PROSPECTOR FUNDS, INC. INVESTMENT ADVISORY AGREEMENT
AGREEMENT made as of the
19th
day of September, 2007, by and between PROSPECTOR FUNDS, INC., a Maryland
corporation, with its principal office and place of business at 000 Xxxxxx
Xxxxxx, Xxxxxxxx, Xxxxxxxxxxx 00000 (the “Fund”), including any series thereof
as set forth on Schedule A (each, a "Series" and collectively, the "Series") and
Prospector Partners Asset Management, LLC, a Delaware limited liability company,
with its principal office and place of business at 000 Xxxxxx Xxxxxx, Xxxxxxxx,
Xxxxxxxxxxx 00000 (the “Adviser”).
WHEREAS, the Fund is
registered under the Investment Company Act of 1940, as amended (the “1940
Act”), as an open-end, management investment company and may issue its shares of
beneficial interest, $0.001 par value (the “Shares”); and
WHEREAS, each Series desires
that the Adviser perform investment advisory services for such Series, and the
Adviser is willing to provide those services on the terms and conditions set
forth in this Agreement;
NOW THEREFORE, for and in
consideration of the mutual covenants and agreements contained herein, the Fund
and the Adviser hereby agree as follows:
SECTION 1. APPOINTMENT; DELIVERY OF
DOCUMENTS
(a) Each
Series hereby employs the Adviser, subject to the direction and control of the
board of directors of the Fund (the “Board”), to manage the investment and
reinvestment of the assets in such Series and, without limiting the generality
of the foregoing, to provide other services as specified herein. The
Adviser accepts this employment and agrees to render its services for the
compensation set forth herein.
(b) In
connection therewith, the Fund has delivered to the Adviser copies of: (i) the
Fund’s Articles of Incorporation and By-Laws, each as amended from time to time
(the “Organizational Documents”); (ii) the Fund’s Registration Statement and all
amendments thereto filed with the U.S. Securities and Exchange Commission
(“SEC”) pursuant to the Securities Act of 1933, as amended (the “Securities
Act”), or the 1940 Act (the “Registration Statement”); (iii) the Fund’s
current Prospectuses and Statements of Additional Information (collectively, as
currently in effect and as amended or supplemented, the “Prospectus”); and
(iv) all procedures adopted by the Fund, and shall promptly furnish the
Adviser with all amendments of or supplements to the foregoing. The
Fund shall deliver to the Adviser any other documents, materials or information
that the Adviser shall reasonably request to enable it to perform its duties
pursuant to this Agreement.
(c) The
Adviser has delivered, or will deliver to the Fund a copy of its code of ethics
complying with the requirements of Rule 17j-1 under the 1940 Act
(the “Code”). The Adviser shall promptly furnish the Fund with
all amendments of or supplements to the foregoing at least
annually.
SECTION
2. DUTIES OF THE FUND
In order
for the Adviser to perform the services required by this Agreement, the Fund:
(i) shall cause all service providers to the Fund to furnish information to the
Adviser and to assist the Adviser as may be required; and (ii) shall ensure that
the Adviser has reasonable access to all records and documents maintained by the
Fund or any service provider to the Fund.
SECTION
3. DUTIES OF THE ADVISER
(a) The
Adviser will make decisions with respect to all purchases and sales of
securities and other investment assets for the Series. To carry out
such decisions, the Adviser is hereby authorized, as agent and attorney-in-fact
for each Series, for the account of, at the risk of and in the name of each
Series, to place orders and issue instructions with respect to those
transactions. In all purchases, sales and other transactions in
securities and other investments for the Series, the Adviser is authorized to
exercise full discretion and act for each Series in the same manner and with the
same force and effect as the Series might or could do with respect to such
purchases, sales or other transactions, as well as with respect to all other
things necessary or incidental to the furtherance or conduct of such purchases,
sales or other transactions.
