Bancorp | | | 23,400 | | | | 492,102 | |
| First Defiance Financial | | | 25,400 | | | | 659,638 | |
| Fox Chase Bancorp | | | 18,002 | | | | 312,875 | |
| HomeTrust Bancshares* | | | 68,800 | | | | 1,100,112 | |
| Metro Bancorp* | | | 16,880 | | | | 363,595 | |
| Ocean Shore Holding | | | 25,072 | | | | 342,484 | |
| OceanFirst Financial | | | 96,400 | | | | 1,651,331 | |
| OmniAmerican Bancorp* | | | 18,000 | | | | 384,840 | |
| Oritani Financial | | | 60,050 | | | | 963,803 | |
| PacWest Bancorp | | | 18,100 | | | | 764,182 | |
| Peoples Federal Bancshares | | | 27,780 | | | | 492,817 | |
| SI Financial Group | | | 21,100 | | | | 254,255 | |
| United Financial Bancorp | | | 40,200 | | | | 759,378 | |
| Washington Trust Bancorp | | | 26,300 | | | | 978,886 | |
| Westfield Financial | | | 97,900 | | | | 730,334 | |
| | | | | | | | 13,241,975 | |
| | | | | | | | | |
| Chemicals – 1.2% | | | | | | | | |
| H.B. Fuller | | | 23,200 | | | | 1,207,328 | |
| | | | | | | | | |
| | | | | | | | | |
| Consumer Discretionary – 3.7% | | | | | | | | |
| Denny’s* | | | 55,800 | | | | 401,202 | |
| Gentex | | | 18,100 | | | | 597,119 | |
| Home Depot | | | 6,800 | | | | 559,912 | |
| Hyatt Hotels, Class A* | | | 18,300 | | | | 905,118 | |
| Jack in the Box* | | | 12,700 | | | | 635,254 | |
| Matthews International, Class A | | | 9,300 | | | | 396,273 | |
| Noodles & Company* | | | 3,100 | | | | 111,352 | |
| | | | | | | | 3,606,230 | |
| | | | | | | | | |
| Consumer Staples – 9.5% | | | | | | | | |
| Church & Dwight | | | 18,400 | | | | 1,219,552 | |
| | | | | | | | | |
See Notes to the Financial Statements
Schedule of Investments – Continued
December 31, 2013
Opportunity Fund
| Description | | Shares | | | Value | |
| | | | | | | |
COMMON STOCKS – 92.0% (CONTINUED) | | | | | | |
| | | | | | | |
| Consumer Staples – 9.5% (Continued) | | | | | | |
| Crimson Wine Group* | | | 5,970 | | | $ | 52,775 | |
| Harris Teeter Supermarkets | | | 9,700 | | | | 478,695 | |
| Hillshire Brands | | | 43,560 | | | | 1,456,646 | |
| J & J Snack Foods | | | 13,400 | | | | 1,187,106 | |
| Lancaster Colony | | | 23,000 | | | | 2,027,451 | |
| Monster Beverage* | | | 8,400 | | | | 569,268 | |
| Orkla | | | 81,600 | | | | 636,623 | |
| PepsiCo | | | 9,600 | | | | 796,224 | |
| Wal-Mart Stores | | | 10,500 | | | | 826,245 | |
| | | | | | | | 9,250,585 | |
| | | | | | | | | |
| Containers & Packaging – 1.4% | | | | | | | | |
| Silgan Holdings | | | 29,000 | | | | 1,392,580 | |
| | | | | | | | | |
| | | | | | | | | |
| Diversified Financial Services – 10.6% | | | | | | | | |
| Citigroup | | | 20,170 | | | | 1,051,059 | |
| Franklin Resources | | | 37,600 | | | | 2,170,648 | |
| IntercontinentalExchange | | | 1,600 | | | | 359,872 | |
| Invesco | | | 81,700 | | | | 2,973,880 | |
| Legg Mason | | | 31,500 | | | | 1,369,620 | |
| Leucadia National | | | 54,500 | | | | 1,544,530 | |
| PICO Holdings* | | | 39,200 | | | | 905,912 | |
| | | | | | | | 10,375,521 | |
| | | | | | | | | |
| Energy – 5.3% | | | | | | | | |
| Clayton Williams Energy* | | | 4,600 | | | | 376,970 | |
| Hess | | | 34,200 | | | | 2,838,600 | |
| Murphy Oil | | | 29,600 | | | | 1,920,448 | |
| | | | | | | | 5,136,018 | |
| | | | | | | | | |
| Healthcare – 6.0% | | | | | | | | |
| Auxilium Pharmaceuticals* | | | 14,100 | | | | 292,434 | |
| Haemonetics* | | | 7,800 | | | | 328,614 | |
| Invacare | | | 31,000 | | | | 719,510 | |
| Johnson & Johnson | | | 9,000 | | | | 824,310 | |
| Merck & Co. | | | 30,948 | | | | 1,548,947 | |
| Patterson Companies | | | 24,300 | | | | 1,001,160 | |
| Pfizer | | | 16,000 | | | | 490,080 | |
| WellPoint | | | 7,500 | | | | 692,925 | |
| | | | | | | | 5,897,980 | |
See Notes to the Financial Statements
Schedule of Investments – Continued
December 31, 2013
Opportunity Fund
| Description | | Shares | | | Value | |
| | | | | | | |
COMMON STOCKS – 92.0% (CONTINUED) | | | | | | |
| | | | | | | |
| Industrials – 7.9% | | | | | | |
| Alliant Techsystems | | | 5,900 | | | $ | 717,912 | |
| Celadon Group | | | 81,000 | | | | 1,577,880 | |
| CIRCOR International | | | 8,640 | | | | 697,939 | |
| Curtiss-Wright | | | 8,000 | | | | 497,840 | |
| Landstar System | | | 16,300 | | | | 936,435 | |
| Northrop Grumman | | | 7,800 | | | | 893,958 | |
| Tyco International | | | 38,500 | | | | 1,580,040 | |
| Xylem | | | 22,500 | | | | 778,500 | |
| | | | | | | | 7,680,504 | |
| | | | | | | | | |
| Information Technology – 8.7% | | | | | | | | |
| Cadence Design Systems* | | | 25,000 | | | | 350,500 | |
| EMC | | | 17,400 | | | | 437,610 | |
| Global Cash Access Holdings* | | | 51,300 | | | | 512,487 | |
| Maxim Integrated Products | | | 39,400 | | | | 1,099,654 | |
| Microsoft | | | 14,500 | | | | 542,735 | |
| NetApp | | | 24,300 | | | | 999,702 | |
| Paychex | | | 31,200 | | | | 1,420,536 | |
| Symantec | | | 37,800 | | | | 891,324 | |
| Teradata* | | | 4,100 | | | | 186,509 | |
| VeriSign* | | | 19,900 | | | | 1,189,622 | |
| Xilinx | | | 19,300 | | | | 886,256 | |
| | | | | | | | 8,516,935 | |
| | | | | | | | | |
| Insurance – 16.3% | | | | | | | | |
| Arthur J. Gallagher | | | 23,400 | | | | 1,098,162 | |
| Aspen Insurance Holdings | | | 33,600 | | | | 1,388,016 | |
| Axis Capital Holdings | | | 31,100 | | | | 1,479,427 | |
| Catlin Group | | | 86,227 | | | | 828,886 | |
| Chubb | | | 12,800 | | | | 1,236,864 | |
| CNA Financial | | | 51,900 | | | | 2,225,990 | |
| Endurance Specialty Holdings | | | 13,400 | | | | 786,178 | |
