| 1. | ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES |
AMIDEXTM Funds, Inc. (the “Company”) was incorporated under the laws of the state of Maryland on April 27, 1999, and currently consists of one active portfolio, the AMIDEX35TM Israel Mutual Fund (the “Fund”). The Fund is a non-diversified Fund. As a non-diversified Fund, it may invest a significant portion of its assets in a small number of companies. The Company is registered as an open-end management investment company under the Investment Company Act of 1940 (the “1940 Act”). The Fund was registered to offer four classes of shares, Class A, Class B, Class C and No-load class, with only the Class A, Class C and No-load shares currently being offered in the AMIDEX35TM Israel Mutual Fund. Each class differs as to sales and redemption charges, minimum investment amounts and ongoing fees. Income and realized/unrealized gains or losses are allocated to each class based on relative share balances. The Fund’s investment objective is long term growth of capital. The Fund became effective with the SEC on April 27, 1999 and commenced operations on June 8, 1999.
The following is a summary of significant accounting policies consistently followed by the Fund. The policies are in conformity with accounting principles generally accepted in the United States of America (“GAAP”).
a) Investment Valuation - A portfolio security listed or traded on an exchange in domestic or international markets is valued at the last reported sale price of the primary exchange on which it trades before the time when the Fund values assets. Securities traded on more than one market are valued using the market identified as primary based on trading volume and activity. Equity securities traded on the NASDAQ National Market System are valued at the NASDAQ Official Closing Price. To the extent these securities are actively traded and valuation adjustments are not applied, they are categorized in level 1 of the fair value hierarchy described below. If there are no sales that day, such securities will be valued at the last bid price, if available. Other over-the-counter securities are valued at the last sale price, if published, or the last bid price, if available. Lacking any sales on the principal exchange that day, the security is valued at the last reported bid, if available and would be categorized as level 2. Debt securities with maturities of sixty days or less at the time of purchase are valued based on amortized cost which approximates fair value and would be categorized as level 2. Money market funds are valued at their asset value of $1.00 per share and are categorized as level 1. If market quotations are not readily available, or when the portfolio management team believes that a readily available market quotation or other valuation produced by the Fund’s valuation policies is not reliable, the Fund values the assets at fair value using procedures established by the Board of Directors. The Board members have delegated pricing authority to the fair valuation committee of the adviser, for certain pricing issues, as defined in the valuation procedures. Events affecting the value of securities that occur between the time prices are established and the New York Stock Exchange closes are not reflected in the calculation of net asset value unless the fair valuation committee decides that the event would materially affect the net asset value. If the event would materially affect the Fund’s net asset values, the security will be fair valued by the fair valuation committee or, at its discretion, by an independent fair valuation vendor. As of and during the period ended November 30, 2013, no securities were valued as determined by the Board of Directors.
In accordance with the authoritative guidance on fair value measurements and disclosure under GAAP, ASC 820, the Fund discloses fair value of its investments in a hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The objective of a fair value measurement is to determine the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (an exit price). Accordingly, the fair value hierarchy gives the highest priority to quoted prices (unadjusted) in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). The three levels of the fair value hierarchy under ASC 820 are described below:
| Level 1 | - Quoted prices in active markets for identical securities. |
| Level 2 | - Other significant observable inputs (including quoted prices for similar securities, interest rates, prepayment speeds, credit risk, etc.). |
| Level 3 | - Significant unobservable inputs (including the Fund’s own assumptions in determining the fair value of investments). |
The inputs or methodology used for valuing securities are not an indication of the risk associated with investing in those securities.
AMIDEXTM Funds, Inc. | SEMI-ANNUAL REPORT |
NOTES TO THE FINANCIAL STATEMENTS
November 30, 2013 (Unaudited)
| 1. | ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (continued) |
The following is a summary of the inputs used, as of November 30, 2013, in valuing the Fund’s investments carried at fair value:
Security Classification (a) | | | |
| Level 1 | | | |
Common Stock - Israel (b) | | $ | 7,304,747 | |
Common Stock - United States (b) | | | 6,401,231 | |
| Short-Term Investments | | | 56,880 | |
| Total Level 1 | | $ | 13,762,858 | |
| | | | | |
| Level 2 | | $ | - | |
| | | | | |
| Level 3 | | $ | - | |
| | | | | |
| Total Investments | | $ | 13,762,858 | |
| (a) | As of and during the six month period ended November 30, 2013, the Fund held no securities that were considered to be “Level 3” securities (those valued using significant unobservable inputs). Therefore, a reconciliation of assets in which significant unobservable inputs (Level 3) were used in determining fair value is not applicable. |
| (b) | All common stocks held in the Fund are Level 1 securities. For a detailed break-out of common stocks by major industry classification, please refer to the Schedule of Investments. |
The Fund recognizes transfers, if any, between fair value hierarchy levels at the reporting period end. There were no transfers between levels as of and for the period ended November 30, 2013, from the valuation input levels used on May 31, 2013.
