Zacks Trust proposes converting two mutual funds into ETFs
The advisory fee would fall to 0.44%, but the net figures depend on a waiver through May 1, 2028.
Key takeaways
Zacks Trust has proposed converting two mutual funds into exchange-traded funds without a shareholder vote.
The proposal is in an information statement dated Oct. 19, and the registration is not yet effective. The trust expects the reorganizations to close on or about Nov. 20, 2026.
Institutional shares of the Zacks All-Cap Core Fund, CZOVX, would be exchanged for shares of the Zacks All-Cap Core ETF, ALLZ. Institutional and investor shares of the Zacks Small-Cap Core Fund, ZSCIX and ZSCCX, would be exchanged for shares of the Zacks Small-Cap Core ETF, ZCAP.
Both would be new series of Zacks Trust and would list on Cboe BZX Exchange. Neither has commenced operations. The Oct. 19 statement says each mutual fund and its corresponding ETF have the same investment objective and principal strategies, and that the same portfolio-management team is expected to run each successor.
The filing covers only these two series. It would not merge the small-cap mutual fund into the Zacks Small/Mid Cap ETF, SMIZ, which the trust already lists. The Zacks Dividend Fund is not part of the reorganization.
The advisory fee would fall; the net figure is a waiver
The filing says the reorganization will result in a lower advisory fee. The management fee would drop from 0.80% on the all-cap fund and 0.90% on the small-cap fund to 0.44% on each ETF. That cut is in the advisory fee itself.
The expense ratio shareholders would pay falls by more than the advisory-fee cut. The rest of that drop is a waiver, not another cut to the advisory fee.
Zacks Investment Management, Inc., the adviser, has agreed to cap each new ETF's expenses at 0.55% through at least May 1, 2028. The cap excludes acquired fund fees and expenses, the fees of other funds the portfolio holds, along with taxes, brokerage and certain other items.
Against gross expenses of 0.90% and 0.95%, the filing shows a waiver of 0.34 percentage points for ALLZ and 0.40 percentage points for ZCAP. The ETF figures are pro forma, for funds that have not started.
Figures are annual, as a percentage of average net assets, from the Oct. 19 comparison. The mutual-fund net figures are after waivers too. The investor class's gross expenses include a 0.25% 12b-1 fee. The ETF tables show none.
ALLZ's after-waiver line is 0.56%, not 0.55%, because the table includes 0.01% of acquired fund fees, which the cap does not cover. ZCAP's table shows none of those fees, so its after-waiver figure matches the cap.
After May 1, 2028, the filing does not extend the 0.55% cap. The 0.44% management fee would remain the contractual advisory fee. Without the waiver, the same pro forma tables show gross expenses of 0.90% and 0.95%.
Only the trust's board of trustees can end the waiver before that date, on 60 days' written notice to the adviser. The adviser can recoup waived amounts within three years, but only within the lesser of the cap at the time of the waiver and the cap at recapture, so the recoupment cannot push expenses above the cap.
Holders can redeem before the exchange
Shareholders who do not want ETF shares can still buy and redeem the mutual funds in the ordinary course until the last business day before the closing. Institutional shares redeemed within 30 days of purchase carry a 2% fee. The investor class has no such fee, and neither do the proposed ETFs. The exchange itself would charge no sales load or commission.
The trust expects the small-cap fund's investor class to collapse into the institutional class on or around Nov. 6, before the exchange.
Each mutual fund would transfer its assets and liabilities to the corresponding ETF, receive ETF shares of equal net asset value, and distribute those shares to its own shareholders. The mutual fund would then be terminated.
The new shares would go to the shareholder's brokerage account. After the exchange, they would trade at market prices. Brokerage commissions are not in the expense table.
As of Sept. 17, the all-cap fund had unaudited net assets of $39 million, and the small-cap fund had $34.7 million. The filing says those amounts are likely to differ by the closing.
The funds would pay none of the reorganization costs. Zacks Investment Management would bear them, estimated at $115,000, including if the reorganizations do not close.
The trust intends the reorganizations to qualify as tax-free under Section 368(a). Shareholders generally would not recognize gain or loss, except on cash received instead of a fractional share.
Some brokerage firms do not accept fractional ETF shares. In that case the filing says the fractional share would be redeemed at net asset value. Tax-free treatment is a condition of closing that cannot be waived.
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Frequently asked questions
Which mutual funds would Zacks Trust convert?
Institutional shares of the Zacks All-Cap Core Fund would be exchanged for the Zacks All-Cap Core ETF, and both classes of the Zacks Small-Cap Core Fund would be exchanged for the Zacks Small-Cap Core ETF.
Do shareholders get a vote on the conversion?
No, the proposal is in an Oct. 19 information statement and does not call for a shareholder vote.
What would happen to the fees?
The management fee would drop to 0.44% on each ETF, while a separate waiver would cap expenses at 0.55% through at least May 1, 2028, excluding acquired fund fees and certain other items.
Would the exchange be taxable?
The trust intends the reorganizations to qualify as tax-free, so shareholders generally would not recognize gain or loss except on cash received instead of a fractional share.
