JOINT ERRORS AND OMISSION LIABILITY INSURANCE AGREEMENT
THIS
AGREEMENT is made as of September [ ], 2007, by and among Prospector
Capital Appreciation Fund, Prospector Opportunity Fund (each, a “Series” of
Prospector Funds, Inc. (the “Fund”) and, collectively, the “Series”), and
Prospector Partners Asset Management, LLC (the “Adviser”), the investment
adviser of the Series, which are named insureds under a joint liability policy
as described below, is entered into under the following
circumstances:
A.
Pursuant to Rule 17d-1(d)(7) under the Investment Company Act of 1940, as
amended (the “Act”), affiliated persons of registered investment companies are
permitted to enter into a joint arrangement regarding a liability insurance
policy (other than a bond required pursuant to Rule 17g-1 under the Act)
provided that the conditions listed in Rule 17d-1(d)(7)(i)-(v) are
met;
B.
The Series and the Adviser are named as joint insureds (each, an “Insured” and,
collectively, the “Insureds”) under the terms of a joint errors and omissions
insurance policy (the “Policy”);
C.
A majority of the Fund's board of directors (the “Board of Directors” or the
“Board”), including a majority of those Directors who are not “interested
persons” of the Fund as defined by Section 2(a)(19) of the Act, agree that
the participation of the Series in the Policy is in the best interests of each
Series and that the proposed premium for the Policy (the “Premium”) to be
allocated to each Series, based upon its proportionate share of the sum of
the
premiums that would have been paid if such insurance coverage were purchased
separately by each Series, is fair and reasonable to each Series;
D.
The Policy does not exclude coverage for bona fide claims made against any
Director who is not an “interested person” of the Fund as defined by
Section 2(a)(19) of the Act, or against a Series if one of the Series is a
co-defendant in the claim with the disinterested Director, by another person
insured under the Policy;
E.
The Board satisfies the fund governance standards defined in Rule 0-1(a)(7)
under the Act; and
F.
The Insureds now desire to enter into an agreement to establish the manner
in
which recovery under the Policy, if any, shall be shared.
NOW,
THEREFORE, IT IS HEREBY AGREED by and among the Insureds as
follows:
1.
Payment of Premium.
The
Premium for the Policy, which will be in the principal amount of $3,000,000,
will be $22,300, the cost of which will be allocated among the
Insureds. The Series will pay [80]% of the Premium, equal to
$[17,840], while the Adviser will pay between 20% of the Premium, equal to
between $[4,460]. As between the Series, each Series shall pay a
portion of the premium due under the Policy derived by multiplying the premium
by a fraction, (i) the denominator of which is the total net assets of all
the Series combined and (ii) the numerator of which is the total net assets
of each of the Series individually (“Series Allocation Fraction”). Each of the
Insureds agrees that the appropriateness of the allocation of the Premium will
be determined no less often than annually. No adjustment of the
allocation of the Premium will be implemented without approval of the Board
of
Directors.
2.
Allocation of Recoveries.
(a)
If more than one Insured is damaged in a single loss for which recovery is
received under the Policy, each such Insured shall receive that portion of
the
recovery which represents the loss sustained by that Insured, unless the
recovery is inadequate to fully indemnify each Insured sustaining a
loss.
(b)
If the recovery is inadequate to fully indemnify each Insured sustaining a
loss,
the recovery shall be allocated among the Insureds as follows:
The
proceeds shall be allocated to each Insured sustaining a loss not fully covered
by the allocation under subparagraph (i) in the proportion that such
Insured’s last payment of premium bears to the sum of the last such premium
payments of all Insureds; provided, that as between the Series, the Series
shall
receive proceeds due under the Policy derived by multiplying the proceeds due
to
the Series in aggregate by the Series Allocation Fraction. If such
allocation would result in any Insured which had sustained a loss receiving
a
portion of the recovery in excess of the loss actually sustained, such excess
portion shall be allocated among the Insureds whose losses would not be fully
indemnified. The allocation shall bear the same proportion as each
such Insured’s last payment of premium bears to the sum of the last premium
payments of all Insureds entitled to receive a share of the excess; provided,
that as between the Series, the Series shall receive proceeds due under the
Policy derived by multiplying the proceeds due to the Series in aggregate by
the
Series Allocation Fraction.. Any allocation in excess of a loss
actually sustained by any such Insured shall be reallocated in the same
manner.
3.
Continuation and Termination. This Agreement shall become effective on
the date first written above, subject to the condition that the Board of
Directors, including a majority of those Directors who are not “interested
persons” of the Fund (as such term is defined in the 1940 Act), shall have
approved this Agreement. This Agreement shall supersede all prior
agreements relating to an allocation of premium on any joint insured policy
and
shall apply to the present liability policy coverage and any renewal or
replacement thereof. It shall continue until terminated by any
Insured upon the giving of not less than sixty (60) days notice to the
other Insureds in writing.
4.
Amendments. No provision of this Agreement may be changed, waived,
discharged or terminated orally, but only by an instrument in writing signed
by
the Insured against which enforcement of the change, waiver, discharge or
termination is sought. A written amendment of this Agreement is
effective upon the approval of the Board of Directors.
[Signature
Page Follows]
IN
WITNESS WHEREOF, the parties hereto have caused these presents to be duly
executed by their duly authorized officers as of the date first above
written.
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Prospector
Capital Appreciation Fund
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By:
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Name:
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Title:
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Prospector
Opportunity Fund
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By:
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Name:
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Title:
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Prospector
Partners Asset Management, LLC
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By:
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Name:
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Title:
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SK
02081 0009 805625
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