b) Foreign Currency Translation - Portfolio securities and other assets and liabilities denominated in foreign currencies are translated into U.S. dollars based on the exchange rate of such currencies against U.S. dollars on the date of valuation. Purchases and sales of securities and income items denominated in foreign currencies are translated into U.S. dollars at the exchange rate in effect on the transaction date. The Fund does not separately report the effect of changes in foreign exchange rates from changes in market prices on securities held. Such changes are included in net realized and unrealized gain or loss from investments. Realized foreign exchange gains or losses arise from sales of foreign currencies, currency gains or losses realized between the trade and settlement dates on securities transactions and the difference between the recorded amounts of dividends, interest and foreign withholding taxes, and the U.S. dollar equivalent of the amounts actually received or paid. Net unrealized foreign exchange gains or losses arise from changes in foreign exchange rates on foreign currency denominated assets and liabilities other than investments in securities held at the end of the reporting period.
c) Federal Income Taxes - No provision for federal income taxes has been made since the Fund has complied to date with sub-chapter M of the Internal Revenue Code applicable to regulated investment companies and intends to comply in the future and to distribute all of its net investment income and realized capital gains to its shareholders.
The Fund recognizes the tax benefits of uncertain tax positions only when the position is “more likely than not” to be sustained assuming examination by tax authorities. Management has reviewed the tax positions in the open tax years of 2010, 2011, 2012 and 2013 and during the six month period ended November 30, 2013 and concluded that no liability for unrecognized tax benefits should be recorded related to uncertain tax positions taken in the above open tax years. The Fund identifies its major tax jurisdictions as U.S. Federal and Maryland. The Fund recognizes interest and penalties, if any, related to unrecognized tax benefits as income tax expense in the statements of operations. During the six month period ended November 30, 2013, the Fund did not incur any interest or penalties.
d) Distributions to Shareholders - Dividends from net investment income and distributions of net realized capital gains, if any, will be declared and paid at least annually. Income and capital gain distributions, which are determined in accordance with income tax regulations, are recorded on the ex-dividend date. GAAP requires that permanent financial reporting differences relating to shareholder distributions be reclassified to paid-in capital or net realized gain.
AMIDEXTM Funds, Inc. | SEMI-ANNUAL REPORT |
NOTES TO THE FINANCIAL STATEMENTS
November 30, 2013 (Unaudited)
| 1. | ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (continued) |
e) Use of Estimates - The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
f) Redemption Fees and Sales Charges (loads) - Shareholders of the No-load shares that redeem shares within 365 days of purchase will be assessed a redemption fee of 2.00% of the amount redeemed. The redemption fee is paid directly to and retained by the Fund, and is designed to deter excessive short-term trading and to offset brokerage commissions, market impact and other costs that may be associated with short-term money movement in and out of the Fund. A maximum sales charge of 5.50% is imposed on Class A shares. Shareholders of the Class C shares are imposed a contingent deferred sales charge (“CDSC”) of 1.00% in the event of certain redemption transactions within thirteen months following such investments. The CDSC is paid directly to the Adviser to reimburse expenses incurred in providing distribution-related services to the Fund. For the six month period ended November 30, 2013, there were redemption fees of $877 paid to the Fund and no CDSC fees paid to the Adviser.
g) Other - Investment and shareholder transactions are recorded on trade date. The Fund determines the gain or loss realized from the investment transactions by comparing the original cost of the security lot sold with the net sales proceeds. Dividend income is recognized on the ex-dividend date or as soon as information is available to the Fund and interest income is recognized on an accrual basis. Withholding taxes on foreign dividends have been provided for in accordance with the Fund’s understanding of the applicable country’s tax rules and rates.
