UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14C
SCHEDULE 14C INFORMATION
INFORMATION STATEMENT PURSUANT TO SECTION 14(C) OF THE SECURITIES
EXCHANGE ACT OF 1934 (Amendment No. )
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The KP Funds
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THE KP FUNDS
KP SMALL CAP EQUITY FUND
IMPORTANT NOTICE REGARDING INTERNET AVAILABILITY OF INFORMATION
STATEMENT
THE INFORMATION STATEMENT IS AVAILABLE AT
HTTP://WWW.KP-FUNDS.COM/DOWNLOAD
June 11, 2015
As a shareholder of the KP Small Cap Equity Fund (the "Fund"), a series of The
KP Funds (the "Trust"), you are receiving this notice regarding the internet
availability of an information statement (the "Information Statement") relating
to the hiring of Aristotle Capital Boston, LLC ("Aristotle Boston") and PENN
Capital Management Company, Inc. ("PENN Capital") as sub-advisers to the Fund.
This notice presents only an overview of the more complete Information
Statement. We encourage you to review all of the important information
contained in the Information Statement. The Information Statement is for
informational purposes only and, as a shareholder of the Fund, you need not
take any action.
SUMMARY OF INFORMATION STATEMENT
As discussed in greater detail in the Information Statement, at a meeting held
on February 9, 2015, the Board of Trustees of the Trust (the "Board") approved
(1) an investment sub-advisory agreement between Callan Associates Inc.
("Callan"), the investment adviser to the Fund, and Aristotle Boston, pursuant
to which Aristotle Boston serves as investment sub-adviser to the Fund; and (2)
an investment sub-advisory agreement between Callan and PENN Capital, pursuant
to which PENN Capital serves as investment sub-adviser to the Fund. The
appointment of Aristotle Boston and PENN Capital became effective on March 31,
2015 when each began managing assets of the Fund.
The U.S. Securities and Exchange Commission has issued an exemptive order that
permits Callan to enter into and materially amend sub-advisory agreements with
the approval of the Board, but WITHOUT obtaining shareholder approval. A
condition of this order requires Callan to furnish shareholders with
information about the sub-advisers and the sub-advisory agreements.
Accordingly, the purpose of the Information Statement is to furnish
shareholders with detailed information about Aristotle Boston, PENN Capital and
each new sub-advisory agreement.
The Information Statement will be available on the website until at least
September 16, 2015. To view and print the Information Statement, click on the
link of the Information Statement in order to open the document. A paper or
email copy of the Information Statement is available, free of charge, by
contacting the Fund by telephone at 1-855-457-3637 or by mail at: The KP Funds,
c/o SEI Investments, One Freedom Valley Drive, Oaks, Pennsylvania 19456 until
September 16, 2015. If you do not request a paper copy or PDF of the Information
Statement via email by this date, you will not otherwise receive a paper or
email copy. The Fund's most recent annual report and semiannual reports are
available upon request, without charge, by contacting your financial
intermediary, writing to the Fund c/o SEI Investments, One Freedom Valley Drive,
Oaks, Pennsylvania 19456 or calling 1-855-457-3637.
THE KP FUNDS
KP SMALL CAP EQUITY FUND
INFORMATION STATEMENT
JUNE 11, 2015
This information statement (the "Information Statement") is being made
available to the shareholders of the KP Small Cap Equity Fund (the "Fund"), a
series of The KP Funds (the "Trust"). This Information Statement relates to the
approval by the Board of Trustees of the Trust (the "Board") of (1) an
investment sub-advisory agreement between Callan Associates Inc. ("Callan"),
the investment adviser to the Fund, and Aristotle Capital Boston, LLC
("Aristotle Boston"), pursuant to which Aristotle Boston serves as investment
sub-adviser to the Fund (the "Aristotle Boston Sub-Advisory Agreement"); and
(2) an investment sub-advisory agreement between Callan and PENN Capital
Management Company, Inc. ("PENN Capital" and, together with Aristotle Boston,
the "Sub-Advisers"), pursuant to which PENN Capital serves as investment
sub-adviser to the Fund (the "PENN Capital Sub-Advisory Agreement" and,
together with the Aristotle Boston Sub-Advisory Agreement, the "New
Sub-Advisory Agreements").
The U.S. Securities and Exchange Commission (the "SEC") has issued an exemptive
order that permits Callan to enter into and materially amend sub-advisory
agreements with the approval of the Board, but WITHOUT obtaining shareholder
approval. A condition of this order requires Callan to furnish shareholders
with information about Aristotle Boston, PENN Capital and the New Sub-Advisory
Agreements.
THIS IS NOT A PROXY STATEMENT. WE ARE NOT ASKING YOU FOR A PROXY AND YOU ARE
REQUESTED NOT TO SEND US A PROXY.
INTRODUCTION
Callan is the Fund's investment adviser. Pursuant to the terms of an exemptive
order granted to Callan by the SEC on October 21, 2013 (the "Exemptive Order"),
Callan employs a so-called "manager of managers" arrangement in managing the
Fund. Section 15(a) of the Investment Company Act of 1940 (the "1940 Act")
generally requires that a fund's shareholders approve all agreements pursuant
to which persons serve as investment adviser or sub-adviser to a fund. The
Exemptive Order exempts Callan and the Trust from the shareholder voting
requirements of Section 15(a) of the 1940 Act and allows Callan, subject to
Board approval and certain other conditions, to enter into and materially amend
sub-advisory agreements on behalf of the Fund without a shareholder vote.
As described in more detail below, at its Board meeting held on February 9,
2015 (the "Meeting"), the Board approved (1) the appointment of Aristotle
Boston as an investment sub-adviser to the Fund and the Aristotle Boston
Sub-Advisory Agreement; and (2) the appointment of PENN Capital as investment
sub-adviser to the Fund and the PENN Capital Sub-Advisory Agreement. The
appointment of Aristotle Boston and PENN Capital became effective on March 31,
2015 when each began managing assets of the Fund. Before the appointment of
Aristotle Boston and PENN Capital, the Fund had four investment sub-advisers
who managed active strategies for the Fund ("active management sub-advisers"),
with 80% of the Fund's assets under management equally divided among these
active management sub-advisers. Additionally, 20% of the Fund's assets under
management were passively managed by a different sub-adviser. With the
appointment of Aristotle Boston and PENN Capital as additional active
management sub-advisers, 80% of the Fund's assets under management are still
equally weighted among active management sub-advisers, with each of the six
active management sub-advisers, including both Aristotle Boston and PENN
Capital, managing 13.33% of the Fund's assets under management. The remaining
20% of the Fund's assets under management will continue to be passively
managed. Callan may reallocate the Fund's assets among the sub-advisers in its
discretion.
Callan requested that the Board appoint Aristotle Boston and PENN Capital as
sub-advisers because Callan believes that their investment strategies will
further diversify the Fund's holdings by providing additional exposure to small
cap and micro cap core securities. Callan believes that this additional
diversification has the potential to result in a better risk/return profile for
the Fund.
The appointment of Aristotle Boston and PENN Capital as sub-advisers to the
Fund is not expected to result in an increase to the Fund's expenses because
the sub-advisory fee rates set forth in the New Sub-Advisory Agreements are no
higher than the sub-advisory fee rates set forth in the other active management
sub-advisers' sub-advisory agreements. If Callan determines to hire new
sub-advisers or reallocate the Fund's assets in the future, the Fund's expenses
may increase.
THE BOARD'S CONSIDERATIONS IN APPROVING THE NEW SUB-ADVISORY AGREEMENTS
At the Meeting, the Board, including a majority of the trustees who are not
parties to either Sub-Advisory Agreement nor are considered "interested
persons" (as such term is defined in the 1940 Act) of any party to either
Sub-Advisory Agreement (the "Independent Trustees"), voting separately,
unanimously approved the New Sub-Advisory Agreements. When considering the
approval of the New Sub-Advisory Agreements, the Board reviewed materials
furnished by Callan and the Sub-Advisers and considered the Board's fiduciary
obligations and the standards to be used by the Board in reaching its decision.
In considering whether to approve the Sub-Advisory Agreements, the Board
considered and discussed information and analysis provided by Callan and the
Sub-Advisers. Callan also explained the specific reasons for its
recommendation to hire each Sub-Adviser, which are described above.
In preparation for the Meeting, the Board requested and received written
materials from each Sub-Adviser and Callan that addressed, among other things:
(i) the nature, extent and quality of the services to be provided by the
Sub-Advisers; (ii) past investment performance and (iii) the costs of the
services to be provided by the Sub-Advisers, as discussed in further detail
below.
In addition, at the Meeting, Callan and each Sub-Adviser presented additional
information to the Board to help the Board evaluate the quality and costs of
each Sub-Adviser's proposed investment sub-advisory services. Among other
things, each Sub-Adviser's representatives provided an overview of the
Sub-Adviser, including its history, ownership structure, assets under
management, investment management team and experience, investment philosophy,
and approach to risk management. Each Sub-Adviser's representatives also
discussed the investment strategy and process that it would use in managing the
Fund's assets allocated to it, describing the Sub-Adviser's approach to and
criteria for security selection.
NATURE, EXTENT, AND QUALITY OF SERVICES
In considering the nature, extent and quality of the services to be provided to
the Fund by each Sub-Adviser, the Board reviewed the portfolio management
services to be provided by each Sub-Adviser. Among other things, the Board
considered the quality of each Sub-Adviser's portfolio management personnel.
Each Sub-Adviser's registration form ("Form ADV") was provided to the Board, as
was the response of each Sub-Adviser to a detailed series of questions which
included, among other things, information about the background and experience
of the portfolio managers primarily responsible for the day-to-day management
of the Fund.
The Trustees also considered other services to be provided to the Fund by each
Sub-Adviser, such as selecting broker-dealers for executing portfolio
transactions and monitoring compliance with various Fund policies and
procedures and with applicable securities regulations. Based on the factors
above, as well as those discussed below, the Board concluded that it was
satisfied with the nature, extent and quality of the services to be provided to
the Fund by each Sub-Adviser.
INVESTMENT PERFORMANCE
At the Meeting, the Board reviewed the performance of accounts managed by
Aristotle Boston's portfolio managers that have similar strategies as these
portfolio managers would use in managing the Fund's assets
2
allocated to Aristotle Boston. At the Meeting, the Board reviewed the
performance of accounts managed by PENN Capital that have similar strategies as
PENN Capital would use in managing the Fund's assets allocated to it. The
Board, using written materials provided prior to the Meeting, considered the
performance as compared to the Sub-Advisers' benchmark indices for various
trailing periods.
Following evaluation, the Board concluded, within the context of its full
deliberations, that the historical investment performance of each Sub-Adviser
and its investment management personnel, considering both recent and any
long-term performance, supported approval of the proposed New Sub-Advisory
Agreements.
COSTS OF SUB-ADVISORY SERVICES, PROFITABILITY AND ECONOMIES OF SCALE
In concluding that the advisory fees payable by the Fund to each Sub-Adviser
were reasonable, the Trustees reviewed the proposed fees to be paid by the Fund
to each Sub-Adviser. The Trustees also reviewed reports illustrating the
expected total expenses of the Fund and the sub-advisory fees to be paid by the
Fund with respect to each New Sub-Advisory Agreement and noted that the Fund's
total expenses were not expected to change in connection with the appointment
of the Sub-Advisers relative to the Fund's current expenses. The Trustees
further reviewed comparisons of Aristotle Boston's and PENN Capital's proposed
sub-advisory fees relative to other managers using similar investment
strategies. The Board concluded that the sub-advisory fees to be paid to each
Sub-Adviser were the result of arm's length negotiations and appeared
reasonable in light of the services to be rendered. Because the Sub-Advisers
are new to the Fund and had not managed Fund assets, it was not possible for
the Board to determine the profitability that the Sub-Advisers might achieve
with respect to the Fund or the extent to which economies of scale would be
realized by the Sub-Advisers as the assets of the Fund grow.
CONCLUSION
While formal Board action was not taken with respect to the conclusions
discussed above, those conclusions formed, in part, the basis for the Board's
approval of each New Sub-Advisory Agreement at the Meeting. The Board
concluded, in the exercise of its reasonable judgment, that the terms of each
New Sub-Advisory Agreement, including the compensation to be paid thereunder,
are reasonable in relation to the services expected to be provided by each
Sub-Adviser to the Fund and that the appointment of each Sub-Adviser and the
approval of each New Sub-Advisory Agreement would be in the best interest of
the Fund and its shareholders. Based on the Board's deliberations and its
evaluation of the information described above and other factors and information
it believed relevant, the Board, including all of the Independent Trustees,
unanimously approved (a) the appointment of the Sub-Advisers as sub-advisers to
the Fund, and (b) the New Sub-Advisory Agreements.
