UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
811-21836
(Investment Company Act file number)
Index Funds
(Exact name of registrant as specified in charter)
1155 Kelly Johnson Boulevard, Suite 111
Colorado Springs, Colorado 80920
(Address of principal executive offices) (Zip code)
(800) 788-5680
(Registrant's telephone number)
Michael G. Willis
1155 Kelly Johnson Boulevard, Suite 111
Colorado Springs, Colorado 80920
(Name and Address of Agent for Service)
Date of fiscal year end: March 31
Date of reporting period: April 1, 2016 – September 30, 2016
Item 1. Reports to Stockholders.
TABLE OF CONTENTS
| Shareholder Letter | 1 |
| Manager Commentary | 2 |
| Disclosure of Fund Expenses | 4 |
| Schedule of Investments | 5 |
| Statement of Assets and Liabilities | 11 |
| Statement of Operations | 12 |
| Statement of Changes in Net Assets | 13 |
| Financial Highlights | 14 |
| Notes to Financial Statements | 15 |
| Additional Information | 19 |
| Index Funds S&P 500 Equal Weight | Shareholder Letter |
September 30, 2016 (Unaudited)
Dear Shareholders,
Since its inception in January of 2003, the S&P 500 Equal Weight Index1 has outperformed the S&P 500 Index 9 out of the past 13 calendar years. That is notable, considering that the S&P 500 Index itself beats most large cap managers, most of the time. According to the Mid-Year 2016 SPIVA report recently released by Standard & Poors, the S&P 500 Index outperformed 91% of large cap managers during the past 5 years and 85% of large cap managers over the past 10 years.
So, if it is so difficult to beat the S&P 500 Index, how has the S&P 500 Equal Weight Index been able to outperform it so consistently—nearly 70% of the time? The answer, for us, is simple. We believe that the Equal Weight version of the S&P 500 Index corrects an inherent “buy-high-sell-low” trading flaw buried within the market-cap formula that powers the S&P 500 Index. To illustrate, after purchasing the 500 stocks within the S&P 500, a portfolio manager of an index fund seeking to track the S&P 500 Index must adjust the portfolio to its underlying index as the stocks fluctuate in price. In this example, if 250 index constituents move higher and 250 index constituents move lower in price, the market-cap formula requires the portfolio manager to purchase more of the 250 stocks that went higher in price and to sell a portion of the 250 stocks that fell in price. This effectively forces the manager to “buy high and sell low”.
In our view, the methodology behind the construction of the Equal Weight Index corrects the Market-Cap “buy-high-sell-low” trading methodology and replaces it with a “buy-low-sell-high” trading methodology. When purchasing the exact same 500 stocks in the S&P 500 Index as illustrated in the example above, the portfolio manager of the Equal Weight S&P 500 Index fund is required to rebalance the portfolio periodically. In the example above, the equal weight methodology requires that the manager sell a portion of the 250 stocks that went higher in price and to purchase a portion of the 250 stocks that fell in price, until the 500 holdings are equal in value again. We believe this creates the very positive effect of requiring the manager to “buy low and sell high”, thus creating a simple solution to a traditionally complex problem.
The U.S. equity markets ended a volatile 2015 on a rather flat note after shrugging off plunging oil prices, a stock market crash in China, an unprecedented refugee crisis in Europe and terror attacks in France. The U.S. dollar continued its historic run up, rallying strong into the close of the year, but backing off its highs during the first quarter of 2016. Each of these factors influenced the performance of the 500+ constituents within the S&P 500 Index.
2015 was a significant year for us as we launched our flagship mutual fund: The Index Funds S&P 500 Equal Weight, ticker symbol INDEX. During our first 12-months of operations, INDEX outperformed its underlying index, the S&P 500 Equal Weight Index, and underperformed its benchmark, the S&P 500 Index (see chart below). 2015 was one of the 4 out of 13 years in which the S&P 500 Index beat its Equal Weight younger brother. Underperformance of our Fund relative to the market capitalization version of the S&P 500 Index, normally occurs when the largest 50 companies within the S&P 500 Index materially outperform the other 450 stocks within the index. This is because the S&P 500 Market-Cap Index overweight’s the top 50 companies within the index to over 50% of the index, whereas the Equal-Weight methodology seeks to hold all 500 companies equal over time.