| 2. | CAPITAL SHARE TRANSACTIONS |
Transactions in shares of capital stock for the Fund for the six month period ended November 30, 2013 were as follows:
| | | No-Load | |
| | | Shares | | | Amount | |
| Sold | | | 17,406 | | | $ | 232,702 | |
| Redeemed | | | (33,661 | ) | | | (441,117 | ) |
| Net Decrease | | | (16,255 | ) | | $ | (208,415 | ) |
| | | Class A | |
| | | Shares | | | Amount | |
| Sold | | | 6,959 | | | $ | 70,370 | |
| Redeemed | | | (6,465 | ) | | | (65,798 | ) |
| Net Increase | | | 494 | | | $ | 4,572 | |
| | | Class C | |
| | | Shares | | | Amount | |
| Sold | | | 14,159 | | | $ | 103,529 | |
| Redeemed | | | (5,750 | ) | | | (42,199 | ) |
| Net Increase | | | 8,409 | | | $ | 61,330 | |
AMIDEXTM Funds, Inc. | SEMI-ANNUAL REPORT |
NOTES TO THE FINANCIAL STATEMENTS
November 30, 2013 (Unaudited)
| 2. | CAPITAL SHARE TRANSACTIONS (continued) |
Transactions in shares of capital stock for the Fund for the year ended May 31, 2013 were as follows:
| | | No-Load | |
| | | Shares | | | Amount | |
| Sold | | | 48,378 | | | $ | 593,888 | |
| Redeemed | | | (106,518 | ) | | | (1,279,627 | ) |
| Net Decrease | | | (58,140 | ) | | $ | (685,739 | ) |
| | | Class A | |
| | | Shares | | | Amount | |
| Sold | | | 12,831 | | | $ | 111,560 | |
| Redeemed | | | (90,479 | ) | | | (830,985 | ) |
| Net Decrease | | | (77,648 | ) | | $ | (719,425 | ) |
| | | Class C | |
| | | Shares | | | Amount | |
| Sold | | | 15,282 | | | $ | 101,919 | |
| Redeemed | | | (34,609 | ) | | | (228,742 | ) |
| Net Decrease | | | (19,327 | ) | | $ | (126,823 | ) |
| 3. | INVESTMENT TRANSACTIONS |
For the six month period ended November 30, 2013, aggregate purchases and sales of investment securities (excluding short-term investments) for the Fund were as follows:
| Purchases | | | Sales | |
| $ | - | | | $ | 343,588 | |
There were no government securities purchased or sold during the year.
| 4. | ADVISORY FEES AND OTHER RELATED PARTY TRANSACTIONS |
Effective October 1, 2003, the Fund has entered into an Advisory Agreement with Index Investments, LLC (“II” or “Adviser”) to provide investment management services to the Fund. II furnishes, at its own expense, office space to the Fund and all necessary office facilities, equipment and personnel for managing the assets of the Fund. II also pays all expenses of marketing shares of the Fund and related bookkeeping. Pursuant to the Advisory Agreement, II is entitled to receive a fee, calculated daily and payable monthly at the annual rate of 0.80% as applied to the Fund’s daily net assets. For the six month period ended November 30, 2013, the Fund incurred $51,130 of advisory fees, with $8,236 remaining payable at November 30, 2013.
Effective October 1, 2003, the Fund has entered into an Administrative Services Agreement (“ASA”) with II to provide administrative services to the Fund. Pursuant to the ASA, II is entitled to receive a fee, calculated daily and payable monthly at the annual rate of 0.10% as applied to the Fund’s daily net assets. For the six month period November 30, 2013, the Fund incurred $6,391 of administrative fees, with $1,097 remaining payable at November 30, 2013.
One director of the Fund is also an Officer of II.
AMIDEXTM Funds, Inc. | SEMI-ANNUAL REPORT |
NOTES TO THE FINANCIAL STATEMENTS
November 30, 2013 (Unaudited)
| 4. | ADVISORY FEES AND OTHER RELATED PARTY TRANSACTIONS (continued) |
The Fund has entered into an Investment Company Services Agreement (“ICSA”) with Matrix Capital Group, Inc. (“Matrix”). Pursuant to the ICSA, Matrix will provide day-to-day operational services to the Fund including, but not limited to, accounting, administrative, transfer agent, dividend disbursement, registrar and record keeping services. For its services, Matrix receives $10,250 per month. For the six month period ended November 30, 2013, Matrix earned $61,500 with $10,250 remaining payable at November 30, 2013 from the Fund.
