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As filed with the Securities and Exchange Commission on February 29, 2000
1933 Act Registration No. 33-72424
1940 Act Registration No. 811-8194
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [x]
Pre-Effective Amendment No. ___ [ ]
Post-Effective Amendment No. 16 [x]
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [x]
Amendment No. 18 [x]
(Check appropriate box or boxes.)
FINANCIAL INVESTORS TRUST
(Exact name of Registrant as Specified in Charter)
370 17th Street, Suite 3100
Denver, CO 80202
(Address of principal executive offices) (Zip Code)
Registrant's Telephone Number, including Area Code: (303) 623-2577
Russell C. Burk, Secretary
Financial Investors Trust
370 17th Street, Suite 3100
Denver, CO 80202
(Name and Address of Agent of Service)
Copy to:
Lester Woodward, Esq.
Davis, Graham & Stubbs LLP
370 17th Street, Suite 4700
Denver, CO 80202
Approximate Date of Proposed Public Offering: As soon as practicable after the
effective date of this Amendment
It is proposed that this filing will become effective (check appropriate box):
[ ] immediately upon filing pursuant to paragraph (b)
[ ] on (date) pursuant to paragraph (b)
[ ] 60 days after filing pursuant to paragraph (a) (1)
[ ] on____________, pursuant to paragraph (a) (1)
[x] 75 days after filing pursuant to paragraph (a) (2)
[ ] on (date) pursuant to paragraph (a) (2)
If appropriate, check the following box:
[ ] This post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
Title of Securities Being Registered: Shares of Beneficial Interest
Registrant registered an indefinite number of shares pursuant to regulation
24f-2 under the Investment Company Act of 1940 on July 21, 1999.
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INTERSTATE FUND
AS WITH OTHER MUTUAL FUNDS, THE SECURITIES AND EXCHANGE COMMISSION HAS NOT
APPROVED OR DISAPPROVED THIS FUND'S SHARES OR DETERMINED WHETHER THE
INFORMATION IN THIS PROSPECTUS IS ACCURATE OR COMPLETE. ANYONE WHO TELLS
YOU OTHERWISE IS COMMITTING A CRIME.
AN INVESTMENT IN THIS FUND:
o IS NOT FDIC INSURED;
o MAY LOSE VALUE; AND
o IS NOT GUARANTEED BY A BANK.
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TABLE OF CONTENTS
<TABLE>
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Page
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Principal Strategies and Risks.............................................................3
Performance................................................................................4
Fees and Expenses of the Fund..............................................................4
More Information About Risk................................................................5
Investment Adviser.........................................................................6
How Do I Invest in the Fund?...............................................................7
Distribution Plan.........................................................................12
Financial Highlights......................................................................12
</TABLE>
No person has been authorized to give any information or to make any
representation that is not contained in this Prospectus, or in the Statement of
Additional Information that is incorporated herein by reference, in connection
with the offering made by this Prospectus and, if given or made, such
information or representations must not be relied upon. Also, this Prospectus
does not constitute an offering by the Trust or its Distributor in any
jurisdiction where such an offering would not be lawful.
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PRINCIPAL STRATEGIES AND RISKS
PRINCIPAL INVESTMENT STRATEGIES -- The Interstate Fund (the "Fund") is a
diversified Fund seeking long-term capital appreciation by investing at least
75% of its total assets in common stocks and securities convertible into common
stocks of companies with market capitalizations comparable to those in the
Standard & Poor's 500 Composite Stock Price Index (the "S&P 500 Index"). The S&P
500 Index is a widely recognized, unmanaged index of 500 common stocks which are
generally representative of the U.S. stock market as a whole.
Interstate Advisors, Inc. (the "Adviser") selects investments for the Fund's
portfolio by examining a company's earnings trend and expected growth rates.
Additionally, the Adviser examines the sustainability of that company's growth
rate, its industry leadership and trends, as well as the company's management
and product development. The Adviser intends to hold 30-50 issues depending on
the size of the Fund and market conditions.
The Adviser will sell a stock if it determines a particular company's
fundamentals or earnings have deteriorated, a long-term trendline is
significantly broken, or volatile market conditions exist. The Adviser believes
the stock market can be vulnerable to a significant decline due to investor
reaction to economic or other events. During these periods, the Adviser may
attempt to protect the Fund from severe loss through some form of hedging. The
purpose of hedging is to try to eliminate a portion of the market volatility,
especially during declining market periods.
PRINCIPAL RISKS OF INVESTING -- You may be interested in the Fund if you are
comfortable with the risks of equity investing and intend to make a long-term
investment commitment. Since it purchases equity securities, the Fund is subject
to the risk that stock prices will fall over short or extended periods of time.
Historically, the equity markets have moved in cycles, and the value of the
Fund's equity securities may fluctuate from day-to-day. Individual companies may
report poor results or be negatively affected by industry and / or economic
trends and developments. The prices of securities issued by such companies may
decline in response. These factors contribute to price volatility, which is the
principal risk of investing in the Fund.
The Fund may sell put and covered call options, and purchase put and call
options, on securities and securities indices. An option is a contract that
gives the holder the right to buy (call) or sell (put) a certain number of
shares of a specific security at a specified price (exercise price) for a
limited amount of time. A call option is covered if the Fund owns the shares it
would have to deliver if the holder of the call option exercised the option. The
Fund may invest in options for hedging purposes, i.e., to protect the value of
its portfolio. The Fund may sell securities short, which means selling a
security it does not yet own in anticipation of purchasing the same security at
a later date at a lower price. The Fund may also borrow money to purchase
securities, a practice known as "leveraging."
The Fund may engage in active or frequent trading of portfolio securities to
achieve its investment objective. If the Fund does trade this way, it may incur
increased transactional costs and brokerage commissions, both of which can lower
the actual return on your investment. Active trading may also increase
short-term capital gains and losses, which affect the taxes you have to pay.
No matter how good a job the investment manager does, you could lose money on
your investment in the Fund.
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An investment in the Fund is not a bank deposit and is not insured or guaranteed
by the Federal Deposit Insurance Corporation (FDIC) or any government agency.
PERFORMANCE
There is no performance information for the Fund because it has not completed a
full calendar year of operations.
FEES AND EXPENSES OF THE FUND
The information in this section describes the fees and expenses that you may pay
if you buy and hold shares of the Fund. The Fund's fees and expenses are based
upon estimates of the operating expenses for the Fund's initial year of
operation.
<TABLE>
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Maximum Sales Load None
Maximum Deferred Sales Charge None
Redemption None
Exchange None
Management Fees ____%
Distribution (12b-1) Fees ____%
Other Expenses ____%
Total Annual Fund Operating Expenses ____%
Fee Waiver ____%
Net Annual Fund Operating Expenses ____%
</TABLE>
EXAMPLE -- The following example is intended to help you compare the cost of
investing in the Fund with the cost of investing in other mutual funds. The
example assumes that you invest $10,000 in the Fund for the time periods
indicated and that total annual operating expenses set forth above are incurred.
The example also assumes a 5% return each year and that the Fund's operating
expenses will remain the same. Although your actual costs may be higher or
lower, based on these assumptions your costs would be:
$
$
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MORE INFORMATION ABOUT RISK
EQUITY RISK -- Equity securities include public and privately issued equity
securities, common and preferred stocks, warrants, rights to subscribe to common
stock and convertible securities, as well as instruments that attempt to track
the price movement of equity indices. Investments in equity securities and
equity derivatives in general are subject to market risks that may cause their
prices to fluctuate over time. The value of securities convertible into equity
securities, such as warrants or convertible debt, is also affected by prevailing
interest rates, the credit quality of the issuer and any call provision.
Fluctuations in the value of equity securities in which the Fund invests will
cause the Fund net asset value to fluctuate. An investment in this Fund that is
comprised of equity securities may be more suitable for long-term investors who
can bear the risk of greater share price fluctuations.
CONVERTIBLE SECURITIES RISK - The Fund may also invest in convertible
securities. Convertible securities have characteristics of both fixed income and
equity securities. The value of the convertible security tends to move with the
market value of the underlying stock, but may also be adversely affected by
interest rates, credit quality of the issuer and any call provisions.
HEDGING RISK -- Hedging is a strategy designed to offset investment risks.
Hedging activities include, among other things, the use of forwards, options and
futures. There are risks associated with hedging activities, including:
o The success of a hedging strategy may depend on an ability to predict
movements in the prices of individual securities, fluctuations in markets,
and movements in interest and currency exchange rates.
o There may be an imperfect or no correlation between the changes in market
value of the securities held by the Fund or the currencies in which those
securities are denominated and the prices of forward contracts, futures and
options on futures.
o There may not be a liquid secondary market for a futures contract or
option.
o Trading restrictions or limitations may be imposed by an exchange, and
government regulations may restrict trading in currencies, futures
contracts and options.
LEVERAGING RISK - If the Fund borrows money to buy securities (leverages) and
the prices of those securities decrease, or if the cost of borrowing exceeds any
increases in the prices of those securities, the net asset value of the Fund's
shares will decrease faster than if the Fund had not used leverage. To repay
borrowings, the Fund may have to sell securities at a time and at a price that
is unfavorable to the Fund. Interest on borrowings is an expense the Fund would
not otherwise incur.
SHORT SALES RISK - Short sales are transactions in which the Fund sells a
security it does not own. To complete a short sale, the Fund must borrow the
security to deliver to the buyer. The Fund is then obligated to replace the
borrowed security by purchasing the security at the market price at the time of
replacement. This price may be more or less than the price at which the
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security was sold by the Fund. If the Fund sells a security short, and the
security increases in value, the Fund will have to pay the higher price to
purchase the security. Since there is no limit on how much the price of the
security can increase, the Fund's exposure is unlimited. The more the Fund pays
to purchase the security, the more it will lose on the transaction, and the more
the price of your shares will be affected. The Fund will also incur transaction
costs to engage in this practice.
OTHER INVESTMENTS
In addition to the investments and strategies described in this prospectus, the
Fund may also invest in other securities, use other strategies and engage in
other investment practices. These investments and strategies, as well as those
described in this prospectus, are described in detail in the Statement of
Additional Information. Of course, the Trust cannot guarantee the Fund will
achieve its investment goal.
The investments and strategies described in this prospectus are those that the
Adviser uses under normal conditions. During unusual economic, market, political
or other conditions, or for temporary defensive or liquidity purposes, the Fund
may invest up to 100% of its assets in short-term high quality debt instruments
that would not ordinarily be consistent with the Fund's principal investment
strategies. The Fund will do so only if the Adviser believes that the risk of
loss outweighs the opportunity for achieving the Fund's investment objective.
INVESTMENT ADVISER
Interstate Advisors, Inc. ("Interstate") acts as the investment adviser to the
Fund under the supervision of the Trust's Board of Trustees. The Adviser's
address is 4559 Lemon Street, Acworth, Georgia 30101. The Adviser manages the
investment and reinvestment of the assets of the Fund and continuously reviews,
supervises and administers the Fund's investments. The Adviser is responsible
for placing orders for the purchase and sale of the Fund's investments directly
with brokers and dealers selected by it in its discretion.
The managers responsible for making investment decisions are Arthur D. Lyons and
Jerry J. Hodges. Each manager has 20 years experience in the investment industry
and brings a broad base of knowledge, experience, ideas, and expertise to the
Fund's management. Currently, both managers are General Partners to LHM Trading,
a broker dealer proprietary trading firm engaged in stock selection and hedging.
Mr. Lyons earned his B.A. degree from Samford University in Birmingham, Alabama,
in 1979. Since 1980, Mr. Lyons has held positions with such notable Wall Street
firms as Merrill Lynch, E.F. Hutton, Prudential Securities and PaineWebber as
investment representative, pension consultant, trader and portfolio manager. In
1996, while Vice President at NewCrest Advisors (a subsidiary organization of
PaineWebber), Mr. Lyons was responsible for creating and managing a convertible
securities hedging program and an equity trading program. In 1999, Mr. Lyons
formed LHM Trading, a proprietary trading firm that is a member of the Chicago
Stock Exchange.
