<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 13, 1999
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM N-1A
REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OF 1933
REGISTRATION NO. 333-______
AND
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940
REGISTRATION NO. 811-______
ZACKS SERIES TRUST, D/B/A ZACKS MUTUAL FUNDS
155 North Wacker Drive, Suite 300
Chicago, Illinois 60606
(1-312-630-9880)
Agents For Service: Arthur Don, Esq.
D'Ancona & Pflaum LLC
111 East Wacker Drive, Suite 2800
Chicago IL 60601
(1-312-602-2048)
Approximate Date of Proposed Public Offering: NOVEMBER 1, 1999
It is proposed that this filing will become effective:
______ Immediately upon filing pursuant to paragraph (b)
______ On ____________, pursuant to paragraph (b)
______ 60 days after filing pursuant to paragraph (a)(1)
______ On ____________, pursuant to paragraph (a) of Rule 485
______ 75 days after filing pursuant to paragraph (a)(2)
______ On ____________, pursuant to paragraph (a)(3) of Rule 485
RULE 473 DELAYING AMENDMENT: The registrant hereby amends this registration
statement on such date or dates as may be necessary to delay its effective date
until the registrant shall file a further amendment which specifically states
that this registration statement shall thereafter become effective in accordance
with section 8(a) of the Securities Act of 1933 or until the registration
statement shall become effective on such date as the Commission acting pursuant
to said section 8(a), may determine.
Title of Securities being Registered: SHARES OF:
ZACKS MARKET NEUTRAL FUND; AND
ZACKS INDEX PLUS FUND
<PAGE>
FORM N-1A
ZACKS SERIES TRUST D/B/A
ZACKS MUTUAL FUNDS
REGISTRATION STATEMENT NO. 333- ______ UNDER THE
SECURITIES ACT OF 1933
AND REGISTRATION STATEMENT NO. _____-_____ UNDER THE
INVESTMENT COMPANY ACT OF 1940
CROSS REFERENCE SHEET
---------------------
<TABLE>
<CAPTION>
N-1A Item No. Location
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<S> <C> <C>
PART A
Item 1. Cover Page; Back Page Cover Page; Back Page
Item 2. Risk/Return Summary: Investment Summary; The Funds' Investment Objectives and
Risks and Performance Principal Strategies; Principal Risks of
Investing in the Funds
Item 3. Risk/Return Summary: Fee table Past Performance of Manager's Market Neutral
Private Accounts; Fees and Expenses of the Funds
Item 4. Investment Objectives, Principal Investment Objectives and Strategies;
Investment Strategies and Principal Risks
Related Risks
Item 5. Management's Not Applicable
Discussion of Fund
Performance
Item 6. Management, Organization and Management of the Trust
Capital Structure
Item 7. Shareholder Information Your Account, Who to Contact
Item 8. Distribution Arrangements Management of the Trust; Your Account; Who to
Contact; Dividends, Distributions and Tax
Matters
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
Item 9. Financial Highlights Not Applicable
PART B
Item 10. Cover Page Cover Page
Item 11. Table of Contents Table of Contents
Item 12. General Information and Description of the Trust and Ownership
History of Shares
Item 13. Investment Objectives Investment Objectives and Policies;
And Policies Miscellaneous Investment Practices;
and Investment Restrictions
Item 14. Management of the Management of the Trust
Fund
Item 15. Control Persons and Description of the Trust and Ownership
Principal Holders of of Shares
Securities
Investment Advisory and Other Services;
Item 16. Investment Advisory Management of the Trust; and Description of the
and Other Services Trust and Ownership of Shares
Item 17. Brokerage Allocation Portfolio Transactions
and Other Practices
Item 18. Capital Stock and Other Description of the Trust and Ownership of
Securities of Shares
Item 19. Purchase, Redemption Determination of Net Asset Value; See Prospectus,
and Pricing of Securities Your Account and Who to Contact:
Being Offered Buying of Shares; Exchange of Fund Shares;
Redeeming of Shares; Net Asset Value
Item 20. Tax Status Dividends, Distributions and Tax Matters
Item 21. Underwriters Investment Advisory and Other Services
Item 22. Calculation of Total Return Calculations
Performance Data
Item 23. Financial Statements Financial Statements (Omitted)
</TABLE>
Part C
<PAGE>
Information to be included in Part C is set forth under the appropriate
item, so numbered, in Part C of this Registration Statement.
<PAGE>
TABLE OF CONTENTS
SUMMARY........................................................................2
FEES AND EXPENSES OF THE FUNDS.................................................5
INVESTMENT OBJECTIVES AND STRATEGIES...........................................8
PRINCIPAL RISKS...............................................................12
MANAGEMENT OF THE TRUST.......................................................14
YOUR ACCOUNT..................................................................16
WHO TO CONTACT................................................................19
DIVIDENDS, DISTRIBUTIONS AND TAX MATTERS......................................28
i
<PAGE>
ZACKS MUTUAL FUNDS
The Zacks Market Neutral Fund
The Zacks Index Plus Fund
155 North Wacker Drive
Chicago, IL 60606
(312) 632-9880
Prospectus ______, 1999
The Zacks Mutual Funds is an open-end management investment company
consisting of two portfolios: The Zacks Market Neutral Fund and The Zacks
Index Plus Fund. Each Fund's investment adviser is Zacks Investment
Management, Inc.
The Securities and Exchange Commission has not approved or disapproved of the
shares of Zacks Mutual Funds or any other mutual fund. The Securities and
Exchange Commission has not determined whether this prospectus is accurate or
complete. Any representation to the contrary is a criminal offense.
<PAGE>
SUMMARY
THE FUNDS' INVESTMENT OBJECTIVES
AND PRINCIPAL STRATEGIES
THE ZACKS MARKET NEUTRAL FUND seeks long-term capital appreciation while
maintaining minimal exposure to general equity market risks. To pursue this
goal, the Fund employs a market neutral investment strategy and invests in long
positions in U.S. stocks that the Manager, Zacks Investment Management, Inc.,
believes are undervalued and at the same time it invests an approximate equal
dollar amount in short positions in U.S. stocks that the Manager believes are
overvalued. By buying and selling short different stocks, the Manager attempts
to limit the effect of general U.S. stock market moves on the Fund's
performance. The Fund seeks a total return greater than the return on 3-month
U.S. Treasury Bills.
In choosing long and short investments in the Market Neutral Fund, the
Manager uses a proprietary quantitative stock selection process called the
Zacks Rank. The Zacks Rank seeks to predict future relative performance over
a 3 to 6 month horizon for over 6000 U.S. and Canadian companies, using
patterns in earnings estimate revisions and deviations between estimated and
reported Earnings Per Share. The Manager has been utilizing the Zacks Rank on
a weekly basis since 1981.
THE ZACKS INDEX PLUS FUND seeks a total return greater than the return
of the Standard & Poor's 500 Composite Stock Price Index (the "S&P 500
Index"). To pursue this goal, the Zacks Index Plus Fund invests in shares of
the Zacks Market Neutral Fund while simultaneously employing contracts on S&P
500 Index futures to gain exposure to the equity market as measured by the
S&P 500 Index.
PRINCIPAL RISKS OF INVESTING IN THE FUNDS
ALL STOCK-BASED MUTUAL FUNDS ARE SUBJECT TO RISKS
Although every effort is made to achieve the goals of both Funds, we
cannot guarantee the goals will be met. You could lose money on your
purchase of shares in either the Zacks Market Neutral Fund or the Zacks Index
Plus Fund. The value of Fund shares may increase or decrease depending on
market, economic, political, regulatory and other conditions affecting the
Fund's portfolio.
ZACKS MARKET NEUTRAL FUND
In addition to the risks in common with other mutual funds, the success
of the market neutral investment strategy depends upon the long portfolio
outperforming the short portfolio. We cannot assure you that the Manager will
be able to achieve this objective. This Fund has the following specific
risks:
-- The Fund's Manager may make poor stock selections in either long or
short positions, and the Fund's potential losses could exceed those
of conventional stock funds holding only long positions;
2
<PAGE>
-- The Zacks Rank or the Manager's interpretation of the Rank may not
correctly predict relative investment performance.
-- The Fund will incur a loss on short sales if a stock has to be
purchased at a price higher than the price at which the Fund previously
sold the security short. The Fund's potential loss on a short sale
increases as the underlying security's price increases, and is
theoretically unlimited.
-- Although the Fund will seek to have approximately the same dollar
value invested in long and short positions, there is a risk that the
Manager will fail to construct a portfolio that will limit the effect
of general U.S. stock market moves on the Fund's performance.
ZACKS INDEX PLUS FUND
The Zacks Index Plus Fund owns shares in the Zacks Market Neutral Fund
and is exposed to the same risks described above. In addition, the Zacks
Index Plus Fund's use of futures contracts may add more risk. Specifically:
-- The Fund will realize a loss if the value of the S&P 500 Index
declines between the time the Fund purchases an Index future and
closes the position;
-- We cannot assure you that a liquid market will exist for any
particular contract at any particular time, which may result in the
Fund overpaying for a contract or receiving less from the sale of
a contract;
-- The futures market attracts more speculators which may cause price
distortions, which would cause the Fund to pay more for a contract or
receive less proceeds from the sale of contract.
An investment in the Zacks Mutual Funds, like all mutual funds, is not a
bank deposit. It is not insured or guaranteed by the Federal Deposit
Insurance Corporation or any other government agency.
PAST PERFORMANCE OF MANAGER'S MARKET
NEUTRAL PRIVATE ACCOUNTS
Although at this time the Funds have not commenced operations and
therefore have no past performance to report, the Manager has served as the
manager of other accounts that have investment objectives, policies and
strategies substantially similar to those of the Zacks Market Neutral Fund
(collectively "Market Neutral Private Accounts"). The information below does
not represent the historical performance of the Zacks Market Neutral Fund and
should not be considered a prediction of the future performance of the Fund.
The performance of the Fund may be higher or lower than the performance of
the Market Neutral Private Accounts. Similarly, the performance of the
Market Neutral Private Accounts should not be considered a prediction of the
future performance of the Zacks Index Plus Fund, which will have
substantially different strategies.
3
<PAGE>
Principal differences between the Market Neutral Private Accounts and the
Zacks Market Neutral Fund:
-- Market Neutral Private Accounts were not registered under the
Investment Company Act of 1940, and therefore were not subject to
certain investment restrictions imposed by it. If the Market Neutral
Private Accounts had been registered under the 1940 Act, their
performance might have been adversely affected.
-- The Market Neutral Private Accounts were not subject to Subchapter M
of the Internal Revenue Code which might have affected their
performance as well.
-- There has been one enhancement to the Manager's market neutral
strategy since its inception in February 1995. The Manager became
sector neutral in April 1996, seeking to approximate the respective
sector weightings in the broad U.S. stock market. Despite this
enhancement, the Zacks Market Neutral Fund has substantially similar
investment objectives, policies and strategies as the Market Neutral
Private Accounts.
The bar chart and table below provide an indication of the risk of
investing in the Zacks Market Neutral Fund by showing changes in the Market
Neutral Private Accounts' year-to-year performance and by showing how its
average annual total return for the one, three and since inception periods
ending December 31, 1998 compared to the average annual total return on
3-month U.S. Treasury Bills and the Standard & Poor's 500 Index for the same
period. The returns on the Market Neutral Private Accounts have been
adjusted to give effect to the Zacks Market Neutral Fund's anticipated annual
expenses of the shares, but have not been adjusted for any front-end sales
charge (load).
[Side bar
Total return measures how much the price of an investment in a mutual
fund changes. For any fund, you should evaluate total return in light of the
fund's particular investment objectives and policies, as well as general
market conditions during the reported period.]
Market Neutral Private Accounts*
Total Return as of December 31, 1998 and each year since inception at
February 1995.
[bar chart]
17.1% 24.5% 18.9% 21.0%
1995 1996 1997 1998
Best Quarter: 6.8% June 30, 1996
Worst Quarter: (1.3)% December 31, 1995
4
<PAGE>
Market Neutral Accounts Average annual returns as of December 31, 1998
<TABLE>
<CAPTION>
------------------------------------------------------------------
since inception
Investment Instrument 1 year 3 year February 1995
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<S> <C> <C> <C>
Market Neutral Accounts 21.0% 21.5% 20.4%
------------------------------------------------------------------
3-month U.S. Treasury Bills 5.1% 5.2% 5.1%
------------------------------------------------------------------
S&P 500 Index 27.1% 27.7% 30.3%
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</TABLE>
[Side Bar: The S&P 500 Index follows the stock market performance of 500
of the largest companies in the United States. The companies cover the
entire range of American business and represent a substantial proportion of
the stocks traded every day. Indices, such as the S&P 500, do not take into
account the costs of buying or selling securities or managing a stock
portfolio and which are deducted from mutual funds returns. You cannot
invest directly in an index.
An investment in the Zacks Market Neutral Fund is different from an
investment in 3-month U.S. Treasury Bills because Treasury Bills are backed
by the full faith and credit of the U.S. Government, Treasury Bills have a
fixed rate of return, investors in Treasury Bills do not bear the risk of
losing their investment and an investment in the Fund is more volatile than
an investment in Treasury Bills.]
Giving effect to the expense limitation of 2.5% on the Net Expenses of
the Zacks Market Neutral Fund as set forth in the "Fees and Expenses of the
Funds" section, the average annual total returns for the one-year, three-year
and since-inception periods ending December 31, 1998 for the Market Neutral
Accounts would have been 21.0%, 21.5% and 20.4%, respectively.
FEES AND EXPENSES OF THE FUNDS
The table below describes the fees and expenses that you may pay if you
buy and hold shares of the Funds:
SHAREHOLDER FEES
(fees paid directly from your investment)
<TABLE>
<CAPTION>
---------------------------------------------------------------------
Zacks Market Zacks Index
Neutral Fund Plus Fund
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<S> <C> <C>
Maximum Sales Charge (Load) 4.5% 4.5%
Imposed on Purchases
(as a percentage of offering price)
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Maximum Deferred Sales Charge None None
(Load) Imposed on Redemption
---------------------------------------------------------------------
5
<PAGE>
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Maximum Sales Charge (Load) None None
Imposed on Redemption Dividends
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Redemption Fee None None
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Exchange Fee None None
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Maximum Account Fee None None
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</TABLE>
ESTIMATED ANNUAL FUND OPERATING EXPENSES
(Expenses that are deducted from Fund assets)
<TABLE>
<CAPTION>
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Zacks Market Zacks Index
Neutral Fund Plus Fund
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<S> <C> <C>
Management Fees* 1.90% 2.00%*
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Distribution and Shareholder
Service (12b-1) Fees 0.50% 0.50%
---------------------------------------------------------------------
Other Expenses** [0.45]% [0.98]%
---------------------------------------------------------------------
Total Annual Fund
Operating Expenses 2.70% 3.48%
---------------------------------------------------------------------
Fee Waiver and Expense
Reimbursement 0.20% 0.63%
---------------------------------------------------------------------
Net Expenses 2.50% 2.85%
---------------------------------------------------------------------
</TABLE>
* The Zacks Index Plus management fee is 0.10%. By investing in the
Zacks Index Plus Fund, however, you indirectly bear the 1.90% management fee
of the Zacks Market Neutral Fund through the Zacks Index Plus Fund's
ownership of those shares.
**Based on estimated amounts for the current fiscal year, without fee
waiver and expense reimbursement by the Manager.
Side Bar]:
6
<PAGE>
Management fees cover the cost of managing the Fund's investments and the
costs of administration. The Manager's fees for management of the Zacks Market
Neutral Fund and the Zacks Index Plus Fund are higher than those paid by most
other mutual funds.
Distribution and Shareholder Services Fees, paid under Rule 12b-1, are for
the promotion and distribution of the Fund shares and services provided to
shareholders. Because the fees are paid from Fund assets on a periodic but
continuous basis, these fees will increase the cost of your investment and may
cost you more than other types of sales charges.
Other expenses include the costs of the custodian and transfer agent,
auditors, attorneys and directors.
The Manager has contractually undertaken to waive its management fee and
bear certain expenses until further notice, but at least through December 31,
2000, in order to limit the total annual operating expenses (exclusive of
nonrecurring account fees, extraordinary expenses and dividends and interest
paid on securities sold short). While the fee waivers are in effect, the
estimated Total Annual Fund Operating Expenses will be limited to 2.50% for
the Zacks Market Neutral Fund and 2.85% for the Zacks Index Plus Fund.
Example
This example is intended to help you compare the cost of investing in a
Fund with the cost of investing in other mutual funds.
The example assumes that you invest $10,000 in a Fund for the time
periods indicated and then redeem all of your shares at the end of those
periods. The example also assumes that your investment earns a 5% return
each year and that the Fund's operating expenses remain the same as the Total
Annual Fund Operating Expenses shown above. Your actual costs may be higher
or lower. Based on these assumptions, your costs would be:
<TABLE>
<CAPTION>
Fund 1 year 3 years
<S> <C> <C>
Zacks Market Neutral Fund $711 $1,251
Zacks Index Plus Fund $785 $1,470
</TABLE>
Please note that the above numbers are based on Total Annual Fund Operating
Expenses without adjustment for the Manager's fee waiver and expense
reimbursement agreement described above. Taking into account such agreement,
the one year expenses would be $692 for the Market Neutral Fund and $725 for
the Index Plus Fund.
7
<PAGE>
INVESTMENT OBJECTIVES AND STRATEGIES
ZACKS MARKET NEUTRAL FUND
The investment objective of the Zacks Market Neutral Fund is to seek
long-term capital appreciation while maintaining minimal exposure to general
equity market risk. The Fund seeks a total return greater than the return on
investments in 3-month U.S. Treasury Bills. The Fund attempts to achieve its
objective by taking long positions in U.S. stocks that the Manager has
identified as undervalued and taking short positions in U.S. stocks that the
Manager has identified as overvalued. By taking long and short positions in
different stocks, the Fund attempts to cancel out the effect of general stock
market movements on the Fund's performance. The Manager expects that the Fund
can achieve a positive return if the Fund's long portfolio outperforms the
Fund's short portfolio. Conversely, the Manager expects that the Fund will
incur losses if the Fund's long portfolio underperforms the Fund's short
portfolio. The Manager will determine the size of each long or short position
by analyzing the trade off between the attractiveness of each position and its
impact on the risk characteristics of the overall portfolio. The Fund seeks to
construct a diversified portfolio that has minimal net exposure to the U.S.
equity market generally and near neutral exposure to specific industries,
specific capitalization ranges and certain other risk factors.
Although the Fund's investment strategy seeks to minimize the risk
associated with investing in the equity market, an investment in the Fund
will be subject to various risks, including the risk of poor stock selection
by the Manager. We cannot assure you that the Manager will successfully take
long positions in stocks and short positions in other stocks, such that the
portfolio of long positions outperforms the portfolio of short positions. In
addition, the Manager may fail to construct a portfolio that has minimal
exposure to general equity market risk or that has near neutral exposure to
specific industries, specific capitalization ranges and certain other risk
factors. Further, because the Manager will manage both a long and a short
portfolio, an investment in the Fund will bear the risk that the Manager may
make more poor investment decisions than a manager of a typical stock mutual
fund which holds only a long portfolio. Moreover, an investment in the Fund
is different from an investment in 3-month U.S. Treasury Bills because
Treasury Bills are backed by the full faith and credit of the U.S.
Government, Treasury Bills have a fixed rate of return, investors in Treasury
Bills do not bear the risk of losing their investment and an investment in
the Fund is expected to be more volatile than an investment in Treasury Bills.
To meet margin requirements related to short sales, redemption requests,
temporary defensive purposes or for investment purposes, the Fund may also
hold a portion of its assets in full faith and credit obligations of the
United States government (e.g, U.S. Treasury Bills) and in short-term notes,
commercial paper or other money market instruments of high quality (i.e.,
rated at least "A-2" or "AA" by Standard & Poor's or Prime 2 or "Aa" by
Moody's Investors Service, Inc.) issued by companies having an outstanding
debt issue rated at least "AA" by S&P or at least "Aa" by Moody's, or
determined by the Manager to be of comparable quality to any of the foregoing.
8
<PAGE>
ZACKS INDEX PLUS FUND
The investment objective of the Zacks Index Plus Fund is to seek a total
return greater than the return of the Standard & Poor's 500 Composite Stock
Price Index (the "S&P 500 Index"). The Fund seeks to achieve its objective
by investing in shares of the Zacks Market Neutral Fund while simultaneously
employing S&P 500 Index futures contracts to gain exposure to the equity
market as measured by the S&P 500 Index. Once the Fund has indirectly
constructed a diversified long and short portfolio through the purchase of
shares of the Zacks Market Neutral Fund, the Fund will purchase S&P 500 Index
futures contracts in an amount approximately equal to the net asset value of
the Fund in order to gain full net exposure to the U.S. equity market as
measured by the S&P 500 Index. The S&P 500 Index is an unmanaged index
composed of 500 common stocks, most of which are listed on the New York Stock
Exchange. The S&P 500 Index assigns relative values to the stocks included in
the index, weighted according to each stock's total market value relative to
the total market value of the other stocks included in such index.
To meet margin requirements related to short sales, redemption requests,
temporary defensive purposes or for investment purposes, the Fund may also
hold a portion of its assets in full faith and credit obligations of the
United States government (e.g., U.S. Treasury Bills) and in short-term
notes, commercial paper or other money market instruments of high quality.
The term "Index Plus" refers to the objective of the Fund, which is to
outperform the S&P 500 Index. This will only occur if the Zacks Market
Neutral Fund outperforms 3-month U.S. Treasury Bills and the return of the
S&P 500 Index instruments, in which the Zacks Index Plus Fund is also
invested, approximates the return of the S&P 500 Index. Even then the Fund
will not outperform the S&P 500 Index unless the combined performance of the
Zacks Market Neutral Fund investments outperform the S&P 500 by more than the
expense ratio of the Zacks Index Plus Fund.
The Fund will not enter into any commodity futures contracts if such
contract would cause the aggregate initial margin and option premiums to
exceed 10% of the fair market value of Zacks Mutual Funds' total assets,
after taking into account unrealized profits and losses on contracts it has
entered into and excluding the "in money" amount of any options it holds or
is subject to.
9
<PAGE>
The Fund has applied for an exemptive order from the Securities and
Exchange Commission to allow it to invest in securities other than those
described in Section 12(d)(1)(G) of the Investment Company Act of 1940, as
amended (the "1940 Act") while investing without limit in the Zacks Market
Neutral Fund. The Fund will begin such trading immediately upon receipt of
the requested exemptive relief.
THE MANAGER'S INVESTMENT PHILOSOPHY AND STRATEGY
- ------------------------------------------------
The Manager attempts to add value relative to a benchmark through a
quantitative stock selection process, and seeks to diversify investment risk
across the holdings in each Fund. In seeking to outperform each Fund's
benchmark, the Manager also attempts to control risk in a Fund's portfolio.
Investment Philosophy. The Manager's investment strategy is based on
the belief that just as the broader markets are driven by investors'
expectations of interest rates, inflation and economic growth, each
individual company's stock price is also driven by expectations. The most
critical expectations are the projected earnings for the current quarter, the
current fiscal year and the next fiscal year.
These earnings expectations, or estimates, and their continual revisions
are generated by approximately 3000 securities analysts employed by 235 U.S.
and Canadian brokerage firms providing ongoing investment research. These
analysts closely monitor selected groups of companies, analyzing their
financial data, their competitors and their markets. They also evaluate new
products and services provided by the companies and meet with company
executives to learn more about the company's operations. The analysts use
this information to arrive at estimates of the companies' future earnings.
Statistical studies indicate that when analysts' earnings estimates for
a company are revised upward, the stock, on average, will outperform the
market. Conversely, if earnings estimates for a company are revised downward,
the stock, on average, will underperform the market.
The methodology used by the Zacks Market Neutral Fund is to select
stocks for the long portfolio that the Manager believes will experience
future upward estimate revisions and consequently upward price movements and
to select stocks for the short portfolio that will experience downward
estimate revisions and consequently downward price movements. The Manager
relies on information provided by its affiliate, Zacks Investment Research,
Inc., to make these investment decisions.
Zacks Investment Research, Inc., developed a system and database to
monitor the earnings estimates of virtually all of the analysts that follow a
given company. The Zacks database covers approximately 6000 U.S. and
Canadian companies and is updated daily from the research of approximately
3000 securities analysts employed by 235 U.S. and Canadian brokerage firms.
Zacks Investment Research uses this database to produce the Zacks Rank, a
ranking of companies based on patterns in earnings estimate revisions and
deviations between reported quarterly earnings and analysts' estimates of
earnings for the quarter. The Zacks Rank
10
<PAGE>
seeks to predict future relative investment performance over a 3 - 6 month
horizon, for over 6000 U.S. and Canadian companies.
Zacks Investment Research, Inc. has been producing the Zacks Rank on a
weekly basis since 1981. The Zacks Rank classifies companies into five
categories: 1, 2, 3, 4, 5. The stocks in category 1 are expected to have
upward estimate revisions and the stocks in category 5 are expected to have
downward estimate revisions. The Manager has used the Zacks Rank since 1994
as one factor when making stock selection decisions for both long and short
portfolio positions in Market Neutral Private Accounts. The Manager plans to
use the Zacks Rank to manage investments in the Zacks Market Neutral Fund.
Decision Process And Stock Selection. The Manager's decision process is
based on the portfolio manager evaluating a wide range of fundamental
factors, including the Zacks Rank, to determine if a company's stock should
be purchased for or sold from the long portfolio or sold short or covered in
the short portfolio. The Manager constructs the long and short portfolio
positions in the Zacks Market Neutral Fund so that the dollar amount of the
long portfolio positions generally approximates the dollar amount in the
short portfolio positions. Moreover, the Manager attempts to ensure that the
long portfolio and the short portfolio are comparable with respect to (a) the
percent of stocks held in specific industry sectors, (b) the market
capitalization of the companies whose securities are held by the Fund and (c)
the ranges of price/earnings ratios of the securities held.
Trading. The Manager's trading system aggregates the recommended
transactions for a Fund and determines the feasibility of each recommendation
in light of the stock's liquidity, the expected transaction costs, and
general market conditions. It relays target price information to a trader
for each stock considered for purchase or sale. Trades are executed through
any one of three trading strategies: traditional brokerage, networks and
package or "basket" trades.
The network arrangements the Manager has developed with Instinet
Matching System ("IMS") and Portfolio System for Institutional Trading
("POSIT") facilitate large volume trading with little or no price disturbance
and low commission rates.
Package trades further allow the Manager to trade large lists of orders
simultaneously using state of the art tools such as the Instinet Real-Time
System, Instinet Order Matching System and Lattice Trading System. Those
tools provide order entry, negotiation and execution capabilities, either
directly to other institutions or electronically to the floor of the
exchange. The advantages of using such systems include speed of execution,
low commissions, anonymity and very low market impact.
The Manager continuously monitors trading costs to determine the impact
of commissions and price disturbances on a Fund's portfolio.
INVESTMENT OBJECTIVES AND POLICIES. Except as explicitly described
otherwise, the investment objective and policies of each of the Funds may be
changed without shareholder approval.
11
<PAGE>
PRINCIPAL RISKS
Risks Specific to Both Funds
----------------------------
INVESTMENT RISKS. The value of Fund shares may increase or decrease
depending on market, economic, political, regulatory and other conditions
affecting each Fund's portfolio. Investment in shares of the Funds is more
volatile and risky than some other forms of investment. The Zacks Rank, or
the manager's interpretation or implementation of rankings of portfolio
securities, may not correctly predict relative investment performance. In
addition, it is possible that the Zacks Market Neutral Fund's long positions
will decline in value at the same time that the value of securities sold
short increases, thereby increasing the potential for loss. Moreover, the
market neutral strategy has the effect of accelerating the recognition of
gain for tax purposes and increasing the short-term gain component of gains
in the Funds. Short-term gains are ordinarily taxed to shareholders at
ordinary income tax rates, thereby increasing the amount of taxes payable by
shareholders. As a result of the Fund's strategies, portfolio turnover may
be higher than most stock-based mutual funds, and brokerage expenses
consequently may be higher.
RISKS OF SHORT SALES. When the Manager anticipates that a security is
overvalued, it may sell the security short and borrow the same security from
a broker or other institution to complete the sale. A Fund will incur a loss
as a result of a short sale if the price of the borrowed security increases
between the date of the short sale and the date on which the Fund replaces
such security. A Fund may realize a gain if the security declines in price
between those dates. We cannot assure you that a Fund will be able to close
out a short position at any particular time or at an acceptable price.
During the time a Fund has sold a security short the Fund is subject to the
risk that the lender will terminate the loan at a time when the Fund is
unable to borrow the same security from another lender, in which event the
Fund may be "bought in" at the price required to purchase the security to
close out the short position. Although a Fund's gain is limited to the
amount at which it sold a security short, its potential loss is limited only
by the maximum attainable price of the security less the price at which the
security was sold. Until the security sold short is replaced, the Fund is
required to repay the lender any dividends or interest that accrue during the
period of the loan. To borrow the security, the Fund also may be required to
pay a premium. The Fund also will incur transaction costs in effecting short
sales. The amount of any gain resulting from a short sale will be decreased,
and the amount of any loss increased, by the amount of premiums, dividends,
interest or expenses the Fund may be required to pay in connection with a
short sale.
Until a Fund replaces a borrowed security, it will maintain daily a
segregated account with its Custodian containing cash, U.S. Government
securities, or other liquid securities such that the amount deposited in the
account plus any amount deposited with a broker or other custodian as
collateral will at least equal the current market value of the security sold
short. Depending on arrangements made with such broker or custodian, a Fund
may not receive any payments (including interest) on collateral deposited
with such broker or custodian. The Funds will not make a short sale if,
after giving effect to such sale, the market value of all securities sold
exceeds 100% of the value of a Fund's net assets. A Fund's use of short
sales may result in the Fund realizing more short-term capital gains (subject
to tax at ordinary income rates) than it would if it did not engage in short
sales.
12
<PAGE>
Risks Specific to the Zacks Index Plus Fund Only
------------------------------------------------
RISKS OF S&P 500 INDEX FUTURES. An S&P 500 Index Future contract (an
"Index Future") is a contract to buy or sell an integral number of units of
the S&P 500 Index at a specified future date at a price agreed upon when the
contract is made. A unit is the value at a given time of the S&P 500 Index.
Entering into a contract to buy units is commonly referred to as buying or
purchasing a contract or holding a long position in the S&P 500 Index. An
option on an Index Future gives the purchaser the right, in return for the
premium paid, to assume a long or a short position in an Index Future. The
Zacks Index Plus Fund will realize a loss if the value of the S&P 500 Index
declines between the time the Fund purchases an Index Future or takes a long
position in an Index Future and may realize a gain if the value of the S&P
500 Index rises between such dates.
The Zacks Index Plus Fund may close out a futures contract purchase by
entering into a futures contract sale. This will operate to terminate the
Fund's position in the futures contract. Positions in Index Futures may be
closed out by the Fund only on the futures exchanges on which the Index
Futures are then traded. We cannot assure you that a liquid market will
exist for any particular contract at any particular time. The liquidity of
the market in futures contracts could be adversely affected by "daily price
fluctuation limits" established by the relevant futures exchange which limit
the amount of fluctuation in the price of an Index Future during a single
trading day. Once the daily limit has been reached in the contract, no
trades may be entered into at a price beyond the limit. In such event, it
may not be possible for the Fund to close its futures contract purchase, and,
in the event of adverse price movements, the Fund would continue to be
required to make daily cash payments of variation margin (payments to and
from a broker made on a daily basis as the price of the Index Future
fluctuates). The futures market may also attract more speculators than does
the securities market, because deposit requirements in the futures market are
less onerous than margin requirements in the securities market. Increased
participation by speculators in the futures market may also cause price
distortions. In addition, the price of Index Futures may not correlate
perfectly with movement in the underlying index due to certain market
distortions.
Further, when the Zacks Index Plus Fund purchases an Index Future, it is
required to maintain at all times, while an Index Future is held by the Fund,
cash, U.S. Government securities or other high grade liquid securities in a
segregated account with its Custodian. The amount which must be maintained
is equal to the sum of two amounts: (1) the change in value of the futures
contract since purchase, and (2) the initial margin deposit on the futures
contract.
Special Issues Relating to Portfolio Turnover (Both Funds)
----------------------------------------------------------
Portfolio turnover is not a limiting factor with respect to investment
decisions of the Manager. The rate of a Fund's portfolio turnover may vary
significantly from time to time depending on the volatility of economic and
market conditions. Although the rate of portfolio turnover is difficult to
predict, it is not anticipated that under normal circumstances the annual
portfolio turnover rate of each of the long and short portfolios of the Zacks
Market Neutral Fund will exceed 400%, and it is not anticipated that under
normal circumstances the annual portfolio turnover rate of the Zacks Index
Plus Fund will exceed 50%, mainly because the primary portfolio position will
be an investment in the Market Neutral Fund. It is, however, impossible
13
<PAGE>
to predict portfolio turnover in future years. High portfolio turnover
involves correspondingly greater brokerage commissions or dealer markup and
other transaction costs, which will be borne directly by a Fund, and could
involve realization of capital gains that would be taxable when distributed
to shareholders of such Fund. To the extent portfolio turnover results in
the realization of net short-term capital gains, such gains ordinarily are
taxed to shareholders at ordinary income tax rates. See "Taxes."
From time to time, the Zacks Market Neutral Fund may experience
relatively large purchases or redemptions due to asset allocation decisions
made in connection with the Zacks Index Plus Fund. These transactions may
have a material effect on the Zacks Market Neutral Fund. While it is
impossible to predict the overall impact of these transactions over time,
there could be adverse effects on the Zacks Market Neutral Fund to the extent
that it may be required to sell securities at times when it would not
otherwise do so or receive cash that cannot be invested in an expeditious
manner. There may be tax consequences associated with purchases and sales of
securities, and such sales may also increase transaction costs. The Manager
is committed to minimizing the impact of these transactions on the Zacks
Market Neutral Fund to the extent it is consistent with pursuing the Zacks
Index Plus Fund's investment objective and will monitor the impact of Zacks
Index Plus Fund's asset allocation decisions on the Zacks Market Neutral Fund.
MANAGEMENT OF THE TRUST
Each Fund is advised and managed by Zacks Investment Management, Inc.
(the "Manager"), which has provided investment advisory services since 1991
to a number of institutional investors located at 155 N. Wacker Drive,
Chicago, IL 60606. Zacks Investment Research, Inc is the sole shareholder of
the Manager, which is owned by Leonard H. Zacks and Benjamin L. Zacks.
PORTFOLIO MANAGERS
- ------------------
Benjamin L. Zacks is the portfolio manager of the Zacks Market Neutral
Fund and is principally responsible for its day-to-day management. He is a
co-founder of the Manager and has served in various capacities since its
inception in 1991. He is currently a director and serves as President of the
Manager, and is Vice President and Trustee of the Funds. Mr. Zacks is also a
director, Executive Vice President and minority shareholder of Zacks
Investment Research, Inc. He received a Bachelor of Arts degree from Boston
University in 1968 and undertook graduate work in economics, also at Boston
University.
Mitch E. Zacks is the portfolio manager of the Zacks Index Plus Fund and
is principally responsible for its day-to-day management. He has worked for
the Manager as a Quantitative Portfolio Manager since 1998. Prior to that,
he was an analyst for Lazard Freres & Co. He received a B.A. in economics
from Yale University in 1997.