| Infinity Property & Casualty | | | 23,537 | | | | 1,688,780 | |
| MetLife | | | 12,500 | | | | 674,000 | |
| Platinum Underwriters Holdings | | | 30,300 | | | | 1,856,784 | |
| Progressive | | | 48,400 | | | | 1,319,868 | |
| W.R. Berkley | | | 12,800 | | | | 555,392 | |
| XL Group | | | 25,500 | | | | 811,920 | |
| | | | | | | | 15,950,267 | |
See Notes to the Financial Statements
Schedule of Investments – Continued
December 31, 2013
Opportunity Fund
| Description | | Shares | | | Value | |
| | | | | | | |
COMMON STOCKS – 92.0% (CONTINUED) | | | | | | |
| | | | | | | |
| Metals & Mining – 1.6% | | | | | | |
| Gold Fields – ADR | | | 39,800 | | | $ | 127,360 | |
| Kinross Gold | | | 75,100 | | | | 328,938 | |
| Newmont Mining | | | 44,800 | | | | 1,031,744 | |
| Sibanye Gold – ADR | | | 9,950 | | | | 47,860 | |
| Victoria Gold* | | | 96,500 | | | | 9,650 | |
| | | | | | | | 1,545,552 | |
| | | | | | | | | |
| Paper & Forest Products – 1.2% | | | | | | | | |
| Deltic Timber | | | 7,200 | | | | 489,168 | |
| Domtar | | | 7,200 | | | | 679,248 | |
| | | | | | | | 1,168,416 | |
| | | | | | | | | |
| Real Estate – 1.6% | | | | | | | | |
| Forestar Group* | | | 21,300 | | | | 453,051 | |
| Howard Hughes* | | | 3,300 | | | | 396,330 | |
| Parkway Properties | | | 38,450 | | | | 741,707 | |
| | | | | | | | 1,591,088 | |
| | | | | | | | | |
| Utilities – 3.5% | | | | | | | | |
| Empire District Electric | | | 23,500 | | | | 533,215 | |
| Pepco Holdings | | | 29,800 | | | | 570,074 | |
| Public Service Enterprise Group | | | 28,200 | | | | 903,528 | |
| TECO Energy | | | 52,600 | | | | 906,824 | |
| UIL Holdings | | | 11,800 | | | | 457,250 | |
| | | | | | | | 3,370,891 | |
| | | | | | | | | |
| Total Common Stocks | | | | | | | | |
| (Cost $68,852,479) | | | | | | | 89,931,870 | |
| | | | | | | | | |
| | | Par | | | | | |
| | | | | | | | | |
| CONVERTIBLE BONDS – 1.1% | | | | | | | | |
| | | | | | | | | |
| Industrials – 0.6% | | | | | | | | |
| Alliant Techsystems | | | | | | | | |
| 3.000%, 08/15/2024 | | $ | 325,000 | | | | 520,203 | |
| | | | | | | | | |
| Real Estate – 0.5% | | | | | | | | |
| Forestar Group | | | | | | | | |
| 3.750%, 03/01/2020 | | | 450,000 | | | | 518,625 | |
| Total Convertible Bonds | | | | | | | | |
| (Cost $813,284) | | | | | | | 1,038,828 | |
See Notes to the Financial Statements
Schedule of Investments – Continued
December 31, 2013
Opportunity Fund
| Description | | Shares | | | Value | |
| | | | | | | |
| SHORT-TERM INVESTMENT – 7.4% | | | | | | |
| Invesco Treasury Portfolio, 0.020%^ | | | | | | |
| (Cost $7,257,446) | | | 7,257,446 | | | $ | 7,257,446 | |
| | | | | | | | | |
| Total Investments – 100.5% | | | | | | | | |
| (Cost $76,923,209) | | | | | | | 98,228,144 | |
| Other Assets and Liabilities, Net – (0.5%) | | | | | | | (477,364 | ) |
| Total Net Assets – 100.0% | | | | | | $ | 97,750,780 | |
| | | | | | | | | |
| * | Non-income producing security |
| ADR | – American Depository Receipt |
| ^ | Variable Rate Security – the rate shown is the annualized seven-day effective yield as of December 31, 2013. |
See Notes to the Financial Statements
Statements of Assets and Liabilities
December 31, 2013
| | | Capital Appreciation Fund | | | Opportunity Fund | |
| ASSETS: | | | | | | |
| Investments, at market value | | | | | | |
| (Cost $37,491,123 and $76,923,209, respectively) | | $ | 41,570,602 | | | $ | 98,228,144 | |
| Cash | | | 33,146 | | | | 101,466 | |
| Receivable for investment securities sold | | | 183,946 | | | | — | |
| Receivable for dividends and interest | | | 103,023 | | | | 94,539 | |
| Receivable for capital shares sold | | | 9,109 | | | | 348,983 | |
| Prepaid expenses | | | 11,171 | | | | 16,498 | |
| Total assets | | | 41,910,997 | | | | 98,789,630 | |
| | | | | | | | | |
| LIABILITIES: | | | | | | | | |
| Payable for investment securities purchased | | | 58,438 | | | | 732,886 | |
| Payable for capital shares redeemed | | | 96,964 | | | | 147,547 | |
| Payable to adviser, net | | | 21,682 | | | | 57,799 | |
| Accrued distribution fees | | | 5,659 | | | | 11,304 | |
| Accrued expenses and other liabilities | | | 69,320 | | | | 89,314 | |
| Total liabilities | | | 252,063 | | | | 1,038,850 | |
| | | | | | | | | |
| NET ASSETS | | $ | 41,658,934 | | | $ | 97,750,780 | |
| | | | | | | | | |
| COMPOSITION OF NET ASSETS: | | | | | | | | |
| Portfolio capital | | $ | 36,981,148 | | | $ | 75,793,105 | |
| Distributions in excess of net investment income | | | (66,313 | ) | | | (10,409 | ) |
| Accumulated net realized gain on investments | | | 664,620 | | | | 663,198 | |
| Net unrealized appreciation of investments | | | 4,079,479 | | | | 21,304,886 | |
| Total net assets | | $ | 41,658,934 | | | $ | 97,750,780 | |
CAPITAL STOCK, $0.0001 par value | | | | | | | | |
| Authorized | | | 500,000,000 | | | | 500,000,000 | |
| Issued and outstanding | | | 2,434,168 | | | | 4,544,847 | |
| | | | | | | | | |
| NET ASSET VALUE, REDEMPTION PRICE, | | | | | | | | |
| AND OFFERING PRICE PER SHARE | | $ | 17.11 | | | $ | 21.51 | |
See Notes to the Financial Statements
Statements of Operations
For the Year Ended December 31, 2013
| | | Capital Appreciation Fund | | | Opportunity Fund | |
| INVESTMENT INCOME: | | | | | | |
| Interest income | | $ | 285,932 | | | $ | 8,266 | |
| Dividend income | | | 671,005 | | | | 1,438,675 | |
| Less: Foreign taxes withheld | | | (3,402 | ) | | | (2,854 | ) |
| Total investment income | | | 953,535 | | | | 1,444,087 | |
| | | | | | | | | |
| EXPENSES: | | | | | | | | |
