STATEMENT OF ADDITIONAL INFORMATION
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Name of Fund
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Class A
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Class C
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Class I
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ALPS/Alerian MLP
Infrastructure Index Fund
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ALERX
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ALRCX
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ALRIX
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P.O. Box 44386
Denver, CO 80201
This Statement of Additional Information (“SAI”)
expands upon and supplements the information contained in the current Prospectuses for Class A Shares, Class C Shares and Class I Shares (collectively, the “Shares”) of the Fund listed above, which is a separate series of Financial
Investors Trust, a Delaware statutory trust (the “Trust”). Each series of the Trust represents shares of beneficial interest in a separate portfolio of securities and other assets with its own objective and policies. ALPS Advisors, Inc.
(“ALPS Advisors”) is the investment adviser of the Fund.
This Statement of Additional Information (“SAI”)
is not a prospectus and is only authorized for distribution when preceded or accompanied by the Fund’s current prospectus dated November 30, 2012, as supplemented from time to time (the “Prospectus”). This SAI supplements and
should be read in conjunction with the Prospectus, a copy of which may be obtained without charge by writing the Fund at the address listed above, or by calling the Fund’s transfer agent at 866.759.5679. The Fund’s most recent Annual
Report, if any, is incorporated by reference into this SAI and can be obtained free of charge, by calling the toll-free number printed above.
TABLE OF CONTENTS
CLASSIFICATION, INVESTMENT OBJECTIVES AND POLICIES
Financial Investors Trust
This Statement of Additional Information (the “SAI”) includes information about ALPS/Alerian MLP Infrastructure Index Fund. The Fund is a series of the Trust, an open-end, management investment
company organized as a Delaware statutory trust on November 30, 1993.
Classification
The Investment Company Act of 1940, as amended (the “1940 Act”), classifies mutual funds as either diversified or
non-diversified. The Fund is classified as non-diversified.
What are the Funds’ Investment Objectives?
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The investment objective of the Fund is to seek investment results that correspond (before fees and expenses) generally to the price and yield
performance of its underlying index, the Alerian MLP Infrastructure Index (the “Index”).
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While
there is no assurance that the Fund will achieve its investment objective, it endeavors to do so by following the strategies and policies described in this SAI.
The Fund’s Board of Trustees (the “Board”) may change this objective or the Fund’s principal investment strategies without a shareholder vote. The Fund will notify you in writing at
least sixty (60) days before making any such change. If there is a material change to the Fund’s objective or principal investment strategies, you should consider whether the Fund remains an appropriate investment for you.
What are the Fund’s Principal Investment Strategies?
The Fund employs a “passive management” - or indexing - investment approach designed to track the performance of the Index. The Index is a rules based, modified capitalization weighted, float
adjusted index intended to give investors a means of tracking the overall performance of the United States energy infrastructure Master Limited Partnership (“MLP”) asset class. The Index was developed by Alerian, a leading provider of
objective MLP benchmarks, data and analytics (“Alerian”). The Index is comprised of 25 energy infrastructure MLPs that earn a majority of their cash flow from the transportation and storage of energy commodities. As of June 30, 2012,
the U.S. dollar-denominated market capitalizations of the Index Components ranged from approximately $1 billion to approximately $46 billion.
The Fund will normally invest at least 90% of its total net assets in securities that comprise the Index (or depositary receipts based on such securities). The Fund generally will invest in all of the
securities that comprise the Index in proportion to their weightings in the Index; however, under various circumstances, it may not be possible or practicable to purchase all of the securities in the Index in those weightings. In those
circumstances, the Fund may purchase a sample of the securities in the Index or utilize various combinations of other available investment techniques in seeking performance which corresponds to the performance of the Index.
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MLPs are publicly traded partnerships engaged in the transportation, storage and processing
of minerals and natural resources. By confining their operations to these specific activities, their interests, or units, are able to trade on public securities exchanges exactly like the shares of a corporation, without entity level taxation. Of
the seventy MLPs eligible for inclusion in the Index, approximately two-thirds trade on the New York Stock Exchange (“NYSE”) and the rest trade on the NASDAQ Stock Market (“NASDAQ”).
To qualify as a MLP and to not be taxed as a corporation, a partnership must receive at least 90% of its income from qualifying sources
as set forth in Section 7704(d) of the Internal Revenue Code of 1986, as amended (the “Code”). These qualifying sources include natural resource-based activities such as the processing, transportation and storage of mineral or natural
resources. MLPs generally have two classes of owners, the general partner and limited partners. The general partner of an MLP is typically owned by a major energy company, an investment fund, the direct management of the MLP, or is an entity owned
by one or more of such parties. The general partner may be structured as a private or publicly traded corporation or other entity. The general partner typically controls the operations and management of the MLP through an up to 2% equity interest in
the MLP plus, in many cases, ownership of common units and subordinated units. Limited partners typically own the remainder of the partnership, through ownership of common units, and have a limited role in the partnership’s operations and
management.
MLPs are typically structured such that common units and general partner interests have first priority to receive
quarterly cash distributions up to an established minimum amount (“minimum quarterly distributions” or “MQD”). Common and general partner interests also accrue arrearages in distributions to the extent the MQD is not paid. Once
common and general partner interests have been paid, subordinated units receive distributions of up to the MQD; however, subordinated units do not accrue arrearages. Distributable cash in excess of the MQD is paid to both common and subordinated
units and is distributed to both common and subordinated units generally on a pro rata basis. The general partner is also eligible to receive incentive distributions if the general partner operates the business in a manner which results in
distributions paid per common unit surpassing specified target levels. As the general partner increases cash distributions to the limited partners, the general partner receives an increasingly higher percentage of the incremental cash distributions.
INVESTMENT POLICIES AND RISKS
Investment in the Fund should be made with an understanding that the value of the portfolio of securities held by the Fund may fluctuate
in accordance with changes in the financial condition of the issuers of the portfolio securities, the value of common stocks generally and other factors.
The Fund is not actively managed by traditional methods and therefore the adverse financial condition of any one issuer will not result in the elimination of its securities from the portfolio securities
held by the Fund unless the securities of such issuer are removed from its Index.
An investment in the Fund should also be
made with an understanding that the Fund will not be able to replicate exactly the performance of its Index because the total return generated by its portfolio securities will be reduced by transaction costs incurred in adjusting the actual balance
of such securities and other Fund expenses, whereas such transaction costs and expenses are not included in the calculation of its Index. It is also possible that for short periods of time, the Fund may not fully replicate the performance of its
Index due to the temporary unavailability of certain Index securities in the Secondary Market or due to other extraordinary circumstances. Such events are unlikely to continue for
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an extended period of time because the Fund is required to correct such imbalances by means of adjusting the composition of its portfolio securities.
The Index consists of a number of components (the “Index Components”) selected in accordance with Alerian’s rules-based
methodology for such Index. Each qualification of an Index Component set forth below is measured as of each quarterly rebalance date.
Under normal circumstances, at least 90% of the Fund’s net assets, plus the amount of any borrowings for investment purposes will be invested in its Index Components. In addition, the Fund may invest
up to 10% of its net assets in investments not included in its Index, but which the Adviser (as defined below) believes will help the Fund track the Index. For example, there may be instances in which the Adviser may choose to purchase (or sell)
securities not in the Index which the Adviser believes are appropriate to substitute for one or more Index Components in seeking to replicate, before fees and expenses, the performance of the Index.
Furthermore, the Fund may invest in one or more financial instruments, including but not limited to futures contracts, swap agreements
and forward contracts, reverse repurchase agreements, and options on securities, indices and futures contracts (collectively, “Financial Instruments”). As an example of the use of such Financial Instruments, the Fund may use total return
swaps on one or more Index Components in order to achieve exposures that are similar to those of the Index. The Fund will not directly employ leverage in its investment strategies.
The following is not meant to be an exclusive list of all the securities and instruments in which the Fund may invest, the investment
strategies or activities in which it may engage, or the risks associated with both. The Fund may invest in instruments and securities and engage in strategies or activities other than those listed below, and may be subject to risks that are not
described here.
Loans of Portfolio Securities
. The Fund will not lend its portfolio securities.
Senior Securities
. In general, the Fund may not issue any class of senior security, except within the limitations of the 1940 Act.
These limitations allow the Fund to (i) borrow from banks, provided that immediately following any such borrowing there is an asset coverage of at least 300% for all Fund borrowings and in the event such asset coverage falls below 300% the Fund
will within three days or such longer period as the SEC may prescribe by rules and regulations, reduce the amount of its borrowings to an extent that the asset coverage of such borrowings shall be at least 300%, and (ii) engage in trading
practices which could be deemed to involve the issuance of a senior security, including but not limited to options, futures, forward contracts, and reverse repurchase agreements, provided that the Fund earmarks or segregates liquid assets in
accordance with applicable SEC regulations and interpretations.
Repurchase Agreements
. The Fund may enter into
repurchase agreements, which are agreements pursuant to which securities are acquired by the Fund from a third party with the understanding that they will be repurchased by the seller at a fixed price on an agreed date. These agreements may be made
with respect to any of the portfolio securities in which the Fund is authorized to invest. Repurchase agreements may be characterized as loans secured by the underlying securities. The Fund may enter into repurchase agreements with (i) member
banks of the Federal Reserve System having total assets in excess of $500 million and (ii) securities dealers (“Qualified Institutions”). The Adviser will monitor the continued creditworthiness of Qualified Institutions.
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The use of repurchase agreements involves certain risks. For example, if the seller of
securities under a repurchase agreement defaults on its obligation to repurchase the underlying securities, as a result of its bankruptcy or otherwise, the Fund will seek to dispose of such securities, which action could involve costs or delays. If
the seller becomes insolvent and subject to liquidation or reorganization under applicable bankruptcy or other laws, the Fund’s ability to dispose of the underlying securities may be restricted. Finally, it is possible that the Fund may not be
able to substantiate its interest in the underlying securities. To minimize this risk, the securities underlying the repurchase agreement will be held by the custodian at all times in an amount at least equal to the repurchase price, including
accrued interest. If the seller fails to repurchase the securities, the Fund may suffer a loss to the extent proceeds from the sale of the underlying securities are less than the repurchase price.
The resale price reflects the purchase price plus an agreed upon market rate of interest. The collateral is marked-to-market daily.
Reverse Repurchase Agreements
. The Fund may enter into reverse repurchase agreements, which involve the sale of
securities with an agreement to repurchase the securities at an agreed-upon price, date and interest payment and have the characteristics of borrowing. The securities purchased with the funds obtained from the agreement and securities
collateralizing the agreement will have maturity dates no later than the repayment date. Generally, the effect of such transactions is that the Fund can recover all or most of the cash invested in the portfolio securities involved during the term of
the reverse repurchase agreement, while in many cases the Fund is able to keep some of the interest income associated with those securities. Such transactions are only advantageous if the Fund has an opportunity to earn a greater rate of return on
the cash derived from these transactions than the interest cost of obtaining the same amount of cash. Opportunities to realize earnings from the use of the proceeds equal to or greater than the interest required to be paid may not always be
available and the Fund intends to use the reverse repurchase technique only when the Adviser believes it will be advantageous to the Fund. The use of reverse repurchase agreements may exaggerate any interim increase or decrease in the value of the
Fund’s assets. The custodian bank will maintain a separate account for the Fund with securities having a value equal to or greater than such commitments. Under the 1940 Act, reverse repurchase agreements are considered loans.
Money Market Instruments
. The Fund may invest a portion of its assets in high-quality money market instruments on an ongoing basis
to provide liquidity. The instruments in which the Fund may invest include: (i) short-term obligations issued by the U.S. Government; (ii) negotiable certificates of deposit (“CDs”), fixed time deposits and bankers’
acceptances of U.S. and foreign banks and similar institutions; (iii) commercial paper rated at the date of purchase “Prime-1” by Moody’s Investors Service, Inc. or “A-1+” or “A-1” by Standard &
Poor’s or, if unrated, of comparable quality as determined by the Adviser; (iv) repurchase agreements; and (v) money market mutual funds. CDs are short-term negotiable obligations of commercial banks. Time deposits are non-negotiable
deposits maintained in banking institutions for specified periods of time at stated interest rates. Banker’s acceptances are time drafts drawn on commercial banks by borrowers, usually in connection with international transactions.
Investment Companies
. The Fund may invest in the securities of other investment companies (including money market funds). Under
the 1940 Act, the Fund’s investment in investment companies is limited to, subject to certain exceptions, (i) 3% of the total outstanding voting stock of any one investment company, (ii) 5% of the Fund’s total assets with respect
to any one investment company and (iii) 10% of the Fund’s total assets of investment companies in the aggregate.
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Illiquid Securities
. The Fund may invest up to an aggregate amount of 15% of its net
assets in illiquid securities. Illiquid securities include securities subject to contractual or other restrictions on resale and other instruments that lack readily available markets.
Derivatives
. The Fund may engage in a variety of derivative transactions in accordance with the applicable rules of the
Commodity Futures Trading Commission (“CFTC”), and, to the extent applicable, the rules and regulations of certain national or foreign exchanges; however, the Fund is not obligated to use derivatives and makes no representation as to the
availability of these techniques at this time or at any time in the future. Generally, derivatives are financial contracts whose value depends on, or is derived from, the value of an underlying asset, reference rate or index and may relate to
stocks, bonds, interest rates, currencies or currency exchange rates, commodities, related indexes and other assets. The types of derivatives in which the Fund may invest include, but are not limited to, interest rate, currency or stock or bond
index futures contracts, currency forward contracts and currency swaps, the purchase and sale (or writing) of exchange listed and OTC put and call options on debt and equity securities, currencies, interest rate, currency or stock index futures and
fixed-income and stock indices and other financial instruments, entering into various interest rate transactions such as swaps, caps floors, and collars, entering into equity swaps, caps and floors, the purchase and sale of indexed debt securities
or trading in other similar types of instruments.
Derivatives may be used, among other reasons, as part of the
Fund’s investment strategy, to attempt to protect against possible changes in the market value of securities held or to be purchased for the Fund’s portfolio resulting from securities markets or currency exchange rate fluctuations, to
protect the Fund’s unrealized gains in the value of its securities, to facilitate the sale of those securities for investment purposes, to manage the effective maturity or duration of the Fund’s portfolio or to establish a position in the
derivatives markets as a temporary substitute for purchasing or selling particular securities or to seek to enhance the Fund’s income or gain. The Fund may use any or all types of derivatives which it is authorized to use at any time; no
particular strategy will dictate the use of one type of transaction rather than another, as use of any authorized derivative will be a function of numerous variables, including market conditions. The ability of the Fund to utilize derivatives
successfully will depend on numerous factors including the Adviser’s ability to predict pertinent market movements, which cannot be assured. These skills are different from those needed to select the Fund’s portfolio securities.
Subject to the constraints described above, the Fund may (if and to the extent so authorized) purchase and sell interest
rate, currency or stock or bond index futures contracts and enter into currency forward contracts and currency swaps; purchase and sell (or write) exchange listed and OTC put and call options on securities, loan participations and assignments,
currencies, futures contracts, indices and other financial instruments, and the Fund may enter into interest rate transactions, equity swaps and related transactions and other similar transactions which may be developed to the extent the
Adviser determines that they are consistent with the Fund’s investment objective and policies and applicable regulatory requirements. The Fund’s interest rate transactions may take the form of swaps, caps, floors and collars, and
the Fund’s currency transactions may take the form of currency forward contracts, currency futures contracts, currency swaps and options on currencies or currency futures contracts.
Derivatives involve special risks, including possible default by the other party to the transaction, illiquidity and, to the extent the
Adviser’s view as to certain market movements is incorrect, the risk that the use of derivatives could result in significantly greater losses than if it had not been used. Losses resulting from the use of derivatives will reduce the Fund’s
net asset value, and possibly income, and the losses may be significantly greater than if derivatives had not been used. The degree of the Fund’s use of derivatives may be limited by certain provisions of the Internal Revenue Code of
1986, as amended.
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When used, derivatives may increase the amount and affect the timing and character of taxes payable by shareholders.
Rule 4.5 under the Commodity Exchange Act (“CEA”), as amended, exempts an adviser of a fund that invests in “commodity interests” from registration as a “commodity pool
operator” (“CPO”) provided that, among other restrictions, the adviser enters into such positions solely for “bona fide hedging purposes” or limits its use of commodity interests for non-bona fide hedging purposes such that
(i) the aggregate initial margin and premiums required to establish non-bona fide hedging positions do not exceed 5% of the liquidation value of the fund’s portfolio, or (ii) the aggregate “notional value” of the non-bona
fide hedging commodity interests do not exceed 100% of the liquidation value of the fund’s portfolio.
The Adviser of the
Fund intends to comply with the requirements of the CEA by at all times either (i) operating the Fund in a manner consistent with the restrictions of Rule 4.5, including filing a notice of eligibility of exemption from registration in
accordance with applicable procedures and deadlines, and/or (ii) registering as a CPO with the CFTC and the National Futures Association (“NFA”).
Futures and Options
. The Fund may utilize exchange-traded futures and options contracts as permitted under CFTC
rules.
Futures contracts generally provide for the future sale by one party and purchase by another party of a specified
commodity at a specified future time and at a specified price. Stock index futures contracts are settled daily with a payment by one party to the other of a cash amount based on the difference between the level of the stock index specified in the
contract from one day to the next. Futures contracts are standardized as to maturity date and underlying instrument and are traded on futures exchanges.
Futures traders are required to make a good faith margin deposit in cash or U.S. government securities with a broker or custodian to initiate and maintain open positions in futures contracts. A margin
deposit is intended to assure completion of the contract (delivery or acceptance of the underlying commodity or payment of the cash settlement amount) if it is not terminated prior to the specified delivery date. Brokers may establish deposit
requirements which are higher than the exchange minimums. Futures contracts are customarily purchased and sold on margin deposits which may range upward from less than 5% of the value of the contract being traded.
After a futures contract position is opened, the value of the contract is marked-to-market daily. If the futures contract price changes
to the extent that the margin on deposit does not satisfy margin requirements, payment of additional “variation” margin will be required. Conversely, a change in the contract value may reduce the required margin, resulting in a repayment
of excess margin to the contract holder. Variation margin payments are made to and from the futures broker for as long as the contract remains open. In such case, the Fund would expect to earn interest income on its margin deposits. Closing out an
open futures position is done by taking an opposite position (“buying” a contract which has previously been “sold,” or “selling” a contract previously “purchased”) in an identical contract to terminate the
position. Brokerage commissions are incurred when a futures contract position is opened or closed.
The Fund may use
exchange-traded futures and options, together with positions in cash and money market instruments, to simulate full investment in its Underlying Index. Under such circumstances, the Adviser may seek to utilize other instruments that it believes to
be correlated to the Underlying Index components or a subset of the components.
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An option on a futures contract, as contrasted with the direct investment in such a
contract, gives the purchaser the right, in return for the premium paid, to assume a position in the underlying futures contract at a specified exercise price at any time prior to the expiration date of the option. Upon exercise of an option, the
delivery of the futures position by the writer of the option to the holder of the option will be accompanied by delivery of the accumulated balance in the writer’s futures margin account that represents the amount by which the market price of
the futures contract exceeds (in the case of a call) or is less than (in the case of a put) the exercise price of the option on the futures contract. The potential for loss related to the purchase of an option on a futures contract is limited to the
premium paid for the option plus transaction costs. Because the value of the option is fixed at the point of purchase, there are no daily cash payments by the purchaser to reflect changes in the value of the underlying contract; however, the value
of the option changes daily and that change would be reflected in the net asset value (“NAV”) of the Fund. The potential for loss related to writing call options on equity securities or indices is unlimited. The potential for loss related
to writing put options is limited only by the aggregate strike price of the put option less the premium received.
The Fund
may purchase and write put and call options on futures contracts that are traded on a U.S. exchange as a hedge against changes in value of its portfolio securities, or in anticipation of the purchase of securities, and may enter into closing
transactions with respect to such options to terminate existing positions. There is no guarantee that such closing transactions can be effected.
The Adviser of the Fund intends to comply with the requirements of the CEA by at all times either (i) operating the Fund in a manner consistent with the restrictions of Rule 4.5, including filing a
notice of eligibility of exemption from registration in accordance with applicable procedures and deadlines, and/or (ii) registering as a CPO with the CFTC and the NFA.
