SCHEDULE 14C INFORMATION
INFORMATION STATEMENT PURSUANT TO SECTION 14(C) OF THE
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(AMENDMENT NO.)
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MGI FUNDS
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MGI FUNDS(TM)
MGI Core Opportunistic Fixed Income Fund
200 Clarendon Street
Boston, Massachusetts 02116
June 21, 2007
Dear Shareholder:
We are pleased to notify you of a change involving a subadvisor for the MGI Core
Opportunistic Fixed Income Fund (the "Fund"), a series of MGI Funds (the
"Trust"). Specifically, the Board of Trustees of the Trust (the "Board") has
approved a new subadvisory agreement (the "Subadvisory Agreement") between
MacKay Shields LLC ("MacKay") and Mercer Global Investments, Inc. ("MGI" or the
"Advisor"), on behalf of the Fund, pursuant to which MacKay will serve as a
subadvisor for the Fund. Each of the Fund's two current subadvisors, BlackRock
Advisors, Inc. and Western Asset Management Company, will continue to manage an
allocated portion of the Fund's investment portfolio.
This change became effective on April 2, 2007. I encourage you to read the
attached Information Statement, which provides, among other information, details
regarding MacKay and the Subadvisory Agreement, as well as a discussion of the
factors that the Board considered in approving the change described above.
Sincerely,
/s/ Phillip J. de Cristo
Phillip J. de Cristo
Trustee, President, and Chief
Executive Officer, MGI Funds
MGI FUNDS(TM)
MGI Core Opportunistic Fixed Income Fund
200 Clarendon Street
Boston, Massachusetts 02116
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INFORMATION STATEMENT
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This Information Statement (the "Statement") is being furnished on behalf of the
Board of Trustees (the "Board") of MGI Funds (the "Trust") to inform
shareholders of the MGI Core Opportunistic Fixed Income Fund (the "Fund") about
the recent addition of a third subadvisor for the Fund. The Board, on behalf of
the Fund, has approved a new subadvisory agreement (the "Subadvisory Agreement")
between MacKay Shields LLC ("MacKay" or the "Subadvisor") and Mercer Global
Investments, Inc. ("MGI" or the "Advisor"). The Subadvisory Agreement was
approved by the Board upon the recommendation of MGI, without shareholder
approval, as is permitted by the exemptive order of the U.S. Securities and
Exchange Commission (the "SEC" or the "Commission"), dated December 28, 2005
(the "Exemptive Order"), issued to the Trust and the Advisor. This Statement is
being mailed on or about June 21, 2007 to shareholders of record of the Fund as
of May 31, 2007. WE ARE NOT ASKING YOU FOR A PROXY AND YOU ARE REQUESTED NOT TO
SEND US A PROXY.
INTRODUCTION
MGI is the investment advisor for the series of the Trust, including the Fund.
The Advisor uses a "manager of managers" approach in managing the assets of the
Trust's series. This approach permits MGI to hire, terminate, or replace
subadvisors of the series that are unaffiliated with the Trust or the Advisor,
and to modify material terms and conditions of subadvisory agreements relating
to the management of the series. Section 15(a) of the Investment Company Act of
1940, as amended (the "1940 Act"), generally requires that the shareholders of a
mutual fund approve an agreement pursuant to which a person serves as the
investment advisor or subadvisor of the mutual fund. The Trust and the Advisor
have obtained the Exemptive Order from the SEC, which permits the Trust and the
Advisor, subject to certain conditions and approval by the Board, to hire and
retain unaffiliated subadvisors and to modify subadvisory arrangements without
shareholder approval. Under the Exemptive Order, the Advisor may act as a
manager of managers for some or all of the series of the Trust, and the Advisor
supervises the provision of portfolio management services to the series by the
subadvisors.
The Exemptive Order allows the Advisor, among other things: (i) to continue the
employment of a current subadvisor after events that would otherwise cause an
automatic termination of a subadvisory agreement with the subadvisor; and (ii)
to reallocate assets among current or new subadvisors. The Advisor has ultimate
responsibility (subject to oversight by the Board) to supervise the subadvisors
and recommend the hiring, termination, and replacement of the subadvisors.