Mr. Hodges earned his B.S. degree from Arkansas State University in 1967. Since
1982, Mr. Hodges has been actively involved in the futures and equity markets as
a trader, broker and commodity trading advisor (CTA). By 1984, Mr. Hodges left
Prudential-Bache Commodities to
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form his own firm, Futures Technology, of which he is still President today. In
1989, Mr. Hodges purchased Security Market Research (SMR), a commodity and stock
charting firm that provides research to some of the country's most successful
traders. He is still actively involved with SMR in their research efforts.
HOW DO I INVEST IN THE FUND?
HOW ARE INVESTMENTS MADE?
As described below, you may purchase shares of the Fund through an authorized
broker or investment adviser, or directly from the Fund. Your orders for the
purchase of shares will be executed at the net asset value per share next
determined after an order has been received in good form. Your payment will be
invested in full and fractional shares of the Fund. Orders transmitted to the
Fund in proper form prior to the close of business (normally 4:00 p.m. Eastern
Time) will be executed that day. You will not receive certificates for shares
that you purchase. ALPS serves as the Fund's Transfer Agent and maintains
records of each shareholder's holdings of fund shares.
The minimum initial investment in the Fund is $1,000. Any subsequent investment
must be at least $50. Your initial investment in the Fund must be preceded or
accompanied by a completed, signed application. The Fund reserves the right to
reject any purchase.
INVESTING THROUGH YOUR BROKER OR INVESTMENT ADVISER
To purchase shares through authorized brokers and investment advisers, simply
complete a Purchase Application and contact your broker or investment adviser
with instructions as to the amount you wish to invest. Your broker will then
contact the Fund to place the order on your behalf. Authorized brokers and
investment advisers may impose additional requirements and charges for the
services rendered.
Your orders received by the Fund prior to the close of business (normally 4:00
p.m. Eastern Time), will become effective that day. Brokers who receive your
orders are obligated to transmit them promptly. You will receive written
confirmation of your order within a few days of receipt of instructions from
your broker.
INVESTING DIRECTLY WITH THE FUND
You can invest in the Fund directly by using any of the methods described below:
BY MAIL. Make your check payable to the INTERSTATE FUND and mail it, along with
the Purchase Application (if your purchase is an initial investment), to the
address indicated on the Purchase Application. Third party and foreign checks
will not be accepted. For existing accounts please include the Fund name and
your account number on all checks.
BY BANK TRANSFER. After you have established an account with the Fund, a bank
transfer will allow you to transfer money from your bank account via the
Automated Clearing House (ACH) network to your Fund account. To use this
service, you must select this option on your Purchase Application. You also will
need an account with a bank that provides bank transfer services.
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(Your bank may charge you a fee for this service.) Once you have established
this option, you can initiate a bank transfer by contacting a representative
from your bank, providing the required information for the bank, and authorizing
the transfer to take place. Please allow two or three days after the initial
authorization for the transfer to occur.
BY WIRE. To initiate your wire transaction, contact your depository institution
and instruct them to wire Federal Funds (monies transferred from one bank to
another through the Federal Reserve System with same-day availability) to:
[ ]
ABA# [ ]
Interstate Fund
Credit DDA# __________
(Account Registration)
(Account Number)
HOW DO I REDEEM FUND SHARES?
Shareholders may redeem their shares, in whole or in part, on each day the Fund
is valued (see the section entitled "HOW ARE FUND SHARES VALUED?" later in this
Prospectus). Shares will be redeemed at the net asset value next determined
after a proper redemption request has been received by the Fund in good form.
A redemption is a tax reportable transaction and any gain or loss is a taxable
event. See the section entitled "WHAT IS THE EFFECT OF FEDERAL INCOME TAX ON
THIS INVESTMENT?" later in this Prospectus for more information.
Where the shares to be redeemed have been purchased by check, the payment of
redemption proceeds may be delayed until the purchasing check has cleared.
Shareholders may avoid this delay by investing through wire transfers of Federal
funds. During the period prior to the time the shares are redeemed, dividends on
the shares will continue to accrue and be payable and the shareholder will be
entitled to exercise all other beneficial rights of ownership.
Once the shares are redeemed, the Fund will ordinarily send the proceeds by
check to the shareholder at the address of record on the next business day. The
Fund may, however, take up to seven days to make payment. Also, if the New York
Stock Exchange is closed (or when trading is restricted) for any reason other
than customary weekend or holiday closings or if an emergency condition, as
determined by the SEC, merits such action, the Fund may suspend redemptions or
postpone payment dates beyond the normal seven day redemption period.
To ensure acceptance of your redemption request, it is important to follow the
procedures described below. Although the Fund has no present intention to do so,
the Fund reserves the right to refuse or to limit the frequency of any
telephone, wire or bank transfer redemptions. It may be difficult to make
contact by telephone during periods of severe market or economic change.
Shareholders should consider alternative methods of communications during such
times.
The Fund may modify or terminate its redemption services and provisions at any
time. If the Fund terminates any particular service, it will do so only after
giving written notice to shareholders. Redemption by mail will always be
available to shareholders.
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You can redeem your shares directly from the Fund using any of the methods
described below:
REDEEMING YOUR SHARES USING AN AUTHORIZED BROKER OR INVESTMENT ADVISER
You may redeem your shares by contacting your authorized broker or investment
adviser and instructing them to redeem your shares. They will then contact ALPS
and place a redemption order on your behalf.
REDEEMING YOUR SHARES DIRECTLY FROM THE FUND
BY MAIL. You may redeem your shares by sending a letter directly to the Fund. To
be accepted, a letter requesting redemption must include:
o the Fund name and account registration from which you are redeeming shares;
o your account number;
o the amount to be redeemed; and
o an authorized signature.
BY TELEPHONE. If you have established the telephone redemption privilege on your
Purchase Application, you may redeem your shares by calling the Fund at
1-800-______. You should be prepared to give the telephone representative the
following information:
o your account number, social security number and account registration;
o the Fund name from which you are redeeming shares; and
o the amount to be redeemed.
The telephone conversation may be recorded to protect you and the Fund. The Fund
employs reasonable procedures to confirm that instructions communicated to its
representatives by telephone are genuine. If the Fund fails to employ such
reasonable procedures, it may be liable for any loss, damage or expense arising
out of any telephone transactions purporting to be on a shareholder's behalf.
However, if the Fund acts on instructions it reasonably believes to be genuine,
you will bear the loss. For your protection, telephone redemptions will be
suspended for a period of 10 days following an address change given over the
telephone.
You cannot redeem shares held in IRAs using the telephone.
BY WIRE. You may instruct the Fund to send your redemption proceeds via federal
wire ($1,000 minimum per transaction) or bank transfer to your personal bank.
Your instructions should include:
o your account number, social security number and account registration;
o the Fund name from which you are redeeming shares; and
o the amount to be redeemed.
Wire and bank transfer redemptions can be made only if the privilege has been
established on your Purchase Application and you have attached a copy of a
voided check or a letter summarizing the wiring instructions of the account
where proceeds are to be wired. Your bank may charge you a fee for receiving a
wire payment on your behalf.
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A NOTE ON LARGE REDEMPTIONS
It is important that you call the Fund before you redeem a large dollar amount.
We must consider the interests of all fund shareholders and so reserve the right
to delay delivery of your redemption proceeds--up to seven days--if the amount
will disrupt the Fund's operation or performance. If you redeem more than
$250,000 worth of Fund shares within any 90-day period, the Fund reserves the
right to pay part or all of the redemption proceeds above $250,000 in kind,
i.e., in securities, rather than in cash. If payment is made in kind, you may
incur brokerage commissions if you elect to sell the securities for cash.
INVOLUNTARY SALES OF YOUR SHARES
If your account balance drops below $500 because of redemptions, you may be
required to sell your shares. But, you will always be given at least 60 days'
written notice to give you time to add to your account and avoid the sale of
your shares.
WHAT ADDITIONAL SERVICES ARE OFFERED?
AUTOMATIC INVESTMENT PROGRAM. The Automatic Investment Program offers a simple
way to establish and maintain a consistent investment program. You may arrange
automatic transfers (minimum $50 per transaction) from your bank account to your
Fund account on a periodic basis by simply completing the Automatic Investment
Plan section of your Purchase Application. When you participate in this program,
the minimum initial investment in each Fund is $250. You may change the amount
of your automatic investment, skip an investment, or stop the Automatic
Investment Program by calling the Fund at 1-800-_____ at least three business
days prior to your next scheduled investment date.
SYSTEMATIC WITHDRAWAL PLAN. If your Fund account balance is $10,000 or more, you
may elect to have periodic redemptions made from your account on a monthly,
quarterly, semi-annual or annual basis by completing the Systematic Withdrawal
Plan section of the Purchase Application. The minimum periodic withdrawal is
$100 and the transaction normally will be executed on the fifth or twentieth day
of the selected month(s). You may request that these payments be sent to a
predesignated bank account or other designated party. Depending on the size of
the payment requested and fluctuation in the net asset value of the shares
redeemed, redemptions for the purpose of making such payments may reduce or even
exhaust your account. If a shareholder participates in the Systematic Withdrawal
Plan, all dividends are automatically reinvested unless the shareholder directs
otherwise.
The Fund may at its discretion discontinue, suspend or change the practice of
accepting orders by any of the methods described above. The Fund reserves the
right to suspend the sale of shares, or to reject any purchase order, including
orders in connection with exchanges, for any reason.
INDIVIDUAL RETIREMENT ACCOUNTS. The Fund may be used as a funding medium for
traditional and Roth IRAs. In addition, a traditional or Roth IRA may be
established through a custodial account with the Fund. Completion of a special
application is required in order to create such an account, and the minimum
initial investment for an IRA is $1,000. Contributions to IRAs are
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subject to the limits and conditions established by the Internal Revenue
Service. For more information, call the Fund at 1-800-______ or your tax
advisor.
Additional account level fees are imposed for IRA accounts.
WHAT STATEMENT AND REPORTS DO I RECEIVE FROM THE FUND?
You will receive a quarterly statement and a confirmation after every
transaction that affects your share balance or account registration. A statement
with tax information will be mailed to you by January 31 of each tax year and
also will be filed with the IRS. At least twice a year, you will receive the
Fund's financial statements. Please write to the Fund at 370 17th Street, Suite
3100, Denver, Colorado 80202 to request additional copies of these reports.
HOW ARE FUND SHARES VALUED?
The price at which you buy, sell or exchange Fund shares is the share price or
net asset value (NAV). The share price for the Fund is determined by adding the
value of the Fund's investments, cash and other assets, deducting liabilities,
and then dividing that value by the total number of the shares outstanding in
the Fund. The Fund's NAV is calculated at the close of the regular trading
session of the New York Stock Exchange (normally 4:00 p.m. Eastern Time) each
day that the Exchange is open.
When the Fund calculates the share price for fund shares, it values the
securities it holds at market value. Sometimes market quotes for some securities
are not available or are not representative of market value. Examples would be
when events occur that materially affect the value of a security at a time when
the security is not trading or when the securities are illiquid. In that case,
securities may be valued in good faith at fair value, using consistently applied
procedures decided on by the Trustees of the Fund.
For more information please refer to the SAI.
WHAT IS THE EFFECT OF FEDERAL INCOME TAX ON THIS INVESTMENT?
The Fund intends to distribute substantially all of its net investment income
and capital gains, if any, to shareholders within each calendar year as well as
on a fiscal year basis. Any net capital gains realized are normally distributed
in December. Income dividends for the Fund, if any, are declared and paid
quarterly.
FEDERAL TAXES. Distributions of gains from the sale of assets held by the Fund
for more than one year generally are taxable to shareholders at the applicable
capital gains rate, regardless of how long they have owned their fund shares.
Distributions from other sources generally are taxed as ordinary income. A
portion of the Fund's dividends may qualify for the dividends-received deduction
for corporations. Distributions are taxable when they are paid, whether taken in
cash or reinvested in additional shares, except that distributions declared in
October, November or December and paid in January are taxable as if paid on
December 31. The Fund will send each shareholder an IRS Form 1099-DIV by January
31.
