SCHEDULE 14C INFORMATION
INFORMATION STATEMENT PURSUANT TO SECTION 14(C) OF THE
SECURITIES EXCHANGE ACT OF 1934
(AMENDMENT NO.)
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MERCER FUNDS
(formerly known as MGI Funds)
(NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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MERCER FUNDS
(formerly known as MGI Funds)
Mercer US Small/Mid Cap Growth Equity Fund
(formerly known as MGI US Small/Mid Cap Growth Equity Fund)
99 High Street
Boston, Massachusetts 02110
June 11, 2012
Dear Shareholder:
We are pleased to notify you of changes involving the Mercer US Small/Mid Cap Growth Equity Fund (formerly known as MGI US Small/Mid Cap Growth Equity Fund) (the “Fund”), a series of Mercer Funds (formerly known as MGI Funds) (the “Trust”).
The Board of Trustees of the Trust (the “Board”) has approved the hiring of Palisade Capital Management, L.L.C. (“Palisade”) to serve as a subadvisor to the Fund. In conjunction with this appointment, the Board has approved a new subadvisory agreement between Mercer Investment Management, Inc. (formerly known as Mercer Global Investments, Inc.), the Fund’s investment advisor, on behalf of the Fund, and Palisade (the “Palisade Subadvisory Agreement”). As was previously communicated to you via a supplement to the Trust’s prospectus, dated March 16, 2012, Palisade began managing its allocated portion of the Fund’s investment portfolio on that date.
I encourage you to read the attached Information Statement, which provides, among other information, details regarding Palisade and the Palisade Subadvisory Agreement, as well as a discussion of the factors that the Board considered in approving the Palisade Subadvisory Agreement.
| Sincerely, | ||
 | ||
| Richard L. Nuzum, CFA | ||
| Trustee, President, and Chief Executive Officer | ||
| Mercer Funds (formerly known as MGI Funds) | ||
MERCER FUNDS
(formerly known as MGI Funds)
Mercer US Small/Mid Cap Growth Equity Fund
(formerly known as MGI US Small/Mid Cap Growth Equity Fund)
99 High Street
Boston, Massachusetts 02110
INFORMATION STATEMENT
This Information Statement (the “Statement”) is being furnished on behalf of the Board of Trustees (the “Board”) of Mercer Funds (formerly known as MGI Funds) (the “Trust”) to inform shareholders of the Mercer US Small/Mid Cap Growth Equity Fund (formerly known as MGI US Small/Mid Cap Growth Equity Fund) (the “Fund”) about the hiring of a new subadvisor to the Fund, Palisade Capital Management, L.L.C. (“Palisade”). In connection with the hiring of Palisade, the Board approved a new subadvisory agreement between Mercer Investment Management, Inc. (formerly known as Mercer Global Investments, Inc., the Fund’s investment advisor (“Mercer” or the “Advisor”), on behalf of the Fund, and Palisade (the “Palisade Subadvisory Agreement”). Palisade began managing its allocated portion of the Fund’s investment portfolio on March 16, 2012.
The hiring of Palisade 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”), dated December 28, 2005 (the “Exemptive Order”), issued to the Trust and the Advisor.
This Statement is being mailed on or about June 11, 2012 to shareholders of record of the Fund as of May 31, 2012.
WE ARE NOT ASKING YOU FOR A PROXY AND YOU ARE REQUESTED NOT TO SEND US A PROXY.
INTRODUCTION
Mercer is the investment advisor to 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 Mercer to hire, terminate, or replace subadvisors 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 the shareholders of a mutual fund to approve an agreement pursuant to which a person serves as the investment advisor (or as a subadvisor) to the mutual fund. The Trust and the Advisor have obtained the Exemptive Order, 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 with unaffiliated subadvisors without shareholder approval. Under the Exemptive Order, the Advisor may act as a manager of
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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 various subadvisors.
The Exemptive Order allows the Advisor, among other things, to: (i) 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) 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 to the Board.
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”), at the Board meeting held on March 8-9, 2012 (the “Meeting”), (i) appointed Palisade to serve as a subadvisor to the Fund, and (ii) approved the Palisade Subadvisory Agreement.