Consistent with the terms of the Exemptive Order, the Board, including a
majority of the Trustees who are not "interested persons" (as that term is
defined in the 1940 Act) of the Trust or of the Advisor (the "Independent
Trustees"), (i) appointed MacKay to serve as a subadvisor for the Fund, and (ii)
approved the Subadvisory Agreement between the Advisor and MacKay with respect
to the Fund.
The Trust and the Advisor have agreed to comply with certain conditions when
acting in reliance on the relief granted in the Exemptive Order. These
conditions require, among other things, that within ninety days of entering into
a new subadvisory agreement, the affected series will notify shareholders of the
series of the changes. This Statement provides such notice and presents details
regarding the Subadvisory Agreement.
THE ADVISOR
The Advisor, a Delaware corporation located at 200 Clarendon Street, Boston,
Massachusetts 02116, serves as the investment advisor to the Fund. The Advisor
is an indirect, wholly-owned subsidiary of Marsh & McLennan Companies, Inc. The
Advisor is registered as an investment adviser with the Commission under the
Investment Advisers Act of 1940, as amended (the "Advisers Act"). The Advisor is
an affiliate of Mercer Investment Consulting, Inc., an investment consultant
with more than 30 years' experience reviewing, rating, and recommending
investment managers for institutional clients.
The Advisor provides investment advisory services to the Fund pursuant to the
Investment Management Agreement, dated July 1, 2005, between the Trust and the
Advisor (the "Management Agreement"). The Trust employs the Advisor generally to
manage the investment and reinvestment of the assets of the Fund. In so doing,
the Advisor may hire one or more subadvisors to carry out the investment program
of the Fund (subject to the approval of the Board). The Advisor continuously
reviews, supervises, and (where appropriate) administers the investment program
of the Fund. The Advisor furnishes periodic reports to the Board regarding the
investment program and performance of the Fund.
Pursuant to the Management Agreement, the Advisor has overall supervisory
responsibility for the general management and investment of the Fund's
securities portfolio, and subject to review and approval by the Board: (i) sets
the Fund's overall investment strategies; (ii) evaluates, selects, and
recommends subadvisors to manage all or a portion of the Fund's assets; (iii)
when appropriate, allocates and reallocates the Fund's assets among subadvisors;
(iv) monitors and evaluates the performance of subadvisors, including the
subadvisors' compliance with the investment objective, policies, and
restrictions of the Fund; and (v) implements procedures to ensure that the
subadvisors comply with the Fund's investment objective, policies, and
restrictions.
For these services, the Fund pays the Advisor a fee calculated at an annual rate
of 0.35% of the Fund's average daily net assets. The Trust, with respect to the
Fund, and the Advisor have entered into a written contractual fee waiver and
expense reimbursement agreement pursuant to which the Advisor has agreed to
waive a portion of its fees and/or to reimburse expenses of the Fund to the
extent that the Fund's expenses (not including brokerage fees and expenses,
interest, and extraordinary expenses) exceed certain levels. After giving effect
to the fee waiver and expense reimbursement agreement, the Advisor received fees
of $1,459,922 from the Fund for the fiscal year ended March 31, 2007.
Several of the officers of the Trust are also officers and/or employees of the
Advisor. These individuals and their respective positions are: Phillip J. de
Cristo serves as Trustee, President, and Chief Executive Officer of the Trust,
and as President of the Advisor. Ravi B. Venkataraman serves as Vice President
and Chief Investment Officer of the Trust, and as Chief Investment Officer of
the Advisor. Richard S. Joseph serves as Vice President, Treasurer, and
Principal Accounting Officer of the Trust, and as Chief Operating Officer of the
Advisor. Cynthia Lo Bessette serves as Vice President, Secretary, and Chief
Legal Officer of the Trust, and as Senior Corporate Counsel of the Advisor.
David M. Goldenberg serves as Vice President and Assistant Secretary of the
Trust, and as General Counsel of Mercer Human Resource Consulting, an affiliate
of the Advisor. Christopher A. Ray serves as Vice President of the Trust, and as
Senior Portfolio Manager of the Advisor. Martin J. Wolin serves as Vice
President and Chief Compliance Officer of the Trust, and as Chief Compliance
Officer of the Advisor.
THE NEW SUBADVISOR
MacKay is located at 9 West 57th Street, New York, New York 10019 and is
registered as an investment adviser with the Commission under the Advisers Act.