In evaluating the background and conclusions discussed above, shareholders
should consider:
o In reaching its determination regarding the approval of the New
Sub-Advisory Agreements, the Board, including all of the Independent
Trustees, considered the factors, conclusions and information it
believed relevant in the exercise of its reasonable judgment,
including, but not limited to, the factors, conclusions and
information discussed above; and
o In their deliberations, the Board members did not identify any
particular factor (or conclusion with respect thereto) or information
that was all important or controlling, and each Board member may have
attributed different weights to the various factors (and conclusions
with respect thereto) and information.
DESCRIPTION OF THE MATERIAL TERMS OF THE NEW SUB-ADVISORY AGREEMENTS
The New Sub-Advisory Agreements are included as exhibits to this Information
Statement. The terms of the New Sub-Advisory Agreements are the same in all
material respects unless otherwise noted below.
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Set forth below is a summary of all material terms of the New Sub-Advisory
Agreements. Although the summary below is qualified in its entirety by
reference to the Aristotle Boston Sub-Advisory Agreement included as Exhibit A
and the PENN Capital Sub-Advisory Agreement included as Exhibit B, shareholders
should still read the summary below carefully.
o INVESTMENT ADVISORY SERVICES
Each Sub-Adviser is responsible for providing the following investment advisory
services to the Fund under its New Sub-Advisory Agreement: (i) regularly
providing the Fund with investment research, advice and supervision; (ii)
continuously furnishing an investment program for the portion of the Fund's
assets allocated to it by Callan; (iii) deciding what securities and other
assets of the Fund will be purchased, retained or sold with respect to the
portion of the Fund's assets entrusted to it; (iv) arranging for the purchase
and the sale of securities and other assets held by the Fund by placing
purchase and sale orders with brokers or dealers selected by the Sub-Adviser;
(v) in its selection of brokers or dealers and the placing of orders, seeking
the most favorable execution and net price available under the circumstances;
and (vi) providing Callan or the Board with periodic reports concerning the
obligations the Sub-Adviser has assumed under its New Sub-Advisory Agreement as
Callan or the Board may reasonably request. All services provided by a
Sub-Adviser under its New Sub-Advisory Agreement are required to be performed
in accordance with the Fund's registration statement, compliance policies and
procedures, and governing documents, the instructions and directions of Callan
and of the Board, and the requirements of the 1940 Act and other applicable
laws.
o INDEMNIFICATION
Each Sub-Adviser has an obligation to indemnify and hold harmless the Trust,
each affiliated person of the Trust as defined in the 1940 Act, and each person
who controls the Trust as defined in the Securities Act of 1933, as amended
(each an "Indemnified Party"), against any and all losses, claims, damages,
expenses or liabilities (including reasonable counsel fees and other related
expenses) arising out of or based upon: (i) a breach by the Sub-Adviser of its
New Sub-Advisory Agreement or of the representations and warranties made by the
Sub-Adviser in its New Sub-Advisory Agreement; (ii) any loss (including
transaction costs) incurred by the Fund as a result of any investment made by
the Sub-Adviser in contravention of: (a) any investment policy, guideline or
restriction set forth in the Fund's registration statement or as approved by
the Board from time to time and provided to the Sub-Adviser; or (b) applicable
law, including but not limited to the 1940 Act and the Internal Revenue Code of
1986, as amended; (iii) any untrue statement or alleged untrue statement of a
material fact applicable to the Sub-Adviser contained in any of the Fund's
registration statement, summary prospectus, prospectus, statement of additional
information, periodic reports to shareholders, reports and schedules filed with
the SEC (including any amendment, supplement or sticker to any of the
foregoing) and advertising and sales material relating to the Fund
(collectively, "Disclosure Documents"), or the omission or alleged omission
from a Disclosure Document of a material fact applicable to the Sub-Adviser
required to be stated therein or necessary to make the statements therein not
misleading; or (iv) the Sub-Adviser's performance or non-performance of its
duties under the New Sub-Advisory Agreement; provided, however, that nothing
shall be deemed to protect any Indemnified Party (with respect to Aristotle
Boston who is a Trustee or officer of the Trust) against any ability to which
such Indemnified Party would otherwise be subject under the New Sub-Advisory
Agreement or by reason of willful misfeasance, bad faith, gross negligence or
reckless disregard of the duties involved in the conduct of such person's
office with the Trust, or with respect to PENN Capital, violation of applicable
law.
o MAINTENANCE OF BOOKS AND RECORDS
Under each New Sub-Advisory Agreement, the applicable Sub-Adviser is required
to maintain separate books and detailed records of all matters pertaining to
the securities and other assets advised by such Sub-Adviser as required by Rule
31a-1 under the 1940 Act (other than those records being maintained by Callan
or the Fund's other service providers) relating to its responsibilities under
the New Sub-Advisory
4
Agreement, and shall preserve such records for the periods and in the manner
prescribed by Rule 31a-2 under the 1940 Act.
o REPORTING OBLIGATION
Each Sub-Adviser has an obligation to provide the Trust's Chief Compliance
Officer and Callan with quarterly compliance reports. Each Sub-Adviser also
has an obligation to notify the Trust's Chief Compliance Officer and Callan as
soon as reasonably practicable upon detection of (i) any material failure to
manage the Fund in accordance with its investment objectives and policies or
any applicable law; or (ii) any material breach of any of the Fund's or
Callan's policies, guidelines or procedures that directly relate to management
of the portion of the Fund's assets allocated to it by Callan or to the
sub-advisory services provided by the Sub-Adviser to the Fund. Each Sub-Adviser
shall notify Callan as soon as possible of (i) any significant changes in its
investment strategy, asset allocation or other matters affecting its management
of the Fund's assets; or (ii) any changes to the senior investment management
personnel primarily responsible for the investment or servicing of the Fund's
assets which include portfolio managers and relationship managers.
o DURATION AND TERMINATION
Each New Sub-Advisory Agreement is scheduled to continue in effect for an
initial two year term, and may be continued from year to year thereafter if
approved by (a) a majority vote of the Board, including a majority of the
Independent Trustees, cast in person at a meeting called for the purpose of
voting on such approval or as otherwise required by the 1940 Act, or (b) the
vote of a majority of the outstanding voting securities of the Fund. Each New
Sub-Advisory Agreement can be terminated (a) by the Trust, without the payment
of any penalty, either (i) by vote of its Board or (ii) with respect to the
Fund, by the vote of a majority of the outstanding voting securities of the
Fund, (b) by Callan at any time, without the payment of any penalty, on not
more than 60 days' nor less than 30 days' written notice to the applicable
Sub-Adviser, or (c) by the applicable Sub-Adviser at any time, without the
payment of any penalty, on not more than 60 days' nor less than 30 days'
written notice to Callan.
o GOVERNING LAW
Each New Sub-Advisory Agreement is governed by and construed in accordance with
the substantive laws of the Commonwealth of Massachusetts.
INFORMATION ABOUT CALLAN
Callan Associates Inc., located at 600 Montgomery Street, Suite 800, San
Francisco, CA 94111, currently serves as the investment adviser to the Fund
pursuant to an investment advisory agreement between the Trust and Callan dated
December 18, 2013. As of January 31, 2015, Callan had approximately $ 8.99
billion in assets under management. As investment adviser, Callan manages the
Fund pursuant to a manager-of-managers structure, whereby Callan has overall
responsibility for the general management and day-to-day operations of the
Fund, but has retained one or more investment sub-advisers to make the
investment decisions for allocated portions of the Fund's assets. For these
services, the Fund pays Callan an annual fee of 0.05% of its average daily net
assets.
During the most recent fiscal year ended December 31, 2014, the Fund paid
Callan advisory fees in the amount of $1,763,745. Callan did not waive any
advisory fees during the most recent fiscal year ended December 31, 2014.
INFORMATION ABOUT ARISTOTLE BOSTON
Aristotle Capital Boston, LLC, a Delaware limited liability company located at
125 Summer Street, Suite 1220, Boston, MA 02110, is an investment adviser
registered under the Investment Advisers Act of 1940,
5
as amended (the "Advisers Act"). Aristotle Boston is owned by its employees and
companies associated with Richard Hollander, the Chairman of its Board, and
Howard Gleicher, managing partner of Aristotle Capital Management, LLC, an
affiliated company. As of January 31, 2015, Aristotle Boston had approximately
$1.3 billion in assets under management.
Listed below are the names, titles and principal business addresses of each
principal executive officer and director of Aristotle Boston.
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NAME TITLE PRINCIPAL BUSINESS ADDRESS
--------------------------------------------------------------------------------
David Michael Adams Managing Director 125 Summer Street
Suite 1220
Boston, MA 0211
--------------------------------------------------------------------------------
John McPherson Managing Director 125 Summer Street
Suite 1220
Boston, MA 0211
--------------------------------------------------------------------------------
Richard Harlan Scweitzer Senior Partner 11100 Santa Monica Blvd.
Suite 1700
Los Angeles, CA 90025
--------------------------------------------------------------------------------
Gary Wayne Lisenbe Senior Partner 11100 Santa Monica Blvd.
Suite 1700
Los Angeles, CA 90025
--------------------------------------------------------------------------------
Aristotle Boston currently does not advise any other mutual fund with a similar
investment objective as the Fund.
INFORMATION ABOUT PENN CAPITAL
PENN Capital Management Company, Inc., a Delaware corporation located at Navy
Yard Corporate Center, 3 Crescent Drive, Suite 400, Philadelphia, Pennsylvania
19112, is an investment adviser registered under the Advisers Act. Founded in
1987, PENN Capital is 100% employee owned. As of January 31, 2015, PENN Capital
had approximately $7.3 billion in assets under management.
Listed below are the names, titles and addresses of each principal executive
officer and director of PENN Capital. The principal business address of each
principal executive officer and member of PENN Capital is Navy Yard Corporate
Center, 3 Crescent Drive, Suite 400, Philadelphia, Pennsylvania 19112.
--------------------------------------------------------------------------------
NAME TITLE
--------------------------------------------------------------------------------
Richard Hocker CIO and CEO
--------------------------------------------------------------------------------
Marcia Hocker President
--------------------------------------------------------------------------------
Eric Green Director of Research and Senior Portfolio Manager
--------------------------------------------------------------------------------
Scott Schumacher Senior Portfolio Manager
--------------------------------------------------------------------------------
Christian Noyes Director of Marketing and Client Service
--------------------------------------------------------------------------------
Jerry McBride CFO and COO
--------------------------------------------------------------------------------
Richard Hocker and Marcia Hocker each own, of record or beneficially, 10% or
more of PENN Capital's outstanding voting securities.
PENN Capital currently does not advise any other mutual fund with a similar
investment objective as the Fund.
ADDITIONAL INFORMATION
INFORMATION ABOUT OTHER SERVICE PROVIDERS
SEI Investments Global Funds Services ("SEIGFS") serves as the Fund's
administrator. SEI Investments Distribution Co. ("SIDCO") serves as the Fund's
distributor and principal underwriter. SIDCO receives no compensation for
distributing Fund shares. SEIGFS and SIDCO are located at One Freedom Valley
6
Drive, Oaks, Pennsylvania 19456. For the most recent fiscal year ended December
31, 2015, the Fund paid administration fees in the amount of $116,394.
PAYMENT OF EXPENSES
The Fund will pay the expenses of the preparation, printing and mailing of
this information statement.
COMMISSIONS PAID TO AFFILIATED BROKERS
During the Fund's most recently completed fiscal year ended December 31, 2015,
the Fund did not pay any commissions to any affiliated brokers.
BENEFICIAL OWNERSHIP OF SHARES
As of May 31, 2015, the following persons owned of record, or were known by the
Trust to own beneficially, more than 5% of the shares of any class of the Fund.
On that date, the trustees and officers of the Fund, together as a group,
beneficially owned less than 1% of the Fund's outstanding shares.