Looking forward we see a mutual fund industry in transition as a new rule released by the Department of Labor (DOL) sets new fiduciary standards for financial advisors serving retirement accounts such as 401k Plans and IRAs. Morningstar analysts recently released a report stating the new ruling could send $1 trillion in new assets into index mutual funds2. Two weeks after the DOL’s April 6 announcement of its new fiduciary standard for retirement plans, Charles Schwab announced they were dumping all of their load funds3. We believe this to be the tip of the iceberg and that many mutual fund companies will need to make major changes in reaction to this new ruling.
The good news is that INDEX is already a “no-load”, low cost index fund with no 12b-1 fees and therefore stands to potentially benefit from these significant changes in the mutual fund industry. We believe that these are all exciting developments and that, depending on how things progress in the near future; low cost index funds may have a significant role to play in the reconfigured Wall Street.
Best Regards,
Michael G. Willis
President
INDEX FUNDS
1 | The S&P 500 Equal Weight Index is an equal weighted version of the S&P 500 Index. The index includes the same constituents as the capitalization weighted S&P 500, but each company in the S&P 500 Equal Weight Index is allocated a fixed weight - or 0.2% of the index total each quarterly rebalance. It is a broad-based securities market index. Such indices are generally not actively managed and are not subject to fees and expenses typically at associated with managed accounts or funds. You cannot invest directly in a broad-based securities index. |
2 | Reuters.com, 10/30/2015, “$1 trillion could move to index funds if rule on financial advice passes” |
3 | WSJ.com, 04/27/2016, “Charles Schwab to Cease Selling Load Mutual Funds” |
| Semi-Annual Report | September 30, 2016 | 1 |
| Index Funds S&P 500 Equal Weight | Manager Commentary |
September 30, 2016 (Unaudited)
Growth of $10,000 Initial Investment (for the period ended September 30, 2016)
The graph shown above represents historical performance of a hypothetical investment of $10,000 in the Fund since inception. Past performance does not guarantee future results. All returns reflect reinvested dividends, but do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares.
Performance (for the period ended September 30, 2016)
| | 1 Month | Quarter | 1 Year | Since Inception* |
| Index Funds S&P 500 Equal Weight | 0.04% | 4.39% | 15.58% | 4.17% |
| S&P 500 Total Return Index | 0.02% | 3.85% | 15.43% | 5.07% |
| S&P 500 Equal Weight Net Total Return | 0.04% | 4.37% | 15.43% | 3.41% |
The performance data quoted above represents past performance. Past performance is not a guarantee of future results. Investment return and value of the Fund shares will fluctuate so that an investor’s shares, when sold or redeemed, may be worth more or less than their original cost. Current performance data may be lower or higher than actual performance data quoted. Fund performance current to the most recent month- end is available by calling (844) 464-6339 or by visiting www.Index.world.
Returns of less than 1 year are cumulative.
Indices are not actively managed and do not reflect deduction for fees, expenses or taxes. An investor cannot invest directly in an index.
The returns shown above do not reflect the deduction of taxes a shareholder would pay on Fund distributions or redemption of Fund shares.
The total annual operating expenses and total annual operating expenses after fee waivers and/or reimbursement you may pay as an investor in the Fund (as reported in the April 17, 2015 Prospectus) are 13.50% and 0.30%, respectively. The Fund’s investment adviser has contractually agreed to limit expenses through July 31, 2017.
| * | The Fund’s inception date is April 30, 2015. |
The S&P 500® is widely regarded as the best single gauge of large-cap U.S. equities. There is over USD 7.8 trillion benchmarked to the index, with index assets comprising approximately USD 2.2 trillion of this total. The index includes 500 leading companies and captures approximately 80% coverage of available market capitalization.