MacKay is a wholly-owned subsidiary of New York Life Investment Management
Holdings LLC, which is located at 51 Madison Avenue, New York, New York 10010.
MacKay was approved by the Board to serve as a subadvisor for the Fund at the
Board meeting (the "Meeting") held on February 8, 2007. MacKay is independent of
the Advisor, and discharges its responsibilities subject to the oversight and
supervision of the Advisor.
The Subadvisor is compensated out of the fees that the Advisor receives from the
Fund. There will be no increase in the advisory fees paid by the Fund as a
consequence of the addition of the Subadvisor, or the approval of the
Subadvisory Agreement. The fees paid by the Advisor to the Subadvisor depend
upon the fee rates negotiated by the Advisor and on the percentage of the Fund's
assets allocated to the Subadvisor by MGI. In accordance with procedures adopted
by the Board, the Subadvisor may effect Fund portfolio transactions through an
affiliated broker-dealer and the affiliated broker-dealer may receive brokerage
commissions in connection therewith as permitted by applicable law.
Day-to-day management of MacKay's allocated portion of the Fund's investment
portfolio is the responsibility of the MacKay Shields High Yield Active Core
Investment Team. The portfolio management team follows an investment process
that utilizes a bottom-up security selection strategy, augmented by
macroeconomic analysis. The initial credit screen, which consists of a
multi-factor progression of both quantitative and qualitative characteristics,
is the most important filter, and identifies security candidates for further
in-depth analysis. Securities also are subjected to a payoff analysis, seeking
to identify those bonds within the capital structure that have the most
attractive profile and to eliminate bonds with inferior return prospects
relative to the risk of loss. The portfolio management team also utilizes
extensive proprietary fundamental credit analysis to determine the
creditworthiness of each company and evaluates each bond on a relative value
basis.
MacKay serves as a subadvisor for the registered investment company listed
below, which has an investment objective similar to the investment objective of
the Fund:
Assets as of
Name March 31, 2007 Sub-Advisory Fee
UBS PACE $61,381,553 0.35%
High Yield Investments of average daily net assets
The name and principal occupation of each of the principal executive officers of
MacKay are listed below. The address of each individual listed below, as it
relates to the person's position with MacKay, is 9 West 57th Street, New York,
New York 10019.
Name Position with MacKay
Ravi Akhoury Chairman and Chief Executive Officer
Osbert Hood President, Senior Managing Director
Lucille Protas Chief Operating Officer, Senior Managing Director
Rupal Bhansali Senior Managing Director
Gary Goodenough Senior Managing Director
Kevin McAteer Managing Director
Ellen Metzger Senior Managing Director
J. Matthew Philo Senior Managing Director
John Prom Senior Managing Director
Dan Roberts Senior Managing Director
Richard Rosen Senior Managing Director
Edmund Spelman Senior Managing Director
Timothy West Senior Managing Director
THE NEW SUBADVISORY AGREEMENT
The Subadvisory Agreement was approved by the Board at the Meeting, which
Meeting was called, among other reasons, for the purpose of approving such
Subadvisory Agreement, for an initial term of two years. Thereafter, continuance
of the Subadvisory Agreement will require the annual approval of the Board,
including a majority of the Independent Trustees. The Subadvisory Agreement
provides that it will terminate automatically in the event of its assignment,
except as otherwise provided by applicable law or the Exemptive Order.
The terms of the Subadvisory Agreement, other than the rate of compensation to
be paid by the Advisor to MacKay, are substantially similar to the subadvisory
agreements between the Advisor and each of the Fund's other subadvisors.
The Subadvisory Agreement provides that the Subadvisor, among other duties, will
make all investment decisions for the Subadvisor's allocated portion of the
Fund's investment portfolio. The Subadvisor, subject to the supervision of the
Board and the Advisor, will conduct an ongoing program of investment, evaluation
and, if appropriate, sale and reinvestment of the Subadvisor's allocated portion
of the Fund's assets. The Subadvisor also will perform certain other
administrative and compliance-related functions in connection with the
management of its allocated portion of the Fund's investment portfolio.
The Subadvisory Agreement provides for the Subadvisor to be compensated based on
the average daily net assets allocated to the Subadvisor. The Subadvisor is
compensated from the fees that the Advisor receives from the Fund. The
Subadvisor generally will pay all expenses that the Subadvisor incurs in
connection with its activities under the Subadvisory Agreement, other than the
costs of the Fund's portfolio securities and other investments.