------------------------------------------------------------------------------------------------
NAME AND ADDRESS NUMBER OF SHARES PERCENT
------------------------------------------------------------------------------------------------
KP Retirement Path 2020 Fund 45,571,073.20 5.4%
One Freedom Valley Drive
Oaks, Pennsylvania 19456
------------------------------------------------------------------------------------------------
KP Retirement Path 2025 Fund 66,742,476.07 7.9%
One Freedom Valley Drive
Oaks, Pennsylvania 19456
------------------------------------------------------------------------------------------------
KP Retirement Path 2030 Fund 78,276,130.29 9.3%
One Freedom Valley Drive
Oaks, Pennsylvania 19456
------------------------------------------------------------------------------------------------
KP Retirement Path 2035 Fund 97,338,197.58 11.5%
One Freedom Valley Drive
Oaks, Pennsylvania 19456
------------------------------------------------------------------------------------------------
KP Retirement Path 2040 Fund 91,241,688.22 10.8%
One Freedom Valley Drive
Oaks, Pennsylvania 19456
------------------------------------------------------------------------------------------------
KP Retirement Path 2045 Fund 60,594,853.45 7.2%
One Freedom Valley Drive
Oaks, Pennsylvania 19456
------------------------------------------------------------------------------------------------
Vanguard Fiduciary Trust Company FBO 401(K) Clients 361,604,064.37 42.8%
Service Administrator
Investment Administration - Institutional Investor Group
P.O. Box 1101, MS L20
Valley Forge, PA 19482-1101
------------------------------------------------------------------------------------------------
The information as to beneficial ownership is based on statements furnished to
the Fund by the trustees of the Trust, and/or on the records of the Trust's
transfer agent.
ANNUAL REPORT TO SHAREHOLDERS
For a free copy of the Fund's annual report dated December 31, 2014, which
covers the period from January 10, 2014 (commencement of operations) to
December 31, 2014, shareholders of the Fund may call 1-855-457-3637 or write to
the Fund at: The KP Funds, c/o SEI Investments, One Freedom Valley Drive, Oaks,
Pennsylvania 19546.
SHAREHOLDERS SHARING THE SAME ADDRESS
If two or more shareholders share the same address, only one copy of this
Information Statement is being delivered to that address, unless the Trust has
received contrary instructions from one or more of the shareholders at that
shared address. Upon written or oral request, the Trust will deliver promptly
a separate copy of this Information Statement to a shareholder at a shared
address. Please call 1-855-457-3637 or forward a written request to The KP
Funds, One Freedom Valley Drive, Oaks, Pennsylvania 19456 if you would like to
(1) receive a separate copy of this Information Statement; (2) receive your
annual reports, semi-annual reports or information statements separately in the
future; or (3) request delivery of a single copy of annual reports, semi-annual
reports or information statements if you are currently receiving multiple
copies at a shared address.
SUBMISSION OF SHAREHOLDER PROPOSALS
The Trust is organized as a business trust under the laws of the Commonwealth
of Massachusetts. As such, the Trust is not required to, and does not, hold
annual meetings. Nonetheless, the Board may call a special meeting of
shareholders for action by shareholder vote as may be required by the 1940 Act
or as required or permitted by the Declaration of Trust and By-Laws of the
Trust. Shareholders of the Fund who wish to present a proposal for action at a
future meeting should submit a written proposal to the Trust for inclusion in a
future proxy statement. Submission of a proposal does not necessarily mean that
such proposal will be included in the Fund's proxy statement since inclusion in
the proxy statement is subject
7
to compliance with certain federal regulations. Shareholders retain the right
to request that a meeting of the shareholders be held for the purpose of
considering matters requiring shareholder approval.
8
EXHIBIT INDEX
(A) Investment Sub-Advisory Agreement between Callan Associates Inc. and
Aristotle Capital Boston, LLC, relating to the KP Small Cap Equity Fund
(B) Investment Sub-Advisory Agreement between Callan Associates Inc. and PENN
Capital Management Company, Inc., relating to the KP Small Cap Equity Fund
EXHIBIT A
SUB-ADVISORY AGREEMENT
SUB-ADVISORY AGREEMENT (the "Agreement") made as of this ____th day of ,
2015 by and between Callan Associates Inc., a California corporation with its
principal place of business at 600 Montgomery Street, Suite 800, San Francisco,
CA 94111-2710 (the "Adviser"), and Aristotle Capital Boston, LLC a Delaware
limited liability company with its principal place of business at 125 Summer
Street, Suite 1220, Boston, MA 02110 (the "Sub-Adviser").
W I T N E S S E T H
WHEREAS, pursuant to authority granted to the Adviser by the Board of
Trustees (the "Board") of THE KP FUNDS (the "Trust") on behalf of the series
set forth on Schedule A to this Agreement (the "Fund") and pursuant to the
provisions of the Investment Advisory Agreement dated as of December 18, 2013
between the Adviser and the Fund (the "Management Agreement"), the Adviser has
selected the Sub-Adviser to act as sub-investment adviser of the Fund and to
provide certain related services, as more fully set forth below, and to perform
such services under the terms and conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the mutual covenants and benefits
set forth herein, the Adviser and the Sub-Adviser do hereby agree as follows:
1. THE SUB-ADVISER'S SERVICES.
(a) DISCRETIONARY INVESTMENT MANAGEMENT SERVICES. The Sub-Adviser
shall act as sub-investment adviser with respect to the Fund. In such capacity,
the Sub-Adviser shall, subject to the supervision of the Adviser and the Board,
regularly provide the Fund with investment research, advice and supervision and
shall furnish continuously an investment program for such Fund assets as may be
allocated by the Adviser to the Sub-Adviser (the "Assets"), consistent with the
investment objectives and policies of the Fund and any investment guidelines
established and modified from time to time by the Adviser and communicated in
writing to the Sub-Adviser. The Sub-Adviser shall determine, from time to time,
what investments shall be purchased for the Fund and what such securities shall
be held or sold by the Fund, subject always to the provisions of the Trust's
Agreement and Declaration of Trust, By-Laws and its registration statement on
Form N-1A (the "Registration Statement") under the Investment Company Act of
1940, as amended (the "1940 Act"), and under the Securities Act of 1933, as
amended (the "1933 Act"), covering Fund shares, as filed with the Securities and
Exchange Commission (the "Commission"), and to the investment objectives,
policies and restrictions of the Fund, as each of the same shall be from time to
time in effect, and to any investment guidelines established by the Adviser as
referred to above and provided to the Sub-Adviser in writing. To carry out such
obligations, the Sub-Adviser shall exercise full discretion and act for the Fund
in the same manner and with the same force and effect as the Fund itself might
or could do with respect to purchases, sales or other transactions, as well as
with respect to all other such things necessary or incidental to the furtherance
or conduct of such purchases, sales or other transactions. Notwithstanding the
foregoing, the Sub-Adviser shall, upon written instructions from the Adviser,
effect such portfolio transactions for the Fund as the Adviser may from time to
time direct; provided however, that the Sub-Adviser shall not be responsible for
any such portfolio transactions effected upon written instructions from the
Adviser. No reference in this Agreement to the Sub-Adviser having full
discretionary authority over the Fund's investments shall in any way limit the
right of the Adviser, in its sole discretion, to establish or revise policies in
connection with the management of the Fund's assets or to otherwise exercise its
right to control the overall management of the Fund's assets.
(b) COMPLIANCE. The Sub-Adviser agrees to comply with the
requirements of the 1940 Act, the Investment Advisers Act of 1940, as amended
(the "Advisers Act"), the 1933 Act, the Securities Exchange Act of 1934, as
amended (the "1934 Act"), the Commodity Exchange Act and the respective
rules and regulations thereunder, as applicable, as well as with all other
applicable federal and state laws, rules, regulations and case law that relate
to the services and relationships described hereunder and to the conduct of its
business as a registered investment adviser. With respect to the Fund Assets as
defined in Section 1(a) herein, the Sub-Adviser also agrees to comply with the
objectives, policies and restrictions set forth in the Registration Statement,
as amended or supplemented, of the Fund, and with any policies, guidelines,
instructions and procedures approved by the Board or the Adviser and provided
to the Sub-Adviser. In selecting the Fund's portfolio securities and performing
the Sub-Adviser's obligations hereunder, the Sub-Adviser shall cause the Fund
to comply with the diversification and source of income requirements of
Subchapter M of the Internal Revenue Code of 1986, as amended (the "Code"), for
qualification as a regulated investment company. The Sub-Adviser shall maintain
compliance procedures that it reasonably believes are adequate to ensure the
compliance with the foregoing. No supervisory activity undertaken by the
Adviser shall limit the Sub-Adviser's full responsibility for any of the
foregoing. The Adviser acknowledges that the Sub-Adviser's responsibilities are
limited to those related to the management of the Assets, and that the
Sub-Adviser is not responsible for compliance, qualification or other matters
related to those portions of the Fund which are not subject to this Agreement.
(c) PROXY VOTING. Pursuant to Board authority, the Adviser has the
authority to determine how proxies with respect to securities that are held by
the Fund shall be voted, and the Adviser may delegate the authority and
responsibility to vote proxies for the Fund's securities to the Sub-Adviser. So
long as proxy voting authority for the Fund has been delegated to the
Sub-Adviser, the Adviser shall provide such assistance to the Sub-Adviser with
respect to the voting of proxies for the Fund as the Sub-Adviser may from time
to time reasonably request, and the Adviser shall promptly forward to the
Sub-Adviser any information or documents necessary for the Sub-Adviser to
exercise its proxy voting responsibilities. The Sub-Adviser shall carry out
such responsibility in accordance with any instructions that the Board or the
Adviser shall provide from time to time, and at all times in a manner
consistent with Rule 206(4)-6 under the Advisers Act and its fiduciary
responsibilities to the Trust. The Sub-Adviser shall provide the Adviser with a
copy of its written proxy voting policies and procedures and as such may be
amended from time to time. The Sub-Adviser shall provide periodic reports and
keep such records relating to proxy voting as the Adviser and the Board may
reasonably request or as may be necessary for the Fund to comply with the 1940
Act and other applicable law. Any such delegation of proxy voting
responsibility to the Sub-Adviser may be revoked or modified by the Board or
the Adviser at any time.
Unless and until otherwise directed by the Adviser or the Board the
Sub-Adviser shall be responsible for voting the Fund's proxies and exercising
all other applicable rights of the Fund as a security holder in connection with
corporate actions or other transactions relating to the Fund's portfolio
holdings. The Sub-Adviser is authorized to instruct the Fund's custodian and/or
broker(s) to forward promptly to the Sub-Adviser or designated service provider
copies of all proxies and shareholder communications relating to securities
held in the portfolio of a Fund (other than materials relating to legal
proceedings against the Fund). The Sub-Adviser may also instruct the Fund's
custodian and/or broker(s) to provide reports of holdings in the portfolio of
the Fund. The Sub-Adviser has the authority to engage a service provider to
assist with administrative functions related to voting Fund proxies. The Trust
shall direct the Fund's custodian and/or broker(s) to provide any assistance
requested by the Sub-Adviser in facilitating the use of a service provider. In
no event shall the Sub-Adviser have any responsibility to vote proxies that are
not received on a timely basis. The Trust acknowledges that the Sub-Adviser,
consistent with the Sub-Adviser's written proxy voting policies and procedures,
may refrain from voting a proxy if, in the Sub-Adviser's discretion, refraining
from voting would be in the best interests of the Fund and its shareholders.
(d) RECORDKEEPING. The Sub-Adviser shall not be responsible for the
provision of administrative, bookkeeping or accounting services to the Fund,
except as otherwise provided herein or as may be necessary for the Sub-Adviser
to supply to the Adviser, the Trust or its Board the information required to be
supplied under this Agreement.
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The Sub-Adviser shall maintain separate books and detailed records of
all matters pertaining to the Fund's assets advised by the Sub-Adviser required
by Rule 31a-1 under the 1940 Act (other than those records being maintained by
the Adviser, or any administrator custodian or transfer agent appointed by the
Fund) relating to its responsibilities provided hereunder with respect to the
Fund, and shall preserve such records for the periods and in a manner
prescribed therefore by Rule 31a-2 under the 1940 Act (the "Fund Books and
Records"). The Fund Books and Records shall be available to the Adviser and the
Board at any time upon request and shall be delivered to the Trust in a form
requested by the Adviser, which may include an electronic format, upon the
termination of this Agreement and shall be available without delay during any
day the Trust is open for business.