Consistent
with Section 28(e) of the Securities Exchange Act of 1934, as amended, the
Adviser may allocate brokerage on behalf of the Series to broker-dealers who
provide research services. The Adviser may aggregate sales and
purchase orders of the assets of the Series with similar orders being made
simultaneously for other accounts advised by the Adviser or its
affiliates. Whenever the Adviser simultaneously places orders to
purchase or sell the same asset on behalf of the Series and one or more other
accounts advised by the Adviser, the orders will be allocated as to price and
amount among all such accounts in a manner believed to be equitable over time to
each account.
(b) The
Adviser will report to the Board at each meeting thereof as requested by the
Board all material changes in the Fund since the prior report, and will also
keep the Board informed of important developments affecting the Fund and the
Adviser, and on its own initiative, will furnish the Board from time to time
with such information as the Adviser may believe appropriate for this purpose,
whether concerning the individual companies whose securities are included in the
Series’ holdings, the industries in which they engage, the economic, social or
political conditions prevailing in each country in which the Series maintain
investments, or otherwise. The Adviser will also furnish the Board
with such statistical and analytical information with respect to investments of
the Series as the Adviser may believe appropriate or as the Board reasonably may
request. In making purchases and sales of securities and other
investment assets for the Series, the Adviser will bear in mind the policies set
from time to time by the Board as well as the limitations imposed by the Fund’s
Organizational Documents and Registration Statement, the limitations in the 1940
Act, the Securities Act, the Internal Revenue Code of 1986, as amended, and
other applicable laws and the investment objectives, policies and restrictions
of the Series.
(c) The
Adviser will from time to time employ or associate with such persons as the
Adviser believes to be particularly fitted to assist in the execution of the
Adviser’s duties hereunder, the cost of performance of such duties to be borne
and paid by the Adviser. No obligation may be incurred on the Fund’s
behalf in any such respect.
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(d) The
Adviser will report to the Board all material matters related to the
Adviser. On an annual basis, the Adviser shall report on its
compliance with its Code to the Board and upon the written request of the Fund,
the Adviser shall permit the Fund, or its representatives to examine the reports
required to be made to the Adviser under the Code. The Adviser will
notify the Fund of any change of control of the Adviser and any changes in the
key personnel who are either the portfolio manager(s) of the Series or senior
management of the Adviser, in each case prior to or promptly after such
change.
(e) The
Adviser will maintain records relating to its portfolio transactions and placing
and allocation of brokerage orders as are required to be maintained by the Fund
under the 1940 Act. The Adviser shall prepare and maintain, or cause
to be prepared and maintained, in such form, for such periods and in such
locations as may be required by applicable law, all documents and records
relating to the services provided by the Adviser pursuant to this Agreement
required to be prepared and maintained by the Adviser or the Fund pursuant to
applicable law. To the extent required by law, the books and records
pertaining to the Fund which are in possession of the Adviser shall be the
property of the Fund. The Fund, or its representatives, shall have
access to such books and records at all times during the Adviser's normal
business hours. Upon the reasonable request of the Fund, copies of
any such books and records shall be provided promptly by the Adviser to the Fund
or its representatives.
(f) The
Adviser will cooperate with the Fund’s independent public accountants and shall
take reasonable action to make all necessary information available to those
accountants for the performance of the accountants’ duties.
(g) The
Adviser will provide the Fund’s custodian and fund accountant on each business
day with such information relating to all transactions concerning the Series’
assets as the custodian and fund accountant may reasonably
require. In accordance with procedures adopted by the Board, the
Adviser is responsible for assisting in the fair valuation of all Series assets
and will use its reasonable efforts to arrange for the provision of prices from
parties who are not affiliated persons of the Adviser for each asset for which
the fund accountant does not obtain prices in the ordinary course of
business.
(h) The
Adviser shall authorize and permit any of its directors, officers and employees
who may be duly elected as Directors or officers of the Fund to serve in the
capacities in which they are elected.
