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[INTERSTATE FUND LOGO]
SEMI-ANNUAL REPORT
October 31, 2000
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LETTER FROM THE INVESTMENT ADVISER
Dear Fellow Shareholders:
The Interstate Fund began operation on July 5, 2000. One might observe that
starting a mutual fund this past summer would be akin to opening a department
store in 1932. The concept may be good, but the timing is a little off.
Against that market environment, the Interstate Fund steadfastly implemented
its discipline of identifying companies with positive earnings momentum and
upward earnings revisions. With an economy that has been slowing down, finding
these types of stocks is not an easy task. There has also been a great deal of
debate among investors and analysts as to which sectors of the economy will be
the right place to be in the months ahead. This is one reason for the extreme
level of volatility, not just among technology issues, but virtually all market
sectors. While investment capital tries to decide where to best position
itself, this constant push/pull among the forces of supply and demand have made
it very difficult to outperform the overall market.
For example, the first two weeks of July were good ones for the fund, with the
next three weeks being very difficult. the remainder of August was excellent
with September not doing well. The month of October, with all its volatility,
still ended on a positive note. From July 5, 2000 (inception) to October 31,
2000 the Fund's total return was (1.90)% versus the S&P 500 index at (2.40)%.
This back and forth movement is characteristic of an emotional market trying to
decide how the economy will perform in the months ahead. Causing this turmoil
are the six interest rate increases since June 1999 that have started to work
their monetary magic. The "Fed" wanted to slow down an economy that they
perceived was headed for higher inflation. Problem was, there was never any
inflation in the first place, so rising rates only succeeded in reducing wealth
among the population, slowing investment in technology, reducing corporate
profits and putting a few more people out of work.
Now the evidence is coming in that the Fed has overshot their target and caused
damage to what was an already great economy. This means that the fed will need
to lower interest rates as soon as possible to avoid the recessional path we
are on. Look for rate cuts in early 2001 to revive corporate earnings and
remove the burden that this market has been under for the past 18 months.
Are technology stocks a worthwhile investment anymore or have their best days
already gone by?
The only thing that will continue to drive this economy forward with low
inflation are the efficiencies we get with improved productivity. Technology of
all kinds will continue to be in demand and in typical american fashion, we all
will want things to be quicker, easier and cheaper. This is a great time to be
investing in technology issues but with this caveat: Forget about the
"dartboard" method (you know, throw a dart at any stock in the paper and it
will go up). Those stocks with positive earnings momentum that are priced
inexpensively should outperform the market. That is precisely what our
discipline seeks to invest in.
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LETTER FROM THE INVESTMENT ADVISER (CONTINUED)
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Understandably, investors are concerned about their lack of returns this year,
but history has shown that most declines in the market are short term in
nature. We continue to remain bullish on America's ability to innovate and be
productive, and feel this will be reflected in a positive stock market for
2001.
Arthur D. Lyons
President
Interstate Advisors, Inc.
Total returns reflect reinvestment of all dividends, capital gains
distributions and all fee waivers. Without the fee waivers, the total return
figures would have been lower. Past performance is not indicative of future
results. Principal value may fluctuate and shares, when redeemed, may be worth
more or less than their original cost.
The Standard & Poor's 500 Index (S&P 500) is an unmanaged index containing
common stocks of 500 industrial, transportation, utility and financial
companies, regarded as generally representative of the U.S. stock market. The
return per the total return index reflects the reinvestment of income dividends
and capital gain distributions, if any, but does not reflects fees, brokerage
commissions, or other expenses of investing.