(e) HOLDINGS INFORMATION AND PRICING. The Sub-Adviser shall provide
regular reports regarding the Fund's holdings, and may, on its own initiative,
furnish the Adviser, the Trust and its Board from time to time with whatever
information the Sub-Adviser believes is appropriate for this purpose. The
Sub-Adviser agrees to notify the Adviser and the Board promptly if the
Sub-Adviser reasonably believes that the value of any security held by a Fund
may not reflect fair value. The Sub-Adviser agrees to provide upon request any
pricing information of which the Sub-Adviser is aware to the Adviser, Trust,
its Board and/or any Fund pricing agent to assist in the determination of the
fair value of any Fund holdings for which market quotations are not readily
available or as otherwise required in accordance with the 1940 Act or the Fund
valuation procedures for the purpose of calculating the Trust's net asset value
in accordance with procedures and methods established by the Board.
(f) COOPERATION WITH AGENTS OF THE ADVISER AND THE TRUST. The
Sub-Adviser agrees to cooperate with and provide reasonable assistance to the
Adviser, the Trust and any Trust custodian or foreign sub-custodians, any Trust
pricing agents and all other agents and representatives of the Adviser and the
Trust with respect to such information regarding the Fund as such entities may
reasonably request from time to time in the performance of their obligations,
provide prompt responses to reasonable requests made by such persons and
establish appropriate interfaces with each so as to promote the efficient
exchange of information and compliance with applicable laws and regulations.
The Sub-Adviser shall make its officers and employees available to the Adviser
from time to time to review any current or proposed investment guidelines for
the Fund and to consult with the Adviser with respect to the Fund's investment
matters.
(g) CONSULTATION WITH OTHER SUB-ADVISERS. In performance of its
duties and obligations under this Agreement, the Sub-Adviser shall not consult
with any other sub-adviser to the Fund or a sub-adviser to a portfolio that is
under common control with the Fund concerning transactions for the Fund, except
as permitted by the policies and procedures of the Fund. The Sub-Adviser shall
not provide investment advice to any assets of the Fund other than the assets
managed by the Sub-Adviser.
2. CODE OF ETHICS. The Sub-Adviser has adopted a written code of
ethics that it reasonably believes complies with the requirements of Rule 17j-1
under the 1940 Act, which it has provided to the Adviser and the Trust. The
Sub-Adviser shall ensure that its Access Persons (as defined in the
Sub-Adviser's Code of Ethics) comply in all material respects with the
Sub-Adviser's Code of Ethics, as in effect from time to time. Upon request, the
Sub-Adviser shall provide the Trust with (i) a copy of the Sub-Adviser's
current Code of Ethics, as in effect from time to time, and (ii) a
certification that it has adopted procedures reasonably necessary to prevent
Access Persons from engaging in any conduct prohibited by the Sub-Adviser's
Code of Ethics. Annually, the Sub-Adviser shall furnish a written report, which
complies with the requirements of Rule 17j-1, concerning the Sub-Adviser's Code
of Ethics to the Adviser and the Trust's Board. The Sub-Adviser shall respond
to requests for information from the Adviser and the Trust as to violations of
the Code by Access Persons and the sanctions imposed by the Sub-Adviser. The
Sub-Adviser shall promptly notify the Adviser and the Trust of any material
violation of the Code, whether or not such violation relates to a security held
by any Fund.
3. INFORMATION AND REPORTING. The Sub-Adviser shall provide the
Adviser, the Trust, and their respective officers with such periodic reports
concerning the obligations the Sub-Adviser has assumed under this Agreement as
the Adviser and the Trust may from time to time reasonably request.
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(a) NOTIFICATION OF BREACH OR SIGNIFICANT CHANGES / COMPLIANCE
REPORTS. The Sub-Adviser shall notify the Trust's Chief Compliance Officer and
Adviser as soon as reasonably practicable upon detection of (i) any material
failure to manage any Fund in accordance with its investment objectives and
policies or any applicable law; or (ii) any material breach of any of the
Fund's or the Adviser's policies, guidelines or procedures that directly relate
to management of Fund Assets or to the sub-advisory services provided by the
Sub-Adviser to the Fund hereunder. The Sub-Adviser shall notify the Adviser as
soon as possible of (i) any significant changes in its investment strategy,
asset allocation or other matters affecting its management of the Fund's
assets; or (ii) any changes to the senior investment management personnel
primarily responsible for the investment or servicing of the Fund's assets
which include portfolio managers and relationship managers. In addition, the
Sub-Adviser shall provide a quarterly report regarding the Fund's compliance
with its investment objectives and policies, applicable law, including, but not
limited to the 1940 Act and Subchapter M of the Code, and the Fund's and the
Adviser's policies, guidelines or procedures as applicable to the Sub-Adviser's
obligations under this Agreement. The Sub-Adviser acknowledges and agrees that
the Adviser may, in its discretion, provide such quarterly compliance
certifications to the Board. The Sub-Adviser agrees to correct any such failure
promptly and to take any action that the Board and/or the Adviser may
reasonably request in connection with any such breach. Upon request, the
Sub-Adviser shall also provide the officers of the Trust with supporting
certifications in connection with such certifications of Fund financial
statements and disclosure controls pursuant to the Sarbanes-Oxley Act. The
Sub-Adviser will promptly notify the Trust in the event (i) the Sub-Adviser is
served or otherwise receives notice of any action, suit, proceeding, inquiry or
investigation, at law or in equity, before or by any court, public board, or
body, involving the affairs of the Trust (excluding class action suits in which
a Fund is a member of the plaintiff class by reason of the Fund's ownership of
shares in the defendant) or the compliance by the Sub-Adviser with the federal
or state securities laws or (ii) an actual change in control of the Sub-Adviser
resulting in an "assignment" (as defined in the 1940 Act) has occurred or is
otherwise proposed to occur.
(b) INSPECTION. Upon reasonable request, the Sub-Adviser agrees to
make its records and premises (including the availability of the Sub-Adviser's
employees for interviews) to the extent that they relate to the conduct of
services provided to the Fund or the Sub-Adviser's conduct of its business as
an investment adviser reasonably available for compliance audits by the Adviser
or the Trust's officers, employees, accountants or counsel; in this regard, the
Trust and the Adviser acknowledge that the Sub-Adviser shall have no obligation
to make available proprietary information unrelated to the services provided to
the Fund or any information related to other clients of the Sub-Adviser, except
to the extent necessary for the Adviser to confirm the absence of any conflict
of interest and compliance with any laws, rules or regulations in the
management of the Fund.
(c) BOARD AND FILINGS INFORMATION. The Sub-Adviser will also provide
the Adviser and Trust with any information reasonably requested regarding its
management of the Fund required for any meeting of the Board, or for any
shareholder report, Form N-CSR, Form N-Q, Form N-PX, Form N-SAR, amended
registration statement, proxy statement, or prospectus supplement to be filed
by the Trust with the Commission. The Sub-Adviser will make its officers and
employees available to meet with the Board from time to time on due notice to
review its investment management services to the Fund in light of current and
prospective economic and market conditions and shall furnish to the Board such
information as may reasonably be necessary in order for the Board to evaluate
this Agreement or any proposed amendments thereto.
(d) TRANSACTION INFORMATION. The Sub-Adviser shall furnish to the
Adviser and the Trust such information concerning portfolio transactions as may
be necessary to enable the Adviser, Trust or their designated agents to perform
such compliance testing on the Fund and the Sub-Adviser's services as the
Adviser and the Trust may, in their sole discretion, determine to be
appropriate. The provision of such information by the Sub-Adviser to the
Adviser, Trust or their designated agents in no way relieves the Sub-Adviser of
its own responsibilities under this Agreement.
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4. BROKERAGE.
(a) PRINCIPAL TRANSACTIONS. In connection with purchases or sales of
securities for the account of a Fund, neither the Sub-Adviser nor any of its
directors, officers or employees will act as a principal or agent or receive
any commission except as permitted by the 1940 Act.
(b) PLACEMENT OF ORDERS. The Sub-Adviser shall arrange for the
placing of all orders for the purchase and sale of securities for a Fund's
account with brokers or dealers selected by the Sub-Adviser. In the selection
of such brokers or dealers and the placing of such orders, subject to the other
provisions of this paragraph, the Sub-Adviser is directed at all times to seek
for a Fund the best execution available under the circumstances, taking into
account factors such as price, size of order and type of transaction,
difficulty of execution, scope and quality of brokerage services provided and
the financial responsibility and operations of the broker. It is expected that
the Sub-Adviser will seek competitive commission rates generally although it is
understood that the Sub-Adviser will not necessarily pay the lowest commission
rate available on each transaction. It is also understood that it may be
desirable for the Fund that the Sub-Adviser have access to brokerage and
research services provided by brokers who may execute brokerage transactions at
a higher cost to the Fund than may result when allocating brokerage to other
brokers, consistent with section 28(e) of the 1934 Act and any Commission staff
interpretations thereof. Therefore, the Sub-Adviser is authorized to place
orders for the purchase and sale of securities for the Fund with such brokers
if the Sub-Adviser determines, in good faith, that such amount of commissions
is reasonable in relation to the value of such brokerage or research services
provided in terms of a particular Fund transaction or the Sub-Adviser's overall
responsibilities to the Fund and its other clients, and that the total
commissions paid by the Fund will be reasonable in relation to the benefits to
the Fund over the long-term. This practice is subject to review by the Adviser
and the Board from time to time with respect to the extent and continuation of
this practice. It is understood that the services provided by such brokers may
be useful to the Sub-Adviser in connection with its or its affiliates' services
to other clients.
(c) AGGREGATED TRANSACTIONS. On occasions when the Sub-Adviser deems
the purchase or sale of a security to be in the best interest of a Fund as well
as other clients of the Sub-Adviser, the Sub-Adviser may, to the extent
permitted by applicable law and regulations, aggregate the order for securities
to be sold or purchased. In such event, the Sub-Adviser will allocate
securities or futures contracts so purchased or sold, as well as the expenses
incurred in the transaction, in the manner the Sub-Adviser reasonably considers
to be equitable and consistent with its fiduciary obligations to a Fund and to
such other clients under the circumstances.
(d) AFFILIATED BROKERS. The Sub-Adviser or any of its affiliates may
act as broker in connection with the purchase or sale of securities or other
investments for a Fund, subject to: (a) the requirement that the Sub-Adviser
seek to obtain best execution and price within the policy guidelines determined
by the Board and set forth in a Fund's current Registration Statement; (b) the
provisions of the 1940 Act; (c) the provisions of the Advisers Act; (d) the
provisions of the 1934 Act; and (e) other provisions of applicable law. These
brokerage services are not within the scope of the duties of the Sub-Adviser
under this Agreement. Subject to the requirements of applicable law and any
procedures adopted by the Board, the Sub-Adviser or its affiliates may receive
brokerage commissions, fees or other remuneration from a Fund for these
services in addition to the Sub-Adviser's fees for services under this
Agreement.
5. CUSTODY. Nothing in this Agreement shall permit the Sub-Adviser to
take or receive physical possession of cash, securities or other investments of
a Fund.
6. ALLOCATION OF CHARGES AND EXPENSES. The Sub-Adviser will bear its
own costs of providing services hereunder. Other than as herein specifically
indicated, the Sub-Adviser shall not be
A-5
responsible for a Fund's or the Adviser's expenses, including brokerage and
other expenses incurred in placing orders for the purchase and sale of
securities and other investment instruments.
7. REPRESENTATIONS, WARRANTIES AND COVENANTS.
(a) PROPERLY REGISTERED. The Sub-Adviser is registered as an
investment adviser under the Advisers Act, and will remain so registered for the
duration of this Agreement. The Sub-Adviser is not prohibited by the Advisers
Act or the 1940 Act from performing the services contemplated by this Agreement,
and to the best knowledge of the Sub-Adviser, there is no proceeding or
investigation that is reasonably likely to result in the Sub-Adviser being
prohibited from performing the services contemplated by this Agreement. The
Sub-Adviser agrees to promptly notify the Trust of the occurrence of any event
that would disqualify the Sub-Adviser from serving as an investment adviser to
an investment company. The Sub-Adviser is in compliance in all material respects
with all applicable federal and state law in connection with its investment
management operations.
(b) ADV DISCLOSURE. The Sub-Adviser has provided the Trust with a
copy of Part I of its Form ADV as most recently filed with the Commission and
its Part II as most recently updated and will, promptly after filing any
amendment to its Form ADV with the Commission or updating its Part II, furnish
a copy of such amendments or updates to the Trust. The information contained in
the Sub-Adviser's Form ADV is accurate and complete in all material respects
and does not omit to state any material fact necessary in order to make the
statements made, in light of the circumstances under which they were made, not
misleading.