(i) Subject
to written instructions from the Series, the Adviser is hereby appointed the
Series’ agent and attorney-in-fact in its discretion to vote, convert or tender
in an exchange or tender offer any securities in the Series’ portfolio, to
execute proxies, waivers, consents and other instruments with respect to such
securities, to endorse, transfer or deliver such securities and to participate
in or consent to any plan of reorganization, merger, combination, consolidation,
liquidation or similar plan with reference to such securities
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SECTION
4. COMPENSATION; EXPENSES
(a) In
consideration of the foregoing, the Fund shall pay the Adviser, with respect to
each Series, a fee at an annualized rate equal to a percentage of the aggregate
average daily net assets of such Series as set forth in Schedule B attached
hereto and made a part hereof. Such fees shall be accrued by the
Series daily and shall be payable monthly in arrears on the first day of each
calendar month for services performed hereunder during the prior calendar
month. If fees begin to accrue in the middle of a month or if this
Agreement terminates before the end of any month, all fees for the period from
that date to the end of that calendar month or from the beginning of that month
to the date of termination, as the case may be, shall be prorated according to
the proportion that the period bears to the full month in which the
effectiveness or termination occurs. Upon the termination of this
Agreement, the Fund, on behalf of the Series shall pay to the Adviser such
compensation as shall be payable prior to the effective date of
termination.
(b) The
Fund shall be responsible for and assumes the obligation for payment of all of
its expenses, including: (i) the fee payable under this Agreement; (ii) the fees
payable to the administrator under an agreement between the administrator and
the Fund; (iii) expenses of issue, repurchase and redemption of Shares; (iv)
interest charges, taxes and brokerage fees and commissions; (v) premiums of
insurance for the Fund, its Directors and officers, and fidelity bond premiums;
(vi) fees and expenses of third parties, including the Fund’s independent public
accountant, custodian, transfer agent, dividend disbursing agent and fund
accountant; (vii) fees of pricing, interest, dividend, credit and other
reporting services; (viii) costs of membership in trade associations; (ix)
telecommunications expenses; (x) funds’ transmission expenses; (xi) auditing,
legal and compliance expenses; (xii) costs of forming the Fund and maintaining
its existence; (xiii) costs of preparing, filing and printing the Fund’s
Prospectuses, subscription application forms and shareholder reports and other
communications and delivering them to existing shareholders, whether of record
or beneficial; (xiv) expenses of meetings of shareholders and proxy
solicitations therefor; (xv) costs of maintaining books of original entry for
portfolio and fund accounting and other required books and accounts, of
calculating the net asset value of Shares and of preparing tax returns; (xvi)
costs of reproduction, stationery, supplies and postage; (xvii) fees and
expenses of the Fund’s Directors and officers; (xviii) the costs of personnel
(who may be employees of the Adviser, an administrator or their respective
affiliated persons) performing services for the Fund; (xix) costs of Board,
Board committee, shareholder and other corporate meetings; (xx) SEC registration
fees and related expenses; (xxi) state, territory or foreign securities laws
registration fees and related expenses; and (xxii) all fees and expenses paid by
the Fund in accordance with any distribution or service plan or agreement
related to similar matters.
SECTION
5. STANDARD OF CARE
(a) The
Fund shall expect of the Adviser, and the Adviser will give the Fund the benefit
of, the Adviser’s best judgment and efforts in rendering its services to the
Series. The Adviser shall not be liable hereunder for mistake of
judgment or mistake of law or in any event whatsoever, except for lack of good
faith, provided that nothing herein shall be deemed to protect, or purport to
protect, the Adviser against any liability to the Fund, including the Series or
to the Fund’s shareholders to which the Adviser would otherwise be subject by
reason of willful misfeasance, bad faith or gross negligence in the performance
of the Adviser’s duties hereunder, or by reason of the Adviser’s reckless
disregard of its obligations and duties hereunder.
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(b) The
Adviser shall not be responsible or liable for any failure or delay in
performance of its obligations under this Agreement arising out of or caused,
directly or indirectly, by circumstances beyond its reasonable control
including, without limitation, acts of civil or military authority, national
emergencies, labor difficulties (other than those related to the Adviser’s
employees), fire, mechanical breakdowns, flood or catastrophe, acts of God,
insurrection, war, riots or failure of the mails, transportation, communication
or power supply.
SECTION
6. EFFECTIVENESS, DURATION AND TERMINATION
(a) This
Agreement shall become effective on the date above after approval by (1) a
majority of the outstanding voting securities of the Fund and (2) a majority of
the Board who are not interested parties of the Fund and (3) after the Fund is
declared effective by the SEC.