"BUYING A DIVIDEND." On the record date for a distribution of income or capital
gains, the Fund's share price is reduced by the amount of the distribution. If
shares are bought just before
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the record date ("buying a dividend"), the full price for the shares will be
paid, and a portion of the price will be received back as a taxable
distribution.
OTHER TAX INFORMATION. The information above is only a summary of some of the
Federal tax consequences generally affecting the Fund and its shareholders, and
no attempt has been made to discuss individual tax consequences generally
affecting the Fund and its shareholders. In addition to Federal tax,
distributions may be subject to state or local taxes. Shareholders should
consult their tax advisers for details and up-to-date information on the tax
laws in your state to determine whether the Fund is suitable given your
particular tax situation.
When you sign your account application, you will be asked to certify that your
taxpayer identification number is correct and that you are not subject to backup
withholding for failing to report income to the IRS. If you do not comply with
IRS regulations, the IRS can require the Fund to withhold 31% of taxable
distributions from your account.
DISTRIBUTION PLAN
The Trustees have adopted a plan of distribution pursuant to Rule 12b-1 under
the Investment Company Act of 1940, as amended, for the Fund (the "Distribution
Plan"). The Distribution Plan permits the use of portfolio assets to compensate
ALPS for its services and costs in distributing fund shares and servicing
shareholder accounts.
Under the Distribution Plan, ALPS receives an amount equal to .25% of the
average net assets of the Fund. All or a portion of the fees paid to ALPS under
the Distribution Plan may, in turn, be paid to certain broker-dealers,
investment advisers, and other third parties as compensation for selling fund
shares and for providing ongoing sales support services.
Because the fees paid under the Distribution Plan are paid out of portfolio
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.
FINANCIAL HIGHLIGHTS
There are no Financial Highlights for the Fund because it has not completed a
fiscal year of operations.
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ADDITIONAL INFORMATION ABOUT THE FUND
If you would like more information about the Fund, the following additional
information is available free upon request:
STATEMENT OF ADDITIONAL INFORMATION (SAI)
The SAI contains additional information about all aspects of the Fund. A current
SAI has been filed with the Securities and Exchange Commission (the "SEC") and
is incorporated herein by reference. For a copy of the SAI, write or call the
Fund at the address or phone number listed below.
Information about the Fund (including the SAI) also may be reviewed and copied,
upon payment of a duplicating fee, at the SEC's Public Reference Room in
Washington, D.C. You also can obtain this information, upon payment of a
duplicating fee, by writing to the Public Reference Section of the SEC,
Washington, D.C. 20549-6009.
The SEC also maintains a Web site located at http://www.sec.gov that contains
the SAI, material incorporated herein by reference, and other information
regarding the Fund. For more information about the operation of the Public
Reference Room, please call the SEC at 1-800-SEC-0330.
ADMINISTRATOR & DISTRIBUTOR
ALPS Mutual Funds Services, Inc.
370 Seventeenth Street
Suite 3100
Denver, CO 80202
TO OBTAIN THE SAI FOR THE FUND FREE OF CHARGE, OR TO OBTAIN OTHER
INFORMATION ABOUT THE FUND AND TO MAKE SHAREHOLDER INQUIRIES, YOU MAY
WRITER TO ALPS MUTUAL FUNDS SERVICES AT 370 17TH STREET, SUITE
3100, DENVER, COLORADO 80202 OR CALL ALPS AT 1-800-__________.
Investment Company Act File No. 811-8194
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INTERSTATE FUND
370 17th Street, Suite 3100
Denver, Colorado 80202
____________, 2000
General & Account Information: (800) _________
STATEMENT OF ADDITIONAL INFORMATION
This Statement of Additional Information ("SAI") is not a prospectus and is only
authorized for distribution when preceded or accompanied by the prospectus for
shares of the Interstate Fund (the "Fund") dated _______, 2000 (the
"prospectus"). This SAI contains additional and more detailed information than
that set forth in the prospectus and should be read in conjunction with the
prospectus. The prospectus may be obtained without charge by writing or calling
the Fund at the address and information number printed above.
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TABLE OF CONTENTS
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PAGE
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INVESTMENT POLICIES AND RISKS 1
Common Stocks 1
Convertible Securities 1
Lending of Portfolio Securities 2
Illiquid Securities 2
Borrowings and Leverage 3
Hedging and other Investment Techniques 3
Short Sales 8
Securities of Other Investment Companies 9
INVESTMENT RESTRICTIONS 10
MANAGEMENT 11
Trustees and Officers 11
Investment Adviser 15
Distribution of Fund Shares 15
Administrator, Transfer Agent, Bookkeeping and Pricing Agent 15
Fees and Expenses 16
DETERMINATION OF NET ASSET VALUE 16
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION 17
PORTFOLIO TRANSACTIONS 17
TAXATION 19
OTHER INFORMATION 20
Description of the Trust 20
Voting Rights 20
Custodian 21
Performance Information 21
Independent Accountants 22
Registration Statement 22
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INVESTMENT POLICIES AND RISKS
Under normal conditions, at least 75% of the Fund's total assets will be
invested in a diversified portfolio of common stocks and securities convertible
into common stocks of companies with market capitalizations comparable to those
in the Standard & Poor's 500 Composite Stock Price Index (the "S&P 500 Index").
The Fund's Adviser selects common stocks based on a number of factors, including
historical and projected earnings growth, earnings quality and liquidity, each
in relation to the market price of the stock. Stocks purchased for the Fund
generally will be listed on a national securities exchange or will be unlisted
securities with an established over-the-counter market.
The Fund is a diversified Fund as defined in the 1940 Act. A diversified
portfolio may not, with respect to 75% of its total assets, invest more than 5%
of its assets in securities of one issuer. The Fund also intends to satisfy the
diversification requirements of the Internal Revenue Code to qualify as a
regulated investment company.
The prospectus discusses the investment objective of the Fund and the
policies to be employed to achieve that objective. This section contains
supplemental information concerning certain types of securities and other
instruments in which the Fund may invest, the investment policies and portfolio
strategies that the Fund may utilize, and certain risks attendant to such
investments, policies and strategies.
COMMON STOCKS
The Fund will invest in common stocks. Common stocks represent the residual
ownership interest in the issuer and are entitled to the income and increase in
the value of the assets and business of the entity after all of its obligations
and preferred stocks are satisfied. Common stocks generally have voting rights.
Common stocks fluctuate in price in response to many factors including
historical and prospective earnings of the issuer, the value of its assets,
general economic conditions, interest rates, investor perceptions and market
liquidity.
CONVERTIBLE SECURITIES
The Fund may invest up to 25% of its total assets in convertible
securities. A convertible security is a bond, debenture, note, preferred stock
or other security that may be converted into or exchanged for a prescribed
amount of common stock or other equity security of the same or a different
issuer within a particular period of time at a specified price or formula.
Convertible securities consequently often involve attributes of both debt and
equity instruments, and investment in such securities requires analysis of both
credit and stock market risks. A convertible security entitles the holder to
receive interest paid or accrued on debt or the dividend paid on preferred stock
until the convertible security matures or is redeemed, converted or exchanged.
Before conversion, convertible securities have characteristics similar to
nonconvertible income securities in that they ordinarily provide a stable stream
of income with generally higher yields than those of common stocks of the same
or similar issuers. Convertible securities rank senior to common stock in a
corporation's capital structure but are usually subordinated to comparable
nonconvertible securities. Convertible securities may be subject to redemption
at the option of the issuer at a price established in the convertible security's
governing instrument and in some instances may be
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subject to conversion into or exchanged for another security at the option of an
issuer. The Fund will only purchase convertible securities that have adequate
protection parameters, including an adequate capacity to pay interest and repay
principal in a timely manner.
LENDING OF PORTFOLIO SECURITIES
The Fund may lend securities to broker-dealers, banks or other
institutional borrowers pursuant to agreements requiring that the loans be
continuously secured by cash, securities of the U.S. government or its agencies,
or any combination of cash and such securities, as collateral equal to 100% of
the market value at all times of the securities lent. Such loans will not be
made if, as a result, the aggregate amount of all outstanding securities loans
for the Fund exceed one-third of the value of its total assets taken at fair
market value. Collateral must be valued daily by the Fund's Adviser and the
borrower will be required to provide additional collateral should the market
value of the loaned securities increase. During the time portfolio securities
are on loan, the borrower pays the Fund any dividends or interest paid on such
securities. Loans are subject to termination by the Fund or the borrower at any
time. While the Fund does not have the right to vote securities on loan, it
intends to terminate the loan and regain the right to vote if this is considered
important with respect to the investment. The Fund will only enter into loan
arrangements with broker-dealers, banks or other institutions which its Adviser
has determined are creditworthy under guidelines established by the Trust's
Board of Trustees.
The Fund will continue to receive interest on the securities lent while
simultaneously earning interest on the investment of the cash collateral in U.S.
government securities. However, the Fund will normally pay lending fees to such
broker-dealers and related expenses from the interest earned on invested
collateral. There may be risks of delay in receiving additional collateral or
risks of delay in recovery of the securities or even loss of rights in the
collateral should the borrower of the securities fail financially. However,
loans are made only to borrowers deemed by the Adviser to be of good standing
and when, in the judgment of the Adviser, the consideration which can be earned
currently from such securities loans justifies the attendant risk. Either party
upon reasonable notice to the other party may terminate any loan.
ILLIQUID SECURITIES
The Fund will not invest more than 15% of its net assets in securities that
are illiquid. Illiquid securities would generally include repurchase agreements
and GICs with notice/termination dates in excess of seven days and certain
securities which are subject to trading restrictions because they are not
registered under the Securities Act of 1933, as amended (the "1933 Act").
The Fund may purchase securities which are not registered under the 1933
Act but which can be sold to "qualified institutional buyers" in accordance with
Rule 144A under the 1933 Act. Any such security will not be considered illiquid
so long as it is determined by the Board of Trustees or the Fund's Adviser,
acting under guidelines approved and monitored by the Board, that an adequate
trading market exists for that security. This investment practice could have the
effect of increasing the level of illiquidity in the Fund during any period that
qualified institutional buyers become uninterested in purchasing these
restricted securities.
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BORROWINGS AND LEVERAGE
The Fund may borrow money from banks (including the Funds' custodian bank),
subject to the limitations under the 1940 Act. The Fund will limit borrowings
and reverse repurchase agreements to an aggregate of 33 1/3% of the Funds' total
assets at the time of the transaction.
The Funds may employ "leverage" by borrowing money and using it to purchase
additional securities. Leverage increases both investment opportunity and
investment risk. If the investment gains on the securities purchased with
borrowed money exceed the interest paid on the borrowing, the net asset value of
the Funds' shares will rise faster than would otherwise be the case. On the
other hand, if the investment gains fail to cover the cost (including interest
on borrowings), or if there are losses, the net asset value of the Funds' shares
will decrease faster than would otherwise be the case. The Fund will maintain
asset coverage of at least 300% for all such borrowings, and should such asset
coverage at any time fall below 300%, the Fund will be required to reduce its
borrowing within three days to the extent necessary to satisfy this requirement.
To reduce its borrowing, the Fund might be required to sell securities at a
disadvantageous time. Interest on money borrowed is an expense the Fund would
not otherwise incur, and the Fund may therefore have little or no investment
income during periods of substantial borrowings.
HEDGING AND OTHER INVESTMENT TECHNIQUES
The Fund may enter into transactions in options, futures and forward
contracts on a variety of instruments and indexes, in order to protect against
declines in the value of portfolio securities and increases in the cost of
securities to be acquired as well as to increase the Fund's return.
Options. The Fund may write (sell) "covered" put and call options and buy
put and call options, including securities index and foreign currency options. A
call option is a contract that gives to the holder the right to buy a specified
amount of the underlying security at a fixed or determinable price (called the
exercise or strike price) upon exercise of the option. A put option is a
contract that gives the holder the right to sell a specified amount of the
underlying security at a fixed or determinable price upon exercise of the
option. In the case of index options, exercises are settled through the payment
of cash rather than the delivery of property. A written call option is covered
if, for example, the Fund's own the underlying security covered by the call or,
in the case of a call option on an index, holds securities the price changes of
which are expected to substantially correlate with the movement of the index. A
written put option is covered if, for example, the Fund's segregate cash or
liquid securities with a value equal to the exercise price of the put option.