(c) FUND DISCLOSURE DOCUMENTS. The Sub-Adviser has reviewed and will
in the future review, the portions of the following documents that pertain to
the Sub-Adviser and the services provided by the Sub-Adviser hereunder: the
Registration Statement, summary prospectus, prospectus, statement of additional
information, periodic reports to shareholders, reports and schedules filed with
the Commission (including any amendment, supplement or sticker to any of the
foregoing) and advertising and sales material relating to the Fund
(collectively the "Disclosure Documents"). The Sub-Adviser represents and
warrants that such portions of the Disclosure Documents relating to the
Sub-Adviser contain or will contain no untrue statement of any material fact
and do not and will not omit any statement of material fact required to be
stated therein or necessary to make the statements therein not misleading,
(d) USE OF THE NAMES "KP" AND "CALLAN." The Sub-Adviser has the right
to use the names "KP" and "Callan" in connection with its services to the Trust
and the Trust and the Adviser have the right to use the name "Aristotle" in
connection with the management and operation of a Fund. The Sub-Adviser is not
aware of any threatened or existing actions, claims, litigation or proceedings
that would adversely affect or prejudice the rights of the Sub-Adviser or the
Trust to use the name "Aristotle."
(e) INSURANCE. The Sub-Adviser maintains errors and omissions
insurance coverage in an appropriate amount and shall provide prior written
notice to the Trust (i) of any material changes in its insurance policies or
insurance coverage; or (ii) if any material claims will be made on its
insurance policies. Furthermore, the Sub-Adviser shall, upon reasonable
request, provide the Trust with any information it may reasonably require
concerning the amount of or scope of such insurance.
(f) NO DETRIMENTAL AGREEMENT. The Sub-Adviser represents and
warrants that it has no arrangement or understanding with any party, other than
the Trust, that would influence the decision of the Sub-Adviser with respect to
its selection of securities for a Fund, and that all selections shall be done
in accordance with what is in the best interest of the Fund.
A-6
(g) CONFLICTS. The Sub-Adviser shall act honestly, in good faith and
in the best interests of the Trust including requiring any of its personnel
with knowledge of Fund activities to place the interest of the Fund first,
ahead of their own interests, in all personal trading scenarios that may
involve a conflict of interest with the Fund, consistent with its fiduciary
duties under applicable law.
(h) REPRESENTATIONS. The representations and warranties in this
Section 7 shall be deemed to be made on the date this Agreement is executed and
at the time of delivery of the quarterly compliance report required by Section
3(a), whether or not specifically referenced in such report.
8. SUB-ADVISER'S COMPENSATION. The Adviser shall cause the Fund to
pay the Sub-Adviser, as compensation for the Sub-Adviser's services hereunder,
a fee, determined as described in Schedule A that is attached hereto and made a
part hereof. Such fee shall be computed daily and paid not less than monthly in
arrears by the Fund.
The Sub-Adviser will be compensated based on the portion of Fund
assets allocated to the Sub-Adviser by the Adviser. The method for determining
net assets of the Fund for purposes hereof shall be the same as the method for
determining net assets for purposes of establishing the offering and redemption
prices of Fund shares as described in the Fund's prospectus. In the event of
termination of this Agreement, the fee provided in this Section shall be
computed on the basis of the period ending on the last business day on which
this Agreement is in effect subject to a pro rata adjustment based on the
number of days elapsed in the current month as a percentage of the total number
of days in such month.
9. INDEPENDENT CONTRACTOR. In the performance of its duties
hereunder, the Sub-Adviser is and shall be an independent contractor and,
unless otherwise expressly provided herein or otherwise authorized in writing,
shall have no authority to act for or represent the Fund, the Trust or the
Adviser in any way or otherwise be deemed to be an agent of the Fund, the Trust
or the Adviser. If any occasion should arise in which the Sub-Adviser gives any
advice to its clients concerning the shares of a Fund, the Sub-Adviser will act
solely as investment counsel for such clients and not in any way on behalf of
the Fund.
10. ASSIGNMENT AND AMENDMENTS. This Agreement shall automatically
terminate, without the payment of any penalty, (i) in the event of its
assignment (as defined in section 2(a)(4) of the 1940 Act) or (ii) in the event
of the termination of the Management Agreement; provided that such termination
shall not relieve the Adviser or the Sub-Adviser of any liability incurred
hereunder.
This Agreement may not be added to or changed orally and may not be
modified or rescinded except by a writing signed by the parties hereto and in
accordance with the 1940 Act, when applicable.
11. DURATION AND TERMINATION. This Agreement shall become effective
as of the date executed and shall remain in full force and effect continually
thereafter, subject to renewal as provided in Section 11(d) and unless
terminated automatically as set forth in Section 10 hereof or until terminated
as follows:
(a) The Trust may cause this Agreement to terminate either (i) by
vote of its Board or (ii) with respect to the Fund, upon the affirmative vote
of a majority of the outstanding voting securities of the Fund; or
(b) The Adviser may at any time terminate this Agreement by not more
than sixty (60) days' nor less than thirty (30) days' written notice delivered
or mailed by registered mail, postage prepaid, to the Sub-Adviser; or
A-7
(c) The Sub-Adviser may at any time terminate this Agreement by not
more than sixty (60) days' nor less than thirty (30) days' written notice
delivered or mailed by registered mail, postage prepaid, to the Adviser; or
(d) This Agreement shall automatically terminate two years from the
date of its execution unless its renewal is specifically approved at least
annually thereafter by (i) a majority vote of the Trustees, including a
majority vote of such Trustees who are not interested persons of the Trust, the
Adviser or the Sub-Adviser, at a meeting called for the purpose of voting on
such approval; or (ii) the vote of a majority of the outstanding voting
securities of the Fund; provided, however, that if the continuance of this
Agreement is submitted to the shareholders of the Fund for their approval and
such shareholders fail to approve such continuance of this Agreement as
provided herein, the Sub-Adviser may continue to serve hereunder as to the Fund
in a manner consistent with the 1940 Act and the rules and regulations
thereunder; and
(e) Termination of this Agreement pursuant to this Section shall be
without payment of any penalty.
In the event of termination of this Agreement for any reason, the
Sub-Adviser shall, immediately upon notice of termination or on such later date
as may be specified in such notice, cease all activity on behalf of the Fund
and with respect to any of its assets, except as expressly directed by the
Adviser or as otherwise required by any fiduciary duties of the Sub-Adviser
under applicable law. In addition, the Sub-Adviser shall deliver the Fund's
Books and Records to the Adviser by such means and in accordance with such
schedule as the Adviser shall direct and shall otherwise cooperate, as
reasonably directed by the Adviser, in the transition of portfolio asset
management to any successor of the Sub-Adviser, including the Adviser.
12. CERTAIN DEFINITIONS. FOR THE PURPOSES OF THIS AGREEMENT:
(a) "Affirmative vote of a majority of the outstanding voting
securities of the Fund" shall have the meaning as set forth in the 1940 Act,
subject, however, to such exemptions as may be granted by the Commission under
the 1940 Act or any interpretations of the Commission staff.
(b) "Interested persons" and "Assignment" shall have their
respective meanings as set forth in the 1940 Act, subject, however, to such
exemptions as may be granted by the Commission under the 1940 Act or any
interpretations of the Commission staff.
13. LIABILITY OF THE SUB-ADVISER.
(a) The Sub-Adviser shall have responsibility for the accuracy and
completeness (and liability for the lack thereof) of statements in the Fund's
Disclosure Documents that are applicable or relate to the Sub-Adviser and the
services provided by the Sub-Adviser hereunder.
(b) The Sub-Adviser shall be liable to the Fund for any loss
(including transaction costs) incurred by the Fund as a result of any
investment made by the Sub-Adviser in contravention of: (i) any investment
policy, guideline or restriction set forth in the Registration Statement or as
approved by the Board from time to time and provided to the Sub-Adviser; or
(ii) applicable law, including but not limited to the 1940 Act and the Code
(including but not limited to the Fund's failure to satisfy the diversification
or source of income requirements of Subchapter M of the Code) (the investments
described in this subsection (b) collectively are referred to as "Improper
Investments").
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(c) The Sub-Adviser shall indemnify and hold harmless the Trust, each
affiliated person of the Trust within the meaning of Section 2(a)(3) of the
1940 Act, and each person who controls the Trust within the meaning of Section
15 of the 1933 Act (any such person, an "Indemnified Party") against any and
all losses, claims, damages, expenses or liabilities (including the reasonable
cost of investigating and defending any alleged loss, claim, damage, expense or
liability and reasonable counsel fees incurred in connection therewith) to
which any such person may become subject under the 1933 Act, the 1934 Act, the
1940 Act or other federal or state statutory law or regulation, at common law
or otherwise, insofar as such losses, claims, damages, expenses or liabilities
(or actions in respect thereof) arise out of or are based upon: (i) a breach by
the Sub-Adviser of this Agreement or of the representations and warranties made
by the Sub-Adviser herein; (ii) any Improper Investment; (iii) any untrue
statement or alleged untrue statement of a material fact applicable to the
Sub-Adviser contained in any Disclosure Document or the omission or alleged
omission from a Disclosure Document of a material fact applicable to the
Sub-Adviser required to be stated therein or necessary to make the statements
therein not misleading; or (iv) the Sub-Adviser's performance or nonperformance
of its duties hereunder; provided, however, that nothing herein shall be deemed
to protect any Indemnified Party who is a Trustee or officer of the Trust
against any liability to the Trust or to its shareholders to which such
Indemnified Party would otherwise be subject by reason or willful misfeasance,
bad faith, gross negligence or reckless disregard of the duties involved in the
conduct of such person's office with the Trust.
14. ENFORCEABILITY. Any term or provision of this Agreement which is
invalid or unenforceable in any jurisdiction shall, as to such jurisdiction be
ineffective to the extent of such invalidity or unenforceability without
rendering invalid or unenforceable the remaining terms or provisions of this
Agreement or affecting the validity or enforceability of any of the terms or
provisions of this Agreement in any other jurisdiction.
15. LIMITATION OF LIABILITY. The parties to this Agreement
acknowledge and agree that all litigation arising hereunder, whether direct or
indirect, and of any and every nature whatsoever shall be satisfied solely out
of the assets of the affected Fund and that no Trustee, officer or holder of
shares of beneficial interest of the Fund shall be personally liable for any of
the foregoing liabilities. The Trust's Certificate of Trust, as amended from
time to time, is on file in the Office of the Secretary of State of the
Commonwealth of Massachusetts. Such Certificate of Trust and the Trust's
Agreement and Declaration of Trust describe in detail the respective
responsibilities and limitations on liability of the Trustees, officers, and
holders of shares of beneficial interest.
16. CHANGE IN THE ADVISER'S OWNERSHIP. The Sub-Adviser agrees that it
shall notify the Trust of any anticipated or otherwise reasonably foreseeable
change in the ownership of the Sub-Adviser within a reasonable time prior to
such change being effected.
17. JURISDICTION. This Agreement shall be governed by and construed
in accordance with the substantive laws of the Commonwealth of Massachusetts
and the Sub-Adviser consents to the jurisdiction of courts, both state or
federal, in Massachusetts, with respect to any dispute under this Agreement.
18. PARAGRAPH HEADINGS. The headings of paragraphs contained in this
Agreement are provided for convenience only, form no part of this Agreement and
shall not affect its construction.
19. COUNTERPARTS. This Agreement may be executed simultaneously in
two or more counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument.
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20. NOTICES. All notices hereunder shall be given in writing (and
shall be deemed to have been duly given) by delivery in person, by facsimile or
by electronic means (with corresponding personal, facsimile or electronic
receipt of such delivery), or by registered or certified mail (with return
receipt requested), or by reputable overnight delivery service (with evidence
of receipt to the parties), at the address of each as set forth below (or at
such other address, number or electronic address for a party as shall be
specified by like notice):
If to the Sub-Adviser, to:
Aristotle Capital Boston, LLC
Address: 125 Summer Street, Suite 1220, Boston, MA 02110
Attention: Legal Department
If to the Adviser, to:
Callan Associates Inc.