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STATEMENT OF INVESTMENTS
October 31, 2000 (Unaudited)
<TABLE>
<CAPTION>
Shares Market Value*
------ -------------
<S> <C> <C>
COMMON STOCKS - 99.27%
CAPITAL GOODS - 11.64%
Boeing Co 2,000 $135,624
Esterline Technologies Corp** 3,000 66,938
Minnesota Mng & Mfg Co 900 86,963
Quanta Svcs Inc** 4,500 139,781
SPX Corp** 500 61,813
Tyco Intl Ltd 2,300 130,381
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TOTAL CAPITAL GOODS 621,500
========
COMPUTER SERVICES - 6.56%
Electronic Data Systems 2,500 117,344
Sandisk Corp** 2,000 107,468
Silicon Storage Technology Inc** 5,500 125,125
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TOTAL COMPUTER SERVICES 349,937
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CONSUMER CYCLICALS - 12.31%
AVIS Group Holdings Cl A** 3,000 89,624
Federated Dept Stores Inc** 1,800 58,613
Intimate Brands Inc Cl A 5,700 136,088
Manpower Inc 2,000 69,625
Polycom Inc** 1,000 65,000
Ryland Group Inc 2,500 80,625
Walt Disney Co 2,500 89,531
Zale Corp** 2,000 67,750
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TOTAL CONSUMER CYCLICALS 656,856
========
CONSUMER STAPLES - 9.64%
Brinker International Inc** 2,500 98,125
Constellation Brands Inc Cl A** 1,500 73,125
McCormick & Co Inc 2,000 63,375
Pepsi Bottling Group Inc 4,300 148,888
PepsiCo Inc 2,700 130,781
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TOTAL CONSUMER STAPLES 514,294
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ELECTRONICS - 9.25%
Arrow Electronics Inc 4,600 147,200
C&D Technologies Inc 1,900 112,337
CTS Corp 2,000 85,875
Flextronics Int'l Ltd 3,900 148,200
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TOTAL ELECTRONICS 493,612
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</TABLE>
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STATEMENT OF INVESTMENTS (CONTINUED)
October 31, 2000 (Unaudited)
<TABLE>
<CAPTION>
SHARES MARKET VALUE*
------ -------------
<S> <C> <C>
ENERGY - 1.74%
Amerada Hess Corp 1,500 $ 93,000
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TOTAL ENERGY 93,000
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FINANCIAL - 12.40%
American International Group 1,000 98,000
Citigroup Inc 2,733 143,824
Fleetboston Financial Corp 3,500 133,000
Household International Inc 1,500 75,469
Silicon Valley Bancshares** 3,000 138,750
UCBH Holdings Inc 2,000 72,750
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TOTAL FINANCIAL 661,793
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HEALTHCARE - 8.19%
Alpharma Inc CL A 1,300 50,456
Edwards Lifesciences Corp** 4,000 53,750
Elan PLC ADR** 2,200 114,263
Laboratory Corp Amer Hldgs** 500 67,438
Polymedica Corp** 1,500 86,250
Rehabcare Group Inc** 1,500 64,781
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TOTAL HEALTHCARE 436,938
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SEMICONDUCTOR - 11.14%
Fairchild Semiconductor Intl** 4,900 103,206
Integrated Device Technology** 1,700 95,731
International Rectifier** 2,800 124,950
Kemet Corp** 2,600 72,475
Mattson Technology** 5,000 58,750
Novellus Sys Inc** 1,500 61,406
Vishay Intertechnology** 2,600 78,000
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TOTAL SEMICONDUCTOR 594,518
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SOFTWARE - 8.99%
Adobe Sys Inc 1,600 121,700
First Data Corp 3,100 155,388
Peoplesoft Inc** 3,000 130,922
Peregrine Systems Inc** 3,000 72,000
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TOTAL SOFTWARE 480,010
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TELECOMMUNICATIONS - 3.66%
Adtran Inc** 2,800 106,400
Scientific Atlanta Inc 1,300 88,969
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TOTAL TELECOMMUNICATIONS 195,369
========
</TABLE>
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STATEMENT OF INVESTMENTS (CONTINUED)
October 31, 2000 (Unaudited)
<TABLE>
<CAPTION>
SHARES MARKET VALUE*
------ -------------
<S> <C> <C>
TRANSPORTATION - 2.19%
Canadian Pacific LTD 4,000 $ 116,750
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TOTAL TRANSPORTATION 116,750
UTILITIES - 1.56%
Dynegy Inc Cl A 1,800 83,363
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TOTAL UTILITIES 83,363
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TOTAL COMMON STOCKS 5,297,940
(Cost $5,177,051) ---------
MONEY MARKET MUTUAL FUNDS - 0.87%
Firstar Treasury 46,541 46,541
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TOTAL MONEY MARKET MUTUAL FUNDS 46,541
(Cost $46,541) ---------
TOTAL INVESTMENTS - 100.14% 5,344,481
(Cost $5,223,592)
Liabilities in Excess of Other Assets - (0.14%) (7,364)
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NET ASSETS - 100% 5,337,117
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</TABLE>
*See notes to financial statements.