Options purchased or written by the Fund may be traded on the national
securities exchanges or negotiated with a dealer. Options traded in the
over-the-counter market may not be as actively traded as those on an exchange,
so it may be more difficult to value such options. In addition, it may be
difficult to enter into closing transactions with respect to such options. Such
options and the securities used as "cover" for such options, unless otherwise
indicated, would be considered illiquid securities.
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In some instances in which the Fund have entered into agreements with
primary dealers with respect to the over-the-counter options it has written, and
such agreements would enable the Fund to have an absolute right to repurchase at
a pre-established formula price the over-the-counter option written by them, the
Fund would treat as illiquid only securities equal in amount to the formula
price described above less the amount by which the option is "in-the-money,"
i.e., the price of the option exceeds the exercise price.
Options are subject to certain risks, including the risk of imperfect
correlation between the option and the Fund's other investments and the risk
that there may not be a liquid secondary market for the option when the Fund
seeks to hedge against adverse market movements. This may cause the Fund to lose
the entire premium on purchased options or reduce their ability to effect
closing transactions at favorable prices.
The Fund will not write options if, immediately after such sale, the
aggregate value of the securities or obligations underlying the outstanding
options exceeds 50% of the Fund's total assets. The Fund will not purchase
options if, at the time of the investment, the aggregate premiums paid for
outstanding options will exceed 25% of the Fund's total assets.
The Fund may write covered call options both to reduce the risks associated
with certain of its investments and to increase total investment return through
the receipt of premiums. In return for the premium income, a Fund loses any
opportunity to profit from an increase in the market price of the underlying
securities, above the exercise price, while the contract is outstanding, except
to the extent the premium represents a profit. The Fund also retains the risk of
loss if the price of the security declines, although the premium is intended to
offset that loss in whole or in part. As long as its obligations under the
option continue, the Fund must assume that the call may be exercised at any time
and that the net proceeds realized from the sale of the underlying securities
pursuant to the call may be substantially below the prevailing market price.
The Fund may enter into a "closing purchase transaction", by purchasing an
option identical to the one it has written, and terminate its obligations under
the covered call. The Fund will realize a gain (or loss) from a closing purchase
transaction if the amount paid to purchase a call option is less (or more) than
the premium received upon writing the corresponding call option. Any loss
resulting from the exercise or closing out of a call option is likely to be
offset in whole or in part by unrealized appreciation of the underlying security
owned by the Fund primarily because a price increase of a call option generally
reflects an increase in the market price of the securities on which the option
is based. In order to sell portfolio securities that cover a call option, the
Fund will effect a closing purchase transaction so as to close out any existing
covered call option on those securities. A closing purchase transaction for
exchange-traded options may be made only on a national securities exchange. A
liquid secondary market on an exchange may not always exist for any particular
option, or at any particular time, and, for some options, such as
over-the-counter options, no secondary market on an exchange may exist. If the
Fund is unable to effect a closing purchase transaction, it will not sell the
underlying security until the option expires or until it delivers the underlying
security upon exercise.
The Fund may write put options to earn additional income in the form of
option premiums if it expects the price of the underlying securities to remain
stable or rise during the option period so that the
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option will not be exercised. The Fund may also write put options if it expects
a decline in the price of the underlying securities and intends to exercise the
option at a price which, offset by the option premium, is less than the current
price. The risk of either strategy is that the price of the underlying
securities may decline by an amount greater than the premium received.
The Fund may effect a closing purchase transaction to realize a profit on
an outstanding put option or to prevent an outstanding put option from being
exercised. If the Fund is able to enter into a closing purchase transaction, it
will realize a profit (or loss) from that transaction if the cost of the
transaction is less (or more) than the premium received from the writing of the
option. After writing a put option, the Fund may incur a loss equal to the
difference between the exercise price of the option and the sum of the market
value of the underlying securities plus the premiums received from the sale of
the option.
The purchase of put options on securities enables the Fund to preserve, at
least partially, unrealized gains in an appreciated security in its portfolio
without actually selling the security. In addition, the Fund may continue to
receive interest or dividend income on the security.
The Fund may write call options on securities or securities indexes for the
purpose of providing a partial hedge against a decline in the value of its
portfolio securities. The Fund may write put options on securities or securities
indexes in order to earn additional income or (in the case of put options
written on individual securities) to purchase the underlying security at a price
below the current market price. If the Fund writes an option which expires
unexercised or is closed out by the Fund at a profit, it will retain all or part
of the premium received for the option, which will increase its gross income. If
the price of the underlying security moves adversely to the Fund's position, the
option may be exercised and the Fund will be required to sell or purchase the
underlying security at a disadvantageous price, or, in the case of index
options, delivery an amount of cash, which loss may only be partially offset by
the amount of premium received.
The Fund may also purchase put or call options on securities and securities
indexes in order to hedge against changes in interest rates or stock prices
which may adversely affect the prices of securities that the Fund wants to
purchase at a later date, to hedge its existing investments against a decline in
value, or to attempt to reduce the risk of missing a market or industry segment
advance or decline. In the event that the expected changes in interest rates or
stock prices occur, the Fund may be able to offset the resulting adverse effect
on the Fund by exercising or selling the options purchased. The premium paid for
a put or call option plus any transaction costs will reduce the benefit, if any,
realized by the Fund upon exercise or liquidation of the option. Unless the
price of the underlying security or level of the securities index changes by an
amount in excess of the premium paid, the option may expire without value to the
Fund.
An option on a securities index, unlike a stock option (which gives the
holder the right to purchase or sell a specified stock at a specified price)
gives the holder the right to receive a cash "exercise settlement amount" equal
to (i) the difference between the exercise price of the option and the value of
the underlying stock index on the exercise date, multiplied by (ii) a fixed
"index multiplier." A securities index fluctuates with changes in the market
values of the securities included in the index. For example, some securities
index options are based on a broad market index such as the S&P 500 or the NYSE
Composite Index, or a narrower market index such as the S&P 100. Indexes may
also be based on an
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industry or market segment such as the AMEX Oil and Gas Index or the Computer
and Business Equipment Index. Options on stock indexes are currently traded on
the following exchanges, among others: The Chicago Board Options Exchange, New
York Stock Exchange, and American Stock Exchange. Options on indexes of debt
securities and other types of securities indexes are not currently available. If
such options are introduced and traded on exchanges in the future, the Fund may
use them.
The value of securities index options in any investment strategy depends
upon the extent to which price movements in the portion of the underlying
securities correlate with price movements in the selected securities index.
Perfect correlation is not possible because the securities held or to be
acquired by the Fund will not exactly match the composition of the securities
indexes on which options are written. In the purchase of securities index
options the principal risk is that the premium and transaction costs paid by the
Fund in purchasing an option will be lost if the changes (increase in the case
of a call, decrease in the case of a put) in the level of the index do not
exceed the cost of the option. In writing securities index options, the
principal risk is that the Fund could bear a loss on the options that would be
only partially offset (or not offset at all) by the increased value or reduced
cost of the hedged securities. Moreover, in the event the Fund was unable to
close an option it had written, it might be unable to sell the securities used
as cover.
The Fund, for hedging purposes, may purchase and write options in
combination with each other to adjust the risk and return characteristics of a
Fund's overall position. For example, the Fund may purchase a put option and
write a covered call option on the same underlying instrument, in order to
construct a combined position whose risk and return characteristics are similar
to selling a futures contract. This technique, called a "collar," enables the
Fund to offset the cost of purchasing a put option with the premium received
from writing the call option. However, by selling the call option, the Fund
gives up the ability for potentially unlimited profit from the put option.
Another possible combined position would involve writing a covered call option
at one strike price and buying a call option at a lower price, in order to
reduce the risk of the written covered call option in the event of a substantial
price increase. Because combined options positions involve multiple trades, they
result in higher transaction costs and may be more difficult to open and close
out.
Futures Contracts and Forwards. A futures contract is a bilateral agreement
to buy or sell a security (or deliver a cash settlement price, in the case of an
index future) for a set price in the future. When the contract is entered into,
a good faith deposit, known as initial margin, is made with the broker.
Subsequent daily payments, known as variation margin, are made to and by the
broker reflecting changes in the value of the security or level of the index.
Futures contracts are authorized by boards of trade designated as "contracts
markets" by the Commodity Futures Trading Commission ("CFTC"). Certain results
may be accomplished more quickly, and with lower transaction costs, in the
futures market (because of its greater liquidity) than in the cash market.
The Fund will incur brokerage fees when it purchases and sells futures
contracts, and it will be required to maintain margin deposits. Positions taken
in the futures markets are typically liquidated through offsetting transactions,
which may result in a gain or a loss, before delivery or cash settlement is
required. However, the Fund may close out a position by making or taking
delivery of the underlying securities wherever it appears economically
advantageous to do so.
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Purchases of options on futures contracts may present less risk than the
purchase and sale of the underlying futures contracts, since the potential loss
is limited to the amount of the premium plus related transaction costs. A call
option on a futures contract gives the purchaser the right, in return for the
premium paid, to purchase a futures contract (assume a "long" position) at a
specified exercise price at any time before the option expires. A put option
gives the purchaser the right, in return for the premium paid, to sell a futures
contract (assume a "short" position), for a specified exercise price, at any
time before the option expires.
Positions in futures contracts may be closed out only on an exchange or a
board of trade which provides the market for such futures. Although the Fund
intends to purchase or sell futures only on exchanges or boards of trade where
there appears to be an active market, there may not always be a liquid market,
and it may not be possible to close a futures position at that time; in the
event of adverse price movements, the Fund would continue to be required to make
daily cash payments of maintenance margin. Whenever futures positions are used
to hedge portfolio securities, however, any increase in the price of the
underlying securities held by the Fund may partially or completely offset losses
on the futures contracts.
If a broker or clearing member of an options or futures clearing
corporation were to become insolvent, the Fund could experience delays and might
not be able to trade or exercise options or futures purchased through that
broker. In addition, the Fund could have some or all of its positions closed out
without its consent. If substantial and widespread, these insolvencies could
ultimately impair the ability of the clearing corporations themselves. While the
principal purpose of engaging in these transactions is to limit the effects of
adverse market movements, the attendant expense may cause the Fund's returns to
be less than if the transactions had not occurred. Their overall effectiveness,
therefore, depends on the Adviser's accuracy in predicting future changes in
interest rate levels or securities price movements, as well as on the expense of
engaging in these transactions.
The Fund has the ability to short futures.
The Fund may purchase and sell stock index futures contracts to hedge the
value of the portfolio against changes in market conditions. The Fund may also
purchase put and call options on futures contracts and write "covered" put and
call options on futures contracts in order to hedge against changes in stock
prices. Although the Fund is authorized to invest in futures contracts and
related options with respect to non-U.S. instruments, they will limit such
investments to those which have been approved by the CFTC for investment by U.S.
investors. The Fund may enter into futures contracts and buy and sell related
options, provided that the futures contracts and related options investments are
made for "bona fide hedging" purposes, as defined under CFTC regulations. No
more than 25% of each Fund's total assets will be committed to initial margin
deposits required pursuant to futures contracts. Percentage investment
limitations on the Funds' investment in options on futures contracts are set
forth above under "Options."
Bona fide Hedging. The Fund will only enter into options and futures
transactions for bona fide hedging purposes. The CFTC has defined bona fide
hedging in its Rule 1.3(z), which provides that the transaction must be
"economically appropriate to the reduction of risks in the conduct and
management of a commercial enterprise." Common uses of financial futures and
related options by the Funds that would satisfy the Rule include the following:
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(1) to hedge various pertinent securities market risks (e.g. interest rate
movements, and broad based or specific equity or fixed-income market
movements);
(2) to establish a position as a temporary substitute for purchasing or
selling particular securities;
(3) to maintain liquidity while simulating full investment in the
securities markets.