| Investment advisory fees | | | 440,371 | | | | 961,072 | |
| Administration fees | | | 50,882 | | | | 91,342 | |
| Fund accounting fees | | | 41,105 | | | | 40,952 | |
| Directors’ fees | | | 34,526 | | | | 67,448 | |
| Audit fees | | | 30,615 | | | | 30,615 | |
| Transfer agent fees | | | 29,641 | | | | 41,228 | |
| Registration fees | | | 26,796 | | | | 26,805 | |
| Distribution fees | | | 17,140 | | | | 45,538 | |
| Other expenses | | | 12,493 | | | | 17,200 | |
| Custodian fees | | | 12,160 | | | | 8,333 | |
| Legal fees | | | 8,791 | | | | 32,541 | |
| Postage and printing fees | | | 4,650 | | | | 10,054 | |
| Total expenses | | | 709,170 | | | | 1,373,128 | |
| Less: Fee waivers | | | (188,732 | ) | | | (237,316 | ) |
| Total net expenses | | | 520,438 | | | | 1,135,812 | |
| NET INVESTMENT INCOME | | | 433,097 | | | | 308,275 | |
| | | | | | | | | |
| REALIZED AND UNREALIZED GAINS: | | | | | | | | |
| Net realized gain on investments | | | 2,968,186 | | | | 5,996,465 | |
| Net change in unrealized appreciation of investments | | | 3,577,184 | | | | 14,322,805 | |
| Net gain on investments | | | 6,545,370 | | | | 20,319,270 | |
| | | | | | | | | |
| NET INCREASE IN NET ASSETS | | | | | | | | |
| RESULTING FROM OPERATIONS | | $ | 6,978,467 | | | $ | 20,627,545 | |
See Notes to the Financial Statements
Statements of Changes in Net Assets
| | | Capital Appreciation Fund | |
| | | Year Ended | | | Year Ended | |
| | | December 31, 2013 | | | December 31, 2012 | |
| OPERATIONS: | | | | | | |
| Net investment income | | $ | 433,097 | | | $ | 695,764 | |
| Net realized gain on investments | | | 2,968,186 | | | | 240,751 | |
| Net change in unrealized appreciation of investments | | | 3,577,184 | | | | 1,014,133 | |
| Net increase resulting from operations | | | 6,978,467 | | | | 1,950,648 | |
| | | | | | | | | |
| CAPITAL SHARE TRANSACTIONS: | | | | | | | | |
| Proceeds from shares sold | | | 2,014,107 | | | | 2,999,727 | |
| Proceeds from reinvestment of distributions | | | 2,243,850 | | | | 1,377,580 | |
| Payments for shares redeemed | | | (6,418,748 | ) | | | (19,566,364 | ) |
| Redemption fees | | | 8 | | | | 3,419 | |
| Net decrease from capital share transactions | | | (2,160,783 | ) | | | (15,185,638 | ) |
| | | | | | | | | |
| DISTRIBUTIONS PAID FROM: | | | | | | | | |
| Net investment income | | | (384,267 | ) | | | (856,862 | ) |
| Net realized gains | | | (1,878,037 | ) | | | (541,416 | ) |
| Total distributions to shareholders | | | (2,262,304 | ) | | | (1,398,278 | ) |
| | | | | | | | | |
| TOTAL INCREASE (DECREASE) IN NET ASSETS | | | 2,555,380 | | | | (14,633,268 | ) |
| | | | | | | | | |
| NET ASSETS: | | | | | | | | |
| Beginning of period | | | 39,103,554 | | | | 53,736,822 | |
| | | | | | | | | |
| End of period (including distributions | | | | | | | | |
| in excess of net investment income | | | | | | | | |
| of $(66,313) and $(227,611), respectively) | | $ | 41,658,934 | | | $ | 39,103,554 | |
| | | | | | | | | |
| TRANSACTIONS IN SHARES: | | | | | | | | |
| Shares sold | | | 122,206 | | | | 195,862 | |
| Shares issued in reinvestment of distributions | | | 131,143 | | | | 91,839 | |
| Shares redeemed | | | (393,613 | ) | | | (1,319,605 | ) |
| Net decrease | | | (140,264 | ) | | | (1,031,904 | ) |
See Notes to the Financial Statements
Statements of Changes in Net Assets
| | | Opportunity Fund | |
| | | Year Ended | | | Year Ended | |
| | | December 31, 2013 | | | December 31, 2012 | |
| OPERATIONS: | | | | | | |
| Net investment income | | $ | 308,275 | | | $ | 736,484 | |
| Net realized gain on investments | | | 5,996,465 | | | | 3,339,487 | |
| Net change in unrealized appreciation of investments | | | 14,322,805 | | | | 4,749,162 | |
| Net increase resulting from operations | | | 20,627,545 | | | | 8,825,133 | |
| | | | | | | | | |
| CAPITAL SHARE TRANSACTIONS: | | | | | | | | |
| Proceeds from shares sold | | | 15,314,117 | | | | 12,426,328 | |
| Proceeds from reinvestment of distributions | | | 5,887,496 | | | | 3,503,375 | |
| Payments for shares redeemed | | | (8,369,938 | ) | | | (10,246,036 | ) |
| Redemption fees | | | 219 | | | | 621 | |
| Net increase from capital share transactions | | | 12,831,894 | | | | 5,684,288 | |
| | | | | | | | | |
| DISTRIBUTIONS PAID FROM: | | | | | | | | |
| Net investment income | | | (307,152 | ) | | | (735,643 | ) |
| Net realized gains | | | (5,950,554 | ) | | | (2,939,377 | ) |
| Total distributions to shareholders | | | (6,257,706 | ) | | | (3,675,020 | ) |
| | | | | | | | | |
| TOTAL INCREASE IN NET ASSETS | | | 27,201,733 | | | | 10,834,401 | |
| | | | | | | | | |
| NET ASSETS: | | | | | | | | |
| Beginning of period | | | 70,549,047 | | | | 59,714,646 | |
| | | | | | | | | |
| End of period (including distributions | | | | | | | | |
| in excess of net investment income | | | | | | | | |
| of $(10,409) and $(11,546), respectively) | | $ | 97,750,780 | | | $ | 70,549,047 | |
| | | | | | | | | |
| TRANSACTIONS IN SHARES: | | | | | | | | |
| Shares sold | | | 766,993 | | | | 690,660 | |
| Shares issued in reinvestment of distributions | | | 274,220 | | | | 197,040 | |
| Shares redeemed | | | (404,150 | ) | | | (573,799 | ) |
| Net increase | | | 637,063 | | | | 313,901 | |
See Notes to the Financial Statements
Financial Highlights
| | | Capital Appreciation Fund | |
| | | Year Ended December 31, | |
| | | 2013 | | | 2012 | | | 2011 | | | 2010 | | | 2009 | |
| For a Fund share outstanding | | | | | | | | | | | | | | | |
