December 27, 2006
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
Core Opportunistic Fixed Income Fund (the "Fund"), which will inform
shareholders of the Fund of the approval of a new subadvisory agreement between
Mercer Global Investments, Inc., the Fund's investment advisor ("MGI" or the
"Advisor"), and BlackRock Financial Management, Inc. (formerly, BlackRock
Advisors, Inc.) ("BlackRock" 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 (the "1934 Act"), on Thursday, December 14, 2006.
Chad D. Eskildsen 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, December 20, 2006. Each
Staff comment is summarized below, followed by the Trust's response to the
respective comment. Capitalized terms not otherwise defined in this letter have
the meanings assigned to the terms in the Information Statement.
1. Comment. On page 4 of the Information Statement, in the section titled
"The Subadvisor," please disclose the subadvisory fees paid to BlackRock in the
Fund's last fiscal year.
Response. Initially, the Trust notes that it operates in reliance upon the
exemptive order (the "Order") issued by the SEC to the Trust and the Advisor
that permits the Trust to
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December 27, 2006
Page 2
utilize a manager-of-managers structure.(1) For purposes of the Information
Statement, condition 3 of the Order(2) allows the Trust to use "Aggregate Fee
Disclosure," which was defined in the Order as:
"...permit[ting] the Trust to disclose for each Fund (as both a dollar
amount and as a percentage of each Fund's net assets): (a) the aggregate
fees paid to the Advisor and any Affiliated Subadvisers, and (b) THE
AGGREGATE FEES PAID TO SUBADVISERS OTHER THAN AFFILIATED SUBADVISERS."
(Emphasis added)
The condition is intended to allow the Trust and the Advisor to negotiate
more favorable subadvisory rates with subadvisors, thereby benefiting the Trust
and its shareholders. In accordance with this condition, as an alternative to
disclosing the subadvisory fees paid to BlackRock in the Information Statement,
the Fund is permitted to disclose the aggregate subadvisory fees paid to BOTH
BlackRock and Western Asset Management Company ("WAMCo"), the Fund's second
subadvisor. In light of this, the following underlined disclosure will be
inserted at the end of the initial paragraph of the section titled "The
Subadvisor":
BlackRock is independent of the Advisor, and discharges its
responsibilities subject to the oversight and supervision of the Advisor.
BlackRock is compensated out of the fees that the Advisor receives from the
Fund. There will be no increase in advisory fees paid by the Fund as a
consequence of the Current Subadvisory Agreement. FOR THE FISCAL YEAR ENDED
MARCH 31, 2006, THE ADVISOR PAID AGGREGATE SUBADVISORY FEES TO BLACKROCK
AND WAMCO OF $284,924, WHICH REPRESENTED 0.274% OF THE AVERAGE DAILY NET
ASSETS OF THE FUND. THE FEES PAID BY THE ADVISOR TO EACH SUBADVISOR DEPEND
UPON THE FEE RATES NEGOTIATED BY THE ADVISOR AND ON THE PERCENTAGE OF THE
FUND'S ASSETS ALLOCATED TO THE SUBADVISORS BY MGI.
2. Comment. On page 6, in the section titled "Board of Trustees'
Considerations," the Information Statement discloses:
Additionally, given that the fee provided under the Current Subadvisory
Agreement was identical to the fee under the Prior Subadvisory Agreement,
the BOARD'S PRIOR DELIBERATIONS, at the May 16 and 17, 2005
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(1) See Investment Company Act Release No. 27173 (December 1, 2005).
(2) Condition 3 provides:
"Within 90 days of the hiring of a new Subadviser, the affected Fund
shareholders will be furnished all information about the new
Subadviser that would be included in a proxy statement, EXCEPT AS
MODIFIED TO PERMIT AGGREGATE FEE DISCLOSURE. This information will
include Aggregate Fee Disclosure and any change in such disclosure
caused by the addition of the new Subadviser. To meet this obligation,
the Fund will provide shareholders within 90 days of the hiring of a
new Subadviser with an information statement meeting the requirements
of Regulation 14C, Schedule 14C, and Item 22 of Schedule 14A under the
1934 Act, EXCEPT AS MODIFIED BY THE ORDER TO PERMIT AGGREGATE FEE
DISCLOSURE." (Emphasis added.)
U.S. Securities and Exchange Commission
December 27, 2006
Page 3
Board meeting, when the Prior Subadvisory Agreement was approved, remained
relevant. (Emphasis added.)