1660 Wynkoop Street, Suite 950
Denver, CO 80202
Attention: Michael T. Bell, Vice President, Trust Advisory Group
Facsimile: 303.832.8230
Email: bell@callan.com
Telephone: 303.226.6201
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IN WITNESS WHEREOF, the parties hereto have caused this instrument to be signed
on their behalf by their duly authorized officers as of the date first above
written.
CALLAN ASSOCIATES INC.
By:
Name:
Title:
ARISTOTLE CAPITAL BOSTON, LLC
By:
Name:
Title:
SCHEDULE A
TO THE
SUB-ADVISORY AGREEMENT
DATED ____________, 2015 BETWEEN
CALLAN ASSOCIATES INC.
AND
ARISTOTLE CAPITAL BOSTON, LLC
Each Fund will pay to the Sub-Adviser as compensation for the Sub-Adviser's
services rendered, a fee, computed daily at an annual rate based on the average
daily net assets of the respective portion of the Fund (or "Assets" as defined
in this Agreement) as may be allocated by the Adviser to the Sub-Adviser from
time to time under the following fee schedule:
[Redacted]
EXHIBIT B
SUB-ADVISORY AGREEMENT
SUB-ADVISORY AGREEMENT (the "Agreement") made as of this ____th day
of ________, 2015 by and between Callan Associates Inc., a California
corporation with its principal place of business at 600 Montgomery Street,
Suite 800, San Francisco, CA 94111-2710 (the "Adviser"), and Penn Capital
Management Company, Inc., a Delaware corporation with its principal place of
business at Three Crescent Drive, Suite 400, Philadelphia, PA 19112 (the
"Sub-Adviser").
W I T N E S S E T H
WHEREAS, pursuant to authority granted to the Adviser by the Board of
Trustees (the "Board") of THE KP FUNDS (the "Trust") on behalf of the series
set forth on Schedule A to this Agreement (the "Fund") and pursuant to the
provisions of the Investment Advisory Agreement dated as of December 18, 2013
between the Adviser and the Fund (the "Management Agreement"), the Adviser has
selected the Sub-Adviser to act as sub-investment adviser of the Fund and to
provide certain related services, as more fully set forth below, and to perform
such services under the terms and conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the mutual covenants and benefits
set forth herein, the Adviser and the Sub-Adviser do hereby agree as follows:
1. THE SUB-ADVISER'S SERVICES.
(a) DISCRETIONARY INVESTMENT MANAGEMENT SERVICES. The Sub-Adviser
shall act as sub-investment adviser with respect to the Fund. In such capacity,
the Sub-Adviser shall, subject to the supervision of the Adviser and the Board,
regularly provide the Fund with investment research, advice and supervision and
shall furnish continuously an investment program for such Fund assets as may be
allocated by the Adviser to the Sub-Adviser (the "Assets"), consistent with the
investment objectives and policies of the Fund and any investment guidelines
established and modified from time to time by the Adviser and communicated in
writing to the Sub-Adviser. The Sub-Adviser shall determine, from time to time,
what investments shall be purchased for the Fund and what such securities shall
be held or sold by the Fund, subject always to the provisions of the Trust's
Agreement and Declaration of Trust, By-Laws and its registration statement on
Form N-1A (the "Registration Statement") under the Investment Company Act of
1940, as amended (the "1940 Act"), and under the Securities Act of 1933, as
amended (the "1933 Act"), covering Fund shares, as filed with the Securities and
Exchange Commission (the "Commission"), and to the investment objectives,
policies and restrictions of the Fund, as each of the same shall be from time to
time in effect, and to any investment guidelines established by the Adviser as
referred to above and provided to the Sub-Adviser in writing. To carry out such
obligations, the Sub-Adviser shall exercise full discretion and act for the Fund
in the same manner and with the same force and effect as the Fund itself might
or could do with respect to purchases, sales or other transactions, as well as
with respect to all other such things necessary or incidental to the furtherance
or conduct of such purchases, sales or other transactions. Notwithstanding the
foregoing, the Sub-Adviser shall, upon written instructions from the Adviser,
effect such portfolio transactions for the Fund as the Adviser may from time to
time direct; provided however, that the Sub-Adviser shall not be responsible for
any such portfolio transactions effected upon written instructions from the
Adviser. No reference in this Agreement to the Sub-Adviser having full
discretionary authority over the Fund's investments shall in any way limit the
right of the Adviser, in its sole discretion, to establish or revise policies in
connection with the management of the Fund's assets or to otherwise exercise its
right to control the overall management of the Fund's assets. The investment
management services provided by the Sub-Adviser under this Agreement are not to
be deemed
exclusive, and the Sub-Adviser shall be free to render similar or different
services to others so long as its ability to render the services provided for
in this Agreement shall not be impaired thereby.
(b) COMPLIANCE. The Sub-Adviser agrees to comply with the
requirements of the 1940 Act, the Investment Advisers Act of 1940, as amended
(the "Advisers Act"), the 1933 Act, the Securities Exchange Act of 1934, as
amended (the "1934 Act"), the Commodity Exchange Act and the respective rules
and regulations thereunder, as applicable, as well as with all other applicable
federal and state laws, rules, regulations and case law that relate to the
services and relationships described hereunder and to the conduct of its
business as a registered investment adviser. With respect to the Fund Assets as
defined in Section 1(a) herein, the Sub-Adviser also agrees to comply with the
objectives, policies and restrictions set forth in the Registration Statement,
as amended or supplemented, of the Fund, and with any policies, guidelines,
instructions and procedures approved by the Board or the Adviser and provided
to the Sub-Adviser. In selecting the Fund's portfolio securities and performing
the Sub-Adviser's obligations hereunder, the Sub-Adviser shall cause the Assets
to comply with the diversification and source of income requirements of
Subchapter M of the Internal Revenue Code of 1986, as amended (the "Code"), for
qualification as a regulated investment company. The Sub-Adviser shall maintain
compliance procedures that it reasonably believes are adequate to ensure the
compliance with the foregoing. No supervisory activity undertaken by the
Adviser shall limit the Sub-Adviser's full responsibility for any of the
foregoing. The Adviser acknowledges that the Sub-Adviser's responsibilities are
limited to those related to the management of the Assets, and that the
Sub-Adviser is not responsible for compliance, qualification or other matters
related to (1) those portions of Assets or portfolio transactions of Assets
that the Adviser may from time to time direct the Sub-Adviser referenced in
Section 1(a); and (2) those portions of the Fund which are not Assets and as
such are not subject to this Agreement.
(c) PROXY VOTING. Pursuant to Board authority, the Adviser has the
authority to determine how proxies with respect to securities that are held by
the Fund shall be voted, and the Adviser may delegate the authority and
responsibility to vote proxies for the Fund's securities to the Sub-Adviser. So
long as proxy voting authority for the Fund has been delegated to the
Sub-Adviser, the Adviser shall provide such assistance to the Sub-Adviser with
respect to the voting of proxies for the Fund as the Sub-Adviser may from time
to time reasonably request, and the Adviser shall promptly forward to the
Sub-Adviser any information or documents necessary for the Sub-Adviser to
exercise its proxy voting responsibilities. The Sub-Adviser shall carry out
such responsibility in accordance with any instructions that the Board or the
Adviser shall provide from time to time, and at all times in a manner
consistent with Rule 206(4)-6 under the Advisers Act and its fiduciary
responsibilities to the Trust. The Sub-Adviser shall provide the Adviser with a
copy of the Sub-Adviser's written proxy voting policies and procedures, and as
such proxy voting policies and procedures may be amended from time to time. The
Sub-Adviser shall provide periodic reports and keep such records relating to
proxy voting as the Adviser and the Board may reasonably request or as may be
necessary for the Fund to comply with the 1940 Act and other applicable law.
Any such delegation of proxy voting responsibility to the Sub-Adviser may be
revoked or modified by the Board or the Adviser at any time upon written
notice.
Unless and until otherwise directed by the Adviser or the Board the
Sub-Adviser shall be responsible for voting proxies relating to the securities
that comprise the Assets and exercising all other applicable rights of the Fund
as a security holder in connection with corporate actions or other transactions
relating to the Assets. The Sub-Adviser is authorized to instruct the Fund's
custodian and/or broker(s) to forward promptly to the Sub-Adviser or designated
service provider copies of all proxies and shareholder communications relating
to securities held in the Fund's portfolio which comprise the Assets (other
than materials relating to legal proceedings against the Fund). The Sub-Adviser
may also instruct the Fund's custodian and/or broker(s) to provide reports of
holdings in the portfolio of the Fund. The Sub-Adviser has the authority to
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engage a service provider to assist with administrative functions related to
voting proxies relating to the Assets. The Trust shall direct the Fund's
custodian and/or broker(s) to provide any assistance requested by the
Sub-Adviser in facilitating the use of a service provider. In no event shall
the Sub-Adviser have any responsibility to vote proxies that are not received
on a timely basis. The Trust acknowledges that the Sub-Adviser, consistent with
the Sub-Adviser's written proxy voting policies and procedures, may refrain
from voting a proxy if, in the Sub-Adviser's discretion, refraining from voting
would be in the best interests of the Fund and its shareholders.
(d) RECORDKEEPING. The Sub-Adviser shall not be responsible for the
provision of administrative, bookkeeping or accounting services to the Fund,
except as otherwise provided herein or as may be necessary for the Sub-Adviser
to supply to the Adviser, the Trust or its Board the information required to be
supplied under this Agreement.
The Sub-Adviser shall maintain separate books and detailed records of
all matters pertaining to the Assets advised by the Sub-Adviser required by
Rule 31a-1 under the 1940 Act (other than those records being maintained by the
Adviser, or any administrator custodian or transfer agent appointed by the
Fund) relating to its responsibilities provided hereunder with respect to the
Fund, and shall preserve such records for the periods and in a manner
prescribed therefore by Rule 31a-2 under the 1940 Act (the "Fund Books and
Records"). The Fund Books and Records shall be available to the Adviser and the
Board at any time upon reasonable request and shall be delivered to the Trust
in a form requested by the Adviser, which may include an electronic format,
upon the termination of this Agreement and shall be available without delay
during any day the Trust is open for business.
(e) HOLDINGS INFORMATION AND PRICING. The Sub-Adviser shall provide
regular reports regarding the Fund's holdings relating to the Assets, and may,
on its own initiative, furnish the Adviser, the Trust and its Board from time
to time with whatever information the Sub-Adviser believes is appropriate for
this purpose. The Sub-Adviser agrees to notify the Adviser and the Board
promptly if the Sub-Adviser reasonably believes that the value of any security
comprising the Assets may not reflect fair value. The Sub-Adviser agrees to
provide upon reasonable request any pricing information of which the
Sub-Adviser is aware to the Adviser, Trust, its Board and/or any Fund pricing
agent to assist in the determination of the fair value of any of the Assets for
which market quotations are not readily available or as otherwise required in
accordance with the 1940 Act or the Fund valuation procedures for the purpose
of calculating the Trust's net asset value in accordance with procedures and
methods established by the Board.
(f) COOPERATION WITH AGENTS OF THE ADVISER AND THE TRUST. The
Sub-Adviser agrees to cooperate with and provide reasonable assistance to the
Adviser, the Trust and any Trust custodian or foreign sub-custodians, any Trust
pricing agents and all other agents and representatives of the Adviser and the
Trust with respect to such information regarding the Fund as such entities may
reasonably request from time to time in the performance of their obligations,
provide prompt responses to reasonable requests made by such persons and
establish appropriate interfaces with each so as to promote the efficient
exchange of information and compliance with applicable laws and regulations.
The Sub-Adviser shall make its officers and employees available to the Adviser
from time to time to review any current or proposed investment guidelines for
the Fund and to consult with the Adviser with respect to the Fund's investment
matters. The Sub-Adviser shall have no responsibility or obligation to initiate
or independently determine to participate in any class action on behalf of the
Fund or the Trust.
(g) CONSULTATION WITH OTHER SUB-ADVISERS. In performance of its
duties and obligations under this Agreement, the Sub-Adviser shall not consult
with any other sub-adviser to the Fund or a sub-adviser to a portfolio that is
under common control with the Fund concerning transactions for the Fund, except
as
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permitted by the policies and procedures of the Fund. The Sub-Adviser shall not
provide investment advice to any assets of the Fund other than the Assets
managed by the Sub-Adviser.