| Index Funds S&P 500 Equal Weight | Manager Commentary |
September 30, 2016 (Unaudited)
Sector Allocation (as a % of Net Assets)*
| * | Holdings are subject to change and may not reflect the current or future position of the portfolio. For Fund compliance purposes, the Fund’s industry classifications refer to any one or more of the industry sub-classifications used by one or more widely recognized market indexes or ratings group indexes, and/or as defined by Fund management. This definition may not apply for purposes of this report, which may combine industry subclassifications for reporting ease. Industries are shown as a percentage of net assets. |
The S&P 500 Equal Weight Index (the “Index”) is a product of S&P Dow Jones Indices LLC (“SPDJI”), and has been licensed for use by The Index Group, Inc. S&P® is a registered trademark of S&P Global (“S&P”); Dow Jones® is a registered trademark of Dow Jones Trademark Holdings LLC (“Dow Jones”); Standard & Poor’s® and S&P® are trademarks of the Standard & Poor’s Financial Services LLC (“S&P”); and these trademarks have been licensed for use by SPDJI and sublicensed for certain purposes by The Index Group, Inc. The Index Funds S&P 500 Equal Weight is not sponsored, endorsed, sold or promoted by SPDJI, Dow Jones, S&P, any of their respective affiliates (collectively, “S&P Dow Jones Indices”). S&P Dow Jones Indices makes no representation or warranty, express or implied, to the owners of the Index Funds S&P 500 Equal Weight or any member of the public regarding the advisability of investing in securities generally or in Index Funds S&P 500 Equal Weight particularly or the ability of the S&P 500 Equal Weight Index to track general market performance. S&P Dow Jones Indices’ only relationship to The Index Group, Inc. with respect to the S&P 500 Equal Weight Index is the licensing of the Index and certain trademarks, service marks and/or trade names of S&P Dow Jones Indices and/or its licensors. The S&P 500 Equal Weight Index is determined, composed and calculated by S&P Dow Jones Indices without regard to The Index Group, Inc. or the Index Funds S&P 500 Equal Weight. S&P Dow Jones Indices have no obligation to take the needs of The Index Group, Inc. or the owners of the Index Funds S&P 500 Equal Weight into consideration in determining, composing or calculating the S&P 500 Equal Weight Index. S&P Dow Jones Indices are not responsible for and have not participated in the determination of the prices, and amount of the Index Funds S&P 500 Equal Weight or the timing of the issuance or sale of the Index Funds S&P 500 Equal Weight or in the determination or calculation of the equation by which the Index Funds S&P 500 Equal Weight is to be converted into cash, surrendered or redeemed, as the case may be. S&P Dow Jones Indices have no obligation or liability in connection with the administration, marketing or trading of the Index Funds S&P 500 Equal Weight. There is no assurance that investment products based on the S&P 500 Equal Weight Index will accurately track index performance or provide positive investment returns. S&P Dow Jones Indices LLC is not an investment advisor. Inclusion of a security within an index is not a recommendation by S&P Dow Jones Indices to buy, sell, or hold such security, nor is it considered to be investment advice.
S&P DOW JONES INDICES DOES NOT GUARANTEE THE ADEQUACY, ACCURACY, TIMELINESS AND/OR THE COMPLETENESS OF THE INDEX OR ANY DATA RELATED THERETO OR ANY COMMUNICATION, INCLUDING BUT NOT LIMITED TO, ORAL OR WRITTEN COMMUNICATION (INCLUDING ELECTRONIC COMMUNICATIONS) WITH RESPECT THERETO. S&P DOW JONES INDICES SHALL NOT BE SUBJECT TO ANY DAMAGES OR LIABILITY FOR ANY ERRORS, OMISSIONS, OR DELAYS THEREIN. S&P DOW JONES INDICES MAKE NO EXPRESS OR IMPLIED WARRANTIES, AND EXPRESSLY DISCLAIMS ALL WARRANTIES, OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE (INCLUDING, WITHOUT LIMITATION, COMPLIANCE WITH SHARIAH LAW) OR AS TO RESULTS TO BE OBTAINED BY THE INDEX GROUP, INC., OWNERS OF THE INDEX FUNDS S&P 500 EQUAL WEIGHT, OR ANY OTHER PERSON OR ENTITY FROM THE USE OF THE INDEX OR WITH RESPECT TO ANY DATA RELATED THERETO. WITHOUT LIMITING ANY OF THE FOREGOING, IN NO EVENT WHATSOEVER SHALL S&P DOW JONES INDICES BE LIABLE FOR ANY INDIRECT, SPECIAL, INCIDENTAL, PUNITIVE, OR CONSEQUENTIAL DAMAGES INCLUDING BUT NOT LIMITED TO, LOSS OF PROFITS, TRADING LOSSES, LOST TIME OR GOODWILL, EVEN IF THEY HAVE BEEN ADVISED OF THE POSSIBLITY OF SUCH DAMAGES, WHETHER IN CONTRACT, TORT, STRICT LIABILITY, OR OTHERWISE. THERE ARE NO THIRD PARTY BENEFICIARIES OF ANY AGREEMENTS OR ARRANGEMENTS BETWEEN S&P DOW JONES INDICES AND THE INDEX GROUP, INC., OTHER THAN THE LICENSORS OF S&P DOW JONES INDICES.
