January 31, 2008 VIA EDGAR AND E-MAIL U.S. Securities and Exchange Commission Division of Investment Management 100 F Street, N.E. Washington, D.C. 20549-9303 Attention: Mr. Chad D. Eskildsen, Senior Accountant Re: MGI Funds--Preliminary Information Statement Dear Sir and Madam: On behalf of the MGI Funds (the "Trust" or the "Registrant"), following are the responses to the comments of the Staff of the U.S. Securities and Exchange Commission (the "SEC") conveyed with regard to the Preliminary Information Statement (the "Information Statement") relating to the Trust's series, the MGI US Small/Mid Cap Value Equity Fund (the "Fund"), which informs shareholders of the Fund of the approval of a new subadvisory agreement between Mercer Global Investments, Inc., the Trust's investment advisor ("MGI" or the "Advisor"), and NWQ Investment Management Company, LLC ("NWQ" or the "Subadvisor"). The Information Statement was filed with the SEC, pursuant to Rule 14c-5(a) under the Securities Exchange Act of 1934, as amended, on Thursday, January 10, 2008. You had communicated the Staff's comments on the Information Statement to Mark A. Sheehan of Stradley, Ronon, Stevens & Young, LLP, counsel to the Trust, in a telephone conversation on Wednesday, January 16, 2008. Each Staff comment is summarized below, followed by the Trust's response to the comment. Capitalized terms not otherwise defined in this letter have the meanings assigned to the terms in the Information Statement. 1. Comment. Given that NWQ will be relying on the safe harbor contained in Section 15(f) of the Investment Company Act of 1940, as amended (the "1940 Act"),(1) as a consequence of the assignment of the Prior Subadvisory Agreement, the Staff believes that the Information Statement should disclose that the Subadvisor will rely on the safe harbor and recite the two conditions of the statute that must be satisfied. (1) Section 15(f) of the 1940 Act provides that an investment adviser may receive a benefit in connection with the sale of its business, which results in the assignment of the investment adviser's advisory contract with a registered investment company, if (i) for three years after the transaction, at least 75% of the investment company's board of trustees must not be "interested persons" (as that term is defined in the 1940 Act) of either the investment adviser or the predecessor investment adviser, and (ii) no unfair burden is imposed on the investment company as a result of the transaction. Response. The Information Statement, on its page 3, has been expanded to disclose the following (new language underlined): On November 13, 2007, Nuveen was acquired by a group of private investors led by Madison Dearborn Partners, LLC (the "Transaction"). The Transaction caused an assignment, which resulted in the automatic termination of the Prior Subadvisory Agreement. The Current Subadvisory Agreement was approved by the Board, on a prospective basis, at its meeting held on November 8, 2007 (the "November 2007 Meeting") in order to allow NWQ to continue to provide subadvisory services to the Fund without interruption or adverse effect to the Fund. IN ACCORDANCE WITH THE 1940 ACT, AS A CONSEQUENCE OF THE TRANSACTION AND THE ASSIGNMENT OF THE PRIOR SUBADVISORY AGREEMENT, NWQ MAY CONTINUE TO FURNISH SUBADVISORY SERVICES TO THE FUND PURSUANT TO THE CURRENT SUBADVISORY AGREEMENT, PROVIDED THAT (I) AT LEAST 75% OF THE TRUSTEES ARE NOT "INTERESTED PERSONS" (AS THAT TERM IS DEFINED IN THE 1940 ACT) OF NWQ OR NUVEEN, AND (II) NO UNFAIR BURDEN WILL BE IMPOSED ON THE FUND AS A CONSEQUENCE OF THE TRANSACTION. The Current Subadvisory Agreement is dated November 13, 2007. 2. Comment. On page 6 of the Information Statement, under the heading "Board of Trustees' Considerations," the third complete paragraph states: Because NWQ was a newly appointed subadvisor to the Fund, at the time of the May 2006 Meeting, the Independent Trustees could not consider NWQ's investment performance with respect to the Subadvisor's management of the Fund as a factor in evaluating the Prior Subadvisory Agreement at the Meeting. However, the Independent Trustees did review NWQ's historical performance record in managing other funds and accounts that are comparable to the Fund. The Independent Trustees also compared this historical performance to a relevant benchmark, and concluded that the historical performance record for the Subadvisor, viewed together with the other factors considered by the Independent Trustees, supported a decision to approve the Prior Subadvisory Agreement. Please explain why the Board had not considered the Subadvisor's performance since 2006. Response. The disclosure that the SEC staff has referred to in its comment describes the Board's deliberations at the May 2006 Meeting, and should not be interpreted to mean that the Trustees had not considered the Subadvisor's performance since that meeting. Supplementally, the Trust notes that, first, the Board has considered and reviewed the Subadvisor's performance at each quarterly Board meeting held since the inception of the Subadvisor's management of its allocated portion of the Fund in 2006. As is true for each of the Trust's eighteen subadvisors, the Board reviews, at each quarterly Board meeting, the Subadvisor's performance over the prior quarter, as well as the Subadvisor's performance over various relevant time periods (prior 12 months, year-to-date, etc). Additionally, the Board's current practice is to meet with representatives of each of the Trust's subadvisors at least annually. Consistent with this practice, representatives of NWQ attended the Trust's February 8, 2007 Board meeting, specifically to discuss the Subadvisor's record in managing its allocated portion of the Fund's investment portfolio since 2006, and to address any questions, comments, or concerns that the Trustees might