Swap Agreements
. The Fund may enter into swap agreements as permitted under CFTC rules. Swap agreements are contracts between parties in which one party agrees to make periodic payments to the
other party (the “Counterparty”) based on the change in market value or level of a specified rate, index or asset. In return, the Counterparty agrees to make periodic payments to the first party based on the return of a different specified
rate, index or asset. Swap agreements will usually be done on a net basis, the Fund receiving or paying only the net amount of the two payments. The net amount of the excess, if any, of the Fund’s obligations over its entitlements with respect
to each swap is accrued on a daily basis and an amount of cash or highly liquid securities having an aggregate value at least equal to the accrued excess is maintained in an account at the Trust’s custodian bank.
The use of interest rate and index swaps is a highly specialized activity that involves investment techniques and risks different from
those associated with ordinary portfolio security transactions. These transactions generally do not involve the delivery of securities or other underlying assets or principal.
The use of swap agreements involves certain risks. For example, if the Counterparty under a swap agreement defaults on its obligation to make payments due from it, as a result of its bankruptcy or
otherwise, the Fund may lose such payments altogether, or collect only a portion thereof, which collection could involve costs or delays.
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INVESTMENT LIMITATIONS
Fundamental Investment Restrictions
The following is a description of fundamental policies that may not be changed without the vote of a majority of the Fund’s outstanding voting securities. Under the 1940 Act, the vote of a
majority of the outstanding securities of a company means the vote, at the annual or a special meeting of the security holders of such company duly called: (A) of 67 per centum or more of the voting securities present at such meeting, if
the holders of more than 50 per centum of the outstanding voting securities of such company are present or represented by proxy; or (B) of more than 50 per centum of the outstanding voting securities of such company, whichever is
less. The other restrictions set forth below, as well as the Fund’s investment objective and each of the other investment restrictions set forth in the Prospectus or this SAI and not designated as fundamental, are not fundamental policies
and may be changed by the Board. The percentages set forth below and the percentage limitations set forth in the Prospectus apply at the time of the purchase of a security and shall not be considered violated unless an excess or deficiency
occurs or exists immediately after and as a result of a purchase of such security.
Except for restriction (2), any limitation
which involves a maximum percentage shall not be considered violated unless an excess over the percentage occurs immediately after, and is caused by, an acquisition or encumbrance of securities or assets of, or borrowings by, the Fund. With respect
to the Fund’s fundamental investment restriction 7, asset coverage of at least 300% (as defined in the 1940 Act), inclusive of any amounts borrowed, must be maintained at all times.
As a matter of fundamental policy, the Fund (except as otherwise noted below) may not:
(1) Invest 25% of its total assets in the securities of issuers conducting their principal business activities in the same industry or group of industries (excluding the U.S. government or any of its
agencies or instrumentalities); except that, to the extent the Fund’s Index is concentrated in a particular industry or group of industries, the Fund’s investments will exceed this 25% limitation to the extent that it is necessary to gain
exposure to Index Components (as defined below) to track its Index.
(2) Borrow money, except that the Fund may
(i) borrow money from banks for temporary or emergency purposes (but not for leverage or the purchase of investments) up to 10% of its total assets and (ii) make other investments or engage in other transactions permissible under the 1940
Act that may involve a borrowing, provided that the combination of (i) and (ii) shall not exceed 33 1/3% of the value of the Fund’s total assets (including the amount borrowed), less the Fund’s liabilities (other than
borrowings).
(3) Act as an underwriter of another issuer’s securities, except to the extent that the Fund may be deemed
to be an underwriter within the meaning of the Securities Act of 1933 in connection with the purchase and sale of portfolio securities.
(4) Make loans to other persons, except through (i) the purchase of debt securities permissible under the Fund’s investment policies, (ii) repurchase agreements or (iii) the lending of
portfolio securities, provided that no such loan of portfolio securities may be made by the Fund if, as a result, the aggregate of such loans would exceed 33 1/3% of the value of the Fund’s total assets.
(5) Purchase or sell physical commodities unless acquired as a result of ownership of securities or other instruments (but this shall not
prevent the Fund (i) from purchasing or selling options, futures
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contracts or other derivative instruments, or (ii) from investing in securities or other instruments backed by physical commodities).
(6) Purchase or sell real estate unless acquired as a result of ownership of securities or other instruments (but this shall not prohibit
the Fund from purchasing or selling securities or other instruments backed by real estate or of issuers engaged in real estate activities).
(7) Issue senior securities, except as permitted under the 1940 Act.
Except for
restriction (2), if a percentage restriction is adhered to at the time of investment, a later increase in percentage resulting from a change in market value of the investment or the total assets, or the sale of a security out of the portfolio, will
not constitute a violation of that restriction.
For the purposes of restriction (1), the Fund currently intends to use the
Global Industry Classification Standard (“GICS”). These classifications are not fundamental policies of the Fund. The Fund may use other classification titles, standards and systems from time to time.
In addition to the foregoing fundamental investment policies, the Fund is also subject to the following non-fundamental restrictions and
policies, which may be changed at any time by the Board of Trustees without shareholder approval. The Fund may not:
(1) Sell
securities short, unless the Fund owns or has the right to obtain securities equivalent in kind and amount to the securities sold short at no added cost, and provided that transactions in options, futures contracts, options on futures contracts, or
other derivative instruments are not deemed to constitute selling securities short.
(2) Purchase securities on margin, except
that the Fund may obtain such short-term credits as are necessary for the clearance of transactions; and provided that margin deposits in connection with futures contracts, options on futures contracts or other derivative instruments shall not
constitute purchasing securities on margin.
(3) Purchase securities of open-end or closed-end investment companies except in
compliance with the 1940 Act.
(4) Invest in illiquid securities if, as a result of such investment, more than 15% of the
Fund’s net assets would be invested in illiquid securities.
PORTFOLIO TURNOVER
Purchases and sales of portfolio securities may be made as considered advisable by the Adviser in the best interests of
the shareholders. The Fund’s portfolio turnover rate may vary from year to year, as well as within a year. The Fund’s distributions of any net short-term capital gains realized from portfolio transactions are taxable to shareholders as
ordinary income. In addition, higher portfolio turnover rates can result in corresponding increases in portfolio transaction costs for the Fund. See “Portfolio Transactions and Brokerage” in this SAI.
For reporting purposes, the Fund’s portfolio turnover rate is calculated by dividing the lesser of purchases or sales of portfolio
securities for the fiscal year by the monthly average of the value of the portfolio securities owned by the Fund during the fiscal year. In determining such portfolio turnover, all securities whose maturities at the time of acquisition were one year
or less are excluded. A 100%
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portfolio turnover rate would occur, for example, if all of the securities in the Fund’s investment portfolio (other than short-term money market securities) were replaced once during the
fiscal year. Portfolio turnover will not be a limiting factor should the Adviser deem it advisable to purchase or sell securities.
DISCLOSURE OF PORTFOLIO HOLDINGS
This Policy
sets forth the conditions under which Portfolio Holdings data for Financial Investors Trust (the “Trust”) on behalf of the Fund (the “Fund”) may be disclosed to Third Parties (which may include the public) and Service Providers.
No data about the Fund may be disclosed except in accordance with this Policy.
Portfolio Holdings data includes, but is not
limited to, the following information about the Fund: (i) specific securities held; (ii) industry sector breakdowns as a percentage of portfolio net assets; (iii) asset composition (e.g., equities versus bonds); (iv) U.S. versus
foreign holdings percentage breakdowns and regional breakdowns (e.g., Asia, North America); and (v) top 10 portfolio holdings in order of position size, including percentage of portfolio.
“Third Parties” or a “Third Party” means a person other than a Service Provider, an employee of a Service Provider, a
Trustee of the Board, or an officer of the Funds.
“Service Providers” or a “Service Provider” includes,
but is not limited to, the investment adviser administrator, custodian, transfer agent, fund accountant, principal underwriter, software or technology service providers, pricing and proxy voting service providers, research and trading service
providers, auditors, accountants, and legal counsel, or any other entity that has a need to know such information in order to fulfill their contractual obligations to provide services to the Fund.
Policy Overview
The
Board has adopted, on behalf of the Fund, policies and procedures relating to disclosure of the Portfolio Holdings. These policies and procedures are designed to protect the confidentiality of the Portfolio Holdings’ information and to prevent
the selective disclosure of such information. These policies and procedures may be modified at any time with the approval of the Board.
In order to protect the Fund from any trading practices or other use by a Third Party that could harm the Fund, Portfolio Holdings’ and other Fund-specific information must not be selectively
released or disclosed except under the circumstances described below.
The Board will periodically review the list of entities
that have received, other than through public channels, Portfolio Holdings data, to ensure that the disclosure of the information was in the best interest of shareholders, identify any potential for conflicts of interest and evaluate the
effectiveness of its current portfolio holding policy.
The identity of such entities is provided below:
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Name of Recipient
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Frequency of
Holdings
Disclosure
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Information
Lag
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Date of
Information
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Date Provided
to Recipients
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ALPS Advisors, Inc.
(Adviser)
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Daily
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None
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Daily
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Daily
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10
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ALPS Fund Services, Inc.
(Administrator)
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Daily
|
|
None
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Daily
|
|
Daily
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|
The Bank of New York Mellon
(Custodian)
|
|
Daily
|
|
None
|
|
Daily
|
|
Daily
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|
Deloitte & Touche LLP
(Accountant)
|
|
As needed
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|
None
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|
As needed
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|
As needed
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Davis Graham & Stubbs LLP
(Counsel)
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|
As needed
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None
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|
As needed
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As needed
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|
FactSet Research Systems Inc.
|
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Daily
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|
None
|
|
Daily
|
|
Daily
|
Only officers of the Fund and their authorized agents, including, but not limited to, the Chief
Compliance Officer of the investment adviser, may approve the disclosure of the Fund’s Portfolio Holdings. Except as set forth under “Policy Exceptions” below, exceptions to this Policy may only be made if an officer of the Fund and
its authorized agents, including, but not limited to, the Chief Compliance Officer of the investment adviser, determines that the disclosure is being made for a legitimate business purpose and such disclosures must be documented and reported to the
Board on a quarterly basis. In all cases, Third Parties and Service Providers are required to execute a non-disclosure agreement requiring the recipient to keep confidential any Portfolio Holdings data received and not to trade on the Confidential
Portfolio Information (defined below) received. Neither the Trust nor its Service Providers (nor any persons affiliated with either) can receive any compensation or other consideration in connection with the sharing of the Fund’s Portfolio
Holdings.
Disclosure of the Portfolio Holdings’ information that is not publicly available (“Confidential Portfolio
Information”) may be made to Service Providers. In addition, to the extent permitted under applicable law, the investment adviser may distribute (or authorize the custodian or principal underwriter to distribute) Confidential Portfolio
Information to the Fund’s relevant Service Providers and to facilitate the review of the Fund by certain mutual fund analysts and ratings agencies (such as Morningstar and Lipper Analytical Services) (“Rating Agencies”); provided that
such disclosure is limited to the information that the investment adviser or sub-adviser believes is reasonably necessary in connection with the services to be provided. As noted above, except to the extent permitted under this Policy, Confidential
Portfolio Information may not be disseminated for compensation or other consideration.
Before any disclosure of Confidential
Portfolio Information to Service Providers or Rating Agencies is permitted, the applicable Fund’s investment adviser’s Chief Compliance Officer (or persons designated by the investment adviser’s Chief Compliance Officer) must
determine in writing that, under the circumstances, the disclosure is being made for a legitimate business purpose. Furthermore, the recipient of Confidential Portfolio Information by a Service Provider or Rating Agency must be subject to a written
confidentiality agreement that prohibits any trading upon the Confidential Portfolio Information or the recipient must be subject to professional or ethical obligations not to disclose or otherwise improperly use the information, such as would apply
to independent registered public accounting firms or legal counsel.
The Fund’s investment adviser shall have primary
responsibility for ensuring that the Portfolio Holdings’ information is disclosed only in accordance with this Policy. As part of this responsibility, the Fund’s investment adviser will maintain such internal policies and procedures as it
believes are reasonably necessary for preventing the unauthorized disclosure of Confidential Portfolio Information.
11
Full Portfolio Holdings
Except as set forth in this Policy, the full holdings of the Fund will be disclosed on a quarterly basis on forms required to be filed with the U.S. Securities and Exchange Commission (“SEC”) as
follows: (i) Portfolio Holdings as of the end of each fiscal year will be filed as part of the annual report filed on Form N-CSR; (ii) Portfolio Holdings as of the end of the first and third fiscal quarters will be filed in Form N-Q; and
(iii) Portfolio Holdings as of the end of the second fiscal quarter will be filed as part of the semi-annual report filed on Form N-CSR. The Trust’s Form N-CSRs and Form N-Qs are available on the SEC’s website at
www.sec.gov
.
Partial Portfolio Holdings
Except as set forth in this Policy, partial Portfolio Holdings information will only be provided to third Parties for the most recent month-end period and only after a thirty (30) calendar day delay
from the end of the month being provided. These holdings may include any combination of the Portfolio Holdings information, except for full Portfolio Holdings.
Policy Exceptions
The following disclosures of Portfolio Holdings are not
prohibited by this Policy:
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¡
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Disclosures that are required by law
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¡
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Disclosures necessary for Service Providers (defined above);
|
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¡
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|
Disclosure necessary for Rating Agencies to assess applicable fund ratings.
|
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|
¡
|
|
Disclosures necessary to broker-dealers or banks as part of the normal buying, selling, shorting, or other transactions in portfolio securities
|
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|
¡
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|
Disclosures to the applicable Fund’s or Service Providers’ regulatory authorities, accountants, or counsel; or
|
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|
¡
|
|
Disclosures to the adviser or sub-adviser of a Fund of compiled data concerning accounts managed by the particular adviser or sub-adviser.
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PORTFOLIO TRANSACTIONS AND BROKERAGE
Investment Decisions and Portfolio Transactions
Investment decisions for the Fund are made with a view to achieving its investment objectives. Investment decisions are the product of many factors in addition to basic suitability for the particular
client involved (including the Fund). Some securities considered for investment by the Fund may also be appropriate for other clients served by the Adviser. Thus, a particular security may be bought or sold for certain clients even though it could
have been bought or sold for other clients at the same time. If a purchase or sale of securities consistent with the investment policies of the Fund and one or more of these clients is considered at or about the same time, transactions in such
securities will be allocated among the Fund and clients in a manner deemed fair and reasonable by the Adviser. Particularly when investing in less liquid or illiquid securities of smaller capitalization companies, such allocation may take into
account the asset size of the Fund in determining whether the allocation of an investment is suitable. The Adviser may aggregate orders for the Fund with simultaneous transactions entered into on behalf of its other clients so long as price and
transaction expenses are averaged either for the portfolio transaction or for that day. Likewise, a particular security may be bought for one or more clients when
12
one or more clients are selling the security. In some instances, one client may sell a particular security to another client. It also sometimes happens that two or more clients simultaneously
purchase or sell the same security, in which event each day’s transactions in such security are, insofar as possible, averaged as to price and allocated between such clients in a manner which in the Adviser’s opinion is equitable to each
and in accordance with the amount being purchased or sold by each. There may be circumstances when purchases or sales of portfolio securities for one or more clients will have an adverse effect on other clients, including the Fund.
Brokerage and Research Services
The Adviser places orders for the purchase and sale of portfolio securities, options and futures contracts and buys and sells such securities, options and futures for the Fund through a substantial number
of brokers and dealers. In so doing, the Adviser uses its best efforts to obtain for the Fund the most favorable price and execution available, except to the extent it may be permitted to pay higher brokerage commissions as described below. In
seeking the most favorable price and execution, the Adviser, having in mind the Fund’s best interests, considers all factors it deems relevant, including, by way of illustration, price, the size of the transaction, the nature of the market for
the security, the amount of the commission, the timing of the transaction taking into account market prices and trends, the reputation, experience and financial stability of the broker-dealer involved and the quality of service rendered by the
broker-dealer in that or other transactions.
The Adviser places orders for the purchase and sale of portfolio investments for
the Fund’s accounts with brokers or dealers selected by it in its discretion. In effecting purchases and sales of portfolio securities for the accounts of the Fund, the Adviser will seek the best price and execution of the Fund’s orders.
In doing so, the Fund may pay higher commission rates than the lowest available when the Adviser believes it is reasonable to do so in light of the value of the brokerage and research services provided by the broker effecting the transaction, as
discussed below. Although the Fund may use a broker-dealer that sells Fund shares to effect transactions for the Fund’s portfolios, the Fund will not consider the sale of Fund shares as a factor when selecting broker-dealers to execute those
transactions.
There is generally no stated commission in the case of fixed-income securities and other securities traded on a
principal basis in the over-the-counter markets, but the price paid by the Fund usually includes an undisclosed dealer commission or markup. In underwritten offerings, the price paid by the Fund includes a disclosed, fixed commission or discount
retained by the underwriter or dealer. Transactions on U.S. stock exchanges and other agency transactions involve the payment by the Fund of negotiated brokerage commissions. Such commissions vary among different brokers. Also, a particular broker
may charge different commissions according to such factors as the difficulty and size of the transaction. Transactions in non-U.S. securities generally involve the payment of fixed brokerage commissions, which are generally higher than those in the
United States. The purchase by the Fund of participations or assignments may be pursuant to privately negotiated transactions pursuant to which the Fund may be required to pay fees to the seller or forego a portion of payments in respect of the
participation agreement.
Advisers or sub-advisers of investment companies and other institutional investors receive research
and brokerage products and services (together, “services”) from broker-dealers which execute portfolio transactions for the clients of such advisers. Consistent with this practice, the Adviser receives brokerage and research products and
services from many broker-dealers with which the Adviser places the Fund’s portfolio transactions. These services, which in some cases may also be purchased for cash, may include, among other things, such items as general economic and security
market reviews, industry and
13
company reviews, evaluations of securities, recommendations as to the purchase and sale of securities, and services related to the execution of securities transactions. The advisory fees paid by
the Fund are not reduced because the Adviser receives such services even though the receipt of such services relieves the Adviser from expenses it might otherwise bear. Research and brokerage services provided by broker-dealers chosen by the Adviser
to place the Fund’s portfolio transactions may be useful to the Adviser in providing services to the Adviser’s other clients, although not all of these services may be necessarily useful and of value to the Adviser in managing the Fund.
Conversely, brokerage and research products and services provided to the Adviser by broker-dealers in connection with trades executed on behalf of other clients of the Adviser may be useful to the Adviser in managing the Fund, although not all of
these brokerage and research products and services may be necessarily useful and of value to the Adviser in managing such other clients.
In reliance on the “safe harbor” provided by Section 28(e) of the Securities Exchange Act of 1934, as amended (the “1934 Act”), the Adviser may cause the Fund to pay a
broker-dealer which provides “brokerage and research services” (as defined for purposes of Section 28(e)) to the Adviser an amount of commission for effecting a securities transaction for the Fund in excess of the commission which
another broker-dealer would have charged for effecting that transaction if the Adviser determines in good faith that the commission is reasonable in relation to the value of the brokerage and research services provided by the broker-dealer viewed in
terms of either a particular transaction or the Adviser’s overall responsibilities to the advisory accounts for which it exercises investment discretion.
The Adviser may place orders for the purchase and sale of exchange-listed portfolio securities with a broker-dealer that is an affiliate of the Adviser where, in the judgment of the Adviser, such firm
will be able to obtain a price and execution at least as favorable as other qualified broker-dealers. Pursuant to rules of the SEC, a broker-dealer that is an affiliate of the Adviser may receive and retain compensation for effecting portfolio
transactions for the Fund on a securities exchange if the commissions paid to such an affiliated broker-dealer by the Fund on exchange transactions do not exceed “usual and customary brokerage commissions.” The rules define “usual and
customary” commissions to include amounts which are “reasonable and fair compared to the commission, fee or other remuneration received or to be received by other brokers in connection with comparable transactions involving similar
securities being purchased or sold on a securities exchange during a comparable period of time.” As required by applicable SEC rules, the Board has adopted procedures which are reasonably designed to provide that any commissions, fees or other
remuneration paid to an affiliated broker are consistent with the foregoing standards.
14
PURCHASE, EXCHANGE & REDEMPTION OF SHARES
ALPS Fund Services, Inc. (the “Transfer Agent”), will maintain an account for each shareholder upon which the
registration and transfer of shares are recorded, and any transfers shall be reflected by bookkeeping entry, without physical delivery. Confirmations of each purchase, exchange or redemption are sent to each shareholder. Quarterly statements of
account are sent which include shares purchased as a result of a reinvestment of Fund distributions. The Transfer Agent will require that a shareholder provide requests in writing, accompanied by a valid signature guarantee form, when changing
certain information in an account (i.e., wiring instructions, telephone privileges, etc.).