The decision to approve Palisade was based upon certain factors, including (i) the Advisor’s views regarding Palisade’s record as an effective manager of portfolios of small/mid cap growth equity securities and the Advisor’s high degree of conviction in Palisade’s portfolio management team; and (ii) the Advisor’s opinion that Palisade would effectively complement the Fund’s other subadvisors, Goldman Sachs Asset Management, L.P. (“GSAM”), Delaware Management Company (“Delaware”) and Westfield Capital Management Company, L.P. (“Westfield”). Please see “Board of Trustees’ Considerations” below.
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 (90) days of the hiring of a subadvisor, the affected series will notify the shareholders of the series of the changes. This Statement provides such notice of the changes and presents details regarding Palisade and the Palisade Subadvisory Agreement.
THE ADVISOR
The Advisor, a Delaware corporation located at 99 High Street, Boston, Massachusetts 02110, serves as the investment advisor to the Fund. The Advisor is an indirect, wholly owned subsidiary of Marsh & McLennan Companies, Inc., 1166 Avenue of the Americas, New York, New York 10036. The Advisor is registered as an investment adviser with the SEC 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 thirty 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.
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Pursuant to the Management Agreement, the Advisor has overall supervisory responsibility for the general management and investment of the Fund’s investment 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 the Fund’s 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 0.90% 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 advisory fees of $2,194,410 from the Fund for the fiscal year ended March 31, 2012. The aggregate compensation paid by the Advisor to all subadvisors during the last fiscal year ended March 31, 2012 was $1,847,240 representing 0.68% of the Fund’s average net assets during that period.
Several officers of the Trust are also officers and/or employees of the Advisor. These individuals and their respective positions are: Richard L. Nuzum serves as President, Chief Executive Officer, and Trustee of the Trust and as President and Global Business Leader of Mercer’s Investment Management Business; Thomas Murphy serves as Vice President and Chief Investment Officer of the Trust and as President and 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; Scott M. Zoltowski serves as Vice President, Chief Legal Officer, and Secretary of the Trust and as Chief Counsel of the Advisor and of Mercer; Christopher A. Ray, Manny Weiss, and Wil Berglund each serve as Vice President of the Trust and as Vice President and as portfolio manager of the Advisor; and Mark Gilbert serves as Vice President and Chief Compliance Officer of the Trust and as Chief Compliance Officer of the Advisor. The address of each executive officer of the Trust, except for Mr. Nuzum, is 99 High Street, Boston, Massachusetts 02110. Mr. Nuzum’s address is 1166 Avenue of the Americas, New York, New York 10036.
PALISADE CAPITAL MANAGEMENT, L.L.C.
Palisade Capital Management, L.L.C. is located at One Bridge Plaza, Suite 695, Fort Lee, New Jersey 07024. Palisade is a privately owned investment advisor registered with the SEC under the Advisers Act. The Palisade Subadvisory Agreement is dated March 16, 2012.
Palisade was approved by the Board to serve as a subadvisor to the Fund at the Meeting. Palisade is not affiliated with the Advisor, and Palisade discharges its responsibilities subject to the oversight and supervision of the Advisor. Palisade is compensated out of the fees that the Advisor receives from the Fund. No increase in the advisory fees paid by the Fund to the Advisor resulted from the appointment of Palisade as a subadvisor to the Fund, or from the implementation of the Palisade Subadvisory Agreement. The fees paid by the Advisor to Palisade for serving as a subadvisor to the Fund depend upon the fee rates negotiated by the
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Advisor and on the percentage of the Fund’s assets allocated to Palisade by Mercer. In accordance with procedures adopted by the Board, Palisade 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. Palisade currently does not have an affiliated broker-dealer.
Palisade serves as investment advisor for the registered investment company listed below, which has an investment objective similar to the Fund’s investment objective.
Name | Assets as of March 31, 2012 (in millions) | Annual Advisory Fee Rate (as a | ||
PACE Small/Medium Co Growth Equity Investments | $ 207 (Palisade’s sub-advised portion) | 0.40 |
The names and principal occupations of the principal executive officers of Palisade are listed below. The address of each principal executive officer, as it relates to the person’s positions with Palisade, is One Bridge Plaza, Suite 695, Fort Lee, New Jersey 07024.