SHORT SALES
The Fund intends from time to time to sell securities short. A short sale
is effected when it is believed that the price of a particular security will
decline, and involves the sale of a security which the Fund does not own in the
hope of purchasing the same security at a later date at a lower price. To make
delivery to the buyer, the Fund must borrow the security from a broker-dealer
through which the short sale is executed, and the broker-dealer delivers such
securities, on behalf of the Fund, to the buyer. The broker-dealer is entitled
to retain the proceeds from the short sale until the Fund delivers to such
broker-dealer the securities sold short. In addition, the Fund is required to
pay to the broker-dealer the amount of any dividends paid on shares sold short.
To secure their obligation to deliver to such broker-dealer the securities
sold short, the Fund must segregate an amount of cash or liquid securities equal
to the difference between the market value of the securities sold short at the
time they were sold short and any cash or liquid securities deposited as
collateral with the broker in connection with the short sale (not including the
proceeds of the short sale). Furthermore, until the Fund replaces the borrowed
security, they must daily maintain the segregated assets at a level so that (1)
the amount deposited in it plus the amount deposited with the broker (not
including the proceeds from the short sale) will equal the current market value
of the securities sold short, and (2) the amount deposited in it plus the amount
deposited with the broker (not including the proceeds from the short sale) will
not be less than the market value of the securities at the time they were sold
short. As a result of these requirements, the Fund will not gain any leverage
merely by selling short, except to the extent that it earns interest on the
immobilized cash or liquid securities while also being subject to the
possibility of gain or loss from the securities sold short.
The Fund are said to have a short position in the securities sold until
they deliver to the broker-dealer the securities sold, at which time the Fund
receive the proceeds of the sale. The Fund will normally close out a short
position by purchasing on the open market and delivering to the broker-dealer an
equal amount of the securities sold short.
The amount of the Fund's net assets that will at any time be in the type of
deposits described above (that is, collateral deposits or segregated assets)
will not exceed 25%. These deposits do not have the effect of limiting the
amount of money that the Fund may lose on a short sale, as the Fund's possible
losses may exceed the total amount of deposits.
The Fund will realize a gain if the price of a security declines between
the date of the short sale and the date on which the Fund purchases a security
to replace the borrowed security. On the other hand, the Fund will incur a loss
if the price of the security increases between those dates. The amount of any
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gain will be decreased and the amount of any loss increased by any premium or
interest that the Fund may be required to pay in connection with a short sale.
It should be noted that possible losses from short sales differ from those that
could arise from a cash investment in a security in that losses from a short
sale may be limitless, while the losses from a cash investment in a security
cannot exceed the total amount of the Fund's investment in the security. For
example, if the Fund purchases a $10 security, potential loss is limited to $10;
however, if the Fund sells a $10 security short, it may have to purchase the
security for return to the broker-dealer when the market value of that security
is $50, thereby incurring a loss of $40.
The Fund may also make short sales "against the box." A short sale is
"against the box" to the extent that the Fund contemporaneously owns or has the
right to obtain securities identical to those sold short without payment of
further consideration. Such short sales will also be subject to the limitations
on short sale transactions referred to above. Short sales "against the box"
result in a "constructive sale" and require the Fund to recognize any taxable
gain unless an exception to the constructive sale rule applies.
In addition to enabling the Fund to hedge against market risk, short sales
may afford the Fund an opportunity to earn additional current income to the
extent the Fund is able to enter into arrangements with broker-dealers through
which the short sales are executed to receive income with respect to the
proceeds of the short sales during the period the Fund's short positions remain
open. The Fund believe that many broker-dealers will be willing to enter into
such arrangements, but there is no assurance that the Fund will be able to enter
into such arrangements to the desired degree.
SECURITIES OF OTHER INVESTMENT COMPANIES
Subject to 1940 Act limitations and pursuant to applicable SEC
requirements, the Fund may invest in securities issued by other investment
companies which invest in high quality, short-term debt securities and which
determine their net asset value per share based on the amortized cost or
penny-rounding method. As a shareholder of another investment company, the Fund
would bear, along with other shareholders, its pro rata portion of that
company's expenses, including advisory fees. These expenses would be in addition
to the advisory and other expenses that the Fund bears directly in connection
with its own operations. Investment companies in which the Fund may invest may
also impose a sales or distribution charge in connection with the purchase or
redemption of their shares and other types of commissions or charges. Such
charges will be payable by the Fund and, therefore, will be borne indirectly by
its shareholders.
The Fund may invest in securities issued by other investment companies as
described in the Prospectus. The Fund currently intends to limit its investments
in securities issued by other investment companies so that, as determined
immediately after a purchase of such securities is made: (i) not more than 5% of
the value of the Fund's total assets will be invested in the securities of any
one investment company; (ii) not more than 10% of the value of its total assets
will be invested in the aggregate in securities of investment companies as a
group; and (iii) not more than 3% of the outstanding voting stock of any one
investment company will be owned by the Fund or by the Trust as a whole.
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INVESTMENT RESTRICTIONS
FUNDAMENTAL RESTRICTIONS
The Fund is subject to the following investment restrictions, which may be
changed only by a vote of a majority of the Fund's outstanding shares:
(a) the Fund may not borrow money, except as permitted by the 1940
Act, and the rules and regulations promulgated thereunder, as such
statute, rules and regulations are amended from time to time or are
interpreted from time to time by the SEC staff (collectively, the
"1940 Act Laws and Interpretations") or to the extent that the Fund
may be permitted to do so by exemptive order or similar relief
(collectively, with the 1940 Act Laws and Interpretations, the "1940
Act Laws, Interpretations and Exemptions").
(b) the Fund may not issue senior securities, except as may be
permitted by the 1940 Act Laws, Interpretations and Exemptions.
(c) the Fund may not underwrite the securities of other issuers. This
restriction does not prevent the Fund from engaging in transactions
involving the acquisition, disposition or resale of its portfolio
securities, regardless of whether the Fund may be considered to be an
underwriter under the Securities Act of 1933.
(d) the Fund will not make investments that will result in the
concentration (as that term may be defined or interpreted by the 1940
Act Laws, Interpretations and Exemptions) of its investments in the
securities of issuers primarily engaged in the same industry. This
restriction does not limit the Fund's investments in (i) obligations
issued or guaranteed by the U.S. government, its agencies or
instrumentalities, or (ii) tax-exempt obligations issued by
governments or political subdivisions of governments. In complying
with this restriction, the Fund will not consider a bank-issued
guaranty or financial guaranty nsurance as a separate security.
(e) the Fund may not purchase real estate or sell real estate unless
acquired as a result of ownership of securities or other instruments.
This restriction does not prevent the Fund from investing in issuers
that invest, deal, or otherwise engage in transactions in real estate
or interests therein, or investing in securities that are secured by
real estate or interests therein.
(f) the Fund may not purchase physical commodities or sell physical
commodities unless acquired as a result of ownership of securities or
other instruments. This restriction does not prevent the Fund from
engaging in transactions such as futures, contracts and options
thereon or investing in securities that are secured by physical
commodities.
(g) the Fund may not make personal loans or loans to persons who
control or are under the common control of the Fund, except to the
extent permitted by 1940 Act Laws, Interpretations and Exemptions.
This restriction does not prevent a Fund from purchasing debt
obligations, entering into repurchase agreements, loaning its assets
to
10
<PAGE> 27
broker-dealers or institutional investors, or investing in loans,
including assignments and participation interests.
(h) the Fund may, notwithstanding any other fundamental investment
policy or restriction, invest all of its assets in the securities of a
single open-end management investment company with substantially the
same fundamental investment objectives, policies and restrictions as
the Fund.
The investment restrictions set forth above provide the Fund with the
ability to operate under new interpretations of the 1940 Act or pursuant to
exemptive relief from the SEC without receiving prior shareholder approval of
the change. Even though the Fund has this flexibility, the Board of Trustees of
the Trust has adopted internal guidelines for the Fund relating to certain of
these restrictions which the adviser must follow in managing the Fund. Any
changes to these guidelines, which are set forth below, require the approval of
the Board of Trustees.
1. In complying with the borrowing restriction set forth in (a), the Fund
may borrow money in an amount not exceeding 33 1/3% of its total assets
(including the amount borrowed) less liabilities (other than borrowings).
The Fund may borrow from banks, broker/dealers or other investment
companies.
2. In complying with the concentration restriction set forth in (d) above,
the Fund may invest up to 25% of its total assets in the securities of
issuers whose principal business activities are in the same industry.
3. In complying with the lending restrictions set forth in (g) above, the
Fund may lend up to 33 1/3% of its total assets.
4. Notwithstanding the restriction set forth in (h) above, the Fund may not
invest all of its assets in the securities of a single open-end management
investment company with the same fundamental investment objectives,
policies and limitations as the Fund.
If a percentage restriction is adhered to at the time of investment, a
later change in percentage resulting from changes in values of assets will not
be considered a violation of the restriction.
MANAGEMENT
TRUSTEES AND OFFICERS
The Fund is a separate series under Financial Investors Trust (the
"Trust"). The Trust's Board of Trustees oversees the overall management of the
Fund and elects the officers of the Trust. The principal occupations for the
past five years of the Trustees and executive officers of the Trust are listed
below. The address of each, unless otherwise indicated, is 370 Seventeenth
Street, Suite 3100, Denver, Colorado 80202. Trustees deemed to be "interested
persons" of the Trust for purposes of the Investment Company Act of 1940, as
amended, are indicated by an asterisk. All of the Trustees, with the exception
of Mr. Lee and Mr. Maddaloni, were elected at a special meeting of shareholders
held March 21, 1997.
11
<PAGE> 28
<TABLE>
<CAPTION>
- ----------------------------------- ---------------------------- --------------------------------------------------------------
NAME POSITION(S) HELD PRINCIPAL OCCUPATION DURING THE
WITH THE TRUST PAST 5 YEARS**
- ----------------------------------- ---------------------------- --------------------------------------------------------------
<S> <C> <C>
W. Robert Alexander (72)* Trustee, Chairman and Mr. Alexander, a member of the Board of Trustees since
President December 1993, is the Chief Executive Officer of ALPS Mutual
Funds Services, Inc. which provides administration and
distribution services for proprietary mutual fund
complexes. Prior to co-founding ALPS, Mr. Alexander was
Vice Chairman of First Interstate Bank of Denver,
responsible for Trust, Private Banking, Retail Banking, Cash
Management Services and Marketing. Mr. Alexander is
currently a member of the Board of Trustees of the Colorado
Trust, Colorado's largest foundation as well as a Trustee of
the Hunter and Hughes Trusts. Because of his affiliation
with ALPS, Mr. Alexander is considered an "interested"
Trustee of Financial Investors Trust.
- ----------------------------------- ---------------------------- --------------------------------------------------------------
Mary K. Anstine (58) Trustee President/Chief Executive Officer, HealthONE Alliance,
Denver, CO; Former Executive Vice President, First
Interstate Bank of Denver. Ms. Anstine is currently a
Director of the Trust of Colorado, Trustee of the Denver
Area Council of the Boy Scouts of America, a Director of the
Junior Achievement Board and the Colorado Uplift Board, and
a member of the Advisory Boards for the Girl Scouts Mile Hi
Council and the Hospice of Metro Denver. Formerly, Ms.
Anstine served as a Director of ALPS from October 1995 to
December 1996; Director of HealthONE; a member of the
American Bankers Association Trust Executive Committee; and
Director of the Center for Dispute Resolution.
- ----------------------------------- ---------------------------- --------------------------------------------------------------
Edwin B. Crowder (68) Trustee Mr. Crowder currently operates a marketing concern with
operations in the U. S. and Latin America. He has
previously engaged in business pursuits in the restaurant,
oil and gas drilling, and real estate development
industries. Mr. Crowder is a former Director of Athletics
and Head Football Coach at the University of Colorado.