Disclose the Board's "prior deliberations" at the May 2005 meeting as they
pertained to the Prior Subadvisory Agreement.
Response. The Registrant will include the following new underlined
disclosure in the Information Statement:
Additionally, given that the fee provided under the Current Subadvisory
Agreement was identical to the fee under the Prior Subadvisory Agreement,
the Board's prior deliberations, at the May 16 and 17, 2005 Board meeting
(THE "MAY 2005 MEETING"), when the Prior Subadvisory Agreement was
approved, remained relevant.
IN CONNECTION WITH THE INDEPENDENT TRUSTEES' CONSIDERATION OF THE PRIOR
SUBADVISORY AGREEMENT AT THE MAY 2005 MEETING, THE INDEPENDENT TRUSTEES
CONSIDERED INFORMATION RELATING TO: (I) THE PROCESS BY WHICH THE ADVISOR
SELECTED AND RECOMMENDED BLACKROCK FOR BOARD APPROVAL; (II) THE NATURE,
EXTENT, AND QUALITY OF THE SERVICES THAT BLACKROCK WOULD PROVIDE TO THE
FUND; (III) BLACKROCK'S REPUTATION, INVESTMENT MANAGEMENT BUSINESS,
PERSONNEL, AND OPERATIONS; (IV) BLACKROCK'S BROKERAGE AND TRADING POLICIES
AND PRACTICES; (V) THE LEVEL OF SUBADVISORY FEES TO BE CHARGED BY
BLACKROCK; AND A COMPARISON OF THOSE FEES TO THE FEES: (A) CHARGED BY
BLACKROCK TO COMPARABLE ACCOUNTS BLACKROCK MANAGED, INCLUDING REGISTERED
AND UNREGISTERED INVESTMENT COMPANIES OR OTHER POOLED INVESTMENT VEHICLES,
AS APPLICABLE, AND (B) PAID BY CERTAIN OTHER REGISTERED INVESTMENT
COMPANIES (OR THEIR INVESTMENT ADVISORS) AND HAVING INVESTMENT OBJECTIVES
SIMILAR TO THAT OF THE FUND; (VI) BLACKROCK'S COMPLIANCE PROGRAM; (VII)
BLACKROCK'S HISTORICAL PERFORMANCE RETURNS MANAGING A SIMILAR INVESTMENT
MANDATE, AND SUCH PERFORMANCE COMPARISONS TO A RELEVANT INDEX; AND (VIII)
BLACKROCK'S FINANCIAL CONDITION. THE INDEPENDENT TRUSTEES ALSO CONSIDERED
AND ANALYZED OTHER INFORMATION AND FACTORS THAT THE INDEPENDENT TRUSTEES
DEEMED RELEVANT WITH RESPECT TO BLACKROCK, INCLUDING: BLACKROCK'S
MANAGEMENT STYLE; THE QUALIFICATIONS AND EXPERIENCE OF THE PERSONS THAT
WILL BE RESPONSIBLE FOR THE DAY-TO-DAY MANAGEMENT OF THE FUND; AND
BLACKROCK'S STAFFING LEVELS AND OVERALL RESOURCES.
AT THE MAY 2005 MEETING, THE INDEPENDENT TRUSTEES REVIEWED THE NATURE,
QUALITY, AND EXTENT OF THE SERVICES TO BE PROVIDED BY BLACKROCK TO THE
FUND. THE INDEPENDENT TRUSTEES DISCUSSED THE SPECIFIC INVESTMENT PROCESS TO
BE EMPLOYED BY BLACKROCK IN MANAGING THE ASSETS OF THE FUND TO BE ALLOCATED
TO THE SUBADVISOR, THE QUALIFICATIONS OF BLACKROCK'S INVESTMENT MANAGEMENT
TEAM WITH REGARD TO IMPLEMENTING THE FUND'S INVESTMENT
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December 27, 2006
Page 4
MANDATE, AND BLACKROCK'S PERFORMANCE RECORD AS COMPARED TO ITS BENCHMARK.