Certain Officers of the Fund are also employees of Matrix.
The Fund and II have entered into a Distribution Agreement with Matrix Capital Group, Inc. Pursuant to the Distribution Agreement, Matrix will provide distribution services to the Fund. Matrix serves as underwriter/distributor of the Fund. Pursuant to the Distribution Agreement, Matrix receives $20,000 per year from the Fund. Matrix also receives commissions from the sale of Class A Fund shares for which they are the broker of record. The allocated distribution fees are reduced by the amount of commissions received and the remainder is paid from the accruals pursuant to Rule 12b-1 under the Investment Company Act of 1940. For the six month period ended November 30, 2013, Matrix received net distribution fees of $9,654 from the Fund. For the six month period ended November 30, 2013, Matrix received commissions from the sale of Fund shares of $346 from the Class A shares.
A separate plan of distribution has been adopted pursuant to Rule 12b-1 under the Investment Company Act of 1940 for each class of shares. With respect to Class A and the No-load class of shares, the plan provides that the Fund may pay a servicing or Rule 12b-1 fee of up to 0.25% annually of the Fund’s average net assets attributable to each class of shares, respectively, and up to 1.00% annually of the Fund’s average net assets attributable to Class C shares to persons or institutions for performing certain servicing functions for the Fund’s shareholders. The distribution plan is a compensation plan, which also allows the Fund to pay or reimburse expenditures in connection with sales, and promotional services related to distribution of the Fund’s shares, including personal services provided to prospective and existing shareholders.
The distribution plans for the shares in the Class A, the No-load class and Class C shares took effect November 19, 1999, June 8, 1999 and May 19, 2000, respectively. For the six month period ended November 30, 2013, the Fund incurred $19,880 in 12b-1 fees with $6,676 remaining payable at November 30, 2013.
There were no distributions paid during six month period ended November 30, 2013 and the fiscal year ended May 31, 2013.
For U.S. Federal income tax purposes, the cost of securities owned, gross unrealized appreciation, gross unrealized depreciation, and net unrealized appreciation (depreciation) of investments at November 30, 2013 were as follows:
| Cost | | Gross Appreciation | | Gross Depreciation | | Net Appreciation |
| $10,891,737 | | $5,101,451 | | $(2,230,330) | | $2,871,121 |
The difference between book basis and tax-basis unrealized appreciation (depreciation) is attributable primarily to the tax deferral of losses on wash sales for the Fund.
AMIDEXTM Funds, Inc. | SEMI-ANNUAL REPORT |
NOTES TO THE FINANCIAL STATEMENTS
November 30, 2013 (Unaudited)
| 5. | TAX MATTERS (continued) |
The Fund’s distributable earnings on a tax basis are determined only at the end of each fiscal year. As of May 31, 2013, the Fund’s most recent fiscal year-end, the components of distributable earnings on a tax basis were as follows:
| Unrealized Appreciation | | $ | 1,438,474 | |
| Capital Loss Carryforwards | | | (3,986,717 | ) |
| Post-October Capital Losses | | | (1,445,177 | ) |
| Post-December Ordinary Losses | | | (96,622 | ) |
| Total Distributable Earnings, Net | | $ | (4,090,042 | ) |
The carryforward losses shown above differ from corresponding accumulated net investment loss and accumulated net realized gain (loss) figures reported in the statement of assets and liabilities due to differing temporary book/tax differences due to the tax deferral of wash sales and post-October losses.
Under current tax law, net capital losses realized after October 31st and net ordinary losses incurred after December 31 may be deferred and treated as occurring on the first day of the following fiscal year. The Fund’s carryforward losses, post-October losses and post-December losses are determined only at the end of each fiscal year. As of May 31, 2013, the Fund elected to defer net capital losses as indicated in the charts below.
| Post-October Losses | | Post-December Losses |
| Deferred | Utilized | | Deferred | Utilized |
| $1,445,177 | $500,643 | | $96,622 | $92,652 |
As of May 31, 2013 the Fund has capital loss carryforwards available for federal income tax purposes as follows:
| Expiring in: 2014 | | $ | (1,409,903 | ) |
| 2015 | | | (1,009,874 | ) |
| 2016 | | | (652,905 | ) |
| 2017 | | | (393,230 | ) |
| 2018 | | | (51,633 | ) |
| No Expiration – Long-Term | | | (469,172 | ) |
| | | $ | (3,986,717 | ) |
At May 31, 2013, the Fund had available for federal income tax purposes unused capital loss carryforwards of $3,986,717, which are available for offset against future capital gains, the use of a portion of which is limited by IRS regulations. To the extent these loss carryforwards are used to offset future capital gains, it is probable that the amount offset will not be distributed to shareholders. Capital loss carryforwards in the amount of $323,400 expired during the year ended May 31, 2013.