OTHER MANAGER OFFICERS
- -----------------------
Leonard H. Zacks is responsible for the quantitative models used in
managing the portfolios. He is a co-founder, director and Director of
Research of the Manager, and is
14
<PAGE>
President and Trustee of the Funds. He is also director,
President and majority shareholder of Zacks Investment Research, Inc. He
received a B.S. in mathematics in 1965, an M.S. in Physics in 1967 and a Ph.D.
in Operations Research in 1969 all from Massachusetts Institute of Technology.
Richard B. Marks has served as compliance officer to the Manager since
1991 and is Chief Financial Officer of Zacks Investment Research, Inc.,
affiliate of the Manager. He is also Treasurer of the Funds.
There are 9 professional staff members of the Manager and 180 employees
of the Manager's affiliate, Zacks Investment Research, Inc. Zacks Investment
Research, Inc. was established in 1981, and an affiliated broker dealer,
Zacks & Company, was established in 1978, which is the Distributor of the
Funds.
MANAGEMENT CONTRACT
- -------------------
Under a Management Contract with the Trust on behalf of each Fund, the
Manager selects and reviews each Fund's investments and provides executive
and other personnel for the management of the Trust. Pursuant to the Trust's
Agreement and Declaration of Trust, as amended, the Board of Trustees
supervises the affairs of the Trust as conducted by the Manager. In the
event that the Manager ceases to be the manager of a Fund, the right of the
Trust to use the identifying name "Zacks" will terminate.
Each Fund has agreed to pay the Manager a quarterly management fee at
the annual percentage rate of such Fund's average daily net assets set forth
in the annual operating fee table on page 6. The Manager has contractually
undertaken to waive some or all of its management fee and, if necessary, to
bear certain expenses of each Fund until further notice to the extent
required to limit the total annual operating expenses (exclusive of
nonrecurring account fees, extraordinary expenses and dividends and interest
paid on securities sold short) of the percentage of a Fund's average daily
net assets provided above in the estimated Annual Fund Operating Expenses
table. The Manager's fee for management of the Zacks Neutral Fund and Index
Plus Fund are higher than that paid by most other mutual funds.
FUND DISTRIBUTOR AND DISTRIBUTION FEES
- --------------------------------------
Shares of the Funds are sold on a continuous basis by Zacks & Company (the
"Distributor"), which is an affiliate under common control with the Manager.
In addition, the Fund has adopted a distribution and shareholder
servicing plan under Rule 12b-1 of the 1940 Act, which authorizes the Fund to
pay to the Distributor a yearly fee of up to .50% of the average daily net
assets of the Fund for distribution and other fees for the sale of its shares
and for services provided to shareholders. Because these fees are paid out
of the Fund's assets on an on-going basis, over time these fees will increase
the cost of your investment and may cost you more than other types of sales
charges. For the foreseeable future the Fund intends to pay fees of 0.50% of
the average daily net assets attributable to the shares.
15
<PAGE>
FUND ADMINISTRATOR, TRANSFER AGENT AND CUSTODIAN
- ------------------------------------------------
Pursuant to a Fund Administrative Agreement and an Accounting Services
Agreement, Firstar Trust Company ("Firstar") will perform several
administrative services, accounting and certain compliance and tax reporting
functions for the Funds. Firstar also serves as the transfer agent for the
Funds, and an affiliate (Firstar Bank Milwaukee, N.A.) serves as the custodian
for the Funds.
YEAR 2000 ISSUES
- ----------------
Many services provided to the Funds depend on the reliability of
electronic and computer dependent systems. Many systems in use today cannot
distinguish between the year 1900 and the year 2000. Should any of the
service systems fail to process information properly, that could have an
adverse impact on the Funds' operations and services provided to
shareholders. The Manager, Distributor, Servicing Agent, Transfer Agent,
Custodian, Administrator and certain other service providers to the Funds
have reported that each is working toward mitigating the risks associated
with the so-called "year 2000 problem." However, there can be no assurance
that the problem will be corrected in all respects and that the Funds'
operations and services provided to shareholders will not be adversely
affected.
YOUR ACCOUNT
Shares are offered and sold on a continuous basis at the next offering
price ("Offering Price"), which is the sum of the net asset value per share
plus the sales charge as indicated below:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------
Amount of purchase Sales charge Sales charge Amount of sales charge
(percentage of (percentage of net retained by the dealer*
offering price) amount invested) (percentage of offering
price)
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
up to $100,000 4.50% 4.70% 3.76%
- -----------------------------------------------------------------------------------------------------
$100,001 - $250,000 3.50% 3.60% 3.00%
- -----------------------------------------------------------------------------------------------------
$250,001-$500,000 2.50% 2.60% 2.00%
- -----------------------------------------------------------------------------------------------------
500,001-$1,000,000 1.00% 1.00% 0.75%
- -----------------------------------------------------------------------------------------------------
1,000,001-5,000,000* None None None
- -----------------------------------------------------------------------------------------------------
</TABLE>
*At the discretion of the Distributor of the Funds, Zacks & Company, all
sales charges may at times be paid to the securities dealer, if any, involved
in the sale of shares. You may be charged a fee if you effect transactions
in fund shares through a broker or agent. A securities dealer which is paid
all or substantially all of the sales charges may be deemed an "underwriter"
under the Securities Act of 1933, as amended. The Distributor may, in its
discretion, pay a 1%
16
<PAGE>
commission to broker-dealers who initiate and are responsible for such
purchases. This commission will not be paid if the purchase represents the
reinvestment of a redemption of Fund shares made during the previous 12
calendar months.
You pay no front-end sales charge on purchasing $1.0 million or more,
but if you sell those shares within the first year, you may pay a deferred
sales charge of [0.75%]. Zacks & Company may pay the dealer a commission
during the first year after purchase at the following rates.
<TABLE>
<CAPTION>
------------------------------------------------
Purchase Amount Commission
------------------------------------------------
<S> <C>
First $3 million 0.75%
Next $2 million 0.50%
Over $5 million 0.25%
------------------------------------------------
</TABLE>
If a commission is paid for purchases of $1 million or more, the dealer
will be paid with distribution fees received from the Fund. If distribution
fee limits have already been reached for the year, the Distributor itself
will pay the commissions.
Front-End Sales Charge Waivers and Reductions
- ---------------------------------------------
Shares may be offered and sold without front-end sales charges to various
individuals and institutions, including:
-- Shareholders who are automatically reinvesting their dividend or
capital gains to acquire more shares;
-- Certain retirement plans, such as profit-sharing, pension, 401(k), and
simplified employee pension plans (SEP's and SIMPLE's), deferred
compensation plans and trusts used to fund those plans including, but
not limited to, those defined in Section 401(a), 403(b), or 457 of the
Internal Revenue Code and "Rabbi Trusts;"
-- Persons who have taken a distribution from a retirement plan invested
in shares of the Fund, to the extent of the distribution, provided
that, the distribution is reinvested within 90 days of the payment
date;
-- State and local government entities that are prohibited from paying
mutual fund sales charges;
-- For the individual investment accounts of registered securities
brokers and dealers who have entered into sales or service agreements
with the Distributor and who have achieved certain sales objectives
of the Fund and for the individual investment accounts of certain
registered personnel and employees of such securities brokers and
17
<PAGE>
dealers, and their spouses, children, grandchildren and parents, in
accordance with the internal policies and procedures of the employing
broker or dealer;
-- Owners of private accounts managed by the Manager who either purchase
Fund shares within one year of the Fund's inception or who, within the
Manager's sole discretion, are no longer eligible for separate account
management by the Manager and who in either case liquidate their
private account and purchase Fund shares with the proceeds within 90
days of the liquidation;
-- Trust companies investing $1 million or more for common trust or
collective investment funds;
-- Registered investment companies; persons who contemporaneously
exchange shares in the Firstar Money Market Fund for shares, to the
extent of the exchange; provided, however, that the sales charge waiver
provided by this exception shall only be available (a) for one
exchange-related purchase per year and (b) to persons who immediately
prior to their investment in the Firstar Money Market Fund were
shareholders of the Fund;
-- Purchases by trustees and officers of the Fund, employees of and
counsel for Zacks Investment Management, Inc., Zacks Investment
Research, Inc. and its affiliates, and their spouses, children,
grandchildren and parents, in accordance with the internal policies and
procedures of their respective employers, as well as purchases by
private partnerships managed by the Manager or its affiliates;
-- "Wrap accounts" for the benefit of clients of registered broker-dealers
having sales or service agreements with the Distributor;
-- Any investor who purchases shares of the Fund with redemption proceeds
from a registered investment company other than the Fund and on which
the investor was subject to a front-end sales charge or a contingent
deferred sales charge, provided that the proceeds are invested in the
Fund within 10 days of the redemption;
-- Purchases by the Zacks Index Plus Fund of shares in the Zacks Market
Neutral Fund; and
-- Investment advisers or financial planners who place trades for their
own accounts or the accounts of their clients and who charge a
management, consulting, or other fee for their services; as well as
clients of such investment advisers or financial planners who place
trades for their own accounts if the accounts are linked to the master
account of such investment adviser or financial planner on the books
and records of the broker or agent.
REDUCING SALES CHARGES. If you are not eligible for a waiver, there are
two ways that you can combine multiple purchases of shares to take advantage
of the breakpoints in the sales charge schedule. The following two methods
can be combined in any manner:
18
<PAGE>
-- RIGHTS OF ACCUMULATION. The Fund offers a Right of Accumulation ("ROA")
allowing you to purchase shares at the sales charge applicable to the
sum of (a) the dollar amount then being purchased, plus (b) the higher
of either (i) the current market value (calculated at the applicable
Offering Price) or (ii) the actual purchase price of all Fund shares
already held by you and your spouse and minor children. To receive an
ROA, at the time of purchase, you must give your investment
professional, the Distributor, or the Transfer Agent sufficient
information to determine whether the purchase will qualify for the
reduced sales charge.
-- LETTER OF INTENT. You may also immediately qualify for a reduced sales
charge on the purchase of shares by completing the Letter of Intent
section of the account application ( "LOI"). By completing the LOI,
you express an intention to invest during the next 13-month period a
specified amount (minimum of at least $100,001) which, if made at one
time, would qualify for a reduced sales charge. Any shares you own
on the date you execute the LOI may be used as a credit toward the
completion of the LOI. However, the reduced sales charge will only
be applied to new purchases. Any redemptions made during the 13-month
period will be subtracted from the amount of the purchases for purposes
of determining whether the terms of the LOI have been satisfied. If,
at the end of the 13-month period covered by the LOI, the total amount
of purchases (less redemptions) does not equal the amount indicated,
you will be required to pay the difference between the sales charge
paid at the reduced rate and the sales charge applicable to the
purchases actually made. Shares equal to 5% of the amount specified
in the LOI will be held in escrow during the 13-month period and are
subject to involuntary redemption to assure any payment of a higher
applicable sales charge. Signing a LOI does not bind you to purchase
the full amount indicated, but you must complete the intended purchase
in accordance with the terms of the LOI to obtain the reduced sales
charge. For more information on the LOI, please contact your
investment professional, the Distributor, or the Transfer Agent.
REINSTATEMENT PRIVILEGE. If you sell shares in the Fund you may invest
some or all of the proceeds in the Fund's shares once per year within 120
days without the imposition of a sales charge. In order to rely on this
privilege, all accounts involved must have the same name before and after the
reinstatement. For more information, please contact your investment
professional, the Distributor, or the Transfer Agent.
WHO TO CONTACT
Any questions or communications regarding a shareholder account should
be directed to your registered representative at your broker-dealer or to
Zacks & Company, the Distributor, at 1-888-_________. General inquiries
regarding the Fund can be directed either to your investment professional or
to the Fund at the address or telephone number listed on the back cover page.
19
<PAGE>
INVESTING IN THE FUND
- ---------------------
Before opening an account and investing in Fund shares, you should contact
your investment professional. Then, you should:
-- Read this Prospectus carefully.
-- Determine how much you would like to invest.
The minimum initial investment requirements are:
Non-retirement account: $5,000
Retirement account: $2,000
Automatic Investment Plan ("AIP"): $3,000
(to maintain the plan, you must invest at least $50 per month)
Subsequent investments: $100 or more
The Fund may change or waive these minimums at any time; you will be given
at least 30 days' notice of any increase in the minimum dollar amount of
purchases.
-- Complete the appropriate parts of the account application, carefully
following the instructions. If you have questions, please contact
your investment professional or the Fund at 1-888-__________. Account
applications will be accepted by investment professionals who have
entered into sales or service agreements with the Distributor, the
Distributor, or the Transfer Agent.
-- The Fund has authorized one or more brokers to accept on its behalf
purchase and redemption orders. These brokers are authorized to
designate intermediaries to accept orders on behalf of the funds.
The Fund is deemed to have received the order when an authorized
broker, or its designee, accepts the order. Customer orders will be
priced at the Fund's net asset value, next computed, after they are
accepted by an authorized broker, or its designee.
-- Make your initial investment, and any subsequent investments,
following the instructions set forth below.
BUYING SHARES
- -------------
You may open an account by completing an account application and paying
for your shares by check or wire. All new account applications should be
given to your investment professional or forwarded to the Distributor or the
Transfer Agent, whose addresses appear on the back cover page of this
Prospectus. The price per share will be the net asset value plus applicable
sales charges next computed after the time the application and funds are
received in proper order by the Transfer Agent and accepted by the Fund. The
Fund does not consider the
20
<PAGE>
U.S. Postal Service or other independent delivery services to be its agents;
therefore, deposit in the mail or with such services, or receipt at the
Transfer Agent's post office box, of purchase applications does not
constitute receipt by the Transfer Agent or the Fund. A confirmation
indicating the details of each purchase transaction will be sent to you
promptly.
By check:
---------
-- You may write a check for the investment amount, payable to "Zacks
Market Neutral Fund" or to "Zacks Index Plus Fund". Payment should
be made in U.S. funds by check drawn on a U.S. bank, savings and
loan, or credit union. Neither cash nor third-party checks will
be accepted.
-- You may purchase shares through broker-dealers who have no sales
agreement with the Distributor, but you may be charged a transaction
fee in addition to the sales charge.
-- If your check does not clear, you will be charged a $25 service fee.
You will also be responsible for any resulting losses suffered by
the Fund.
-- All applications to purchase Fund shares are subject to acceptance
by the Fund and are not binding until so accepted. The Fund
reserves the right to decline or accept a purchase application in
whole or in part.
By wire:
--------
-- Obtain your account number by reviewing your account statement or by
calling your investment professional, the Distributor, or the Transfer
Agent.
-- Provide your bank with the following instructions to wire funds:
Wire to: Firstar Bank Milwaukee, N.A.
ABA Number 075000022
Credit: Firstar Trust Company
Account 112-952-137
Further credit: Zacks Market Neutral Fund or Zacks Index
Plus Fund
(shareholder account number)
(shareholder name/account registration)
-- Please call 1-888-________ prior to wiring any funds to notify the
Transfer Agent that the wire is coming and to verify the proper wire
instructions.
-- The Fund is not responsible for the consequences of delays resulting
from the banking or Federal Reserve wire system.
21
<PAGE>
PURCHASING ADDITIONAL SHARES
- ----------------------------
You may add to your account by check, wire or the automatic investment
plan. A confirmation indicating the details of each subsequent purchase
transaction will be sent to you promptly.
By check:
---------
-- Make out a check for the investment amount, payable to "Zacks Market
Neutral Fund" or to "Zacks Index Plus Fund " Neither cash nor
third-party checks will be accepted.
-- Fill out the detachable investment slip from an account statement.
If no slip is available, include a note specifying your account
number and the name(s) in which the account is registered.
-- Deliver the check and your investment slip or note to your
investment professional, the Distributor, or the Transfer Agent.
By wire:
--------
-- Follow the wire instructions used to open an account.
Automatic Investment Plan:
--------------------------
-- The Automatic Investment Plan ("AIP") is a method of using dollar
cost averaging which is an investment strategy that involves
investing a fixed amount of money at a regular time interval. By
always investing the same amount, you will be purchasing more
shares when the price is low and fewer shares when the price is
high. Since such a program involves continuous investment regardless
of fluctuating share values, you should consider your financial
ability to continue the program through periods of high per share
price levels. A program of regular investment cannot ensure a profit
or protect against a loss from declining markets.
-- The AIP allows you to make regular, systematic investments in shares
of the Fund from your bank checking or NOW account. The minimum
initial investment for investors using the AIP is $3,000. To establish
the AIP, complete the appropriate section in the account application
attached to this Prospectus. Under certain circumstances (such as
discontinuation of the AIP before the minimum initial investment is
reached), the Fund reserves the right to close your account. Prior
to closing any account for failure to reach the minimum initial
investment, the Fund will give you written notice and 60 days in which
to reinstate the AIP or otherwise reach the minimum initial
investment. Your account may be closed in periods of declining
share prices.
-- Under the AIP, you may choose to make investments on certain days of
each month (at least seven days apart) in amounts of $50 or more.
There is no service fee charged
22
<PAGE>
by the Fund for participating in the AIP. However, a service fee of
$25 will be deducted from your Fund account for any AIP purchase that
does not clear due to insufficient funds or, if prior to notifying the
Fund in writing or by telephone of your intention to terminate the
plan, you close your bank account or in any manner prevent withdrawal
of funds from the designated checking or NOW account. You can set up
the AIP with most financial institutions.
REDEEMING SHARES
- ----------------
You may request redemption of part or all of your Fund shares at any
time. The price per share will be the net asset value next computed after
the time the redemption request is received in proper form by the Transfer
Agent and accepted by the Fund, less any applicable fees. See "Determination
of Net Asset Value." The Fund normally will mail your redemption proceeds
within one or two business days and, in any event, no later than seven
business days after receipt by the Transfer Agent of a redemption request in
good order. However, the Fund may hold payment until investments which were
made by check, telephone, or pursuant to the AIP have been collected (which
may take up to 12 days from the initial investment date). What follows is a
listing of the various ways you may redeem shares. Redemptions may be made
by written request, telephone, wire, or exchange.
By written request:
-------------------
-- Write a letter of instruction indicating the Fund name, your account
number, the name(s) in which the account is registered, and the dollar
value or number of shares you wish to sell.
-- Include all signatures and any additional documents that may be
required. See "Special Situations," below.
-- Forward the materials to the Transfer Agent.
-- A check will be mailed to the name(s) and address in which the account
is registered, or otherwise according to your letter of instruction.
By telephone:
-------------
-- Complete the "Telephone Redemption" section of your new account
application.
-- To place your redemption order, you may call 1-888-________.
-- Redemption requests by telephone are available for redemptions of
$1,000 to $25,000. Redemption requests for less than $1,000 or more
than $25,000 must be in writing.
-- Proceeds redeemed by telephone will be mailed or wired only to your
address or bank of record as shown on the records of the Transfer
Agent.
23
<PAGE>
-- The Fund reserves the right to refuse any request made by telephone
and may limit the amount involved or the number of telephone
redemptions.
-- Once you place a telephone redemption request, it cannot be canceled
or modified.
-- Neither the Fund nor the Transfer Agent will be responsible for the
authenticity of redemption instructions received by telephone.
Accordingly, you bear the risk of loss. However, the Fund will use
reasonable procedures to ensure that instructions received by telephone
are genuine and to discourage fraud, including recording telephonic
transactions, testing a caller's identity and sending written
confirmation of telephonic transactions to investors. To the extent
that a Fund does not follow such procedures, it may be liable for
losses due to unauthorized or fraudulent telephonic instructions. A
Fund will not be liable for acting upon instructions communicated by
telephone that it reasonably believes to be genuine.
-- You may experience difficulty in implementing a telephone redemption
during periods of unusual market conditions. If you are unable to
contact the Transfer Agent by telephone, you may also redeem shares
by written request, as noted above.
By wire:
--------
-- Fill out the "Telephone Redemption" section of your new account
application.
-- To verify that the telephone redemption privilege is in place on an
account, or to request the forms to add it to an existing account,
call the Transfer Agent.
-- Funds will be wired on the next business day. A $12 fee will be
deducted from your account.
-- You may make redemptions requests of $25,000 or less by telephone if
the funds are to be transmitted by wire. Redemption requests for more
than $25,000 must be made in writing.
IRAs. Shareholders who have an Individual Retirement Account ("IRA") or
other retirement plan must indicate on their redemption requests whether or
not to withhold federal income taxes. Redemption requests failing to
indicate an election will be subject to withholding.
Special Situations. If you are acting as an attorney-in-fact for
another person, or as a trustee or on behalf of a corporation, additional
documentation may be required in order to effect a redemption. Questions
regarding such circumstances may be directed to your investment professional,
or the Transfer Agent by calling 1-888-________. In addition, the Fund
requires a signature guarantee for all authorized owners of an account: (a)
when you submit a written redemption request for more than $25,000, (b) when
you add the telephone redemption option to your existing account, (c) if you
transfer ownership of your account to another individual or entity, or (d) if
you request redemption proceeds to be sent to an address other than the
address that appears on your account. A signature guarantee may be obtained
from any eligible guarantor institution, as defined by the SEC. These
institutions include banks, saving
24
<PAGE>
associations, credit unions, brokerage firms, and others. A notary public
stamp or seal is not acceptable.
EXCHANGE OF FUND SHARES
- -----------------------
The Funds offer two convenient ways to exchange shares in one Fund for
shares of the other Fund. There is no sales charge on exchanges. Before
engaging in an exchange transaction, a shareholder should read carefully the
information in the Prospectus describing the Fund into which the exchange
will occur. A shareholder may not exchange shares of one Fund for shares of
another Fund that is not qualified for sale in the state of the shareholder's
residence. Although the Trust has no current intention of terminating or
modifying the exchange privilege, it reserves the right to do so at any time.
An exchange is taxable as a sale of a security on which a gain or loss
may be recognized. Shareholders should receive written confirmation of the
exchange within a few days after the transaction was completed.
A new account opened by exchange must be established with the same
name(s), address and social security number as the existing account. All
exchanges will be made based on the respective net asset values next
determined following receipt of the request by the Funds containing the
information indicated below.
By mail:
--------
-- Shareholders should simply send a letter of instruction to the Trust
which includes (a) the investor's account number; (b) the Fund from
and the Fund into which the exchange is to be made; (c) the dollar or
share amount to be exchanged; and (d) the signatures of all
registered owners or authorized parties.
By telephone:
-------------
-- To exchange Fund shares by telephone or to ask questions about the
exchange privilege, shareholders may call the Trust at 1-888_________.
-- If you wish to exchange shares, please be prepared to give the
telephone representative the following information: (a) the account
number, social security number and account registration; (b) the name
of the Fund from which and the Fund into which the exchange is to be
made; and (c) the dollar or share amount to be exchanged. Telephone
exchanges are available only if the shareholder so indicates by
checking the "yes" box on the Account Application.
-- The Trust employs procedures, including recording telephone calls,
testing a caller's identity, and sending written confirmation of
telephone transactions to investors, designed to give reasonable
assurance that instructions communicated by telephone are genuine, and
to discourage fraud. To the extent that a Fund does not follow such
procedures, it may be liable for losses due to unauthorized or
fraudulent telephone instructions. A Fund will not be liable
for acting upon instructions communicated by telephone that it
reasonably believes to be genuine.
25
<PAGE>
-- The Trust reserves the right to suspend or terminate the privilege of
exchanging by mail or by telephone at any time. The telephone exchange
privilege will be suspended for a period of 10 days following a
telephonic address change.
EXCHANGE INTO A MONEY MARKET FUND
- ---------------------------------
As a service to our shareholders, Zacks Mutual Funds have established a
program whereby you can exchange your Zacks Mutual Fund shares for shares of
the Firstar Money Market Funds. These funds are no-load money market funds
managed by Firstar which offer check-writing privileges. The Firstar Funds
are unrelated to Zacks Mutual Funds.
You may exchange your shares in the Fund for shares of the Firstar Money
Market Funds at no additional charge. The Firstar Funds consist of the Money
Market Fund (which is a general money market fund), U.S. Treasury Money
Market Fund, U.S. Government Money Market Fund, and Tax-Exempt Money Market
Fund. This exchange privilege is a convenient way to buy shares in a money
market fund in order to respond to changes in your goals or in market
conditions. Before exchanging into any of the Firstar Funds, read the
applicable prospectus. To obtain a prospectus for the Firstar Funds, call
toll-free 1-888-________ (888-________). There is no charge for exchange
transactions which are requested by mail. Firstar will charge a fee for each
exchange transaction that is executed over the telephone. This fee is
currently $5.00.
By Mail:
--------
-- To exchange your shares of the Fund into any of the Firstar Funds,
complete and sign an application and mail it to:
Zacks Mutual Funds
c/o Firstar Mutual Fund Services, LLC
P.O. Box 701
Milwaukee, WI 53201
-- You may also send the application via overnight courier to Firstar
Mutual Fund Services, LLC, at 615 E. Michigan Street,
Milwaukee, WI 53202.
By Telephone:
-------------
-- If you have authorized telephone transaction privileges in your
application, you may also make exchanges by calling toll-free
1-888-_______(888-______). Exchanges made over the telephone may
be made by any person, not just the shareholder of record. Certain
other limitations and conditions apply to all telephone transactions.
OTHER INFORMATION ABOUT EXCHANGING SHARES. All accounts opened as a
result of using the exchange privilege must be registered in the same name
and taxpayer identification number as your existing account with the Fund.
Because of the time needed to transfer money between the Fund and the Firstar
Money Market Funds, you may not exchange into and out of the same fund on the
same or successive days; there must be at least one day between exchange
transactions. You may exchange your shares of the Fund only for shares that
have been registered for sale in your state. Remember that each exchange
represents the sale of shares of
26
<PAGE>
one fund and the purchase of shares of another. Therefore, you could realize
a taxable gain or loss on the transaction. If your account is subject to
backup withholding, you may not open another account using the exchange
privilege. Because excessive trading can hurt the Fund's performance and
shareholders, the Fund reserves the right to temporarily or permanently
terminate the exchange privilege of any investor who makes excessive use of
the exchange privilege (more than five exchanges per calendar year). Your
exchanges may be restricted or refused by the Adviser if the Fund receives or
anticipates simultaneous orders affecting significant portions of the Fund's
assets. In particular, a pattern of exchanges with a "market timing"
strategy may be disruptive to the Fund. The Fund reserves the right to
terminate or modify the exchange privilege upon at least 60 days' written
notice to shareholders. A signature guarantee is not required except in
cases where shares are also redeemed for cash at the same time. The
restriction or termination of the exchange privilege does not affect the
rights of shareholders to redeem shares as discussed below.
TERMINATION OF ACCOUNTS
- -----------------------
Your account may be terminated by the Fund if, at the time of any
redemption of shares in your account, the value of the remaining shares in
the account falls below $1,000. A check for the proceeds of redemption will
be sent to you within seven days of the redemption.
NET ASSET VALUE
- ---------------
The net asset value per share is determined as of the close of trading
(generally 4:00 p.m. Eastern Standard Time) on each day the New York Stock
Exchange ("NYSE") is open for business. Purchase orders received or shares
tendered for redemption on a day the NYSE is open for trading, prior to the
close of trading on that day, will be valued as of the close of trading on
that day. Applications for purchase of shares and requests for redemption of
shares received after the close of trading on the NYSE will be valued as of
the close of trading on the next day the NYSE is open. The Fund is not
required to calculate its net asset value on days during which the Fund
receives no orders to purchase shares and no shares are tendered for
redemption. Net asset value per share for each class of shares is calculated
by taking the fair value of the total assets per class, including interest or
dividends accrued, but not yet collected, less all liabilities, and dividing
by the total number of shares outstanding in that class. The result, rounded
to the nearest cent, is the net asset value per share.
In determining net asset value, expenses are accrued and applied daily
and securities and other assets for which market quotations are available are
valued at fair value. Common stocks and other equity-type securities are
valued at the last sales price on the national securities exchange or NASDAQ
on which such securities are primarily traded; however, securities traded on
a national securities exchange or NASDAQ for which there were no transactions
on a given day, and securities not listed on a national securities exchange
or NASDAQ, are valued at the average of the most recent bid and asked prices.
Any securities or other assets for which market quotations are not readily
available are valued at fair value as determined in good faith by the Board
of Directors of the Corporation or its delegate. The Board of Directors may
approve the use of pricing services to assist the Fund in the determination
of net asset value. All money market instruments held by the Fund will be
valued on an amortized cost basis.
27
<PAGE>
RETIREMENT PLANS
- ----------------
The Fund offers through Firstar, in its capacity as Custodian, certain
qualified retirement plans for adoption by individuals and employers.
Participants in these plans can accumulate shares of the Fund on a
tax-deferred basis. Contributions to the following plans are tax-deductible
as provided by law and earnings are tax-deferred until distributed.
-- Individual Retirement Accounts
-- Simplified Employee Pension Plan
-- Savings Incentive Match Plan for Employees of Small Employers
A complete description of the above plans, as well as a description of
the applicable service fees, may be obtained by calling 1-888-________ or
writing to the Fund c/o Firstar Mutual Fund Services, LLC, P.O. Box 701,
Milwaukee, Wisconsin 53201-0701.
DIVIDENDS, DISTRIBUTIONS AND TAX MATTERS
You should not expect income from this Fund. However, as required by
law, to avoid double taxation, the Fund will distribute substantially all of
its net realized capital gains and net investment income, if any, to
shareholders annually in the form of a distribution and/or dividend, taxable
to you as capital gain or ordinary income. In the absence of specific
instructions to the contrary, distributions and dividends will be reinvested
in additional Fund shares and will not be available for the payment of taxes.
See "Dividends, Capital Gains Distributions and Tax Treatment" and
"Implementation of Policies and Risks."
The Fund intends to qualify for treatment as a "Regulated Investment
Company" under Subchapter M of the Code and, if so qualified, will not be
liable for federal income taxes to the extent earnings are distributed to
shareholders on a timely basis. However, for federal income tax purposes,
all dividends and distributions of net realized short-term capital gains you
receive from the Fund are taxable as ordinary income, whether reinvested in
additional shares or received in cash, unless you are exempt from taxation or
entitled to a tax deferral. Distributions of net realized long-term capital
gains you receive from the Fund, whether reinvested in additional shares or
received in cash, are taxable as a capital gain. The capital gain holding
period is determined by the length of time the Fund has held the security and
not the length of time you have held shares in the Fund. You will be
informed annually as to the amount and nature of all dividends and capital
gains paid during the prior year. Such capital gains and dividends may also
be subject to state or local taxes. If you are not required to pay taxes on
your income, you are generally not required to pay federal income taxes on
the amounts distributed to you.
Dividends and capital gains, if any, will be distributed at least
annually in December. Please note, however, that the objective of the Fund
is capital appreciation, not the production of distributions. You should
measure the success of your investment by the value of your investment at any
given time and not by the distributions you receive.
28
<PAGE>
When a dividend or capital gain is distributed, the Fund's net asset
value decreases by the amount of the payment. If you purchase shares shortly
before a distribution, you will be subject to income taxes on the
distribution, even though the value of your investment (plus cash received,
if any) remains the same. All dividends and capital gains distributions will
automatically be reinvested in additional Fund shares at the then prevailing
net asset value unless you specifically request that dividends or capital
gains or both be paid in cash. The election to receive dividends or reinvest
them may be changed by writing to the Fund at Zacks Mutual Funds, Inc., c/o
Firstar Mutual Fund Services, LLC, P.O. Box 701, Milwaukee, Wisconsin
53201-0701. Such notice must be received at least 10 days prior to the
record date of any dividend or capital gain distribution.
If you do not furnish the Fund with your correct social security number
or taxpayer identification number, the Fund is required by current federal
law to withhold federal income tax from your distributions (including
applicable Fund share reinvestments) and redemption proceeds at a rate of 31%.
This section is not intended to be a full discussion of federal income
tax laws and the effect of such laws on you. There may be other federal,
state, or local tax considerations applicable to a particular investor. You
are urged to consult your own tax advisor.
29
<PAGE>
[BACK COVER]
You can find more detailed information about the Zacks Mutual Funds in the
current Statement of Additional Information, dated __________ , 1999, which
we have filed electronically with the Securities and Exchange Commission
(SEC) and is incorporated by reference into this Prospectus. To receive your
free copy of a Statement of Additional Information, or any existing annual
or semi-annual reports, or if you have questions about investing in the
Funds, write to us at: [ ]
or call our toll-free number:
1-888 [ ]
You can find reports and other information about the Funds on the SEC Web
site (http://www.sec.gov), or you can get copies of this information, after
payment of a duplicating fee, by writing to the Public Reference Section of
the SEC, Washington, D.C. 20549-6009. Information about the Funds, including
the Statement of Additional Information, can be reviewed and copied at the
SEC's Public Reference Room in Washington, D.C. For information on the Public
Reference Room, call the SEC at 1-800-SEC-0330.
Investment Company Act file number [ ]
Website or E-mail requests?
30
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
ZACKS SERIES TRUST (d/b/a ZACKS MUTUAL FUNDS)
ZACKS MARKET NEUTRAL FUND
ZACKS INDEX PLUS FUND
155 North Wacker Drive
Chicago, IL 60606
(312) 630-9880
This Statement of Additional Information is not a prospectus. This
Statement of Additional Information relates to the prospectus of the Zacks
Market Neutral Fund and the Zacks Index Plus Fund of Zacks Series Trust, doing
business as the Zacks Mutual Fund (the "Trust") dated _____, 1999 (the
"Prospectus") and should be read in conjunction therewith. A copy of the
Prospectus may be obtained from the Trust.
TABLE OF CONTENTS
INVESTMENT OBJECTIVES AND POLICIES.........................................
MISCELLANEOUS INVESTMENT PRACTICES.........................................
INVESTMENT RESTRICTIONS....................................................
DIVIDENDS, DISTRIBUTIONS AND TAX MATTERS...................................
MANAGEMENT OF THE TRUST....................................................
INVESTMENT ADVISORY AND OTHER SERVICES.....................................
PORTFOLIO TRANSACTIONS.....................................................
TOTAL RETURN CALCULATIONS..................................................
FUND PERFORMANCE...........................................................
DESCRIPTION OF THE TRUST AND OWNERSHIP OF SHARES...........................
DETERMINATION OF NET ASSET VALUE...........................................
RETIREMENT PLANS...........................................................
<PAGE>
INVESTMENT OBJECTIVES AND POLICIES
The investment objective and policies of each of the Zacks Market
Neutral Fund and the Zacks Index Plus Fund (each, a "Fund" and collectively, the
"Funds") of the Trust are described in the text of the Prospectus under the
headings "The Funds--An Overview" and "The Funds-- In Depth".
In addition, the following is an additional description of certain
investments of the Fund(s).
SHORT SALES (BOTH FUNDS). The Zacks Market Neutral Fund will seek, and
the Zacks Index Plus Fund may seek, to realize additional gains through short
sales. Short sales are transactions in which a Fund sells a security it does not
own, in anticipation of a decline in the value of that security relative to the
long positions held by the Fund. To complete such a transaction, a Fund must
borrow the security to make delivery to the buyer. A Fund then is obligated to
replace the security borrowed by purchasing it at the market price at or prior
to the time of replacement. Although the strategy aims to replace the security
at a net price which is lower than the price at which it was sold by a Fund, the
price at such time may be more or less than the price at which the security was
sold. Until the security is replaced, a Fund is required to repay the lender any
dividends or interest that accrue during the period of the loan. To borrow the
security, a Fund also may be required to pay a premium, which would increase the
cost of the security sold. The net proceeds of the short sale will be retained
by the broker (or by the Fund's custodian in a special custody account), to the
extent necessary to meet margin requirements, until the short position is closed
out. A Fund also will incur transaction costs in effecting short sales.