THE INDEPENDENT TRUSTEES CONSIDERED BLACKROCK'S INFRASTRUCTURE AND WHETHER
THE SUBADVISOR APPEARED TO SUPPORT ITS INVESTMENT STRATEGY ADEQUATELY. THE
INDEPENDENT TRUSTEES ALSO DISCUSSED THE ADVISOR'S REVIEW AND SELECTION
PROCESS WITH RESPECT TO BLACKROCK, AND THE ADVISOR'S FAVORABLE ASSESSMENT
AS TO THE NATURE AND QUALITY OF THE SUBADVISORY SERVICES EXPECTED TO BE
PROVIDED BY BLACKROCK. THE INDEPENDENT TRUSTEES DETERMINED THAT THE FUND
WOULD BENEFIT FROM THE QUALITY AND EXPERIENCE OF BLACKROCK'S PORTFOLIO
MANAGERS. BASED ON THEIR CONSIDERATION AND REVIEW OF THE FOREGOING FACTORS,
THE INDEPENDENT TRUSTEES CONCLUDED THAT THE NATURE, EXTENT, AND QUALITY OF
THE SUBADVISORY SERVICES TO BE PROVIDED BY BLACKROCK UNDER THE PRIOR
SUBADVISORY AGREEMENT, AS WELL AS BLACKROCK'S ABILITY TO RENDER SUCH
SERVICES BASED ON ITS EXPERIENCE, OPERATIONS, AND RESOURCES, WERE
APPROPRIATE FOR THE FUND, IN LIGHT OF THE FUND'S INVESTMENT OBJECTIVE.
BECAUSE THE FUND WAS NEWLY FORMED AND HAD NOT YET COMMENCED INVESTMENT
OPERATIONS, THE INDEPENDENT TRUSTEES COULD NOT CONSIDER BLACKROCK'S
INVESTMENT PERFORMANCE WITH RESPECT TO ITS MANAGEMENT OF THE FUND AS A
FACTOR IN EVALUATING THE PRIOR SUBADVISORY AGREEMENT AT THE MAY 2005
MEETING. HOWEVER, THE INDEPENDENT TRUSTEES DID REVIEW BLACKROCK'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.
THE INDEPENDENT TRUSTEES DISCUSSED THE SERVICES THAT WOULD BE RENDERED BY
BLACKROCK AND EVALUATED THE COMPENSATION TO BE PAID TO BLACKROCK BY THE
ADVISOR. THE INDEPENDENT TRUSTEES ALSO CONSIDERED COMPARISONS OF THE FEES
PAID TO BLACKROCK BY THE ADVISOR WITH THE FEES CHARGED BY BLACKROCK TO ITS
OTHER CLIENTS. THE INDEPENDENT TRUSTEES NOTED THAT THE FEE SCHEDULE OF
BLACKROCK INCLUDED BREAKPOINTS THAT WOULD REDUCE BLACKROCK'S FEES AS ASSETS
IN THE FUND INCREASED. IN ADDITION, THE INDEPENDENT TRUSTEES CONSIDERED THE
SELECTION AND DUE DILIGENCE PROCESS EMPLOYED BY THE ADVISOR IN DECIDING TO
RECOMMEND BLACKROCK AS A SUBADVISOR TO 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 INDEPENDENT TRUSTEES NOTED THAT THE
SUBADVISORY FEES WERE PAID BY THE ADVISOR TO BLACKROCK AND WERE NOT
ADDITIONAL FEES TO BE BORNE BY THE FUND. BASED ON THEIR DISCUSSION, THE
INDEPENDENT TRUSTEES CONCLUDED THAT, IN LIGHT OF THE QUALITY AND EXTENT OF
THE SERVICES TO BE
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December 27, 2006
Page 5
PROVIDED, THE PROPOSED FEES TO BE PAID TO BLACKROCK WITH RESPECT TO THE
ASSETS 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 MAY 2005 MEETING, CONCLUDED THAT
THE PROPOSED FEE RATE WAS REASONABLE IN RELATION TO THE SERVICES TO BE
PROVIDED TO THE FUND BY BLACKROCK. AS A RESULT, THE INDEPENDENT TRUSTEES
DECIDED TO RECOMMEND TO THE BOARD THE APPROVAL OF THE PRIOR SUBADVISORY
AGREEMENT AT THE MAY 2005 MEETING.
After full consideration of the factors discussed above, INCLUDING THE
INDEPENDENT TRUSTEES' DELIBERATIONS AT THE MAY 2005 MEETING, with no single
factor identified as being of paramount importance, the Board, including a
majority of the Independent Trustees, with the assistance of independent
counsel, concluded AT THE JULY BOARD MEETING that the approval of the
Current Subadvisory Agreement was in the best interests of the Fund, and
approved the Current Subadvisory Agreement with respect to the Fund.
* * * * * *
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.
U.S. Securities and Exchange Commission
December 27, 2006
Page 6
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