Under the Regulated Investment Company Modernization Act of 2010 (the “Act”), net capital losses recognized after December 31, 2010, may be carried forward indefinitely, and their character is retained as short-term and/or long-term. Under the law in effect prior to the Act, pre-enactment net capital losses were carried forward for eight years and treated as short-term losses. As a transition rule, the Act requires that post-enactment net capital losses be utilized before pre-enactment net capital losses.
AMIDEXTM Funds, Inc. | SEMI-ANNUAL REPORT |
NOTES TO THE FINANCIAL STATEMENTS
November 30, 2013 (Unaudited)
The Fund invests a majority of its funds in common stocks of Israeli companies. Investing in companies from one geographic region may pose additional risks inherent to a region’s economical and political situation.
A large portion of investments held by Fund are considered investments in the technology sector of the market. Investing in a single market sector may be riskier than investing in a variety of market sectors.
The beneficial ownership, either directly or indirectly, of more than 25% of the voting securities of a fund creates a presumption of control of the fund, under Section 2(a)(9) of the Investment Company Act of 1940. As of November 30, 2013, Merrill Lynch Pierce, Fenner & Smith, Inc. held 38.60% of the Fund’s Class A shares in omnibus accounts for the sole benefit of their customers. As of November 30, 2013, Merrill Lynch Pierce, Fenner & Smith, Inc. held 32.77% of the Fund’s Class C shares in an omnibus account for the sole benefit of their customers.
| 8. | COMMITMENTS AND CONTINGENCIES |
In the normal course of business, the Company may enter into contracts that may contain a variety of representations and warranties and provide general indemnifications. The Company’s maximum exposure under these arrangements is dependent on future claims that may be made against the Fund and, therefore, cannot be estimated; however, management considers the risk of loss from such claims to be remote.
| 9. | RECENT ACCOUNTING PROUNOUNCEMENTS |
In June 2013, the FASB issued ASU 2013-08, Financial Services Investment Companies, which updates the scope, measurement, and disclosure requirements for U.S. GAAP including identifying characteristics of an investment company, measurement of ownership in other investment companies and requires additional disclosures regarding investment company status and following guidance in Topic 946 of the FASB Accounting Standards Codification (“FASC”). The ASU is effective for interim and annual reporting periods that begin after December 15, 2013. Management is currently evaluating the impact that these pronouncements may have on the Fund’s financial statements.
Management has evaluated the impact of all subsequent events on the Fund through the date the financial statements were issued, and has determined that there were no subsequent events requiring recognition or disclosure in the financial statements.
AMIDEXTM Funds, Inc. | SEMI-ANNUAL REPORT |
Additional Information (Unaudited)
The Fund files its complete schedule of portfolio holdings with the Securities and Exchange Commission (the “Commission”) for the first and third quarters of each fiscal year on Form N-Q. The Fund’s Forms N-Q is available on the Commission’s website at http://www.sec.gov. The Fund’s Forms N-Q may be reviewed and copied at the Commission’s Public Reference Room in Washington, DC. Information on the operation of the Commission’s Public Reference Room may be obtained by calling 1-800-SEC-0330.
A description of the policies and procedures that the Fund uses to determine how to vote proxies relating to portfolio securities is available without charge, upon request, by calling 1-888-876-3566; and on the Commission’s website at http://www.sec.gov.
Information regarding how the Fund voted proxies relating to portfolio securities during the most recent 12-month period ended June 30th is available without charge, upon request, by calling 1-888-876-3566; and on the Commission’s website at http://www.sec.gov.
Shareholder Tax Information - The Fund is required to advise you within 60 days of the Fund’s fiscal year end regarding the federal tax status of distributions received by shareholders during the fiscal year. The Fund did not pay any distributions during the six month period ended November 30, 2013.
Tax information is reported from the Fund’s fiscal year and not calendar year, therefore, shareholders should refer to their Form 1099-DIV or other tax information which will be mailed in 2014 to determine the calendar year amounts to be included on their 2013 tax returns. Shareholders should consult their own tax advisors.