Share Classes
Shares of the Fund are currently divided into three share classes – Class A, Class C and Class I shares.
The assets received by each class of the Fund for the issue or sale of its shares and all income, earnings, profits, losses and proceeds
therefrom, subject only to the rights of creditors, are allocated to, and constitute the underlying assets of, that class of the Fund. The underlying assets of each class of the Fund are segregated and are charged with the expenses with respect to
that class of the Fund along with a share of the general expenses of the Fund and Trust. Any general expenses of the Fund that are not readily identifiable as belonging to a particular class of the Fund are allocated by or under the direction of the
Trustees in such manner as they determine to be fair and equitable.
Purchase of Shares
The following table lists the sales charges that will be applied to your share purchase, subject to the breakpoint discounts indicated in
the tables and described below.
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Purchase Amount
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|
Class A
(Sales
Charge)
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|
Class C
(Sales
Charge)
|
|
Class I
(Sales
Charge)
|
|
Class
R
(Sales
Charge)
|
|
Less than $50,000
|
|
|
|
5.50%
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None**
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|
None
|
|
None
|
|
$50,000 but less than $100,000
|
|
|
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4.50%
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None**
|
|
None
|
|
None
|
|
$100,000 but less than $250,000
|
|
|
|
3.50%
|
|
None**
|
|
None
|
|
None
|
|
$250,000 but less than $500,000
|
|
|
|
2.50%
|
|
None**
|
|
None
|
|
None
|
|
$500,000 but less than $1 million
|
|
|
|
2.00%
|
|
None**
|
|
None
|
|
None
|
|
$1 million or greater
|
|
|
|
0.00%*
|
|
None**
|
|
None
|
|
None
|
* A contingent deferred sales charge of 1.00% may apply to shares redeemed within 12 months after a
purchase in excess of $1 million.
** A contingent deferred sales charge of 1.00% may apply to shares redeemed within 12
months.
Class C shares are generally offered through financial intermediary platforms including, but not limited to,
traditional brokerage platforms, mutual fund wrap fee programs, bank trust platforms, and retirement platforms. Class C shares offer the ability for payment of up to 0.75% of net assets for payment to financial intermediaries for the provision of
distribution services and up to 0.25% of net assets for the provision of shareholder services on behalf of their clients. In addition, the shares offer the ability for payment to financial intermediaries for the provision of administrative services,
including recordkeeping, subaccounting, order processing for omnibus or networked accounts, or other shareholder services provided on behalf of their clients. The shares are not offered directly to individual
15
investors. Consult with your financial intermediary representative for additional information on whether the shares are an appropriate investment choice. Broker-Dealers who make shares available
through mutual fund wrap accounts may impose additional fees for services connected to the wrap account.
Dealer Commissions and
Compensation
Class A Shares
Commissions (up to 1.00%) are paid to dealers who initiate and are responsible for certain Class A share purchases not subject to
sales charges. These purchases consist of purchases of $1 million or more; purchases by employer-sponsored defined contribution-type retirement plans investing $1 million or more or with 100 or more eligible employees; and purchases made at net
asset value by certain retirement plans, endowments and foundations with assets of $10 million or more. Commissions on such investments (other than IRA rollover assets that roll over at no sales charge under the fund’s IRA rollover policy as
described in the prospectus) are paid to dealers at the following rates: 1.00% on amounts of less than $4 million, 0.50% on amounts of at least $4 million but less than $10 million and 0.25% on amounts of at least $10 million. Commissions are based
on cumulative investments over the life of the account with no adjustment for redemptions, transfers, or market declines. For example, if a shareholder has accumulated investments in excess of $4 million (but less than $10 million) and
subsequently redeems all or a portion of the account(s), purchases following the redemption will generate a dealer commission of 0.50%.
Class C Shares
ADI may compensate your financial intermediary at the time
of sale at a commission rate of 1.00% of the net asset value of the Class C shares purchased. Service providers to qualified plans will not receive this amount if they receive 12b-1 fees from the time of initial investment of qualified plan assets
in Class C shares.
Other Information
The minimum initial investments in the Fund are set forth in the Prospectus. Subsequent purchases may be made in any amount.
Subsequent investments may be made at any time by mailing a check to the Fund’s Transfer Agent, along with a detachable stub from
the Statement of Account (or a letter providing the account number). Shareholders should be sure to write the Fund’s account number on the check. Purchases of Fund shares (initial or subsequent) may not be made by third party check.
Shares of the Fund may be purchased on any business day at the net asset value per share next determined after receipt of a purchase
order. Share certificates will not be issued. Share purchase orders are effective on the date the Fund receives a completed Account Application Form (and other required documents) and federal funds become available.
Initial and subsequent investments may also be made by wire transfer. Shareholders should note that their bank may charge a fee in
connection with transferring money by bank wire.
For a share purchase order for the Fund to become effective on a particular
business day, prior to 4:00 p.m. (Eastern time): (i) in the case of a wire transfer payment, a purchaser must call 866.759.5679 to
16
inform the Transfer Agent of an incoming wire transfer; or (ii) in the case of payment by check or money order, a complete share purchase order must be actually received by the Transfer
Agent, and, in either case, federal funds must be received by the Transfer Agent, on behalf of the Fund. If federal funds are received by the Transfer Agent that same day, the order will be effective on that day. If the Fund receives notification of
a wire transfer or a complete share purchase order after 4:00 p.m. (Eastern Time), or if federal funds are not received by the Transfer Agent, such purchase order shall be executed as of the date that federal funds are actually received.
The price of the Fund’s shares and the valuation of Fund assets are discussed in “Net Asset Value.”
Exchanging Shares
Class A, Class C and Class I Shares
If you have held all or part of your shares in the Fund for at least seven days, you may exchange those shares for shares of the same class of any of the following funds (each, an “ALPS-Advised
Fund”), if such ALPS-Advised Fund is available for sale in your state and meets the investment criteria of the investor:
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ALPS/Red Rocks Listed Private Equity Fund
|
|
RiveFront Conservative Income Builder Fund
|
|
ALPS/WMC Disciplined Value Fund
|
|
RiverFront Global Growth Fund
|
|
Clough China Fund
|
|
RiverFront Global Allocation Fund
|
|
Jefferies Asset Management Commodity Strategy Allocation Fund
|
|
RiverFront Dynamic Equity Income Fund
|
|
ALPS/Kotak India Growth Fund
|
|
RiverFront Moderate Growth & Income
Fund
|
All Classes
If you are an existing shareholder of the Fund or of an ALPS-Advised Fund, you may exchange into a new account copying your existing account registration and options. Exchanges between accounts will be
accepted only if registrations are identical.
Exchanges must meet the minimum investment requirements described in the
Prospectus.
Before effecting an exchange, you should read the Prospectus for the fund into which you are exchanging.
An exchange represents the sale of shares from one fund and the purchase of shares of another fund. For U.S. federal income
tax purposes, this may produce a taxable gain or loss in your non-tax-deferred account. Transfers between classes of the Fund are generally not considered a taxable transaction for U.S. federal income tax purposes.
The exchange privilege may be modified or terminated upon sixty (60) days’ written notice to shareholders. Although initially
there will be no limit on the number of times you may exercise the
17
exchange privilege, the Fund reserves the right to impose such a limitation. Call or write the Fund for further details.
Redemption of Shares
If the Board determines that it is in the best
interests of the remaining shareholders of the Fund, the Fund may pay the redemption price in whole, or in part, by a distribution in kind from the Fund, in lieu of cash, taking such securities at their value employed for determining such
redemption price, and selecting the securities in such manner as such Board may deem fair and equitable. A shareholder who receives a distribution in kind may incur a brokerage commission upon a later disposition of such securities and
may receive less than the redemption value of such securities or property upon sale, particularly where such securities are sold prior to maturity. However, the Fund is required to redeem shares solely for cash up to the lesser of $250,000 or
1% of the NAV of the Fund during any 90-day period for any one shareholder. Should redemptions by any shareholder exceed such limitation, the Fund will have the option of redeeming the excess in cash or in-kind. Redemption in kind is not as liquid
as a cash redemption.
Under the 1940 Act, the Fund may suspend the right of redemption or postpone the date of payment
upon redemption for any period: (i) during which the NYSE is closed, other than customary weekend and holiday closings; (ii) during which trading on the NYSE is restricted; or (iii) 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.
Redemption Procedures.
The Fund will redeem all full and fractional shares of the Fund upon request on any business day at the applicable net asset value determined after the receipt of proper redemption instructions, less any applicable redemption fees. Shareholders
liquidating their holdings will receive upon redemption all dividends reinvested through the date of redemption. If notice of redemption is received on any business day, the redemption will be effective on the date of receipt. Payment will
ordinarily be made by wire on the next business day, but, in any case, within no more than seven business days from the date of receipt. If the notice is received on a day that is not a business day or after the close of regularly scheduled trading
on the NYSE, the redemption notice will be deemed received as of the next business day. The value of shares at the time of redemption may be more or less than the shareholder’s cost.
No redemption requests will be processed until the Fund has received a completed Purchase Application, and no redemption of shares
purchased by check will be made until all checks received for such shares have been collected, which may take up to 15 days or more.
Contingent Deferred Sales Charge (“CDSC”).
Class A share purchases in excess of $1 million and any Class C share purchases may be charged a CDSC of 1% if those shares are
redeemed within 12 months of initial purchase. The Fund may waive the imposition of a CDSC on redemption of Fund shares under certain circumstances and conditions, including without limitation, the following:
|
•
|
|
Redemptions following the death or permanent disability (as defined by Section 72(m)(7) of the Code) of a shareholder if made within one
year of death or the initial determination of permanent
|
18
|
|
disability. The waiver is available only for shares held at the time of death or initial determination of permanent disability: and
|
|
•
|
|
Required minimum distributions from a tax-deferred retirement plan or an individual retirement account (IRA) as required under the Code. The waiver
of the CDSC for required distributions will be as a percentage of assets held in the Fund.
|
If you think you
may be eligible for a CDSC waiver, contact your financial intermediary. You must notify the Fund prior to the redemption request to ensure your receipt of the waiver.
Redemption By Mail.
Shares may be redeemed by mail by submitting a written request from the registered owner(s) signed exactly as shares are registered. Signature guarantees by an acceptable
guarantor are required to redeem amounts greater than $50,000 or to have proceeds sent to an address other than the address of record. The Transfer Agent has adopted standards and procedures pursuant to which signature-guarantees in proper
form generally will be accepted from domestic banks, brokers, dealers, credit unions, national securities exchanges, registered securities associations, clearing agencies and savings associations, as well as from participants in the New York
Stock Exchange Medallion Signature Program, the Securities Transfer Agents Medallion Program (“STAMP”) and the Stock Exchanges Medallion Program. Shareholders with any questions regarding signature-guarantees should contact the Transfer
Agent.
In certain instances, the Transfer Agent may require additional documents such as, but not limited to, trust
instruments, death certificates, appointments as executor or administrator or certificates of corporate authority.
Checks for
redemption proceeds will be mailed to the address of record within seven days of redemption.
Redemption By Wire.
If
redemption by wire has been elected in the Purchase Application, shares may be redeemed on any business day upon request made by telephone or letter. A shareholder or any authorized agent (so designated on the Account Application Form) must
provide the Transfer Agent with the dollar or share amount to be redeemed, the account to which the redemption proceeds should be wired, the name of the shareholder and the shareholder’s account number. Shareholders should note that their bank
may charge a fee in connection with transferring money by wire.
A shareholder may change its authorized agent, the
address of record or the account designated to receive redemption proceeds at any time by providing the Transfer Agent with written instructions signature guaranteed as described above.
Telephone Redemption.
A shareholder may request redemption by calling the Transfer Agent at 866.759.5679. Proceeds from
telephone redemptions will be forwarded to the shareholder by check unless the shareholder has requested redemption by wire in the manner described above under “Redemption by Wire.” The check will be made only payable to the registered
shareholder and sent to the address of record on file with the Transfer Agent. The Fund reserves the right to refuse a telephone request for redemption if it is believed advisable to do so. Procedures for redeeming shares by telephone may be
modified or terminated at any time by the Fund. Neither the Fund nor the Transfer Agent will be liable for following redemption instructions received by telephone which are reasonably believed to be genuine, and the shareholder will bear the risk of
loss in the event of unauthorized or fraudulent telephone instructions. The Fund will employ reasonable procedures to confirm that instructions
19
communicated by telephone are genuine. The Fund and/or the Transfer Agent may be liable for any losses due to unauthorized or fraudulent instructions if they do not follow such procedures.
The Fund may require personal identification codes.
Rule 12b-1 Plans
As described in the Prospectus, the Fund has adopted a separate plan of distribution for Class A and Class C shares, pursuant to
Rule 12b-1 under the 1940 Act (each, a “Plan” and collectively, the “Plans”).
The Plans allow the Fund to
use Class A and/or Class C assets to pay fees in connection with the distribution and marketing of Class A or Class C shares and/or the provision of shareholder services to Class A or Class C shareholders. The Plan permits payment for
services in connection with the administration of plans or programs that use Class A and/or Class C shares of the Fund as their funding medium and for related expenses.
The Plans permit the Fund to make total payments at an annual rate of up to 0.25% of the Fund’s average daily net assets attributable to its Class A and 0.75% of the Fund’s average daily
net assets attributable to its Class C shares. Because these fees are paid out of the Fund’s Class A and Class C assets on an ongoing basis, over time they will increase the cost of an investment in Class A and Class C shares, and
Plan fees may cost an investor more than other types of sales charges.
Under the terms of the Plan, the Trust is authorized
to make payments to ADI for remittance to retirement plan service providers, broker-dealers, bank trust departments, financial advisors, and other financial intermediaries, as compensation for distribution and/or shareholder services performed by
such entities for their customers who are investors in the Fund. Financial intermediaries may from time to time be required to meet certain criteria in order to receive 12b-1 fees. ADI is entitled to retain all fees paid under the Plan for the first
12 months on any investment in Class C Shares to recoup its expenses with respect to the payment of commissions on sales of Class C Shares. Financial intermediaries will become eligible for compensation under the Class C Plan beginning in the 13th
month following the purchase of Class C Shares, although ADI may, pursuant to a written agreement between ADI and a particular financial intermediary, pay such financial intermediary 12b-1 fees prior to the 13th month following the purchase of Class
C Shares. ADI is entitled to retain some or all fees payable under the Plan in certain circumstances, including when there is no broker of record or when certain qualification standards have not been met by the broker of record. The Plan may be
terminated by vote of a majority of the Independent Trustees, or by vote of a majority of the outstanding voting securities of the relevant class of shares of the Fund. The Plan may be amended by vote of the relevant Trustees, including a majority
of the relevant Independent Trustees, cast in person at a meeting called for that purpose. Any change in the Plan that would materially increase the fees payable thereunder by the relevant class of shares of the Fund requires approval by a vote of
the holders of a majority of such shares outstanding. The Trustees review quarterly written reports of such costs and the purposes for which such costs have been incurred.
The Plan will continue in effect for successive one-year periods, provided that each such continuance is specifically approved (i) by the vote of a majority of the Independent Trustees of the Trust
who have no financial interest in the operation of the Plan and (ii) by the vote of a majority of the entire Board cast in person at a meeting called for that purpose.
20
Shareholder Services Plan for Class C Shares
The Fund has adopted a shareholder services plan (a “Class C Shareholder Services Plan”) with respect to the Fund’s Class
C shares. Under the Class C Shareholder Services Plan, the Fund is authorized to pay banks and their affiliates and other institutions, including broker-dealers and Fund affiliates (“Participating Organizations”), an aggregate fee in an
amount not to exceed on an annual basis 0.25% for Class C shares of the average daily net asset value of the Class C shares of the Fund attributable to or held in the name of a Participating Organization for its clients as compensation for providing
shareholder service activities, which do not include distribution services, pursuant to an agreement with a Participating Organization.
Shareholder Services Plan for Class A Shares
The Fund has adopted a shareholder services plan (a “Class A Shareholder Services Plan”) with respect to the Fund’s Class A shares. Under the Class A Shareholder Services Plan,
the Fund is authorized to pay banks and their affiliates and other institutions, including broker-dealers and Fund affiliates (“Participating Organizations”), an aggregate fee in an amount not to exceed on an annual basis 0.15% for
Class A shares of the average daily net asset value of the Class A shares of the Fund attributable to or held in the name of a Participating Organization for its clients as compensation for providing service activities pursuant to an
agreement with a Participating Organization. Any amount of such payment not paid during the Fund’s fiscal year for such service activities shall be reimbursed to the Fund as soon as practicable after the end of the fiscal year.
TRUSTEES AND OFFICERS
The business and affairs of the Fund are managed under the direction of its Board. The Board approves all significant agreements between the Fund and the persons or companies that furnish services to the
Fund, including agreements with its distributor, Adviser, administrator, custodian and transfer agent. The day-to-day operations of the Fund are delegated to the Fund’s Adviser and administrator.
The name, address, age and principal occupations for the past five years of the Trustees and officers of the Trust are listed below,
along with the number of portfolios in the Fund complex overseen by and the other directorships held by each Trustee.
21
INDEPENDENT TRUSTEES
|
|
|
|
|
|
|
|
|
|
|
|
|
Name,
Address*
& Age
|
|
Position(s)
Held with
Fund
|
|
Term of
Office and
Length of
Time
Served
|
|
Principal
Occupation(s) During
Past 5 Years**
|
|
Number
of
Funds in
Fund
Complex
Overseen
by
Trustee
***
|
|
Other
Directorships
Held by
Trustee During Past 5
Years**
|
|
Mary K. Anstine
,
age 72
|
|
Trustee
|
|
Ms. Anstine was elected at a special meeting of shareholders held on March 21, 1997 and re-elected at a special meeting of shareholders held on August 7, 2009.
|
|
Ms. Anstine was President/Chief Executive Officer of HealthONE Alliance, Denver, Colorado, and former Executive Vice President of First Interstate Bank of Denver. Ms. Anstine is
also Trustee/Director of AV Hunter Trust and Colorado Uplift Board. Ms. Anstine was formerly a Director of the Trust Bank of Colorado (later purchased and now known as Northern Trust Bank), HealthONE and Denver Area Council of the Boy Scouts of
America, and a member of the American Bankers Association Trust Executive Committee.
|
|
35
|
|
Ms. Anstine is a Trustee of ALPS ETF Trust (5 funds); Financial Investors Variable Insurance Trust (5 funds); Reaves Utility Income Fund (1 fund); and Westcore Trust (12
funds).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
John R. Moran, Jr.,
age 82
|
|
Trustee
|
|
Mr. Moran was elected at a special meeting of shareholders held on March 21, 1997 and re-elected at a special meeting of shareholders held on
August 7, 2009.
|
|
Mr. Moran is formerly President and CEO of The Colorado Trust, a private foundation 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. Currently, Mr. Moran is a member of the Treasurer’s Investment Advisory Committee for the University of
Colorado.
|
|
25
|
|
None.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Jeremy W. Deems
,
age 36
|
|
Trustee
|
|
Mr. Deems was appointed as a Trustee at the March 11, 2008 meeting of the Board of Trustees and elected at a special meeting of shareholders held on August 7, 2009.
|
|
Mr. Deems is the Co-Founder, Chief Operations Officer and Chief Financial Officer of Green Alpha Advisors, LLC. Prior to joining Green Alpha Advisors, Mr. Deems was CFO and
Treasurer of Forward Management, LLC, an investment management company, ReFlow Management Co., LLC, a liquidity resourcing company, ReFlow Fund, LLC, a private investment fund, and Sutton Place Management, LLC, an administrative services company
(from 2004 to June 2007). Prior to this, Mr. Deems served as Controller of Forward Management, LLC, ReFlow Management Co., LLC, ReFlow Fund, LLC and Sutton Place Management, LLC.
|
|
35
|
|
Mr. Deems is a Trustee of ALPS ETF Trust (5 funds); Financial Investors Variable Insurance Trust (5 funds) and Reaves Utility Income Fund (1 fund).
|
22
|
|
|
|
|
|
|
|
|
|
|
|
|
Name,
Address*
& Age
|
|
Position(s)
Held with
Fund
|
|
Term of
Office and
Length of
Time
Served
|
|
Principal
Occupation(s) During
Past 5 Years**
|
|
Number
of
Funds in
Fund
Complex
Overseen
by
Trustee
***
|
|
Other
Directorships
Held by
Trustee During Past 5
Years**
|
|
Jerry G. Rutledge,
age 68
|
|
Trustee
|
|
Mr. Rutledge was elected at a special meeting of shareholders held on August 7, 2009.
|
|
Mr. Rutledge is the President and owner of Rutledge’s Inc., a retail clothing business. Mr. Rutledge is currently Director of the American National Bank. He was from 1994 to
2007 a Regent of the University of Colorado.
|
|
25
|
|
Mr. Rutledge is a Trustee of Clough Global Allocation Fund (1 fund), Clough Global Equity Fund (1 fund) and Clough Global Opportunities Fund (1 fund).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Michael “Ross” Shell
,
age 41
|
|
Trustee
|
|
Mr. Shell was elected at a special meeting of shareholders held on August 7, 2009.
|
|
Mr. Shell is Founder and CEO of Red Idea, LLC, a strategic consulting/early stage venture firm (since June 2008). From 1999 to 2009, he was a part-owner and Director of Tesser,
Inc., a brand agency. From December 2005 to May 2008, he was Director, Marketing and Investor Relations, of Woodbourne, a REIT/real estate hedge fund and private equity firm. Prior to this, from May 2004 to November 2005, he worked as a business
strategy consultant; from June 2003 to April 2004, he was on the Global Client Services team of IDEO, a product design/innovation firm; and from 1999 to 2003, he was President of Tesser, Inc. Mr. Shell graduated with honors from Stanford University
with a degree in Political Science.
|
|
25
|
|
None.
|
23
INTERESTED TRUSTEE
|
|
|
|
|
|
|
|
|
|
|
|
|
Name,
Address*
&
Age
|
|
Position(s)
Held with
Fund
|
|
Term of Office
and Length of
Time Served
|
|
Principal
Occupation(s)
During Past 5
Years**
|
|
Number
of
Funds in
Fund
Complex
Overseen
by
Trustee
***
|
|
Other
Directorships
Held by
Trustee
|
|
Edmund J.