A Fund will incur a loss as a result of the short sale if the price of
the security increases between the date of the short sale and the date on which
the Fund replaces the borrowed security. A Fund may realize a gain if the
security declines in price between those dates. The amount of any gain will be
decreased, and the amount of any loss increased, by the amount of the premium,
dividends, interest or expenses a Fund may be required to pay in connection with
a short sale. There can be no assurance that a Fund will be able to close out a
short position at any particular time or at an acceptable price.
S&P 500 INDEX FUTURES (ZACKS INDEX PLUS FUND ONLY). An S&P 500 Index
Future contract (an "Index Future") is a contract to buy or sell an integral
number of units of the Standard & Poor's 500 Composite Stock Price Index (the
"S&P 500 Index") at a specified future date at a price agreed upon when the
contract is made. A unit is the value of the S&P 500 Index from time to time.
Entering into a contract to buy units of the S&P 500 Index is commonly referred
to as buying or purchasing a contract or holding a long position in the S&P 500
Index.
Index Futures can be traded through all major commodity brokers.
Currently, contracts are expected to expire on the tenth day of March, June,
September and December. The Zacks Index Plus Fund will ordinarily be able to
close open positions on the U. S. futures exchange on which Index Futures are
then traded at any time up to and including the expiration day.
<PAGE>
In contrast to purchases of a common stock, no price is paid or
received by the Zacks Index Plus Fund upon the purchase of a futures contract.
Upon entering into a futures contract, the Fund will be required to deposit with
its custodian in a segregated account in the name of the futures broker a
specified amount of cash or securities. This is known by participants in the
market as "initial margin." The types of instruments that may be deposited as
initial margin, and the required amount of initial margin, are determined by the
futures exchange(s) on which the Index Futures are traded. The nature of initial
margin in futures transactions is different from that of margin in securities
transactions in that futures contract margin does not involve the borrowing of
funds by the customer to finance the transactions. Rather, the initial margin is
in the nature of a performance bond or good faith deposit on the contract which
is returned to the Fund upon termination of the futures contract, assuming all
contractual obligations have been satisfied. Subsequent payments, called
"variation margin," to and from the broker, will be made on a daily basis as the
price of the S&P 500 Index fluctuates, making the position in the futures
contract more or less valuable, a process known as "marking to the market." For
example, when the Fund has purchased an Index Future and the price of the S&P
500 Index has risen, that position will have increased in value and the Fund
will receive from the broker a variation margin payment equal to that increase
in value. Conversely, when the Fund has purchased an Index Future and the price
of the S&P 500 Index has declined, the position would be less valuable and the
Fund would be required to make a variation margin payment to the broker. When
the Fund terminates a position in a futures contract, a final determination of
variation margin is made, additional cash is paid by or to the Fund, and the
Fund realizes a gain or a loss.
The price of Index Futures may not correlate perfectly with movement in
the underlying index due to certain market distortions. First, all participants
in the futures market are subject to margin deposit and maintenance
requirements. Rather than meeting additional margin deposit requirements,
investors may close futures contracts through offsetting transactions which
could distort the normal relationship between the S&P 500 Index and futures
markets. Secondly, the deposit requirements in the futures market are less
onerous than margin requirements in the securities market, and as a result the
futures market may attract more speculators than does the securities market.
Increased participation by speculators in the futures market may also cause
temporary price distortions.
Positions in Index Futures may be closed out only if there is a
secondary market for such futures. There can be no assurance that a liquid
secondary market will exist for any particular contract or at any particular
time. In such event, it may not be possible to close a futures position and, in
the event of adverse price movements, the Zacks Index Plus Fund would continue
to be required to make daily cash payments of variation margin.
Generally, a futures contract is terminated by entering into an
offsetting transaction. An offsetting transaction for a futures contract
purchase is effected by entering into a futures contract sale for the same
aggregate amount of the specified financial instrument with the same delivery
date. If the offsetting sale price exceeds the purchase price, the Zacks Index
Plus Fund realizes a gain, and if the purchase price exceeds the offsetting
price, the Fund realizes a loss.
<PAGE>
MISCELLANEOUS INVESTMENT PRACTICES
REPURCHASE AGREEMENTS. Each Fund may enter into repurchase agreements,
by which a Fund purchases a security and obtains a simultaneous commitment from
the seller (a bank or, to the extent permitted by the Investment Company Act of
1940, as amended (the "1940 Act"), a recognized securities dealer) to repurchase
the security at an agreed-upon price and date (usually seven days or less from
the date of original purchase). The resale price is in excess of the purchase
price and reflects an agreed-upon market rate unrelated to the coupon rate on
the purchased security. Such transactions afford the Funds the opportunity to
earn a return on temporarily available cash. Although the underlying security
may be a bill, certificate of indebtedness, note or bond issued by an agency,
authority or instrumentality of the U.S. Government, the obligation of the
seller is not guaranteed by the U.S. Government and there is a risk that the
seller may fail to repurchase the underlying security. In such event, a Fund
would attempt to exercise rights with respect to the underlying security,
including possible disposition in the market. However, a Fund may be subject to
various delays and risks of loss, including (a) possible declines in the value
of the underlying security during the period while a Fund seeks to enforce its
rights thereto and (b) inability to enforce rights and the expenses involved in
attempted enforcement.
LOANS OF PORTFOLIO SECURITIES. Each Fund may lend some or all of its
portfolio securities to broker-dealers. Securities loans are made to
broker-dealers pursuant to agreements requiring that loans be continuously
secured by collateral in cash or U.S. Government securities at least equal at
all times to the market value of the securities lent. The borrower pays to the
lending Fund an amount equal to any dividends or interest received on the
securities lent. When the collateral is cash, the Funds may invest the cash
collateral in interest-bearing, short-term securities. When the collateral is
U.S. Government securities, the Fund usually receives a fee from the borrower.
Although voting rights or rights to consent with respect to the loaned
securities pass to the borrower, a Fund retains the right to call the loans at
any time on reasonable notice, and it will do so in order that the securities
may be voted by the Fund if the holders of such securities are asked to vote
upon or consent to matters materially affecting the investment. A Fund may also
call such loans in order to sell the securities involved. The risks in lending
portfolio securities, as with other extensions of credit, include possible delay
in recovery of the securities or possible loss of rights in the collateral
should the borrower fail financially. However, such loans will be made only to
broker-dealers that are believed by the Manager to be of relatively high credit
standing.
ILLIQUID SECURITIES. Each Fund may purchase "illiquid securities,"
defined as securities which cannot be sold or disposed of in the ordinary course
of business within seven days at approximately the price at which a Fund has
valued such securities, so long as no more than 15% of a Fund's net assets would
be invested in such illiquid securities after giving effect to a purchase.
Investment in illiquid securities involves the risk that, because of the lack of
consistent market demand for such securities, a Fund may be forced to sell them
at a discount from the last offer price.
PORTFOLIO TURNOVER. A change in securities held by a Fund is known as
<PAGE>
"portfolio turnover" and almost always involves the payment by a Fund of
brokerage commissions or dealer markup and other transaction costs on the sale
of securities as well as on the reinvestment of the proceeds in other
securities. Portfolio turnover is not a limiting factor with respect to
investment decisions. As disclosed in the Prospectus, high portfolio turnover
involves correspondingly greater brokerage commissions and other transaction
costs, which will be borne directly by the Funds, and could involve realization
of capital gains that would be taxable when distributed to shareholders of a
Fund. To the extent that portfolio turnover results in the realization of net
short-term capital gains, such gains are ordinarily taxed to shareholders at
ordinary income tax rates. See "Dividends, Distributions and Tax Matters" and
"Portfolio Transactions."
INVESTMENT RESTRICTIONS
Without a vote of the majority of the outstanding voting securities of
a Fund to change these fundamental investment restrictions, the Trust will not
take any of the following actions with respect to such Fund:
(1) Borrow money in excess of 33% of the value (taken at the lower of
cost or current value) of the Fund's total assets (not including the amount
borrowed) at the time the borrowing is made, and then only from banks as a
temporary measure to facilitate the meeting of redemption requests (not for
leverage) which might otherwise require the untimely disposition of portfolio
investments or for extraordinary or emergency purposes or for payments of
variation margin (in the case of the Zacks Index Plus Fund only). Such
borrowings will be repaid before any additional investments are purchased. Short
sales and related borrowings of securities are not subject to this restriction.
(2) Pledge, hypothecate, mortgage or otherwise encumber its assets in
excess of 10% of the Fund's total assets (taken at cost) and then only to secure
borrowings permitted by Restriction 1 above. (For the purposes of this
restriction, collateral arrangements with respect to options, short sales, stock
index, interest rate, currency or other futures, options on futures contracts
and collateral arrangements with respect to initial and variation margin are not
deemed to be a pledge or other encumbrance of assets. Collateral arrangements
with respect to swaps and other derivatives are also not deemed to be a pledge
or other encumbrance of assets.)
(3) Purchase securities on margin, except such short-term credits as
may be necessary for the clearance of purchases and sales of securities. (For
this purpose, the deposit or payment of initial or variation margin in
connection with futures contracts or related options transactions is not
considered the purchase of a security on margin.)
(4) Make short sales of securities or maintain a short position if,
when added together, more than 100% of the value of a Fund's net assets would be
(i) deposited as collateral for the obligation to replace securities borrowed to
effect short sales, and (ii) allocated to segregated accounts in connection with
short sales. Short sales "against the box" are not subject to this limitation.
(5) Underwrite securities issued by other persons except to the extent
that, in connection
<PAGE>
with the disposition of its portfolio investments, it may be deemed to be an
underwriter under federal securities laws.
(6) Purchase or sell real estate, although it may purchase securities
of issuers which deal in real estate, including securities of real estate
investment trusts, and may purchase securities which are secured by interests in
real estate.
(7) Concentrate more than 25% of the value of its total assets in any
one industry.
(8) Invest in securities of other investment companies, except to the
extent permitted by the Investment Company Act of 1940, as amended (the "1940
Act"), or by an exemptive order issued by the Securities and Exchange
Commission.
(9) Purchase or sell commodities or commodity contracts except that
each of the Funds may purchase and sell stock index and other financial futures
contracts and options thereon.
(10) Make loans, except by purchase of debt obligations or by entering
into repurchase agreements or through the lending of the Fund's portfolio
securities.
(11) Issue senior securities. (For the purpose of this restriction none
of the following is deemed to be a senior security: any pledge or other
encumbrance of assets permitted by restriction (2) above; any borrowing
permitted by restriction (1) above; short sales permitted by restriction (4)
above; any collateral arrangements with respect to short sales, swaps, options,
future contracts and options on future contracts and with respect to initial and
variation margin; and the purchase or sale of options, future contracts or
options on future contracts.)
(12) The Fund will not enter into any commodity futures contracts or
any option related to such a contract if such contract or option would cause the
aggregate initial margin and option premiums to exceed 10% of the fair market
value of Zacks Mutual Funds' total assets, after taking into account unrealized
profits and losses on contracts it has entered into and excluding the "in money"
amount of any options it holds or is subject to as such term is defined in CFTC
Section 190.01(x).
Notwithstanding the latitude permitted by Restriction 9 above, the
Funds have no current intention of purchasing interest rate futures.
It is contrary to the present policy of each of the Funds, which may be
changed by the Trustees of the Trust without shareholder approval, to:
(a) Invest in warrants or rights (other than warrants or rights
acquired by a Fund as a part of a unit or attached to securities at the time of
purchase).
(b) Write, purchase or sell options on particular securities (as
opposed to market indices).
(c) Buy or sell oil, gas or other mineral leases, rights or royalty
contracts.
(d) Make investments for the purpose of exercising control of a
company's management.
<PAGE>
(e) Invest in (a) securities which at the time of investment are not
readily marketable and (b) repurchase agreements maturing in more than seven
days if, as a result, more than 15% of the Fund's net assets (taken at current
value) would then be invested in such securities.
Unless otherwise indicated, all percentage limitations on investments
set forth herein and in the Prospectus will apply at the time of the making of
an investment and shall not be considered violated unless an excess or
deficiency occurs or exists immediately after and as a result of such
investment.
The phrase "shareholder approval," as used in the Prospectus and
herein, and the phrase "vote of a majority of the outstanding voting
securities," as used herein, means the affirmative vote of the lesser of (1)
more than 50% of the outstanding shares of a Fund or the Trust, as the case may
be, or (2) 67% or more of the shares of a Fund or the Trust, as the case may be,
present at a meeting if more than 50% of the outstanding shares are represented
at the meeting in person or by proxy.
NOTICE ON SHAREHOLDER APPROVAL. Unless otherwise indicated in the
Prospectus or this Statement of Additional Information, the investment objective
and policies of each of the Funds may be changed without shareholder approval.
DIVIDENDS, DISTRIBUTIONS AND TAX MATTERS
The tax status of the Funds and the distributions which they may make
are summarized in the Prospectus under the headings "Distributions" and "Taxes."
The Funds intend to qualify each year as a regulated investment company under
the Internal Revenue Code of 1986, as amended. In order to qualify as a
"regulated investment company" and to qualify for the special tax treatment
accorded regulated investment companies and their shareholders, each Fund must,
among other things, (a) derive at least 90% of its gross income from dividends,
interest, payments with respect to certain securities loans, gains from the sale
or other disposition of securities or foreign currencies or other income
(including but not limited to gains from options, futures or forward contracts)
derived with respect to its business of investing in such securities or
currencies; (b) diversify its holdings so that, at the close of each quarter of
its taxable year, (i) at least 50% of the value of its total assets consists of
cash, cash items, U.S. Government securities, securities of other regulated
investment companies, and other securities limited generally with respect to any
one issuer to not more than 5% of the total assets of such Fund and not more
than 10% of the outstanding voting securities of such issuer, and (ii) not more
than 25% of the value of its total assets is invested in the securities of any
issuer (other than U.S. Government securities or securities of other regulated
investment companies); and (c) distribute annually at least 90% of the sum of
its taxable net investment income, its net tax-exempt income (if any), and, the
excess, if any, of net short-term capital gains over net long-term capital
losses for such year. To the extent a Fund qualifies for treatment as a
regulated investment company, the Fund will not be subject to federal income tax
on income paid to its shareholders in the form of dividends or capital gain
distributions.
As described in the Prospectus under the heading "Distributions," each
Fund intends to pay out substantially all of its ordinary income and net
short-term capital gains, and to distribute
<PAGE>
substantially all of its net capital gains, if any, after giving effect to any
available capital loss carryover. Net capital gain is the excess of net gains
from assets held for more than one year over net losses from capital assets held
for not more than one year. In order to avoid an excise tax imposed on certain
undistributed income, a Fund must distribute prior to each calendar year end
without regard to the Fund's fiscal year end (i) 98% of the Fund's ordinary
income, and
(ii) 98% of the Fund's capital gain net income, if any, realized in the one-year
period ending on [ ].
In general, all dividend distributions derived from ordinary income and
short-term capital gain are taxable to investors as ordinary income.
Distributions of long-term gains (generally taxed at a 20% rate) will be taxable
to shareholders as such, regardless of how long a shareholder has held the
shares in the Fund. Distributions will be taxable as described above whether
received in cash or in shares through the reinvestment of distributions. The
dividends-received deduction for corporations will generally apply to a Fund's
dividends from investment income to the extent derived from dividends received
by the Fund from domestic corporations, provided the Fund and the shareholder
each meet the relevant holding period requirements.
Dividends and distributions on a Fund's shares are generally subject to
federal income tax as described herein to the extent they do not exceed the
Fund's realized income and gains, even though such dividends and distributions
may economically represent a return of a particular shareholder's investment.
Such distributions are likely to occur in respect of shares purchased at a time
when a Fund's net asset value reflects gains that are either unrealized, or
realized but not distributed.
Certain tax-exempt organizations or entities may not be subject to
federal income tax on dividends or distributions from a Fund. Each organization
or entity should review its own circumstances and the federal tax treatment of
its income.
Each Fund is generally required to withhold and remit to the U.S.
Treasury 31% of the taxable dividends and other distributions, whether
distributed in cash or reinvested in shares of the Fund, paid or credited to any
shareholder account for which an incorrect or no taxpayer identification number
has been provided or where the Fund is notified that the shareholder has
underreported income in the past (or the shareholder fails to certify that he is
not subject to such withholding). However, the general back-up withholding rules
set forth above will not apply to tax-exempt entities so long as each such
entity furnishes a Fund with an appropriate certificate.
The Internal Revenue Service recently revised its regulations affecting
the application to foreign investors of the back-up withholding and withholding
tax rules described above. The new regulations will generally be effective for
payments made after December 31, 1999 (although transition rules will apply). In
some circumstances, the new rules will increase the certification and filing
requirements imposed on foreign investors in order to qualify for exemption from
the 31% back-up withholding tax and for reduced withholding tax rates under
income tax treaties. Foreign investors in the Fund should consult their tax
advisors with respect to the potential application of these new regulations.
<PAGE>
To the extent such investments are permissible for a particular Fund,
the Fund's transactions in options, futures contracts, hedging transactions,
forward contracts and straddles will be subject to special tax rules (including
mark-to-market, constructive sale, straddle, wash sale and short sale rules),
the effect of which may be to accelerate income to the Fund, defer losses to the
Fund, cause adjustments in the holding periods of the Fund's securities, convert
long-term capital gains into short-term capital gains and convert short-term
capital losses into long-term capital losses. These rules could therefore affect
the amount, timing and character of distributions to shareholders.
THE TAX DISCUSSION SET FORTH ABOVE IS A SUMMARY INCLUDED FOR GENERAL
INFORMATION PURPOSES ONLY. EACH SHAREHOLDER IS ADVISED TO CONSULT ITS OWN TAX
ADVISER WITH RESPECT TO THE SPECIFIC TAX CONSEQUENCES TO IT OF AN INVESTMENT IN
THE FUNDS, INCLUDING THE EFFECT AND APPLICABILITY OF STATE, LOCAL, FOREIGN, AND
OTHER TAX LAWS AND THE POSSIBLE EFFECTS OF CHANGES IN FEDERAL OR OTHER TAX LAWS.
THIS DISCUSSION IS NOT INTENDED AS A SUBSTITUTE FOR CAREFUL TAX PLANNING.
MANAGEMENT OF THE TRUST
The Trustees and officers of the Trust and their principal occupations
during the past five years are as follows:
*Benjamin L. Zacks, age 50, is Vice President and Trustee of the Trust.
Mr. Zacks is also portfolio manager for the Zacks Market Neutral Fund and is
principally responsible for its day to day management. He is a co-founder,
director and currently serves as President of Zacks Investment Management, Inc.,
the Manager of the Funds, and has served in various capacities since its
inception in 1991. He is also a co-founder, director, Executive Vice President,
and minority shareholder of Zacks Investment Research, Inc., which is the parent
company of the Manager.
*Leonard H. Zacks, age 52, is Trustee and President of the Trust. Mr.
Zacks is a co-founder, a director and Director of Research of the Manager. He is
also a co-founder, director and majority shareholder of Zacks Investment
Research, Inc., the parent company of the Manager. He received a B.S. in
mathematics, an M.S. in Physics and a Ph.D. in Operations Research, all from
Massachusetts Institute of Technology.
William M. Holzman, age 50, is Trustee of the Trust. He is a partner in
the law firm of Neal, Gerber & Eisenberg in Chicago, IL.
Hubbard R. Garber, age 40, is Trustee of the Trust. He is a partner of
Boston-based investment banking and consulting firm of Barrington Partners.
Steven M. Goldring, age 58, is Trustee of the Trust. He is an
independent trader at Mid American Commodity Exchange of the Chicago Board of
Trade.
*Trustees who are "interested persons" (as defined in the 1940 Act) of the Trust
or the Manager.
<PAGE>
The mailing address of each of the officers and Trustees is c/o
Zacks Mutual Funds, 155 North Wacker Drive, Suite 300, Chicago, Illinois
60606. The principal occupations of the officers and Trustees for the last
five years have been with the employers as shown above, although in some
cases they have held different positions with such employers.
The Trust will pay the Trustees, other than those who are interested
persons of the Trust or Manager, a fee of $500 for each meeting attended, or up
to $2,000 annually, plus transportation costs for each meeting attended. The
Trust does not pay any pension or retirement benefits for its Trustees. The
Trust does not pay any compensation to officers or Trustees of the Trust other
than those Trustees who are not interested persons of the Trust or Manager. The
following table sets forth an estimate of the total compensation paid to each of
the Trustees who are not interested persons of the Trust or Manager in the
fiscal year ended __________:
<PAGE>
<TABLE>
<CAPTION>
Total Compensation
Aggregate Pension or Retirement Estimated Annual From Fund and Fund
Compensation Benefits Accrued As Benefits Upon Complex Paid To
Name of Person, Position From Fund Part of Funds Expenses retirement Directors
<S> <C> <C> <C> <C>
William M. Holzman $2,000 0 0 $2,000
Hubbard R. Garber $2,000 0 0 $2,000
Steven M. Goldring $2,000 0 0 $2,000
</TABLE>
Messrs. Leonard and Benjamin Zacks, each being a director, officer and
employee of the Manager, will benefit from the management fees paid by the Trust
to the Manager, but receive no direct compensation from the Trust. Messrs.
Leonard and Benjamin Zacks are brothers and Mitch Zacks, who is employed by the
Manager and is responsible for the day to day management of the Zacks Index Plus
Fund, is the son of Leonard H. Zacks.
INVESTMENT ADVISORY AND OTHER SERVICES
MANAGEMENT CONTRACTS. Under management contracts (each, a "Management
Contract") between the Trust, on behalf of each Fund, and Zacks Investment
Management, Inc. (the "Manager"), subject to the control of the Trustees of the
Trust and such policies as the Trustees may determine, the Manager will furnish
continuously an investment program for each Fund and will make investment
decisions on behalf of each Fund and place all orders for the purchase and sale
of portfolio securities. Subject to the control of the Trustees, the Manager
furnishes office space and equipment, provides certain bookkeeping and clerical
services and pays all salaries, fees and expenses of officers and Trustees of
the Trust who are affiliated with the Manager. As indicated under "Portfolio
Transactions -- Brokerage and Research Services," the Trust's portfolio
transactions may be placed with broker-dealers which furnish the Manager, at no
cost, certain research, statistical and quotation services of value to the
Manager in advising the Trust or its other clients.
Each of the Funds has agreed to pay the Manager a quarterly management
fee at the annual percentage rate of the relevant Fund's average daily net
assets set forth in the Prospectus. The Manager has contractually agreed that it
will, for the minimum time period stated in the Prospectus, waive some or all of
its management fees under the Management Contracts and, if necessary, will bear
certain expenses of each Fund until further notice so that each Fund's total
annual operating expenses (exclusive of nonrecurring account fees, extraordinary
expenses and dividends and interest paid on securities sold short) will not
exceed the percentage of each Fund's average daily net assets as set forth in
the Prospectus. In addition, the Manager's compensation under each Management
Contract is subject to reduction to the extent that in any year the expenses of
a Fund (including investment advisory fees but excluding taxes, portfolio
<PAGE>
brokerage commissions and any distribution expenses paid pursuant to a
distribution plan or otherwise) exceed the limits on investment company expenses
imposed by any statute or regulatory authority of any jurisdiction in which
shares of the Fund are qualified for offer and sale.
Each Management Contract provides that the Manager shall not be subject
to any liability to the Trust or to any shareholder of the Trust in connection
with the performance of its services thereunder in the absence of willful
misfeasance, bad faith, gross negligence or reckless disregard of its
obligations and duties thereunder.
Each Management Contract will continue in effect for a period of no
more than two years from the date of its execution only so long as its
continuance is approved at least annually by (i) vote, cast in person at a
meeting called for that purpose, of a majority of those Trustees who are not
"interested persons" of the Manager or the Trust, and by (ii) the majority vote
of either the full Board of Trustees or the vote of a majority of the
outstanding shares of the relevant Fund. Each Management Contract automatically
terminates on assignment, and is terminable on not more than 60 days' notice by
the Trust to the Manager. In addition, each Management Contract may be
terminated on not more than 60 days' written notice by the Manager to the Trust.
As disclosed in the Prospectus and in this Statement of Additional
Information under the heading "Management of the Trust," Leonard H. Zacks is
Trustee and President of the Trust as well as a director and Director of
Research of the Manager. Benjamin L. Zacks is Trustee and Vice President of the
Trust as well as a director and President of the Manager. Each of these persons
may be deemed a controlling person of the Manager.
During the first fiscal year from ________ (inception date) to _______,
it is anticipated that the Zacks Market Neutral Fund and the Zacks Index Plus
Fund will pay the following amounts as management fees to the Manager pursuant
to its Management Contract:
<TABLE>
<CAPTION>
FUND PERIOD GROSS REDUCTION NET
- ---- ------ ----- --------- ---
<S> <C> <C> <C> <C>
Zacks Market Neutral Fund
Zacks Index Plus Fund
</TABLE>
ADMINISTRATIVE SERVICES. The Trust has entered into a Fund
Administration Agreement with Firstar Mutual Fund Services, LLC, 615 E. Michigan
Street, Milwaukee, WI 53202 (the "Administrator") pursuant to which the
Administrator provides certain management and administrative services necessary
for the Funds' operations including: (i) general supervision of the operation of
the Funds including coordination of the services performed by the Funds'
investment adviser, transfer agent, custodian, independent accountants and legal
counsel, regulatory compliance, including the compilation of information for
documents such as reports to, and filings with, the SEC and state securities
commissions, and preparation of proxy statements and shareholder reports for the
Funds; (ii) general supervision relative to the
<PAGE>
compilation of data required for the preparation of periodic reports distributed
to the Funds' officers and Board of Trustees; and (iii) furnishing office space
and certain facilities required for conducting the business of the Funds. For
these services, the Administrator is entitled to receive a fee, payable monthly,
at the annual rate of ___ of the average daily net assets of the Trust. For the
first fiscal year from ________________ (inception date) to ________, it is
anticipated that the Administrator will receive from the Zacks Market Neutral
Fund $_______ in administration fees. Of this amount, the Manager expects the
Administrator to waive $________.
FUND ACCOUNTING. The Trust has also entered into a Fund Accounting
Agreement with Firstar Fund Services, Inc. (the "Fund Accountant") pursuant to
which the Fund Accountant provides certain accounting services necessary for the
Funds' operations. For these services, the Fund Accountant is entitled to
receive an annual fee of $________ for each Fund. For the first fiscal year from
________ (inception date) to _________, it is anticipated that the Zacks Market
Neutral Fund will pay approximately $________ in fund accounting fees and that
the Zacks Index Plus Fund will pay approximately $_______ in fund accounting
fees.
DISTRIBUTOR AND DISTRIBUTION PLAN. As shares of each Fund are sold on a
continuous basis by the Trust's distributor, Zacks & Company (the
"Distributor"). The Distributor is under common ownership and is considered an
affiliate of the Manager. Under the Distributor's Contract between the Trust and
the Distributor (the "Distributor's Contract"), the Distributor is not obligated
to sell any specific amount of shares of the Trust and will purchase shares for
resale only against orders for shares.
Pursuant to the Distribution Plan (the "Plan") described in the
Prospectus, in connection with the distribution of shares of the Funds. The
Distributor receives certain distribution fees from the Trust. Subject to the
percentage limitation on the distribution fee set forth in the Prospectus, the
distribution fee may be paid in respect of services rendered and expenses borne
in the past with respect to shares as to which no distribution fee was paid on
account of such limitation. The Distributor may pay all or a portion of the
distribution fees it receives from the Trust to participating and introducing
brokers.
For the first fiscal year from ________ (inception date) to ________,
it is anticipated that the Zacks Market Neutral Fund and the Zacks Index Plus
Fund will incur distribution expenses of $__________ and ____________,
respectively.
The Plan may be terminated with respect to shares by vote of a majority
of the Trustees of the Trust who are not interested persons of the Trust and who
have no direct or indirect financial interest in the operation of the Plan or
the Distributor's Contract (the "Independent Trustees"), or by vote of a
majority of the outstanding voting securities. Any change in the Plan that would
materially increase the cost requires shareholder approval. The Trustees review
quarterly a written report of such costs and the purposes for which such costs
have been incurred. Except as described above, the Plan may be amended by vote
of the Trustees of the Trust, including a majority of the Independent Trustees,
cast in person at a meeting called for the purpose. For so long as the Plan is
in effect, selection and nomination of those Trustees of the Trust who are not
interested persons of the Trust shall be committed to the discretion of such
<PAGE>
disinterested persons.
The Distributor's Contract may be terminated with respect to any Fund
at any time by not more than 60 days' nor less than 30 days' written notice
without payment of any penalty either by the Distributor or by such Fund and
will terminate automatically, without the payment of any penalty, in the event
of its assignment.
The Plan and the Distributor's Contract will continue in effect for
successive one-year periods, provided that each such continuance is specifically
approved (i) by the vote of a majority of the Independent Trustees and (ii) by
the vote of a majority of the entire Board of Trustees (or by vote of a majority
of the outstanding shares, in the case of the Distributor's Contract) cast in
person at a meeting called for that purpose.
The Trustees of the Trust believe that the Plan will provide benefits
to the Trust. The Trustees believe that the Plan will result in greater sales
and/or fewer redemptions of shares, although it is impossible to know for
certain the level of sales and redemptions of shares that would occur in the
absence of the Plan or under alternative distribution schemes. The Trustees
believe that the effect on sales and/or redemptions benefit the Trust by
reducing Fund expense ratios and/or by affording greater flexibility to the
Trust.
CUSTODIAL ARRANGEMENTS. Firstar Bank Milwaukee, N.A., 615 E. Michigan
Street, Milwaukee, WI 53202, an affiliate of Firstar Mutual Fund Services, LLC,
is the Trust's custodian. As such, the custodian holds in safekeeping
certificated securities and cash belonging to the Trust and, in such capacity,
is the registered owner of securities in book-entry form belonging to a Fund.
Upon instruction, the custodian receives and delivers cash and securities of a
Fund in connection with Fund transactions and collects all dividends and other
distributions made with respect to Fund portfolio securities.
TRANSFER AGENT. Firstar Mutual Fund Services, LLC, 615 E. Michigan
Street, Milwaukee, WI 53202 serves as the Funds' Transfer Agent. The Transfer
Agent is responsible for maintaining the shareholder ledger for each Fund and
for assisting in the dissemination of fund information to shareholders, in the
event a shareholder vote is required, and on a periodic basis.
INDEPENDENT ACCOUNTANTS. The Trust's independent accountants are
Altschuler, Melvoin & Glasser, 30 South Wacker Drive, Chicago, IL 60606. These
accountants conduct an annual audit of the Trust's financial statements, assist
in the preparation of the Trust's federal and state income tax returns and the
Trust's filings with the Securities and Exchange Commission, and consult with
the Trust as to matters of accounting and federal and state income taxation.
PORTFOLIO TRANSACTIONS
INVESTMENT DECISIONS. The purchase and sale of portfolio securities for
the Funds and for the other investment advisory clients of the Manager are made
by the Manager with a view to achieving each client's investment objective. For
example, a particular security may be
<PAGE>
purchased or sold on behalf of certain clients of the Manager even though it
could also have been purchased or sold for other clients at the same time.
Likewise, a particular security may be purchased on behalf of one or
more clients when the Manager is selling the same security on behalf of one or
more other clients. In some instances, therefore, the Manager, acting for one
client may sell indirectly a particular security to another client. It also
happens that two or more clients may simultaneously buy or sell the same
security, in which event purchases or sales are effected pro rata on the basis
of cash available or other equitable basis so as to avoid any one account's
being preferred over any other account.
BROKERAGE AND RESEARCH SERVICES. Transactions on stock exchanges and
other agency transactions involve the payment of negotiated brokerage
commissions. Such commissions vary among different brokers. There is generally
no stated commission in the case of securities traded in the over-the-counter
markets, but the price paid for such securities usually includes an undisclosed
dealer commission or mark up. In placing orders for the portfolio transactions
of a Fund, the Manager will seek the best price and execution available, except
to the extent it may be permitted to pay higher brokerage commissions for
brokerage and research services as described below. The determination of what
may constitute best price and execution by a broker-dealer in effecting a
securities transaction involves a number of considerations, including, without
limitation, the overall net economic result to the Fund (involving price paid or
received and any commissions and other costs paid), the efficiency with which
the transaction is effected, the ability to effect the transaction at all where
a large block is involved, availability of the broker to stand ready to execute
possibly difficult transactions in the future and the financial strength and
stability of the broker. Because of such factors, a broker-dealer effecting a
transaction may be paid a commission higher than that charged by another
broker-dealer. Most of the foregoing are considerations of judgment.
Over-the-counter transactions often involve dealers acting for their
own account. It is the Manager's policy to place over-the-counter market orders
for a Fund with primary market makers unless better prices or executions are
available elsewhere.
Although the Manager does not consider the receipt of research services
as a factor in selecting brokers to effect portfolio transactions for a Fund,
the Manager will receive such services from brokers who are expected to handle a
substantial amount of a Fund's portfolio transactions. Research services may
include a wide variety of analyses, reviews and reports on such matters as
economic and political developments, industries, companies, securities and
portfolio strategy. The Manager uses such research in servicing other clients as
well as the Trust.
As permitted by Section 28(e) of the Securities Exchange Act of 1934,
as amended, and subject to such policies as the Trustees of the Trust may
determine, the Manager may pay an unaffiliated broker or dealer that provides
"brokerage and research services" (as defined in the Act) to the Manager an
amount of commission for effecting a portfolio investment transaction in excess
of the amount of commission another broker or dealer would have charged for
effecting that transaction.
<PAGE>
TOTAL RETURN CALCULATIONS
Average annual total return is computed according to the following
formula:
n
P(1 + T) = ERV
where P = the amount of an assumed initial investment in shares of a Fund (less
the maximum sales charge, if any, during the period); T = average annual total
return; n = the number of years from initial investment to the end of the
period; and ERV = the ending redeemable value of shares held at the end of the
period.
Average Annual total return for each of the Fund's shares for the
periods indicated are as follows:
Where:
T = Average annual total return
ERV = Ending redeemable value of a hypothetical $1,000
investment made at the beginning of a period at
the end of such period
P = A hypothetical initial investment of $1,000
n = Number of years
The calculations of average annual total return and cumulative total
return assume that any dividends and distributions are reinvested immediately,
rather than paid to the investor in cash. The ending redeemable value (variable
"ERV" in each formula) is determined by assuming complete redemption of the
hypothetical investment and the deduction of all nonrecurring charges at the end
of the period covered by the computations.
Unlike bank deposits or other investments that pay a fixed yield or
return for a stated period of time, the return for each Fund will fluctuate from
time to time and does not provide a basis for determining future returns.
Average annual total return and cumulative return are based on many factors,
including market conditions, the composition of a Fund's portfolio and a Fund's
operating expenses.