| throughout the period | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| NET ASSET VALUE: | | | | | | | | | | | | | | | |
| Beginning of period | | $ | 15.19 | | | $ | 14.90 | | | $ | 15.92 | | | $ | 13.95 | | | $ | 10.85 | |
| | | | | | | | | | | | | | | | | | | | | |
| OPERATIONS: | | | | | | | | | | | | | | | | | | | | |
| Net investment income | | | 0.18 | | | | 0.31 | | | | 0.15 | | | | 0.14 | | | | 0.25 | |
| Net realized and unrealized | | | | | | | | | | | | | | | | | | | | |
| gain (loss) on investments | | | 2.72 | | | | 0.54 | | | | (0.79 | ) | | | 2.30 | | | | 3.09 | |
| Total from operations | | | 2.90 | | | | 0.85 | | | | (0.64 | ) | | | 2.44 | | | | 3.34 | |
| | | | | | | | | | | | | | | | | | | | | |
| LESS DISTRIBUTIONS: | | | | | | | | | | | | | | | | | | | | |
| From net investment income | | | (0.17 | ) | | | (0.34 | ) | | | (0.17 | ) | | | (0.16 | ) | | | (0.24 | ) |
| From net realized gains | | | (0.81 | ) | | | (0.22 | ) | | | (0.21 | ) | | | (0.31 | ) | | | — | |
| Total distributions | | | (0.98 | ) | | | (0.56 | ) | | | (0.38 | ) | | | (0.47 | ) | | | (0.24 | ) |
| | | | | | | | | | | | | | | | | | | | | |
| NET ASSET VALUE: | | | | | | | | | | | | | | | | | | | | |
| End of period | | $ | 17.11 | | | $ | 15.19 | | | $ | 14.90 | | | $ | 15.92 | | | $ | 13.95 | |
| | | | | | | | | | | | | | | | | | | | | |
| TOTAL RETURN | | | 19.10 | % | | | 5.76 | % | | | (4.00 | )% | | | 17.52 | % | | | 30.74 | % |
| | | | | | | | | | | | | | | | | | | | | |
| SUPPLEMENTAL DATA AND RATIOS: | | | | | | | | | | | | | | | | | | | | |
| Net assets, end of period (in thousands) | | $ | 41,659 | | | $ | 39,104 | | | $ | 53,737 | | | $ | 43,535 | | | $ | 29,724 | |
| Ratio of expenses to average net assets: | | | | | | | | | | | | | | | | | | | | |
| Before expense reimbursement | | | 1.77 | % | | | 1.77 | % | | | 1.70 | % | | | 2.01 | % | | | 2.38 | % |
| After expense reimbursement | | | 1.30 | % | | | 1.37 | % | | | 1.50 | % | | | 1.50 | % | | | 1.50 | % |
| Ratio of net investment income | | | | | | | | | | | | | | | | | | | | |
| to average net assets: | | | | | | | | | | | | | | | | | | | | |
| Before expense reimbursement | | | 0.61 | % | | | 1.10 | % | | | 0.63 | % | | | 0.55 | % | | | 1.27 | % |
| After expense reimbursement | | | 1.08 | % | | | 1.50 | % | | | 0.83 | % | | | 1.06 | % | | | 2.15 | % |
| Portfolio turnover rate | | | 31 | % | | | 15 | % | | | 24 | % | | | 27 | % | | | 41 | % |
See Notes to the Financial Statements
Financial Highlights
| | | Opportunity Fund | |
| | | Year Ended December 31, | |
| | | 2013 | | | 2012 | | | 2011 | | | 2010 | | | 2009 | |
| For a Fund share outstanding | | | | | | | | | | | | | | | |
| throughout the period | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| NET ASSET VALUE: | | | | | | | | | | | | | | | |
| Beginning of period | | $ | 18.05 | | | $ | 16.62 | | | $ | 17.45 | | | $ | 15.10 | | | $ | 12.04 | |
| | | | | | | | | | | | | | | | | | | | | |
| OPERATIONS: | | | | | | | | | | | | | | | | | | | | |
| Net investment income | | | 0.07 | | | | 0.20 | | | | 0.07 | | | | 0.09 | | | | 0.08 | |
| Net realized and unrealized | | | | | | | | | | | | | | | | | | | | |
| gain (loss) on investments | | | 4.84 | | | | 2.22 | | | | (0.11 | ) | | | 2.47 | | | | 3.06 | |
| Total from operations | | | 4.91 | | | | 2.42 | | | | (0.04 | ) | | | 2.56 | | | | 3.14 | |
| | | | | | | | | | | | | | | | | | | | | |
| LESS DISTRIBUTIONS: | | | | | | | | | | | | | | | | | | | | |
| From net investment income | | | (0.07 | ) | | | (0.20 | ) | | | (0.05 | ) | | | (0.12 | ) | | | (0.08 | ) |
| From net realized gains | | | (1.38 | ) | | | (0.79 | ) | | | (0.74 | ) | | | (0.09 | ) | | | — | |
| Total distributions | | | (1.45 | ) | | | (0.99 | ) | | | (0.79 | ) | | | (0.21 | ) | | | (0.08 | ) |
| | | | | | | | | | | | | | | | | | | | | |
| NET ASSET VALUE: | | | | | | | | | | | | | | | | | | | | |
| End of period | | $ | 21.51 | | | $ | 18.05 | | | $ | 16.62 | | | $ | 17.45 | | | $ | 15.10 | |
| | | | | | | | | | | | | | | | | | | | | |
| TOTAL RETURN | | | 27.25 | % | | | 14.63 | % | | | (0.21 | )% | | | 16.94 | % | | | 26.10 | % |
| | | | | | | | | | | | | | | | | | | | | |
| SUPPLEMENTAL DATA AND RATIOS: | | | | | | | | | | | | | | | | | | | | |
| Net assets, end of period (in thousands) | | $ | 97,751 | | | $ | 70,549 | | | $ | 59,715 | | | $ | 37,575 | | | $ | 26,082 | |
| Ratio of expenses to average net assets: | | | | | | | | | | | | | | | | | | | | |
| Before expense reimbursement | | | 1.57 | % | | | 1.64 | % | | | 1.70 | % | | | 2.05 | % | | | 2.51 | % |
| After expense reimbursement | | | 1.30 | % | | | 1.36 | % | | | 1.50 | % | | | 1.50 | % | | | 1.50 | % |
| Ratio of net investment income (loss) | | | | | | | | | | | | | | | | | | | | |
| to average net assets: | | | | | | | | | | | | | | | | | | | | |
| Before expense reimbursement | | | 0.08 | % | | | 0.84 | % | | | 0.20 | % | | | 0.04 | % | | | (0.27 | )% |
| After expense reimbursement | | | 0.35 | % | | | 1.12 | % | | | 0.40 | % | | | 0.59 | % | | | 0.74 | % |
| Portfolio turnover rate | | | 25 | % | | | 43 | % | | | 45 | % | | | 45 | % | | | 51 | % |
See Notes to the Financial Statements
Notes to the Financial Statements
December 31, 2013
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. FAIR VALUE MEASUREMENT
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. 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 generally categorized in Level 2 of the fair value hierarchy.