Burke
,
age 51
|
|
Trustee, Chairman and President
|
|
Mr. Burke was elected as Chairman at the August 28, 2009 meeting of the Board of Trustees. Mr. Burke was elected as Trustee at a special meeting of shareholders held on
August 7, 2009. Mr. Burke was elected President of the Trust at the December 17, 2002 meeting of the Board of Trustees.
|
|
Mr. Burke is President and a Director of ALPS Holdings, Inc. (“AHI”) (since 2005) and Director of ALPS Advisors, Inc.
(“AAI”), ALPS Distributors, Inc. (“ADI”), ALPS Fund Services, Inc. (“AFS”) and FTAM Distributors, Inc. (“FDI”) and from 2001-2008, was President of AAI, ADI, AFS and FDI. Because of his positions with AHI,
AAI, ADI, AFS and FDI, Mr. Burke is deemed an affiliate of the Trust as defined under the 1940 Act. Mr. Burke is Trustee and President of the Clough Global Allocation Fund (Trustee since 2006; President since 2004); Trustee and President of the
Clough Global Equity Fund (Trustee since 2006; President since 2005); Trustee and President of the Clough Global Opportunities Fund (since 2006); Trustee of the Liberty All-Star Equity Fund; and Director of the Liberty All-Star Growth Fund,
Inc.
|
|
30
|
|
Mr. Burke is a Trustee of Clough Global Allocation Fund (1 fund); Clough Global Equity Fund (1 fund); Clough Global Opportunities Fund (1 fund); Trustee of the Liberty All-Star
Equity Fund (1 fund); and Director of the Liberty All-Star Growth Fund, Inc. (1 fund).
|
OFFICERS
|
|
|
|
|
|
|
|
|
Name, Address* &
Age
|
|
Position(s)
Held with
Fund
|
|
Term of
Office and
Length of
Time Served
|
|
Principal Occupation(s) During
Past 5 Years**
|
|
Jeremy O. May
,
age
42
|
|
Treasurer
|
|
Mr. May was elected Treasurer of the Trust at the October 7, 1997 meeting of the Board of Trustees.
|
|
Mr. May joined ALPS in 1995 and is currently President and Director of AFS and Executive Vice President and Director of AHI, AAI, ADI and FDI. Because of his positions
with these entities, Mr. May is deemed an affiliate of the Trust as defined under the 1940 Act. Mr. May is also the Treasurer of the Liberty All-Star Equity Fund, Liberty All-Star Growth Fund, Inc., Clough Global Allocation
Fund, Clough Global Equity Fund, Clough Global Opportunities Fund and Financial Investors Variable Insurance Trust. Mr. May is also Chairman and Trustee of the Reaves Utility Income Fund and President, Trustee and Chairman of ALPS Series
Trust. Mr. May is currently on the Board of Directors and is Chairman of the Compensation Committee of the University of Colorado Foundation.
|
24
|
|
|
|
|
|
|
|
|
Name, Address* &
Age
|
|
Position(s)
Held with
Fund
|
|
Term of
Office and
Length of
Time Served
|
|
Principal Occupation(s) During
Past 5 Years**
|
|
David T. Buhler,
age 41
|
|
Secretary
|
|
Mr. Buhler was elected Secretary of the Trust at the September 11, 2012 meeting of the Board of Trustees.
|
|
Mr. Buhler joined ALPS in June 2010. Prior to joining ALPS and is currently Vice President and Associate Counsel of ALPS, AAI, ADI and
FDI. Prior to joining ALPS, Mr. Buhler served as Associate General Counsel and Assistant Secretary of Founders Asset Management LLC from 2006 to 2009. Because of his position with ALPS, Mr. Buhler is deemed an affiliate of the Trust as defined under
the 1940 Act. Mr. Buhler is also the Secretary of Financial Investors Variable Insurance Trust and Westcore Trust.
|
|
|
|
|
|
|
|
|
|
Ted Uhl
,
age
37
|
|
Chief
Compliance
Officer
(“CCO”)
|
|
Mr. Uhl was appointed CCO of the Trust at the June 8, 2010 meeting of the Board of Trustees.
|
|
Mr. Uhl joined ALPS in October 2006, and is currently Deputy Compliance Officer of ALPS. Prior to his current role, Mr. Uhl served as
Senior Risk Manager for ALPS from October 2006 until June 2010. Before joining ALPS, Mr. Uhl served a Sr. Analyst with Enenbach and Associates (RIA), and a Sr. Financial Analyst at Sprint. Because of his position with ALPS, Mr. Uhl is deemed an
affiliate of the Trust as defined under the 1940 Act. Mr. Uhl is also CCO of the Clough Global Funds, Reaves Utility Income Fund, Drexel Hamilton Funds, Transparent Value Trust, and the Cook & Bynum Fund.
|
|
|
|
|
|
|
|
|
|
Kimberly R. Storms
,
age 40
|
|
Assistant
Treasurer
|
|
Ms. Storms was elected Assistant Treasurer of the Trust at the June 14, 2005 meeting of the Board of Trustees.
|
|
Ms. Storms is Senior Vice President - Director of Fund Administration of ALPS. Ms. Storms joined ALPS in 1998 as Assistant
Controller. Because of her position with ALPS, Ms. Storms is deemed an affiliate of the Trust as defined under the 1940 Act. Ms. Storms is also Treasurer of BPV Family of Funds and ALPS Series Trust; Assistant Treasurer of Liberty All-Star
Equity Fund and Liberty All-Star Growth Fund, Inc.; Assistant Secretary of Ameristock Mutual Fund, Inc.; and Chief Financial Officer of The Arbitrage Funds.
|
*All
communications to Trustees and Officers may be directed to Financial Investors Trust c/o 1290 Broadway, Suite 1100, Denver, CO 80203.
**Except
as otherwise indicated, each individual has held the office shown or other offices in the same company for the last five years.
*** The Fund
Complex includes all series of the Trust (currently 25) and any other investment companies for which ALPS Advisors, Red Rocks, Wellington Management, Clough Capital, RiverFront or Kotak provides investment advisory services (currently 23 funds, 0
funds, 0 funds, 3 funds, 0 funds and 0 funds, respectively).
Additional Information About the Trustees’
Qualifications and Experience
The following is a brief discussion of the specific education, experience, qualifications,
or skills that led to the conclusion, as of the date of this SAI, that each person identified below should serve as a Trustee for the Trust.
25
Mary K. Anstine
Ms. Anstine has been an Independent Trustee of the Trust since March 21, 1997. Currently retired, Ms. Anstine has over 30
years of financial services experience. Most recently, she was President and CEO of HealthONE Alliance, Denver, Colorado from 1994 through 2004. From 1964 to 1994, Ms. Anstine held positions leading up to Executive Vice President of First
Interstate Bank. She was selected to serve as a Trustee of the Trust based on her business and financial services experience.
Jeremy W. Deems
Mr. Deems has been an Independent Trustee of the Trust
since March 11, 2008. In 2007, Mr. Deems co-founded Green Alpha Advisors, LLC, a registered investment adviser, for which he currently serves as Co-President and Chief Financial Officer. Prior to co-founding Green Alpha Advisors,
Mr. Deems was CFO of Forward Management, LLC, investment advisor to the Forward Funds and Sierra Club Mutual Funds, where he was also co-portfolio manager to the Sierra Club Stock Fund. In addition, he was the CFO of ReFlow Management Co., LLC.
Prior to joining Forward and ReFlow, he served as Regional Marketing Assistant within the Investment Consulting Services Group at Morgan Stanley Dean Witter. Mr. Deems received a B.S. and a MBA in finance from Saint Mary’s College of
California and is a licensed Certified Public Accountant and a member of the American Institute of Certified Public Accountants. He was selected to serve as a Trustee of the Trust based on his business, financial services, accounting and investment
management experience.
John R. Moran, Jr.
Mr. Moran has been an Independent Trustee of the Trust since March 21, 1997, and lead Independent Trustee since 2010.
Mr. Moran is formerly President and CEO of The Colorado Trust, a private foundation 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. Currently, Mr. Moran is a member of the Treasurer’s Investment Advisory Committee for the University of Colorado. He was selected to serve as a Trustee of
the Trust based on his business, financial services, and accounting experience.
Jerry G. Rutledge
Mr. Rutledge has been an Independent Trustee of the Trust since August 7, 2009. Mr. Rutledge is the President and owner of
Rutledge's Inc., an upscale men's clothing store, which he opened in 1967. Mr. Rutledge has over 40 years of business experience. He served on the CU Board of Regents from 1995 to 2007 and currently serves on the Board of American National
Bank. Mr. Rutledge is a graduate of the University of Colorado. He was selected to serve as a Trustee of the Trust based on his business experience.
Michael “Ross” Shell
Mr. Shell has been an Independent Trustee of
the Trust since August 7, 2009. In 2008, Mr. Shell founded Red Idea, LLC, a strategic consulting/early stage venture firm, for which he currently serves as CEO. From 1999 to 2009, he was a part-owner and Director of Tesser, Inc., a brand
agency, during which time he also served as Director, Marketing and Investor Relations, of Woodbourne, a REIT/real estate hedge fund and private equity firm. Prior to this, he worked as a business strategy consultant, he was on the Global Client
Services team of IDEO, and he was President of Tesser, Inc. Mr. Shell graduated with honors from Stanford University with a degree in Political Science. He was selected to
26
serve as a Trustee of the Trust based on his business, financial services and investment management experience.
Edmund J. Burke
Mr. Burke has been an Interested Trustee of the Trust since August 7, 2009. Mr. Burke joined ALPS Fund Services, Inc., the Fund’s administrator, in 1991 and currently serves as
Director. He is also a Director of ALPS Holdings, Inc., ALPS Advisors, Inc., ALPS Distributors, Inc., the Fund’s principal underwriter, and FTAM Distributors, Inc. Mr. Burke has over 20 years of financial services and investment
management experience. Before joining ALPS, Mr. Burke was a Regional Vice President for the Pioneer Funds in Boston and has also worked with Fidelity. Mr. Burke has a B.A. in Economics from the University of New Hampshire. He was selected
to serve as a Trustee of the Trust based on his business, financial services and investment management experience.
Leadership Structure
and Oversight Responsibilities
Overall responsibility for oversight of the Fund rests with the Trustees. The Trust has
engaged the Adviser to manage the Fund on a day-to day basis. The Board is responsible for overseeing the Adviser and other service providers in the operations of the Fund in accordance with the provisions of the 1940 Act, applicable provisions of
state and other laws and the Trust’s charter. The Board is currently composed of six members, five of whom are Independent Trustees. The Board meets at regularly scheduled quarterly meetings each year. In addition, the Board may hold special
in-person or telephonic meetings or informal conference calls to discuss specific matters that may arise or require action between regular meetings. As described below, the Board has established a Nominating and Governance Committee and an Audit
Committee, and may establish ad hoc committees or working groups from time to time, to assist the Board in fulfilling its oversight responsibilities. The Independent Trustees have also engaged independent legal counsel to assist them in performing
their oversight responsibilities.
The Board has appointed Edmund J. Burke, an Interested Trustee, to serve in the role of
Chairman. The Chairman’s role is to preside at all meetings of the Board and to act as a liaison with the Adviser, other service providers, counsel and other Trustees generally between meetings. The Chairman and may also perform such other
functions as may be delegated by the Board from time to time. Mr. Moran serves as a Lead Independent Trustee. The Lead Independent Trustee is a spokesperson and principal point of contact for the Independent Trustees and is responsible for
coordinating the activities of the Independent Trustees, including calling regular executive sessions of the Independent Trustees, and chairing the meetings of the Independent Trustees. The Chairman and Lead Independent Trustee may also perform such
other functions as may be delegated by the Board from time to time. The Board reviews matters related to its leadership structure annually. The Board has determined that the Board’s leadership structure is appropriate given the Trust’s
characteristics and circumstances. These characteristics include, but are not limited to, the Trust’s multiple series of fund shares, each fund’s single portfolio of assets, each fund’s net assets, the services provided by the
funds’ service providers, the formal and informal functions of the various Independent Trustees both during and between Board meetings, the existence of the Trust for over 15 years and the long board service of some of the Independent Trustees,
which in some cases date back to the inception of the Trust.
Risk oversight forms part of the Board’s general oversight
of the Fund and is addressed as part of various Board and Committee activities. As part of its regular oversight of the Fund, the Board, directly or through a Committee, interacts with and reviews reports from, among others, Fund management, the
Adviser, the Fund’s Chief Compliance Officer, the Fund’s legal counsel and the independent registered
27
public accounting firm for the Fund regarding risks faced by the Fund. The Board, with the assistance of Fund management and the Adviser, reviews investment policies and risks in connection with
its review of the Fund’s performance. The Board has appointed a Chief Compliance Officer who oversees the implementation and testing of the Fund’s compliance program and reports to the Board regarding compliance matters for the Fund and
its principal service providers. In addition, as part of the Board’s periodic review of the Fund’s advisory, sub-advisory and other service provider agreements, the Board may consider risk management aspects of these service
providers’ operations and the functions for which they are responsible.
None of the Independent Trustees own securities
in the Adviser, any of the Sub-Advisers or Distributor, nor do they own securities in any entity directly controlling, controlled by, or under common control with the Adviser, any of the Sub-Advisers or Distributor.
Audit Committee
. The Board has an Audit Committee which considers such matters pertaining to the Trust’s books of
account, financial records, internal accounting controls and changes in accounting principles or practices as the Trustees may from time to time determine. The Audit Committee also considers the engagement and compensation of the independent
registered public accounting firm (“Firm”) and ensures receipt from the Firm of a formal written statement delineating relationships between the Firm and the Trust, consistent with Public Company Accounting Oversight Board Rule
3526. The Audit Committee also meets privately with the representatives of the Firm to review the scope and results of audits and other duties as set forth in the Audit Committee’s Charter. The Audit Committee members, each of whom
are Independent Trustees are: Ms. Anstine and Messrs. Deems (Chairman), Moran, Rutledge and Shell. The Audit Committee met twice during the fiscal year ended April 30, 2012.
Nominating and Corporate Governance Committee
.
The Nominating and Corporate Governance Committee meets periodically to
advise and assist the Board in selecting nominees to serve as trustees of the Trust. The Nominating and Corporate Governance Committee believes the Board generally benefits from diversity of background, experience and views among its members, and
considers this a factor in evaluating the composition of the Board, but has not adopted any specific policy in this regard. The Nominating and Corporate Governance Committee also advises and assists the Board in establishing, implementing and
executing policies, procedures and practices that assure orderly and effective governance of the Trust and effective and efficient management of all business and financial affairs of the Trust. Members of the Nominating and Corporate Governance
Committee are currently: Ms. Anstine (Chairman) and Messrs. Deems, Moran, Rutledge and Shell. The Nominating and Corporate Governance Committee of the Board met once during the fiscal year ended April 30, 2012.
Shareholder Nominations
.
The Board will consider shareholder nominees for Trustees. All nominees must possess the
appropriate characteristics, skills and experience for serving on the Board. In particular, the Board and its Independent Trustees will consider each nominee’s integrity, educational and professional background, understanding of the
Trust’s business on a technical level and commitment to devote the time and attention necessary to fulfill a Trustee’s duties. All shareholders who wish to recommend nominees for consideration as Trustees shall submit the names and
qualifications of the candidates to the Secretary of the Trust by writing to: Financial Investors Trust, 1290 Broadway, Suite 1100, Denver, Colorado, 80203.
28
As of December 31, 2011, the dollar range of equity securities in the Fund beneficially
owned by the Interested Trustee were as follows:
|
|
|
|
|
|
|
|
|
Interested Trustee
|
|
Dollar Range of
Equity Securities in
the Fund
|
|
Aggregate Dollar Range of Equity
Securities in All Registered
Investment Companies Overseen by
Trustee in
Family of Investment
Companies
|
|
|
|
|
|
|
|
|
Edmund J. Burke
|
|
None
|
|
None
|
|
|
As of December 31, 2011, the
dollar range of equity securities in the Fund beneficially owned by Independent Trustees were as follows:
|
|
|
|
|
|
|
|
|
Independent Trustees
|
|
Dollar Range of
Equity Securities in
the Fund
|
|
Aggregate Dollar Range of Equity
Securities in All Registered
Investment Companies Overseen by
Trustee in
Family of Investment
Companies
|
|
|
|
|
|
|
|
|
Mary K. Anstine
|
|
None
|
|
None
|
|
|
|
|
|
|
|
|
Jeremy W. Deems
|
|
None
|
|
None
|
|
|
|
|
|
|
|
|
John R. Moran, Jr.
|
|
None
|
|
None
|
|
|
|
|
|
|
|
|
Jerry G. Rutledge
|
|
None
|
|
None
|
|
|
|
|
|
|
|
|
Michael “Ross” Shell
|
|
None
|
|
None
|
|
|
29
Remuneration of Trustees
.
Effective September 1, 2011, the
Independent Trustees of the Trust receive a quarterly retainer of $6,000, plus $2,000 for each regular Board or Committee meeting attended, $1,000 for each special telephonic Board or Committee meeting attended and $2,000 for each special in-person
Board meeting attended. The Independent Trustees are also reimbursed for all reasonable out-of-pocket expenses relating to attendance at meetings. For the fiscal year ended April 30, 2012, the Independent Trustees received the following
compensation:
|
|
|
|
|
|
|
|
|
|
|
|
|
Aggregate
Compensation
From the Trust
|
|
Pension Or
Retirement
Benefits Accrued
As Part of Fund
Expenses
|
|
Estimated
Annual
Benefits
Upon
Retirement
|
|
Aggregate
Compensation
From The Trust
And Fund Complex
Paid To Trustees*
|
|
|
|
|
|
|
|
Mary K. Anstine
|
|
$27,166.67
|
|
$0
|
|
$0
|
|
$71,166.67
|
|
|
|
|
|
|
|
Jeremy W. Deems
|
|
$27,166.67
|
|
$0
|
|
$0
|
|
$71,166.67
|
|
|
|
|
|
|
|
John R. Moran, Jr.
|
|
$27,166.67
|
|
$0
|
|
$0
|
|
$27,166.67
|
|
|
|
|
|
|
|
Jerry G. Rutledge
|
|
$27,166.67
|
|
$0
|
|
$0
|
|
$27,166.67
|
|
|
|
|
|
|
|
Michael “Ross” Shell
|
|
$27,166.67
|
|
$0
|
|
$0
|
|
$27,166.67
|
* The Fund Complex includes all series of the Trust, currently 25, and any other investment companies for
which ALPS Advisors provides investment advisory services, currently 23 funds.