APPROVAL OF AMENDMENT AND RENEWAL OF INVESTMENT ADVISORY AND SERVICE AGREEMENT
A Special Meeting was held by the AMIDEX Funds Board of Directors, called for the purpose of considering the renewal of the contracts between II and the Fund. The meeting was attended in person by all Independent Directors. The Board, and by separate vote, the Independent Directors, unanimously took the follow action;
The Fund's Board of Directors has approved the renewal of the Fund’s Investment Advisory and Service Agreement and Administrative Agreement (the "agreement") with Index Investments, LLC (II) for an additional one-year term through September 21, 2014. These agreements were approved by the Board. Due to the small size of the Board, the full Board acted as the Fund's Contracts Committee and was composed of all of the Board's Independent Directors. In considering approval of the agreement, the Directors reviewed a variety of materials relating to the Fund and the Adviser, including comparative performance, fee and expense information for an appropriate peer group of similar mutual funds (a "Peer Group"), performance information for a benchmark index for the Fund (a "Fund Benchmark") and other information regarding the nature, extent and quality of the services provided by the Adviser, including performance, fee and expense information regarding the Fund provided to the Directors on a quarterly basis throughout the year.
The Independent Directors are continuously in the process of reviewing information and considering approval of the agreement. Prior to acting on the matter, the Independent Directors met with management to discuss responses to questions raised during the process. In addition, the Independent Directors received counsel from their independent legal counsel discussing the legal standards applicable to their consideration of the agreement.
In considering the nature, extent and quality of the services provided by the Adviser, the Directors reviewed information relating to the Adviser's operations and personnel. Among other things, the Adviser provided biographical information on its professional staff and descriptions of its organizational and management structure. In the course of their deliberations the Directors evaluated, among other things, information relating to the investment philosophy, strategies and techniques used in managing the Fund, the qualifications and experience of the Adviser's investment personnel, the Adviser's compliance programs and the financial and non-financial resources available to provide services required under the advisory agreement.
In considering the reasonableness of the fee payable to the Adviser for managing the Fund, the Directors reviewed, among other things, financial statements of the Adviser and an analysis of the profitability to the Adviser and its affiliates of their relationship with the Fund over various time periods, which analysis identified all revenues and other benefits received
AMIDEXTM Funds, Inc. | SEMI-ANNUAL REPORT |
Additional Information (Unaudited)
APPROVAL OF AMENDMENT AND RENEWAL OF INVESTMENT ADVISORY AND SERVICE AGREEMENT (Continued)
by the Adviser and its affiliates from managing the Fund, the costs associated with providing such services and the resulting profitability to the Adviser and its affiliates from these relationships. The Directors considered the current and anticipated asset levels of the Fund and the willingness of the Adviser to waive fees and pay expenses of the Fund from time to time to limit the total expenses of the Fund. The Directors concluded that the profitability to the Adviser and its affiliates from their relationship with the Fund is not excessive and that the Adviser is not realizing material benefits from economies of scale that would warrant adjustments to the fees for the Fund at this time. The Directors concluded that, in light of the nature, extent and quality of the services provided by the Adviser and the levels of profitability associated with providing these services, the fees charged by the Adviser under the Advisory Agreement to the Fund are reasonable.
The Directors concluded that the overall performance of the Fund has been satisfactory. In determining that the fees charged by the Adviser are reasonable, the Directors noted that, although the Fund's management fees and total expenses are high, such fees and expenses are within the range of fees and expenses of the Peer Group and consistent with reasonable expectations in light of the size of the Fund and the nature, quality and extent of the services provided by the Adviser.
Based on all of the above-mentioned factors and related conclusions, with no single factor or conclusion being determinative and with each Director not necessarily attributing the same weight to each factor, the Directors concluded that approval of the advisory agreement would be in the interests of the Fund and its shareholders. Accordingly, on September 16th, 2013, all of the Independent Directors, voted to approve continuation of the advisory agreement with respect to the Fund as reflected in the following resolution:
Resolution 1 – Approval of the Renewal of Investment Advisory & Service Agreement and Administrative Agreement
RESOLVED, that those Members of Board of Directors who are not “interested persons” and those said Members being present at a Special Meeting held on September 16, 2013 hereby approve the renewal by the Fund of the Investment Advisory and Service Agreement and the Administrative Agreement with Index Investments, LLC for an additional one year term for the period from September 21, 2013 to September 20, 2014 with no changes. The Fund's officers shall take whatever actions shall be necessary to effectuate the continuation of said agreements.