| Semi-Annual Report | September 30, 2016 | 3 |
| Index Funds S&P 500 Equal Weight | Disclosure of Fund Expenses |
September 30, 2016 (Unaudited)
As a shareholder of the Index Funds S&P 500 Equal Weight (the “Fund”), you will incur two types of costs: (1) transaction costs, including applicable redemption fees; and (2) ongoing costs, including management fees and other Fund expenses. The following examples are intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds. The examples are based on an investment of $1,000 invested on April 1, 2016 and held until September 30, 2016.
Actual Expenses. The first line of each table below provides information about actual account values and actual expenses. You may use the information in this line, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first line under the heading “Expenses Paid During Period” to estimate the expenses you paid on your account during this period.
Hypothetical Example for Comparison Purposes. The second line of the table below provides information about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund’s actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other mutual funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds. The expenses shown in the table are meant to highlight ongoing Fund costs only and do not reflect transaction fees, such as redemption fees or exchange fees. Therefore, the second line of each table below is useful in comparing ongoing costs only, and may not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.
| Index Funds S&P 500 Equal Weight | Beginning Account Value 4/1/2016 | Ending Account Value 09/30/16 | Expense Ratio(a) | Expenses Paid During Period 4/1/2016-9/30/16(b) |
| Actual | $1,000.00 | $1,070.40 | 0.30% | $1.56 |
| Hypothetical (5% return before expenses) | $1,000.00 | $1,023.56 | 0.30% | $1.52 |
(a) | The Fund’s expense ratios have been based on the Fund’s most recent fiscal half-year expenses. |
(b) | Expenses are equal to the Fund’s annualized net expense ratio multiplied by the average account value over the period, multiplied by the number of days in the most recent fiscal half-year (183), divided by 365. |
| Index Funds S&P 500 Equal Weight | Notes to Financial Statements |
September 30, 2016 (Unaudited)
1. ORGANIZATION
The Index Funds S&P 500 Equal Weight (the “Fund”) is a separate series of Index Funds, an open-end management investment company that was organized as a trust under the laws of the State of Delaware on November 9, 2005 (the “Trust”). The Fund currently offers one class of shares: No Load Shares. The Fund is diversified, as that term is defined in the Investment Company Act of 1940, as amended (the “1940 Act”).
The Fund seeks to achieve its investment objective by investing in a portfolio of assets whose performance, before fees and expenses, is expected to match approximately the performance of the Standard & Poor’s 500 Equal Weight Index (the “Index”). The Fund expects that its portfolio will consist primarily of securities of issuers included in the Index. The Index is designed to measure the performance of approximately 500 U.S. issuers chosen for market size, liquidity and industry grouping, among other factors.
2. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently followed by the Fund. These policies are in conformity with U.S. generally accepted accounting principles (“GAAP”). The Fund is considered an investment company for financial reporting purposes under GAAP.
Use of Estimates — The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in financial statements. Actual results could differ from those estimates.
Investment Transactions — Investment security transactions are accounted for on trade date. Gains and losses on securities sold are determined on a specific identification basis. Realized gains and losses from investment transactions are determined using the identified cost basis.
Investment Income — Dividend income is recorded on the ex-dividend date. 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. Interest income which includes amortization of premium and accretion of discount, is recorded on the accrual basis.
Investment Valuation — The Fund’s portfolio securities are valued as of the close of trading of the New York Stock Exchange (“NYSE”) (normally 4:00 p.m., Eastern Time). Each security, excluding short-term investments, is valued at the last sale price reported by the principal security exchange on which the issue is traded. Money market funds, representing short-term investments, are valued at their daily net asset value. Securities that are traded on the Nasdaq Stock Market, Inc. are valued at the Nasdaq Official Closing Price or if no sale is reported, the mean between the bid and the ask. Securities which are traded over-the-counter are valued at the last sale price or, if no sale, at the mean between the bid and the ask. Securities for which quotations are not readily available are valued at fair value as determined by the investment adviser in accordance with procedures approved by the Board of Trustees (the “Board”). The fair value of a security is the amount which the Fund might reasonably expect to receive upon a current sale. The fair value of a security may differ from the last quoted price and the Fund may not be able to sell a security at the fair value. Market quotations may not be available, for example, if trading in particular securities was halted during the day and not resumed prior to the close of trading on the New York Stock Exchange. As of September 30, 2016 there were no securities that were internally fair valued.