No officer, trustee or employee of the Adviser
or any of its affiliates receives any compensation from the Fund for serving as an officer or trustee of the Fund.
INVESTMENT MANAGERS
ALPS Advisors, Inc. (the “Adviser”), a wholly owned subsidiary of ALPS Holdings, Inc.
(“ALPS Holdings”), subject to the authority of the Board, is responsible for the overall management and administration of the Fund’s business affairs. The Adviser commenced business operations in December 2006 upon the acquisition of
an existing investment advisory operation and is registered with the Securities and Exchange Commission as an investment adviser. The Adviser’s principal address is 1290 Broadway, Suite 1100, Denver, CO 80203.
Located in Denver, Colorado, ALPS Holdings was founded in 2005 and assumed the business of ALPS Financial Services, which was founded in
1985 as a provider of fund administration and fund distribution services. Since then, ALPS Holdings has added additional services, including fund accounting, transfer agency, shareholder services, active distribution, legal, tax and compliance
services. ALPS Holdings and its affiliates provide fund administration services to funds with assets in excess of $54.7 billion and distribution services to funds with assets of more than $221 billion.
Pursuant to the Investment Advisory Agreement (the “Advisory Agreement”), the Fund pays the Adviser an annual management fee of
0.70 based on the Fund’s average daily net assets. The management fee is paid on a monthly basis. The initial term of the Advisory Agreement is two years. The Board may extend the Advisory Agreement for additional one-year terms. The Board,
shareholders of the Fund, or the Adviser may terminate the Advisory Agreement upon sixty (60) calendar days’ notice. A discussion regarding the basis for the Board’s approval of the Fund’s Advisory Agreement will be provided in
the Fund’s annual report to shareholders for the period ending April 30, 2013.
30
As described in the Prospectus under “Fees and Expenses,” the Adviser has
contractually agreed to limit certain of the Fund’s expenses to 0.85% of the Fund’s average daily net assets until August 31, 2014. Under the terms of the Advisory Agreement, the Adviser shall not be liable for losses or damages
incurred by the Fund, unless such losses or damages are attributable to the willful misfeasance, bad faith or gross negligence on the part of the Adviser or from reckless disregard by it of its obligations and duties under the Advisory Agreement
(“disabling conduct”). In addition, the Fund will indemnify the Adviser and its affiliates and hold each of them harmless against any losses or damages not resulting from disabling conduct.
DISTRIBUTOR
Shares of the Fund are offered on a continuous basis through ALPS Distributors, Inc. (an affiliate of ALPS and the Adviser) (“ADI” or the “Distributor”), located at 1290 Broadway,
Suite 1100, Denver, Colorado 80203, as distributor pursuant to a distribution agreement between the Distributor and the Fund. The Distributor is not obligated to sell any specific amount of Fund shares.
CODE OF ETHICS
The Fund, the Adviser and the Distributor each have adopted a code of ethics under Rule 17j-1 of the 1940 Act. These codes of ethics permit the personnel of these entities to invest in securities,
including securities that the Fund may purchase or hold. The codes of ethics are on public file with, and are available from, the SEC.
ADMINISTRATOR
The Fund currently employs ALPS
Fund Services, Inc. (an affiliate of ADI and the Adviser) (“ALPS” or the “Administrator”), located at 1290 Broadway, Suite 1100, Denver, Colorado 80203, under an administration agreement to provide certain administrative services
to the Fund.
PROXY VOTING POLICIES AND PROCEDURES
Although individual Board members may not agree with particular policies or votes by the Adviser, the Board has approved delegating proxy
voting discretion to the Adviser believing that the Adviser should be responsible for voting because it is a matter relating to the investment decision making process.
Attached as Appendix B is a summary of the guidelines and procedures that the Adviser uses to determine how to vote proxies relating to portfolio securities, including the procedures that the Adviser uses
when a vote presents a conflict between the interests of Fund shareholders, on the one hand, and those of the Adviser or any affiliated person of the Fund or the Adviser, on the other. This summary of the guidelines gives a general indication as to
how the Adviser will vote proxies relating to portfolio securities on each issue listed. However, the guidelines do not address all potential voting issues or the intricacies that may surround individual proxy votes. For that reason, there may be
instances in which votes may vary from the guidelines presented. Notwithstanding the foregoing, the Adviser always endeavors to vote proxies relating to portfolio securities in accordance with the Fund’s investment objectives. When applicable,
information on how the Fund voted proxies relating to portfolio securities during the most recent prior 12-month period ended June 30, will be available without charge, (i) upon request, by calling 866.759.5679 and (ii) on the
SEC’s website at http://www.sec.gov.
31
PRINCIPAL SHAREHOLDERS
A principal shareholder is any person who owns of record or beneficially owns 5% or more of any class of a Fund’s outstanding equity
securities. A control person is any person who owns beneficially or through controlled companies more than 25% of the voting securities of a Fund or acknowledges the existence of control. Because the Fund is new as of the date of this SAI, there
were no principal shareholders or control persons of the Fund, and the Trustees and Officers of the Trust as a group did not own any of the outstanding shares of the Fund.
EXPENSES
The Fund’s expenses include
taxes, interest, fees and salaries of such Fund Trustees and officers who are not trustees, officers or employees of the Fund’s service contractors, SEC fees, state securities qualification fees, costs of preparing and printing prospectuses for
regulatory purposes and for distribution to existing shareholders, advisory and administration fees, charges of the custodian and of the transfer and dividend disbursing agent, certain insurance premiums, outside auditing and legal expenses, costs
of shareholder reports and shareholder meetings and any extraordinary expenses. The Fund also pays for brokerage fees and commissions (if any) in connection with the purchase and sale of portfolio securities.
PORTFOLIO MANAGERS
The following sections set forth certain additional information with respect to the portfolio managers for the Fund. Unless noted otherwise, all information is provided as of July 31, 2012.
Other Accounts Managed by Portfolio Manager
The table below identifies as of July 31, 2012, for the portfolio manager of the Fund, the number of accounts (other than the Fund with respect to which information is provided) for which he has
day-to-day management responsibilities and the total assets in such accounts, within each of the following categories: registered investment companies, other pooled investment vehicles, and other accounts.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Portfolio Manager(s)
|
|
Registered Investment
Companies
|
|
Other Pooled Investment
Vehicles*
|
|
Other Accounts
|
|
|
Number
|
|
Total Assets
(in millions)
|
|
Number
|
|
Total Assets
(in millions)
|
|
Number
|
|
Total Assets
(in millions)
|
|
Michael Akins
(Portfolio Manager)
|
|
4
|
|
$3.5 billion
|
|
0
|
|
$0
|
|
0
|
|
$0
|
32
Portfolio Manager Compensation
The Portfolio Manager who is responsible for the day-to-day management of the Fund is paid a base salary, plus a discretionary bonus. The
bonus is determined by the business unit’s revenue and profitability as well as the individual’s contribution to the business unit. The bonus is discretionary and is not based specifically on portfolio performance.
Conflicts of Interest with Other Accounts.
Potential conflicts of interest may arise when the Fund’s portfolio manager
has day-to-day management responsibilities with respect to one or more other funds or other accounts, as is the case for the portfolio manager listed in the table above.
The Adviser and the Fund have adopted compliance policies and procedures that are designed to address various conflicts of interest that may arise for the Adviser and the individuals that it employs.
For example, the Adviser seeks to minimize the effects of competing interests for the time and attention of portfolio managers by assigning portfolio managers to manage funds and accounts that share a similar investment style. The Adviser has also
adopted trade allocation procedures that are designed to facilitate the fair allocation of limited investment opportunities among multiple funds and accounts. There is no guarantee, however, that the policies and procedures adopted by the Adviser
and the Fund will be able to detect and/or prevent every situation in which an actual or potential conflict may appear.
These potential conflicts include:
Allocation of Limited Time and Attention. A portfolio manager who is responsible for managing multiple funds and/or accounts may devote unequal time and attention to the management of those funds
and/or accounts. As a result, the portfolio manager may not be able to formulate as complete a strategy or identify equally attractive investment opportunities for each of those accounts as might be the case if he or she were to devote
substantially more attention to the management of a single fund. The effects of this potential conflict may be more pronounced where funds and/or accounts overseen by a particular portfolio manager have different investment strategies.
Allocation of Limited Investment Opportunities. If a portfolio manager identifies a limited investment opportunity that
may be suitable for multiple funds and/or accounts, the opportunity may be allocated among these several funds or accounts, which may limit a fund’s ability to take full advantage of the investment opportunity.
Pursuit of Differing Strategies. At times, a portfolio manager may determine that an investment opportunity may be appropriate
for only some of the funds and/or accounts for which he or she exercises investment responsibility, or may decide that certain of the funds and/or accounts should take differing positions with respect to a particular security. In these cases,
the portfolio manager may place separate transactions for one or more funds or accounts which may affect the market price of the security or the execution of the transaction, or both, to the detriment or benefit of one or more other funds
and/or accounts.
Selection of Brokers/Dealers. Portfolio managers may be able to select or influence the selection of
the brokers and dealers that are used to execute securities transactions for the funds and/or account that they supervise. In addition to executing trades, some brokers and dealers provide portfolio managers with brokerage and research services (as
those terms are defined in Section 28(e) of the 1934 Act), which may result in the payment of higher brokerage fees than might have otherwise been available. These
33
services may be more beneficial to certain funds or accounts than to others. Although the payment of brokerage commissions is subject to the requirement that the portfolio manager determine
in good faith that the commissions are reasonable in relation to the value of the brokerage and research services provided to the fund, a portfolio manager’s decision as to the selection of brokers and dealers could yield disproportionate costs
and benefits among the funds and/or accounts that he or she manages.
Variation in Compensation. A conflict of interest
may arise where the financial or other benefits available to the portfolio manager differ among the funds and/or accounts that he or she manages. If the structure of the investment adviser’s management fee and/or the portfolio
manager’s compensation differs among funds and/or accounts (such as where certain funds or accounts pay higher management fees or performance-based management fees), the portfolio manager might be motivated to help certain funds and/or accounts
over others. The portfolio manager might be motivated to favor funds and/or accounts in which he or she has an interest or in which the investment adviser and/or its affiliates have interests. Similarly, the desire to maintain or raise assets under
management or to enhance the portfolio manager’s performance record or to derive other rewards, financial or otherwise, could influence the portfolio manager to lend preferential treatment to those funds and/or accounts that could most
significantly benefit the portfolio manager.
Related Business Opportunities. The Adviser or its affiliates may provide
more services (such as distribution or recordkeeping) for some types of funds or accounts than for others. In such cases, a portfolio manager may benefit, either directly or indirectly, by devoting disproportionate attention to the management
of funds and/or accounts that provide greater overall returns to the Sub-Adviser and its affiliates.
Securities
Ownership of the Portfolio Manager
.
Because the Fund is newly organized, the portfolio manager does not own shares of the Fund.
NET ASSET VALUE
The following is a description
of the procedures used by the Fund in valuing its assets. Because of the differences in service and distribution fees and class-specific expenses, the per share net asset value of each class may differ. For the purpose of pricing purchase and
redemption orders, the net asset value per share of each class of the Fund is calculated separately and is determined once daily as of the close of regularly scheduled trading on the NYSE (normally, 4:00 p.m. Eastern time). The Fund’s net asset
value is calculated on each day that the NYSE is open for trading, i.e., Monday through Friday, except for New Year’s Day, Martin Luther King, Jr. Day, Presidents’ Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving
Day and Christmas Day, and the preceding Friday or subsequent Monday when one of those holidays falls on a Saturday or Sunday, respectively.
In calculating net asset value, equity securities listed or traded on national securities exchanges are valued at the last sale price or, if there have been no sales on that day, at the mean of the
current bid and ask price which represents the current value of the security. Over-the-counter securities are valued at the mean of the current bid and ask price.
Portfolio securities listed on the NASDAQ National Market System for which market quotations are available are valued at the official closing price. If there is no official closing price, the securities
are valued at the last sale price or, if there have been no sales that day, at the mean of the current bid and ask price which represents the current value of the security.
34
Securities that are primarily traded on foreign exchanges generally are valued at the
preceding closing values of such securities on their respective exchanges, except that when an occurrence subsequent to the time a value was so established 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 Fund’s Board or its delegates. In valuing assets, prices denominated in foreign currencies are converted to U.S. dollar equivalents at the current exchange rate.
Securities may be valued by independent pricing services which use prices provided by market-makers or estimates of market values obtained from yield data relating to instruments or securities with similar characteristics. Short-term obligations
with maturities of 60 calendar days or less are valued at amortized cost, which constitutes fair value as determined by the Board. Amortized cost involves valuing an instrument at its original cost to the Fund and thereafter assuming a constant
amortization to maturity of any discount or premium, regardless of the impact of fluctuating interest rates on the market value of the instrument. All other securities and other assets of the Fund will be valued at fair value as determined in good
faith pursuant to procedures adopted by the Board.
TAXES
This section provides additional information concerning U.S. federal income taxes. It is based on the Code, applicable Treasury
Regulations, judicial authority, and administrative rulings and practice, all as of the date of this SAI, and all of which are subject to change, including changes with retroactive effect. The following does not address any state, local or foreign
or estate or gift tax matters.
A shareholder’s U.S. federal income tax consequences from acquiring, holding and
disposing of shares in the Fund may vary depending upon his or her particular situation. This discussion only applies to shareholders who are U.S. persons. For purposes of this discussion, U.S. persons are: (i) U.S. citizens or residents,
(ii) U.S. corporations, (iii) an estate whose income is subject to U.S. federal income taxation regardless of its source, or (iv) a trust, if a court within the United States is able to exercise primary supervision over its
administration and one or more U.S. persons have the authority to control all of its substantial decisions, or certain electing trusts that were in existence on August 20, 1996, and were treated as domestic trusts on August 19, 1996. This
discussion does not address issues of significance to U.S. persons in special situations such as: (i) certain types of tax-exempt organizations, (ii) shareholders holding shares through tax-advantaged accounts (such as 401(k) plan accounts
or individual retirement accounts), (iii) shareholders holding investments through foreign institutions (financial and non-financial), (iv) financial institutions, (v) broker-dealers, (vi) entities not organized under the laws of
the United States or a political subdivision thereof, (vii) shareholders holding shares as part of a hedge, straddle or conversion transaction, and (viii) shareholders who are subject to the U.S. federal alternative minimum tax.
If a partnership (including for this purpose any entity treated as a partnership for U.S. federal income tax purposes) is a
beneficial owner of shares, the tax treatment of a partner in the partnership will generally depend upon the status of the partner and the activities of the partnership. Partners of partnerships that are considering the purchase of shares should
consult their own tax advisers regarding the U.S. federal income tax consequences of the purchase, ownership and disposition of shares.
The Fund has not requested and will not request an advance ruling from the Internal Revenue Service (the “IRS”) as to the U.S. federal income tax matters described below. The IRS could adopt
positions contrary to those discussed below and such positions could be sustained. In addition, the foregoing discussion only addresses some of the U.S. federal income tax considerations generally affecting investments in the Fund. Prospective
shareholders are urged to consult with their own tax advisers as to
35
the particular U.S. federal tax consequences to them of an investment in the Fund, as well as the applicability and effect of any state, local or foreign laws, and the effect of possible changes
in applicable tax laws.
General Policies
Set forth below is a summary of certain U.S. federal income tax considerations affecting the Fund and the purchase, ownership and disposition of Shares. It is based upon the Internal Revenue Code of 1986,
as amended (the “Code”), the regulations promulgated thereunder, judicial authorities, and administrative rulings and practices as in effect as of the date of this SAI, all of which are subject to change, including the following
information which also supplements and should be read in conjunction with the section in the Prospectus entitled “Federal Income Taxation.”
This summary assumes that the Fund shareholder holds Fund Shares as capital assets within the meaning of the Code, and does not hold Fund Shares in connection with a trade or business. This summary does
not address all potential U.S. federal income tax considerations possibly applicable to an investment in Fund Shares, to Fund shareholders holding Fund Shares through a partnership (or other pass-through entity) or to Fund shareholders subject to
special tax rules. Prospective Fund shareholders are urged to consult their own tax advisers with respect to the specific federal, state, local and foreign tax consequences of investing in Fund Shares.
Federal Income Taxation of the Fund
The Fund is taxed as a regular corporation for federal income tax purposes and as such is obligated to pay federal and applicable state and foreign corporate taxes on its taxable income. This differs from
most investment companies, which elect to be treated as “regulated investment companies” under the Code in order to avoid paying entity level income taxes. Under current law, the Fund is not eligible to elect treatment as a regulated
investment company due to its investments primarily in MLPs invested in energy assets. As a result, the Fund will be obligated to pay federal and state taxes on its taxable income unlike most other investment companies which are not so obligated.
As discussed below, the Fund expects that a portion of the distributions it receives from MLPs may be treated as a
tax-deferred return of capital, reducing the Fund’s current tax liability. However, the amount of taxes currently paid by the Fund will vary depending on the amount of income and gains derived from investments and/or sales of MLP interests and
such taxes will reduce your return from an investment in the Fund.
The Fund invests its assets primarily in MLPs, which
generally are treated as partnerships for federal income tax purposes. As a partner in the MLPs, the Fund must report its allocable share of the MLPs’ taxable income in computing its taxable income, regardless of the extent (if any) to which
the MLPs make distributions. Based upon the Adviser’s review of the historic results of the types of MLPs in which the Fund invests, the Adviser expects that the cash flow received by the fund with respect to its MLP investments will generally
exceed the taxable income allocated to the Fund (and this excess generally will not be currently taxable to the Fund but, rather, will result in a reduction of the Fund’s adjusted tax basis in each MLP as described in the following paragraph).
This is the result of a variety of factors, including significant non-cash deductions, such as accelerated depreciation. There is no assurance that the Adviser’s expectation regarding the tax character of MLP distributions to the Fund will be
realized. If this expectation is not realized, there may be greater tax expense borne by the Fund and less cash available to distribute to you or to pay to Fund expenses.
36
The Fund will also be subject to U.S. federal income tax at the regular graduated corporate
tax rates on any gain recognized by the Fund on any sale of equity securities of an MLP. Cash distributions from an MLP to the Fund that exceed such Fund’s allocable share of such MLP’s net taxable income will reduce the Fund’s
adjusted tax basis in the equity securities of the MLP. These reductions in such Fund’s adjusted tax basis in the MLP equity securities will increase the amount of any taxable gain (or decrease the amount of any tax loss) recognized by the Fund
on a subsequent sale of such MLP equity securities.
For financial statement purposes, the Fund will accrue deferred income
taxes for any future tax liability associated with (i) that portion of MLP distributions considered to be a tax-deferred return of capital as well as (ii) capital appreciation of its investments. Upon the sale of an MLP equity security,
the Fund may be liable for previously deferred taxes. The Fund will rely to some extent on information provided by the MLPs which may not be provided on a timely basis, to estimate the Fund’s deferred tax liability for purposes of financial
statement reporting and determining the Fund’s NAV. From time to time, the Adviser will modify the estimates or assumptions regarding the Fund’s deferred tax liability as new information becomes available. The Fund will generally compute
deferred income taxes based on the highest federal income tax rate applicable to corporations (currently 35%) and an assumed rate attributable to state or local taxes.
Redemptions and Sales of Fund Shares
The sale, exchange or redemption of
Shares may give rise to a gain or loss. In general, any gain or loss realized upon a taxable disposition of Shares will be treated as long-term capital gain or loss if the Shares have been held for more than one year. Otherwise, the gain or loss on
the taxable disposition of Shares will be treated as short-term capital gain or loss. The tax basis of Shares of the Fund must be reduced by any distribution which is treated as a return of capital for tax purposes. A loss realized on a sale or
exchange of Shares of the Fund may be disallowed if Fund Shares or other substantially identical shares are acquired (whether through the automatic reinvestment of dividends or otherwise) within a sixty-one (61) day period beginning thirty
(30) days before and ending thirty (30) days after the date on which the Shares are disposed. In such a case, the basis of the shares acquired must be adjusted to reflect the disallowed loss. A redemption of Fund Shares will be treated as
a sale or exchange of such shares, provided the redemption either is not essentially equivalent to a dividend, is a substantially disproportionate redemption, is a complete redemption of a shareholder’s entire interest in the Fund, or is in
partial liquidation of the Fund. Redemptions that do not qualify for sale or exchange treatment will be treated as described in “Distributions” below.