(b) This
Agreement shall remain in effect for a period of two years from the date of its
effectiveness and shall continue in effect for successive annual periods;
provided that such continuance is specifically approved at least annually: (i)
by the Board or by the vote of a majority of the outstanding voting securities
of the Fund, and, in either case; (ii) by a majority of the Fund’s Directors who
are not parties to this Agreement or interested persons of any such party (other
than as Directors of the Fund); provided further, however, that if the
continuation of this Agreement is not approved, the Adviser may continue to
render the services described herein in the manner and to the extent permitted
by the 1940 Act and the rules and regulations thereunder.
(c) This
Agreement may be terminated at any time, without the payment of any penalty: (i)
by the Board or by a vote of a majority of the outstanding voting securities of
the Fund on 60 days’ written notice to the Adviser; or (ii) by the Adviser upon
60 days’ written notice to the Fund. This Agreement shall terminate
immediately upon its assignment.
SECTION
7. ACTIVITIES OF THE ADVISER
Except to
the extent necessary to perform its obligations hereunder, nothing herein shall
be deemed to limit or restrict the Adviser’s right, or the right of any of the
Adviser’s directors, officers or employees to engage in any other business or to
devote time and attention to the management or other aspects of any other
business, whether of a similar or dissimilar nature, or to render services of
any kind to any other corporation, trust, firm, individual or
association. It is understood that the Adviser acts as investment
adviser to other clients and may give advice and take action with respect to
such clients that differs from the advice given or the action taken with respect
to the Series. The
Adviser may give advice and take action with respect to any of the other client
account it manages, or for its own account, that may differ from action taken by
the Adviser on behalf of a Series. Similarly, with respect to the
Series, the Adviser is not obligated to recommend, buy or sell, or to refrain
from recommending, buying or selling any security that the Adviser and access
persons, as defined by applicable federal securities laws, may buy or sell for
its or their own account or for other client accounts. The Adviser is
not obligated to refrain from investing in securities held by a Series or other
client accounts it manages.
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Notwithstanding
the foregoing, the Adviser has adopted a code of ethics, as required by federal
securities laws. Under the code of ethics, employees who are
designated as access persons may engage in personal securities transactions, but
are restricted from purchasing securities that are being considered for the
Series or that are currently held by the Series. The personal
securities transactions of access persons of the Series and the Adviser will be
governed by the code of ethics.
SECTION 8. REPRESENTATIONS
OF ADVISER.
The
Adviser represents and warrants that: (i) it is either registered as an
investment adviser under the Investment Advisers Act of 1940, as amended
(“Advisers Act”) (and will continue to be so registered for so long as this
Agreement remains in effect) or exempt from registration under the Advisers Act;
(ii) is not prohibited by the 1940 Act or the Advisers Act from performing the
services contemplated by this Agreement; (iii) has met, and will seek to
continue to meet for so long as this Agreement remains in effect, any other
applicable federal or state requirements, or the applicable requirements of any
self-regulatory agency, necessary to be met in order to perform the services
contemplated by this Agreement; and (iv) will promptly notify the Fund of the
occurrence of any event that would disqualify the Adviser from serving as an
investment adviser of an investment company pursuant to Section 9(a) of the 1940
Act or otherwise.
SECTION
10. LIMITATION OF SHAREHOLDER AND DIRECTOR LIABILITY
The
Directors of the Fund and the shareholders of the Fund shall not be liable for
any obligations of the Fund under this Agreement, and the Adviser agrees that,
in asserting any rights or claims under this Agreement, it shall look only to
the assets and property of the Fund to which the Adviser’s rights or claims
relate in settlement of such rights or claims, and not to the Directors or
shareholders of the Fund.