- ----------------------------------- ---------------------------- --------------------------------------------------------------
</TABLE>
12
<PAGE> 29
<TABLE>
<CAPTION>
- ----------------------------------- ---------------------------- --------------------------------------------------------------
NAME POSITION(S) HELD PRINCIPAL OCCUPATION DURING THE
WITH THE TRUST PAST 5 YEARS**
- ----------------------------------- ---------------------------- --------------------------------------------------------------
<S> <C> <C>
Martin J. Maddaloni (60) Trustee Mr. Maddaloni is General President of the United Association
of Journeymen and Apprentices of the Plumbing and Pipe
Fitting Industry of the United States and Canada (United
Association). Mr. Maddaloni is also Chairman of the United
Association's National Pension Fund, Treasurer for the
National Coordinating Committee for Multiemployer Plans
Board of Directors, and he serves as a Member on the Labor
Advisory Board for the American Income Life Insurance
Company (AIL), and a Director of Union Labor Life Insurance
Company (ULLICO). He has served the United Association in
various positions including International Vice President
(District 2), Special Representative, and International
Representative. He is deeply involve d in charity work for
the Special Olympics, Diabetes/Dad's Day, and the Miami
Project to Cure Paralysis.
- ----------------------------------- ---------------------------- --------------------------------------------------------------
John R. Moran, Jr. (69) Trustee Mr. Moran is President of The Colorado Trust, a private
foundation trust serving the health and hospital community
in the State of Colorado. An attorney, Mr. Moran was
formerly a partner with the firm of Kutak Rock & Campbell in
Denver, Colorado and a member of the Colorado House of
Representatives . He is also a member of the Conference of
Southwest Foundations, a member of the Treasurer's Office
Investment Advisory Committee for the University of
Colorado; a Trustee of the Robert J. Kutak Foundation;
Director of the Colorado Wildlife Heritage Foundation; and a
member of the Alumni Council of the University of Denver
College of Law.
- ----------------------------------- ---------------------------- --------------------------------------------------------------
Robert E. Lee (64) Trustee Mr. Lee has been a Director of Storage Technology
Corporation since 1989 and of Equitable of Iowa since 1981.
Mr. Lee was the Executive Director of The Denver Foundation
from 1989 to 1996, and is currently the Executive Director
of Emeritus. Mr. Lee is also a Director of Meredith Capital
Corporation and Source Capital Corporation.
- ----------------------------------- ---------------------------- --------------------------------------------------------------
H. David Lansdowne (52) Vice President President and CEO of Tempest, Isenhart, Chafee, Lansdowne
and Associates, Inc. since January, 1988. Mr. Lansdowne
joined Tempest, Isenhart as Director of Research in 1983.
- ----------------------------------- ---------------------------- --------------------------------------------------------------
</TABLE>
13
<PAGE> 30
<TABLE>
<CAPTION>
- ----------------------------------- ---------------------------- --------------------------------------------------------------
NAME POSITION(S) HELD PRINCIPAL OCCUPATION DURING THE
WITH THE TRUST PAST 5 YEARS**
- ----------------------------------- ---------------------------- --------------------------------------------------------------
<S> <C> <C>
Robert Alder (57) Vice President Executive Vice President of Tempest, Isenhart, Chafee,
Lansdowne and Associates, Inc. since January, 1993.
- ----------------------------------- ---------------------------- --------------------------------------------------------------
Russell C. Burk (41) Secretary Mr. Burk has been General Counsel of ALPS Mutual Funds
Services, Inc., the Administrator and Distributor, since
February 1999. Prior to joining ALPS, Mr. Burk served as
Securities Counsel for Security Life of Denver, A subsidiary
of ING Group. Prior to joining Security Life, Mr. Burk
served as General Counsel for RAF Financial Corporation,
member NASD.
- ----------------------------------- ---------------------------- --------------------------------------------------------------
Jeremy May (29) Treasurer Mr. May has been a Director of Mutual Fund Operations at
ALPS Mutual Funds Services, Inc. since October 1997. Prior
to joining ALPS, Mr. May was an auditor with Deloitte &
Touche LLP in their Denver office.
- ----------------------------------- ---------------------------- --------------------------------------------------------------
</TABLE>
**Except as otherwise indicated, each individual has held the office shown or
other offices in the same company for the last five years.
The non-interested Trustees of the Trust receive from the Trust an annual
fee in the amount of $4,000 and $500 for attending each Board or committee
meeting. The Trustees are reimbursed for all reasonable out-of-pocket expenses
relating to attendance at meetings.
For the Trust's fiscal year ended April 30, 1999, the Trustees were
compensated as follows (Mr. Maddaloni was elected as a Trustee at the December
14, 1999 Trustees Meeting and therefore received no compensation during the
Trust's fiscal year ended April 30, 1999):
<TABLE>
<CAPTION>
- ----------------------------- ---------------------- ---------------------- ------------------ -----------------------
PENSION OR AGGREGATE
RETIREMENT ESTIMATED COMPENSATION
AGGREGATE BENEFITS ANNUAL FROM THE TRUST
COMPENSATION ACCRUED AS BENEFITS AND FUND
FROM THE PART OF FUND UPON COMPLEX PAID
TRUST EXPENSES RETIREMENT TO TRUSTEES
- ----------------------------- ---------------------- ---------------------- ------------------ -----------------------
<S> <C> <C> <C> <C>
Mary K. Anstine, Trustee
$6,500(1) $0 $0 $6,500
- ----------------------------- ---------------------- ---------------------- ------------------ -----------------------
Edwin B. Crowder, Trustee
$6,500(1) $0 $0 $6,500
- ----------------------------- ---------------------- ---------------------- ------------------ -----------------------
Robert E. Lee
Trustee $3,000(1) $0 $0 $3,000
- ----------------------------- ---------------------- ---------------------- ------------------ -----------------------
John R. Moran, Jr. Trustee
$6,500(1) $0 $0 $6,500
- ----------------------------- ---------------------- ---------------------- ------------------ -----------------------
</TABLE>
(1) Member of the Audit Committee.
14
<PAGE> 31
INVESTMENT ADVISER
Interstate Advisors, Inc. ("Interstate") serves as investment Adviser to
the Fund under an Advisory Agreement dated ___________, 2000. The Advisory
Agreement was approved by the Fund's sole shareholder prior to the commencement
of the Fund's operations. The Advisory Agreement provides that the Adviser shall
not be liable for any error of judgement or mistake of law or for any loss
suffered by the Fund in connection with the performance of the Advisory
Agreement, except a loss resulting from a breach of fiduciary duty with respect
to the receipt of compensation for services or a loss resulting from willful
misfeasance, bad faith or gross negligence on the part of the Adviser in the
performance of its duties or from reckless disregard by the Adviser of its
duties and obligations thereunder.
Unless sooner terminated, the Advisory Agreement will continue in effect
with respect to the Fund until ___________, 2001 and from year to year
thereafter, subject to annual approval by the Fund's Board of Trustees, or by a
vote of the majority of the outstanding shares of the Fund and a majority of the
Trustees who are not parties to the Agreement or interested persons (as defined
in the 1940 Act) of any party by votes cast in person at a meeting called for
such purpose. The Advisory Agreement may be terminated by the Fund or the
Adviser on 60 days written notice, and will terminate immediately in the event
of its assignment.
DISTRIBUTION OF FUND SHARES
Shares of the Fund are offered on a continuous basis through ALPS Mutual
Funds Services, Inc. ("ALPS"), 370 17th Street, Suite 3100, Denver, CO 80202, as
Sponsor and Distributor of the Fund. ALPS also serves as administrator and
distributor of other mutual funds. As distributor, ALPS acts as the Fund's agent
to underwrite, sell and distribute shares in a continuous offering.
ADMINISTRATOR, TRANSFER AGENT, BOOKKEEPING AND PRICING AGENT
Pursuant to an Administration Contract, ALPS acts as Administrator for the
Fund. ALPS provides management and administrative services necessary for the
operation of the Fund, including, among other things, (i) preparation of
shareholder reports and communications, (ii) regulatory compliance, such as
reports to and filings with the Securities and Exchange Commission ("SEC") and
state securities commissions and (iii) general supervision of the operation of
the Fund, including coordination of the services performed by the Fund's
adviser, custodian, independent accountants, legal counsel and others. In
addition, ALPS furnishes office space and facilities required for conducting the
business of the Fund and pays the compensation of the Fund's officers, employees
and Trustees affiliated with ALPS.
The Administration Agreement for the Fund was approved by the Board of
Trustees, including a majority of the Trustees who are not parties to the
contracts or interested persons of such parties, at its meeting held on
_____________, 1999. At any time, the Administration Agreement is terminable
with respect to the Fund without penalty by vote of a majority of the Trustees
who are not "interested persons" of the Fund and who have no direct or indirect
financial interest in the Administration Agreement upon
15
<PAGE> 32
not more than 60 days written notice to ALPS or by vote of the holders of a
majority of the shares of the Fund, or, upon 60 days notice by ALPS.
Under separate agreements, ALPS also serves as the transfer and dividend
dispersing agent of the Fund and the bookkeeping and pricing agent of the Fund.
FEES AND EXPENSES
As compensation for advisory, management and administrative services, the
Adviser and ALPS (the "Administrator") are paid a monthly fee at the following
annual rates:
<TABLE>
<CAPTION>
ADVISORY FEE ADMINISTRATIVE FEE
<S> <C>
___% ___%
___% ___%
___% ___%
___% ___%
</TABLE>
DETERMINATION OF NET ASSET VALUE
As indicated under "How are Fund Shares Valued?" in the Prospectus, the
Fund's NAV is calculated at the close of the regular trading session of the New
York Stock Exchange (normally 4:00 p.m. New York Time) each day that the
Exchange is open. The Fund will be closed on the following holidays: New Year's
Day, Martin Luther King, Jr. Day, Presidents' Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day and Christmas Day.
Securities listed on an exchange or over-the-counter are valued on the
basis of the last sale prior to the time the valuation is made. If there has
been no sale since the immediately previous valuation, then the average of the
last bid and asked prices is used. Quotations are taken from the exchange where
the security is primarily traded. Portfolio securities which are primarily
traded on foreign exchanges may be valued with the assistance of pricing
services and are generally valued at the preceding closing values of such
securities on their respective exchanges, except that when an occurrence
subsequent to the time a foreign security is valued is likely to have changed
such value, then the fair value of those securities will be determined by
consideration of other factors by or under the direction of the Board of
Trustees. Also, it is possible that events can occur that have a significant
impact on the value of foreign securities at times when shareholders are unable
to purchase or redeem shares of the Funds.
Securities for which market quotations are not readily available are valued
at fair value as determined in good faith by or at the direction of the Board of
Trustees. Notwithstanding the above, bonds and other fixed-income securities are
valued by using market quotations and may be valued on the basis of prices
provided by a pricing service approved by the Board of Trustees. All assets and
liabilities initially expressed in foreign currencies will be converted into
U.S. dollars at the mean between the bid and asked prices of such currencies
against U.S. dollars as last quoted by any major bank.
16
<PAGE> 33
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
Payment for shares may, in the discretion of the Adviser, be made in the
form of securities that are permissible investments for the Fund as described in
the prospectus. For further information about this form of payment, please
contact ALPS. In connection with an in-kind securities payment, the Fund will
require, among other things, that the securities be valued on the day of
purchase in accordance with the pricing methods used by the fund and that the
fund receive satisfactory assurances that (i) it will have good and marketable
title to the securities received by it; (2) the securities are in proper form
for transfer to the Fund; and (3) adequate information will be provided
concerning the basis and other matters relating to the securities.
Under the 1940 Act, the Fund may suspend the right of redemption or
postpone the date of payment upon redemption for any period during which the New
York Stock Exchange is closed (other than customary weekend and holiday
closings), or during which trading on said exchange is restricted, or during
which (as determined by the SEC by rule or regulation) an emergency exists as a
result of which disposal or valuation of portfolio securities is not reasonably
practicable, or for such other periods as the SEC may permit. (The Fund may also
suspend or postpone the recordation of the transfer of its shares upon the
occurrence of any of the foregoing conditions.)
The Fund may suspend redemption rights or postpone redemption payments (as
well as suspend the recordation of the transfer of shares) for such periods as
are permitted under the 1940 Act. The Fund may also redeem shares involuntarily
or make payment for redemption in securities or other property if it appears
appropriate to do so in light of the Fund's responsibilities under the 1940 Act.