Distributions reinvested in additional Shares of the will nevertheless be taxable dividends to shareholders acquiring such additional Shares.
Receipt of Distributions
Distributions by the Fund will be treated as
dividends for U.S. federal income tax purposes to the extent paid from such Fund’s current or accumulated earnings and profits (as determined under U.S. federal income tax principles). Dividends paid by the Fund to a Non-U.S. Shareholder
generally will be subject to withholding tax at a 30% rate or a reduced rate specified by an applicable income tax treaty. If an income tax treaty applies to a Non-U.S. Shareholder, the Non-U.S. Shareholder will be required to provide an IRS Form
W-8BEN certifying its entitlement to benefits under the treaty in order to obtain a reduced rate of withholding tax.
37
If the amount of a distribution exceeds the Fund’s current and accumulated earnings and
profits, such excess will be treated for U.S. federal income tax purposes first as a tax-free return of capital to the extent of the shareholder’s adjusted tax basis in the Fund’s shares, and thereafter as capital gain. Any such gain will
be long-term capital gain if the shareholder has held the applicable Shares of the Fund for more than one year. In determining the amount of gain that results from distributions in excess of your in your Shares, it is uncertain whether you are
entitled to recover your aggregate stock basis before reporting any gain. If the gain or loss on the distribution must be computed on a share-by-share basis, you may recognize gain on low-basis shares, even though your basis in other shares has not
been fully recovered. Distributions reinvested in additional shares of the Fund may nevertheless be taxable dividends to shareholders acquiring such additional Shares.
A Non-U.S. Shareholder generally will not be subject to U.S. federal income tax on gain realized on a redemption that is treated as a sale or exchange for U.S. federal income tax purposes, or on gain
realized on the sale, exchange or other non-redemption disposition of the Fund’s shares, except in the following cases:
- the gain is effectively connected with a trade or business of the Non-U.S. Shareholder in the U.S. or, if the Non-U.S. Shareholder is a
qualifying resident of a country with which the U.S. has a tax treaty, such gain is attributable to a permanent establishment maintained by such Non-U.S. Shareholder in the U.S.,
- the Non-U.S. Shareholder is an individual who is present in the U.S. for 183 days or more in the taxable year of disposition and who
has a “tax home” in the U.S., or
- the Fund is or has been a U.S. real property holding corporation, as defined
below, at any time within the five-year period preceding the date of disposition of the common shares or, if shorter, within the period during which the Non-U.S. Shareholder has held the common shares. Generally, a corporation is a U.S. real
property holding corporation if the fair market value of its U.S. real property interests, as defined in the Code and applicable regulations, equals or exceeds 50% of the aggregate fair market value of its worldwide real property interests and its
other assets used or held for use in a trade or business. The Fund may be, or may prior to a Non-U.S. Shareholder’s disposition of common shares become, a U.S. real property holding corporation.
Any Non-U.S. Shareholder who is described in one of the foregoing cases is urged to consult his, her or its own tax advisor regarding the
U.S. federal income tax consequences of the redemption, sale, exchange or other disposition of common shares.
Effective
January 1, 2014, the Fund will be required to withhold U.S. tax (at a 30% rate) on payments of dividends and redemption proceeds made to certain non-U.S. entities that fail to comply with extensive new reporting and withholding requirements
designed to inform the U.S. Department of the Treasury of U.S.-owned foreign investment accounts. Shareholders may be requested to provide additional information to the Fund to enable it to determine whether withholding is required.
The foregoing discussion is a summary only and is not intended as a substitute for careful tax planning. Purchasers of Shares should
consult their own tax advisors as to the tax consequences of investing in such Shares, including under federal, state, local and other tax laws. Finally, the foregoing discussion is based on applicable provisions of the Code, regulations, judicial
authority and administrative interpretations in effect on the date hereof. Changes in applicable authority could materially affect the conclusions discussed above, possibly retroactively.
38
Backup Withholding
The Fund generally is required to withhold and remit to the U.S. Treasury a percentage of the taxable distributions and redemption proceeds paid to any individual shareholder who fails to properly furnish
such Fund with a correct taxpayer identification number (“TIN”), who has under-reported dividend or interest income, or who fails to certify to such Fund that he or she is not subject to such withholding. The backup withholding tax rate is
28% for amounts paid through 2012. Under current law, the backup withholding tax rate will be 31% for amounts paid after December 31, 2012.
You should consult with your tax adviser regarding the U.S. federal, foreign, state and local tax consequences of an investment in the Fund.
Surtax on Net Investment Income
For tax years beginning after 2012, a
surtax of up to 3.8% will apply to net investment income of an individual taxpayer who recognizes adjusted gross income for such year, subject to certain modifications, in excess of $200,000 ($250,000 for a joint return). Net investment income will
include interest, dividends, royalties, rents, gross income from a trade or business involving passive activities, and net gain from disposition of property (other than property held in a trade or business). Net investment income will be
reduced by deductions properly allocable to such income. Holders of the Fund’s common stock should consult their tax advisors regarding the effect, if any, of this legislation on their ownership and disposition of our common stock.
Foreign Accounts
Recently enacted legislation will impose a 30% withholding tax on dividends and redemption proceeds paid after December 31, 2012, to
(i) foreign financial institutions (as defined in section 1471 of the Code) unless they agree to collect and disclose to the IRS information regarding direct and indirect U.S. account holders and (ii) certain other foreign entities unless
they certify certain information regarding their direct and indirect U.S. owners. If the payee is a foreign financial institution, it must enter into an agreement with the U.S. Department of the Treasury requiring, among other things, that it
undertake to identify accounts held by certain U.S. persons or U.S.-owned foreign entities, annually report certain information about such accounts, and withhold 30% on payments to account holders whose actions prevent it from complying with these
reporting and other requirements. In certain circumstances, an account holder may be eligible for refunds or credits of such taxes. The Funds will not pay any additional amounts in respect to any amounts withheld.
Under current administrative guidance, the withholding obligations described above will apply to payments of dividends on shares made on
or after January 1, 2014, and to payments of gross proceeds from a sale or other disposition of shares on or after January 1, 2015.
Other Tax Matters
Special tax rules apply to investments through defined contribution plans and other tax-qualified plans. Shareholders should consult
their tax advisor to determine the suitability of shares of the Fund as an investment through such plans and the precise effect of an investment in the Fund would have on their particular tax situation.
The foregoing discussion relates solely to U.S. federal income tax law. Dividends and distributions also may be subject to state and
local taxes. Shareholders are urged to consult their tax advisors regarding
39
specific questions as to U.S. federal, state, local and, where applicable, foreign taxes. Foreign investors should consult their tax advisers concerning the U.S. federal income tax consequences
of ownership of shares of the Fund, including the certification and filing requirements imposed on foreign investors in order to qualify for exemption from the backup withholding tax rates (or a reduced rate of withholding provided by treaty).
The foregoing is a general and abbreviated summary of the applicable provisions of the Code and related regulations currently
in effect. For the complete provisions, reference should be made to the pertinent Code sections and regulations. The Code and regulations are subject to change by legislative or administrative actions.
DESCRIPTION OF THE TRUST
The Trust was organized as a Delaware business trust on November 30, 1993 and consists of twenty-five separate portfolios or series. The Board may establish additional series in the future. The
capitalization of the Trust consists solely of an unlimited number of shares of beneficial interest with no par value.
The
Trust consists of multiple separate portfolios or funds. When certain matters affect one fund but not another, the shareholders would vote as a fund regarding such matters. Subject to the foregoing, on any matter submitted to a vote of shareholders,
all shares then entitled to vote will be voted separately by the fund unless otherwise required by the 1940 Act, in which case all shares will be voted in the aggregate. For example, a change in a fund’s fundamental investment policies would be
voted upon only by shareholders of the fund. Additionally, approval of the Investment Advisory Contract and Management Contracts are matters to be determined separately by each fund.
Approval by the shareholders of one fund is effective as to that fund whether or not sufficient votes are received from the shareholders
of the other fund to approve the proposal as to that fund. The term “majority,” when referring to approvals to be obtained from shareholders of a fund means the vote of the lesser of (i) 67% of the shares of the fund or class
represented at a meeting if the holder of more than 50% of the outstanding shares of the fund or class are present in person or by proxy, or (ii) more than 50% of the outstanding shares of the fund. The term “majority,” when referring
to the approvals to be obtained from shareholders of the Trust as a whole means the vote of the lesser of (i) 67% of the Trust’s shares represented at a meeting if the holders of more than 50% of the Trust’s outstanding shares are
present in person or proxy, or (ii) more than 50% of the Trust’s outstanding shares. Shareholders are entitled to one vote for each full share held and fractional votes for fractional shares held.
The Trust is not required to hold regular annual meetings of a fund’s shareholders and does not intend to do so. However, the Trust
undertakes to hold a special meeting of its shareholders if the purpose of voting on the question of removal of a director or trustees is requested in writing by the holders of at least 10% of the Trust’s outstanding voting securities, and to
assist in communicating with other shareholders as required by Section 16(c) of the 1940 Act. The Trust Instrument provides that the holders of not less than two-thirds of the outstanding shares of the Trust may remove a person serving as
Trustee either by declaration in writing or at a meeting called for such purpose.
Each share of the Fund represents an equal
proportional interest in the Fund with each other share and is entitled to such dividends and distributions out of the income earned on the assets belonging to the fund as are declared in the discretion of the Trustees. In the event of the
liquidation or dissolution of the Trust, shareholders of each fund are entitled to receive the assets attributable to such Fund that are available for distribution, and a distribution of any general assets of the Trust not attributable to a
40
particular Fund that are available for distribution in such manner and on such basis as the Trustees in their sole discretion may determine.
Shareholders are not entitled to any preemptive rights. All shares, when issued, will be fully paid and non-assessable by the Trust.
Under Delaware law, shareholders could, under certain circumstances, be held personally liable for the obligations of a
series of the Trust but only to the extent of the shareholder’s investment in such series. However, the Trust Instrument disclaims liability of the shareholders, Trustees or Officers of the Trust for acts or obligations of the Trust, which are
binding only on the assets and property of each series of the Trust and requires that notice of the disclaimer be given in each contract or obligations entered into or executed by the Trust or the Trustees. The risk of a shareholder incurring
financial loss on account of shareholder liability is limited to circumstances in which the Trust itself would be unable to meet its obligations and should be considered remote and is limited to the amount of the shareholder’s investment in the
Fund.
OTHER INFORMATION ABOUT THE FUND
Custodian.
The Bank of New York Mellon (the “Custodian”), located at One Wall Street, New York, NY 10286, serves as the
custodian for the Fund. As such, the Custodian holds in safekeeping certificated securities and cash belonging to the Fund and, in such capacity, is the registered owner of securities in book-entry form belonging to the Fund. Upon instruction, the
Custodian receives and delivers cash and securities of the Fund in connection with Fund transactions and collects all dividends and other distributions made with respect to Fund portfolio securities. The Custodian also maintains certain accounts and
records of the Fund.
Transfer Agent.
ALPS, pursuant to a Transfer Agency and Service Agreement, serves as transfer
agent for the Fund. As Transfer Agent, ALPS has, among other things, agreed to (i) issue and redeem shares of the Fund; (ii) make dividend and other distributions to shareholders of the Fund; (iii) effect transfers of shares;
(iv) mail communications to shareholders of the Fund, including account statements, confirmations, and dividend and distribution notices; (v) facilitate the electronic delivery of shareholder statements and reports and (vi) maintain
shareholder accounts. Under the Transfer Agency and Service Agreement, ALPS receives from the Trust an annual minimum fee and a fee based upon the number of shareholder accounts and is also reimbursed for out-of-pocket expenses. As described
above, ALPS is an affiliate of ADI and the Adviser.
Index Provider
. Alerian is the index provider for the Fund
(“Index Provider”). Alerian is an independent company that provides objective market information, and is a leader of MLP-market intelligence, providing benchmarks, data sets, and analytics that are used extensively by a range of
stakeholders such as investment banks, stock exchanges, investment professionals and consultants, and Master Limited Partnerships. The company started its business of developing and maintaining financial indexes, including the Index, on June 1,
2006. Alerian has entered into an index licensing agreement (the “Licensing Agreement”) with the Adviser to allow the Adviser’s use of the Index for the operation of the Fund. The Adviser pays licensing fees to Alerian from the
Adviser’s management fees or other resources. The Adviser has, in turn, entered into a sub-licensing agreement (the “Sub-Licensing Agreement”) with the Trust to allow the Fund to utilize the Index. The Fund pays no fees to Alerian or
the Adviser under the Sub-Licensing Agreement.
41
Alerian uses a rules-based methodology (the “Index Methodology”) to construct and
maintain the Index. The Index and the Index Methodology, including a list of the component securities of the Index, can be found on the Index Provider’s website at
www.alerian.com
.
License Agreement and Disclaimers.
The information contained herein regarding the Index was provided by the Index Provider.
Shares of the Fund are not sponsored, endorsed, sold, or promoted by Alerian. Alerian makes no representation or warranty,
express or implied, to the owners of the Shares of the Fund or any member of the public regarding the advisability of trading in the product(s). Alerian has no obligation to take the needs of ALPS Advisors (in its capacity as licensee of the Index,
the “Licensee”) or the owners of the Shares of the Fund into consideration in determining, composing or calculating the Index. Alerian is not responsible for and has not participated in the determination of the timing of, prices at, or
quantities of the Shares of the Fund to be listed or in the determination or calculation of the equation by which the Shares of the Fund are to be converted into cash. Alerian has no obligation or liability in connection with the administration,
marketing or trading of the Shares of the Fund.
Alerian does not guarantee the accuracy and/or the completeness of the Index
or any data included therein and Alerian shall have no liability for any errors, omissions, or interruptions therein. Alerian makes no warranty, express or implied, as to results to be obtained by the Licensee, owners of the Shares of the Fund, or
any other person or entity from the use of the Index or any data included therein. Alerian makes no express or implied warranties, and expressly disclaims all warranties, of merchantability or fitness for a particular purpose or use with respect to
the Index or any data included therein, without limiting any of the foregoing, in no event shall Alerian have any liability for any lost profits or indirect, punitive, special or consequential damages (including lost profits), even if notified of
the possibility of such damages. There are no third party beneficiaries of any agreements or arrangements between Alerian and Licensee.
Independent Registered Public Accounting Firm.
Deloitte & Touche LLP (“Deloitte”) serves as the Trust’s independent registered public accounting firm. Deloitte provides
audit services, tax return preparation and assistance and consultation in connection with review of SEC filings. Deloitte is located at 555 17th St. #3600, Denver, Colorado 80202.
Counsel.
Davis Graham & Stubbs LLP serves as counsel to the Fund and is located at 1550 17th Street, Suite 500, Denver,
Colorado 80202.
PERFORMANCE INFORMATION
Yield and Total Return
. The Fund may from time to time include the yield and/or total return of its shares in advertisements or
information in advertisements or information furnished to present or prospective shareholders.
The Fund’s yield will
vary from time to time depending upon market conditions, the composition of its portfolios and operating expenses of the Trust allocated to the Fund. These factors, possible differences in the methods used in calculating yield, and the tax exempt
status of distributions, should be considered when comparing the Fund’s yield to yields published for other investment companies and other investment vehicles. Yield should also be considered relative to changes in the value of the Fund’s
shares and to the relative risks associated with the investment objectives and policies of the Fund.
42
At any time in the future, yields and total return may be higher or lower than past yields
and there can be no assurance that any historical results will continue.
Investors in the Fund are specifically advised that
share prices, expressed as the net asset value per share, will vary just as yield will vary. An investor’s focus on the yield of the Fund to the exclusion of the consideration of the share price of that Fund may result in the investor’s
misunderstanding the total return he or she may derive from the Fund.
FINANCIAL STATEMENTS
As of the date of this SAI, the Fund has not commenced investment operations. When available, you can obtain copies of
the Fund’s Annual Report and Semi-Annual Report at no charge by writing or telephoning the Fund at the address or number on the front page of this SAI.
43
APPENDIX A
DESCRIPTION OF SECURITIES RATINGS
The Fund may make use of average portfolio credit quality standards to assist institutional investors whose own investment guidelines limit their investments accordingly. In determining the Fund’s
overall dollar-weighted average quality, unrated securities are treated as if rated, based on the adviser’s view of their comparability to rated securities. The Fund’s use of average quality criteria is intended to be a guide for those
investors whose investment guidelines require that assets be invested according to comparable criteria. Reference to an overall average quality rating for the Fund does not mean that all securities held by the Fund will be rated in that category or
higher. The Fund’s investments may range in quality from securities rated in the lowest category in which the Fund is permitted to invest to securities rated in the highest category (as rated by Moody’ s, S&P or Fitch or, if unrated,
determined by the adviser to be of comparable quality). The percentage of the Fund’s assets invested in securities in a particular rating category will vary. Following is a description of Moody’s, S&P’s and Fitch’s ratings
applicable to fixed-income securities.
Moody’s Investors Service, Inc.
Corporate and Municipal Bond Ratings
Aaa: Bonds which are rated Aaa are judged to be of the best quality. They carry the smallest degree of investment risk
and are generally referred to as “gilt edge.” Interest payments are protected by a large or by an exceptionally stable margin and principal is secure. While the various protective elements are likely to change, such changes as can be
visualized are most unlikely to impair the fundamentally strong position of such issues.
Aa: Bonds which are
rated Aa are judged to be of high quality by all standards. Together with the Aaa group they comprise what are generally known as high-grade bonds. They are rated lower than the best bonds because margins of protection may not be as large as in Aaa
securities or fluctuation of protective elements may be of greater amplitude or there may be other elements present that make the long-term risks appear somewhat larger than with Aaa securities.
A: Bonds which are rated A possess many favorable investment attributes and are to be considered as upper-medium-grade
obligations. Factors giving security to principal and interest are considered adequate, but elements may be present that suggest a susceptibility to impairment sometime in the future.
Baa: Bonds which are rated Baa are considered as medium-grade obligations (i.e., they are neither highly protected nor
poorly secured), interest payments and principal security appear adequate for the present but certain protective elements may be lacking or may be characteristically unreliable over any great length of time. Such bonds lack outstanding investment
characteristics and in fact have speculative characteristics as well.
Ba: Bonds which are rated Ba are judged
to have speculative elements; their future cannot be considered as well-assured. Often the protection of interest and principal payments may be very moderate and thereby not well safeguarded during both good and bad times over the future.
Uncertainty of position characterizes bonds in this class.
A-1
B: Bonds which are rated B generally lack characteristics of a desirable
investment. Assurance of interest and principal payments or of maintenance of other terms of the contract over any long period of time may be small.
Caa: Bonds which are rated Caa are of poor standing. Such issues may be in default or there may be present elements of danger with respect to principal or interest.
Ca: Bonds which are rated Ca represent obligations which are speculative in a high degree. Such issues are often in
default or have other marked shortcomings.
C: Bonds which are rated C are the lowest rated class of bonds and
issues so rated can be regarded as having extremely poor prospects of ever attaining any real investment standing.
Moody’s bond ratings, where specified, are applicable to financial contracts, senior bank obligations and insurance company senior policyholder and claims obligations with an original maturity in
excess of one year. Obligations relying upon support mechanisms such as letter-of-credit and bonds of indemnity are excluded unless explicitly rated. Obligations of a branch of a bank are considered to be domiciled in the country in which the branch
is located.
Unless noted as an exception, Moody’s rating on a bank’s ability to repay senior
obligations extends only to branches located in countries which carry a Moody’s Sovereign Rating for Bank Deposits. Such branch obligations are rated at the lower of the bank’s rating or Moody’s Sovereign Rating for the Bank Deposits
for the country in which the branch is located. When the currency in which an obligation is denominated is not the same as the currency of the country in which the obligation is domiciled, Moody’s ratings do not incorporate an opinion as to
whether payment of the obligation will be affected by the actions of the government controlling the currency of denomination. In addition, risk associated with bilateral conflicts between an investor’s home country and cither the issuer’s
home country or the country where an issuer branch is located are not incorporated into Moody’s ratings.
Moody’s makes no representation that rated bank obligations or insurance company obligations are exempt from
registration under the Securities Act or issued in conformity with any other applicable law or regulation. Nor does Moody’s represent that any specific bank or insurance company obligation is legally enforceable or a valid senior obligation of
a rated issuer.