have had regarding NWQ's performance as a subadvisor to the Fund. The Registrant explicitly alludes to these considerations in the Information Statement's paragraph that immediately precedes the paragraph cited by the SEC staff in its comment. That disclosure states the following: AT THE NOVEMBER 2007 MEETING, THE INDEPENDENT TRUSTEES REVIEWED THE NATURE, QUALITY, AND EXTENT OF THE SERVICES PROVIDED BY NWQ TO THE FUND. THE INDEPENDENT TRUSTEES DISCUSSED the specific investment process employed by NWQ in managing the assets of the Fund allocated to the Subadvisor, the qualifications of NWQ's investment management team with regard to implementing the Fund's investment mandate, and NWQ'S PERFORMANCE RECORD AS COMPARED TO ITS BENCHMARK. The Independent Trustees considered NWQ's infrastructure and the fact that NWQ did not expect any material changes in NWQ's operations following the consummation of the Transaction. BASED ON THEIR CONSIDERATION AND REVIEW OF THE FOREGOING FACTORS, THE INDEPENDENT TRUSTEES CONCLUDED THAT THE NATURE, EXTENT, AND QUALITY OF THE SUBADVISORY SERVICES THAT HAD BEEN PROVIDED BY NWQ UNDER THE PRIOR SUBADVISORY AGREEMENT, as well as NWQ's ability to continue to render such services under the Current Subadvisory Agreement based on its experience, operations, and resources, were appropriate for the Fund, in light of the Fund's investment objective. (Emphasis added.) The Registrant believes that the Information Statement sufficiently discloses the Board's deliberations on these issues and the Registrant respectfully submits that this disclosure adequately addresses the Staff's comment. 3. Comment. In the section "Board of Trustees' Considerations," at pages 6-7, the Information Statement discloses: The Independent Trustees also considered comparisons of the fees proposed to be paid to NWQ by the Advisor with the fees charged by NWQ to its other clients. Please indicate what the Board's comparison of the fees disclosed. Response. The following additional disclosure will be inserted (new language underlined): The Independent Trustees also considered comparisons of the fees proposed to be paid to NWQ by the Advisor with the fees charged by NWQ to its other clients. IT WAS NOTED THAT THE STANDARD ANNUAL FEE SCHEDULE FOR NWQ'S SMALL-MID CAP VALUE INVESTMENT STRATEGY (WHICH WAS CLOSED TO NEW ACCOUNTS AT THAT TIME), AS REPORTED IN NWQ'S SEPTEMBER 8, 2005 FORM ADV, AND THE MATERIALS PREPARED FOR THE BOARD FOR THE MAY 2006 MEETING, PROVIDED FOR SUBADVISORY FEES THAT WERE GREATER THAN THE FEES THAT NWQ WOULD BE ENTITLED TO RECEIVE FROM THE ADVISOR FOR SERVING AS A SUBADVISOR TO THE FUND. 4. Comment. In that same section of the Information Statement, the disclosure should state what the Board concluded with respect to the consideration of economies of scale, the extent to which economies of scale would be realized as the Fund grows, and whether the fee levels reflected these economies of scale for the benefit of Fund investors. Response. The following additional disclosure will be inserted (new language underlined) in this section: In addition, the Independent Trustees considered the selection and due diligence process employed by the Advisor in deciding to recommend NWQ as a subadvisor for the Fund, and the Advisor's reasons for concluding that the fees to be paid to the Subadvisor for its services to the Fund were reasonable. The Board was not provided with, and did not review, information regarding the estimated profits that may be realized by the Subadvisor in managing its allocated portion of the Fund's assets. Since the fees to be paid to NWQ were the result of arms-length bargaining between unaffiliated parties, and given the Advisor's economic incentive to negotiate a reasonable fee, NWQ's potential profitability was not considered relevant to the Independent Trustees' deliberations. FOR SIMILAR REASONS, THE POTENTIAL FOR ECONOMIES OF SCALE WAS NOT CONSIDERED RELEVANT TO THE INDEPENDENT TRUSTEES' DELIBERATIONS. The Independent Trustees noted that the subadvisory fees were paid by the Advisor to NWQ and were not additional fees to be borne by the Fund or its shareholders. Based on their discussion, the Independent Trustees concluded that, in light of the quality and extent of the services to be provided, the proposed fees to be paid to NWQ with respect to the assets of the Fund to be allocated to the Subadvisor appeared to be within a reasonable range. Based on these factors, the determination of the Advisor at the conclusion of its due diligence process, and such other matters as were deemed relevant, the Independent Trustees, at the November 2007 Meeting, concluded that the Subadvisor's fee rate continued to be reasonable in relation to the services provided to the Fund by NWQ. * * * * * * In connection with the Trust's response to the SEC Staff's comments on the Information Statement, the Trust acknowledges that: (i) the Trust is responsible for the adequacy of the disclosure in the Trust's filings; (ii) Staff comments or changes to disclosure in response to Staff comments in the filings reviewed by the Staff do not foreclose the SEC from taking any action with respect to the filings; and (iii) the Trust may not assert Staff comments as a defense in any proceeding initiated by the SEC under the federal securities laws of the United States. Please do not hesitate to contact Mark A. Sheehan, at (215) 564-8027, if you have any questions or wish to discuss any of the responses presented above. Sincerely, /s/Cynthia Lo Bessette Cynthia Lo Bessette Vice President and Secretary MGI Funds cc: David M. Goldenberg, Esq. Mercer Global Investments, Inc. Stuart H. Coleman, Esq. Stroock & Stroock & Lavan, LLP Bruce G. Leto, Esq. Stradley, Ronon, Stevens & Young, LLP
- Company Dashboard
- Filings
-
CORRESP Filing
Mercer Funds CORRESPCorrespondence with SEC
Filed: 31 Jan 08, 12:00am