** Non-income producing security
Cl - Class
ADR - American Depositary Receipt
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STATEMENT OF ASSETS AND LIABILITIES (UNAUDITED)
October 31, 2000
<TABLE>
<S> <C>
ASSETS:
Investments, at value (Cost- $5,223,592).......... $ 5,344,481
Receivable for investments sold................... 1,133,195
Receivable from adviser........................... 14,029
Interest and dividend receivable.................. 1,608
Prepaid and other assets.......................... 5,123
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Total assets 6,498,436
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LIABILITIES:
Payable for investments purchased................. 1,135,323
Payable for portfolio shares redeemed............. 4,918
Accrued administration fee........................ 3,945
Accrued fund accounting fee....................... 3,464
Accrued transfer agent fee........................ 2,736
Accrued 12b-1 fee................................. 4,025
Other payables and accrued expenses............... 6,908
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1,161,319
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NET ASSETS........................................ $ 5,337,117
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COMPOSITION OF NET ASSETS
Paid in capital................................... $ 5,464,565
Accumulated net investment loss................... (4,233)
Accumulated net realized loss on investments...... (244,104)
Net unrealized appreciation on investments........ 120,889
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NET ASSETS........................................ $ 5,337,117
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NET ASSET VALUE PER SHARE
Net Assets........................................ $ 5,337,117
Shares of Beneficial Interest Outstanding......... 544,022
Net Asset Value Per Share......................... $ 9.81
</TABLE>
See notes to financial statements.
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STATEMENT OF OPERATIONS (UNAUDITED)
For the Period July 5, 2000 (inception) to October 31, 2000
<TABLE>
<S> <C>
INVESTMENT INCOME
Interest $ 14,657
Dividends 5,262
-----------
Total Income 19,919
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EXPENSES
Investment advisory fee (Note 5) 16,101
Administration fee (Note 5) 14,548
Fund accounting fee 10,533
Transfer agency fee 9,698
Legal Fee 1,617
Registration Fee 3,134
Custodian fee 2,998
12b-1 Fee (Note 5) 4,025
Other 6,113
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Total Expenses 68,767
Waiver of Expenses (Note 5) (44,615)
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Net Expenses 24,152
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NET INVESTMENT LOSS (4,233)
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Net realized loss on investments (197,191)
Net realized loss on futures (68,189)
Net realized gain on options 21,276
Net change in unrealized appreciation/depreciation on investments 120,889
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Net Realized and Unrealized Loss (123,215)
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NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS $ (127,448)
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</TABLE>
See notes to financial statements.
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STATEMENT OF CHANGES IN NET ASSETS (UNAUDITED)
For the period July 5, 2000 (inception) to October 31, 2000
<TABLE>
<S> <C>
INCREASE IN NET ASSETS:
OPERATIONS:
Net investment loss $ (4,233)
Net realized loss on investments (244,104)
Net change in unrealized appreciation/depreciation on investments 120,889
-----------
Net decrease in net assets from operations (127,448)
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DISTRIBUTIONS 0
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SHARE TRANSACTIONS (NOTE 2):
Proceeds from sale of shares 6,001,482
Reinvested dividends 0
Cost of shares redeemed (536,917)
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Net increase in net assets from share transactions 5,464,565
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NET INCREASE IN NET ASSETS 5,337,117
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NET ASSETS:
Beginning of period 0
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End of period (includes accumulated net investment
loss of $4,233) $ 5,337,117
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</TABLE>
See notes to financial statements.
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FINANCIAL HIGHLIGHTS (UNAUDITED)
Selected data for a share of beneficial interest outstanding through the
period indicated:
<TABLE>
<CAPTION>
FOR THE PERIOD JULY 5,
2000 (INCEPTION)
TO OCTOBER 31, 2000
----------------------
<S> <C>
SELECTED PER-SHARE DATA:
Net asset value - beginning of period $ 10.00
---------
Income from investment operations:
Net investment loss (0.01)
Net realized and unrealized loss on investments (0.18)
---------
Total loss from investment operations (0.19)
---------
Distributions 0.00
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Net asset value - end of period $ 9.81
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Total Return -1.90%
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RATIOS AND SUPPLEMENTAL DATA:
Net assets, end of period (000) $ 5,337
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Ratio of expenses to average net assets(1) 1.50%
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Ratio of net investment loss to average net assets(1) -0.26%
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Ratio of expenses to average net assets without fee waivers(1) 4.27%
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Ratio of net investment loss to average net assets without fee waivers(1) -3.03%
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Portfolio turnover rate(2) 70.59%
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</TABLE>
(1) Annualized
(2) A portfolio turnover rate is, in general, the percentage computed by taking
the lesser of purchases or sales of portfolio securities (excluding securities
with a maturity date of one year or less at the time of acquisition) for a
period and dividing it by the monthly average of the market value of the such
securities during the period. Purchases and sales of investment securities
(excluding short-term securities) for the period from July 5, 2000 (inception)
to October 31, 2000 were $2,612,206 and $7,965,173, respectively.