Name | Principal Occupation | |
Martin L. Berman | Chairman and Chief Executive Officer | |
Steven E. Berman | Vice Chairman | |
Jack Feiler | President and Chief Investment Officer – Private Wealth Management | |
Jeffrey D. Serkes | Chief Operating Officer | |
Dennison T. Veru | Executive Vice President and Chief Investment Officer – Institutional | |
Bradley R. Goldman | General Counsel and Chief Compliance Officer | |
Brian K. Fern | Chief Financial Officer | |
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THE PALISADE SUBADVISORY AGREEMENT
The Palisade Subadvisory Agreement was approved by the Board at the Meeting, which was called, among other reasons, for the purpose of considering and approving the Palisade Subadvisory Agreement for an initial term of two years. Thereafter, continuance of the Palisade Subadvisory Agreement will require the annual approval of the Board, including a majority of the Independent Trustees. The Palisade 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 Palisade Subadvisory Agreement, other than the rate of compensation paid by the Advisor to Palisade, are substantially similar to the terms contained in the subadvisory agreements in effect between the Advisor and each of GSAM, Delaware, and Westfield.
The Palisade Subadvisory Agreement provides that Palisade, among other duties, will make all investment decisions for its allocated portion of the Fund’s investment portfolio. Palisade, 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 Palisade’s allocated portion of the Fund’s assets. Palisade 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 Palisade Subadvisory Agreement provides for Palisade to be compensated based on the average daily net assets of the Fund allocated to Palisade. Palisade is compensated for serving as a subadvisor to the Fund from the fees that the Advisor receives from the Fund. Palisade generally will pay all expenses it incurs in connection with its activities under the Palisade Subadvisory Agreement, other than the costs of the Fund’s portfolio securities and other investments, and brokerage commissions for transactions in such securities.
The Palisade 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 (as defined in the 1940 Act), or the Advisor, or (ii) Palisade, on not less than ninety (90) days’ written notice to the Advisor and the Trust.
BOARD OF TRUSTEES’ CONSIDERATIONS
At the Meeting, Mercer recommended the appointment of Palisade to serve as a subadvisor to the Fund. The Advisor’s recommendation of Palisade was based upon, among other factors: (i) the Advisor’s high degree of conviction in Palisade’s team of investment professionals; and (ii) the Advisor’s expectation that Palisade’s investment style would complement the other Subadvisors and (iii) the Advisor’s opinion that the relatively low correlation with the Fund’s three other subadvisors, GSAM, Delaware, and Westfield, combined with the proposed allocation of a portion of the Fund’s assets to Palisade, would allow Palisade to effectively complement those three subadvisors within the Fund and increase portfolio diversification.
At the Meeting, the Board, including a majority of the Independent Trustees, considered and approved the Palisade Subadvisory Agreement. In determining whether to approve the Palisade
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Subadvisory Agreement, the Board considered the information received in advance of the Meeting, which included: (i) a copy of the form of the Palisade Subadvisory Agreement, as supplemented by management’s summary of the salient features of the Palisade Subadvisory Agreement; (ii) information regarding the process by which the Advisor reviewed, selected, and recommended Palisade for Board approval, and the Advisor’s rationale for recommending Palisade; (iii) information regarding the nature, extent, and quality of the services that Palisade would provide to the Fund; (iv) information regarding Palisade’s reputation, investment management business, personnel, prior investment experience, and operations; (v) information regarding Palisade’s brokerage and trading policies and practices; (vi) information regarding the level of subadvisory fees to be charged by Palisade; (vii) information regarding Palisade’s compliance program; (viii) information regarding Palisade’s historical performance returns managing an investment mandate similar to the Fund’s investment mandate, and a comparison of such performance to a relevant index; and (ix) information regarding Palisade’s financial condition. The Board also considered the substance of discussions with representatives of the Advisor and Palisade at the Meeting.
When considering the approval of the Palisade Subadvisory Agreement, the Board considered and analyzed factors that the Board deemed relevant with respect to Palisade, including: the nature, extent, and quality of the services proposed to be provided to the Fund by Palisade; Palisade’s management style; Palisade’s historical performance record managing investment products similar to the Fund; the qualifications and experience of the investment professionals who will be responsible for the day-to-day management of Palisade’s allocated portion of the Fund’s investment portfolio; and Palisade’s staffing levels and overall resources. Additionally, the Board received assistance and advice from counsel regarding applicable legal and industry standards that were intended to assist the Board in fulfilling its duties under the 1940 Act.