1. Information Received
The current adviser, II, was approved directly by a vote of the shareholders in 2003. Since then, the Board, during its regular and special meetings, has received a wide variety of materials relating to the services provided by II, including reports on the Fund's investment results; portfolio composition; portfolio trading practices; policies and procedures, and other information relating to the nature, extent and quality of services provided by II to the Fund. In addition, the Board has requested and reviewed supplementary information that includes extensive materials regarding the Fund's investment results, advisory fee and expense comparisons, financial and profitability information regarding II, resources and facilities, descriptions of various functions such as compliance monitoring and portfolio trading practices, and information about the personnel providing investment management and administrative services to the Fund.
Review process – Throughout the year, the Board received assistance and advice regarding legal and industry standards from independent counsel to the independent Directors.
The committee discussed the renewal and amendment of the agreement with II representatives and in a private session at which no representatives of II were present. In deciding to recommend the renewal and amendment of the agreement, the Board did not identify any single issue or particular information that, in isolation, was the controlling factor. This summary describes the most important, but not all, of the factors considered by the Board.
2. Nature, extent and quality of services
II, its personnel and its resources -- The Board considered the depth and quality of II's investment management process, including its research and indexing capabilities; the experience, capability and integrity of its senior management personnel, all of whom have been performing similar functions for the Fund for over 10 consecutive years; the low turnover rates of its
AMIDEXTM Funds, Inc. | SEMI-ANNUAL REPORT |
Additional Information (Unaudited)
APPROVAL OF AMENDMENT AND RENEWAL OF INVESTMENT ADVISORY AND SERVICE AGREEMENT (Continued)
key personnel; the overall financial strength and stability of its organization; and the ability of its organizational structure to address the recent growth in assets under management. The Board also considered that II made available a variety of resources and systems relating to investment management, compliance, trading, performance and portfolio accounting. They considered II's commitment to investing in information technology supporting investment management and compliance. The Board considered II’s creativity in responding to difficult situations, and considered the commitment of II personnel to finding alternatives and options that allow the Fund to maintain their goals despite relatively low assets under management.
Other services -- The Board considered II's policies, procedures and systems to ensure compliance with applicable laws and regulations and its commitment to these programs; its efforts to keep the Directors informed; and its attention to matters that may involve conflicts of interest with the Fund. The Board specifically noted II’s commitment to continuing a complete prohibition on trading of portfolio stocks by II access personnel. The Board has also considered the nature, extent, quality and cost of administrative, distribution and shareholder services provided by II to the Fund under the servicing agreement facilitated and coordinated by II.
The Board concluded that the nature, extent and quality of the services provided by II has benefited and will continue to benefit the Fund and its shareholders.
3. Investment performance
The Board considered the Fund's unique designs and compositions, index methodologies and the investment results of the Fund in light of these compositions and objectives. The Board noted that the Fund achieved investment results approximating its index, and that II had maintained an acceptable correlation between the Fund portfolio and the index. The Board considered the Fund in comparison to the one, three and five-year periods ended May 31, 2013. The Board concluded that II's performance record in managing the Fund indicates that its continued management will benefit the Fund and its shareholders.
4. Advisory fees and total expenses
The Board reviewed the advisory fees and total expenses of the Fund (as a percentage of average net assets) and compared such amounts with the average fee and expense levels of other funds. The Board observed that the Fund's advisory fees have not increased in the last several years, and no increase was proposed for the current year. The advisory fee itself is within the range of fees generally charged by foreign fund advisers and specialty fund advisers. Total expenses of the Fund (as a percentage of average net assets) were above the median expense levels of the other funds in the category. The Board noted that the small asset levels, coupled with increasing regulatory and related expenses, prevented realistic comparisons with other funds. The Board and the committee concluded that given the very small asset levels of the Fund, it would be impossible for any adviser to operate the Fund at average cost levels, and that II had done an admirable job in keeping fees at the lowest possible levels consistent with the small asset levels and compliance with shareholder service and regulatory standards. The Board was periodically updated by II on its repeated efforts to find other advisors or other platforms that might allow for more cost effective operation of such small fund. The Board concluded that although Fund expenses were higher than category average, such expenses were justified and unavoidable given the complex regulatory requirements, the unique composition of the Fund, and most importantly, the very small levels of assets under management. Further, the Board considered that II’s total revenue, due to the limited assets under management, was quite limited, and it would be unlikely to find another competent and capable adviser willing to advise the Fund for so limited an amount of revenue. Hence, the Board concluded that continued contracting with II is in the best interests of the shareholders.