See notes to financial statements.
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NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
1. SIGNIFICANT ACCOUNTING POLICIES
Financial Investors Trust (the "Trust"), a Delaware business trust, is
registered under the Investment Company Act of 1940, as amended, as an open-end
management investment company. The financial statements included herein relate
to The Interstate Fund (the "Fund"). The financial statements of the remaining
portfolios of the Trust are presented separately.
The following is a summary of significant accounting policies
consistently followed by the Fund in the preparation of its financial
statements. The policies are in conformity with generally accepted accounting
principles.
INVESTMENT VALUATION: Securities of the Fund are valued as of the
close of regular trading on the New York Stock Exchange, normally 4:00 p.m.
(Eastern time), on each trading day. Listed and unlisted securities for which
such information is regularly reported are valued at the last sales price of
the day or, in the absence of sales, at values based on the average closing bid
and asked price. Securities for which market quotations are not readily
available are valued under procedures established by the Board of Trustees to
determine fair value in good faith. Short-term securities having a remaining
maturity of 60 days or less are valued at amortized cost which approximates
market value.
FEDERAL INCOME TAXES: It is the Fund's policy to comply with the
provisions of the Internal Revenue Code applicable to regulated investment
companies and to distribute all of its taxable income to shareholders.
Therefore, no federal income tax provision is required.
EXPENSES: Most expenses of the Trust can be directly attributed to a
Fund. Expenses which cannot be directly attributed are apportioned among all
funds in the Trust based on average net assets.
DIVIDENDS: The Fund will declare and pay dividends from net investment
income, if any, annually in December. Dividends from net realized gains, if
any, are declared at least once a year. Dividends to shareholders are recorded
on the ex-dividend date.
OPTION CONTRACTS: The Fund may purchase or write options contracts to
manage their exposure to changing interest rates and security prices. Options
involve to varying degrees, elements of market risk and risks possibly in
excess of the amount recognized in the Statement of Assets and Liabilities.
Risks may be caused by an imperfect correlation between movements in the price
of the instruments and the price of the underlying securities and interest
rates. Risks also may arise if there is an illiquid secondary market for the
instruments, or due to the inability of counterparties to perform. The risk of
loss from purchasing options is limited to initial amounts invested, while the
risk of loss from writing options may be unlimited. Options are valued using
the last sale price or, in the absence of a sale, the last offering price.
FUTURES CONTRACTS: The Fund invests in financial futures contracts
solely for the purpose of hedging its existing portfolio securities, or
securities that the Fund intends to purchase, against fluctuations in fair
value caused by changes in prevailing market interest rates. Upon entering into
a financial futures contract, the Fund is required to pledge to the
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THE INTERSTATE FUND
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NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
broker an amount of cash and/or other assets equal to a certain percentage of
contract amount (initial margin deposit). Subsequent payments, known as
"variation margin," are made or received by the Fund each day, depending on the
daily fluctuations in the fair value of the underlying security. The Fund
recognizes a gain or loss equal to the daily variation margin. Should market
conditions move unexpectedly, the Fund may not achieve the anticipated benefits
of the financial futures contracts and may realize a loss. The use of futures
transactions involves the risk of imperfect correlation in movements in the
price of futures contracts, interest rates, and the underlying hedged assets.
OTHER: Investment transactions are accounted for on the date the
investments are purchased or sold (trade date). Dividend income is recorded on
the ex-dividend date. Interest income is accrued and recorded daily. Realized
gains and losses from investment transactions and unrealized appreciation and
depreciation of investments are reported on an identified cost basis which is
the same basis the Fund uses for federal income tax purposes.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts and disclosures in the financial
statements. Actual results could differ from these estimates.