The Subadvisory Agreement may be terminated at any time, without the payment of
any penalty, by: (i) the vote of a majority of the Board, the vote of a majority
of the outstanding voting securities of the Fund, or the Advisor, or (ii) the
Subadvisor, on not less than 90 days' written notice to the Advisor and the
Trust.
BOARD OF TRUSTEES' CONSIDERATIONS
At the Meeting, MGI recommended the appointment of MacKay to serve as a
subadvisor for the Fund after evaluating a number of other possible investment
managers. MacKay was recommended by the Advisor because, among other factors:
(i) the Advisor sought to add dedicated high-yield fixed income exposure to the
Fund's investment portfolio; (ii) MacKay has achieved favorable historical
performance in managing portfolios of high-yield fixed income securities; (iii)
MacKay's portfolio management team possesses significant experience in managing
portfolios of high-yield fixed income securities; and (iv) MacKay has adequate
resources to capably manage its allocated portion of the Fund's investment
portfolio.
At the Meeting, the Board, including a majority of the Independent Trustees,
considered and approved the Subadvisory Agreement. In determining whether to
approve the Subadvisory Agreement, the Board considered the information received
in advance of the Meeting, which included: (i) copies of a form of the
Subadvisory Agreement between the Advisor and the Subadvisor; (ii) information
regarding the process by which the Advisor selected the Subadvisor and
recommended the Subadvisor for Board approval; (iii) information regarding the
nature and quality of the services that the Subadvisor would provide to the
Fund; (iv) information regarding the Subadvisor's reputation, investment
management business, personnel, and operations; (v) information regarding the
Subadvisor's brokerage and trading policies and practices; (vi) information
regarding the level of subadvisory fees to be charged by the Subadvisor, and a
comparison of those fees to the standard fees charged by the Subadvisor to other
comparable accounts the Subadvisor manages; (vii) the Subadvisor's compliance
program; (viii) the Subadvisor's historical performance returns managing a
similar investment mandate, and such performance compared to a relevant index;
and (ix) the Subadvisor's financial condition. The Board also considered the
substance of discussions with representatives of the Advisor and MacKay at the
Meeting.
When considering the approval of the Subadvisory Agreement, the Board reviewed
and analyzed the factors the Board deemed relevant with respect to the
Subadvisor, including: the nature, quality, and extent of the services to be
provided to the Fund by the Subadvisor; the Subadvisor's management style; the
Subadvisor's historical performance record managing pooled investment products
similar to the Fund; the qualifications and experience of the persons that will
be responsible for the day-to-day management of the allocated portion of the
Fund; and the Subadvisor's staffing levels and overall resources. Additionally,
the Board reviewed materials supplied by counsel that were prepared for use by
the Board in fulfilling its duties under the 1940 Act.
In examining the nature, quality, and extent of the services to be provided by
the Subadvisor to the Fund, the Board considered: the specific investment
process to be employed by the Subadvisor in managing the assets to be allocated
to it; the qualifications of the Subadvisor's investment management team with
regard to implementing the Fund's investment mandate; the Subadvisor's
performance record as compared to its benchmark; the Subadvisor's infrastructure
and whether it appeared to adequately support the Subadvisor's investment
strategy; and the Advisor's review process and the Advisor's favorable
assessment as to the nature and quality of the subadvisory services expected to
be provided by the Subadvisor. The Board concluded that the Fund will benefit
from the quality and experience of the Subadvisor's portfolio managers. Based on
the Board's consideration and review of the foregoing information, the Board
concluded that the nature, extent, and quality of the subadvisory services to be
provided by the Subadvisor, as well as the Subadvisor'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, and supported a
decision to approve the Subadvisory Agreement.
Because MacKay is a newly appointed subadvisor for the Fund, the Board could not
consider MacKay's investment performance in managing the Fund as a factor in
evaluating the Subadvisory Agreement. However, the Board did review the
Subadvisor's historical performance record in managing other accounts that were
comparable to the Fund. The Board compared this historical performance to a
relevant benchmark. The Board noted that the MacKay Shields High Yield Active
Core Strategy had outperformed (before fees) its benchmark since the strategy's
inception. On this basis, the Board concluded that the historical performance
record for the Subadvisor supported a decision to approve the Subadvisory
Agreement.