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.
Notes to the Financial Statements – Continued
December 31, 2013
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 December 31, 2013, each Fund's investments in securities were classified as follows:
| | | Level 1 | | | Level 2 | | | Level 3 | | | Total | |
| Capital Appreciation Fund | | | | | | | | | | | | |
| Common Stocks | | $ | 31,621,716 | | | $ | — | | | $ | — | | | $ | 31,621,716 | |
| Convertible Bonds | | | — | | | | 7,491,313 | | | | — | | | | 7,491,313 | |
| Exchange Traded Fund | | | 46,468 | | | | — | | | | — | | | | 46,468 | |
| Short-Term Investment | | | 2,411,105 | | | | — | | | | — | | | | 2,411,105 | |
| Total Investments | | $ | 34,079,289 | | | $ | 7,491,313 | | | $ | — | | | $ | 41,570,602 | |
| | | | | | | | | | | | | | | | | |
| Opportunity Fund | | | | | | | | | | | | | | | | |
| Common Stocks | | $ | 89,931,870 | | | $ | — | | | $ | — | | | $ | 89,931,870 | |
| Convertible Bonds | | | — | | | | 1,038,828 | | | | — | | | | 1,038,828 | |
| Short-Term Investment | | | 7,257,446 | | | | — | | | | — | | | | 7,257,446 | |
| Total Investments | | $ | 97,189,316 | | | $ | 1,038,828 | | | $ | — | | | $ | 98,228,144 | |
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 year ended December 31, 2013, the Funds recognized no transfers between levels. The Funds did not invest in any Level 3 investments during the period.
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 year ended December 31, 2013, the Funds held no derivative instruments.
3. SIGNIFICANT ACCOUNTING POLICIES
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.
Notes to the Financial Statements – Continued
December 31, 2013
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, 2013, 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.
Reclassification of Capital Accounts – GAAP requires that certain components of net assets relating to permanent differences be reclassified between financial and tax reporting. These reclassifications have no effect on net assets or net asset value per share. For the fiscal year ended December 31, 2013, the following reclassifications were made on the Statements of Assets and Liabilities:
| | | Undistributed | | | Accumulated | | | | |
| | | Net Investment | | | Net Realized | | | | |
| | | Income | | | Gain(Loss) | | | Portfolio Capital | |
| | | | | | | | | | | | | |
| Capital Appreciation Fund | | $ | 112,468 | | | $ | (112,468 | ) | | $ | — | |
| Opportunity Fund | | | 14 | | | | (10 | ) | | | 4 | |
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 December 31, 2013, the Funds had no investments in illiquid securities.
Notes to the Financial Statements – Continued
December 31, 2013
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 December 31, 2013, 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.
4. INVESTMENT TRANSACTIONS
During the year ended December 31, 2013, 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 | | $ | 11,902,358 | | | $ | 17,836,036 | |
| Opportunity Fund | | | 26,113,903 | | | | 19,862,319 | |
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 December 31, 2013, were as follows:
| | | Aggregate | | | Aggregate | | | | | | Federal | |
| | | Gross | | | Gross | | | | | | Income | |
| | | Appreciation | | | Depreciation | | | Net | | | Tax Cost | |
| | | | | | | | | | | | | | | | | |
| Capital Appreciation Fund | | $ | 7,862,114 | | | $ | (4,023,857 | ) | | $ | 3,838,257 | | | $ | 37,732,345 | |
| Opportunity Fund | | | 23,796,324 | | | | (2,491,438 | ) | | | 21,304,886 | | | | 76,923,209 | |
At December 31, 2013, components of accumulated earnings (deficit) on a tax-basis were as follows:
| | | | | | | | | | | | | | | Total | |
| | | Undistributed | | | Undistributed | | | Other | | | | | | Accumulated | |
| | | Ordinary | | | Long-Term | | | Accumulated | | | Unrealized | | | Earnings | |
| | | Income | | | Capital Gains | | | Losses | | | Appreciation | | | (Deficit) | |
| | | | | | | | | | | | | | | | | | | | | |
| Capital Appreciation Fund | | $ | 106,222 | | | $ | 746,273 | | | $ | (12,967 | ) | | $ | 3,838,257 | | | $ | 4,677,785 | |
| Opportunity Fund | | | 28,855 | | | | 634,373 | | | | (10,439 | ) | | | 21,304,886 | | | | 21,957,675 | |
As of December 31, 2013, 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, 2013, the Capital Appreciation Fund and the Opportunity Fund do not plan to defer any late year losses.