2. SHARES OF BENEFICIAL INTEREST
On October 31, 2000, there was an unlimited number of no par value
shares of beneficial interest authorized. Transactions in shares of beneficial
interest for the period ended October 31, 2000 were as follows:
<TABLE>
<CAPTION>
AMOUNT SHARES
----------- -----------
<S> <C> <C>
Shares sold $ 6,001,482 596,455
Shares redeemed (536,917) (52,433)
----------- -----------
Net increase $ 5,464,565 544,022
=========== ===========
</TABLE>
3. UNREALIZED APPRECIATION AND DEPRECIATION ON INVESTMENTS (TAX BASIS)
<TABLE>
<CAPTION>
AS OF OCTOBER 31, 2000
<S> <C>
Gross appreciation (excess of value over tax cost) $ 488,589
Gross depreciation (excess of tax cost over value) (367,700)
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Net unrealized appreciation $ 120,889
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Cost of investments for income tax purposes $ 5,223,592
===========
</TABLE>
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NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
4. CALL OPTIONS WRITTEN
Transactions in options written during the period July 5, 2000 (inception)
through October 31, 2000 were as follows:
<TABLE>
<CAPTION>
NUMBER OF
CONTRACTS PREMIUM
------------ ------------
<S> <C> <C>
Options outstanding at July 5, 2000 (inception) 0 $ 0
Options written during the period 36 13,330
Options exercised during the period (8) (3,302)
Options expired during the period (28) (10,028)
----------- -----------
Options outstanding at October 31, 2000 0 $ 0
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</TABLE>
5. INVESTMENT ADVISORY FEES, ADMINISTRATION FEES, DISTRIBUTION PLAN, AND OTHER
RELATED PARTY TRANSACTIONS
Interstate Advisors, Inc. (the "Adviser") serves as investment adviser
to the Fund pursuant to an investment advisory agreement with the Trust. For
its services, the Adviser is entitled to receive a fee, computed daily and
payable monthly, at the annual rate of 1.00% of the Fund's average daily
net assets up to $500 million, 0.75% of the Fund's average daily net assets on
the next $500 million and 0.50% of the Fund's average daily net assets in
excess of $1 billion. The Adviser has agreed to voluntarily waive a portion of
its fees so that the total annual expenses of the Fund will not exceed the
voluntary expense limitations adopted by the Adviser. Fee waivers by the
Adviser are voluntary and may be terminated at any time.
ALPS Mutual Funds Services, Inc. ("ALPS") serves as the administrator
to the Fund. ALPS is entitled to receive a fee from the Fund, computed daily
and payable monthly, at the annual rate of the greater of $45,000 per year or
0.05% of the average daily net assets.
The Trustees have adopted a Distribution Plan on behalf of the Fund
pursuant to Rule 12b-1 under the Investment Company Act of 1940, as amended.
The Distribution Plan provides for payment of a fee to ALPS at the annual rate
of up to .25% of the average daily net assets.
Shareholders holding more than 10% of the Funds' outstanding shares as
of October 31, 2000 constituted 84.12% of the Fund.
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This Fund is neither insured nor guaranteed by the U.S. Government, the FDIC,
the Federal Reserve Board or any other governmental agency or insurer.
INVESTMENT ADVISER
Interstate Advisors, Inc.
125 Townpark Drive, Suite 300
Kennesaw, Georgia 30144
ADMINISTRATOR, DISTRIBUTOR, TRANSFER AGENT & FUND ACCOUNTANT
ALPS Mutual Funds Services, Inc.
370 Seventeenth Street
Suite 3100
Denver, Colorado 80202
LEGAL COUNSEL
Davis, Graham & Stubbs LLP
370 Seventeenth Street
Suite 4700
Denver, Colorado 80202
INDEPENDENT AUDITORS
Deloitte & Touche LLP
555 Seventeenth Street Suite 3600
Denver, Colorado 80202
CUSTODIAN
Firstar Bank
425 Walnut Street Cincinnati, Ohio 45202
MUST BE ACCOMPANIED OR PRECEDED BY A CURRENT PROSPECTUS.
FOR MORE INFORMATION, PLEASE CALL 1-888-761-9525.
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