5. Adviser costs, level of profits and economies of scale
The Board reviewed information regarding II's costs of providing services to the Fund, as well as the resulting level of profits to II, noting that those costs were high due primarily to the low asset levels of the Fund. The Board received information during the past year regarding the structure and manner in which II's investment professionals were compensated and II's view of the relationship of such compensation to the attraction and retention of quality personnel. The Board
AMIDEXTM Funds, Inc. | SEMI-ANNUAL REPORT |
Additional Information (Unaudited)
APPROVAL OF AMENDMENT AND RENEWAL OF INVESTMENT ADVISORY AND SERVICE AGREEMENT (Continued)
considered II's need to invest in technology, infrastructure and retain staff to reinforce and offer services and to accommodate changing regulatory requirements. The Board noted that II personnel have often gone for long periods of time with no pay or with pay substantially lower than industry averages, in order to allow for the continued operation of the Fund. The Board concluded that the Fund's cost structure was reasonable and that II was sharing economies of scale with the Fund and its shareholders, to their benefit.
6. Ancillary benefits
The Board and the committee considered a variety of other benefits received by II and its affiliates as a result of II's relationship with the Fund and with other entities and organizations, including fees for administrative services provided to certain share classes; fees paid to II's transfer agent; sales charges and distribution fees received and retained by the Fund's principal underwriter, and possible ancillary benefits due to II's affiliates. The Board reviewed II's portfolio trading practices, noting that II does not obtain third-party research or other services in return for allocating brokerage to any broker-dealers. The Board noted that II does not participate in any ‘soft-dollar’ relationships in exchange for research or brokerage services. The Board recognized that with regard to the Fund, the principals of II have developed exceptional exposure and reputations as leading spokespersons on Israel stock investments, and hence, add significant value to the Fund in terms of marketing opportunities and credibility.
7. Conclusions
Based on their review, including their consideration of each of the factors referred to above, the Board concluded that the agreement is fair and reasonable to the Fund and its shareholders, that the Fund's shareholders received reasonable value in return for the advisory fees and other amounts paid to II by the Fund, and that the amendment and renewal of the agreement was in the best interests of the Fund and its shareholders.
Moreover, the Board was apprised of the history of the efforts by II personnel this past year and for several previous years to find alternative advisors able and willing to continue to meet the investment goals of the Fund at similar management fee levels. Although some advisors expressed interest in doing so, none proved to be financially capable of continuing uninterrupted operations of the Funds with such small amounts of assets under management. On two prior occasions, advisors attempted to do so but failed. The Board was satisfied with the accomplishments of II during the ten years since II was elected by the shareholders as advisor to the Funds, and concluded that it was in the best interests of the shareholders to continue the relationship.
AMIDEXTM Funds, Inc. | SEMI-ANNUAL REPORT |
Additional Information (Unaudited)
DIRECTORS AND OFFICERS INFORMATION (Unaudited)
Remuneration Paid to Directors and Officers—Officers of the Company and Directors who are "interested persons" of the Company or the Adviser will receive no salary or fees from the Company. Each Director who is not an "interested person" receives a fee of $500 per meeting attended. The Company reimburses each Director and officer for his or her travel and other expenses relating to attendance at such meetings.
Name of Director1 | Aggregate Compensation From the Company2 | Pension or Retirement Benefits Accrued As Part of Portfolio Expenses | Estimated Annual Benefits Upon Retirement | Total Compensation From the Company Paid to Directors2 |
| | | Independent Directors | | |
| Eli Gabay, Esq. | $2,000 | None | None | $2,000 |
| Erica Levi | $2,000 | None | None | $2,000 |
| Interested Officers |
| Clifford A. Goldstein | None | Not Applicable | Not Applicable | None |
| Larry E. Beaver, Jr. | None | Not Applicable | Not Applicable | None |
| 1 | Each of the Directors and Officers serves as a Director or Officer to the one portfolio of the Company. |
| 2 | Figures are for the six month period ended November 30, 2013. |
| FOR MORE INFORMATION |
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