Notes to the Financial Statements – Continued
December 31, 2013
The tax character of distributions paid during the fiscal year ended December 31, 2013 were as follows:
| | | Ordinary | | | Long Term | | | | |
| | | Income | | | Capital Gains | | | Total | |
| | | | | | | | | | | | | |
| Capital Appreciation Fund | | $ | 454,484 | | | $ | 1,807,820 | | | $ | 2,262,304 | |
| Opportunity Fund | | $ | 564,316 | | | $ | 5,693,390 | | | $ | 6,257,706 | |
The tax character of distributions paid during the fiscal year ended December 31, 2012 were as follows:
| | | Ordinary | | | Long Term | | | | |
| | | Income | | | Capital Gains | | | Total | |
| | | | | | | | | | | | | |
| Capital Appreciation Fund | | $ | 934,926 | | | $ | 463,352 | | | $ | 1,398,278 | |
| Opportunity Fund | | | 950,064 | | | | 2,724,956 | | | | 3,675,020 | |
5. 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 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. Any such reduction made by the Adviser in its fees or payment of expenses which are the Fund’s obligation are subject to possible reimbursement by the Fund to the Adviser within three years after the fees have been waived and/or reimbursed. Expenses waived and/or reimbursed by the Adviser may be recouped by the Adviser if such recoupment can be achieved without exceeding the expense limit in effect at the time the waiver and/or reimbursement occurred. As of December 31, 2013, the Adviser did not recoup any previously waived expenses. The Operating Expense Limitation Agreement will be in effect through at least September 30, 2015. Waived/reimbursed fees and expenses subject to potential recovery by year of expiration are as follows:
| Expiration | | Capital Appreciation Fund | | | Opportunity Fund | |
| | | | | | | | | |
| 12/31/14 | | $ | 114,442 | | | $ | 105,613 | |
| 12/31/15 | | | 186,758 | | | | 183,148 | |
| 12/31/16 | | | 188,732 | | | | 237,316 | |
| Total | | $ | 489,932 | | | $ | 526,077 | |
As of December 31, 2013, 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
Notes to the Financial Statements – Continued
December 31, 2013
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 year ended December 31, 2013, Capital Appreciation Fund and Opportunity Fund incurred expenses of $17,140 and $45,538, 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.
6. 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.
Report of Independent Registered Public Accounting Firm
The Board of Directors and Shareholders
Prospector Funds, Inc.:
We have audited the accompanying statements of assets and liabilities, including the schedule of investments, of Prospector Funds, Inc., comprised of, the Prospector Capital Appreciation Fund and the Prospector Opportunity Fund (the Funds) as of December 31, 2013, and the related statements of operations for the year then ended, the statements of changes in net assets for the two years in the period then ended, and financial highlights for each of the five years in the period then ended. These financial statements and financial highlights are the responsibility of the Funds’ management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. We were not engaged to perform an audit of the Funds’ internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Funds’ internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements and financial highlights, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our procedures included confirmation of securities owned as of December 31, 2013, by correspondence with the custodian and brokers or by other appropriate auditing procedures where replies from brokers were not received. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of the Funds at December 31, 2013, the results of their operations for the year then ended, the changes in their net assets for the two years in the period then ended, and the financial highlights for each of the five years in the period then ended, in conformity with U.S. generally accepted accounting principles.
Chicago, Illinois
February 27, 2014
Additional Information (Unaudited)
December 31, 2013
Board Approval of Investment Advisory Agreement
The Corporation’s independent directors (the “directors”) unanimously approved the continuance of the Investment Advisory Agreement (the “Advisory Agreement”) between the Funds and the Prospector Partners Asset Management, LLC (the “Investment Manager”) at a Board of Directors’ meeting held on September 4, 2013.
In preparation for the meeting, the directors had requested from the Investment Manager and evaluated a memorandum providing certain information requested by the Board pursuant to Section 15(c) of the 1940 Act, including (i) expense, compliance and other information as it relates to the Investment Manager; (ii) performance of other accounts managed by its affiliate Prospector Partners, LLC with similar investment objectives derived from data compiled by the Investment Manager and (iii) expense and other information for other registered investment companies with similar investment objectives derived from data compiled by the Investment Manager based upon comparative peer groups selected in consultation with the independent directors. Prior to voting, the directors reviewed the proposed approval of the Advisory Agreement with management and with counsel to the Corporation and reviewed a memorandum from such counsel discussing the legal standards for their consideration of the proposed approval. In reaching their determinations relating to approval of the continuance of the Advisory Agreement, the directors considered all factors they believed relevant including the following:
| | 1. | the nature, extent and quality of investment, and other services to be rendered by the Investment Manager; |
| | 2. | payments to be received by the Investment Manager from all sources with respect to the Funds; |
| | 3. | comparative fee and expense data for the Funds and other investment companies with similar investment objectives; |
| | 4. | the extent to which economies of scale may be realized as the Funds grow and whether fee levels reflect these economies of scale for the benefit of investors; |
| | 5. | the Investment Manager’s policies and practices regarding allocation of portfolio transactions of the Funds, including the extent to which the Investment Manager may benefit from soft dollar arrangements; |
| | 6. | fall-out benefits which the Investment Manager and its affiliates may receive from their relationships to the Funds; |
| | 7. | information about fees charged by the Investment Manager to other clients with similar investment objectives; |
| | 8. | the professional experience and qualifications of the Funds’ portfolio managers and other senior personnel of the Investment Manager; |
| | 9. | profitability of the Investment Manager; and |
| | 10. | the terms of the Advisory Agreement. |
The directors also considered their overall confidence in the integrity and competence of the Investment Manager and the portfolio managers. In their deliberations, the directors did not identify any particular information that was all-important or controlling, and each director attributed different weights to the various factors. The directors determined that the overall arrangements between the Funds and the Investment Manager, as provided in the Advisory Agreement, were fair and reasonable in light of the services performed, expenses expected to be incurred and such other matters as the directors considered relevant in the exercise of their reasonable judgment.
The material factors and conclusions that formed the basis for the directors reaching their determinations to approve the continuance of the Advisory Agreement (including their determinations that the Investment Manager
Additional Information (Unaudited) – Continued
December 31, 2013
should be the investment adviser for the Funds, and that the fees payable to the Investment Manager pursuant to the Advisory Agreement are appropriate) were separately discussed by the directors.
Nature, extent and quality of services provided by the Investment Manager
The directors noted that, under the Advisory Agreement, the Investment Manager, subject to the control of the directors, administers the Funds’ business and other affairs. The Investment Manager manages the investment of the assets of the Funds, including making purchases and sales of portfolio securities consistent with each Fund’s investment objective and policies.
The directors considered the scope and quality of services provided by the Investment Manager under the Advisory Agreement. The directors considered the quality of the investment research capabilities of the Investment Manager and the other resources it dedicates to performing services for the Funds. They also factored in the cyclical nature of value investing and the Investment Manager’s active management style. The directors also considered the portfolio managers’ experience, reputation and investment philosophy and noted that the Investment Manager’s investment style and stock selection process have remained consistent. The quality of administrative and other services also were considered. The directors concluded that, overall, they continue to be satisfied with the nature, extent and quality of services provided to the Funds under the Advisory Agreement.
Investment Manager Fees; Performance of the Fund
The directors considered the advisory fee rate paid by the Funds to the Investment Manager and information prepared by the Investment Manager based upon the peer groups selected with the independent directors concerning fee rates paid by other comparable funds. The directors recognized that it is difficult to make comparisons of advisory fees because there are variations in the services that are included in the fees paid by other funds, but determined that the proposed advisory fee rate was in line with other comparable funds.