Moody’s applies numerical modifiers, 1,2, and 3 in each generic rating classified from
Aa through Caa in its corporate bond rating system. The modifier 1 indicates that the security ranks in the higher end of its generic rating category; the modifier 2 indicates a mid-range ranking; and the modifier 3 indicates that the issue ranks in
the lower end of its generic rating category.
Corporate Short-Term Debt Ratings
Moody’s short-term debt ratings are opinions of the ability of issuers to repay punctually senior debt obligations.
These obligations have an original maturity not exceeding one year, unless explicitly noted.
Moody’s
employs the following three designations, all judged to be investment-grade, to indicate the relative repayment ability of rated issuers:
A-2
PRIME-1: Issuers rated Prime-1 (or supporting institutions) have a superior
ability for repayment of senior short-term debt obligations. Prime-1 repayment ability will often be evidenced by many of the following characteristics: leading market positions in well-established industries; high rates of return on funds employed:
conservative capitalization structure with moderate reliance on debt and ample asset protection; broad margins in earnings coverage of fixed financial charges and high internal cash generation; and well-established access to a range of financial
markets and assured sources of alternate liquidity.
PRIME-2: Issuers rated Prime-2 (or supporting
institutions) have a strong ability for repayment of senior short-term debt obligations. This will normally be evidenced by many of the characteristics cited above but to a lesser degree. Earnings trends and coverage ratios, while sound, may be more
subject to variation. Capitalization characteristics, while still appropriate, may be more affected by external conditions. Ample alternate liquidity is maintained.
PRIME-3: Issuers rated Prime-3 (or supporting institutions) have an acceptable ability for repayment of senior short-term
obligations. The effect of industry characteristics and market compositions may be more pronounced. Variability in earnings and profitability may result in changes in the level of debt protection measurements and may require relatively high
financial leverage. Adequate alternate liquidity is maintained.
NOT PRIME: Issuers rated Not Prime do not
fall within any of the Prime rating categories.
Standard & Poor’s Ratings Services
Issue Credit Rating Definitions
A Standard & Poor’s issue credit rating is a current opinion of the creditworthiness of an obligor with
respect to a specific financial obligation, a specific class of financial obligations, or a specific financial program (including ratings on medium term note programs and commercial paper programs). It takes into consideration the creditworthiness
of guarantors, insurers, or other forms of credit enhancement on the obligation and takes into account the currency in which the obligation is denominated. The issue credit rating is not a recommendation to purchase, sell, or hold a financial
obligation, inasmuch as it does not comment as to market price or suitability for a particular investor.
Issue credit ratings are based on current information furnished by the obligors or obtained by Standard &
Poor’s from other sources it considers reliable. Standard & Poor’s does not perform an audit in connection with any credit rating and may, on occasion, rely on unaudited financial information. Credit ratings may be changed,
suspended, or withdrawn as a result of changes in, or unavailability of, such information, or based on other circumstances.
Issue credit ratings can be either long-term or short-term. Short-term ratings are generally assigned to those obligations considered short term in the relevant market. In the U.S., for example, that
means obligations with an original maturity of no more than 365 days, including commercial paper. Short-term ratings are also used to indicate the creditworthiness of an obligor with respect to put features on long-term obligations. The result is a
dual rating, in which the short-term rating addresses the put feature, in addition to the usual long-term rating. Medium-term notes are assigned long-term ratings.
Issue credit ratings are based, in varying degrees, on the following considerations: likelihood of payment - capacity and
willingness of the obligor to meet its financial commitment on an obligation in accordance with the terms of the obligation: nature of and provisions of the obligation; protection
A-3
afforded by, and relative position of, the obligation in the event of bankruptcy, reorganization, or other arrangement under the laws of bankruptcy and other laws affecting creditors’
rights.
The issue rating definitions are expressed in terms of default risk. As such, they pertain to senior
obligations of an entity. Junior obligations are typically rated lower than senior obligations, to reflect the lower priority in bankruptcy, as noted above. (Such differentiation applies when an entity has both senior and subordinated obligations,
secured and unsecured obligations, or operating company and holding company obligations.) Accordingly, in the case of junior debt the rating may not conform exactly with the category definition.
Corporate and Municipal Bond Ratings
Investment-grade
AAA: An obligation rated AAA has
the highest rating assigned by Standard & Poor’s. The obligor’s capacity to meet its financial commitment on the obligation is extremely strong.
AA: An obligation rated ‘AA’ differs from the highest rated obligations only in small degree. The
obligor’s capacity to meet its financial commitment on the obligation is very strong.
A: An obligation
rated ‘A’ is somewhat more susceptible to the adverse effects of changes in circumstances and economic conditions than obligations in higher rated categories. However, the obligor’s capacity to meet its financial commitment on the
obligation is still strong.
BBB: An obligation rated ‘BBS’ exhibits adequate protection parameters.
However, adverse economic conditions or changing circumstances are more likely to lead to a weakened capacity of the obligor to meet its financial commitment on the obligation.
Speculative Grade
Obligations rated ‘BB’, ‘B’, ‘CCC’, ‘CC’ and ‘C’ are regarded as having predominantly speculative characteristics with respect to capacity to pay interest
and repay principal. BB indicates the least degree of speculation and C the highest. While such debt will likely have some quality and protective characteristics, these are outweighed by large uncertainties or major exposures to adverse conditions.
BB: An obligation rated ‘BB’ is less vulnerable to nonpayment than other speculative issues.
However, it faces major ongoing uncertainties or exposure to adverse business, financial, or economic conditions which could lead to the obligor’s inadequate capacity to meet its financial commitment on the obligation.
B: An obligation rated ‘B’ is more vulnerable to nonpayment than obligations rated ‘BB’, but the
obligor currently has the capacity to meet its financial commitment on the obligation. Adverse business, financial, or economic conditions will likely impair the obligor’s capacity or willingness to meet its financial commitment on the
obligation.
CCC: An obligation rated ‘CCC’ is currently vulnerable to nonpayment, and is dependent
upon favorable business, financial, and economic conditions for the obligor to meet its financial commitment on the obligation. In the event of adverse business, financial, or economic conditions, the obligor is not likely to have the capacity to
meet its financial commitment on the obligation.
A-4
CC: An obligation rated ‘CC’ is currently highly vulnerable to
nonpayment.
C: A subordinated debt or preferred stock obligation rated ‘C’ is currently highly
vulnerable to nonpayment. The ‘C’ rating may be used to cover a situation where a bankruptcy petition has been filed or similar action taken, but payments on this obligation are being continued. A ‘C’ also will be assigned to a
preferred stock issue in arrears on dividends or sinking fund payments, but that is currently paying.
D: An
obligation rated ‘D’ is in payment default. The ‘D’ rating category is used when payments on an obligation are not made on the date due even if the applicable grace period has not expired, unless Standard & Poor’s
believes that such payments will be made during such grace period. The ‘D’ rating also will be used upon the filing of a bankruptcy petition or the taking of a similar action if payments on an obligation are jeopardized.
Plus (+) or Minus (–): The ratings from AA to CCC may be modified by the addition of a plus or minus sign to
show relative standing within the major rating categories.
Provisional ratings: The letter “p”
indicates that the rating is provisional. A provisional rating assumes the successful completion of the project being financed by the debt being rated and indicates that payment of debt service requirements is largely or entirely dependent upon the
successful and timely completion of the project. This rating, however, while addressing credit quality subsequent to completion of the project, makes no comment on the likelihood of, or the risk of default upon failure of, such completion. The
investor should exercise his own judgment with respect to such likelihood and risk.
r: This symbol is
attached to the ratings of instruments with significant noncredit risks. It highlights risks to principal or volatility of expected returns which are not addressed in the credit rating. Examples include: obligations linked or indexed to equities,
currencies, or commodities; obligations exposed to severe prepayment risk - such as interest-only or principal-only mortgage securities; and obligations with unusually risky interest terms, such as inverse floaters.
The absence of an “r” symbol should not be taken as an indication that an obligation will exhibit no volatility
or variability in total return.
N.R.: This indicates that no rating has been requested, that there is
insufficient information on which to base a rating, or that Standard & Poor’s does not rate a particular obligation as a matter of policy.
Debt obligations of issuers outside the United States and its territories are rated on the same basis as domestic corporate and municipal issues. The ratings measure the creditworthiness of the obligor
but do not take into account currency exchange and related uncertainties.
Commercial Paper Rating
Definitions
A Standard & Poor’s commercial paper rating is a current assessment of the
likelihood of timely payment of debt having an original maturity of no more than 365 days. Ratings are graded into several categories, ranging from A for the highest quality obligations to D for the lowest. These categories are as follows:
A-1: A short-term obligation rated ‘A-1’ is rated in the highest category by Standard &
Poor’s. The obligor’s capacity to meet its financial commitment on the obligation is strong. Within this
A-5
category, certain obligations are designated with a plus sign (+). This indicates that the obligor’s capacity to meet its financial commitment on these obligations is extremely strong.
A-2: A short-term obligation rated ‘A-2’ is somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than obligations in higher rating categories. However, the obligor’s capacity to meet its financial commitment on the obligation is satisfactory.
A-3: A short-term obligation rated ‘A-3’ exhibits adequate protection parameters. However, adverse economic
conditions or changing circumstances are more likely to lead to a weakened capacity of the obligor to meet its financial commitment on the obligation.
B: A short-term obligation rated ‘B’ is regarded as having significant speculative characteristics. The obligor currently has the capacity to meet its financial commitment on the obligation;
however, it faces major ongoing uncertainties which could lead to the obligor’s inadequate capacity to meet its financial commitment on the obligation.
C: A short-term obligation rated ‘C’ is currently vulnerable to nonpayment and is dependent upon favorable business, financial, and economic conditions for the obligor to meet its financial
commitment on the obligation.
D: A short-term obligation rated ‘D’ is in payment default. The
‘D’ rating category is used when payments on an obligation are not made on the date due even if the applicable grace period has not expired, unless Standard & Poor’s believes that such payments will be made during such grace
period. The ‘D’ rating also will be used upon the filing of a bankruptcy petition or the taking of a similar action if payments on an obligation are jeopardized.
A commercial paper rating is not a recommendation to purchase, sell or hold a security inasmuch as it does not comment as
to market price or suitability for a particular investor. The ratings are based on current information furnished to Standard & Poor’s by the issuer or obtained from other sources it considers reliable. Standard & Poor’s
does not perform an audit in connection with any rating and may, on occasion, rely on unaudited financial information. The ratings may be changed, suspended, or withdrawn as a result of changes in or unavailability of such information.
Fitch Investor Services, Inc
Credit Ratings
Fitch’s credit ratings provide an
opinion on the relative ability of an entity to meet financial commitments, such as interest, preferred dividends, repayment of principal, insurance claims or counterparty obligations. Credit ratings are used by investors as indications of the
likelihood of receiving their money back in accordance with the terms on which they invested. Fitch’s credit ratings cover the global spectrum of corporate, sovereign (including supranational and sub-national), financial, bank, insurance,
municipal and other public finance entities and the securities or other obligations they issue, as well as structured finance securities backed by receivables or other financial assets.
The use of credit ratings defines their function: “investment grade” ratings (international Long-term
‘AAA’ to ‘BBB-’ categories; Short-term ‘F1’ to ‘F3’) indicate relatively low to moderate credit risk, while those in the “speculative” or “non investment grade” categories (international
Long-term ‘BB+’ to ‘D’; Short-term ‘B’ to ‘D’) either signal a higher level of credit risk or that a default has
A-6
already occurred. Credit ratings express risk in relative rank order, which is to say they are ordinal measures of credit risk and are not predictive of a specific frequency of default or loss.
Depending on their application, credit ratings address benchmark measures of probability of default as well
relative expectations of loss given default. For example, issuers are typically assigned Issuer Default Ratings that are relative measures of default probability. Similarly, short-term credit ratings give primary consideration to the likelihood that
obligations will be met on a timely basis. Securities, however, are rated taking into consideration probability of default and loss given default. As a result, for entities such as corporations security ratings may be rated higher, lower or the same
as the issuer rating to reflect expectations of the security’s relative recovery prospects, as well as differences in ability and willingness to pay. While recovery analysis plays an important role throughout the ratings scale, it becomes a
more critical consideration for below investment-grade securities and obligations, particularly at the lower end of the non-investment-grade ratings scale where Fitch often publishes actual Recovery Ratings, that are complementary to the credit
ratings.
Structured finance ratings typically are assigned to each individual security or tranche in a
transaction, and not to an issuer. Each structured finance tranche is rated on the basis of various stress scenarios in combination with its relative seniority, prioritization of cash flows and other structural mechanisms.
International Long-Term Credit Ratings
International Long-Term Credit Ratings (LTCR) may also be referred to as Long-Term Ratings. When assigned to most issuers, it is used as a benchmark measure of probability of default and is formally
described as an Issuer Default Rating (IDR). The major exception is within Public Finance, where IDRs will not be assigned as market convention has always focused on timeliness and does not draw analytical distinctions between issuers and their
underlying obligations. When applied to issues or securities, the LTCR may be higher or lower than the issuer rating (IDR) to reflect relative differences in recovery expectations.
The following rating scale applies to foreign currency and local currency ratings:
Investment Grade
AAA
Highest credit quality. ‘AAA’ ratings
denote the lowest expectation of credit risk. They are assigned only in case of exceptionally strong capacity for payment of financial commitments. This capacity is highly unlikely to be adversely affected by foreseeable events.
AA
Very high credit quality. ‘AA’ ratings denote expectations of very low credit risk. They indicate very strong capacity for payment of financial commitments. This capacity is not significantly
vulnerable to foreseeable events.
A
High credit quality. ‘A’ ratings denote expectations of low credit risk. The capacity for payment of financial
commitments is considered strong. This capacity may, nevertheless, be more vulnerable to changes in circumstances or in economic conditions than is the case for higher ratings.
A-7
BBB
Good credit quality. ‘BBB’ ratings indicate that there is currently expectations of low credit risk. The
capacity for payment of financial commitments is considered adequate but adverse changes in circumstances and economic conditions are more likely to impair this capacity. This is the lowest investment grade category.
Speculative Grade
BB
Speculative
‘BB’ ratings indicate that there is a possibility of credit risk developing, particularly as the result of
adverse economic change over time; however, business or financial alternatives may be available to allow financial commitments to be met. Securities rated in this category are not investment grade.
B
Highly speculative
For issuers and performing
obligations, ‘B’ ratings indicate that significant credit risk is present, but a limited margin of safety remains. Financial commitments are currently being met; however, capacity for continued payment is contingent upon a sustained,
favorable business and economic environment.
For individual obligations, may indicate distressed or defaulted
obligations with potential for extremely high recoveries. Such obligations would possess a Recovery Rating of ‘R1’ (outstanding).
CCC
For issuers and performing obligations, default is a
real possibility. Capacity for meeting financial commitments is solely reliant upon sustained, favorable business or economic conditions.
For individual obligations, may indicate distressed or defaulted obligations with potential for average to superior levels of recovery. Differences in credit quality may be denoted by plus/minus
distinctions. Such obligations typically would possess a Recovery Rating of ‘R2’ (superior), or ‘R3’ (good) or ‘R4’ (average).
CC
For issuers and performing obligations, default of
some kind appears probable.
For individual obligations, may indicate distressed or defaulted obligations with
a Recovery Rating of ‘R4’ (average) or ‘R5’ (below average).
C
For issuers and performing obligations, default is imminent.
For individual obligations, may indicate distressed or defaulted obligations with potential for below-average to poor
recoveries. Such obligations would possess a Recovery Rating of ‘R6’ (poor).
RD
Indicates an entity that has failed to make due payments (within the applicable grace period) on some but not all
material financial obligations, but continues to honor other classes of obligations.
A-8
D
Indicates an entity or sovereign that has defaulted on all of its financial obligations. Default generally is defined as
one of the following:
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failure of an obligor to make timely payment of principal and/or interest under the contractual terms of any financial obligation;
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the bankruptcy filings, administration, receivership, liquidation or other winding-up or cessation of business of an obligor; or
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the distressed or other coercive exchange of an obligation, where creditors were offered securities with diminished structural or economic terms
compared with the existing obligation.
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Default ratings are not assigned prospectively;
within this context, non-payment on an instrument that contains a deferral feature or grace period will not be considered a default until after the expiration of the deferral or grace period.
Issuers will be rated ‘D’ upon a default. Defaulted and distressed obligations typically are rated along the
continuum of ‘C’ to ‘B’ ratings categories, depending upon their recovery prospects and other relevant characteristics. Additionally, in structured finance transactions, where analysis indicates that an instrument is irrevocably
impaired such that it is not expected to meet pay interest and or principal in full in accordance with the terms of the obligation’s documentation during the life of the transaction, but where no payment default in accordance with the terms of
the documentation is imminent, the obligation may be rated in the ‘B’ or ‘CCC-C’ categories.
Default is determined by reference to the terms of the obligations’ documentation. Fitch will assign default ratings where it has reasonably determined that payment has not been made on a material
obligation in accordance with the requirements of the obligation’s documentation, or where it believes that default ratings consistent with Fitch’s published definition of default are the most appropriate ratings to assign.
International Short-Term Credit Ratings
The following ratings scale applies to foreign currency and local currency ratings. A Short-term rating has a time horizon of less than 13 months for most obligations, or up to three years for US public
finance, in line with industry standards, to reflect unique risk characteristics of bond, tax, and revenue anticipation notes that are commonly issued with terms up to three years. Short-term ratings thus place greater emphasis on the liquidity
necessary to meet financial commitments in a timely manner.
F1
Highest credit quality. Indicates the strongest capacity for timely payment of financial commitments; may have an added
“+” to denote any exceptionally strong credit feature.
F2
Good credit quality. A satisfactory capacity for timely payment of financial commitments, but the margin of safety is not
as great as in the case of the higher ratings.
A-9
F3
Fair credit quality. The capacity for timely payment of financial commitments is adequate; however, near term adverse
changes could result in a reduction to non investment grade.
B
Speculative. Minimal capacity for timely payment of financial commitments, plus vulnerability to near term adverse
changes in financial and economic conditions.
C
High default risk. Default is a real possibility. Capacity for meeting financial commitments is solely reliant upon a
sustained, favorable business and economic environment.
RD
Indicates an entity that has defaulted on one or more of its financial commitments, although it continues to meet other
obligations.
D
Indicates an entity or sovereign that has defaulted on all of its financial obligations.
Notes to International Long-Term and Short-Term ratings:
The modifiers “+” or “–” may be appended to a rating to denote relative status within major rating categories. Such suffixes are not added to the ‘AAA’ Long-term rating
category, to categories below ‘CCC’ or to Short-term ratings other than ‘Fl’. (The +/– modifiers are only used to denote issues within the CCC category, whereas issuers are only rated CCC without the use of modifiers.)
Rating Watch: Ratings are placed on Rating Watch to notify investors that there is a reasonable probability
of a rating change and the likely direction of such change. These are designated as “Positive,” indicating a potential upgrade, “Negative,” for a potential downgrade, or “Evolving,” if ratings may be raised, lowered or
maintained. Rating Watch is typically resolved over a relatively short period.
Rating Outlook: An Outlook
indicates the direction a rating is likely to move over a one to two-year period. Outlooks may be positive, stable or negative. A positive or negative Rating Outlook does not imply a rating change is inevitable. Similarly, ratings for which outlooks
are “stable” could be upgraded or downgraded before an outlook moves to positive or negative if circumstances warrant such an action. Occasionally, Fitch Ratings may be unable to identify the fundamental trend. In these cases, the Rating
Outlook may be described as evolving.
Program ratings (such as the those assigned to MTN shelf registrations)
relate only to standard issues made under the program concerned: it should not be assumed that these ratings apply to every issue made under the program. In particular, in the case of non-standard issues, i.e. those that are linked to the credit of
a third party or linked to the performance of an index, ratings of these issues may deviate from the applicable program rating.
Variable rate demand obligations and other securities which contain a short-term “put” or other similar demand feature will have a dual rating, such as AAA/F1+. The first rating reflects the
ability to meet long-term principal and interest payments, whereas the second rating reflects the ability to honor the demand feature in full and on time.
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Interest Only
Interest Only ratings are assigned to interest strips. These ratings do not address the possibility that a security
holder might fail to recover some or all of its initial investment due to voluntary or involuntary principal repayments.