Fair Value Measurements — A three-tier hierarchy has been established to classify fair value measurements for disclosure purposes. Inputs refer broadly to the assumptions that market participants would use in pricing the asset or liability, including assumptions about risk. Inputs may be observable or unobservable. Observable inputs are inputs that reflect the assumptions market participants would use in pricing the asset or liability that are developed based on market data obtained from sources independent of the reporting entity. Unobservable inputs are inputs that reflect the reporting entity’s own assumptions about the assumptions market participants would use in pricing the asset or liability that are developed based on the best information available. In accordance with the authoritative guidance on fair value measurements and disclosure under GAAP, the Fund discloses fair value of its investments in a hierarchy that prioritizes the inputs to valuation techniques used to measure the fair value.
Various inputs are used in determining the value of the Fund’s investments as of the reporting period end. These inputs are categorized in the following hierarchy under applicable financial accounting standards:
| Level 1 — | Unadjusted quoted prices in active markets for identical, unrestricted assets or liabilities that the Fund has the ability to access at the measurement date; |
| Level 2 — | Quoted prices which are not active, quoted prices for similar assets or liabilities in active markets or inputs other than quoted prices that are observable (either directly or indirectly) for substantially the full term of the asset or liability; and |
| Semi-Annual Report | September 30, 2016 | 15 |
| Index Funds S&P 500 Equal Weight | Notes to Financial Statements |
September 30, 2016 (Unaudited)
| Level 3 — | Significant unobservable prices or inputs (including the Fund’s own assumptions in determining the fair value of investments) where there is little or no market activity for the asset or liability at the measurement date. |
The availability of observable inputs can vary from security to security and is affected by a wide variety of factors, including, for example, the type of security, whether the security is new and not yet established in the marketplace, the liquidity of markets, and other characteristics particular to the security. To the extent that valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment. Accordingly, the degree of judgment exercised in determining fair value is greatest for instruments categorized in Level 3.
An investment level within the fair value hierarchy is based on the lowest level input, individually or in the aggregate, that is significant to fair value measurement. The valuation techniques used by the Fund to measure fair value during the period ended September 30, 2016 maximized the use of observable inputs and minimized the use of unobservable inputs.
The inputs or methodologies used for valuing securities are not necessarily an indication of the risk or liquidity associated with investing in those securities. The following is a summary of the inputs used in valuing the Fund’s investments as of September 30, 2016:
| Investments in Securities at Value* | | Level 1 - Quoted Prices | | | Level 2 - Other Significant Observable Inputs | | | Level 3 - Significant Unobservable Inputs | | | Total | |
| Index Funds S&P 500 Equal Weight | | | | | | | | | | | | |
| Common Stocks | | $ | 4,100,491 | | | $ | – | | | $ | – | | | $ | 4,100,491 | |
| Short Term Investments | | | 93,837 | | | | – | | | | – | | | | 93,837 | |
| TOTAL | | $ | 4,194,328 | | | $ | – | | | $ | – | | | $ | 4,194,328 | |
| * | See Schedule of Investments for industry classification. |
It is the Fund’s policy to recognize transfers between levels at the end of the reporting period. There were no transfers between Levels 1 and 2 during the period ended September 30, 2016.
For the period ended September 30, 2016, the Fund did not have any unobservable inputs (Level 3) used in determining fair value.
Expenses
The Fund bears expenses incurred specifically for the Fund and general Trust expenses.
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 gains distributions are determined in accordance with income tax regulations, which may differ from GAAP. Distributions to shareholders are recorded on the ex-dividend date.
Fees on Redemptions
The Fund charges a redemption fee of 2.00% on redemptions of Fund’s shares occurring within 30 days following the issuance of such shares. The redemption fee is not a fee to finance sales or sales promotion expenses, but is paid to the Fund to defray the costs of liquidating an investor and discouraging short-term trading of the Fund’s shares. No redemption fee will be imposed on the redemption of shares representing dividends or capital gains distributions, or on amounts representing capital appreciation of shares.