The directors also considered the performance of each Fund compared to each Fund’s benchmarks and industry averages. The directors noted that although the Capital Appreciation Fund and Opportunity Fund underperformed their respective benchmarks during more recent periods, from the period from inception through June 30, 2013, the Capital Appreciation Fund was in the second quartile and the Opportunity Fund was in the first quartile for annualized performance compared to the peer group. The directors concluded that the advisory fee rate, taking into account performance and the other factors mentioned, was in line with comparable funds.
Other Fund Expenses
The directors also considered the total expense ratio of the Funds in comparison to the fees and expenses of the funds included in the comparison. The directors noted that the expense ratios of some of the comparable funds also were lower because of waivers or reimbursements by those funds’ investment advisers, which in some cases were voluntary and perhaps temporary. In particular, the directors noted that the Investment Manager’s fee waiver pursuant to the Fee Waiver and Expenses Reimbursement Agreement was contractual in nature and customary for the industry. The directors concluded that the Funds’ expense ratio was satisfactory. Finally, the directors noted that there may be economies of scale as the Funds grow and concluded that it may be appropriate to consider those issues in the future.
Investment Manager Profitability
The directors noted that the Investment Manager also provides the Funds with such office space, administrative and other services (exclusive of, and in addition to, any such services provided by any other retained by the Funds) and
Additional Information (Unaudited) – Continued
December 31, 2013
executive and other personnel as are necessary for the Funds’ operations. The directors considered that the Investment Manager pays all of the compensation of the officers of the Company that are affiliated persons of the Investment Manager, pays a portion of the insurance costs and paid the cost of the organization of the Funds (without reimbursement) through its affiliate, Prospector Partners, LLC.
The directors also noted that the Investment Manager has contractually agreed to waive, through September 30, 2014, 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. Under the terms of the Waiver and Expense Reimbursement Agreement at the present asset levels of the Funds, the Investment Manager has received only a portion of its management fee amounts. It was also noted that the Investment Manager does not receive “fall out” benefits commonly received by managers of mutual funds that provide transfer agency, distribution or printing services in-house. The directors considered the expenses of the Investment Manager and the services provided by the Investment Manager and determined that the Investment Manager was cash flow positive without considering an allocation of expenses from Prospector Partners, LLC, an affiliated advisor.
Additional Information (Unaudited) – Continued
December 31, 2013
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.
QUALIFIED DIVIDEND INCOME/DIVIDENDS RECEIVED DEDUCTION
For the fiscal year ended December 31, 2013, certain dividends paid by the Funds may be subject to a maximum tax rate of 20%, as provided for by the Jobs and Growth Tax Relief Reconciliation Act of 2003. The percentage of dividends declared from ordinary income designated as qualified dividend income was 100% and 100% for the Capital Appreciation Fund and Opportunity Fund, respectively.
For corporate shareholders, the percent of ordinary income distributions qualifying for the corporate dividends received deduction for the fiscal year ended December 31, 2013 was 97.9% and 100% for the Capital Appreciation Fund and Opportunity Fund, respectively.
ADDITIONAL INFORMATION APPLICABLE TO FOREIGN SHAREHOLDERS ONLY
The percent of ordinary income distributions designated as interest related dividends for the fiscal year ended December 31, 2013 was 35.36% and 1.04% for the Capital Appreciation Fund and Opportunity Fund, respectively.
The percent of ordinary income distributions designated as short-term capital gain distributions under Internal Revenue Section 871(k)(2)(C) for the fiscal year ended December 31, 2013 was 15.45% and 45.57% for the Capital Appreciation Fund and Opportunity Fund, respectively.
Additional Information (Unaudited) – Continued
December 31, 2013
DIRECTORS & OFFICERS
| | | Term of | | Number of | |
| | | Office | | Portfolios | Other |
| | | and | Principal | in Fund | Directorships |
| Name, | | Length | Occupation | Complex | Served |
| Year of Birth | | of Time | During Past | Overseen | During Past |
| and Address^ | Position | Served* | 5 Years | by Director | 5 Years |
| | | | | | |
| Independent Board Members |
| | | | | | |
Harvey D. Hirsch* | Director | Indefinite; | Senior Vice President, | 2 | None |
| Year of Birth: 1941 | | Since | Marketing, Van Eck | | |
| | | September 7, | Associates Corporation, | | |
| | | 2007 | an investment adviser, | | |
| | | | since May 2007. | | |
| | | | | | |
Joseph Klein III* | Director | Indefinite; | Managing Director of Gauss | 2 | ISIS |
| Year of Birth: 1961 | | Since | Capital Advisors, LLC, | | Pharmaceuticals |
| | | September 7, | a financial consulting and | | Inc. |
| | | 2007 | investment advisory firm | | BioMarin |
| | | | focused on biopharmaceuticals | | Pharmaceutical, |
| | | | since he founded the company | | Inc. |
| | | | in March 1998. | | OSI |
| | | | | | Pharmaceuticals, |
| | | | | | Inc. |
| | | | | | Savient |
| | | | | | Pharmaceuticals, |
| | | | | | Inc. |
| | | | | | PDL BioPharma |
| | | | | | Inc. |
| | | | | | NPS |
| | | | | | Pharmaceuticals, |
| | | | | | Inc. |
Additional Information (Unaudited) – Continued
December 31, 2013
| | | Term of | | Number of | |
| | | Office | | Portfolios | Other |
| | | and | Principal | in Fund | Directorships |
| Name, | | Length | Occupation | Complex | Served |
| Year of Birth | | of Time | During Past | Overseen | During Past |
| and Address^ | Position | Served* | 5 Years | by Director | 5 Years |
| | | | | | |
Roy L. Nersesian* | Director | Indefinite; | Associate professor of the | 2 | None |
| Year of Birth: 1939 | | | School of Business, Monmouth | | |
| | | September 7, | University, since September 1985. | | |
| | | 2007 | Adjunct Professor of the Center | | |
| | | | for Energy and Marine | | |
| | | | Transportation, Columbia | | |
| | | | University, since September 2000. | | |
| | | | Consultant, Poten & Partners, | | |
| | | | provider of brokerage and | | |
| | | | consulting services to the energy | | |
| | | | and ocean transportation industries, | | |
| | | | since September 1992. | | |
| | | | | | |
John T. Rossello, Jr.* | Director | Indefinite; | Retired. | 2 | None |
| Year of Birth: 1951 | | Since | Partner at | | |
| | | September 7, | PricewaterhouseCoopers LLP | | |
| | | 2007 | from October 1988 to | | |
| | | | June 2007. | | |
| | | | | | |
| Interested Board Members and Officers |
| |
John D. Gillespie†* | Director | Indefinite; | Managing member of | 2 | White |
| Year of Birth: 1959 | President | Since | the Investment Manager. | | Mountains |