PERFORMANCE COMPARISONS. Investors may judge the performance of the
Funds by comparing them to the performance of other mutual fund portfolios with
comparable investment objectives and policies through various mutual fund or
market indices such as those prepared by Dow Jones & Co., Inc. and Standard &
Poor's and to data prepared by Lipper Analytical Services, Inc., a widely
recognized independent service which monitors the performance of mutual funds.
Comparisons may also be made to indices or data published in MONEY MAGAZINE,
FORBES, BARRON'S, THE WALL STREET JOURNAL, MORNINGSTAR, INC., IBBOTSON
ASSOCIATES, CDA/WIESENBERGER, THE NEW YORK TIMES, BUSINESS WEEK, U.S.A. TODAY,
INSTITUTIONAL INVESTOR and other periodicals. In addition to performance
information, general information about the Funds that appears in a publication
such as those mentioned above may be included in advertisements, sales
<PAGE>
literature and reports to shareholders. The Funds may also include in
advertisements and reports to shareholders information discussing the
performance of the Manager in comparison to other investment advisers and to
other institutions.
From time to time, the Trust may include the following types of
information in advertisements, supplemental sales literature and reports to
shareholders: (1) discussions of general economic or financial principles (such
as the effects of inflation, the power of compounding and the benefits of dollar
cost averaging); (2) discussions of general economic trends; (3) presentations
of statistical data to supplement such discussions; (4) descriptions of past or
anticipated portfolio holdings for the Funds; (5) descriptions of investment
strategies for the Funds; (6) descriptions or comparisons of various investment
products, which may or may not include the Funds; (7) comparisons of investment
products (including the Funds) with relevant market or industry indices or other
appropriate benchmarks; (8) discussions of fund rankings or ratings by
recognized rating organizations; and (9) testimonials describing the experience
of persons that have invested in a Fund. The Trust may also include
calculations, such as hypothetical compounding examples, which describe
hypothetical investment results in such communications. Such performance
examples will be based on an express set of assumptions and are not indicative
of the performance of a Fund.
FUND PERFORMANCE
Each Fund may from time to time compare its investment results to
various passive indices or other mutual funds and cite such comparisons in
reports to shareholders, sales literature and advertisements. The results may be
calculated on several bases, including average annual total return, total return
and cumulative total return. Average annual total return and total return
figures measure both the net investment income generated by, and the effect of
any realized and unrealized appreciation or depreciation of, the underlying
investments over a specified period of time, assuming the reinvestment of all
dividends and distributions. Average annual total return figures are annualized
and therefore represent the average annual percentage change over the specified
period. Total return figures are not annualized and represent the aggregate
percentage or dollar value change over the period. Cumulative total return
simply reflects the performance over a stated period of time.
DESCRIPTION OF THE TRUST AND OWNERSHIP OF SHARES
As more fully described in the Prospectus, the Trust is a diversified
open-end series management investment company organized as Delaware business
trust in May 1999. A copy of the Agreement and Declaration of Trust of the Trust
(the "Declaration of Trust"), is on file with the Secretary of the state of
Delaware. The fiscal year of the Trust ends on ________.
Interests in the Trust's portfolios are currently represented by shares
of two series, the Zacks Market Neutral Fund and the Zacks Index Plus Fund,
issued pursuant to the Declaration of Trust. The Declaration of Trust provides
for the perpetual existence of the Trust. The Trust may, however, be terminated
at any time by the majority vote of the Trustees.
The Trustees may offer additional classes in the future and may at any
time discontinue
<PAGE>
the offering of any class of shares. Each share, when issued and paid for in
accordance with the terms of the offering, is fully paid and non-assessable.
Shares have no preemptive or subscription rights and are freely transferable.
Each of the Funds' shares represents an interest in the assets of the Fund
issuing the share and has identical voting, dividend, liquidation and other
rights, and the same terms and conditions as any other shares except that (i)
each dollar of net asset value per share is entitled to one vote, (ii) the
expenses related to a particular class, such as those related to the
distribution of each class and the transfer agency expenses of each class are
borne solely by each such class, and (iii) each class of shares votes separately
with respect to provisions of the Rule 12b-1 Distribution Plan, which pertains
to a particular class, and other matters for which for which separate class
voting is appropriate under applicable law. Each fractional share has the same
rights, in proportion, as a full share. Shares do not have cumulative voting
rights; therefore, the holders of more than 50%of the voting power of the
Company can elect all of the Directors of the Company.
Rule 18f-2 under the Investment Company Act of 1940 provides that any
matter required to be submitted under the provisions of the 1940 Act or
applicable state law or otherwise to the shareholders of the outstanding voting
securities of an investment company, such as the Company, will not be deemed to
have been effectively acted upon unless approved by the holders of a majority of
the outstanding shares of each series affected by such matter. Rule 18f-2
further provides that a series shall be deemed to be affected by a matter unless
it is clear that the interests of each series in the matter are identical, or
that the matter does not affect any interest of such series. Rule 18f-2 exempts
the selection of independent accountants and the election of Board members from
the separate voting requirements of the Rule.
The Trust does not hold annual shareholder meetings, but does hold
special shareholder meetings when the Board of Trustees believes it is necessary
or when required by law. The Trust will hold a special meeting when requested in
writing by the holders of at least 10% of the shares eligible to vote at a
meeting. In addition, subject to certain conditions, shareholders of the Fund
may apply to the Fund to communicate with other shareholders to request a
shareholders' meeting to vote upon the removal of a Trustee or Trustees.
Under Delaware law, the shareholders of the Fund are not personally
liable for the obligations of the Fund; a shareholder is entitled to the same
limitation of personal liability extended to shareholders of corporations.
OWNERS OF 5% OR MORE OF A FUND'S SHARES. The following chart sets forth
the names, addresses and percentage ownership of those shareholders owning
beneficially and of record (except as otherwise indicated) 5% or more of the
outstanding shares of the Zacks Market Neutral Fund as of ________, 1999:
NAME AND ADDRESS PERCENTAGE OWNERSHIP
OF OWNER OF THE FUND
<PAGE>
The following chart sets forth the names, addresses and percentage
ownership of those shareholders owning beneficially and of record (except as
otherwise indicated) 5% or more of the outstanding shares of the Zacks Index
Plus Fund as of ________, 1999:
NAME AND ADDRESS PERCENTAGE OWNERSHIP
OF OWNER OF THE FUND
The officers and Trustees of the Trust, as a group, own ____% of both
the Zacks Market Neutral Fund and the Zacks Index Plus Fund.
DETERMINATION OF NET ASSET VALUE
As indicated in the Prospectus, the net asset value of each Fund share
is determined on each day on which the New York Stock Exchange is open for
trading.
The Trust expects that the days, other than weekend days, that the New
York Stock Exchange will not be open are Christmas Day, New Year's Day, Martin
Luther King's Day, President's Day, Good Friday, Memorial Day, Independence Day
(observed), Labor Day and Thanksgiving Day.
Portfolio securities listed on a securities exchange for which market
quotations are available are valued at the last quoted sale price on each
business day, or, if there is no such reported sale, at the most recent quoted
bid price for long securities and at the most recent quoted ask price for
securities sold short. Price information on listed securities is generally taken
from the closing price on the exchange where the security is primarily traded.
Unlisted securities for which market quotations are readily available are valued
at the most recent quoted bid price for
<PAGE>
long securities and at the most recent quoted ask price for securities sold
short, except that debt obligations with sixty days or less remaining until
maturity may be valued at their amortized cost. Exchange-traded options on
futures are valued at the settlement price as determined by the appropriate
clearing corporation. Futures contracts are valued by comparing the gain or loss
by reference to the current settlement price as determined by the appropriate
clearing corporation. Other assets and securities for which no quotations are
readily available are valued at fair value as determined in good faith by the
Trustees of the Trust or by persons acting at their direction.
RETIREMENT PLANS
The Fund offers through Firstar, in its capacity as Custodian, certain
qualified retirement plans for adoption by individuals and employers.
Participants in these plans can accumulate shares of the Fund on a tax-deferred
basis. Contributions to these plans are tax-deductible as provided by law and
earnings are tax-deferred until distributed.
Individual Retirement Accounts
Individuals under age 70 1/2 who receive compensation or earned income,
even if they are active participants in a qualified retirement plan (or certain
similar retirement plans), may contribute money to an IRA. For taxable years
beginning after 1996, in the case of a married couple filing a joint return, up
to $2,000 can be contributed to each spouse's IRA, even if one spouse has little
or no compensation or earned income. The Fund offers a prototype IRA plan which
may be adopted by individuals to establish a new IRA or to rollover funds from
an existing IRA.
Earnings on amounts held in an IRA are not taxed until withdrawn.
However, the amount of the deduction, if any, allowed for IRA contributions is
limited for an individual who is, or whose spouse is, an active participant in
an employer-sponsored retirement plan and whose income exceeds specific limits.
Simplified Employee Pension Plan
The Fund also offers a simplified employee pension ("SEP") plan for
employers, including self-employed individuals who wish to purchase Fund shares
with tax-deductible contributions. Under the SEP plan, employer contributions
are made directly to the IRA accounts of eligible participants.
Savings Incentive Match Plan for Employees of Small Employers
The Savings Incentive Match Plan for Employees of Small Employers
("SIMPLE Plan") is a written arrangement established under Section 408(p) of the
Code which provides a simplified tax-favored retirement plan for small
employers. In a SIMPLE Plan, each employee may choose whether to have the
employer make payments as contributions under the plan or to receive these
payments directly as cash. A small employer that chooses to establish a SIMPLE
Plan must make either matching contributions or non-elective contributions. All
contributions
<PAGE>
made under a SIMPLE Plan are made to SIMPLE IRAs. A SIMPLE IRA is an IRA to
which the only contributions that can be made are contributions under a SIMPLE
Plan.
A complete description of the above plans, as well as a description of
the applicable service fees, may be obtained by calling 1-888-________ or
writing to the Fund c/o Firstar Trust Company, P.O. Box 701, Milwaukee,
Wisconsin 53201-0701. Please note that early withdrawals from a retirement plan
may result in adverse tax consequences.
<PAGE>
PART C. OTHER INFORMATION
ITEM 23. EXHIBITS
a. Declaration of Trust.*
b. By-Laws.*
c. Not Applicable.
d. Investment Management Agreement.*
e. Distribution Agreement.*
f. Not Applicable.
g. Form of Custodian Agreement.*
h. 1. Form of Transfer Agency Agreement.*
2. Form of Fund Accounting Servicing Agreement*
3. Form of Fund Administration Servicing Agreement*
i. Opinion and Consent of D'Ancona & Pflaum LLC as to legality of
shares being registered.**
j. 1. Consent of Independent Auditors to Use of Report.**
k. Not Applicable.
l. Not Applicable.
m. Rule 12b-1 Distribution Plan.*
n. Not Applicable.
o. Not Applicable.
p. Powers of Attorney.**
- ------------------
*Filed Herein
**To be filed by amendment prior to request for declaration of effectiveness
ITEM 24. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT
As of the effective date of this registration statement, Zacks
Investment
<PAGE>
Management, Inc., the Registrant's Manager, owns 100% of Registrant's shares.
The Manager, in turn, is an affiliate of Zacks Investment Research, Inc., and
under common control with Zacks & Company, the Registrant's principal
underwriter.
ITEM 25. INDEMNIFICATION
Reference is made to Article VIII of the Declaration of Trust of the
Registrant, filed as Exhibit A to Registrant's Initial Registration Statement
which provides the following:
No Trustee or officer of the Trust, when acting in such capacity, shall
be personally liable to any person other than the Trust or a beneficial owner
for any act, omission or obligation of the Trust or any Trustee. No Trustee or
officer shall be liable for any act or omission in his or her capacity as
Trustee or officer, or for any act or omission of any officer or employee of the
Trust or of any other person or party, provided that nothing contained herein or
in the Delaware Business Trust Act shall protect any Trustee or officer against
any liability to the Trust or to Shareholders to which such Trustee or officer
would otherwise be subject by reason of willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in the conduct of the
office of Trustee or as an officer.
The Trust shall indemnify each of its Trustees against all liabilities
and expenses (including amounts paid in satisfaction of judgments, in
compromise, as fines and penalties, and as counsel fees) reasonably incurred in
connection with the defense or disposition of any action, suit or other
proceeding, whether civil or criminal, in which said Trustee may be involved or
with which said Trustee may be threatened, while as a Trustee or thereafter, by
reason of being or having been such a Trustee except with respect to any matter
as to which said Trustee shall have been adjudicated to have acted in bad faith
or with willful misfeasance, gross negligence or reckless disregard of the
duties of office; PROVIDED that as to any matter disposed of by a compromise
payment by such person, pursuant to a consent decree or otherwise, no
indemnification either for said payment or for any other expenses shall be
provided unless the Trust shall have received a written opinion from independent
legal counsel approved by the Trustees to the effect that if either the matter
of willful misfeasance, gross negligence or reckless disregard of duty, or the
matter of bad faith had been adjudicated, it would in the opinion of such
counsel have been adjudicated in favor of such person. The rights accruing to
any person under these provisions shall not exclude any other right to which
such person may be lawfully entitled; PROVIDED that no person may satisfy any
right of indemnity or reimbursement hereunder except out of the property of the
Trust. The Trustees may make advance payments in connection with the
indemnification under this Section 8.2; PROVIDED that the indemnified person
shall have given a written undertaking to reimburse the Trust in the event it is
subsequently determined that such person is not entitled to such
indemnification.
The Trust shall indemnify officers, and shall have the power to
indemnify representatives and employees of the Trust, to the same extent that
Trustees are entitled to indemnification pursuant to this Section 8.2.
ITEM 26. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT MANAGER
Zacks Investment Management, Inc., the Registrant's Investment Manager,
renders investment advisory services to individuals, private investment
partnerships, and institutional and pension and profit-sharing plan accounts.
None of the officers or directors of the Manager have been engaged in other
professions and/or employment capacities during the past two fiscal years except
as
<PAGE>
follows:
(1) all officers and directors of the Manager hold similar positions
with Zacks Investment Research, Inc., an affiliate of the Manager, which
provides investment and economic research; and (2) Leonard H. Zacks and Richard
B. Marks hold similar positions with Zacks & Company, the Trust's underwriter
(see Item 27).
ITEM 27. PRINCIPAL UNDERWRITERS
(a) The principal underwriter of Zacks Series Trust d/b/a Zacks Mutual
Funds is Zacks & Company, an Illinois corporation and an affiliate of the
Manager ("Underwriter"). The Underwriter does not act as principal underwriter,
depositor, and/or investment adviser for any other investment company.
(b)
<TABLE>
<CAPTION>
NAME & PRINCIPAL BUSINESS POSITIONS AND OFFICES WITH POSITIONS AND OFFICES
ADDRESS UNDERWRITER WITH FUND
<S> <C> <C>
Leonard H. Zacks Director, President Trustee, President
Zacks & Company
155 N. Wacker Dr., Ste. 300
Chicago, Illinois 60606
Richard B. Marks
Zacks & Company
155 N. Wacker Dr., Ste. 300 Treasurer, Financial & Treasurer
Chicago, Illinois 60606 Operations Principal
</TABLE>
ITEM 28. LOCATION OF ACCOUNTS AND RECORDS.
All documents and records related to portfolio transactions are located
at Zacks Series Trust, d/b/a Zacks Mutual Funds, 155 N. Wacker Drive, Suite 300,
Chicago, IL 60606
All other documents and records are located at Firstar Mutual Fund
Services, LLC, 615 East Michigan Street, Milwaukee, WI 53202.
ITEM 29. MANAGEMENT SERVICES.
Not applicable.
ITEM 30. UNDERTAKINGS.
Commencing with Registrant's annual report to shareholders for the
year ending _______________, 2000, Registrant undertakes to furnish to each
person to whom a Prospectus is delivered, a copy of the Registrant's latest
Annual Report to Shareholders, upon request and without charge.
<PAGE>
Insofar as indemnification for liability arising under the Securities
Act of 1933 may be permitted to trustees, officers and controlling persons of
the Registrant pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a trustee, officer or controlling person of the registrant
in the successful defense of any action, suit or proceeding) is asserted by such
trustee, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act and the Investment Company
Act, the Fund has duly caused this registration statement to be signed on its
behalf by the undersigned, duly authorized, in the City of Chicago, and State of
Illinois on the 13th day of August, 1999.
ZACKS SERIES TRUST
d/b/a Zacks Mutual Fund
By /s/Leonard H. Zacks, Trustee
----------------------------
Leonard H. Zacks, Trustee
Pursuant to the requirements of the Securities Act, this registration statement
has been signed below by the following persons in the capacities and on the
date(s) indicated.
<TABLE>
<CAPTION>
<S> <C> <C>
/s/Leonard H. Zacks President, CEO, Sole Initial August 13, 1999
- ------------------- Trustee, and Principal Executive
Leonard H. Zacks Officer
/s/Richard B. Marks Treasurer and Principal Financial August 13, 1999
- ------------------- Officer
Richard B. Marks
</TABLE>
<PAGE>
ZACKS SERIES TRUST
d/b/a
ZACKS MUTUAL FUNDS
DECLARATION OF TRUST
TRUST INSTRUMENT, made ,1999 by Leonard H. Zacks (the
"Trustee").
WHEREAS, the Trustee desires to establish a business trust under the
Delaware Business Trust Act for the purpose of carrying on the business of an
investment company;
NOW, THEREFORE, the Trustee declares that all money and property
contributed to the trust hereunder shall be held and managed in trust under this
Trust Instrument as herein set forth below.
ARTICLE I
NAME AND DEFINITIONS
Section 1.1 NAME. The name of the trust created hereby is "Zacks
Series Trust" d/b/a "Zacks Mutual Funds." Should the Trustees determine that
the use of the name of the Trust or any name of a Series of the Trust is not
advisable, they may use such other name for the Trust or Series as they deem
proper and the Trust or Series may hold its property and conduct its activities
under such other name.
Section 1.2 DEFINITIONS. Wherever used herein, unless otherwise
required by the context or specifically provided:
(a) The "1940 Act" refers to the Investment Company Act of 1940 and the
rules and regulations thereunder, as amended from time to time.
(b) "Bylaws" means the bylaws referred to in Article IV, Section 4.1(e)
hereof, as from time to time amended;
(c) The terms "Affiliated Person," "Assignment," "Commission,"
"Interested Person" and "Principal Underwriter" shall have the meanings given
them in the 1940 Act.
(d) "Net Asset Value" means the net asset value of each Series of the
Trust determined in the manner provided in Article VII, Section 7.3 hereof;
(e) "Shares" means the equal proportionate transferable units of
beneficial interest into which the beneficial interest of each Series of the
Trust or class thereof shall be divided and may include fractions of Shares as
well as whole Shares;
(f) "Outstanding Shares" means those Shares recorded from time to time
in the books of the Trust or its transfer agent as then issued and outstanding,
but shall not include Shares
<PAGE>
which have been redeemed or repurchased by the Trust and which are at the time
held in the treasury of the Trust;
(g) "Series" means a series of Shares of the Trust established in
accordance with the provisions of Article II, Section 2.6 hereof;
(h) "Shareholder" means a record owner of Outstanding Shares of the
Trust;
(i) The "Trust" refers to Zacks Series Trust d/b/a Zacks Mutual Funds
and reference to the Trust, when applicable to one or more Series of the Trust,
shall refer to any such Series;
(j) The "Trustee" or "Trustees" means the person or persons who has or
have signed this Trust Instrument, so long as such person or persons shall
continue in office in accordance with the terms hereof, and all other persons
who may from time to time be duly qualified and serving as Trustees in
accordance with the provisions of Article III hereof and reference herein to a
Trustee or to the Trustees shall refer to the individual Trustees in their
capacity as Trustees hereunder;
(k) "Trust Property" means any and all property, real or personal,
tangible or intangible, which is owned or held by or for the account of the
Trust or the Trustees or any Series, on behalf of the Trust or any Series.
ARTICLE II
BENEFICIAL INTEREST
Section 2.1 SHARES OF BENEFICIAL INTEREST. The beneficial interest in
the Trust shall be divided into such transferable Shares of one or more separate
and distinct Series or classes of a Series as the Trustees shall from time to
time create or establish. The number of Shares of each Series, and class
thereof, authorized hereunder is unlimited. Each Share shall have no par value.
All Shares issued hereunder, including, without limitation, Shares issued in
connection with a dividend in Shares or a split or reverse split of Shares,
shall be fully paid and nonassessable.
Section 2.2 ISSUANCE OF SHARES. The Trustees in their discretion may,
from time to time without a vote of the Shareholders, issue Shares to such party
or parties and for such amounts and type of consideration, subject to applicable
law, including cash or securities (including Shares of a different Series), at
such time or times and on such terms as the Trustees may deem appropriate, and
may in such manner acquire other assets (including the acquisition of assets
subject to, and in connection with, the assumption of liabilities) and
businesses. In connection with any issuance of Shares, the Trustees may issue
fractional Shares and Shares held in the treasury. The Trustees may from time to
time divide or combine the Shares into a greater or lesser number without
thereby changing the proportionate beneficial interest in the Trust.
Section 2.3 REGISTER OF SHARES AND SHARE CERTIFICATES. A register shall
be kept at the principal office of the Trust or an office of the Trust's
transfer agent which shall contain the names and addresses of the Shareholders
of each Series, the number of Shares of that Series (or any class or classes
thereof) held by them respectively and a record of all transfers thereof. As to
Shares for which no certificate has been issued, such register shall be
conclusive as to who are
<PAGE>
the holders of the Shares and which shall be entitled to receive dividends or
other distributions or otherwise to exercise or enjoy the rights of
Shareholders. No Shareholder shall be entitled to receive payment of any
dividend or other distribution, nor to have notice given to said Shareholder as
provided herein or in the Bylaws, until said Shareholder has given the
Shareholder's address to the transfer agent or such other officer or agent of
the Trustees as shall keep the said register for entry thereon. The Trustees
need not issue any Share certificates but, in their discretion, may authorize
the issuance of Share certificates and promulgate appropriate rules and
regulations as to their use. In the event that one or more certificates are
issued, whether in the name of a Shareholder or a nominee, such certificate or
certificates shall constitute evidence of ownership of Shares for all purposes,
including transfer, assignment or sale of such Shares, subject to such
limitations as the Trustees may, in their discretion, prescribe.
Section 2.4 TRANSFER OF SHARES. Except as otherwise provided by the
Trustees, Shares shall be transferable on the records of the Trust only by the
record holder thereof or by the agent of said record holder, thereunto duly
authorized in writing, upon delivery to the Trustees or the Trust's transfer
agent of a duly executed instrument of transfer, together with a Share
certificate, if one is outstanding, and such evidence of the genuineness of each
such execution and authorization and of such other matters as may be required by
the Trustees. Upon such delivery the transfer shall be recorded on the register
of the Trust. Until such record is made, the Shareholder of record shall be
deemed to be the holder of such Shares for all purposes hereunder and neither
the Trustees nor the Trust, nor any transfer agent or registrar nor any officer,
employee or agent of the Trust shall be affected by any notice of the proposed
transfer.
Section 2.5 TREASURY SHARES. Shares held in the treasury shall, until
reissued pursuant to Section 2.2 hereof, not confer any voting rights on the
Trustees, nor shall such Shares be entitled to any dividends or other
distributions declared with respect to the Shares.
Section 2.6 ESTABLISHMENT OF SERIES. The Trust created hereby shall
consist of one or more Series and separate and distinct records shall be
maintained by the Trust for each Series and the assets associated with any such
Series shall be held and accounted for separately from the assets of the Trust
or any other Series. The Trustees shall have full power and authority, in their
sole discretion, and without obtaining any prior authorization or vote of the
Shareholders of any Series of the Trust, to establish and designate and to
change in any manner any such Series of Shares or any classes of initial or
additional Series and to fix such preferences, voting powers, rights and
privileges of such Series or classes thereof as the Trustees may from time to
time determine, to divide or combine the Shares or any Series or classes thereof
into a greater or lesser number, to classify or reclassify any issued Shares or
any Series or classes thereof into one or more Series or classes of Shares, and
to take such other action with respect to the Shares as the Trustees may deem
desirable. The establishment and designation of any Series shall be effective
upon the adoption of a resolution by the Trustees setting forth such
establishment and designation and the relative rights and preferences of the
Shares of such Series. A Series may be issued in any number of Shares.
All references to Shares in this Trust Instrument shall be deemed to be
Shares of any or all Series, or classes thereof, as the context may require. All
provisions herein relating to the Trust shall apply equally to each Series of
the Trust, and each class thereof, except as the context otherwise requires.
<PAGE>
Each Share of a Series of the Trust shall represent an equal beneficial
interest in the net assets of such Series. Each holder of Shares of a Series
shall be entitled to receive distributions of income and capital gains, if any,
which are made with respect to such Series and which are attributable to such
Shares. Upon redemption of Shares, such Shareholder shall be paid solely out of
the funds and property of such Series of the Trust.
Section 2.7 INVESTMENT IN THE TRUST. The Trustees shall accept
investments in any Series of the Trust from such persons and on such terms as
they may from time to time authorize. At the Trustees' discretion, such
investments, subject to applicable law, may be in the form of cash or securities
in which the affected Series is authorized to invest, valued as provided in
Article VII, Section 7.3 hereof. Investments in a Series shall be credited to
each Shareholder's account in the form of full Shares at the Net Asset Value per
Share next determined after the investment is received; provided, however, that
the Trustees may, in their sole discretion, (a) fix the Net Asset Value per
Share of the initial capital contribution, (b) impose sales or other charges
upon investments in the Trust, or (c) issue fractional Shares.
Section 2.8 ASSETS AND LIABILITIES OF SERIES. All consideration
received by the Trust for the issue or sale of Shares of a particular Series,
together with all assets in which such consideration is invested or reinvested,
all income, earnings, profits, and proceeds thereof, including any proceeds
derived from the sale, exchange or liquidation of such assets, and any funds or
payments derived from any reinvestment of such proceeds in whatever form the
same may be, shall be held and accounted for separately from the other assets of
the Trust and of every other Series and may be referred to herein as "assets
belonging to" that Series. The assets belonging to a particular Series shall
belong to that Series for all purposes, and to no other Series, subject only to
the rights of creditors of that Series. In addition, any assets, income,
earnings, profits or funds, or payments and proceeds with respect thereto, which
are not readily identifiable as belonging to any particular Series shall be
allocated by the Trustees between and among one or more of the Series in such
manner as the Trustees, in their sole discretion, deem fair and equitable. Each
such allocation shall be conclusive and binding upon the Shareholders of all
Series for all purposes, and such assets, income, earnings, profits or funds, or
payments and proceeds with respect thereto shall be assets belonging to that
Series. The assets belonging to a particular Series shall be so recorded upon
the books of the Trust, and shall be held by the Trustees in trust for the
benefit of the holders of Shares of that Series. The assets belonging to each
particular Series shall be charged with the liabilities of that Series and all
expenses, costs, charges and reserves attributable to that Series. Any general
liabilities, expenses, costs, charges or reserves of the Trust which are not
readily identifiable as belonging to any particular Series shall be allocated
and charged by the Trustees between or among any one or more of the Series in
such manner as the Trustees in their sole discretion deem fair and equitable.
Each such allocation shall be conclusive and binding upon the Shareholders of
all Series for all purposes. Without limitation of the foregoing provisions of
this Section 2.8, but subject to the right of the Trustees in their discretion
to allocate general liabilities, expenses, costs, charges or reserves as herein
provided, the debts, liabilities, obligations and expenses incurred, contracted
for or otherwise existing with respect to a particular Series shall be
enforceable against the assets of such Series only, and not against the assets
of the Trust generally. Notice of this contractual limitation on inter-Series
liabilities shall be set forth in the certificate of trust of the Trust (whether
originally or by amendment) as filed or to be filed in the Office of the
Secretary of State of the State of Delaware pursuant to the Delaware Business
Trust Act, and upon the giving
<PAGE>
of notice in the certificate of trust, the statutory provisions of Section 3804
of the Delaware Business Trust Act relating to limitations on inter-Series
liabilities (and the statutory effect under Section 3804 of setting forth such
notice in the certificate of trust) shall become applicable to the Trust and
each Series. Any person extending credit to, contracting with or having any
claim against any Series may satisfy or enforce any debt, liability, obligation
or expense incurred, contracted for or otherwise existing with respect to that
Series from the assets of that Series only. No Shareholder or former Shareholder
of any Series shall have a claim on or any right to any assets allocated or
belonging to any other Series.
Section 2.9 NO PREEMPTIVE RIGHTS. Shareholders shall have no preemptive
or other right to subscribe to any additional Shares or other securities issued
by the Trust or the Trustees, whether of the same or other Series.
Section 2.10 NO PERSONAL LIABILITY OF SHAREHOLDERS. Each Shareholder of
the Trust and of each Series shall not be personally liable for the debts,
liabilities, obligations and expenses incurred by, contracted for, or otherwise
existing with respect to the Trust or by or on behalf of any Series. The
Trustees shall have no power to bind any Shareholder personally or to call upon
any Shareholder for the payment of any sum of money or assessment whatsoever
other than such as the Shareholder may at any time personally agree to pay by
way of subscription for any Shares or otherwise. A note, bond, contract or other
undertaking issued by or on behalf of the Trust or the Trustees relating to the
Trust or to a Series may include a recitation limiting the obligation
represented thereby to the Trust or to one or more Series and its or their
assets. The omission of such a recitation shall not operate to bind any
Shareholder or Trustee of the Trust.
Section 2.11 ASSENT TO TRUST INSTRUMENT. Every Shareholder, by virtue
of having purchased or otherwise acquired a Share, shall become a Shareholder
and shall be held to have expressly assented and agreed to be bound by the terms
hereof and the Bylaws as currently in effect and as amended from time to time.
ARTICLE III
THE TRUSTEES
Section 3.1 MANAGEMENT OF THE TRUST. The Trustees shall have exclusive
and absolute control over the Trust Property and over the business of the Trust
to the same extent as if the Trustees were the sole owners of the Trust Property
and business in their own right, but with such powers of delegation as may be
permitted by this Trust Instrument. The Trustees shall have power to conduct the
business of the Trust and carry on its operations in any and all of its branches
and maintain offices both within and without the State of Delaware, in any and
all states of the United States of America, in the District of Columbia, in any
and all commonwealths, territories, dependencies, colonies, or possessions of
the United States of America, and in any foreign jurisdiction and to do all such
other things and execute all such instruments as they deem necessary, proper or
desirable in order to promote the interests of the Trust although such things
are not herein specifically mentioned. Any determination as to what is in the
interests of the Trust made by the Trustees in good faith shall be conclusive.
In construing the provisions of this Trust Instrument, the presumption shall be
in favor of a grant of power to the Trustees.
<PAGE>
The enumeration of any specific power in this Trust Instrument shall
not be construed as limiting the aforesaid powers. The powers of the Trustees
may be exercised without order of or resort to any court.
Section 3.2 INITIAL TRUSTEE. The initial Trustee shall be the person
named herein.
Section 3.3 TERM OF OFFICE OF TRUSTEES. The Trustees shall hold office
during the existence of this Trust, and until its termination as herein
provided; except that (a) any Trustee may resign his or her trust by written
instrument signed by such Trustee and delivered to the Chairman, President,
Secretary, or other Trustees of the Trust, which shall take effect upon such
delivery or upon such later date as is specified therein; (b) any Trustee may be
removed with or without cause at any time by written instrument, signed by at
least two-thirds of the number of Trustees prior to such removal, specifying the
date when such removal shall become effective; (c) any Trustee who requests in
writing to be retired or who has died, becomes physically or mentally
incapacitated by reason of disease or otherwise, or is otherwise unable to
serve, may be retired by written instrument signed by a majority of the other
Trustees, specifying the date of such Trustee's retirement; and (d) a Trustee
may be removed at any meeting of the Shareholders of the Trust by a vote of
Shareholders owning at least two-thirds of the outstanding eligible votes unless
otherwise provided by law.
Section 3.4 ELECTION, VACANCIES AND APPOINTMENT OF TRUSTEES. Except for
the Trustee named herein or Trustees appointed to fill vacancies pursuant to
this section, the Trustees shall be elected by the Shareholders owning of record
a plurality of the votes at a meeting of Shareholders. In case of declination to
serve, death, resignation, retirement, removal, physical or mental incapacity by
reason of disease or otherwise of a Trustee, or a Trustee is otherwise unable to
serve, or an increase in the number of Trustees, a vacancy shall occur. Whenever
a vacancy in the Board of Trustees shall occur, until such vacancy is filled,
the other Trustees shall have all the powers hereunder and the certificate of
the other Trustees of such vacancy shall be conclusive. In the case of a
vacancy, the remaining Trustees may fill such vacancy by appointing such other
person as they in their discretion shall see fit consistent with the limitations
under the 1940 Act.
An appointment of a Trustee may be made by the Trustees then in office
in anticipation of a vacancy to occur by reason of retirement, resignation or
increase in number of Trustees effective at a later date, provided that said
appointment shall become effective only at or after the effective date of said
retirement, resignation or increase in number of Trustees. As soon as any
Trustee appointed pursuant to this Section 3.4 shall have accepted this trust,
said Trustee shall be deemed a Trustee hereunder. Such acceptance may be in
writing or by an open declaration of acceptance at a meeting of the Board of
Trustees.
In the event that less than a majority of the Trustees have been
elected by the Shareholders, the Trustees shall call a meeting of the
Shareholders to hold an election for the Trustees not elected by the
Shareholders.
Section 3.5 TEMPORARY ABSENCE OF TRUSTEE. Any Trustee may, by power of
attorney, delegate his or her power for a period not exceeding six months at any
one time to any other
<PAGE>
Trustee or Trustees, provided that in no case shall less than two Trustees
personally exercise the other powers hereunder except as herein otherwise
expressly provided.
Section 3.6 NUMBER OF TRUSTEES. The number of Trustees shall be one, or
such other number as shall be fixed from time to time by the Trustees.
Section 3.7 EFFECT OF DEATH, RESIGNATION, ETC. OF A TRUSTEE. The
declination to serve, death, resignation, retirement, removal, incapacity, or
inability of the Trustees, or any one of them, shall not operate to terminate
the Trust or to revoke any existing agency created pursuant to the terms of this
Trust Instrument.
Section 3.8 OWNERSHIP OF ASSETS OF THE TRUST. Legal title in and
beneficial ownership of all of the Trust Property shall at all times be
considered as vested in the Trust, except that the Trustees may cause legal
title in and beneficial ownership of any Trust Property to be held by, or in the
name of one or more of the Trustees acting for and on behalf of the Trust, or in
the name of any person as nominee acting for and on behalf of the Trust. No
Shareholder shall be deemed to have a severable ownership interest in any
individual asset of the Trust or of any Series or any right of partition
thereof, but each Shareholder shall have, except as otherwise provided for
herein, a proportionate undivided beneficial interest in the Trust or Series.
The Shares shall be personal property giving only the rights specifically set
forth in this Trust Instrument. The Trust, or at the determination of the
Trustees, one or more of the Trustees or a nominee acting for and on behalf of
the Trust, shall be deemed to hold legal title and beneficial ownership of any
income earned on securities of the Trust issued by any business entities formed,
organized, or existing under the laws of any jurisdiction, including the laws of
any foreign country.