2. CODE OF ETHICS. The Sub-Adviser has adopted a written code of
ethics that it reasonably believes complies with the requirements of Rule 17j-1
under the 1940 Act, which it has provided to the Adviser and the Trust. The
Sub-Adviser shall ensure that its Access Persons (as defined in the
Sub-Adviser's Code of Ethics) comply in all material respects with the
Sub-Adviser's Code of Ethics, as in effect from time to time. Upon request, the
Sub-Adviser shall provide the Trust with (i) a copy of the Sub-Adviser's
current Code of Ethics, as in effect from time to time, and (ii) a
certification that it has adopted procedures reasonably necessary to prevent
Access Persons from engaging in any conduct prohibited by the Sub-Adviser's
Code of Ethics. Annually, the Sub-Adviser shall furnish a written report, which
complies with the requirements of Rule 17j-1, concerning the Sub-Adviser's Code
of Ethics to the Adviser and the Trust's Board. The Sub-Adviser shall respond
to requests for information from the Adviser and the Trust as to violations of
the Code by Access Persons and the sanctions imposed by the Sub-Adviser. The
Sub-Adviser shall promptly notify the Adviser and the Trust of any material
violation of the Code, whether or not such violation relates to a security held
by any Fund.
3. INFORMATION AND REPORTING. The Sub-Adviser shall provide the
Adviser, the Trust, and their respective officers with such periodic reports
concerning the obligations the Sub-Adviser has assumed under this Agreement as
the Adviser and the Trust may from time to time reasonably request.
(a) NOTIFICATION OF BREACH OR SIGNIFICANT CHANGES / COMPLIANCE
REPORTS. The Sub-Adviser shall notify the Trust's Chief Compliance Officer and
Adviser as soon as reasonably practicable upon detection of (i) any material
failure to manage any Assets in accordance with the Fund's investment
objectives and policies, any investment guidelines established by the Adviser
as provided by Section 1(a) herein, or any applicable law; or (ii) any material
breach of any of the Fund's or the Adviser's policies, guidelines or procedures
that directly relate to management of the Assets or to the sub-advisory
services provided by the Sub-Adviser to the Fund hereunder. The Sub-Adviser
shall notify the Adviser as soon as possible of (i) any significant changes in
its investment strategy, asset allocation or other matters affecting its
management of the Assets; or (ii) any changes to the senior investment
management personnel primarily responsible for the investment or servicing of
the Assets, which include portfolio managers and relationship managers. In
addition, the Sub-Adviser shall provide, with respect to the Assets, a
quarterly report regarding compliance with the Fund's investment objectives and
policies, applicable law, including, but not limited to the 1940 Act and
Subchapter M of the Code, and the Fund's and the Adviser's policies, guidelines
or procedures as applicable to the Sub-Adviser's obligations under this
Agreement. The Sub-Adviser acknowledges and agrees that the Adviser may, in its
discretion, provide such quarterly compliance certifications to the Board. The
Sub-Adviser agrees to correct any such failure promptly and to take any action
that the Board and/or the Adviser may reasonably request in connection with any
such breach. Upon request, the Sub-Adviser shall also provide the officers of
the Trust with supporting certifications in connection with such certifications
of Fund financial statements and disclosure controls pursuant to the
Sarbanes-Oxley Act. The Sub-Adviser will promptly notify the Trust in the event
(i) the Sub-Adviser is served or otherwise receives notice of any action, suit,
proceeding, or investigation, at law or in equity, before or by any court,
public board, or regulatory body, involving the Fund (excluding class action
suits in which a Fund is a member of the plaintiff class by reason of the
Fund's ownership of shares in the defendant), or the material non-compliance by
the Sub-Adviser with federal or state securities laws or (ii) an actual change
in control of the Sub-Adviser resulting in an "assignment" (as defined in the
1940 Act) has occurred or is otherwise proposed to occur.
(b) INSPECTION. Upon reasonable request, the Sub-Adviser agrees to
make its accounts, books and other records maintained and preserved by it as
required hereunder and premises (including the availability of
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the Sub-Adviser's employees for interviews) for reasonable periodic compliance
audits by the Adviser or the Trust's officers, employees, accountants or
counsel. In this regard, the Trust and the Adviser acknowledge that the
Sub-Adviser shall have no obligation to make available proprietary information
or information unrelated to the services provided to the Fund, or any
information related to other clients of the Sub-Adviser, except to the extent
necessary for the Adviser to confirm the absence of any conflict of interest
and compliance with any laws, rules or regulations in the management of the
Fund.
(c) BOARD AND FILINGS INFORMATION. The Sub-Adviser will also provide
the Adviser and Trust with any information reasonably requested regarding its
management of the Assets required for any meeting of the Board, or for any
shareholder report, Form N-CSR, Form N-Q, Form N-PX, Form N-SAR, amended
registration statement, proxy statement, or prospectus supplement to be filed
by the Trust with the Commission. The Sub-Adviser will make its officers and
employees available to meet with the Board from time to time on due notice to
review its investment management services to the Fund in light of current and
prospective economic and market conditions and shall furnish to the Board such
information as may reasonably be necessary in order for the Board to evaluate
this Agreement or any proposed amendments thereto.
(d) TRANSACTION INFORMATION. The Sub-Adviser shall furnish to the
Adviser and the Trust such information concerning portfolio transactions as may
be necessary to enable the Adviser, Trust or their designated agents to perform
such compliance testing on the Fund and the Sub-Adviser's services as the
Adviser and the Trust may, in their sole discretion, determine to be
appropriate. The provision of such information by the Sub-Adviser to the
Adviser, Trust or their designated agents in no way relieves the Sub-Adviser of
its own responsibilities under this Agreement.
4. BROKERAGE.
(a) PRINCIPAL TRANSACTIONS. In connection with purchases or sales of
securities for the account of a Fund, neither the Sub-Adviser nor any of its
directors, officers or employees will act as a principal or agent or receive any
commission except as permitted by the 1940 Act.
(b) PLACEMENT OF ORDERS. The Sub-Adviser shall arrange for the
placing of all orders for the purchase and sale of securities for a Fund's
account with brokers or dealers selected by the Sub-Adviser. In the selection
of such brokers or dealers and the placing of such orders, subject to the other
provisions of this paragraph, the Sub-Adviser is directed at all times to seek
for a Fund the best execution available under the circumstances, taking into
account factors such as price, size of order and type of transaction,
difficulty of execution, the nature of the market for the security, the timing
of the transaction taking into account market prices and trends, the scope and
quality of brokerage services provided, and the reputation, experience and
financial stability of the broker or dealer involved, and the quality of
services rendered by the broker or dealer in other transactions. It is expected
that the Sub-Adviser will seek competitive commission rates generally although
it is understood that the Sub-Adviser will not necessarily pay the lowest
commission rate available on each transaction. It is also understood that it
may be desirable for the Fund that the Sub-Adviser have access to brokerage and
research services provided by brokers who may execute brokerage transactions at
a higher cost to the Fund than may result when allocating brokerage to other
brokers, consistent with section 28(e) of the 1934 Act and any Commission staff
interpretations thereof. Therefore, the Sub-Adviser is authorized to place
orders for the purchase and sale of securities for the Fund with such brokers
if the Sub-Adviser determines, in good faith, that such amount of commissions
is reasonable in relation to the value of such brokerage or research services
provided in terms of a particular Fund transaction or the Sub-Adviser's overall
responsibilities to the Fund and its other clients, and that the total
commissions paid by the Fund will be reasonable in relation to the benefits to
the Fund over the long-term. This practice is subject to review by
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the Adviser and the Board from time to time with respect to the extent and
continuation of this practice. It is understood that the services provided by
such brokers may be useful to the Sub-Adviser in connection with its or its
affiliates' services to other clients.
(c) AGGREGATED TRANSACTIONS. On occasions when the Sub-Adviser deems
the purchase or sale of a security to be in the best interest of a Fund as well
as other clients of the Sub-Adviser, the Sub-Adviser may, to the extent
permitted by applicable law and regulations, aggregate the order for securities
to be sold or purchased. In such event, the Sub-Adviser will allocate
securities or futures contracts so purchased or sold, as well as the expenses
incurred in the transaction, in the manner the Sub-Adviser reasonably considers
to be equitable and consistent with its fiduciary obligations to a Fund and to
such other clients under the circumstances.
(d) AFFILIATED BROKERS. The Sub-Adviser or any of its affiliates may
act as broker in connection with the purchase or sale of securities or other
investments for a Fund, subject to: (a) the requirement that the Sub-Adviser
seek to obtain best execution and price within the policy guidelines determined
by the Board and set forth in a Fund's current Registration Statement; (b) the
provisions of the 1940 Act; (c) the provisions of the Advisers Act; (d) the
provisions of the 1934 Act; and (e) other provisions of applicable law. These
brokerage services are not within the scope of the duties of the Sub-Adviser
under this Agreement. Subject to the requirements of applicable law and any
procedures adopted by the Board, the Sub-Adviser or its affiliates may receive
brokerage commissions, fees or other remuneration from a Fund for these
services in addition to the Sub-Adviser's fees for services under this
Agreement.
5. CUSTODY. Nothing in this Agreement shall permit the Sub-Adviser to
take or receive physical possession of cash, securities or other investments of
a Fund.
6. ALLOCATION OF CHARGES AND EXPENSES. The Sub-Adviser will bear its
own costs of providing services hereunder. Other than as herein specifically
indicated, the Sub-Adviser shall not be responsible for a Fund's or the
Adviser's expenses, including brokerage and other expenses incurred in placing
orders for the purchase and sale of securities and other investment
instruments.
7. REPRESENTATIONS, WARRANTIES AND COVENANTS.
(a) PROPERLY REGISTERED. The Sub-Adviser is registered as an
investment adviser under the Advisers Act, and will remain so registered for the
duration of this Agreement. The Sub-Adviser is not prohibited by the Advisers
Act or the 1940 Act from performing the services contemplated by this Agreement,
and to the best knowledge of the Sub-Adviser, there is no proceeding or
investigation that is reasonably likely to result in the Sub-Adviser being
prohibited from performing the services contemplated by this Agreement. The
Sub-Adviser agrees to promptly notify the Trust of the occurrence of any event
that would disqualify the Sub-Adviser from serving as an investment adviser to
the Trust or a registered investment company. The Sub-Adviser is in compliance
in all material respects with all applicable federal and state law in connection
with its investment management operations.
(b) ADV DISCLOSURE. The Sub-Adviser has provided the Trust with a
copy of Part I of its Form ADV as most recently filed with the Commission and
its Part II as most recently updated and will, promptly after filing any
amendment to its Form ADV with the Commission or updating its Part II, furnish
a copy of such amendments or updates to the Trust. The information contained in
the Sub-Adviser's Form ADV is accurate and complete in all material respects
and does not omit to state any material fact necessary in order to make the
statements made, in light of the circumstances under which they were made, not
misleading.
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(c) FUND DISCLOSURE DOCUMENTS. The Sub-Adviser has reviewed and will
in the future review, and assist the Adviser in the preparation of the portions
of the following documents that pertain to the Sub-Adviser and the services
provided by the Sub-Adviser hereunder: the Registration Statement, summary
prospectus, prospectus, statement of additional information, periodic reports
to shareholders, reports and schedules filed with the Commission (including any
amendment, supplement or sticker to any of the foregoing) and advertising and
sales material relating to the Fund (collectively the "Disclosure Documents").
The Sub-Adviser represents and warrants that such portions of the Disclosure
Documents as reviewed and approved (such approval to be given in writing, which
shall include email) by the Sub-Adviser contain or will contain no untrue
statement of any material fact and do not and will not omit any statement of
material fact required to be stated therein or necessary to make the statements
therein not misleading. The Sub-Adviser agrees to respond to any request for
approval of Disclosure Documents on a prompt and timely basis.
(d) USE OF THE NAMES "KP" AND "CALLAN." The Sub-Adviser has the right
to use the names "KP" and "Callan" in connection with its services to the Trust
and the Trust and the Adviser have the right to use the names "PENN" and/or
"PENN Capital Management" in connection with the management and operation of a
Fund. The Sub-Adviser is not aware of any threatened or existing actions,
claims, litigation or proceedings that would adversely affect or prejudice the
rights of the Sub-Adviser or the Trust to use the names "PENN" and/or "PENN
Capital Management."