Principal Only
Principal Only ratings address the
likelihood that a security holder will receive their initial principal investment either before or by the scheduled maturity date.
Rate of Return
Ratings also may be assigned to gauge the
likelihood of an investor receiving a certain predetermined internal rate of return without regard to the precise timing of any cash flows.
‘PIF’
Paid-in-Full: denotes a security that is
paid-in-full, matured, called, or refinanced.
‘NR’ indicates that Fitch Ratings does not rate the
issuer or issue in question.
‘Withdrawn’: A rating is withdrawn when Fitch Ratings deems the amount
of information available to be inadequate for rating purposes, or when an obligation matures, is called, or refinanced, or for any other reason Fitch Ratings deems sufficient.
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APPENDIX B
ALPS Advisors, Inc.
Proxy Voting Policy, Procedures and Guidelines
Overview
An investment adviser that exercises voting authority over clients’ proxies must adopt written policies and procedures that are
reasonably designed to ensure that those proxies are voted in the best economic interests of clients. An adviser’s policies and procedures must address how the adviser resolves material conflicts of interest between its interests and those of
its clients. An investment adviser must comply with certain record keeping and disclosure requirements with respect to its proxy voting responsibilities. In addition, an investment adviser to ERISA accounts has an affirmative obligation to vote
proxies for an ERISA account, unless the client expressly retains proxy voting authority.
Policy Summary
With all advisory clients of AAI currently being investment companies registered under the 1940 Act, any assignment of voting authority
over the Funds’ voting securities is typically delegated to AAI as the Funds’ investment adviser, or the Funds’ sub-adviser by the respective Funds’ Board of Trustees/Directors. If the Funds’ day-to-day investment decisions
are performed by the Funds’ investment sub-adviser(s), Funds’ Board of Trustees/Directors may elect to delegate the responsibility of voting proxies to such sub-adviser to be voted in accordance to the sub-adviser’s proxy voting
policies and procedures in conformance with Rule 206(4)-6 under the Investment Advisers Act of 1940, as amended. For securities in the portfolio of a Fund that is managed by more than one sub-adviser, each sub-adviser shall make voting decisions
pursuant to their own proxy voting policies and procedures, as adopted in conformance with the Advisers Act for their respective portions of the Fund’s portfolio, unless directed otherwise.
ALPS Advisors, Inc. (“AAI”) has adopted and implemented the following policies and procedures, which
it believes are reasonably designed to: (1) ensure that proxies are voted in the best economic interest of clients and (2) address material conflicts of interest that may arise. AAI will provide clients with a copy of its policies and
procedures, as they may be updated from time to time, upon request. Information regarding AAI’s proxy voting decisions is confidential. Therefore, the information may be shared on a need to know basis only, including within AAI. Advisory
clients may obtain information on how their proxies were voted by AAI. However, AAI will not selectively disclose its investment company clients’ proxy voting records to third parties; the investment company clients’ proxy records will be
disclosed to shareholders by publicly-available annual filings of each investment company’s proxy voting record for 12-month periods ending June 30
th
.
POLICY:
All proxies regarding client securities for which AAI has
authority to vote will, unless AAI determines in accordance with policies stated below to refrain from voting, be voted in a manner considered by AAI to be in the best interest of AAI’s clients without regard
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to any resulting benefit or detriment to AAI or its affiliates. The best interest of clients is defined for this purpose as the interest of enhancing or protecting the economic value of client
accounts, considered as a group rather than individually, as AAI determines in its sole and absolute discretion. In the event a client believes that its other interests require a different vote, AAI will vote as the client clearly instructs,
provided AAI receives such instructions in time to act accordingly.
AAI endeavors to vote, in accordance with this Policy,
all proxies of which it becomes aware, subject to the following general exceptions (unless otherwise agreed) when AAI expects to routinely refrain from voting:
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Proxies will usually not be voted in cases where the security has been loaned from the Client’s account.
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2.
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Proxies will usually not be voted in cases where AAI deems the costs to the Client and/or the administrative inconvenience of voting the security
outweigh the benefit of doing so (e.g., international issuers which impose share blocking restrictions).
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AAI seeks to avoid the occurrence of actual or apparent material conflicts of interest in the proxy voting process by voting in
accordance with predetermined voting guidelines and observing other procedures that are intended to guard against and manage conflicts of interest (refer to Section III, Conflicts of Interest below).
PROCEDURES AND CONTROLS:
AAI has adopted the following proxy voting procedures and controls for any client securities which AAI has authority to vote on. Where
proxy voting is delegated to the sub-adviser, the sub-adviser will adopt proxy voting policies and procedures in accordance in conformance with Rule 206(4)-6 under the Investment Advisers Act of 1940, as amended.
I. PROXY COMMITTEE
AAI
has established a Proxy Committee whose standing members include Chief Compliance Officer, Deputy Chief Compliance Officer(s), Chief Investment Officer, Vice President of Investments and Head of Trading, who participate as voting authorities on the
Committee. Each standing member may designate a senior portfolio manager or a senior analyst officer to act as a substitute in a given matter on their behalf. Additionally, the Proxy Committee regularly involves other associates (e.g., Fund CCO or
Legal representative) who participate as needed to enable effective execution of the Committee’s responsibilities.
The
Proxy Committee’s functions include, in part,
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(a) direction of the vote on proposals where there has been a recommendation
to the Committee not to vote according to the predetermined Voting Guidelines (stated in Appendix A) or on proposals which require special, individual consideration in accordance with Section IV.C;
(b) review at least annually of this Proxy Voting Policy and Procedure to ensure consistency with internal policies,
client disclosures and regulatory requirements;
(c) review at least annually of existing Voting Guidelines
and the need for development of additional Voting Guidelines to assist in the review of proxy proposals; and
(d) development and modification of Voting Procedures, as stated in Section VI, as it deems appropriate or necessary.
II. AAI’S INVESTMENT ASSOCIATES
In considering a particular proxy matter, the research analyst or portfolio manager must vote in the clients’ best interest as defined above. Information regarding AAI’s proxy voting decisions
is confidential information. Therefore, research analysts and portfolio managers generally must not discuss proxy votes with any person outside of AAI and within AAI on a need to know basis only.
Research analysts and portfolio managers must discharge their responsibilities consistent with the obligations set forth below (refer to
Management of Conflicts of Interest – Additional Procedures). A research analyst or portfolio manager must disclose to AAI’s Chief Compliance Officer in writing any inappropriate attempt to influence their recommendation or any other
personal interest that they have with the issuer (see Conflicts of Interest Disclosure and Certification Form - Appendix B to this policy). For each Proxy Referral (defined below), the research analyst or portfolio manager is responsible for
memorializing their recommendation and communicating it to the Compliance Department.
Research analysts and portfolio
managers should seek advice from Compliance or Legal with respect to any questions that they have regarding personal conflicts of interests, communications regarding proxies, or other related matters.
III. CONFLICTS OF INTEREST
For purposes of this policy, a material conflict of interest is a relationship or activity engaged in by AAI, an AAI affiliate, or an AAI associate that creates an incentive (or appearance thereof) to
favor the interests of AAI, the affiliate, or associate, rather than the clients’ interests. For example, AAI may have a conflict of interest if either AAI has a significant business relationship with a company that is soliciting a proxy, or if
an AAI associate involved in the proxy voting decision-making process has a significant personal
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or family relationship with the particular company. A conflict of interest is considered to be “material” to the extent that a reasonable person could expect the conflict to influence
AAI’s decision on the particular vote at issue. In all cases where there is deemed to be a material conflict of interest, AAI will seek to resolve it in the clients’ best interests.
For those proxy proposals that: (1) are not addressed by AAI’s proxy voting guidelines; (2) the guidelines specify
the issue must be evaluated and determined on a case-by-case basis; or (3) an AAI investment associate believes that an exception to the guidelines may be in the best economic interest of AAI’s clients (collectively, “Proxy
Referrals”), AAI may vote the proxy, subject to the conflicts of interest procedures set forth below.
In the case
of Proxy Referrals, Compliance will collect and review any information deemed reasonably appropriate to evaluate if AAI or any person participating in the proxy voting decision-making process has, or has the appearance of, a material conflict of
interest. AAI investment personnel involved in the particular Proxy Referral must report any personal conflict of interest circumstances to AAI’s Chief Compliance Officer (“CCO”), or designee, in writing (see Appendix B -
“Conflicts of Interest Disclosure and Certification Form”). Compliance will consider information about AAI’s significant business relationships, as well as other relevant information. The information considered by Compliance may
include information regarding: (1) AAI client and other business relationships; (2) any relevant personal conflicts; and (3) communications between investment professionals and parties outside the AAI investment division regarding the
proxy matter. Compliance will consult with relevant experts, including legal counsel, as necessary.
If Compliance determines
that it reasonably believes (1) AAI has a material conflict of interest, or (2) certain individuals should be recused from participating in the proxy vote at issue, Compliance will inform the Chair of the Proxy Committee. Where a material
conflict of interest is determined to have arisen in the proxy voting process, AAI’s policy is to invoke one or more of the following conflict management procedures:
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Causing the proxies to be voted in accordance with the recommendations of an independent third party (which generally will be AAI’s proxy
voting agent);
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Causing the proxies to be delegated to a qualified, independent third party, which may include AAI’s proxy voting agent.
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In unusual cases, with the Client’s consent and upon ample notice, forwarding the proxies to AAI’s clients so that they may vote the
proxies directly.
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Affiliate Investment Companies and Public Companies
AAI considers proxies solicited by open-end and closed-end investment companies for which AAI or an affiliate serves as an investment
adviser or principal underwriter to present a material conflict of interest for AAI. Consequently, the proxies of such affiliates will be voted following one of the conflict management procedures discussed above.
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Management of Conflicts of Interest – Additional Procedures
AAI has various compliance policies and procedures in place in order to address any material conflicts of interest that might arise in
this context.
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ALPS’s Code of Ethics affirmatively requires that associates of AAI act in a manner whereby no actual or apparent conflict of interest may be
seen as arising between the associate’s interests and those of AAI’s Clients.
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By assuming his or her responsibilities pursuant to this Policy, each member of the Proxy Committee (including the chairperson) and any AAI or ALPS
associate advising or acting under the supervision or oversight of the Proxy Committee undertakes:
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To disclose in writing to AAI’s CCO, or designee, any actual or apparent personal material conflicts of interest which he or she may have
(e.g., by way of substantial ownership of securities, relationships with nominees for directorship, members of an issuer’s or dissident’s management or otherwise) in determining whether or how AAI will vote proxies. Additionally, each
member must disclose any direct, indirect or perceived influence or attempt to influence such action which the member or associate views as being inconsistent with the purpose or provisions of this Policy or the Code of Ethics of ALPS. In the event
any member of the Proxy Committee has a conflict of interest regarding a given matter, he or she will abstain from participating in the Committee’s determination of whether and/or how to vote in the matter; and
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To refrain from taking into consideration, in the decision as to whether or how AAI will vote proxies the existence of any current or prospective
material business relationship between AAI, ALPS or any of their affiliates, on one hand, and any party (or its affiliates) that is soliciting or is otherwise interested in the proxies to be voted, on the other hand.
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In certain circumstances, AAI follows the proxy guidelines and uses other research services provided by Institutional Shareholder Services, Inc.
(“ISS”) or another independent third party. AAI has undertaken a review of ISS’ conflicts of interest procedures, and will continue to monitor them on an ongoing basis. In the event that AAI determines that it would be appropriate to
use another third party, it will undertake a similar conflicts of interest assessment review.
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IV.
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PROXY VOTING GUIDELINES
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A. AAI’s Proxy Voting Guidelines – General Practices.
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The Proxy Committee has adopted the guidelines for voting proxies specified in Appendix A of
this policy. AAI will use an independent, third-party vendor to implement its proxy voting process as AAI’s proxy voting agent. In general, whenever a vote is solicited, ISS or another independent third party will execute the vote according to
AAI’s Voting Guidelines.
B. Ability to Vote Proxies Other than as Provided by Voting Guidelines.
A portfolio manager or other party involved with a client’s account may conclude that the best interest of the firm’s client,
as defined above, requires that a proxy be voted in a manner that differs from the predetermined proxy Voting Guidelines. In this situation, he or she will request that the Proxy Committee consider voting the proxy other than according to such
Guidelines. If any person, group, or entity requests the Proxy Committee (or any of its members) vote a proxy other than according to the predetermined Voting Guidelines, that person will furnish to the Proxy Committee a written explanation of the
reasons for the request and a description of the person’s, group’s, or entity’s relationship, if any, with the parties proposing and/or opposing the matter’s adoption. The Proxy Committee may consider the matter, subject to the
conflicts of interest procedures discussed above.
C. Other Proxy Proposals
For the following categories of proposals either the Proxy Committee will determine how proxies related to all such proposals will be
voted, or the proxies will be voted in accordance with ISS’ or an individual client’s guidelines.
1.
New Proposals
. For each new type of proposal that is expected to be proposed to shareholders of
multiple companies, the Proxy Committee will develop a Voting Guideline which will be incorporated into this Policy.
2.
Accounts Adhering to Taft Hartley Principles.
All proposals for these accounts will be voted according to the Taft Hartley Guidelines developed by ISS.
3.
Accounts Adhering to Socially Responsible Principles.
All proposals for these accounts will be
voted according to the Socially Responsible Guidelines developed by ISS or as specified by the client.
4.
Proxies of International Issuers which Block Securities Sales between the Time a Shareholder submits a
Proxy and the Vote
.
In general, AAI will refrain from voting such securities. However, in the exceptional circumstances that AAI determines that it would be appropriate to vote such proxies, all proposals for these securities will be
voted only on the specific instruction of the Proxy Committee and to the extent practicable in accordance with the Voting Guidelines set forth in this Policy.
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5.
Proxies of Investment Company Shares.
Proposals on
issues other than those specified in Section IV.A will be voted on the specific instruction of the Proxy Committee.
6.
Executive/Director Compensation.
Except as provided in Section IV.A, proposals relating to compensation of any executive or director will be voted as recommended by ISS or as
otherwise directed by the Proxy Committee.
7.
Preemptive Rights
. Proposals to create or
eliminate shareholder preemptive rights. In evaluating these proposals the Proxy Committee will consider the size of the company and the nature of its shareholder base.
V. VOTING PROCEDURES
The Proxy Committee has developed the following
procedures to aid the voting of proxies according to the Voting Guidelines. The Proxy Committee may revise these procedures from time to time, as it deems necessary or appropriate to affect the purposes of this Policy.
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AAI will use an independent, third-party vendor, to implement its proxy voting process as AAI’s proxy voting agent. This retention is subject
to AAI continuously assessing the vendor’s independence from AAI and its affiliates, and the vendor’s ability to perform its responsibilities (and, especially, its responsibility to vote client proxies in accordance with AAI’s proxy
voting guidelines) free of any actual, potential or apparent material conflicts of interests that may arise between the interests of the vendor, its affiliates, the vendor’s other clients and the owners, officers or employees of any such firm,
on the one hand, and AAI’s clients, on the other hand. As means of performing this assessment, AAI will require various reports and notices from the vendor, as well as periodic audits of the vendor’s voting record and other due diligence.
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ISS will provide proxy analysis and record keeping services in addition to voting proxies on behalf of AAI in accordance with this Policy.
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On a daily basis, AAI will send to ISS a holdings file detailing each equity holding held in all accounts over which AAI has voting authority.
Information regarding equity holdings for international portfolios will be sent weekly.
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ISS will receive proxy material information from Proxy Edge or the custodian bank for the account. This will include issues to be voted upon,
together with a breakdown of holdings for AAI accounts. ISS will then reconcile information it receives from AAI with information that it has received from Proxy Edge and custodian banks. Any discrepancies will be promptly noted and resolved by ISS,
with notice to AAI.
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Whenever a vote is solicited, ISS will execute the vote according to AAI’s Voting
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Guidelines which will be delivered by AAI to ISS as set forth in Appendix A and anytime there is a material change to these guidelines.
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If ISS is unsure how to vote a particular proxy, ISS will issue a request for voting instructions to AAI over a secure website. AAI personnel will
check this website regularly. The request will be accompanied by a recommended vote. The recommended vote will be based upon ISS’ understanding of the Voting Guidelines previously delivered to ISS. AAI will promptly provide ISS with any
amendments or modifications to the Voting Guidelines if necessary. AAI will return a final instruction to vote to ISS, which ISS will record with Proxy Edge or the custodian bank as our agent.
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Each time that ISS sends AAI a request to vote, the request will be accompanied by the recommended vote determined in accordance with AAI’s
Voting Guidelines. ISS will vote as indicated in the request unless the client has reserved discretion, the Proxy Committee determines that the best interest of clients requires another vote, or the proposal is a matter as to which the Proxy
Committee affords special, individual consideration under Section IV.C. In such situations, ISS will vote based on the direction of the client or the Proxy Committee, as the case may be. The interests of AAI’s Taft Hartley or Socially
Responsible clients may impact a proposal that normally should be voted in a certain way. ISS will inform AAI of all proposals having impact on its Taft Hartley and or Socially Responsible clients. The Proxy Voting Committee will be consulted before
a vote is placed in cases where Taft Hartley or Socially Responsible issues are presented.
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ISS will have procedures in place to ensure that a vote is cast on every security holding maintained by AAI on which a vote is solicited unless
otherwise directed by the Proxy Committee. On a yearly basis, or as required by our clients AAI will receive a report from ISS detailing AAI’s voting for the previous period.
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VI. SUPERVISION
Managers and supervisory personnel are responsible for ensuring that their associates understand and follow this policy and any
applicable procedures adopted by the business group to implement the policy. The Proxy Committee has ultimate responsibility for the implementation of this Policy.
VII. ESCALATION
With the exception of conflicts of interest-related
matters, issues arising under this policy should be escalated to AAI’s CCO, or designee. Issues involving potential or actual conflicts of interest should be promptly communicated to Compliance or Legal. Compliance will notify the Fund Chief
Compliance Officer(s), if a material conflict of interest has arisen that deems the attention of the respective Fund Board(s).
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VIII. MONITORING
AAI’s Compliance Department is primarily responsible for overseeing the day-to-day operations of the proxy voting process. The Compliance Department’s monitoring will take into account the
following elements: (1) periodic review of ISS votes to ensure that ISS is accurately voting consistent with AAI’s Proxy Guidelines; and (2) review of fund’s N-PX report to ensure that it’s filed in a timely and accurate
manner. Additionally, AAI will review ISS’ conflicts of interest policies.
IX. AVAILABILITY OF PROXY POLICY AND VOTING RECORD
A summary disclosure regarding the provisions of this Policy is available in AAI’s Form ADV. Upon receipt of a
Client’s request for more information, AAI will provide to the Client a copy of this Policy and/or how AAI voted proxies for the Client pursuant to this Policy for up to a one-year period. It is AAI’s policy not to disclose how it voted a
client’s proxy to third parties.
With respect to its investment company clients, AAI will not selectively disclose its
investment company clients’ proxy voting records; rather, ALPS will disclose such information by publicly available annual filings. AAI will create and maintain records of each investment company’s proxy record for 12-month periods ended
June 30
th
. AAI will compile the following information
for each matter relating to a portfolio security considered at any shareholder meeting during the period covered by the annual report and which the company was entitled to vote:
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The name of the issuer of the security;
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The exchange ticker symbol of the portfolio security (is symbol is available through reasonably practicable means);
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The Council on Uniform Securities Identification Procedures number for the portfolio security (if number is available through reasonably practicable
means);
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The shareholder meeting date;
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A brief identification of the matter voted on;
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Whether the matter was proposed by the issuer or by a security holder;
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Whether the company cast its vote on the matter;
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How the company cast its vote (e.g., for or against proposal, or abstain; for or withhold regarding the election of directors); and
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Whether the company cast its vote for or against management.
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OTHER RECORD KEEPING REQUIREMENTS
Business groups and support partners are responsible for maintaining all records necessary to evidence compliance with this
policy. The records must be properly maintained and readily accessible in order to evidence compliance with this policy.
These records include:
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Proxy Committee Meeting Minutes and Other Materials
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Analysis and Supporting Materials of Investment Management Personnel Concerning Proxy Decisions and Recommendations
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Conflicts of Interest Review Documentation, including Conflicts of Interest Forms
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Client Communications Regarding Proxy Matters
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Records should be retained for a period of not less than six years. Records must be retained in an appropriate office of AAI for the first three years.
Dated: November 29, 2006
Amended: December, 22, 2010
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