ARTICLE IV
POWERS OF THE TRUSTEES
Section 4.1 POWERS. The Trustees in all instances shall act as
principals, and are and shall be free from the control of the Shareholders. The
Trustees shall have full power and authority to do any and all acts and to make
and execute any and all contracts and instruments that they may consider
necessary or appropriate in connection with the management of the Trust. The
Trustees shall have full authority and power to make any and all investments
which they, in their sole discretion, shall deem proper to accomplish the
purpose of this Trust. Without limiting any of the foregoing, the Trustees shall
have power and authority:
(a) To invest and reinvest cash and other property, and to hold cash or
other property uninvested, and to sell, exchange, lend, pledge, mortgage,
hypothecate, write options on and lease any or all of the assets of the Trust;
(b) To carry on the business of an investment company, and exercise all
the powers necessary and appropriate to the conduct of such business;
(c) To borrow money and in this connection issue notes or other
evidence of indebtedness; to secure borrowings by mortgaging, pledging or
otherwise subjecting as security the Trust Property; to endorse, guarantee, or
undertake the performance of an obligation or engagement of any other person and
to lend Trust Property;
<PAGE>
(d) To provide for the distribution of interests of the Trust either
through a Principal Underwriter in the manner hereinafter provided for or by the
Trust itself, or both, or otherwise pursuant to a plan of distribution of any
kind;
(e) To adopt Bylaws not inconsistent with this Trust Instrument
providing for the conduct of the business of the Trust and to amend and repeal
them to the extent that they do not reserve that right to the Shareholders,
which Bylaws shall be deemed a part of this Trust Instrument and are
incorporated herein by reference;
(f) To elect and remove such officers and appoint such agents as they
consider appropriate;
(g) To set record dates in the manner provided herein or in the Bylaws;
(h) To delegate such authority (which delegation may include the power
to subdelegate) as they consider desirable to any officers of the Trust and to
any investment adviser, manager, administrator, transfer agent, custodian,
underwriter or other agent or independent contractor;
(i) To purchase and pay for entirely out of Trust Property such
insurance as they may deem necessary or appropriate for the conduct of the
business of the Trust, including insurance policies insuring the Trust Property
and payment of distributions and principal on its investments, and insurance
policies insuring the Shareholders, Trustees, officers, representatives,
employees, agents, investment advisers, managers, administrators, custodians,
underwriters or independent contractors of the Trust individually against all
claims and liabilities of every nature arising by reason of holding, being or
having held any such office or position, or by reason of any action alleged to
have been taken or omitted by any such person in such capacity, including any
action taken or omitted that may be determined to constitute negligence, whether
or not the Trust would have the power to indemnify such person against such
liability.
(j) To sell or exchange any or all of the assets of the Trust, subject
to the provisions of Article IX, Section 9.4(b) hereof;
(k) To vote or give assent, or exercise any rights of ownership, with
respect to stock or other securities or property; and to execute and deliver
powers of attorney to such person or persons as the Trustees shall deem proper,
granting to such person or persons such power and discretion with relation to
securities or property as the Trustees shall deem proper;
(l) To exercise powers and rights of subscription or otherwise which in
any manner arise out of ownership of securities;
(m) To hold any security or property in a form not indicating any
trust, whether in bearer, book entry, unregistered or other negotiable form, or
either in the name of the Trust or in the name of a custodian or a nominee or
nominees;
(o) To consent to or participate in any plan for the reorganization,
consolidation or merger of any corporation or concern, any security of which is
held in the Trust; to consent to
<PAGE>
any contract, lease, mortgage, purchase, or sale of property by such
corporation or concern, and to pay calls or subscriptions with respect to any
security held in the Trust;
(p) To compromise, arbitrate, or otherwise adjust claims in favor of or
against the Trust or any matter in controversy including, but not limited to,
claims for taxes;
(q) To make distributions of income and of capital gains to
Shareholders in the manner hereinafter provided;
(r) To establish, from time to time, a minimum investment for
Shareholders in the Trust or in one or more Series or class, and to require the
redemption of the Shares of any Shareholders whose investment is less than such
minimum upon giving notice to such Shareholder;
(s) To establish one or more committees composed of one or more of the
Trustees, and to delegate any of the powers of the Trustees to said committees;
(t) To interpret the investment policies, practices or limitations of
any Series;
(u) To determine and change the fiscal year of the Trust and the method
by which its accounts shall be kept;
(v) To adopt a seal for the Trust, but the absence of such seal shall
not impair the validity of any instrument executed on behalf of the Trust;
(w) To employ one or more investment advisers, transfer agents,
distributors, managers administrators, custodians, and keepers of the books and
records or any other agents or independent contractors;
(aa) In general, to carry on any other business in connection with or
incidental to any of the foregoing powers; to do everything necessary, suitable
or proper for the accomplishment of any purpose or the attainment of any object
or the furtherance of any power hereinbefore set forth, either alone or in
association with others; and to do every other act or thing incidental or
appurtenant to or growing out of or connected with the aforesaid business or
purposes, objects or powers.
The foregoing clauses shall be construed both as objects and powers,
and the foregoing enumeration of specific powers shall not be held to limit or
restrict in any manner the general powers of the Trustees. Any action by one or
more of the Trustees in their capacity as such hereunder shall be deemed an
action on behalf of the Trust or the applicable Series, and not an action in an
individual capacity.
No one dealing with the Trustees shall be under any obligation to make
any inquiry concerning the authority of the Trustees, or to see to the
application of any payments made or property transferred to the Trustees or upon
their order.
Section 4.2 ISSUANCE AND REPURCHASE OF SHARES. The Trustees shall have
the power to issue, sell, repurchase, redeem, retire, cancel, acquire, hold,
resell, reissue, dispose of, exchange,
<PAGE>
and otherwise deal in Shares and, subject to the provisions set forth in Article
II and Article VII, to apply to any such repurchase, redemption, retirement,
cancellation or acquisition of Shares any funds or property of the Trust, or the
particular Series of the Trust, with respect to which such Shares are issued.
Section 4.3 TRUSTEES AND OFFICERS AS SHAREHOLDERS. Any Trustee, officer
or other agent of the Trust may acquire, own and dispose of Shares to the same
extent as if such person were not a Trustee, officer or agent; and the Trustees
may issue and sell, or cause to be issued and sold, Shares to, and buy such
Shares from, any such person, or any firm or company in which such person is
interested, subject to the general limitations herein contained as to the sale
and purchase of such Shares.
Section 4.4 ACTION BY THE TRUSTEES AND COMMITTEES. The Trustees (and
any committee thereof) may act at a meeting held in person or in whole or in
part by conference telephone. One-third, but (except at such times as there is
only one Trustee) no less than two, of the Trustees shall constitute a quorum at
any meeting. Except as the Trustees may otherwise determine, one-third of the
members of any committee shall constitute a quorum at any meeting. The vote of a
majority of the Trustees (or committee members) present at a meeting at which a
quorum is present shall be the act of the Trustees (or any committee thereof).
The Trustees (and any committee thereof) may also act by written consent signed
by a majority of the Trustees (or committee members). Regular meetings of the
Trustees may be held at such places and at such times as the Trustees may from
time to time determine. Special meetings of the Trustees (and meetings of any
committee thereof) may be called in a manner to be set forth in the Bylaws.
Notice of the time, date and place of all meetings of the Trustees (or any
committee thereof) shall be given by the party calling the meeting to each
Trustee (or committee member) by telephone, telefax, electronic mail or telegram
sent to the person's home or business address at least twenty-four hours in
advance of the meeting or by written notice mailed to the person's home or
business address at least seventy-two hours in advance of the meeting. Notice of
all proposed written consents of Trustees (or committees thereof) shall be given
to each Trustee (or committee member) by telephone, telefax, telegram,
electronic mail or first class mail sent to the person's home or business
address. Notice need not be given to any person who attends a meeting without
objecting to the lack of notice or who executes a written consent or a written
waiver of notice with respect to a meeting. Written consents or waivers may be
executed in one or more counterparts. Execution of a written consent or waiver
and delivery thereof may be accomplished by telefax.
Section 4.5 CHAIRMAN OF THE TRUSTEES. The Trustees shall appoint one of
their number to be Chairman of the Board of Trustees. The Chairman shall preside
at all meetings of the Trustees at which said Chairman is present and may be
(but is not required to be) the chief executive officer of the Trust.
Section 4.6 PRINCIPAL TRANSACTIONS. Except to the extent prohibited by
applicable law, the Trustees may, on behalf of the Trust, buy any securities
from or sell any securities to, or lend any assets of the Trust to, any Trustee
or officer of the Trust or any firm of which any such Trustee or officer is a
member acting as principal, or have any such dealings with any investment
adviser, distributor or transfer agent for the Trust or with any Interested
Person of such person; and the Trust may employ any such person, or firm or
company in which such person is an
<PAGE>
Interested Person, as broker, legal counsel, registrar, investment adviser,
distributor, transfer agent, dividend disbursing agent, custodian or in any
other capacity upon customary terms.
Section 4.7 PARTIES TO CONTRACT. A contract may be entered into with
any corporation, firm, partnership, trust or association, although one or more
of the Trustees or officers of the Trust may be an officer, director, trustee,
shareholder, or member of such other party to the contract, and no such contract
shall be invalidated or rendered void or voidable by reason of the existence of
any relationship, nor shall any person holding such relationship be disqualified
from voting on or executing the same in such person's capacity as Shareholder
and/or Trustee, nor shall any person holding such relationship be liable merely
by reason of such relationship for any loss or expense to the Trust under or by
reason of said contract or accountable for any profit realized directly or
indirectly therefrom, provided that the contract, when entered into, was not
inconsistent with the provisions of this instrument. The same person may be the
other party to contracts entered into pursuant to this instrument, and any
individual may be financially interested or otherwise affiliated with persons
who are parties to any or all of the contracts mentioned in this Section 4.7.
Section 4.8 SHAREHOLDER APPROVAL REQUIRED. Any provisions of the
Agreement to the contrary notwithstanding, no act, contract, or instrument
undertaken or entered into by or on behalf of this Trust requiring Shareholder
approval under the 1940 Act shall take effect until such approval is obtained.
ARTICLE V
EXPENSES OF THE TRUST
Section 5.1 GENERAL. The Trustees shall have the power to incur and pay
or be reimbursed from the assets of the Trust, or the assets of the appropriate
Series, any expenses which in the opinion of the Trustees are necessary or
incidental to carry out any of the purposes of the Trust or such Series, and to
pay reasonable compensation from the funds of the Trust to themselves as
Trustees. The Trustees shall fix the compensation of all officers, employees and
Trustees, and shall be reimbursed from the assets of the Trust or the assets of
the appropriate Series for expenses reasonably incurred by themselves on behalf
of the Trust.
Section 5.2 EXPENSES OF SERIES. The Trustees shall have the power to
allocate and charge all expenses which are not readily identifiable as belonging
to any particular Series between or among any one or more of the Series as set
forth in Article II, Section 2.8 of this Trust Instrument.
ARTICLE VI
SHAREHOLDERS' VOTING POWERS AND MEETINGS
Section 6.1 VOTING POWERS. The Shareholders shall have power to vote
only (i) for the election of Trustees as provided in Article III, Section 3.4
hereof, (ii) for the removal of Trustees
<PAGE>
as provided in Article III, Section 3.3 hereof, and (iii) with respect to such
additional matters relating to the Trust as may be required by law, by this
Trust Instrument, or as the Trustees may consider desirable. On any matter
submitted to a vote of the Shareholders, all Shares shall be voted separately by
individual Series, except that the Shareholders of all Series shall vote for the
election or removal of Trustees and when the Trustees have determined that any
other matter affects the interests of more than one Series, then the
Shareholders of all Series that the Trustees have determined will be affected
shall be entitled to vote thereon. The Trustees may also determine that a matter
affects only the interests of one or more classes of a Series, in which case any
such matter shall be voted on by such class or classes. Each Shareholder shall
have one vote for each dollar of net asset value per Share for each Share held,
irrespective of the Series or Class thereof, except in the event that net asset
value voting would disqualify the Trust from offering Shares for sale in any
jurisdiction in which Shares are to be offered for sale, each whole Share shall
be entitled to one vote as to any matter on which it is entitled to vote, and
each fractional Share shall be entitled to a proportionate fractional vote and
this method of voting shall continue until such time as such legal requirement
is no longer in force or applicable. There shall be no cumulative voting in the
election of Trustees. Shares may be voted in person or by proxy or in any manner
provided for in the Bylaws. A proxy may be given in writing, by telefax, or in
any other manner provided for in the Bylaws. Anything in this Trust Instrument
to the contrary notwithstanding, in the event a proposal by anyone other than
the officers or Trustees of the Trust is submitted to a vote of the Shareholders
of one or more Series or of the Trust, or in the event of any proxy contest or
proxy solicitation or proposal in opposition to any proposal by the officers or
Trustees of the Trust, Shares may be voted only in person or by written proxy.
Until Shares are issued, the Trustees may exercise all rights of Shareholders
and may take any action required or permitted by law, this Trust Instrument or
any of the Bylaws of the Trust to be taken by Shareholders.
Section 6.2 MEETINGS. Meetings of Shareholders may be held within or
without the State of Delaware. Special meetings of the Shareholders of the Trust
or one or more Series or classes may be called by the Trustees and shall be
called by the Trustees upon the written request of Shareholders owning at least
one-tenth of the Outstanding Shares. Whenever ten or more Shareholders meeting
the qualifications set forth in Section 16(c) of the 1940 Act seek the
opportunity of furnishing materials to the other Shareholders with a view to
obtaining signatures on such a request for a meeting, the Trustees shall comply
with the provisions of said Section 16(c) with respect to providing such
Shareholders access to the list of the Shareholders of record of the Trust or
the mailing of such materials to such Shareholders of record, subject to any
rights provided to the Trust or any Trustees provided by said Section 16(c).
Notice shall be sent, by mail or such other means determined by the Trustees, at
least 15 days prior to any such meeting. Meetings shall be called on any matter
requiring a vote of the Shareholders under the 1940 Act, including the election
of Trustees as required under Section 16(a) of the 1940 Act.
Section 6.3 QUORUM AND REQUIRED VOTE. The presence in person or by
proxy of Shareholders entitled to cast thirty percent of all votes entitled to
be cast shall be a quorum for the transaction of business at a Shareholders'
meeting, except that where any provision of law or of this Trust Instrument
permits or requires that holders of any Series shall vote as a Series (or that
holders of a class shall vote as a class), then the holders of thirty percent
(30%) of the aggregate number of votes of that Series (or that class) entitled
to be cast shall be necessary to constitute a quorum for the transaction of
business by that Series (or that class). Any lesser
<PAGE>
number shall be sufficient for adjournments. Any adjourned session or sessions
may be held without the necessity of further notice. Except when a different
vote is required by law or by the Trustees or by any provision of this Trust
Instrument, a majority of the votes cast, voted in person or by proxy, shall
decide any questions and a plurality of the votes cast shall elect a Trustee,
provided that where any provision of law or of this Trust Instrument permits or
requires that the holders of any Series shall vote as a Series (or that the
holders of any class shall vote as a class), then, except when a different vote
is required by law or by the Trustees or by any provision of this Trust
Instrument, a majority of the votes cast in person or by proxy of that Series
(or class) shall decide that matter insofar as that Series (or class) is
concerned.
Section 6.4 ACTION BY WRITTEN CONSENT. Any action which may be taken by
the Shareholders of the Trust, or of a Series, may be taken without a meeting if
Shareholders holding more than a majority of the votes entitled to be cast,
except when a larger vote is required by law or by any provision of this Trust
Instrument, shall consent to the action in writing. If the consents of all
Shareholders entitled to vote have not been solicited in writing and if the
unanimous written consent of all such Shareholders shall not have been received,
the Secretary shall give prompt notice to all Shareholders of actions approved
by the Shareholders without a meeting.
ARTICLE VII
DISTRIBUTIONS AND REDEMPTIONS
Section 7.1 DISTRIBUTIONS.
(a) The Trustees may from time to time declare and pay dividends or
other distributions with respect to any Series, or class thereof. The amount of
such dividends or distributions and the payment of them and whether they are in
cash or any other Trust property shall be wholly in the discretion of the
Trustees.
(b) Dividends and other distributions may be paid or made to the
Shareholders of record at the time of declaring a dividend or other distribution
or among the Shareholders of record at such other date or time or dates or times
as the Trustees shall determine, which dividends or distributions, at the
election of the Trustees, may be paid pursuant to a standing resolution or
resolutions adopted only once or with such frequency as the Trustees may
determine. All dividends and other distributions on Shares of a particular
Series shall be distributed pro rata to the Shareholders of that Series in
proportion to the number of Shares of that Series they held on the record date
established for such payment, except that such dividends and distributions shall
reflect expenses allocated to a particular class of such Series. The Trustees
may adopt and offer to Shareholders such dividend reinvestment plans, cash
dividend payout plans or related plans as the Trustees shall deem appropriate
and may at any time, or from time to time, provide that all dividends shall be
reinvested or that all dividends shall be reinvested unless the Trust or its
transfer agent has been instructed otherwise by a Shareholder.
<PAGE>
(c) Anything in this Trust Instrument to the contrary notwithstanding,
the Trustees may at any time declare and distribute a stock dividend pro rata
among the Shareholders of a particular Series, or class thereof, as of the
record date of that Series fixed as provided in Article IX, Section 9.3 hereof.
Section 7.2 REDEMPTIONS. In case any holder of record of Shares desires
to dispose of said Shares or any portion thereof, such holder may deposit at the
office of the transfer agent or other authorized agent of the Trust a written
request or such other form of request and other documents to authenticate the
request as may from time to time be required by the Trust, requesting that the
Shares be redeemed or purchased. The Shareholder so requesting shall be entitled
to require the Trust to purchase, and the Trust or the Principal Underwriter of
the Trust shall purchase such Shares, but only at the Net Asset Value thereof
(as described in Section 7.3). Payment shall be made for any Shares to be
redeemed, as aforesaid, in cash or property from the assets of the Series
represented by such shares. Upon redemption or repurchase, such Shares shall
become Treasury shares and may be re-issued from time to time.
Section 7.3 DETERMINATION OF NET ASSET VALUE AND VALUATION OF PORTFOLIO
ASSETS. The term "Net Asset Value" of any Series shall mean that amount by which
the assets of that Series exceed its liabilities. The resulting amount, which
shall represent the total Net Asset Value of the particular Series, shall be
divided by the total number of shares of that Series outstanding at the time and
the quotient so obtained shall be the Net Asset Value per Share of that Series.
Such value shall be determined separately for each Series and shall be
determined on such days and at such times as the Trustees may determine. Such
determination shall be made with respect to securities for which market
quotations are readily available, at the market value of such securities; and
with respect to other securities and assets, at the fair value as determined in
good faith by the Trustees; provided, however, that the Trustees, without
Shareholder approval, may alter the method of valuing portfolio securities
consistent with the 1940 Act. The Trustees may delegate any of their powers and
duties under this Section 7.3 with respect to valuation of assets and
liabilities.
At any time, the Trustees may cause the Net Asset Value per Share last
determined to be determined again in similar manner and may fix the time when
such redetermined value shall become effective. If, for any reason, the net
income of any Series, determined at any time, is a negative amount, the Trustees
may, with respect to that Series, (i) offset each Shareholder's pro rata share
of such negative amount from the accrued dividend account of such Shareholder,
or (ii) reduce the number of outstanding Shares of such Series by reducing the
number of Shares in the account of each Shareholder by a pro rata portion of
that number of full and fractional Shares which represents the amount of such
excess negative net income, or (iii) cause to be recorded on the books of such
Series an asset account in the amount of such negative net income (provided that
the same shall thereupon become the property of such Series and shall not be
paid to any Shareholder), which account may be reduced by the amount of
dividends declared thereafter upon the Outstanding Shares of such Series on the
day such negative net income is experienced, until such asset account is reduced
to zero; (iv) combine the methods described in clauses (i) and (ii) and (iii) of
this sentence; or (v) take any other action they deem appropriate, in order to
cause (or in order to assist in causing) the Net Asset Value per Share of such
Series to remain at a constant amount per Outstanding Share immediately after
each such determination and declaration. The Trustees shall also have the power
not to declare a dividend out of net income
<PAGE>
for the purpose of causing the Net Asset Value per Share to be increased. The
Trustees shall not be required to adopt, but may at any time adopt, discontinue
or amend the practice of maintaining the Net Asset Value per Share of the Series
at a constant amount.
Section 7.4 SUSPENSION OF THE RIGHT OF REDEMPTION. The Trustees may
declare a suspension of the right of redemption or postpone the date of payment
as permitted under the 1940 Act. Such suspension shall take effect at such time
as the Trustees shall specify but not later than the close of business on the
business day next following the declaration of suspension, and thereafter there
shall be no right of redemption or payment until the Trustees shall declare the
suspension at an end. In the case of a suspension of the right of redemption, a
Shareholder may either withdraw a request for redemption or receive payment
based on the Net Asset Value per Share next determined after the termination of
the suspension. In the event that any Series is divided into classes, the
provisions of this Section 7.4, to the extent applicable as determined in the
discretion of the Trustees and consistent with applicable law, may be equally
applied to each such class.
Section 7.5 REDEMPTION OF SHARES IN ORDER TO QUALIFY AS A REGULATED
INVESTMENT COMPANY. If the Trustees shall be of the opinion that direct or
indirect ownership of Shares of any Series has or may become concentrated to an
extent which would disqualify any Series as a regulated investment company under
the Internal Revenue Code, then the Trustees shall have the power (but not the
obligation) by lot or other means deemed equitable by them (i) to call for
redemption by any such person of a number, or principal amount, of Shares
sufficient to maintain or bring the direct or indirect ownership of Shares into
conformity with the requirements for such qualification and (ii) to refuse to
transfer or issue Shares to any person whose acquisition of the Shares in
question would result in such disqualification. The redemption shall be effected
at the redemption price and in the manner provided in this Article VII. Upon
demand, the holders of Shares shall disclose to the Trustees in writing such
information with respect to direct and indirect ownership of Shares as the
Trustees deem necessary to comply with the provisions of the Internal Revenue
Code, or to comply with the requirements of any other taxing authority.
ARTICLE VIII
LIMITATION OF LIABILITY AND INDEMNIFICATION
Section 8.1 LIMITATION OF LIABILITY. No Trustee or officer of the
Trust, when acting in such capacity, shall be personally liable to any person
other than the Trust or a beneficial owner for any act, omission or obligation
of the Trust or any Trustee. No Trustee or officer shall be liable for any act
or omission in his or her capacity as Trustee or officer, or for any act or
omission of any officer or employee of the Trust or of any other person or
party, provided that nothing contained herein or in the Delaware Business Trust
Act shall protect any Trustee or officer against any liability to the Trust or
to Shareholders to which such Trustee or officer would otherwise be subject by
reason of willful misfeasance, bad faith, gross negligence or reckless disregard
of the duties involved in the conduct of the office of Trustee or as an officer.
Section 8.2 INDEMNIFICATION. The Trust shall indemnify each of its
Trustees against all liabilities and expenses (including amounts paid in
satisfaction of judgments, in compromise, as
<PAGE>
fines and penalties, and as counsel fees) reasonably incurred in connection with
the defense or disposition of any action, suit or other proceeding, whether
civil or criminal, in which said Trustee may be involved or with which said
Trustee may be threatened, while as a Trustee or thereafter, by reason of being
or having been such a Trustee except with respect to any matter as to which said
Trustee shall have been adjudicated to have acted in bad faith or with willful
misfeasance, gross negligence or reckless disregard of the duties of office;
PROVIDED that as to any matter disposed of by a compromise payment by such
person, pursuant to a consent decree or otherwise, no indemnification either for
said payment or for any other expenses shall be provided unless the Trust shall
have received a written opinion from independent legal counsel approved by the
Trustees to the effect that if either the matter of willful misfeasance, gross
negligence or reckless disregard of duty, or the matter of bad faith had been
adjudicated, it would in the opinion of such counsel have been adjudicated in
favor of such person. The rights accruing to any person under these provisions
shall not exclude any other right to which such person may be lawfully entitled;
PROVIDED that no person may satisfy any right of indemnity or reimbursement
hereunder except out of the property of the Trust. The Trustees may make advance
payments in connection with the indemnification under this Section 8.2; PROVIDED
that the indemnified person shall have given a written undertaking to reimburse
the Trust in the event it is subsequently determined that such person is not
entitled to such indemnification.
The Trust shall indemnify officers, and shall have the power to
indemnify representatives and employees of the Trust, to the same extent that
Trustees are entitled to indemnification pursuant to this Section 8.2.
Section 8.3 SHAREHOLDERS. In case any Shareholder or former Shareholder
of any Series shall be held to be personally liable solely by reason of being or
having been a Shareholder of such Series and not because of such Shareholder's
acts or omissions or for some other reason, the Shareholder or former
Shareholder (or his or her heirs, executors, administrators or other legal
representatives, or, in the case of a corporation or other entity, its corporate
or other general successor) shall be entitled out of the assets belonging to the
applicable Series to be held harmless from and indemnified against all loss and
expense arising from such liability. The Trust, on behalf of the affected
Series, shall, upon request by the Shareholder, assume the defense of any claim
made against the Shareholder for any act or obligation of the Series and satisfy
any judgment thereon from the assets of the Series.
ARTICLE IX
MISCELLANEOUS
Section 9.1 TRUST NOT A PARTNERSHIP. It is hereby expressly declared
that a trust and not a partnership is created hereby. No Trustee hereunder shall
have any power to bind personally either the Trust's officers or any
Shareholder. All persons extending credit to, contracting with or having any
claim against the Trust or the Trustees may satisfy or enforce any debt,
liability, obligation or expense incurred, contracted for or otherwise existing
with respect to the Trust from the assets of the Trust only; and neither the
Shareholders nor the Trustees, nor any of their agents, whether past, present or
future, shall be personally liable therefor.
<PAGE>
Section 9.2 TRUSTEES' GOOD FAITH ACTION, EXPERT ADVICE, NO BOND OR
SURETY. The exercise by the Trustees or their delegate of the Trustees' powers
and discretions hereunder in good faith and with reasonable care under the
circumstances then prevailing shall be binding upon everyone interested. Subject
to the provisions of Article VIII hereof, the Trustees and officers shall not be
liable for errors of judgment or mistakes of fact or law. The Trustees and
officers may take advice of counsel or other experts with respect to the meaning
and operation of this Trust Instrument, and subject to the provisions of Article
VIII hereof, shall be under no liability for any act or omission in accordance
with such advice or for failing to follow such advice. The Trustees shall not be
required to give any bond as such, nor any surety if a bond is obtained.
Any Trustees shall, in the performance of their duties, be fully
protected in relying in good faith upon the records of the Trust and upon such
information, opinions, reports or statements presented to the Trust by any of
the Trust's officers or employees, or committees of the Board of Trustees, or by
any other person as to matters the Trustees reasonably believe are within such
other person's professional or expert competence and who has been selected with
reasonable care by or on behalf of the Trust.
Section 9.3 ESTABLISHMENT OF RECORD DATES. The Trustees may close the
Share transfer books of the Trust for a set period or may establish a record
date for the determination of Shareholders entitled to (i) notice of or vote at
a Shareholders' meeting, or (ii) receive any dividend payment or other right as
provided in the Bylaws.
Section 9.4 TERMINATION OF TRUST OR SERIES.
(a) This Trust shall continue without limitation of time but subject to
the provisions of sub-section (b) of this Section 9.4.
(b) The Trustees may
(i) sell and convey all or substantially all of the
assets of the Trust or any Series to another trust,
partnership, association or corporation, or to a separate
series of shares thereof, organized under the laws of any
state, for adequate consideration which may include the
assumption of all outstanding obligations, taxes and other
liabilities, accrued or contingent, of the Trust or any
Series, and which may include shares of beneficial interest,
stock or other ownership interests of such trust, partnership,
association or corporation or of a series thereof; or
(ii) at any time sell and convert into money all of
the assets of the Trust or any series.
Upon making reasonable provision, in the determination of the Trustees,
for the payment of all such liabilities in either (i) or (ii), by such
assumption or otherwise, the Trustees shall distribute the remaining proceeds or
assets (as the case may be) of each Series (or class) ratably among the holders
of Shares of that Series then outstanding.
(c) Upon completion of the distribution of the remaining proceeds or
the remaining assets as provided in subsection (b), the Trust or any affected
Series shall terminate and the
<PAGE>
Trustees and the Trust shall be discharged of any and all further liabilities
and duties hereunder and the right, title and interest of all parties with
respect to the Trust or Series shall be canceled and discharged.
Upon termination of the Trust, following completion of winding up of
its business, the Trustees shall cause a certificate of cancellation of the
Trust's certificate of trust to be filed in accordance with the Delaware
Business Trust Act, which certificate of cancellation may be signed by any one
Trustee.
Section 9.5 REORGANIZATION. Anything in this Trust Instrument to the
contrary notwithstanding, the Trustees, in order to change the form of
organization and/or domicile of the Trust, may, without prior Shareholder
approval, (i) cause the Trust to merge or consolidate with or into one or more
trusts, partnerships, associations or corporations which is formed, organized or
existing under the laws of a state, commonwealth possession or colony of the
United States or (ii) cause the Trust to incorporate under the laws of Delaware.
Any agreement of merger or consolidation or certificate of merger may be signed
by one or more of the Trustees. Pursuant to and in accordance with the
provisions of Section 3815(f) of the Delaware Business Trust Act, and
notwithstanding anything to the contrary contained in this Trust Instrument, an
agreement of merger or consolidation approved by the Trustees in accordance with
this Section 9.5 may effect any amendment to the Trust Instrument or effect the
adoption of a new trust instrument of the Trust if it is the surviving or
resulting trust in the merger or consolidation. Any merger or consolidation of
the Trust other than as described in the foregoing provisions of this Section
9.5 shall, in addition to the approval of the Trustees, require the approval of
the holders of a majority of the Outstanding Shares.
Section 9.6 FILING OF COPIES, REFERENCES, HEADINGS. The original or a
copy of this Trust Instrument and of each amendment hereof, or Trust Instrument
supplemental hereto, shall be kept at the office of the Trust where it may be
inspected by any Shareholder. Anyone dealing with the Trust may rely on a
certificate by an officer or Trustee of the Trust as to whether or not any such
amendments or supplements have been made and as to any matters in connection
with the Trust hereunder, and with the same effect as if it were the original,
may rely on a copy certified by an officer or Trustee of the Trust to be a copy
of this Trust Instrument or of any such amendment or supplemental Trust
Instrument. In this Trust Instrument or in any such amendment or supplemental
Trust Instrument, references to this Trust Instrument, and all expressions like
"herein," "hereof" and "hereunder," shall be deemed to refer to this Trust
Instrument as amended or affected by any such supplemental Trust Instrument.
Where the context so requires, words used in singular shall include the plural
and vice versa, and words of one gender shall include all other genders. The
term "person" shall be deemed to include an entity (such as a proprietorship,
corporation, partnership, trust or association) or an individual as the context
requires. Headings are placed herein for convenience of reference only and, in
case of any conflict, the text of this Trust Instrument rather than the
headings, shall control. This Trust Instrument may be executed in any number of
counterparts each of which shall be deemed an original.
Section 9.7 APPLICABLE LAW. The trust set forth in this instrument is
made in the State of Delaware, and the Trust and this Trust Instrument, and the
rights and obligations of the Trustees and Shareholders hereunder, are to be
governed by and construed and administered according to
<PAGE>
the Delaware Business Trust Act and the laws of said State; provided, however,
that there shall not be applicable to the Trust, the Trustees or this Trust
Instrument (a) the provisions of Section 3540 of Title 12 of the Delaware Code
or (b) any provisions of the laws (statutory or common) of the State of Delaware
(other than the Delaware Business Trust Act) pertaining to trusts which relate
to or regulate (i) the filing with any court or governmental body or agency of
trustee accounts or schedules of trustee fees and charges, (ii) affirmative
requirements to post bonds for trustees, officers, agents or employees of a
trust, (iii) the necessity for obtaining court or other governmental approval
concerning the acquisition, holding or disposition of real or personal property,
(iv) fees or other sums payable to trustees, officers, agents or employees of a
trust, (v) the allocation of receipts and expenditures to income or principal,
(vi) restrictions or limitations on the permissible nature, amount or
concentration of trust investments or requirements relating to the titling,
storage or other manner of holding of trust assets, or (vii) the establishment
of fiduciary or other standards or responsibilities or limitations on the acts
or powers of Trustees, which are inconsistent with the limitations or
liabilities or authorities and powers of the trustees set forth or referenced in
this Trust Instrument. The Trust shall be of the type commonly called a
"business trust," and without limiting the provisions hereof, the Trust may
exercise all powers which are ordinarily exercised by such a trust under
Delaware law. The Trust specifically reserves the right to exercise any of the
powers or privileges afforded to trusts or actions that may be engaged in by
trusts under the Delaware Business Trust Act, and the absence of a specific
reference herein to any such power, privilege or action shall not imply that the
Trust may not exercise such power or privilege or take such actions.
Section 9.8 AMENDMENTS. Except as specifically provided herein, the
Trustees may, without Shareholder vote, amend or otherwise supplement this Trust
Instrument by making an amendment, a Trust Instrument supplemental hereto or an
amended and restated trust instrument. Shareholders shall have the right to vote
(i) on any amendment which would affect their right to vote granted in Section
6.1 hereof, (ii) on any amendment to this Section 9.8, (iii) on any amendment
that they are required by law to vote on, and (iv) on any amendment submitted to
them by the Trustees. Any amendment required or permitted to be submitted to
Shareholders which, as the Trustees determine, shall affect the Shareholders of
one or more Series shall be authorized by vote of the Shareholders of each
Series affected and no vote of Shareholders of a Series not affected shall be
required. Anything in this Trust Instrument to the contrary notwithstanding, any
amendment to Article VIII hereof shall not limit the right to indemnification or
insurance provided therein with respect to any action or omission prior to such
amendment.
Section 9.9 FISCAL YEAR. The fiscal year of the Trust shall end on a
specified date as determined from time to time by the Trustees.
Section 9.10 PROVISIONS IN CONFLICT WITH LAW. The provisions of this
Trust Instrument are severable, and if the Trustees shall determine, with the
advice of counsel, that any of such provisions is in conflict with the 1940 Act,
the regulated investment company provisions of the Internal Revenue Code or with
other applicable laws and regulations, the conflicting provision shall be deemed
never to have constituted a part of this Trust Instrument; provided, however,
that such determination shall not affect any of the remaining provisions of this
Trust Instrument or render invalid or improper any action taken or omitted prior
to such determination. If any provision of this Trust Instrument shall be held
invalid or unenforceable in any jurisdiction, such
<PAGE>
invalidity or unenforceability shall attach only to such provision in such
jurisdiction and shall not in any manner affect such provisions in any other
jurisdiction or any other provision of this Trust Instrument in any
jurisdiction.
IN WITNESS WHEREOF, the undersigned, being the initial Trustee of the
Trust, has executed this Instrument this __ day of _____________, 1999.
/s/Leonard H. Zacks, Initial Trustee
------------------------------------
Leonard H. Zacks, Initial Trustee
<PAGE>
ZACKS SERIES TRUST
d/b/a
THE ZACKS MUTUAL FUNDS
BY-LAWS
These By-laws of Zacks Series Trust d/b/a Zacks Mutual Funds (the
"Trust"), a Delaware business trust, are subject to the Trust Instrument of the
Trust dated _________ 1999, as from time to time amended, supplemented or
restated (the "Trust Instrument"). Capitalized terms used herein which are
defined in the Trust Instrument are used as therein defined.