(e) INSURANCE. The Sub-Adviser maintains errors and omissions
insurance coverage in an appropriate amount and shall provide prior written
notice to the Trust (i) of any material changes in its insurance policies or
insurance coverage; or (ii) if any material claims will be made on its
insurance policies. Furthermore, the Sub-Adviser shall, upon reasonable
request, provide the Trust with any information it may reasonably require
concerning the amount of or scope of such insurance.
(f) NO DETRIMENTAL AGREEMENT. The Sub-Adviser represents and warrants
that it has no arrangement or understanding with any party, other than the
Trust, that would influence the decision of the Sub-Adviser with respect to its
selection of securities for a Fund, and that all selections shall be done in
accordance with what is in the best interest of the Fund.
(g) CONFLICTS. The Sub-Adviser shall act honestly, in good faith and
in the best interests of the Trust including requiring any of its personnel
with knowledge of Fund activities to place the interest of the Fund first,
ahead of their own interests, in all personal trading scenarios that may
involve a conflict of interest with the Fund, consistent with its fiduciary
duties under applicable law.
(h) REPRESENTATIONS. The representations and warranties in this
Section 7 shall be deemed to be made on the date this Agreement is executed and
at the time of delivery of the quarterly compliance report required by Section
3(a), whether or not specifically referenced in such report.
8. SUB-ADVISER'S COMPENSATION. The Adviser shall cause the Fund to
pay the Sub-Adviser, as compensation for the Sub-Adviser's services hereunder,
a fee, determined as described in Schedule A that is attached hereto and made a
part hereof. Such fee shall be computed daily and paid not less than monthly in
arrears by the Fund.
The Sub-Adviser will be compensated based on the Assets, as defined
in Section 1(a) herein as that portion of Fund assets allocated to the
Sub-Adviser by the Adviser. The method for determining net assets of the Fund
for purposes hereof shall be the same as the method for determining net assets
for purposes of establishing the offering and redemption prices of Fund shares
as described in the Fund's prospectus. In the event of termination of this
Agreement, the fee provided in this Section shall be computed on the basis of
the
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period ending on the last business day on which this Agreement is in effect
subject to a pro rata adjustment based on the number of days elapsed in the
current month as a percentage of the total number of days in such month.
9. INDEPENDENT CONTRACTOR. In the performance of its duties
hereunder, the Sub-Adviser is and shall be an independent contractor and,
unless otherwise expressly provided herein or otherwise authorized in writing,
shall have no authority to act for or represent the Fund, the Trust or the
Adviser in any way or otherwise be deemed to be an agent of the Fund, the Trust
or the Adviser. If any occasion should arise in which the Sub-Adviser gives any
advice to its clients concerning the shares of a Fund, the Sub-Adviser will act
solely as investment counsel for such clients and not in any way on behalf of
the Fund.
10. ASSIGNMENT AND AMENDMENTS. This Agreement shall automatically
terminate, without the payment of any penalty, (i) in the event of its
assignment (as defined in section 2(a)(4) of the 1940 Act) or (ii) in the event
of the termination of the Management Agreement; provided that such termination
shall not relieve the Adviser or the Sub-Adviser of any liability incurred
hereunder.
This Agreement may not be added to or changed orally and may not be
modified or rescinded except by a writing signed by the parties hereto and in
accordance with the 1940 Act, when applicable.
11. DURATION AND TERMINATION. This Agreement shall become effective
as of the date executed and shall remain in full force and effect continually
thereafter, subject to renewal as provided in Section 11(d) and unless
terminated automatically as set forth in Section 10 hereof or until terminated
as follows:
(a) The Trust may cause this Agreement to terminate either (i) by
vote of its Board or (ii) with respect to the Fund, upon the affirmative vote
of a majority of the outstanding voting securities of the Fund; or
(b) The Adviser may at any time terminate this Agreement by not more
than sixty (60) days' nor less than thirty (30) days' written notice delivered
or mailed by registered mail, postage prepaid, to the Sub-Adviser; or
(c) The Sub-Adviser may at any time terminate this Agreement by not
more than sixty (60) days' nor less than thirty (30) days' written notice
delivered or mailed by registered mail, postage prepaid, to the Adviser; or
(d) This Agreement shall automatically terminate two years from the
date of its execution unless its renewal is specifically approved at least
annually thereafter by (i) a majority vote of the Trustees, including a
majority vote of such Trustees who are not interested persons of the Trust, the
Adviser or the Sub-Adviser, at a meeting called for the purpose of voting on
such approval; or (ii) the vote of a majority of the outstanding voting
securities of the Fund; provided, however, that if the continuance of this
Agreement is submitted to the shareholders of the Fund for their approval and
such shareholders fail to approve such continuance of this Agreement as
provided herein, the Sub-Adviser may continue to serve hereunder as to the Fund
in a manner consistent with the 1940 Act and the rules and regulations
thereunder; and
(e) Termination of this Agreement pursuant to this Section shall be
without payment of any penalty.
In the event of termination of this Agreement for any reason, the
Sub-Adviser shall, immediately upon notice of termination or on such later date
as may be specified in such notice, cease all activity on behalf of the Fund
and with respect to any of its assets, except as expressly directed by the
Adviser or as otherwise required
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by any fiduciary duties of the Sub-Adviser under applicable law. In addition,
the Sub-Adviser shall deliver the Fund's Books and Records to the Adviser by
such means and in accordance with such schedule as the Adviser shall direct and
shall otherwise cooperate, as reasonably directed by the Adviser, in the
transition of portfolio asset management to any successor of the Sub-Adviser,
including the Adviser.
12. CERTAIN DEFINITIONS. FOR THE PURPOSES OF THIS AGREEMENT:
(a) "Affirmative vote of a majority of the outstanding voting
securities of the Fund" shall have the meaning as set forth in the 1940 Act,
subject, however, to such exemptions as may be granted by the Commission under
the 1940 Act or any interpretations of the Commission staff.
(b) "Interested persons" and "Assignment" shall have their respective
meanings as set forth in the 1940 Act, subject, however, to such exemptions as
may be granted by the Commission under the 1940 Act or any interpretations of
the Commission staff.
13. LIABILITY AND INDEMNIFICATION.
(a) The Sub-Adviser's duties shall be confined to those expressly set
forth herein, with respect to the Assets. The Sub-Adviser shall not be liable
for any loss arising out of any portfolio investment or disposition hereunder
related to or resulting from market movement. Upon Sub-Adviser's approval of the
Disclosure Documents pursuant to Section 7(c), the Sub-Adviser shall have
responsibility for the accuracy and completeness (and liability for the lack
thereof) of statements in the Fund's Disclosure Documents that are applicable or
relate to the Sub-Adviser and the services provided by the Sub-Adviser
hereunder.
(b) The Sub-Adviser shall be liable to the Fund for any loss
(including transaction costs) incurred by the Fund as a result of any
investment made by the Sub-Adviser in contravention of: (i) any investment
policy, guideline or restriction set forth in the Registration Statement or as
approved by the Board from time to time and provided in writing to the
Sub-Adviser; or (ii) applicable law, including but not limited to the 1940 Act
and the Code (including but not limited to the Fund's failure, with respect to
the Assets, to satisfy the diversification or source of income requirements of
Subchapter M of the Code) (the investments described in this subsection (b)
collectively are referred to as "Improper Investments").
(c) The Sub-Adviser shall indemnify and hold harmless the Trust, each
affiliated person of the Trust within the meaning of Section 2(a)(3) of the
1940 Act, and each person who controls the Trust within the meaning of Section
15 of the 1933 Act (any such person, an "Indemnified Party") against any and
all losses, claims, damages, expenses or liabilities (including the reasonable
cost of investigating and defending any alleged loss, claim, damage, expense or
liability and reasonable counsel fees incurred in connection therewith) to
which any such person may become subject under the 1933 Act, the 1934 Act, the
1940 Act or other federal or state statutory law or regulation, at common law
or otherwise, insofar as such losses, claims, damages, expenses or liabilities
(or actions in respect thereof) arise out of or are based upon: (i) a breach by
the Sub-Adviser of this Agreement or of the representations and warranties made
by the Sub-Adviser herein; (ii) any Improper Investment; (iii) any untrue
statement or alleged untrue statement of a material fact applicable to the
Sub-Adviser that the Sub-Adviser has reviewed and approved pursuant to Section
7(c) contained in any Disclosure Document or the omission or alleged omission
from a Disclosure Document of a material fact applicable to the Sub-Adviser
required to be stated therein or necessary to make the statements therein not
misleading; or (iv) the Sub-Adviser's performance or non-performance of its
duties hereunder. Nothing herein shall be deemed to protect any Indemnified
Party against any liability or expense to which such Indemnified Party would
otherwise be subject by reason of such Indemnified Party's willful
B-9
misfeasance, bad faith, gross negligence or reckless disregard of the duties
involved in the conduct of such person's office with the Trust or violation of
applicable law.
14. ENFORCEABILITY. Any term or provision of this Agreement which is
invalid or unenforceable in any jurisdiction shall, as to such jurisdiction be
ineffective to the extent of such invalidity or unenforceability without
rendering invalid or unenforceable the remaining terms or provisions of this
Agreement or affecting the validity or enforceability of any of the terms or
provisions of this Agreement in any other jurisdiction.
15. LIMITATION OF LIABILITY. The parties to this Agreement
acknowledge and agree that all litigation arising hereunder, whether direct or
indirect, and of any and every nature whatsoever shall be satisfied solely out
of the assets of the affected Fund and that no Trustee, officer or holder of
shares of beneficial interest of the Fund shall be personally liable for any of
the foregoing liabilities. The Trust's Certificate of Trust, as amended from
time to time, is on file in the Office of the Secretary of State of the
Commonwealth of Massachusetts. Such Certificate of Trust and the Trust's
Agreement and Declaration of Trust describe in detail the respective
responsibilities and limitations on liability of the Trustees, officers, and
holders of shares of beneficial interest.
16. CHANGE IN THE ADVISER'S OWNERSHIP. The Sub-Adviser agrees that it
shall notify the Trust of any anticipated or otherwise reasonably foreseeable
change of greater than five percent (5%) in the ownership of the Sub-Adviser
within a reasonable time prior to such change being effected.
17. JURISDICTION. This Agreement shall be governed by and construed
in accordance with the substantive laws of the Commonwealth of Massachusetts
and the Sub-Adviser consents to the jurisdiction of courts, both state or
federal, in Massachusetts, with respect to any dispute under this Agreement.
18. PARAGRAPH HEADINGS. The headings of paragraphs contained in this
Agreement are provided for convenience only, form no part of this Agreement and
shall not affect its construction.
19. COUNTERPARTS. This Agreement may be executed simultaneously in
two or more counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument.
20. NOTICES. All notices hereunder shall be given in writing (and
shall be deemed to have been duly given) by delivery in person, by facsimile or
by electronic means (with corresponding personal, facsimile or electronic
receipt of such delivery), or by registered or certified mail (with return
receipt requested), or by reputable overnight delivery service (with evidence
of receipt to the parties), at the address of each as set forth below (or at
such other address, number or electronic address for a party as shall be
specified by like notice):
If to the Sub-Adviser, to:
PENN Capital Management, Inc.
Address: 3 Crescent Drive, Philadelphia, PA 19341
Attention: Christian M. Noyes
Senior Managing Partner
Email: cnoyes@penncapital.com
Telephone: 215-302-1501
B-10
If to the Adviser, to:
Callan Associates Inc.
1660 Wynkoop Street, Suite 950
Denver, CO 80202
Attention: Michael T. Bell, Vice President, Trust Advisory Group
Facsimile: 303.832.8230
Email: bell@callan.com
Telephone: 303.226.6201
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N WITNESS WHEREOF, the parties hereto have caused this instrument to be signed
on their behalf by their duly authorized officers as of the date first above
written.
CALLAN ASSOCIATES INC.
By:
Name:
Title:
PENN CAPITAL MANAGEMENT COMPANY, INC.
By:
Name:
Title:
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SCHEDULE A
TO THE
SUB-ADVISORY AGREEMENT
DATED ___________, 2015 BETWEEN
CALLAN ASSOCIATES INC.
AND
PENN CAPITAL MANAGEMENT COMPANY, INC.
Each Fund will pay to the Sub-Adviser as compensation for the Sub-Adviser's
services rendered, a fee, computed daily at an annual rate based on the average
daily net assets of the respective portion of the Fund (or "Assets" as defined
in this Agreement) as may be allocated by the Adviser to the Sub-Adviser from
time to time under the following fee schedule:
[Redacted]