The Board carefully considered the proposed fees payable under the Subadvisory
Agreement. In this connection, the Board evaluated the compensation to be paid
to the Subadvisor by the Advisor. The Board also considered comparisons of the
fees to be paid to the Subadvisor with the fees the Subadvisor charges to its
other clients, noting that the fee rate that the Advisor had negotiated with
MacKay was below the standard fee rate charged by MacKay to its other accounts
that are managed using the same strategy as the Fund.
The Board also considered that the fee schedule of the Subadvisor included
breakpoints that would reduce the Subadvisor's fees as assets in the Fund
increased. 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. After evaluating the
proposed fees, the Board concluded that the fees that would be paid to the
Subadvisor with respect to the assets to be allocated to the Subadvisor appeared
to be within a reasonable range in light of the quality and extent of the
services to be provided.
The Board reviewed a copy of the Subadvisory Agreement. The Board considered
that the Subadvisory Agreement provided for the same range of services as the
subadvisory agreements that the Fund currently has in place with each of its
other subadvisors.
The Board considered the selection and due diligence process employed by the
Advisor in deciding to recommend the addition of MacKay as a subadvisor for the
Fund. The Board also considered the Advisor's conclusion that the fees to be
paid to the Subadvisor for its services to the Fund will be reasonable, and the
reasons supporting that conclusion. The Board noted that the subadvisory fees
will be paid by the Advisor to the Subadvisor and will not be additional fees
paid by the Fund. The Board concluded that the Advisor's recommendations and
conclusions supported approval of the Subadvisory Agreement.
In considering the materials and information described above, the Independent
Trustees received assistance from, and met separately with, their independent
legal counsel, and were provided with a written description of their statutory
responsibilities and the legal standards that are applicable to the approval of
investment advisory and subadvisory agreements.
After full consideration of the factors discussed above, 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
that the initial approval of the Subadvisory Agreement was in the best interests
of the Fund, and approved the Subadvisory Agreement for the Fund.
GENERAL INFORMATION
Administrative and Accounting Services
Investors Bank & Trust Company (the "Administrator"), located at 200 Clarendon
Street, Boston, Massachusetts 02116, is the administrator of the Fund. The
Administrator performs various services for the Fund, including fund accounting,
daily and ongoing maintenance of certain Fund records, calculation of the Fund's
net asset value, and preparation of shareholder reports.
The Advisor provides certain internal administrative services to the Class S,
Class Y-1, and Class Y-2 shares of the Fund, for which the Advisor receives a
fee of 0.15%, 0.10%, and 0.05% of the average daily net assets of the Class S,
Class Y-1, and Class Y-2 shares of the Fund, respectively. For the fiscal year
ended March 31, 2007, the Fund did not pay any fees to the Advisor for internal
administrative services.
Principal Underwriting Arrangements
MGI Funds Distributors, Inc. (the "Distributor"), located at 301 Bellevue
Parkway, Wilmington, Delaware 19809, is a Delaware corporation that is a
subsidiary of PFPC, Inc., and acts as the principal underwriter of each class of
shares of the Fund pursuant to an Underwriting Agreement with the Trust. The
Underwriting Agreement requires the Distributor to use its best efforts,
consistent with its other businesses, to sell shares of the Fund.
Payments to Affiliated Brokers
For the fiscal year ended March 31, 2007, the Fund did not pay any brokerage
commissions to affiliated brokers.
Record of Beneficial Ownership
As of May 31, 2007, the Fund had 34,438,794 shares outstanding, and MGI
Collective Trust: MGI Core Opportunistic Fixed Income Portfolio and Southern
Ohio Medical Center held 30,583,174 and 2,043,657 shares, respectively,
representing 88.8% and 5.9%, respectively, of the total shares outstanding.
SHAREHOLDER REPORTS
Additional information about the Fund's investments is available in the Fund's
annual and semi-annual reports to shareholders. In the Fund's annual report, you
will find a discussion of the market conditions and investment strategies that
significantly affected the Fund's performance during its last fiscal year. A
copy of the Fund's most recent annual report to shareholders and the most recent
semi-annual report succeeding the annual report to shareholders may be obtained,
without charge, by calling your plan administrator or recordkeeper or financial
advisor, or by calling the Trust toll-free at 1-866-658-9896.