In addition, the Fund may redeem shares involuntarily to reimburse the Fund
for any loss sustained by reason of the failure of a shareholder to make full
payment for shares purchased by the shareholder.
All redemptions of shares of the Fund will be made in cash, except that the
commitment to redeem shares in cash extends only to redemption requests made by
each shareholder of a fund during any 90-day period of up to the lesser of
$250,000 or 1% of the net asset value of the Fund at the beginning of such
period. This commitment is irrevocable without the prior approval of the SEC and
is a fundamental policy of the Fund that may not be changed without shareholder
approval. In the case of redemption requests by shareholders in excess of such
amounts, the Board of Trustees reserves the right to have the Fund make payment,
in whole or in part, in securities or other assets in case of an emergency or
any time a cash distribution would impair the liquidity of the Fund to the
detriment of its existing shareholders. In this event, the securities would be
valued in the same manner as the securities of the Fund are valued. If the
recipient were to sell such securities, he or she may incur brokerage or other
transactional charges.
PORTFOLIO TRANSACTIONS
Pursuant to its Advisory Agreement with the Trust, Interstate is
responsible for making decisions with respect to and placing orders for all
purchases and sales of portfolio securities for the Fund. The Adviser purchases
portfolio securities either directly from the issuer or from an underwriter or
dealer making a market in the securities involved. Purchases from an underwriter
of portfolio securities include a commission or concession paid by the issuer to
the underwriter and purchases from dealers serving as market makers may include
the spread between the bid and asked price. Transactions on stock exchanges
17
<PAGE> 34
involve the payment of negotiated brokerage commissions. There is generally no
stated commission in the case of securities traded in the over-the-counter
market, but the price includes an undisclosed commission or mark-up.
While the Adviser generally seeks competitive spreads or commissions, it
may not necessarily allocate each transaction to the underwriter or dealer
charging the lowest spread or commission available on the transaction.
Allocation of transactions, including their frequency, to various dealers is
determined by the Adviser in its best judgment and in a manner deemed fair and
reasonable to shareholders. Under the Advisory Agreement, pursuant to Section
28(e) of the Securities Exchange Act of 1934, as amended, the Adviser is
authorized to negotiate and pay higher brokerage commissions in exchange for
research services rendered by broker-dealers. Subject to this consideration,
broker-dealers who provide supplemental investment research to the Adviser may
receive orders for transactions by the Fund. Information so received is in
addition to and not in lieu of services required to be performed by the Adviser
and does not reduce the fees payable to the Adviser by the Fund. Such
information may be useful to the Adviser in serving both the Trust and other
clients, and, similarly, supplemental information obtained by the placement of
business of other clients may be useful to the Adviser in carrying out its
obligations to the Trust.
Portfolio securities will not be purchased from or sold to the Trust's
Adviser, Distributor, or any "affiliated person" (as such term is defined under
the 1940 Act) of any of them acting as principal, except to the extent permitted
by the SEC. In addition, the Fund will not give preference to its Adviser's
correspondents with respect to such transactions, securities, savings deposits,
repurchase agreements and reverse repurchase agreements.
The adviser to the Fund has agreed to maintain a policy and practice of
conducting its investment management activities independently of the respective
commercial departments of all of the Adviser's banking affiliates. In making
recommendations for the Trust, the Adviser's personnel will not inquire or take
into consideration whether the issuers of securities proposed for purchase or
sale for the Trust's respective accounts are customers of the respective
commercial departments of the Adviser's affiliates.
Investment decisions for the Fund are made independently from those for the
other funds and for other investment companies and accounts advised or managed
by the Adviser. Such other funds, investment companies and accounts may also
invest in the same securities as the Fund. When a purchase or sale of the same
security is made at substantially the same time on behalf of the Fund and
another investment company or account, the transaction will be averaged as to
price, and available investments allocated as to amount, in a manner which the
Adviser believes to be equitable to the Fund and such other investment company
or account. In some instances, this investment procedure may adversely affect
the price paid or received by the Fund or the size of the position obtained or
sold by the Fund. In connection therewith, and to the extent permitted by law,
and by the Advisory Agreement, the Adviser may aggregate the securities to be
sold or purchased for the Fund with those to be sold or purchased for other
investment companies or advisory clients.
18
<PAGE> 35
TAXATION
The following summarizes certain additional tax considerations generally
affecting the Fund and its shareholders that are not described in the
Prospectus. No attempt is made to present a detailed explanation of the tax
treatment of the Fund or its shareholders or possible legislative changes, and
the discussion here and in the Prospectus is not intended as a substitute for
careful tax planning. Potential investors should consult their tax advisers with
specific reference to their own tax situation.
The Fund will be treated as a separate corporate entity under the Internal
Revenue Code (the "Code") and intends to qualify as a regulated investment
company. In order to qualify for tax treatment as a regulated investment company
under the Code, the Fund must satisfy, in addition to the distribution
requirement described in the Prospectus, certain requirements with respect to
the source of its income during a taxable year. At least 90% of the gross income
of the Fund must be derived from dividends, interest, payments with respect to
securities loans, gains from the sale or other disposition of stocks, securities
or foreign currencies, and other income (including but not limited to gains from
options, futures, or forward contracts) derived with respect to the Fund's
business of investing in such stock, securities or currencies. The Treasury
Department may by regulation exclude from qualifying income foreign currency
gains which are not directly related to the Fund's principal business of
investing in stock or securities, or options and futures with respect to stock
or securities. Any income derived by the Fund from a partnership or trust is
treated as derived with respect to the Fund's business of investing stock,
securities or currencies only to the extent that such income is attributable to
items of income which would have been qualifying income if realized by the Fund
in the same manner as by the partnership or trust.
A 4% non-deductible excise tax is imposed on regulated investment companies
that fail to currently distribute an amount equal to specified percentages of
their ordinary taxable income and capital gain net income (excess of capital
gains over capital losses). The Fund intends to make sufficient distributions or
deemed distributions of its ordinary income and capital gain net income each
calendar year to avoid liability for this excise tax.
If for any taxable year the Fund does not qualify for federal tax treatment
as a regulated investment company, all of the Fund's taxable income will be
subject to federal income tax at regular corporate rates without any deduction
for distributions to its shareholders. In such event, dividend distributions
(including amounts derived from interest on Municipal Securities) would be
taxable as ordinary income to the Fund's shareholders to the extent of the
Fund's current and accumulated earnings and profits, and would be eligible for
the dividends received deduction for corporations.
The Fund may be required in certain cases to withhold and remit to the U.S.
Treasury 31% of taxable dividends or gross proceeds realized upon sale paid to
shareholders who have failed to provide a correct tax identification number in
the manner required, or who are subject to withholding by the Internal Revenue
Service for failure to properly include on their return payments of taxable
interest or dividends, or who have failed to certify to the Fund that they are
not subject to backup withholding when required to do so or that they are
"exempt recipients".
The tax principles applicable to transactions in financial instruments and
futures contracts and options that may be engaged in by the Fund, and
investments in passive foreign investment companies ("PFICs"), are complex and,
in some cases, uncertain. Such transactions and investments may cause the Fund
to recognize taxable income prior to the receipt of cash, thereby requiring the
Fund to liquidate other
19
<PAGE> 36
positions, or to borrow money, so as to make sufficient distributions to
shareholders to avoid corporate-level tax. Moreover, some or all of the taxable
income recognized may be ordinary income or short-term capital gain, so that the
distributions may be taxable to shareholders as ordinary income.
In addition, in the case of any shares of a PFIC in which the Fund invests,
the Fund may be liable for corporate-level tax on any ultimate gain or
distributions on the shares if the Fund fails to make an election to recognize
income annually during the period of its ownership of the shares.
OTHER INFORMATION
DESCRIPTION OF THE TRUST
The Interstate Fund is a Fund of Financial Investors Trust (the "Trust"),
an open-end management investment company organized as a Delaware Business
Trust. The Trust consists of eight funds including the Interstate Fund.
The capitalization of the Fund consists solely of an unlimited number of
shares of beneficial interest with no par value. The Board of Trustees may
establish additional funds (with different investment objectives and fundamental
policies) at any time in the future. Establishment and offering of additional
funds will not alter the rights of the shareholders. When issued, shares are
fully paid, nonassessable, redeemable and freely transferable. Shares do not
have preemptive rights or subscription rights. In any liquidation of the Fund,
each shareholder is entitled to receive their pro rata share of the net assets
of the Fund.
VOTING RIGHTS
Under the Declaration of Trust, the Trust is not required to hold annual
meetings of the Trust's shareholders to elect Trustees or for other purposes. It
is not anticipated that the Trust will hold shareholders' meetings unless
required by law or the Declaration of Trust. In this regard, the Trust will be
required to hold a meeting to elect Trustees to fill any existing vacancies on
the Board if, at any time, fewer than a majority of the Trustees have been
elected by the shareholders of the Trust. In addition, the Declaration of Trust
provides that the holders of not less than two-thirds of the outstanding shares
of the Trust may remove persons serving as Trustee either by declaration in
writing or at a meeting called for such purpose. The Trustees are required to
call a meeting for the purpose of considering the removal of persons serving as
Trustee if requested in writing to do so by the holders of not less than 10% of
the outstanding shares of the Trust. To the extent required by applicable law,
the Trustees shall assist shareholders who seek to remove any person serving as
Trustee.
The Trust's shares do not have cumulative voting rights, so that the
holders of more than 50% of the outstanding shares may elect the entire Board of
Trustees, in which case the holders of the remaining shares would not be able to
elect any Trustees.
Shareholders of all of the Funds in the Trust, as well as those of any
other investment portfolio now or hereafter offered by the Trust, will vote
together in the aggregate and not separately on a fund-by-fund basis, except as
otherwise required by law or when permitted by the Board of Trustees. Rule 18f-2
under the 1940 Act provides that any matter required to be submitted to the
holders of the outstanding
20
<PAGE> 37
voting securities of an investment company such as the Fund shall not be deemed
to have been effectively acted upon unless approved by the holders of a majority
of the outstanding shares of each fund affected by the matter. A fund is not
affected by a matter unless it is clear that the interests of each fund in the
matter are substantially identical or that the matter does not affect any
interest of the fund. Under the Rule, the approval of an investment advisory
agreement or any change in a fundamental investment policy would be effectively
acted upon with respect to a fund only if approved by a majority of the
outstanding shares of such fund. However, the Rule also provides that the
ratification of the appointment of independent auditors, the approval of
principal underwriting contracts and the election of trustees may be effectively
acted upon by shareholders of the funds voting together in the aggregate without
regard to a particular fund.
CUSTODIAN
[ ] has been appointed as the Funds' custodian. Pursuant to a
Custodian Agreement, [ ] is responsible for holding the Funds' cash and
portfolio securities.
PERFORMANCE INFORMATION
The Fund may, from time to time, include its total returns in
advertisements or reports to shareholders or prospective investors.
Quotations of average annual total return will be expressed in terms of the
average annual compounded rate of return of a hypothetical investment in the
Fund over periods of 1, 5 and 10 years (up to the life of the Fund), calculated
pursuant to the following formula:
P(l+T)(n)=ERV
(where P = a hypothetical initial payment of $1,000, T= the average annual total
return, n = the number of years, and ERV = the ending redeemable value of a
hypothetical $1,000 payment made at the beginning of the period). All total
return figures will reflect a proportional share of fund expenses (net of
certain reimbursed expenses) on an annual basis, and will assume that all
dividends and distributions are reinvested when paid.
Quotations of total return will reflect only the performance of a
hypothetical investment in the Fund during the particular time period shown.
Total return for the Fund will vary based on changes in the market conditions
and the level of the Fund's expenses, and no reported performance figure should
be considered an indication of performance which may be expected in the future.
In connection with communicating its total return to current or prospective
shareholders, the Fund also may compare these figures to the performance of
other mutual funds tracked by mutual fund rating services or to other unmanaged
indices which may assume reinvestment of dividends but generally do not reflect
deductions for administrative and management costs.