SECTION
11. RIGHTS TO NAME
If the
Adviser ceases to act as investment adviser to the Fund or the Series whose name
includes the term “Prospector” (the “Xxxx”) or if the Adviser requests in
writing, the Fund and/or the Series shall take prompt action to change the name
of the Fund and/or Series to a name that does not include the
Xxxx. The Adviser may from time to time make available without charge
to the Fund or Series for the Fund’s or Series’ use any marks or symbols owned
by the Adviser, including marks or symbols containing the Xxxx or any variation
thereof, as the Adviser deems appropriate. Upon the Adviser’s request
in writing, the Fund and/or Series shall cease to use any such xxxx or symbol at
any time. The Fund, including the Series acknowledges that any rights
in or to the Xxxx and any such marks or symbols which may exist on the date of
this Agreement or arise hereafter are, and under any and all circumstances shall
continue to be, the sole property of the Adviser. The Adviser may
permit other parties, including other investment companies, to use the Xxxx in
their names without the consent of the Fund. The Fund, including each
Series shall not use the Xxxx in conducting any business other than that of an
investment company registered under the 1940 Act without the permission of the
Adviser.
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SECTION
12. MISCELLANEOUS
(a) No
provisions of this Agreement may be amended or modified in any manner except by
a written agreement properly authorized and executed by both parties hereto and,
if required by the 1940 Act, by a vote of a majority of the outstanding voting
securities of the Fund.
(b) Neither
party to this Agreement shall be liable to the other party for consequential
damages under any provision of this Agreement.
(c) This
Agreement constitutes the entire agreement between the parties hereto and
supersedes any prior agreement between those parties with respect to the subject
matter hereof, whether oral or written.
(d) This
Agreement may be executed by the parties hereto on any number of counterparts,
and all of the counterparts taken together shall be deemed to constitute one and
the same instrument.
(e) If
any part, term or provision of this Agreement is held to be illegal, in conflict
with any law or otherwise invalid, the remaining portion or portions shall be
considered severable and not be affected, and the rights and obligations of the
parties shall be construed and enforced as if the Agreement did not contain the
particular part, term or provision held to be illegal or invalid.
(f) Section
headings in this Agreement are included for convenience only and are not to be
used to construe or interpret this Agreement.
(g) Notices,
requests, instructions and communications received by the parties at their
respective principal places of business, or at such other address as a party may
have designated in writing, shall be deemed to have been properly
given.
(h) No
affiliated person, employee, agent, director, officer or manager of the Adviser
shall be liable at law or in equity for the Adviser’s obligations under this
Agreement.
(i) The
terms “vote of a majority of the outstanding voting securities”, “interested
person”, “affiliated person,” “control” and “assignment” shall have the meanings
ascribed thereto in the 1940 Act.
(j) Each
of the undersigned warrants and represents that they have full power and
authority to sign this Agreement on behalf of the party indicated and that their
signature will bind the party indicated to the terms hereof and each party
hereto warrants and represents that this Agreement, when executed and delivered,
will constitute a legal, valid and binding obligation of the party, enforceable
against the party in accordance with its terms, subject to bankruptcy,
insolvency, reorganization, moratorium and other laws of general application
affecting the rights and remedies of creditors and secured parties.
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(k) To
the extent that the interpretation or effect of this Agreement shall depend on
state law, this Agreement shall be governed by and construed in accordance with
the laws of the State of Connecticut.
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IN
WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
executed all as of the day and year first above written.
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By:/s/ Xxxxx X. Xxxxxxxx,
Xx.
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Name:
Xxxxx X. Xxxxxxxx, Xx.
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Title Treasurer
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PROSPECTOR
PARTNERS ASSET MANAGEMENT, LLC
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By:
/s/ Xxxx X.
Xxxxxxxxx
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Name:
Xxxx X. Xxxxxxxxx
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Title:
Managing Member
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9
Schedule
A
The
Series
Prospector
Capital Appreciation Fund
Prospector
Opportunity Fund
Schedule
B
Appendix
1
Compensation:
The
Prospector Capital Appreciation Fund will pay the Adviser a fee at an annualized
rate equal to 1.1% of the aggregate average daily net assets of the
Series
…..
11
Schedule
A
Appendix
2
Compensation:
The
Prospector Opportunity Fund will pay the Adviser a fee at an annualized rate
equal to 1.1% of the aggregate average daily net assets of the
Series
…..
SK 02081
0009 805500 v3