ARTICLE I
PRINCIPAL OFFICE
The principal office of the Trust shall be located in such location as
the Trustees may from time to time determine. The Trust may establish and
maintain such other offices and places of business as the Trustees may from time
to time determine.
ARTICLE II
OFFICERS AND THEIR ELECTION
Section 2.1 OFFICERS. The officers of the Trust shall be a President, a
Treasurer, a Secretary, and such other officers as the Trustees may from time to
time elect. It shall not be necessary for any Trustee or other officer to be a
holder of Shares in the Trust.
Section 2.2 ELECTION OF OFFICERS. Two or more offices may be held by a
single person. Subject to the provisions of Section 2.3 hereof, the officers
shall hold office until their successors are chosen and qualified and serve at
the pleasure of the Trustees.
Section 2.3 RESIGNATIONS. Any officer of the Trust may resign by filing
a written resignation with the President, the Secretary or the Trustees, which
resignation shall take effect on being so filed or at such later time as may be
therein specified.
ARTICLE III
POWERS AND DUTIES OF OFFICERS AND TRUSTEES
Section 3.1 PRESIDENT. The President shall be the chief executive
officer of the Trust. Subject to the direction of the Trustees, the chief
executive officer shall have general administration of the business and policies
of the Trust. Except as the Trustees may otherwise order, the chief executive
officer shall have the power to (i) grant, issue, execute or sign such powers of
attorney, proxies, agreements or other documents as may be deemed advisable or
necessary in the furtherance of the interests of the Trust or any Series thereof
and (ii) employ attorneys, accountants and other advisers and agents and counsel
for the Trust.
<PAGE>
Section 3.2 TREASURER. The Treasurer shall be the principal financial
and accounting officer of the Trust and shall deliver all funds and securities
of the Trust which may come into his or her hands to such company as the
Trustees shall employ as custodian in accordance with the Trust Instrument and
applicable provisions of law. The Treasurer shall (i) make annual reports
regarding the business and condition of the Trust, which reports shall be
preserved in Trust records, and (ii) furnish such other reports regarding the
business and condition of the Trust as the Trustees may from time to time
require. The Treasurer shall perform such additional duties as the Trustees or
the chief executive officer may from time to time designate.
Section 3.3 SECRETARY. The Secretary shall record, in books kept for
the purpose, all votes and proceedings of the Trustees and the Shareholders at
their respective meetings and shall have the custody of the seal of the Trust,
if any. The Secretary shall perform such additional duties as the Trustees or
the chief executive officer may from time to time designate.
Section 3.4 VICE PRESIDENT. Any Vice President of the Trust shall
perform such duties as the Trustees or the chief executive officer may from time
to time designate. At the request or in the absence or disability of the
President, the most senior Vice President present and able to act may perform
all the duties of the President and, when so acting, shall have all the powers
of and be subject to all the restrictions upon the President.
Section 3.5 ASSISTANT TREASURER. Any Assistant Treasurer of the Trust
shall perform such duties as the Trustees or the Treasurer may from time to time
designate, and, in the absence of the Treasurer, the most senior Assistant
Treasurer present and able to act may perform all the duties of the Treasurer.
Section 3.6 ASSISTANT SECRETARY. Any Assistant Secretary of the Trust
shall perform such duties as the Trustees or the Secretary may from time to time
designate, and, in the absence of the Secretary, the most senior Assistant
Secretary present and able to act may perform all the duties of the Secretary.
Section 3.7 SUBORDINATE OFFICERS. The Trustees from time to time may
appoint such other officers or agents as they may deem advisable, each of whom
shall have such title, hold office for such period, have such authority and
perform such duties as the Trustees may determine.
Section 3.8 SURETY BONDS. The Trustees may require any officer or agent
of the Trust to execute a bond (including, without limitation, any bond required
by the 1940 Act) in such sum and with such surety or sureties as the Trustees
may determine, conditioned upon the faithful performance of his duties to the
Trust including responsibility for negligence and for the accounting of any of
the Trust's property, funds or securities that may come into his hands.
Section 3.9 REMOVAL. Any officer may be removed from office at any time
by the Trustees.
Section 3.10 REMUNERATION. The salaries or other compensation, if any,
of the officers of the Trust shall be fixed from time to time by resolution of
the Trustees.
2
<PAGE>
ARTICLE IV
SHAREHOLDERS' MEETINGS
Section 4.1 NOTICES. Notices of any meeting of the Shareholders shall
be given by the Secretary by delivering or mailing, postage prepaid, to each
Shareholder entitled to vote at said meeting, written or printed notification of
such meeting at least fifteen days before the meeting, to such address as may be
registered with the Trust by the Shareholder. Notice of any Shareholder meeting
need not be given to any Shareholder if a written waiver of notice, executed
before or after such meeting, is filed with the record of such meeting, or to
any Shareholder who shall attend such meeting in person or by proxy. Notice of
adjournment of a Shareholders' meeting to another time or place need not be
given, if such time and place are announced at the meeting or reasonable notice
is given to persons present at the meeting.
Section 4.2 VOTING-PROXIES. Subject to the provisions of the Trust
Instrument, Shareholders entitled to vote may vote either in person or by proxy,
provided that either (i) an instrument authorizing such proxy to act is executed
by the Shareholder in writing and dated not more than eleven months before the
meeting, unless the instrument specifically provides for a longer period or (ii)
the Trustees adopt by resolution an electronic, telephonic, computerized or
other alternative to execution of a written instrument authorizing the proxy to
act, which authorization is received not more than eleven months before the
meeting. Proxies shall be delivered to the Secretary of the Trust or other
person responsible for recording the proceedings before being voted. A proxy
with respect to Shares held in the name of two or more persons shall be valid if
executed by one of them unless at or prior to exercise of such proxy the Trust
receives a specific written notice to the contrary from any one of them. Unless
otherwise specifically limited by their terms, proxies shall entitle the holder
thereof to vote at any adjournment of a meeting. A proxy purporting to be
exercised by or on behalf of a Shareholder shall be deemed valid unless
challenged at or prior to its exercise and the burden or proving invalidity
shall rest on the challenger. At all meetings of the Shareholders, unless the
voting is conducted by inspectors, all questions relating to the qualifications
of voters, the validity of proxies, and the acceptance or rejection of votes
shall be decided by the Chairman of the meeting. Except as otherwise provided
herein or in the Trust Instrument, all matters relating to the giving, voting or
validity of proxies shall be governed by the General Corporation Law of the
State of Delaware relating to proxies, and judicial interpretations thereunder,
as if the Trust were a Delaware corporation and the Shareholders were
shareholders of a Delaware corporation.
Section 4.3 CLOSING OF TRANSFER BOOKS: RECORD DATES. The Board of
Trustees may fix the time, not exceeding twenty days preceding the date of any
meeting of Shareholders, any dividend payment date or any date for the allotment
of rights, during which the books of the Corporation shall be closed against
transfers of stock. If such books are closed for the purpose of determining
Shareholders entitled to notice of or to vote at a meeting of Shareholders, such
books shall be closed for at least ten days immediately preceding such meeting.
In lieu of providing for the closing of the books against transfers of stock as
aforesaid, the Board of Trustees may fix, in advance, a date, not exceeding one
hundred days and not less than ten days preceding any dividend payment date or
any date for the allotment of rights, as a record date for the determination of
the Shareholders entitled to notice of and to vote at such meeting, or entitled
to receive such dividends or rights, as the case may be; and only Shareholders
of record on such date shall be entitled to notice of and to vote at such
meeting or to receive such dividends or rights, as the case may be.
3
<PAGE>
Section 4.4 CONDUCT OF SHAREHOLDERS' MEETINGS. The meetings of the
Shareholders shall be presided over by the Chairman of the Board or, if the
Chairman shall not be present then by the President or, if the President shall
not be present, then by a Vice President or, if no Vice President is present,
then by a chairman to be elected at the meeting. The Secretary of the Trust, if
present, shall act as Secretary of such meeting, or if the Secretary is not
present, an Assistant Secretary shall so act; if neither the Secretary nor an
Assistant Secretary is present, then the presiding officer shall appoint a
secretary.
Section 4.5 CONCERNING VALIDITY OF PROXIES, BALLOTS, ETC. At
every meeting of the Shareholders, all proxies shall be received and taken in
charge of and all ballots shall be received and canvassed by the secretary of
the meeting, who shall decide all questions touching on the qualification of
voters, the validity of the proxies, and the acceptance or rejection of votes.
Section 4.6 PLACE OF MEETING. Meetings of the Shareholders
shall be held at such places as the Trustees may designate.
ARTICLE V
SHARES OF BENEFICIAL INTEREST
Section 5.1 SHARE CERTIFICATE. No certificates certifying the ownership
of Shares shall be issued except as the Trustees may otherwise authorize. The
Trustees may issue certificates to a Shareholder of any Series or class thereof
for any purpose and the issuance of a certificate to one or more Shareholders
shall not require the issuance of certificates generally. In the event that the
Trustees authorize the issuance of Share certificates, such certificate shall be
in the form prescribed from time to time by the Trustees and shall be signed by
the President or a Vice President and by the Treasurer, Assistant Treasurer,
Secretary or Assistant Secretary. Such signatures may be facsimiles if the
certificate is signed by a Transfer Agent or shareholder services agent or by a
registrar, other than a Trustee, officer or employee of the Trust. In case any
officer who has signed or whose facsimile signature has been placed on such
certificate shall have ceased to be such officer before such certificate is
issued, it may be issued by the Trust with the same effect as if he or she were
such officer at the time of its issue.
Section 5.2 LOSS OF CERTIFICATE. In case of the alleged loss or
destruction or the mutilation of a Share certificate, a duplicate certificate
may be issued in place thereof, upon such terms as the Trustees may prescribe.
Section 5.3 DISCONTINUANCE OF ISSUANCE OF CERTIFICATES. The Trustees
may at any time discontinue the issuance of Share certificates and may, by
written notice to each Shareholder, require the surrender of Share certificates
to the Trust for cancellation. Such surrender and cancellation shall not affect
the ownership of Shares in the Trust.
ARTICLE VI
INSPECTION OF BOOKS
The Trustees shall from time to time determine whether and to what
extent, and at what times and places, and under what conditions and regulations
the accounts and books of the
4
<PAGE>
Trust or any of them shall be open to the inspection of the Shareholders; and no
Shareholder shall have any right to inspect any account or book or document of
the Trust except as conferred by law or otherwise by the Trustees.
5
<PAGE>
ARTICLE VII
SEAL
The seal of the Trust shall be circular in form bearing the
inscription:
"The Zacks Mutual Funds -- 1999
THE STATE OF DELAWARE"
The form of the seal shall be subject to alteration by the Trustees and
the seal may be used by causing it or a facsimile to be impressed or affixed or
printed or otherwise reproduced.
Any officer or Trustee of the Trust shall have authority to affix the
seal of the Trust to any document, instrument or other paper executed and
delivered by or on behalf of the Trust; however, unless otherwise required by
the Trustees, the seal shall not be necessary to be placed on, and its absence
shall not impair the validity of any document, instrument, or other paper
executed by or on behalf of the Trust.
ARTICLE VIII
AMENDMENTS
These By-laws may be amended from time to time by the Trustees.
ARTICLE IX
HEADINGS
Headings are placed in these By-laws for convenience of reference only
and, in case of any conflict, the text of these By-laws rather than the headings
shall control.
6
<PAGE>
ZACKS SERIES TRUST
d/b/a
ZACKS MUTUAL FUNDS
INVESTMENT MANAGEMENT AGREEMENT
AGREEMENT, made as of ___________1999, by and between ZACKS SERIES
TRUST d/b/a ZACK MUTUAL FUNDS, a Delaware business trust (hereinafter called the
"Trust"), and ZACKS INVESTMENT MANAGEMENT, INC., an Illinois corporation
(hereinafter called the "Manager").
W I T N E S S E T H:
In consideration of the mutual covenants hereinafter contained, IT IS
HEREBY AGREED by and between the parties hereto as follows:
1. The Trust, a registered investment company under the Investment
Company Act of 1940 and Regulations thereunder (the "Act"), employs the Manager
to act as its investment Manager and to manage the investment and reinvestment
of the assets of each series of the Trust (each a "Fund") identified in a
currently effective addendum to this Agreement pursuant to Section 11 of this
Agreement, subject to the supervision of the Board of Trustees of the Trust and
in conformity with the Registration Statement of the Trust as in effect from
time to time for the period and on the terms herein set forth. The Manager
hereby accepts such employment and agrees during such period to render the
services and to assume the obligations herein set forth for the compensation
herein provided. The Manager from time to time or at any time may also be
employed by the Board of Trustees to provide administrative, underwriting or
other services to the Trust not directly related to management of investments
upon such terms and conditions, including compensation, as may be agreed between
the parties. The Manager shall be an independent contractor and, unless
otherwise expressly provided or authorized hereunder or by
<PAGE>
the Board of Trustees, shall have no authority to act for or represent the Trust
in any way or otherwise be deemed an agent of the Trust.
2. The Manager shall, at its own expense, furnish suitable office space
in its own offices or in such other place as may be agreed upon from time to
time, and all necessary office facilities, equipment and personnel for carrying
out its duties hereunder and shall arrange, if desired by the Trust, for members
of the Manager's organization to serve, without compensation from the Trust, as
trustees, officers or agents of the Trust if duly elected or appointed to such
positions by the shareholders or by the Board of Trustees, subject to their
individual consent and to any limitations imposed by law.
3. The Manager shall be responsible only for those expenses expressly
stated in paragraph 2 to be the responsibility of the Manager and shall not be
responsible for any other expenses of the Trust including, as illustrative and
without limitation, maintenance and verification of books and records; filings
with state and federal authorities; fees and charges of any custodian (including
charges as custodian and for keeping books and records and similar services);
fees and expenses of trustees, other than trustees described in paragraph 2;
fees and expenses of independent auditors, legal counsel, transfer agents,
dividend disbursing agents, and registrars; costs of and incident to issuance,
redemption and transfer of shares, and distributions to shareholders (including
dividend payments and reinvestment of dividends); costs of acquiring portfolio
securities, including brokers' commissions; interest charges; taxes and
corporate fees payable to any government or governmental body or agency
(including those incurred on account of the registration or qualification of
securities issued by the Trust); dues and other expenses incident to the Trust's
membership in the Investment Company Institute and other like associations; cost
of stock certificates, stockholder meetings, corporate reports, reports and
<PAGE>
notices to stockholders; costs of printing, stationery, and bookkeeping forms;
and amounts to be paid by the Trust in accordance with any Rule 12b-1
Distribution Plan. The Manager shall be reimbursed by the Trust on or before the
fifteenth day of each calendar month for all expenses paid or incurred during
the preceding calendar month by the Manager for or on behalf of or at the
request or direction of the Trust which are not the responsibility of the
Manager hereunder.
4. Services of the Manager herein provided are not to be deemed
exclusive, and the Manager shall be free to render similar services or other
services to others so long as its services hereunder shall not be impaired
thereby. In the absence of willful misfeasance, bad faith or gross negligence or
reckless disregard of obligations or duties hereunder on the part of the
Manager, the Manager shall not be subject to liability to the Trust or any
shareholder of the Trust for any act or omission in the course of, or in
connection with, rendering services hereunder or for any losses that may be
sustained in the purchase, holding or sale of any security.
5. As compensation for the services rendered and obligations assumed
hereunder by the Manager, the Trust shall pay to the Manager out of the assets
of the Fund on or before the fifteenth day of each calendar month a fee
calculated on the basis of average daily net assets at the annual rates for the
Fund set forth in the written addendum to this Agreement executed by both
parties. Such fee shall be computed and accrued daily. Upon termination of this
Agreement as to any Fund before the end of any calendar month, the fee of that
Fund for such period shall be prorated. For purposes of calculating the fee of
the Manager, the daily value of each Fund's net assets shall be computed by the
same method as the Trust uses to compute the value of net assets in connection
with the determination of the net asset value of each Fund's shares.
6. If the total expenses of a Fund shall exceed any applicable expense
limitation prescribed by any statute or regulatory authority of a jurisdiction
in which a Fund's shares are
<PAGE>
qualified for offer and sale, the Manager shall reimburse that Fund in the
amount of such excess to the extent required by such securities law or
regulation.
7. It is understood that the officers, trustees, agents and
shareholders of the Trust are or may be interested in the Manager as officers,
employees or agents and that the officers, employees and agents of the Manager
may be interested in the Trust otherwise than as shareholders.
8. The Trust acknowledges that the use of the term "Zacks" in its name
is with the permission of the Manager. If for any reason, the Manager no longer
acts as the Trust's investment adviser, the Trust shall cease using the name
"Zacks" upon demand made by the Manager.
9. This Agreement shall be effective as to a Fund on the date of
initial effectiveness stated in the addendum with respect to that Fund and
continue with respect to the Fund for an initial term specified in such addendum
unless sooner terminated as hereinafter provided. It shall continue from year to
year thereafter as long as its continuance with respect to the Fund is approved
annually in accordance with the Act. This Agreement may be terminated as to any
Fund at any time, without payment of any penalty, by the Trust's Board of
Trustees, or by a vote of the holders of a majority of the eligible votes of
such Fund upon 60 days' prior written notice to the Manager and by the Manager
upon 60 days' prior written notice to the Trust. This Agreement may be amended
as to a Fund at any time by the parties, subject to approval by the Trust's
Board of Trustees and, if required by law or applicable regulations, the
affirmative vote of the holders of a majority of the total votes entitled to
vote thereon. This Agreement shall terminate automatically in the event of its
assignment as defined under the Act except as the application of such term to a
particular transaction is suspended or modified by reason of any
<PAGE>
exemption order issued pursuant to the Act or any no-action letter issued by the
staff of the Securities and Exchange Commission.
10. As of the date of this Agreement, the Trust has two series of
shares, the Zacks Market Neutral Fund and the Zacks Index Plus Fund. This
Agreement shall apply to and be effective as to such series and any series
hereafter created by the Trust for which this Agreement has been approved in the
manner required by the Act, provided that there is a written addendum to this
Agreement executed by both parties which identifies such series as a Fund to be
managed pursuant to this Agreement, specifies the fee payable to the Manager
with respect to such series, and states the initial effective and termination
dates of this Agreement with respect to each Fund.
11. The Manager acknowledges that it has received notice of and accepts
the limitations upon the Trust's liability set forth in Article II of its
Declaration of Trust. The Manager agrees that the Trust's obligations hereunder
in any case shall be limited to the Trust and its assets and that the Manager
shall not seek satisfaction of any such obligation from any current or former
shareholder of the Trust nor from any current or former Trustee, officer,
employee or agent of the Trust.
12. This Agreement shall be construed in accordance with applicable
federal law and the laws of the State of Illinois.
IN WITNESS WHEREOF, the parties hereto have caused this Management
Agreement to be executed and made effective as of ______________, 1999.
ZACKS SERIES TRUST
By:
--------------------------------------
Its: President
ZACKS INVESTMENT MANAGEMENT, INC.
By:
--------------------------------------
Its: President
<PAGE>
ADDENDUM TO INVESTMENT ADVISORY AGREEMENT
DATED ______________ 1999 BETWEEN
ZACKS MUTUAL FUNDS AND ZACKS INVESTMENT MANAGEMENT, INC.
IN RESPECT TO ZACKS MARKET NEUTRAL FUND
The Investment Advisory Agreement shall be effective as to the series
designated Zacks Market Neutral Fund on the date that the registration statement
for the shares of this series is effective under the Securities Act of 1933 and
shall continue for an initial term ending no more than two years from such date
unless sooner terminated as provided in the Agreement. The compensation payable
out of the assets of the Fund pursuant to the Agreement shall be at the
following annual rates:
ANNUAL RATE VALUE OF AVERAGE DAILY NET ASSETS
----------- ---------------------------------
Dated: 1999
------------------
ZACKS SERIES TRUST
By:
----------------------------------------
Its: President
ZACKS INVESTMENT MANAGEMENT, INC.
By:
----------------------------------------
Its: President
<PAGE>
ADDENDUM TO INVESTMENT ADVISORY AGREEMENT
DATED ______________ 1999 BETWEEN
ZACKS MUTUAL FUNDS AND ZACKS INVESTMENT MANAGEMENT, INC.
IN RESPECT TO ZACKS INDEX PLUS FUND
The Investment Advisory Agreement shall be effective as to the series
designated Zacks Index Plus Fund on the date that the registration statement for
the shares of this series is effective under the Securities Act of 1933 and
shall continue for an initial term ending no more than two years from such date
unless sooner terminated as provided in the Agreement. The compensation payable
out of the assets of the Fund pursuant to the Agreement shall be at the
following annual rates:
ANNUAL RATE VALUE OF AVERAGE DAILY NET ASSETS
----------- ---------------------------------
Dated: 1999
------------------
ZACKS SERIES TRUST
By:
----------------------------------------
Its: President
ZACKS INVESTMENT MANAGEMENT, INC.
By:
----------------------------------------
Its: President
<PAGE>
ZACK MUTUAL FUNDS
DISTRIBUTING AGREEMENT
AGREEMENT dated as of ________, 1999, between ZACKS SERIES TRUST d/b/a/ ZACKS
MUTUAL FUNDS, a Delaware business trust, hereinafter called the "Company", and
ZACKS & COMPANY, an Illinois corporation, hereinafter called the "Distributor".
WITNESSETH
1. APPOINTMENT OF FUND DISTRIBUTOR. The Company hereby appoints the
Distributor as the exclusive distributor to sell as principal and not as agent
shares of capital stock of the Company during the term of this Agreement.
2. SALES OF CAPITAL STOCK. The Company agrees to sell and deliver to
the Distributor, upon the terms set forth herein, such fully-paid and
non-assessable shares of beneficial interest of the Company ("Shares") then
effectively registered for continuous offering under the Securities Act of 1933
(the "1933 Act") as the Distributor shall order from the Company, but only to
the extent that the Distributor shall have received purchase orders therefor.
All orders from the Distributor shall be subject to confirmation by the Company,
and the Company authorizes the Distributor to reject any purchase order.
The Distributor as principal may sell and distribute any Shares so
purchased, through dealers or otherwise, in such manner not inconsistent with
law and all applicable rules and regulations, including those of any applicable
self-regulatory organizations, and the provisions of this Agreement, as the
Distributor may from time to time determine. The Distributor agrees to use its
best efforts to effect sales of Shares, but does not undertake to sell any
specific number of Shares thereof.
The Distributor may in its discretion sell the Shares to or through
such registered and qualified retail dealers as it may select. In making
agreements with its dealers or others for sale of the Shares, the Distributor
shall act only as principal and in no sense as agent for the Company.
3. SALES BY DISTRIBUTOR - OFFERING PRICE. All Shares, whether purchased
from the Company or otherwise, shall be offered for sale and sold by the
Distributor at a price per share (hereinafter called the "Offering Price") in
accordance with the provisions of the current prospectus applicable to such
offer and sale. Any initial or deferred sales charge and any reduction or
elimination thereof shall be determined by the Distributor in a manner not
inconsistent with law and all applicable rules and regulations and the
provisions of this Agreement, and the Company agrees to amend its current
prospectus to the extent necessary from time to time to reflect any such
determination. The Company will cause such net asset value to be determined with
such frequency and as of such times and will cause the Offering Price to be
effective for such periods as are set forth in the current prospectus of the
Company. The Company
<PAGE>
will cause such determinations to be furnished to the Distributor as often as
they are made and shall make available to the Distributor upon request the
computations underlying any such determination.
Anything to the contrary herein notwithstanding, the Company may
suspend the Offering Price currently in effect and may decline to accept or
confirm any orders for, or to make any sales of, any Shares to the Distributor
under this Agreement until such time as it shall deem it advisable to accept and
confirm such orders and to make such sales. During any period during which the
Offering Price currently in effect shall be suspended or during which the
Company shall decline to acceptor confirm any such orders or make any such
sales, the Company shall be under no obligation to confirm or accept any such
orders or make any such sale at any price.
4. PAYMENT. At or prior to the time of delivery by the Company to, or
on the order of the Distributor of any Shares, the Distributor will pay or cause
to be paid to the Company or to its order an amount equal to the Offering Price
of such Shares at which such order had been confirmed, less the initial or
deferred sales charge, if any, included thereon as aforesaid. The Distributor
agrees to cause to be remitted to the Company for the benefit of the Company or
to its order all such funds promptly after receipt thereof.
5. DELIVERY OF SHARE CERTIFICATES. Delivery of certificates for Shares
shall be made as promptly as practicable after receipt by the Company of the
purchase price therefor and written request by the Distributor for such
certificates. Such certificates shall be registered in such names and amounts as
the Distributor may specify to the Company in writing.
6. COMPENSATION OF THE DISTRIBUTOR. Any initial or deferred sales
charges and any compensation to be paid the Distributor out of any Distribution
Plan described in 7(e) below shall constitute the entire compensation of the
Distributor. The Distributor may allow concessions to dealers, out of sales
charges, as the Distributor shall from time to time determine.
7. ALLOCATION OF EXPENSES. Except as otherwise provided herein, the
Company shall pay all expenses connected with (i) the organization of the
Company or any Series thereof, and (ii) the offering of Shares, including
without limitation all expenses of:
(a) Registering Shares for offer or sale under the federal
securities laws, except for prospectus printing costs as set forth
below; and
(b) Reports required by and under the federal securities laws; and
(c) Issuance of Shares, including cost of certificates, issue
taxes (if any) and fees of legal counsel and of the transfer agent; and
<PAGE>
(d) Registering or qualifying Shares for offer or sale under the
securities laws of any state or other jurisdiction in which the
Distributor may arrange for the sale of the Shares; and
(e) Any Distribution Plan adopted in accordance with Rule 12b-1
under the Investment Company Act of 1940 (the "1940 Act") providing for
any payments by the Company or any Series thereof.
The Distributor will pay, or promptly reimburse the Company for, all
expenses in connection with:
(a) Preparing, printing and distributing advertising and sales
literature for use in offering the Shares to the public, including the
cost of printing copies of the prospectus and the additional cost of
printing reports to stockholders other than copies thereof required for
distribution to stockholders or for filing with any securities
authorities; and
(b) The registration or qualification of the Distributor as a
dealer or broker under state or federal laws.
Transfer taxes, if any, which may be payable in connection with the
issue and delivery of certificates in a name or names other than the name of the
Distributor will not be borne by the Company, and the Distributor agrees to
indemnify and hold the Company harmless against any such transfer taxes. Any
other taxes in connection with the sale of Shares pursuant to this Agreement
will be borne by the Company.
8. COMPANY TO FURNISH INFORMATION. The Company shall furnish to the
Distributor for use in connection with the sale of the Shares such information
with respect to the Company and the Shares as the Distributor may reasonably
request, including copies of documents filed with or furnished to any federal or
state securities authorities or sent to its stockholders.
9. REPRESENTATIONS AND AGREEMENTS WITH RESPECT TO REGISTRATION
STATEMENT AND PROSPECTUS.
(a) As used in this Agreement, the term "registration statement"
shall include any registration statement with respect to the Shares
which is effective under the Act including any amendment thereto, and
the term "prospectus" shall include any prospectus and statement of
additional information filed as part of such registration statement.
(b) The Company represents that the registration statement and
prospectus will conform in all material respects to the requirements of
the 1933 Act and the 1940 Act and the rules and regulations thereunder
and will not contain any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary to
make the statements therein not misleading; provided that
<PAGE>
this representation will not apply to any statements or omissions
made in reliance upon and in conformity with information furnished in
writing to the Company by the Distributor expressly for use in the
registration statement or prospectus.
(c) The Company agrees to advise the Distributor promptly:
(i) of any request of the Securities and Exchange Commission
for amendments to the registration statement or prospectus or for
additional information;
(ii) in the event of the issuance by the Securities and
Exchange Commission of any stop order suspending the effectiveness
of the registration statement or prospectus or the initiation of
any proceedings for that purpose;
(iii) of the happening of any event which makes untrue any
statement, or which requires the making of any change, in the
registration statement or prospectus in order to make the
statements therein not misleading; and
(iv) of all actions of the Securities and Exchange Commission
with respect to any amendments to the registration statement or
prospectus which may from time to time be filed with the
Securities and Exchange Commission under the 1933 Act or the 1940
Act.
10. INDEMNIFICATION. The Company agrees to indemnify, defend and hold
the Distributor, its officers and directors and any person who controls the
Distributor with the meaning of Section 15 of the 1933 Act, free and harmless
from and against any and all claims, demands, liabilities and expenses
(including the cost of investigating or defending such claims, demands or
liabilities and any counsel fees incurred in connection therewith) which the
Distributor, its officers, directors or any such controlling person may incur
under the 1933 Act or the 1940 Act, or under common law or otherwise, arising
out of or based upon any untrue statement of a material fact contained in the
registration statement or prospectus relating to the Company or arising out of
or based upon any alleged omission to state a material fact required to be
stated in either thereof or necessary to make the statements in either thereof
not misleading, except insofar as such claims, demands, liabilities or expenses
arise out of or are based upon any such untrue statement or omission or alleged
untrue statement or omission made in reliance upon and in conformity with
information in writing provided by the Distributor to the Company for use in the
registration statement or prospectus relating to the Company; provided, however,
that this indemnity agreement, to the extent that it might require indemnity for
liability arising out under the 1933 Act of any person who is also an officer or
director of the Company or who controls the Company within the meaning of
Section 15 of the 1933 Act, shall not inure to the benefit of such officer,
director or controlling person unless a court of competent jurisdiction shall
determine, or it shall have been determined by controlling precedent, that such
result would not be against public policy as expressed in
<PAGE>
the 1933 Act; and further, provided, that in no event shall anything contained
herein be so construed as to protect the Distributor against any liability to
the Company or to its security holders to which the Distributor would otherwise
be subject by reason of willful misfeasance, bad faith, or gross negligence, in
the performance of its duties, or by reason of its reckless disregard of its
obligations under this Agreement. The Company's agreement to indemnify the
Distributor, its officers and directors and any such controlling persons as
aforesaid is expressly conditioned upon the Company being promptly notified of
any action brought against the Distributor, its officers or directors, or any
such controlling person, such notification to be given by letter or telegram
addressed to the Company at its principal business office. The Company agrees to
promptly notify the Distributor of the commencement of any litigation or
proceedings against it or any of its officers or directors in connection with
the issue and sale of any Shares.
The Distributor agrees to indemnify, defend and hold the Company, its
officers and directors and any person who controls the Company, if any, within
the meaning of Section 15 of the 1933 Act free and harmless from and against any
and all claims, demands, liabilities and expenses (including the cost of
investigating or defending such claims, demands or liabilities and any counsel
fees incurred in connection therewith) which the Company, its directors or
officers or any such controlling person may incur under the 1933 Act or under
common law or otherwise, but only to the extent that such liability or expense
incurred by the Company, its directors or officers or such controlling person
resulting from such claims or demands shall arise out of or be based upon any
alleged untrue statement of a material fact contained in information furnished
in writing by the Distributor to the Company for use in the Company's
registration statement or prospectus or shall arise out of or be based upon any
alleged omission to state a material fact in connection with such information
not misleading or shall arise out of or be based on any false or misleading or
allegedly false or misleading sales literature relating to the Company and
prepared by the Distributor. The Distributor's agreement to indemnify the
Company, its directors and officers, and any such controlling person as
aforesaid is expressly conditioned upon the Distributor being promptly notified
of any action brought against the Company, its officers or directors or any such
controlling person, such notification being given to the Distributor at its
principal business office.
11. COMPLIANCE WITH SECURITIES LAWS. The Company represents that it is
registered as an open-end diversified management investment company under the
1940 Act, and agrees that it will comply with all of the provisions of such Act
and of the rules and regulations thereunder. The Company and the Distributor
each agree to comply with all of the applicable terms and provisions of the 1940
Act, the 1933 Act and, subject to the following provisions of this paragraph 11,
all applicable state securities ("Blue Sky") laws. The Distributor agrees to
comply with all of the applicable terms and provisions of the Securities
Exchange Act of 1934. The Company will cooperate with the Distributor (to the
extent of supplying all necessary documents, exhibits and information), and will
execute and permit to be filed with the proper public bodies, such applications
(including amendments and renewals thereof), instruments, papers and exhibits as
may be appropriate to enable the Shares to be offered for sale under the laws of
such states as the Distributor shall reasonably determine, and will cooperate
with the Distributor in the
<PAGE>
presentation of said applications (including amendments and renewals thereof),
to the end that Shares may be qualified in such states under the respective Blue
Sky laws thereof; provided that the Company shall not be required to amend its
Declaration of Trust or By-laws to comply with the laws of any state, to
maintain an office in any state, to change the terms of the offering of Shares
in any state from the terms set forth in its registration statement and
prospectus, to qualify in any state or to consent to service of process in any
state other than with respect to claims arising out of Shares. The Distributor
will furnish to the Company any information known to the Distributor which is
necessary or desirable in the preparation of the Company's registration
statement and prospectus and any amendments or supplements thereto.
12. EFFECTIVE DATE, TERM, TERMINATION. This Agreement shall become
effective for an initial period of not more than two years from its effective
date, and shall continue in full force and effect continuously thereafter
provided that such continuance is approved at least annually as required by the
1940 Act. The effective date of this Agreement shall be the later of (i) the
effective date of the initial registration statement covering the offer and sale
of our shares under the Securities Act of 1933, or (ii) the date this Agreement
has been approved as required by the 1940 Act. This Agreement shall
automatically terminate in the event of its assignment (as defined by the 1940
Act). In addition, this Agreement may be terminated at any time, without
penalty, by either party on not more than sixty days' nor less than thirty days'
written notice delivered or mailed by registered mail, postage prepaid, to the
other party.
IN WITNESS WHEREOF, ZACKS SERIES TRUST and ZACKS & COMPANY have caused
this instrument to be signed in several counterparts, each of which shall be an
original and which together shall constitute one and the same Agreement, by an
officer or officers thereunto duly authorized, as of the day and year first
above written.
ZACKS SERIES TRUST
By:
-------------------------------
Its:
---------------------------
ZACKS & COMPANY
By:
-------------------------------
Its:
---------------------------
<PAGE>
PAGE 1
CUSTODIAN SERVICING AGREEMENT
THIS AGREEMENT is made and entered into as of this __ day of ____,
1999, by and between Zacks Series Trust, a Delaware business trust (hereinafter
referred to as the "Trust"), and Firstar Bank Milwaukee, N.A., a corporation
organized under the laws of the State of Wisconsin (hereinafter referred to as
the "Custodian").
WHEREAS, the Trust is an open-end management investment company which
is registered under the Investment Company Act of 1940, as amended (the "1940
Act");
WHEREAS, the Trust is authorized to create separate series, each with
its own separate investment portfolio; and
WHEREAS, the Trust desires that the securities and cash of each series
of the Trust listed on Exhibit A attached hereto, (each hereinafter referred to
as a "Fund"), as may be amended from time to time, shall be hereafter held and
administered by Custodian pursuant to the terms of this Agreement.