Performance information for the Fund may be compared, in reports and
promotional literature, to: (i) the Standard & Poor's 500 Stock Index, Dow Jones
Industrial Average, or other unmanaged indices so
21
<PAGE> 38
that investors may compare the Fund's results with those of a group of unmanaged
securities widely regarded by investors as representative of the securities
markets in general; (ii) other groups of mutual funds tracked by Lipper
Analytical Services, a widely used independent research firm which ranks mutual
funds by overall performance, investment objectives, and assets, or tracked by
other services, companies, publications, or persons who rank mutual funds on
overall performance or other criteria, and (iii) the Consumer Price Index
(measure for inflation) to assess the real rate of return from an investment of
dividends but generally do not reflect deductions for administrative and
management costs and expenses.
INDEPENDENT ACCOUNTANTS
Deloitte & Touche LLP serves as the independent accountants for the Fund.
Deloitte & Touche provides audit services, tax return preparation and assistance
and consultation in connection with review of SEC filings. Deloitte & Touche's
address is 555 Seventeenth Street, Suite 3600, Denver, Colorado 80202.
REGISTRATION STATEMENT
This SAI and the prospectus do not contain all the information included in
the Trust's Registration Statement filed with the SEC under the Securities Act
of 1933 with respect to the securities offered hereby, certain portions of which
have been omitted pursuant to the rules and regulations of the SEC. The
Registration Statement, including the exhibits filed therewith, may be examined
at the office of the SEC in Washington, D.C.
Statements contained herein and in the Prospectus as to the contents of any
contract or other documents referred to are not necessarily complete, and, in
each instance, reference is made to the copy of such contract or other documents
filed as an exhibit to the Registration Statement, each such statement being
qualified in all respects by such reference.
22
<PAGE> 39
PART C. OTHER INFORMATION
<TABLE>
<CAPTION>
Item 23. Exhibits
--------
<S> <C> <C>
* (a) (1) Trust Instrument.
* (2) Revised Trust Instrument.
* (b) (1) By-Laws of Registrant.
* (2) Revised By-Laws of Registrant.
(c) None.
* (d) (1) Investment Advisory Contract between Registrant
and GE Investment Management, Incorporated with
respect to the U.S. Treasury Money Market Fund.
* (2) Investment Advisory Contract between Registrant
and GE Investment Management, Incorporated with
respect to the U.S. Government Money Market Fund.
** (3) Investment Advisory Contract between Registrant
and Tempest, Isenhart, Chafee, Lansdowne &
Associates, Inc. with respect to the Aristata
Equity Fund.
** (4) Investment Advisory Contract between Registrant
and Tempest, Isenhart, Chafee, Lansdowne &
Associates, Inc. with respect to the Aristata
Quality Bond Fund.
** (5) Investment Advisory Contract between Registrant
and Tempest, Isenhart, Chafee, Lansdowne &
Associates, Inc. with respect to the Aristata
Colorado Quality Tax-Exempt Fund.
** (6) Investment Advisory Contract between Registrant
and GE Investment Management, Incorporated with
respect to the Prime Money Market Fund.
</TABLE>
<PAGE> 40
<TABLE>
<S> <C> <C>
***** (7) Investment Advisory Contract between Registrant
and National City Investment Management Company.
** (e) (1) Distribution Agreement between Registrant and ALPS
Mutual Funds Services, Inc.
***** (2) Amended Distribution Agreement between Registrant
and ALPS Mutual Funds Services, Inc.
***** (3) Amended and restated Administration Agreement
between Registrant and ALPS Mutual Funds Services,
Inc.
(f) None.
* (g) (1) Custodian Contract between Registrant and State
Street Bank and Trust Company.
* (2) Custodian Contract between Registrant and Fifth
Third Bank.
***** (3) Custodian Contract between Registrant and National
City Bank.
** (h) (1) Transfer Agency and Service Agreement between
Registrant and ALPS Mutual Funds Services, Inc.
***** (2) Amended and Restated Transfer Agency and Service
Agreement between Registrant and ALPS Mutual Funds
Services, Inc.
** (3) Bookkeeping and Pricing Agreement between
Registrant and ALPS Mutual Funds Services, Inc.
***** (4) Amended Bookkeeping and Pricing Agreement between
Registrant and ALPS Mutual Funds Services, Inc.
*** (5) Subscription Agreement.
(i) Opinion and Consent of Davis, Graham & Stubbs LLP,
counsel to Registrant (to be provided by
amendment).
</TABLE>
<PAGE> 41
<TABLE>
<S> <C> <C>
(j) Consent of Independent Public Accountants Deloitte
& Touche, LLP (to be provided by amendment).
(k) None
(l) None
****(m) (1) Distribution Plan - Prime Money Market Fund Class
II
***** (2) Distribution Plan - United Association S & P 500
Index Fund.
(n) Omitted by Rule Change
****(o) Rule 18f-3 Plan
</TABLE>
* Filed with Post-Effective Amendment No. 7 to Registrant's Registration
Statement on August 28, 1997.
** Filed with Post-Effective Amendment No. 10 to Registrant's Registration
Statement on June 12, 1998
*** Filed with Post-Effective Amendment No. 5 to Registrant's Registration
Statement on August 28, 1996.
**** Filed with Post-Effective Amendment 12 to Registrant's Registration
Statement on June 29, 1999.
***** Filed with Post-Effective Amendment 15 to Registrant's Registration
Statement on February 14, 2000.
Item 24. Persons Controlled by or under Common Control with Registrant.
None.
Item 25. Indemnification.
As permitted by Section 17(h) and (i) of the Investment Company Act of 1940
(the "1940 Act") and pursuant to Article X of the Registrant's Trust Instrument
(Exhibit 1 to the Registration Statement), Section 7 of each Investment Advisory
Agreement (Exhibits 5(a), 5(b), 5(c), 5(d) and 5(e) to this Registration
Statement) and Sections 1.9 and 1.10 of the Distribution Agreement (Exhibit 6(a)
to this Registration Statement), officers, trustees, employees and agents of the
Registrant will not be liable to the Registrant, any shareholder, officer,
trustee, employee, agent or other person for any action or failure to act,
except for bad faith, willful misfeasance, gross negligence or reckless
disregard of duties, and those individuals may be indemnified against
liabilities in connection with the Registrant, subject to the same exceptions.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 (the "Securities Act") may be permitted to trustees, officers and
controlling persons
<PAGE> 42
of the Registrant pursuant to the foregoing provisions, or otherwise, the
Registrant understands that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Securities 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 Securities
Act and will be governed by the final adjudication of such issue.
The Registrant has purchased an insurance policy insuring its officers and
trustees against liabilities, and certain costs of defending claims against such
officers and trustees, to the extent such officers and trustees are not found to
have committed conduct constituting willful misfeasance, bad faith, gross
negligence or reckless disregard in the performance of their duties. The
insurance policy also insures the Registrant against the cost of indemnification
payments to officers under certain circumstances.
Section 7 of each Investment Advisory Contract and Section 1.9 of the
Distribution Contract limit the liability of GE Investment Management, Inc.,
Tempest, Isenhart, Chafee, Lansdowne & Associates, Inc. and ALPS Mutual Funds
Services, Inc., respectively, to liabilities arising from willful misfeasance,
bad faith or gross negligence in the performance of their respective duties or
from reckless disregard by them of their respective obligations and duties under
the agreements.
The Registrant hereby undertakes that it will apply the indemnification
provisions of its Declaration of Trust, By-Laws, Investment Advisory Contracts
and Distribution Contract in a manner consistent with Release No. 11330 of the
Securities and Exchange Commission under the 1940 Act so long as the
interpretations of Section 17(h) and 17(i) of such Act remain in effect and are
consistently applied.
Item 26. Business and Other Connections of Investment Advisers
With respect to all Funds, reference is made to "Management of the Trust"
in the Prospectus for each such Fund forming Part A and "Management" in the
Statement of Additional Information for such Funds forming Part B of this
Registration Statement.
The list required by this Item 28 of officers and directors of GEIM,
together with information as to any other business, profession, vocation or
employment of a substantial nature engaged in by those officers and directors
during the past two years, is incorporated by reference to Schedules A and D of
Form ADV filed by GEIM pursuant to the Investment Advisers Act of 1940, as
amended (SEC File No. 801-31947).
<PAGE> 43
The list required by this Item 28 of officers and directors of Tempest,
Isenhart, Chafee, Lansdowne & Assocs. ("Tempest"), together with information as
to any other business, profession, vocation or employment of a substantial
nature engaged in by those officers and directors during the past two years, is
incorporated by reference to Schedules A and D of Form ADV filed by Tempest
pursuant to the Investment Advisers Act of 1940, as amended (SEC File No.
801-11809-3).
The list required by this Item 28 of officers and directors of National
City Investment Management Company ("National City"), together with information
as to any other business, profession, vocation or employment of a substantial
nature engaged in by those officers and directors during the past two years, is
incorporated by reference to Schedules A and D of Form ADV filed by National
City pursuant to the Investment Advisers Act of 1940, as amended (SEC File No.
801-446).
Item 27. Principal Underwriter
(a) ALPS Mutual Funds Services, Inc. acts as Distributor/Underwriter
for various other unrelated registered investment companies.
(b) Officers and Directors
<TABLE>
<CAPTION>
Name and Principal Positions and Offices with
Business Address* Positions and Offices with Registrant Underwriter
- ------------------ ------------------------------------- ---------------------------------
<S> <C> <C>
W. Robert Alexander Chairman of the Board of Chairman and Chief
Trustees and President Executive Officer and
Secretary
Arthur J. L. Lucey None President and Director
Thomas A. Carter None Chief Financial Officer
Edmund J. Burke None Executive Vice President
and Director
Russell C. Burk Secretary General Counsel
Jeremy O. May Assistant Treasurer Vice Presdent
Rick A. Pederson None Director
Chris Woessner None Director
John Hannon None Director
</TABLE>
- --------------------------
*All addresses are 370 Seventeenth Street, Suite 3100, Denver, Colorado 80202.
<PAGE> 44
(c) Not applicable.
Item 28. Location of Accounts and Records
All accounts, books and other documents required to be maintained by
Section 31(a) of the Investment Company Act of 1940 and the rules thereunder are
maintained at the offices of ALPS Mutual Funds Services, Inc., General Electric
Investment Management, Inc. and Tempest, Isenhart, Chafee, Lansdowne &
Associates, Inc..
Item 29. Management Services
Not applicable.
Item 30. Undertakings.
(a) Registrant undertakes to call a meeting of shareholders for the
purpose of voting upon the removal of a trustee if requested to
do so by the holders of at least 10% of the Registrant's
outstanding shares.
(b) Registrant undertakes to provide the support to shareholders
specified in Section 16(c) of the 1940 Act as though that section
applied to the Registrant.
(c) Registrant hereby undertakes to furnish each person to whom a
prospectus is delivered with a copy of Registrant's latest annual
report upon request and without a charge.
<PAGE> 45
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and Rule 485(a)
thereunder and the Investment Company Act of 1940, the Registrant certifies that
it has duly caused this Post-Effective Amendment No. 16 of its Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the city of Denver, and State of Colorado, on February 29, 2000.
FINANCIAL INVESTORS TRUST (Registrant)
By: /s/ W. ROBERT ALEXANDER
-----------------------------------
W. Robert Alexander
Trustee and President
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <C>
/s/ W. ROBERT ALEXANDER Trustee and February 29, 2000
- ------------------------
W. Robert Alexander President
/s/ ROBERT E. LEE Trustee February 29, 2000
- ------------------------
Robert E. Lee
/s/ MARY K. ANSTINE Trustee February 29, 2000
- ------------------------
Mary K. Anstine
/s/ EDWIN B. CROWDER Trustee February 29, 2000
- ------------------------
Edwin B. Crowder
/s/ JOHN R. MORAN, JR Trustee February 29, 2000
- ------------------------
John R. Moran, Jr.
/s/ MARTIN MADDALONI Trustee February 29, 2000
- ------------------------
Martin Maddaloni
</TABLE>