| | | September 7, | Managing member of | | Insurance |
| | | 2007 | Prospector Partners, LLC, | | Group, Ltd. |
| | | | an affiliate of the Investment | | |
| | | | Manager, and portfolio manager | | |
| | | | of the investment funds | | |
| | | | sponsored by Prospector | | |
| | | | Partners, LLC since 1997. | | |
| | | | Chairman and President of | | |
| | | | White Mountains Advisors, | | |
| | | | an investment adviser, | | |
| | | | from 2002 to 2005. | | |
Additional Information (Unaudited) – Continued
December 31, 2013
| | | | | | |
| | | Term of | | Number of | |
| | | Office | | Portfolios | Other |
| | | and | Principal | in Fund | Directorships |
| Name, | | Length | Occupation | Complex | Served |
| Year of Birth | | of Time | During Past | Overseen | During Past |
| and Address^ | Position | Served* | 5 Years | by Director | 5 Years |
| | | | | | |
| Richard P. Howard | Executive | Indefinite; | Portfolio Manager at | N/A | OneBeacon |
| Year of Birth: 1946 | Vice | Since | the Investment Manager. | | Insurance |
| | President | September 7, | Portfolio Manager at | | Group, Ltd. |
| | | 2007 | Prospector Partners, LLC | | |
| | | | since August 2005. | | |
| | | | Managing Director of White | | |
| | | | Mountains Advisors, LLC from | | |
| | | | 2001 to August 2005. | | |
| | | | Senior Vice President of | | |
| | | | OneBeacon Insurance Group | | |
| | | | from 2001 to August 2005. | | |
| | | | | | |
| Kevin R. O’Brien | Executive | Indefinite; | Portfolio Manager at the | N/A | None |
| Year of Birth: 1963 | Vice | Since | Investment Manager. | | |
| | President | September 7, | Portfolio Manager at | | |
| | | 2007 | Prospector Partners, LLC | | |
| | | | since April 2003. | | |
| | | | Managing Director of White | | |
| | | | Mountains Advisors, LLC | | |
| | | | from April 2003 to August 2005. | | |
| | | | | | |
| Jason A. Kish | Executive | Indefinite; | Portfolio Manager at | N/A | None |
| Year of Birth: 1973 | Vice | Since | the Investment Manager. | | |
| | President | February, | Director of Research | | |
| | | 2013 | since 2010. | | |
| | | | Analyst at Prospector | | |
| | | | Partners, LLC from | | |
| | | | 1997-2010. | | |
| | | | | | |
| Peter N. Perugini, Jr. | Secretary | Indefinite; | Chief Financial Officer at | N/A | None |
| Year of Birth: 1970 | Treasurer | Since | Prospector Partners, LLC | | |
| | | September 7, | since 2000. | | |
| | | 2007 | | | |
| | | Indefinite; | | | |
| | | Treasurer | | | |
| | | since | | | |
| | | June 6, | | | |
| | | 2007 | | | |
Additional Information (Unaudited) – Continued
December 31, 2013
| | | Term of | | Number of | |
| | | Office | | Portfolios | Other |
| | | and | Principal | in Fund | Directorships |
| Name, | | Length | Occupation | Complex | Served |
| Year of Birth | | of Time | During Past | Overseen | During Past |
| and Address^ | Position | Served* | 5 Years | by Director | 5 Years |
| | | | | | |
| Kim Just | Chief | Indefinite; | Chief Compliance Officer at | N/A | None |
| Year of Birth: 1967 | Compliance | Since | Prospector Partners, LLC since | | |
| | Officer | September 7, | March 2006. | | |
| | | 2007 | | | |
| | | | | | |
| Brian Wiedmeyer | Assistant | Indefinite; | Vice President for US | N/A | None |
| Year of Birth: 1973 | Secretary | Since | Bancorp Fund Services, LLC, | | |
| | | September 7, | a mutual fund service provider, | | |
| | | 2007 | since January 2005. | | |
| | | | | | |
| ^ | The address for all directors and officers is 370 Church Street, Guilford, Connecticut 06437. |
| * | Each of the Company’s directors was elected by written consent of the sole shareholder of the Funds on September 7, 2007. |
| † | John D. Gillespie is an interested director of the Fund because he is also the managing member of the Investment Manager. |
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.
The registrant has adopted a code of ethics that applies to the registrant’s principal executive officer and principal financial officer. The registrant has not made any substantive amendments to its code of ethics during the period covered by this period.
The registrant has not granted any waivers from any provisions of the code of ethics during the period covered by this report.
A copy of the registrant’s code of ethics that applies to the registrant’s principal executive officer and principal financial officer is filed herewith.
Item 3. Audit Committee Financial Expert.
The registrant’s board of directors has determined that there is at least one audit committee financial expert serving on its audit committee. John Rossello, Jr. is the “audit committee financial expert” and is considered to be “independent” as each term is defined in Item 3 of Form N-CSR.
Item 4. Principal Accountant Fees and Services.
The registrant has engaged its principal accountant to perform audit services, audit-related services, tax services and other services during the past two fiscal periods. “Audit services” refer to performing an audit of the registrant's annual financial statements or services that are normally provided by the accountant in connection with statutory and regulatory filings or engagements for the past fiscal year. “Audit-related services” refer to the assurance and related services by the principal accountant that are reasonably related to the performance of the audit. “Tax services” refer to professional services rendered by the principal accountant for tax compliance, tax advice, and tax planning, including reviewing the Fund's tax returns and distribution calculations. The following table details the aggregate fees billed or expected to be billed for each of the last two fiscal periods for audit fees, audit-related fees, tax fees and other fees by the principal accountant.
| | FYE 12/31/2013 | FYE 12/31/2012 |
| Audit Fees | $54,600 | $52,500 |
| Audit-Related Fees | $0 | $0 |
| Tax Fees | $6,650 | $6,390 |
| All Other Fees | $0 | $0 |
| | | |
The audit committee has adopted pre-approval policies and procedures that require the audit committee to pre-approve all audit and non-audit services that exceed $5,000 for the registrant. All of the principal accountant’s hours spent on auditing the registrant’s financial statements were attributed to work performed by full-time permanent employees of the principal accountant.
The audit committee noted that as indicated in the table below, for the registrant’s prior two fiscal periods, no fees were billed by the registrant’s independent public accountants in connection with non-audit services rendered to the registrant’s investment adviser, and any entity controlling, controlled by, or under common control with the investment adviser that provides ongoing services to the registrant.
| Non-Audit Related Fees | FYE 12/31/2013 | FYE 12/31/2012 |
| Registrant | $0 | $0 |
| Registrant’s Investment Adviser | $0 | $0 |
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. Filed herewith |
(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 March 10, 2014
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 March 10, 2014
By (Signature and Title)* /s/ Peter N. Perugini
Peter N. Perugini, Jr., Treasurer
* Print the name and title of each signing officer under his or her signature.