NOW, THEREFORE, in consideration of the mutual agreements herein made,
the Trust and Custodian agree as follows:
1. DEFINITIONS
The word "securities" as used herein includes stocks, shares, bonds,
debentures, notes, mortgages or other obligations, and any certificates,
receipts, warrants or other instruments representing rights to receive, purchase
or subscribe for the same, or evidencing or representing any other rights or
interests therein, or in any property or assets.
The words "officers' certificate" shall mean a request or direction or
certification in writing signed in the name of the Trust by any two of the
President, a Vice President, the Secretary and the Treasurer of the Trust, or
any other persons duly authorized to sign by the Board of Trustees.
The word "Board" shall mean Board of Trustees of the Zacks Mutual
Funds.
2. NAMES, TITLES, AND SIGNATURES OF THE COMPANY'S OFFICERS
An officer of the Trust will certify to Custodian the names and
signatures of those persons authorized to sign the officers' certificates
described in Section 1 hereof, and the names of the members of the Board of
Trustees, together with any changes which may occur from time to time.
<PAGE>
PAGE 2
3. RECEIPT AND DISBURSEMENT OF MONEY
A. Custodian shall open and maintain a separate account or accounts
in the name of each Fund, subject only to draft or order by Custodian acting
pursuant to the terms of this Agreement. Custodian shall hold in such account
or accounts, subject to the provisions hereof, all cash received by it from or
for the account of the Trust. Custodian shall make payments of cash to, or for
the account of, the Trust from such cash only:
(a) for the purchase of securities for the portfolio of the Fund upon
the delivery of such securities to Custodian, registered in the
name of the Trust or of the nominee of Custodian referred to in
Section 7 or in proper form for transfer;
(b) for the purchase or redemption of shares of the common stock of
the Fund upon delivery thereof to Custodian, or upon proper
instructions from the Trust;
(c) for the payment of interest, dividends, taxes, investment
adviser's fees or operating expenses (including, without
limitation thereto, fees for legal, accounting, auditing and
custodian services and expenses for printing and postage);
(d) for payments in connection with the conversion, exchange or
surrender of securities owned or subscribed to by the Fund held
by or to be delivered to Custodian; or
(e) for other proper corporate purposes certified by resolution of
the Board of Trustees of the Trust.
Before making any such payment, Custodian shall receive (and may rely
upon) an officers' certificate requesting such payment and stating that it is
for a purpose permitted under the terms of items (a), (b), (c), or (d) of this
Subsection A, and also, in respect of item (e), upon receipt of an officers'
certificate specifying the amount of such payment, setting forth the purpose for
which such payment is to be made, declaring such purpose to be a proper
corporate purpose, and naming the person or persons to whom such payment is to
be made, provided, however, that an officers' certificate need not precede the
disbursement of cash for the purpose of purchasing a money market instrument, or
any other security with same or next-day settlement, if the President, a Vice
President, the Secretary or the Treasurer of the Trust issues appropriate oral
or facsimile instructions to Custodian and an appropriate officers' certificate
is received by Custodian within two business days thereafter.
B. Custodian is hereby authorized to endorse and collect all checks,
drafts or other orders for the payment of money received by Custodian for the
account of each Fund.
<PAGE>
PAGE 3
C. Custodian shall, upon receipt of proper instructions, make
federal funds available to the Trust as of specified times agreed upon from time
to time by the Trust and the Custodian in the amount of checks received in
payment for shares of the Fund which are deposited into the Fund's account.
D. If so directed by the Trust, Custodian will invest any and all
available cash in overnight cash-equivalent investments as specified by the
investment manager.
4. SEGREGATED ACCOUNTS
Upon receipt of proper instructions, the Custodian shall establish and
maintain a segregated account(s) for and on behalf of each Fund, into which
account(s) may be transferred cash and/or securities.
5. TRANSFER, EXCHANGE, REDELIVERY, ETC. OF SECURITIES
Custodian shall have sole power to release or deliver any securities
of the Trust held by it pursuant to this Agreement. Custodian agrees to
transfer, exchange or deliver securities held by it hereunder only:
(a) for sales of such securities for the account of the Fund upon
receipt by Custodian of payment therefore;
(b) when such securities are called, redeemed or retired or otherwise
become payable;
(c) for examination by any broker selling any such securities in
accordance with "street delivery" custom;
(d) in exchange for, or upon conversion into, other securities alone
or other securities and cash whether pursuant to any plan of
merger, consolidation, reorganization, recapitalization or
readjustment, or otherwise;
(e) upon conversion of such securities pursuant to their terms into
other securities;
(f) upon exercise of subscription, purchase or other similar rights
represented by such securities;
(g) for the purpose of exchanging interim receipts or temporary
securities for definitive securities;
(h) for the purpose of redeeming in kind shares of common stock of
the Fund upon delivery thereof to Custodian; or
(i) for other proper corporate purposes.
<PAGE>
PAGE 4
As to any deliveries made by Custodian pursuant to items (a), (b),
(d), (e), (f), and (g), securities or cash receivable in exchange therefor shall
be deliverable to Custodian.
Before making any such transfer, exchange or delivery, Custodian shall
receive (and may rely upon) an officers' certificate requesting such transfer,
exchange or delivery, and stating that it is for a purpose permitted under the
terms of items (a), (b), (c), (d), (e), (f), (g), or (h) of this Section 5 and
also, in respect of item (i), upon receipt of an officers' certificate
specifying the securities to be delivered, setting forth the purpose for which
such delivery is to be made, declaring such purpose to be a proper corporate
purpose, and naming the person or persons to whom delivery of such securities
shall be made, provided, however, that an officers' certificate need not precede
any such transfer, exchange or delivery of a money market instrument, or any
other security with same or next-day settlement, if the President, a Vice
President, the Secretary or the Treasurer of the Trust issues appropriate oral
or facsimile instructions to Custodian and an appropriate officers' certificate
is received by Custodian within two business days thereafter.
6. CUSTODIAN'S ACTS WITHOUT INSTRUCTIONS
Unless and until Custodian receives an officers' certificate to the
contrary, Custodian shall: (a) present for payment all coupons and other income
items held by it for the account of each Fund, which call for payment upon
presentation and hold the cash received by it upon such payment for the account
of the Fund; (b) collect interest and cash dividends received, with notice to
the Trust, for the account of the Fund; (c) hold for the account of the Fund
hereunder all stock dividends, rights and similar securities issued with respect
to any securities held by it hereunder; and (d) execute, as agent on behalf of
the Trust, all necessary ownership certificates required by the Internal Revenue
Code of 1986, as amended (the "Code") or the Income Tax Regulations (the
"Regulations") of the United States Treasury Department (the "Treasury
Department") or under the laws of any state now or hereafter in effect,
inserting the Trust's name on such certificates as the owner of the securities
covered thereby, to the extent it may lawfully do so.
7. REGISTRATION OF SECURITIES
Except as otherwise directed by an officers' certificate, Custodian
shall register all securities, except such as are in bearer form, in the name of
a registered nominee of Custodian as defined in the Internal Revenue Code and
any Regulations of the Treasury Department issued thereunder or in any provision
of any subsequent federal tax law exempting such transaction from liability for
stock transfer taxes, and shall execute and deliver all such certificates in
connection therewith as may be required by such laws or regulations or under the
laws of any state. All securities held by Custodian hereunder shall be at all
times identifiable in its records held in an account or accounts of Custodian
containing only the assets of the particular Fund.
The Trust shall from time to time furnish to Custodian appropriate
instruments to enable Custodian to hold or deliver in proper form for transfer,
or to register in the name of its
<PAGE>
PAGE 5
registered nominee, any securities which it may hold for the account of the
Trust and which may from time to time be registered in the name of the Trust.
8. VOTING AND OTHER ACTION
Neither Custodian nor any nominee of Custodian shall vote any of the
securities held hereunder by or for the account of a Fund, except in accordance
with the instructions contained in an officers' certificate. Custodian shall
deliver, or cause to be executed and delivered, to the Trust all notices,
proxies and proxy soliciting materials with respect to such securities, such
proxies to be executed by the registered holder of such securities (if
registered otherwise than in the name of the Trust), but without indicating the
manner in which such proxies are to be voted.
9. TRANSFER TAX AND OTHER DISBURSEMENTS
The Trust shall pay or reimburse Custodian from time to time for any
transfer taxes payable upon transfers of securities made hereunder, and for all
other necessary and proper disbursements and expenses made or incurred by
Custodian in the performance of this Agreement.
Custodian shall execute and deliver such certificates in connection
with securities delivered to it or by it under this Agreement as may be required
under the provisions of the Internal Revenue Code and any Regulations of the
Treasury Department issued thereunder, or under the laws of any state, to exempt
from taxation any exempt transfers and/or deliveries of any such securities.
10. CONCERNING CUSTODIAN
Custodian shall be paid as compensation for its services pursuant to
this Agreement such compensation as may from time to time be agreed upon in
writing between the two parties. Until modified in writing, such compensation
shall be as set forth in Exhibit A attached hereto. Notwithstanding anything to
the contrary, amounts owed by the Trust to Custodian shall only be paid out of
the assets and property of the particular Fund involved.
Custodian shall not be liable for any action taken in good faith and
without negligence and willful misconduct upon any certificate herein described
or certified copy of any resolution of the Board, and may rely on the
genuineness of any such document which it may in good faith believe to have been
validly executed.
The Trust agrees to indemnify and hold harmless Custodian and its
nominee from all taxes, charges, expenses, assessments, claims and liabilities
(including reasonable counsel fees) incurred or assessed against it or by its
nominee in connection with the performance of this Agreement, except such as may
arise from its or its nominee's own bad faith, negligent action, negligent
failure to act or willful misconduct. In the event of any advance of cash for
any purpose made by Custodian resulting from orders or instructions of the
Trust, any property at any time held for the account of the Trust shall be
security therefor.
<PAGE>
PAGE 6
Custodian agrees to indemnify and hold harmless the Trust from all charges,
expenses, assessments, and claims/liabilities (including reasonable counsel
fees) incurred or assessed against it in connection with the performance of this
Agreement, except such as may arise from the Fund's own bad faith, negligent
action, negligent failure to act, or willful misconduct.
Custodian is hereby expressly put on notice of the limitation of shareholder
liability as set forth in the Trust Instrument of the Trust and agrees that
obligations assumed by the Trust pursuant to this Agreement shall be limited in
all cases to the Trust and its assets, and if the liability relates to one or
more series, the obligations hereunder shall be limited to the respective assets
of such series. Custodian further agrees that it shall not seek satisfaction of
any such obligation from the shareholder or any individual shareholder of a
series of the Trust, nor from the Trustees or any individual Trustee of the
Trust.
11. SUBCUSTODIANS
Custodian is hereby authorized to engage another bank or trust company
as a subcustodian for all or any part of the Company's assets, so long as any
such bank or trust company is itself qualified under the 1940 Act and the rules
and regulations thereunder and provided further that, if the Custodian utilizes
the services of a subcustodian, the Custodian shall remain fully liable and
responsible for any losses caused to the Trust by the subcustodian as fully as
if the Custodian was directly responsible for any such losses under the terms of
this Agreement.
Notwithstanding anything contained herein, if the Trust requires the
Custodian to engage specific subcustodians for the safekeeping and/or clearing
of assets, the Trust agrees to indemnify and hold harmless Custodian from all
claims, expenses and liabilities incurred or assessed against it in connection
with the use of such subcustodian in regard to the Company's assets, except as
may arise from Custodian's own bad faith, negligent action, negligent failure to
act or willful misconduct.
12. REPORTS BY CUSTODIAN
Custodian shall furnish the Trust periodically as agreed upon with a
statement summarizing all transactions and entries for the account of Trust.
Custodian shall furnish to the Trust, at the end of every month, a list of the
portfolio securities for the Fund showing the aggregate cost of each issue. The
books and records of Custodian pertaining to its actions under this Agreement
shall be open to inspection and audit at reasonable times by officers of, and by
auditors employed by, the Trust.
<PAGE>
PAGE 7
13. TERMINATION OR ASSIGNMENT
This Agreement may be terminated by the Trust, or by Custodian, on
ninety (90) days notice, given in writing and sent by registered mail to:
Firstar Mutual Fund Services, LLC
615 East Michigan Street
Milwaukee, WI 53202
or to the Company at:
Zacks Series Trust
155 North Wacker Drive
Chicago, IL 60606
as the case may be. Upon any termination of this Agreement, pending appointment
of a successor to Custodian or a vote of the shareholders of the Fund to
dissolve or to function without a custodian of its cash, securities and other
property, Custodian shall not deliver cash, securities or other property of the
Fund to the Trust, but may deliver them to a bank or trust company of its own
selection that meets the requirements of the 1940 Act as a Custodian for the
Trust to be held under terms similar to those of this Agreement, provided,
however, that Custodian shall not be required to make any such delivery or
payment until full payment shall have been made by the Trust of all liabilities
constituting a charge on or against the properties then held by Custodian or on
or against Custodian, and until full payment shall have been made to Custodian
of all its fees, compensation, costs and expenses, subject to the provisions of
Section 10 of this Agreement.
This Agreement may not be assigned by Custodian without the consent of
the Trust, authorized or approved by a resolution of its Board of Trustees.
14. DEPOSITS OF SECURITIES IN SECURITIES DEPOSITORIES
No provision of this Agreement shall be deemed to prevent the use by
Custodian of a central securities clearing agency or securities depository,
provided, however, that Custodian and the central securities clearing agency or
securities depository meet all applicable federal and state laws and
regulations, and the Board of Trustees of the Trust approves by resolution the
use of such central securities clearing agency or securities depository.
15. RECORDS
Custodian shall keep records relating to its services to be performed
hereunder, in the form and manner, and for such period, as it may deem advisable
and is agreeable to the Trust but not inconsistent with the rules and
regulations of appropriate government authorities, in particular Section 31 of
the 1940 Act and the rules thereunder. Custodian agrees that all such records
prepared or maintained by the Custodian relating to the services performed by
Custodian
<PAGE>
PAGE 8
hereunder are the property of the Trust and will be preserved, maintained, and
made available in accordance with such section and rules of the 1940 Act and
will be promptly surrendered to the Trust on and in accordance with its request.
16. GOVERNING LAW
This Agreement shall be governed by Wisconsin law. However, nothing
herein shall be construed in a manner inconsistent with the 1940 Act or any rule
or regulation promulgated by the Securities and Exchange Commission thereunder.
17. PROPRIETARY AND CONFIDENTIAL INFORMATION
The Custodian agrees on behalf of itself and its directors, officers, and
employees to treat confidentially and as proprietary information of the Trust
all records and other information relative to the Trust and prior, present, or
potential shareholders of the Trust (and clients of said shareholders), and not
to use such records and information for any purpose other than the performance
of its responsibilities and duties hereunder, except after prior notification to
and approval in writing by the Trust, which approval shall not be unreasonably
withheld and may not be withheld where the Custodian may be exposed to civil or
criminal contempt proceedings for failure to comply, when requested to divulge
such information by duly constituted authorities, or when so requested by the
Trust.
18. NO AGENCY RELATIONSHIP
Nothing herein contained shall be deemed to authorize or empower Custodian to
act as agent for the other party to this Agreement, or to conduct business in
the name of, or for the account of the other party to this Agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed by a duly authorized officer or one or more counterparts as of the
day and year first written above.
ZACKS MUTUAL FUNDS FIRSTAR BANK MILWAUKEE, N.A.
By:______________________________ By: _________________________________
Attest: __________________________ Attest:______________________________
<PAGE>
PAGE 9
CUSTODY SERVICES
ANNUAL FEE SCHEDULE - DOMESTIC FUNDS
EXHIBIT A
Separate Series of Zacks Mutual Funds
NAME OF SERIES DATE ADDED
Zacks Market Neutral Fund
Zacks Index Plus Fund
Annual fee based upon market value
2 basis points per year
Minimum annual fee per fund - $3,000
Investment transactions (purchase, sale, exchange, tender, redemption, maturity,
receipt, delivery):
$12.00 per book entry security (depository or Federal Reserve system)
$25.00 per definitive security (physical)
$25.00 per mutual fund trade
$75.00 per Euroclear
$ 8.00 per principal reduction on pass-through certificates
$ 6.00 per short sale/liability transaction
$35.00 per option/futures contract
$15.00 per variation margin
$15.00 per Fed wire deposit or withdrawal
Variable Amount Demand Notes: Used as a short-term investment, variable amount
notes offer safety and prevailing high interest rates. Our charge, which is 1/4
of 1%, is deducted from the variable amount note income at the time it is
credited to your account.
Plus out-of-pocket expenses, and extraordinary expenses based upon complexity
Fees and out-of-pocket expenses are billed to the fund monthly, based upon
market value at the beginning of the month
<PAGE>
PAGE 1
TRANSFER AGENT SERVICING AGREEMENT
THIS AGREEMENT is made and entered into as of this ___ day of ______, 1999,
by and between Zacks Series Trust, a Delaware business trust (hereinafter
referred to as the "Trust") and Firstar Mutual Fund Services, LLC, a corporation
organized under the laws of the State of Wisconsin (hereinafter referred to as
the "FMFS").
WHEREAS, the Trust is an open-end management investment company which is
registered under the Investment Company Act of 1940, as amended (the "1940
Act");
WHEREAS, the Trust is authorized to create separate series, each with its
own separate investment portfolio;
WHEREAS, FMFS is a limited liability corporation and, among other things,
is in the business of administering transfer and dividend disbursing agent
functions for the benefit of its customers; and
WHEREAS, the Trust desires to retain FMFS to provide transfer and dividend
disbursing agent services to each series of the Trust listed on Exhibit A
attached hereto, (each hereinafter referred to as a "Fund"), as may be amended
from time to time.
NOW, THEREFORE, in consideration of the mutual agreements herein made, the
Trust and FMFS agree as follows:
1. APPOINTMENT OF TRANSFER AGENT
The Trust hereby appoints FMFS as Transfer Agent of the Trust on the terms
and conditions set forth in this Agreement, and FMFS hereby accepts such
appointment and agrees to perform the services and duties set forth in this
Agreement in consideration of the compensation provided for herein.
2. DUTIES AND RESPONSIBILITIES OF FMFS
FMFS shall perform all of the customary services of a transfer agent and
dividend disbursing agent, and as relevant, agent in connection with
accumulation, open account or similar plans (including without limitation any
periodic investment plan or periodic withdrawal program), including but not
limited to:
A. Receive orders for the purchase of shares;
B, Process purchase orders with prompt delivery, where appropriate, of
payment and supporting documentation to the Trust's custodian, and
issue the appropriate number
<PAGE>
PAGE 2
of uncertificated shares with such uncertificated shares being held in
the appropriate shareholder account;
C. Arrange for issuance of shares obtained through transfers of funds
from shareholders' accounts at financial institutions and arrange for
the exchange of shares for shares of other eligible investment
companies, when permitted by Prospectus.
D. Process redemption requests received in good order and, where
relevant, deliver appropriate documentation to the Trust's custodian;
E. Pay monies upon receipt from the Trust's custodian, where relevant, in
accordance with the instructions of redeeming shareholders;
F. Process transfers of shares in accordance with the shareholder's
instructions;
G. Process exchanges between funds and/or classes of shares of funds both
within the same family of funds and with the Firstar Money Market
Fund, if applicable;
H. Prepare and transmit payments for dividends and distributions declared
by the Trust with respect to the Fund, after deducting any amount
required to be withheld by any applicable laws, rules and regulations
and in accordance with shareholder instructions;
I. Make changes to shareholder records, including, but not limited to,
address changes in plans (i.e., systematic withdrawal, automatic
investment, dividend reinvestment, etc.);
J. Record the issuance of shares of the Fund and maintain, pursuant to
Rule 17ad-10(e) promulgated under the Securities Exchange Act of 1934,
as amended (the "Exchange Act"), a record of the total number of
shares of the Fund which are authorized, issued and outstanding;
K. Prepare shareholder meeting lists and, if applicable, mail, receive
and tabulate proxies;
L. Mail shareholder reports and prospectuses to current shareholders;
M. Prepare and file U.S. Treasury Department Forms 1099 and other
appropriate information returns required with respect to dividends and
distributions for all shareholders;
N. Provide shareholder account information upon request and prepare and
mail confirmations and statements of account to shareholders for all
purchases, redemptions and other confirmable transactions as agreed
upon with the Trust;
<PAGE>
PAGE 3
O. Mail requests for shareholders' certifications under penalties of
perjury and pay on a timely basis to the appropriate Federal
authorities any taxes to be withheld on dividends and distributions
paid by the Trust, all as required by applicable Federal tax laws and
regulations;
P. Provide a Blue Sky System which will enable the Trust to monitor the
total number of shares of the Fund sold in each state. In addition,
the Trust or its agent, including FMFS, shall identify to FMFS in
writing those transactions and assets to be treated as exempt from the
Blue Sky reporting for each state. The responsibility of FMFS for the
Company's Blue Sky state registration status is solely limited to the
initial compliance by the Trust and the reporting of such transactions
to the Trust or its agent;
Q. Answer correspondence from shareholders, securities brokers and others
relating to FMFS's duties hereunder and such other correspondence as
may from time to time be mutually agreed upon between FMFS and the
Trust.
3. COMPENSATION
The Trust agrees to pay FMFS for the performance of the duties listed in
this agreement as set forth on Exhibit A attached hereto; the fees and
out-of-pocket expenses include, but are not limited to the following: printing,
postage, forms, stationery, record retention (if requested by the Trust),
mailing, insertion, programming (if requested by the Trust), labels, shareholder
lists and proxy expenses.
These fees and reimbursable expenses may be changed from time to time
subject to mutual written agreement between the Trust and FMFS.
The Trust agrees to pay all fees and reimbursable expenses within ten (10)
business days following the receipt of the billing notice.
Notwithstanding anything to the contrary, amounts owed by the Trust to FMFS
shall only be paid out of assets and property of the particular Fund involved.
4. REPRESENTATIONS OF FMFS
FMFS represents and warrants to the Trust that:
A. It is a limited liability corporation duly organized, existing and in
good standing under the laws of Wisconsin;
B. It is a registered transfer agent under the Exchange Act.
C. It is duly qualified to carry on its business in the State of
Wisconsin;
<PAGE>
PAGE 4
D. It is empowered under applicable laws and by its charter and bylaws to
enter into and perform this Agreement;
E. All requisite corporate proceedings have been taken to authorize it to
enter and perform this Agreement;
F. It has and will continue to have access to the necessary facilities,
equipment and personnel to perform its duties and obligations under
this Agreement; and
G. It will comply with all applicable requirements of the Securities Act
of 1933, as amended, and the Exchange Act, the 1940 Act, and any laws,
rules, and regulations of governmental authorities having
jurisdiction.
5. REPRESENTATIONS OF THE TRUST
The Trust represents and warrants to FMFS that:
A. The Trust is an open-ended non diversified investment company under
the 1940 Act;
B. The Trust is a business trust organized, existing, and in good
standing under the laws of Massachusetts;
C. The Trust is empowered under applicable laws and by its Declaration of
Trust and Bylaws to enter into and perform this Agreement;
D. All necessary proceedings required by the Declaration of Trust have
been taken to authorize it to enter into and perform this Agreement;
E. The Trust will comply with all applicable requirements of the
Securities Act, the Exchange Act, the 1940 Act, and any laws, rules
and regulations of governmental authorities having jurisdiction; and
F. A registration statement under the Securities Act will be made
effective and will remain effective, and appropriate state securities
law filings have been made and will continue to be made, with respect
to all shares of the Trust being offered for sale.
6. COVENANTS OF THE TRUST AND FMFS
The Trust shall furnish the FMFS a certified copy of the resolution of the
Board of Trustees of the Fund authorizing the appointment of FMFS and the
execution of this Agreement. The Trust shall provide to the FMFS a copy of its
Declaration of Trust and Bylaws, and all amendments thereto.
<PAGE>
PAGE 5
FMFS shall keep records relating to the services to be performed hereunder,
in the form and manner as it may deem advisable. To the extent required by
Section 31 of the 1940 Act, and the rules thereunder, FMFS agrees that all such
records prepared or maintained by FMFS relating to the services to be performed
by FMFS hereunder are the property of the Trust and will be preserved,
maintained and made available in accordance with such section and rules and will
be surrendered to the Trust on and in accordance with its request.
7. PERFORMANCE OF SERVICE; LIMITATION OF LIABILITY
FMFS shall exercise reasonable care in the performance of its duties under
this Agreement. FMFS shall not be liable for any error of judgment or mistake
of law or for any loss suffered by the Trust in connection with matters to which
this Agreement relates, including losses resulting from mechanical breakdowns or
the failure of communication or power supplies beyond FMFS's control, except a
loss arising out of or relating to the Agent's refusal or failure to comply with
the terms of this Agreement or from bad faith, negligence, or willful misconduct
on its part in the performance of its duties under this Agreement.
Notwithstanding any other provision of this Agreement, if FMFS has exercised
reasonable care in the performance of its duties under this Agreement, the Trust
shall indemnify and hold harmless FMFS from and against any and all claims,
demands, losses, expenses, and liabilities (whether with or without basis in
fact or law) of any and every nature (including reasonable attorneys' fees)
which FMFS may sustain or incur or which may be asserted against FMFS by any
person arising out of any action taken or omitted to be taken by it in
performing the services hereunder, except for any and all claims, demands,
losses expenses, and liabilities arising out of or relating to FMFS's refusal or
failure to comply with the terms of this Agreement or from bad faith, negligence
or from willful misconduct on its part in performance of its duties under this
Agreement, (i) in accordance with the foregoing standards, or (ii) in reliance
upon any written or oral instruction provided to FMFS by any duly authorized
officer of the Trust, such duly authorized officer to be included in a list of
authorized officers furnished to FMFS and as amended from time to time in
writing by resolution of the Board of Trustees of the Trust.
FMFS shall indemnify and hold the Trust harmless from and against any and
all claims, demands, losses, expenses, and liabilities (whether with or without
basis in fact or law) of any and every nature (including reasonable attorneys'
fees) which the Trust may sustain or incur or which may be asserted against the
Trust by any person arising out of any action taken or omitted to be taken by
FMFS as a result of FMFS's refusal or failure to comply with the terms of this
Agreement, its bad faith, negligence, or willful misconduct.
In the event of a mechanical breakdown or failure of communication or power
supplies beyond its control, FMFS shall take all reasonable steps to minimize
service interruptions for any period that such interruption continues beyond
FMFS's control. FMFS will make every reasonable effort to restore any lost or
damaged data and correct any errors resulting from such a breakdown at the
expense of FMFS. FMFS agrees that it shall, at all times, have reasonable
contingency plans with appropriate parties, making reasonable provision for
emergency use of electrical data processing equipment to the extent appropriate
equipment is available.
<PAGE>
PAGE 6
Representatives of the Trust shall be entitled to inspect FMFS's premises and
operating capabilities at any time during regular business hours of FMFS, upon
reasonable notice to FMFS.
Regardless of the above, FMFS reserves the right to reprocess and correct
administrative errors at its own expense.
In order that the indemnification provisions contained in this section
shall apply, it is understood that if in any case the indemnitor may be asked to
indemnify or hold the indemnitee harmless, the indemnitor shall be fully and
promptly advised of all pertinent facts concerning the situation in question,
and it is further understood that the indemnitee will use all reasonable care to
notify the indemnitor promptly concerning any situation which presents or
appears likely to present the probability of a claim for indemnification. The
indemnitor shall have the option to defend the indemnitee against any claim
which may be the subject of this indemnification. In the event that the
indemnitor so elects, it will so notify the indemnitee and thereupon the
indemnitor shall take over complete defense of the claim, and the indemnitee
shall in such situation initiate no further legal or other expenses for which it
shall seek indemnification under this section. The indemnitee shall in no case
confess any claim or make any compromise in any case in which the indemnitor
will be asked to indemnify the indemnitee except with the indemnitor's prior
written consent.
FMFS is hereby expressly put on notice of the limitation of shareholder
liability as set forth in the Trust Instrument of the Trust and agrees that
obligations assumed by the Trust pursuant to this Agreement shall be limited in
all cases to the Trust and its assets, and if the liability relates to one or
more series, the obligations hereunder shall be limited to the respective assets
of such series. FMFS further agrees that it shall not seek satisfaction of any
such obligation from the shareholder or any individual shareholder of a series
of the Trust, nor from the Trustees or any individual Trustee of the Trust.
8. PROPRIETARY AND CONFIDENTIAL INFORMATION
FMFS agrees on behalf of itself and its directors, officers, and employees
to treat confidentially and as proprietary information of the Trust all records
and other information relative to the Trust and prior, present, or potential
shareholders (and clients of said shareholders) and not to use such records and
information for any purpose other than the performance of its responsibilities
and duties hereunder, except after prior notification to and approval in writing
by the Trust, which approval shall not be unreasonably withheld and may not be
withheld where FMFS may be exposed to civil or criminal contempt proceedings for
failure to comply after being requested to divulge such information by duly
constituted authorities, or when so requested by the Trust.
<PAGE>
PAGE 7
9. TERM OF AGREEMENT
This Agreement shall become effective as of the date hereof and will
continue in effect for a period of three years. During the initial three year
term of this Agreement, if the Trust terminates this Agreement for any Fund for
a reason other than cause, the Trust agrees to compensate FMFS an amount equal
to one half (1/2) of the year 2 annual fee for the period serviced by FMFS for
each Fund for which services are terminated. The Trust may terminate this
Agreement at any time for cause without penalty. Subsequent to the initial
three year term, this Agreement shall continue and remain in effect from year to
year and may be terminated by either party upon giving ninety (90) days prior
written notice to the other party or such shorter period as is mutually agreed
upon by the parties. However, this Agreement may be amended by mutual written
consent of the parties.
10. NOTICES
Notices of any kind to be given by either party to the other party shall be
in writing and shall be duly given if mailed or delivered as follows: Notice to
FMFS shall be sent to:
Firstar Mutual Fund Services, LLC
615 East Michigan Street
Milwaukee, WI 53202
and notice to the Trust shall be sent to:
Zacks Series Trust
115 North Wacker Drive
Chicago, IL 60606
11. DUTIES IN THE EVENT OF TERMINATION
In the event that, in connection with termination, a successor to any of
FMFS's duties or responsibilities hereunder is designated by the Trust by
written notice to FMFS, FMFS will promptly, upon such termination and at the
expense of the Trust, transfer to such successor all relevant books, records,
correspondence, and other data established or maintained by FMFS under this
Agreement in a form reasonably acceptable to the Trust (if such form differs
from the form in which FMFS has maintained, the Trust shall pay any expenses
associated with transferring the data to such form), and will cooperate in the
transfer of such duties and responsibilities, including provision for assistance
from FMFS's personnel in the establishment of books, records, and other data by
such successor.
<PAGE>
PAGE 8
12. GOVERNING LAW
This Agreement shall be construed and the provisions thereof interpreted
under and in accordance with the laws of the State of Wisconsin. However,
nothing herein shall be construed in a manner inconsistent with the 1940 Act or
any rule or regulation promulgated by the Securities and Exchange Commission
thereunder.
13. STOCK CERTIFICATES
If at any time the Trust issues stock certificates, the following
provisions will apply:
(i) In the case of the loss or destruction of any certificate
representing Shares, no new certificate shall be issued in lieu
thereof, unless there shall first have been furnished an
appropriate bond of indemnity issued by the surety company approved
by FMFS.
(ii) Upon receipt of signed stock certificates, which shall be in proper
form for transfer, and upon cancellation or destruction thereof,
FMFS shall countersign, register and issue new certificates for the
same number of Shares and shall deliver them pursuant to
instructions received from the transferor, the rules and
regulations of the SEC, and the laws of the state of Massachusetts
relating to the transfer of shares of beneficial interest.
(iii) Upon receipt of the stock certificates, which shall be in proper
form for transfer, together with the shareholder's instructions to
hold such stock certificates for safekeeping, FMFS shall reduce
such Shares to uncertificated status, while retaining the
appropriate registration in the name of the shareholder upon the
transfer books.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by a duly authorized officer or one or more counterparts as of the day
and year first written above.
ZACKS SERIES TRUST FIRSTAR MUTUAL FUND SERVICES, LLC
By:________________________________ By: _________________________________
Attest: __________________________ Attest:______________________________
<PAGE>
PAGE 9
TRANSFER AGENT AND SHAREHOLDER SERVICING
ANNUAL FEE SCHEDULE
EXHIBIT A
Separate Series of Zacks Mutual Funds
NAME OF SERIES Date Added
Zacks Market Neutral Fund
Zacks Index Plus Fund
Annual Fee
$14.00 per shareholder account - no-load fund
$16.00 per shareholder account - load fund
Minimum Annual Fee (2 funds combined):
Year 1* - $24,000
Year 2+ - $40,000
If shareholder base exceeds 200 shareholders in a fund, the minimum
annual fee increases to $20,000 for the fund.
Extraordinary services quoted separately.
Plus Out-of-Pocket Expenses, including but not limited to:
Telephone - toll free lines Retention of records
Postage Microfilm/fiche of records
Programming Special reports
Stationery/envelopes ACH fees
Insurance NSCC charges
Proxies All other out-of-pocket
expenses
ACH Shareholder Services
$125.00 per month per fund group
$ .50 per account setup and/or change
$ .50 per ACH item
$5.00 per correction, reversal, return item
File Transfer - $160/month and $.01/record
Qualified Plan Fees (Billed to Investors) *
Annual maintenance fee per account $ 12.50 / acct. (Cap at $25.00
per SSN)
Education IRA $ 5.00 / acct. (Cap at $25.00
/ per SSN)
Transfer to successor trustee $ 15.00 / trans.
Distribution to participant $ 15.00 / trans. (Exclusive of
SWP)
Refund of excess contribution $ 15.00 / trans.
Select requests $200.00 / trans
Additional Shareholder Fees (Billed to
Investors)
Any outgoing wire transfer $12.00 / wire
Return check fee $20.00 / item
Stop payment $20.00 / stop
(Liquidation, dividend, draft
check)
Research fee $ 5.00 / item
(For requested items of the second calendar year [or previous] to
the request)(Cap at $25.00)
Fees and out-of-pocket expenses are billed to Zacks monthly.
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PAGE 10
NSCC Out-of-Pocket Charges
Set Up Fund/SERV, Networking, ACATS $5,000 one-time
Commission Settlement $5,000 one-time
Processing
Fund/SERV $ 50 / month
Networking $ 250 / month
CPU Access $ 40 / month
FundServ Transactions $ .35 / trade
Networking - per item $.025 / month dividend fund
Networking - per item $.015 / non-mo. dividend fund
First Data $ .10 / next-day FundServ
trade
First Data $ .15 / same-day FundServ
trade
NSCC Implementation
8 to 10 weeks lead time
<PAGE>
PAGE 1
FUND ACCOUNTING SERVICING AGREEMENT
THIS AGREEMENT is made and entered into as of this ___ day of _____, 1999,
by and between Zacks Series Trust, a Delaware business trust (hereinafter
referred to as the "Trust") and Firstar Mutual Fund Services, LLC, a corporation
organized under the laws of the State of Wisconsin (hereinafter referred to as
"FMFS").