In examining the nature, extent, and quality of the services to be provided by Palisade to the Fund, the Board considered: the specific investment management process to be employed by Palisade in managing the assets of the Fund to be allocated to Palisade; the qualifications of Palisade’s investment professionals with regard to implementing investment mandates similar to the Fund’s investment mandate; Palisade’s overall favorable performance record as compared to a relevant benchmark; Palisade’s infrastructure and resources and whether it appeared to adequately support Palisade’s investment strategy; and the Advisor’s review process and the Advisor’s favorable assessment as to the nature, extent, and quality of the subadvisory services expected to be provided by Palisade. The Board concluded that the Fund and its shareholders would benefit from the quality and experience of Palisade’s portfolio managers and other investment professionals. 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 Palisade, as well as Palisade’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 Palisade Subadvisory Agreement.
Because Palisade was a newly appointed subadvisor to the Fund, the Board, at the Meeting, could not consider Palisade’s investment performance in managing the Fund as a factor in evaluating the Palisade Subadvisory Agreement. However, the Board did review Palisade’s historical performance record in managing or subadvising another investment company and accounts that were comparable to the Fund. The Board compared this historical performance to a relevant benchmark and considered that Palisade’s historical performance compared favorably
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to such benchmark. On this basis, the Board concluded that Palisade’s historical performance record, when viewed together with the other factors considered by the Board, supported a decision to approve the Palisade Subadvisory Agreement.
The Board carefully considered the proposed fees payable under the Palisade Subadvisory Agreement. In this regard, the Board evaluated the compensation to be paid to Palisade by the Advisor. The Board also considered comparisons of the fees that will be paid to Palisade with the fees Palisade charges to its other clients, noting that the fee rate that the Advisor had negotiated with Palisade appeared to compare favorably with the fee rates that Palisade has implemented with another, similar investment company client that utilizes Palisade’s Small/Mid Cap Growth Equity strategy (the same strategy that Palisade uses in managing its allocated portion of the Fund’s investment portfolio).
The Board also considered whether Palisade’s fee schedule included breakpoints that would reduce Palisade’s fees as the assets of the Fund allocated to Palisade increased. The Board noted that Palisade’s proposed subadvisory fee schedule did include breakpoints. The Board noted that, over time, the subadvisory fee breakpoint would help offset expense reimbursements paid by the Advisor, which would be considered as part of the Board’s review of the Advisor’s contract, particularly when reviewing the Advisors profitability. Since the fees to be paid to Palisade were the result of arm’s-length bargaining between unaffiliated parties, and given the Advisor’s economic incentive to negotiate a reasonable fee, Palisade’s potential profitability was not considered relevant to the Board’s deliberations. After evaluating the proposed fees, the Board concluded that the fees that would be paid to Palisade by Mercer with respect to the assets to be allocated to Palisade appeared to be within a reasonable range in light of the nature, extent, and quality of the services to be provided.
The Board reviewed the form of the Palisade Subadvisory Agreement. The Board considered that the Palisade Subadvisory Agreement provided for the same range of services as the subadvisory agreements that were in place with the Fund’s other subadvisors, GSAM, Delaware, and Westfield.
The Board also considered whether there were any potential “fallout” or ancillary benefits that may accrue to Palisade as a result of its relationship with the Fund.
In considering the materials and information described above, the Independent Trustees received assistance from, and met separately with, their independent legal counsel, and discussed 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 determinative, the Board, including a majority of the Independent Trustees, with the assistance of independent counsel, concluded that the initial approval of the Palisade Subadvisory Agreement was in the best interests of the Fund and its shareholders, and approved the Palisade Subadvisory Agreement.
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GENERAL INFORMATION
Administrative and Accounting Services
State Street Bank and Trust Company (the “Administrator”), located at One Lincoln Street, Boston, Massachusetts 02111, serves as 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 is entitled to receive 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, respectively. For the fiscal year ended March 31, 2012, the Fund did not pay any fees to the Advisor for internal administrative services.
Principal Underwriting Arrangements
MGI Funds Distributors, LLC (the “Distributor”), located at 899 Cassatt Road, Berwyn, PA 19312, is a Delaware limited liability company that is a subsidiary of Foreside Distributors, LLC. The Distributor acts as the principal underwriter of each class of shares of the Fund under an Underwriting Agreement with the Fund. 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, 2012, the Fund did not pay any commissions to affiliated brokers.
Record of Beneficial Ownership
As of May 31, 2012, the Fund had 28,088,809.8 total shares outstanding, and Mercer Collective Trust: Mercer US Small/Mid Cap Growth Portfolio held 23,606,527.6 shares, representing 84.04% of the Fund’s 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 (when available) 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.
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