WHEREAS, the Trust is an open-end management investment company registered
under the Investment Company Act of 1940, as amended (the "1940 Act");
WHEREAS, the Trust is authorized to create separate series, each with its
own separate investment portfolio;
WHEREAS, FMFS is a limited liability corporation and, among other things,
is in the business of providing mutual fund accounting services to investment
companies; and
WHEREAS, the Trust desires to retain FMFS to provide accounting services to
each series of the Trust listed on Exhibit A attached hereto, (each hereinafter
referred to as a "Fund"), as it may be amended from time to time.
NOW, THEREFORE, in consideration of the mutual agreements herein made, the
Trust and FMFS agree as follows:
1. APPOINTMENT OF FUND ACCOUNTANT
The Trust hereby appoints FMFS as Fund Accountant of the Trust on the terms
and conditions set forth in this Agreement, and FMFS hereby accepts such
appointment and agrees to perform the services and duties set forth in this
Agreement in consideration of the compensation provided for herein.
2. DUTIES AND RESPONSIBILITIES OF FMFS
A. Portfolio Accounting Services:
(1) Maintain portfolio records on a trade date+1 basis using
security trade information communicated from the investment manager.
(2) For each valuation date, obtain prices from a pricing source
approved by the Board of Trustees of the Trust and apply those prices
to the portfolio positions. For those securities where market
quotations are not readily available, the Board of Trustees of the
Trust shall approve, in good faith, the method for determining the
fair value for such securities.
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PAGE 2
(3) Identify interest and dividend accrual balances as of each
valuation date and calculate gross earnings on investments for the
accounting period.
(4) Determine gain/loss on security sales and identify them as,
short-term or long-term; account for periodic distributions of gains
or losses to shareholders and maintain undistributed gain or loss
balances as of each valuation date.
B. Expense Accrual and Payment Services:
(1) For each valuation date, calculate the expense accrual
amounts as directed by the Trust as to methodology, rate or dollar
amount.
(2) Record payments for Fund expenses upon receipt of written
authorization from the Trust.
(3) Account for Fund expenditures and maintain expense accrual
balances at the level of accounting detail, as agreed upon by FMFS and
the Trust.
(4) Provide expense accrual and payment reporting.
C. Fund Valuation and Financial Reporting Services:
(1) Account for Fund share purchases, sales, exchanges,
transfers, dividend reinvestments, and other Fund share activity as
reported by the transfer agent on a timely basis.
(2) Apply equalization accounting as directed by the Trust.
(3) Determine net investment income (earnings) for the Fund as
of each valuation date. Account for periodic distributions of
earnings to shareholders and maintain undistributed net investment
income balances as of each valuation date.
(4) Maintain a general ledger and other accounts, books, and
financial records for the Fund in the form as agreed upon.
(5) Determine the net asset value of the Fund according to the
accounting policies and procedures set forth in the Fund's Prospectus.
(6) Calculate per share net asset value, per share net earnings,
and other per share amounts reflective of Fund operations at such time
as required by the nature and characteristics of the Fund.
(7) Communicate, at an agreed upon time, the per share price for
each valuation date to parties as agreed upon from time to time.
<PAGE>
PAGE 3
(8) Prepare monthly reports which document the adequacy of
accounting detail to support month-end ledger balances.
D. Tax Accounting Services:
(1) Maintain accounting records for the investment portfolio of
the Fund to support the tax reporting required for IRS-defined
regulated investment companies.
(2) Maintain tax lot detail for the investment portfolio.
(3) Calculate taxable gain/loss on security sales using the tax
lot relief method designated by the Trust.
(4) Provide the necessary financial information to support the
taxable components of income and capital gains distributions to the
transfer agent to support tax reporting to the shareholders.
E. Compliance Control Services:
(1) Support reporting to regulatory bodies and support financial
statement preparation by making the Fund's accounting records
available to the Trust, the Securities and Exchange Commission, and
the outside auditors.
(2) Maintain accounting records according to the 1940 Act and
regulations provided thereunder
F. FMFS will perform the following accounting functions on a daily
basis:
(1) Reconcile cash and investment balances of each Portfolio
with the Custodian, and provide the Advisor with the beginning cash
balance available for investment purposes;
(2) Update the cash availability throughout the day as required
by the Advisor;
(3) Transmit or mail a copy of the portfolio valuation to the
Advisor;
(4) Review the impact of current day's activity on a per share
basis, review changes in market value of securities, and review yields
for reasonableness.
G. In addition, FMFS will:
(1) Prepare monthly security transactions listings;
<PAGE>
PAGE 4
(2) Supply various Trust, Portfolio and class statistical data
as requested on an ongoing basis.
3. PRICING OF SECURITIES
For each valuation date, obtain prices from a pricing source selected by FMFS
but approved by the Board of Trustees and apply those prices to the portfolio
positions of the Fund. For those securities where market quotations are not
readily available, the Company's Board of Trustees shall approve, in good faith,
the method for determining the fair value for such securities.
If the Trust desires to provide a price which varies from the pricing source,
the Trust shall promptly notify and supply FMFS with the valuation of any such
security on each valuation date. All pricing changes made by the Trust will be
in writing and must specifically identify the securities to be changed by CUSIP,
name of security, new price or rate to be applied, and, if applicable, the time
period for which the new price(s) is/are effective.
4. CHANGES IN ACCOUNTING PROCEDURES
Any resolution passed by the Board of Trustees of the Trust that affects
accounting practices and procedures under this Agreement shall be effective upon
written receipt and acceptance by the FMFS.
5. CHANGES IN EQUIPMENT, SYSTEMS, SERVICE, ETC.
FMFS reserves the right to make changes from time to time, as it deems
advisable, relating to its services, systems, programs, rules, operating
schedules and equipment, so long as such changes do not adversely affect the
service provided to the Trust under this Agreement.
6. COMPENSATION
FMFS shall be compensated for providing the services set forth in this Agreement
in accordance with the Fee Schedule attached hereto as Exhibit A and as mutually
agreed upon and amended from time to time. The Trust agrees to pay all fees and
reimbursable expenses within ten (10) business days following the receipt of the
billing notice. Notwithstanding anything to the contrary, amounts owed by the
Trust to FMFS shall only be paid out of the assets and property of the
particular Fund involved.
7. PERFORMANCE OF SERVICE; LIMITATION OF LIABILITY
A. FMFS shall exercise reasonable care in the performance of its
duties under this Agreement. FMFS shall not be liable for any error of
judgment or mistake of law or for any loss suffered by the Trust in
connection with matters to which this Agreement relates, including losses
resulting from mechanical breakdowns or the failure of communication or
power supplies beyond FMFS's control, except a loss arising out of or
relating to FMFS's refusal or failure to comply with the terms of this
Agreement or from
<PAGE>
PAGE 5
bad faith, negligence, or willful misconduct on its part in the performance
of its duties under this Agreement. Notwithstanding any other provision of
this Agreement, if FMFS has exercised reasonable care in the performance of
its duties under this Agreement, the Trust shall indemnify and hold
harmless FMFS from and against any and all claims, demands, losses,
expenses, and liabilities (whether with or without basis in fact or law) of
any and every nature (including reasonable attorneys' fees) which FMFS may
sustain or incur or which may be asserted against FMFS by any person
arising out of any action taken or omitted to be taken by it in performing
the services hereunder, except for any and all claims, demands, losses,
expenses, and liabilities arising out of or relating to FMFS's refusal or
failure to comply with the terms of this Agreement or from bad faith,
negligence or from willful misconduct on its part in performance of its
duties under this Agreement, (i) in accordance with the foregoing
standards, or (ii) in reliance upon any written or oral instruction
provided to FMFS by any duly authorized officer of the Trust, such duly
authorized officer to be included in a list of authorized officers
furnished to FMFS and as amended from time to time in writing by resolution
of the Board of Trustees of the Trust.
FMFS shall indemnify and hold the Trust harmless from and against any
and all claims, demands, losses, expenses, and liabilities (whether with or
without basis in fact or law) of any and every nature (including reasonable
attorneys' fees) which the Trust may sustain or incur or which may be
asserted against the Trust by any person arising out of any action taken or
omitted to be taken by FMFS as a result of FMFS's refusal or failure to
comply with the terms of this Agreement, its bad faith, negligence, or
willful misconduct.
In the event of a mechanical breakdown or failure of communication or
power supplies beyond its control, FMFS shall take all reasonable steps to
minimize service interruptions for any period that such interruption
continues beyond FMFS's control. FMFS will make every reasonable effort to
restore any lost or damaged data and correct any errors resulting from such
a breakdown at the expense of FMFS. FMFS agrees that it shall, at all
times, have reasonable contingency plans with appropriate parties, making
reasonable provision for emergency use of electrical data processing
equipment to the extent appropriate equipment is available.
Representatives of the Trust shall be entitled to inspect FMFS's premises
and operating capabilities at any time during regular business hours of
FMFS, upon reasonable notice to FMFS.
Regardless of the above, FMFS reserves the right to reprocess and
correct administrative errors at its own expense.
B. In order that the indemnification provisions contained in this
section shall apply, it is understood that if in any case the indemnitor
may be asked to indemnify or hold the indemnitee harmless, the indemnitor
shall be fully and promptly advised of all pertinent facts concerning the
situation in question, and it is further understood that the indemnitee
will use all reasonable care to notify the indemnitor promptly concerning
any situation which presents or appears likely to present the probability
of a claim for
<PAGE>
PAGE 6
indemnification. The indemnitor shall have the option to defend the
indemnitee against any claim which may be the subject of this
indemnification. In the event that the indemnitor so elects, it will so
notify the indemnitee and thereupon the indemnitor shall take over complete
defense of the claim, and the indemnitee shall in such situation initiate
no further legal or other expenses for which it shall seek indemnification
under this section. Indemnitee shall in no case confess any claim or make
any compromise in any case in which the indemnitor will be asked to
indemnify the indemnitee except with the indemnitor's prior written
consent.
C. FMFS is hereby expressly put on notice of the limitation of
shareholder liability as set forth in the Trust Instrument of the Trust and
agrees that obligations assumed by the Trust pursuant to this Agreement
shall be limited in all cases to the Trust and its assets, and if the
liability relates to one or more series, the obligations hereunder shall be
limited to the respective assets of such series. FMFS further agrees that
it shall not seek satisfaction of any such obligation from the shareholder
or any individual shareholder of a series of the Trust, nor from the
Trustees or any individual Trustee of the Trust.
8. NO AGENCY RELATIONSHIP
Nothing herein contained shall be deemed to authorize or empower FMFS to act as
agent for the other party to this Agreement, or to conduct business in the name
of, or for the account of the other party to this Agreement.
9. RECORDS
FMFS shall keep records relating to the services to be performed hereunder, in
the form and manner, and for such period as it may deem advisable and is
agreeable to the Trust but not inconsistent with the rules and regulations of
appropriate government authorities, in particular, Section 31 of the 1940 Act,
and the rules thereunder. FMFS agrees that all such records prepared or
maintained by FMFS relating to the services to be performed by FMFS hereunder
are the property of the Trust and will be preserved, maintained, and made
available in accordance with such section and rules of the 1940 Act and will be
promptly surrendered to the Trust on and in accordance with its request.
10. DATA NECESSARY TO PERFORM SERVICES
The Trust or its agent, which may be FMFS, shall furnish to FMFS the data
necessary to perform the services described herein at such times and in such
form as mutually agreed upon. If FMFS is also acting in another capacity for
the Trust, nothing herein shall be deemed to relieve FMFS of any of its
obligations in such capacity.
<PAGE>
PAGE 7
11. NOTIFICATION OF ERROR
The Trust will notify FMFS of any balancing or control error caused by FMFS the
later of: within three (3) business days after receipt of any reports rendered
by FMFS to the Trust; within three (3) business days after discovery of any
error or omission not covered in the balancing or control procedure, or within
three (3) business days of receiving notice from any shareholder.
12. PROPRIETARY AND CONFIDENTIAL INFORMATION
FMFS agrees on behalf of itself and its directors, officers, and employees to
treat confidentially and as proprietary information of the Trust all records and
other information relative to the Trust and prior, present, or potential
shareholders of the Trust (and clients of said shareholders), and not to use
such records and information for any purpose other than the performance of its
responsibilities and duties hereunder, except after prior notification to and
approval in writing by the Trust, which approval shall not be unreasonably
withheld and may not be withheld where FMFS may be exposed to civil or criminal
contempt proceedings for failure to comply, when requested to divulge such
information by duly constituted authorities, or when so requested by the Trust.
13. TERM OF AGREEMENT
This Agreement shall become effective as of the date hereof and will continue in
effect for a period of three years. During the initial three year term of this
Agreement, if the Trust terminates this Agreement for any Fund for a reason
other than cause, the Trust agrees to compensate FMFS an amount equal to one
half (1/2) of the year 2 annual fee for the period serviced by FMFS for each
Fund for which services are terminated. The Trust may terminate this Agreement
at any time for cause without penalty. Subsequent to the initial three year
term, this Agreement shall continue and remain in effect from year to year and
may be terminated by either party upon giving ninety (90) days prior written
notice to the other party or such shorter period as is mutually agreed upon by
the parties. However, this Agreement may be amended by mutual written consent
of the parties.
14. NOTICES
Notices of any kind to be given by either party to the other party shall be in
writing and shall be duly given if mailed or delivered as follows: Notice to
FMFS shall be sent to:
<PAGE>
PAGE 8
Firstar Mutual Fund Services, LLC
615 East Michigan Street
Milwaukee, WI 53202
and notice to the Trust shall be sent to:
Zacks Series Trust
155 North Wacker Drive
Chicago, IL 60606
15. DUTIES IN THE EVENT OF TERMINATION
In the event that in connection with termination, a successor to any of FMFS's
duties or responsibilities hereunder is designated by the Trust by written
notice to FMFS, FMFS will promptly, upon such termination and at the expense of
the Trust transfer to such successor all relevant books, records, correspondence
and other data established or maintained by FMFS under this Agreement in a form
reasonably acceptable to the Trust (if such form differs from the form in which
FMFS has maintained the same, the Trust shall pay any expenses associated with
transferring the same to such form), and will cooperate in the transfer of such
duties and responsibilities, including provision for assistance from FMFS's
personnel in the establishment of books, records and other data by such
successor.
16. GOVERNING LAW
This Agreement shall be construed in accordance with the laws of the State of
Wisconsin. However, nothing herein shall be construed in a manner inconsistent
with the 1940 Act or any rule or regulation promulgated by the SEC thereunder.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by a duly authorized officer on one or more counterparts as of the day
and year first written above.
ZACKS MUTUAL FUNDS FIRSTAR MUTUAL FUND SERVICES, LLC
By:________________________________ By: _________________________________
Attest: __________________________ Attest:______________________________
<PAGE>
PAGE 9
FUND ACCOUNTING SERVICES
ANNUAL FEE SCHEDULE
EXHIBIT A
Separate Series of Zacks Mutual Funds
NAME OF SERIES DATE ADDED
Zacks Market Neutral Fund
Zacks Index Plus Fund
Domestic Equity Funds (2 funds combined)
$38,000 for the first $50 million
4 basis point on the next $200 million
2 basis points on the balance
Plus out-of-pocket expenses, including pricing service:
Domestic and Canadian Equities $.15
Options $.15
Corp/Gov/Agency Bonds $.50
CMO's $.80
International Equities and Bonds $.50
Municipal Bonds $.80
Money Market Instruments $.80
Fees and out-of-pocket expenses are billed to the fund monthly
Extraordinary services - quoted separately
Conversion - $15,000
NOTE - All schedules subject to change depending upon the use of derivatives -
options, futures, short sales, etc.
<PAGE>
PAGE 1
FUND ADMINISTRATION SERVICING AGREEMENT
THIS AGREEMENT is made and entered into as of this ___ day of ______, 1999,
by and between Zacks Series Trust, a Delaware business trust (hereinafter
referred to as the "Trust") and Firstar Mutual Fund Services, LLC, a corporation
organized under the laws of the State of Wisconsin (hereinafter referred to as
"FMFS").
WHEREAS, the Company is an open-end management investment company which is
registered under the Investment Company Act of 1940, as amended (the "1940
Act");
WHEREAS, the Trust is authorized to create separate series, each with its
own separate investment portfolio;
WHEREAS, FMFS is a limited liability corporation and, among other things,
is in the business of providing fund administration services for the benefit of
its customers; and
WHEREAS, the Trust desires to retain FMFS to act as Administrator for each
series of the Trust listed on Exhibit A attached hereto, (each hereinafter
referred to as a "Fund"), as may be amended from time to time.
NOW, THEREFORE, in consideration of the mutual agreements herein made, the
Trust and FMFS agree as follows:
1. APPOINTMENT OF ADMINISTRATOR
The Trust hereby appoints FMFS as Administrator of the Trust on the terms
and conditions set forth in this Agreement, and FMFS hereby accepts such
appointment and agrees to perform the services and duties set forth in this
Agreement in consideration of the compensation provided for herein.
2. DUTIES AND RESPONSIBILITIES OF FMFS
A. General Fund Management
1. Act as liaison among all Fund service providers
2. Supply:
a. Corporate secretarial services
b. Office facilities (which may be in FMFS's or its affiliate's
own offices)
c. Non-investment-related statistical and research data as
needed
3. Coordinate board communication by:
<PAGE>
PAGE 2
a. Establish meeting agendas
b. Preparing board reports based on financial and
administrative data
c. Evaluating independent auditor
d. Securing and monitoring fidelity bond and director and
officer liability coverage, and making the necessary SEC
filings relating thereto
e. Preparing minutes of meetings of the board and shareholders
f. Recommend dividend declarations to the Board, prepare and
distribute to appropriate parties notices announcing
declaration of dividends and other distributions to
shareholders
g. Provide personnel to serve as officers of the Trust if so
elected by the Board and attend Board meetings to present
materials for Board review
4. Audits
a. Prepare appropriate schedules and assist independent
auditors
b. Provide information to SEC and facilitate audit process
c. Provide office facilities
5. Assist in overall operations of the Fund
6. Pay Fund expenses upon written authorization from the Trust
7. Monitor arrangements under shareholder services or similar plan
B. Compliance
1. Regulatory Compliance
a. Monitor compliance with 1940 Act requirements, including:
1) Asset diversification tests
2) Total return and SEC yield calculations
3) Maintenance of books and records under Rule 31a-3
4) Code of Ethics for the disinterested trustees of the
Fund
b. Monitor Fund's compliance with the policies and investment
limitations of the Trust as set forth in its Prospectus and
Statement of Additional Information
c. Maintain awareness of applicable regulatory and operational
service issues and recommend dispositions
2. Blue Sky Compliance
a. Prepare and file with the appropriate state securities
authorities any and all required compliance filings relating
to the registration of the securities of
<PAGE>
PAGE 3
the Trust so as to enable the Trust to make a continuous
offering of its shares in all states
b. Monitor status and maintain registrations in each state
c. Provide information regarding material developments in state
securities regulation
3. SEC Registration and Reporting
a. Assist Trust counsel in updating Prospectus and Statement of
Additional Information and in preparing proxy statements and
Rule 24f-2 notices
b. Prepare annual and semiannual reports, Form N-SAR filings
and Rule 24f-2 notices
c. Coordinate the printing, filing and mailing of publicly
disseminated Prospectuses and reports
d. File fidelity bond under Rule 17g-1
e. File shareholder reports under Rule 30b2-1
f. Monitor sales of each Fund's shares and ensure that such
shares are properly registered with the SEC and the
appropriate state authorities
g. File Rule 24f-2 notices
4. IRS Compliance
a. Monitor Company's status as a regulated investment company
under Subchapter M, including without limitation, review of
the following:
1) Asset diversification requirements
2) Qualifying income requirements
3) Distribution requirements
b. Calculate required distributions (including excise tax
distributions)
C. Financial Reporting
1. Provide financial data required by Fund's Prospectus and
Statement of Additional Information;
2. Prepare financial reports for officers, shareholders, tax
authorities, performance reporting companies, the board, the SEC,
and independent auditors;
3. Supervise the Company's Custodian and Trust Accountants in the
maintenance of the Company's general ledger and in the
preparation of the Fund's financial statements, including
oversight of expense accruals and payments, of the determination
of net asset value of the Company's net assets and of the
Company's shares, and of the declaration and payment of dividends
and other distributions to shareholders;
4. Compute the yield, total return and expense ratio of each class
of each Portfolio, and each Portfolio's portfolio turnover rate;
and
<PAGE>
PAGE 4
5. Monitor the expense accruals and notify Trust management of any
proposed adjustments.
6. Prepare monthly financial statements, which will include without
limitation the following items:
Schedule of Investments
Statement of Assets and Liabilities
Statement of Operations
Statement of Changes in Net Assets
Cash Statement
Schedule of Capital Gains and Losses
7. Prepare quarterly broker security transaction summaries.
D. Tax Reporting
1. Prepare and file on a timely basis appropriate federal and state
tax returns including, without limitation, Forms 1120/8610 with
any necessary schedules
2. Prepare state income breakdowns where relevant
3. File Form 1099 Miscellaneous for payments to trustees and other
service providers
4. Monitor wash losses
5. Calculate eligible dividend income for corporate shareholders
3. COMPENSATION
The Trust, on behalf of the Fund, agrees to pay FMFS for the performance of
the duties listed in this Agreement, the fees and out-of-pocket expenses as
set forth in the attached Exhibit A. Notwithstanding anything to the
contrary, amounts owed by the Trust to FMFS shall only be paid out of the
assets and property of the particular Fund involved.
These fees may be changed from time to time, subject to mutual
written Agreement between the Trust and FMFS.
The Trust agrees to pay all fees and reimbursable expenses within ten (10)
business days following the receipt of the billing notice.
4. PERFORMANCE OF SERVICE; LIMITATION OF LIABILITY
A. FMFS shall exercise reasonable care in the performance of its
duties under this Agreement. FMFS shall not be liable for any error of
judgment or mistake of law or for any loss suffered by the Trust in
connection with matters to which this Agreement relates, including losses
resulting from mechanical breakdowns or the failure of communication or
power supplies beyond FMFS's control, except a loss arising out of or
relating to FMFS's refusal or failure to comply with the terms of this
Agreement or from bad faith, negligence, or willful misconduct on its part
in the performance of its duties under this Agreement. Notwithstanding any
other provision of this Agreement, if FMFS has exercised reasonable care in
the performance of its duties under this Agreement, the Trust shall
indemnify and hold harmless FMFS from and against any and all claims,
demands,
<PAGE>
PAGE 5
losses, expenses, and liabilities (whether with or without basis in fact or
law) of any and every nature (including reasonable attorneys' fees) which
FMFS may sustain or incur or which may be asserted against FMFS by any
person arising out of any action taken or omitted to be taken by it in
performing the services hereunder, except for any and all claims, demands,
losses, expenses, and liabilities arising out of or relating to FMFS's
refusal or failure to comply with the terms of this Agreement or from bad
faith, negligence or from willful misconduct on its part in performance of
its duties under this Agreement, (i) in accordance with the foregoing
standards, or (ii) in reliance upon any written or oral instruction
provided to FMFS by any duly authorized officer of the Trust, such duly
authorized officer to be included in a list of authorized officers
furnished to FMFS and as amended from time to time in writing by resolution
of the Board of Trustees of the Trust.
FMFS shall indemnify and hold the Trust harmless from and against
any and all claims, demands, losses, expenses, and liabilities (whether
with or without basis in fact or law) of any and every nature (including
reasonable attorneys' fees) which the Trust may sustain or incur or which
may be asserted against the Trust by any person arising out of any action
taken or omitted to be taken by FMFS as a result of FMFS's refusal or
failure to comply with the terms of this Agreement, its bad faith,
negligence, or willful misconduct.
In the event of a mechanical breakdown or failure of
communication or power supplies beyond its control, FMFS shall take all
reasonable steps to minimize service interruptions for any period that such
interruption continues beyond FMFS's control. FMFS will make every
reasonable effort to restore any lost or damaged data and correct any
errors resulting from such a breakdown at the expense of FMFS. FMFS agrees
that it shall, at all times, have reasonable contingency plans with
appropriate parties, making reasonable provision for emergency use of
electrical data processing equipment to the extent appropriate equipment is
available. Representatives of the Trust shall be entitled to inspect
FMFS's premises and operating capabilities at any time during regular
business hours of FMFS, upon reasonable notice to FMFS.
Regardless of the above, FMFS reserves the right to reprocess and
correct administrative errors at its own expense.
B. In order that the indemnification provisions contained in this
section shall apply, it is understood that if in any case the indemnitor
may be asked to indemnify or hold the indemnitee harmless, the indemnitor
shall be fully and promptly advised of all pertinent facts concerning the
situation in question, and it is further understood that the indemnitee
will use all reasonable care to notify the indemnitor promptly concerning
any situation which presents or appears likely to present the probability
of a claim for indemnification. The indemnitor shall have the option to
defend the indemnitee against any claim which may be the subject of this
indemnification. In the event that the indemnitor so elects, it will so
notify the indemnitee and thereupon the indemnitor shall take over complete
defense of the claim, and the indemnitee shall in such situation initiate
<PAGE>
PAGE 6
no further legal or other expenses for which it shall seek indemnification
under this section. The indemnitee shall in no case confess any claim or
make any compromise in any case in which the indemnitor will be asked to
indemnify the indemnitee except with the indemnitor's prior written
consent.
C. FMFS is hereby expressly put on notice of the limitation of
shareholder liability as set forth in the Trust Instrument of the Trust and
agrees that obligations assumed by the Trust pursuant to this Agreement
shall be limited in all cases to the Trust and its assets, and if the
liability relates to one or more series, the obligations hereunder shall be
limited to the respective assets of such series. FMFS further agrees that
it shall not seek satisfaction of any such obligation from the shareholder
or any individual shareholder of a series of the Trust, nor from the
Trustees or any individual Trustee of the Trust.
5. PROPRIETARY AND CONFIDENTIAL INFORMATION
FMFS agrees on behalf of itself and its directors, officers, and employees
to treat confidentially and as proprietary information of the Trust all
records and other information relative to the Trust and prior, present, or
potential shareholders of the Trust (and clients of said shareholders), and
not to use such records and information for any purpose other than the
performance of its responsibilities and duties hereunder, except after
prior notification to and approval in writing by the Trust, which approval
shall not be unreasonably withheld and may not be withheld where FMFS may
be exposed to civil or criminal contempt proceedings for failure to comply,
when requested to divulge such information by duly constituted authorities,
or when so requested by the Trust.
6. DATA NECESSARY TO PERFORM SERVICES
The Trust or its agent, which may be FMFS, shall furnish to FMFS the data
necessary to perform the services described herein at times and in such
form as mutually agreed upon if FMFS is also acting in another capacity for
the Trust, nothing herein shall be deemed to relieve FMFS of any of its
obligations in such capacity.
7. TERM OF AGREEMENT
This Agreement shall become effective as of the date hereof and will
continue in effect for a period of three years. During the initial three
year term of this Agreement, if the Trust terminates this Agreement for any
Fund for a reason other than cause, the Trust agrees to compensate FMFS an
amount equal to one half (1/2) of the year 2 annual fee for the period
serviced by FMFS for each Fund for which services are terminated. The
Trust may terminate this Agreement at any time for cause without penalty.
Subsequent to the initial three year term, this Agreement shall continue
and remain in effect from year to year and may be terminated by either
party upon giving ninety (90) days prior written notice to the other party
or such shorter period as is mutually agreed upon by the parties. However,
this Agreement may be amended by mutual written consent of the parties.
<PAGE>
PAGE 7
8. NOTICES
Notices of any kind to be given by either party to the other party shall be
in writing and shall be duly given if mailed or delivered as follows:
Notice to FMFS shall be sent to:
Firstar Mutual Fund Services, LLC
615 East Michigan Street
Milwaukee, WI 53202
and notice to the Trust shall be sent to:
Zacks Series Trust
155 North Wacker Drive
Chicago, IL 60606
9. NO AGENCY RELATIONSHIP
Nothing herein contained shall be deemed to authorize or empower FMFS
to act as agent for the other party to this Agreement, or to conduct
business in the name of, or for the account of the other party to this
Agreement.
10. PROPRIETARY AND CONFIDENTIAL INFORMATION
FMFS agrees on behalf of itself and its directors, officers, and
employees to treat confidentially and as proprietary information of
the Trust all records and other information relative to the Trust and
prior, present, or potential shareholders of the Trust (and clients of
said shareholders), and not to use such records and information for
any purpose other than the performance of its responsibilities and
duties hereunder, except after prior notification to and approval in
writing by the Trust, which approval shall not be unreasonably
withheld and may not be withheld where FMFS may be exposed to civil or
criminal contempt proceedings for failure to comply, when requested to
divulge such information by duly constituted authorities, or when so
requested by the Trust.
11. DUTIES IN THE EVENT OF TERMINATION
In the event that, in connection with termination, a successor to any of
FMFS's duties or responsibilities hereunder is designated by the Trust by
written notice to FMFS, FMFS will promptly, upon such termination and at
the expense of the Trust, transfer to such successor all relevant books,
records, correspondence, and other data established or maintained by FMFS
under this Agreement in a form reasonably acceptable to the Trust (if such
form differs from the form in which FMFS has maintained, the Trust shall
pay any expenses associated with transferring the data to such form), and
will cooperate in the transfer of such duties and responsibilities,
including provision for assistance from FMFS's personnel in the
establishment of books, records, and other data by such successor.
<PAGE>
PAGE 8
12. GOVERNING LAW
This Agreement shall be construed and the provisions thereof interpreted
under and in accordance with the laws of the State of Wisconsin. However,
nothing herein shall be construed in a manner inconsistent with the 1940
Act or any rule or regulation promulgated by the Securities and Exchange
Commission thereunder.
13. RECORDS
FMFS shall keep records relating to the services to be performed hereunder,
in the form and manner, and for such period as it may deem advisable and is
agreeable to the Trust but not inconsistent with the rules and regulations
of appropriate government authorities, in particular, Section 31 of the
1940 Act and the rules thereunder. FMFS agrees that all such records
prepared or maintained by FMFS relating to the services to be performed by
FMFS hereunder are the property of the Trust and will be preserved,
maintained, and made available in accordance with such section and rules of
the 1940 Act and will be promptly surrendered to the Trust on and in
accordance with its request.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
by a duly authorized officer or one or more counterparts as of the day and year
first written above.
ZACKS SERIES TRUST FIRSTAR MUTUAL FUND SERVICES, LLC
By:________________________________ By: _________________________________
Attest: __________________________ Attest:______________________________
<PAGE>
PAGE 9
FUND ADMINISTRATION AND COMPLIANCE
ANNUAL FEE SCHEDULE - DOMESTIC FUNDS
EXHIBIT A
Separate Series of Zacks Mutual Funds
NAME OF SERIES DATE ADDED
Zacks Market Neutral Fund
Zacks Index Plus Fund
Annual fee based upon average assets (2 funds combined):
10 basis points on the first $200 million
7 basis points on the next $300 million
5 basis points on the balance
Minimum annual fee: $10,000 per fund - 1st 6 months
$20,000 per fund - 2nd 6 months
$30,000 per fund - after 12 months
Plus out-of-pocket expense reimbursements, including but not limited to:
Postage
Programming
Stationery
Proxies
Retention of records
Special reports
Federal and state regulatory filing fees
Certain insurance premiums
Expenses from board of trustees meetings
Auditing and legal expenses
Fees and out-of-pocket expense reimbursements are billed monthly
<PAGE>
ZACKS MUTUAL FUNDS
MASTER RULE 12b-1 DISTRIBUTION PLAN
THE PLAN:
1. PURPOSE. The Trust shall finance the distribution of its shares
pursuant to Rule 12b-1 under the Investment Company Act of 1940 ("Act")
according to the terms of this Distribution Plan (the "Plan").
2. FEES. Amounts, not exceeding in the aggregate a maximum annual
amount equal to the lesser of (a) .50% of the averages of the daily net asset
values of the Company or (b) the maximum amount provided by an applicable rule
or regulation of the National Association of Securities Dealers, Inc. during
each fiscal quarter of the Trust elapsed after the inception of the Plan may be
paid by the Trust to the Distributor at any time after the inception of the Plan
in order to: (i) reimburse the Distributor for fees paid to its salespersons and
to other firms which offer and sell the Trust's shares and/or provide servicing
and maintenance of shareholder accounts, and (ii) reimburse the Distributor its
other distribution expenses, excluding overhead expense and including expenses
of promotion, sales seminars, wholesaling, advertising, and sales literature.
For this purpose sales literature shall not include reports sent to shareholders
or regulatory bodies which are paid for by the Trust.
To the extent that any investment advisory fees paid by the Trust may
be deemed to be indirectly financing any activity which is primarily intended to
result in the sale of shares of the Trust within the meaning of Rule 12b-1, the
payments of such fees are authorized under this Plan.
3. REQUIRED APPROVALS AND TERM. Subject to paragraph 8, the Plan shall
not take effect until it has been approved by the vote of at least a majority
(as defined in the Act) of the outstanding shares of the Trust. In addition, the
Plan shall not take effect until it has been approved, together with any related
agreements, by votes of the majority of both (i) the Board of Trustees of the
Trust and (ii) those directors of the Trust who are not "interested persons" of
the Trust as defined in the Act and who have no direct or indirect financial
interest in the operation of the Plan or any agreements related to it
("Disinterested Trustees"), cast in person at a meeting called for the purpose
of voting on the Plan or such Agreements. Unless sooner terminated pursuant to
the terms hereof, the Plan shall continue in effect for a period of one year
from its effective date, and thereafter shall continue in effect so long as such
continuance is specifically approved at least annually in the manner provided
for by Rule 12b-1 under the Act.
4. PERIODIC REPORTS. Any person authorized to direct the disposition of
monies paid or payable by the Company pursuant to the Plan or any related
agreement shall provide to the Trust's Board of Trustees, and the Board of
Trustees shall review at least quarterly, a written report of the amounts so
expended and the purposes for which such expenditures were made.
<PAGE>
5. TERMINATION. Subject to paragraph 8, the Plan may be terminated at
any time by a vote of a majority of the Disinterested Trustees, or by vote of a
majority vote of the outstanding shares.
6. RELATED AGREEMENTS. Any agreement related to the Plan shall be in
writing, and shall provide:
(i) That such agreement may be terminated at any time, without payment
of penalty, by vote of a majority of the Disinterested Trustees or by a majority
vote of the shares on not more than 60 days' written notice to any party to the
agreement; and
(ii) That such agreement shall terminate automatically in the event of
its assignment.
7. AMENDMENTS. The Plan may not be amended to increase materially the
amount of distribution expenses provided for in paragraph 2 unless such
amendment is approved in the manner distribution expenses provided for in
paragraph 2 unless such amendment is approved in the manner provided in
paragraph 3, and no material amendment to the Plan shall be made unless approved
by the Board of Trustees and the Disinterested Trustees.
8. SPECIAL PROCEDURES FOR SERIES COMPANY. If the Trust is or becomes a
series company (as defined in Rule 18f-2 under the Act), then the Plan shall not
take effect as to the shares of any series and no amendment may be effected to
increase materially the amount of distribution expenses as to the shares of any
series until it has been approved as to the shares of such series by the Board
of Trustees, the Disinterested Trustees and the shareholders of such series in
the manner provided in paragraph 3; and no material amendment to the Plan in
respect to such shares shall be made unless approved as to such shares by the
Board of Trustees and Disinterested Trustees. The Plan may be terminated as to
any series at any time by vote of a majority of the Disinterested Trustees or by
majority vote of the shareholders of the series.
2