Income Taxes — As of and during the period ended September 30, 2016, the Fund did not have a liability for any unrecognized tax benefits. The Fund files U.S. federal, state, and local tax returns as required. The Fund’s tax returns are subject to examination by the relevant tax authorities until expiration of the applicable statute of limitations which is generally three years after the filing of the tax return for federal purposes and four years for most state returns. Tax returns for open years have incorporated no uncertain tax positions that require a provision for income taxes. The Fund intends to continue to qualify each year as a “regulated investment company” under Subchapter M of the Internal Revenue Code of 1986, as amended. By so qualifying, the Fund will not be subject to Federal income taxes to the extent that it distributes substantially all of its taxable or tax-exempt income, if any, for its tax year ending March 31, 2016. In addition, by distributing in each calendar year substantially all of its net investment income, capital gains and certain other amounts, if any, the Fund will not be subject to a Federal excise tax. Therefore, no provision is made by the Fund for Federal income or excise taxes.
| Index Funds S&P 500 Equal Weight | Notes to Financial Statements |
September 30, 2016 (Unaudited)
3. ADVISORY FEES, ADMINISTRATION FEES AND OTHER AGREEMENTS
The Index Group, Inc., is the Investment Adviser for the Fund (the “Adviser”). The Adviser currently provides investment advisory services for individuals, trusts, estates and institutions. The Adviser commenced operations in 2004, and is registered as an investment adviser with the Securities and Exchange Commission. The Adviser is entitled to an investment advisory fee, computed daily and payable monthly, of 0.25% of the average daily net assets of the Fund.
The Adviser has agreed to waive and/or reimburse fees or expenses in order to limit Total Annual Fund Operating Expenses After Fee Waiver/Expense Reimbursement (excluding acquired fund fees and expenses, brokerage expenses, interest expenses, taxes and extraordinary expenses) to 0.30% of the Fund’s average daily net assets for No Load Shares. This agreement is in effect through July 31, 2017. This agreement may not be terminated or modified by the Adviser prior to this date except with the approval of the Fund’s Board.
The Adviser may request a reimbursement from the Fund to recapture any reduced management fees or reimbursed Fund expenses within three years following the fee reduction or expense reimbursement, but only to the extent the Fund’s Total Annual Fund Operating Expenses, plus any requested reimbursement amount, are less than the above limit at the time of the request. Any such reimbursement is subject to review by the Board.
As of March 31, 2016, reimbursements that may potentially be made by the Fund to the Adviser total $323,356. These reimbursements expire March 31, 2019.
Fund Accounting Fees and Expenses
ALPS Fund Services, Inc. (“ALPS” or the “Administrator”) provides administrative, fund accounting and other services to the Fund under the Administration, Bookkeeping and Pricing Services Agreement (the “Administration Agreement”) with the Trust. Under the Administration Agreement, ALPS is paid fees, accrued on a daily basis and paid on a monthly basis following the end of the month. Administrator fees paid by the Fund for the six months ended September 30, 2016 are disclosed in the Statement of Operations.
The Administrator is also reimbursed by the Fund for certain out of pocket expenses.
Transfer Agent and Shareholder Services Agreement
ALPS serves as transfer, dividend paying and shareholder servicing agent for the Fund (the “Transfer Agent”) under a Transfer Agency and Services Agreement with the Trust. Transfer Agent fees paid by the Fund for the six months ended September 30, 2016 are disclosed in the Statement of Operations.
Compliance Services
ALPS provides Chief Compliance Officer services to the Fund. Additionally, ALPS provides services in monitoring and testing the policies and procedures of the Trust in conjunction with requirements under Rule 38a-1 under the 1940 Act. ALPS is compensated under the Chief Compliance Officer Services Agreement. Compliance services fees paid by the Fund for the six months ended September 30, 2016 are disclosed in the Statement of Operations.
Distributor
The Fund has entered into a Distribution Agreement with ALPS Distributors, Inc. (“the Distributor”) to provide distribution services to the Fund. The Distributor serves as underwriter/distributor of shares of the Fund. Distribution services fees paid by the Fund for the six months ended September 30, 2016 are disclosed in the Statement of Operations.
4. PURCHASES AND SALES OF INVESTMENT SECURITIES
The aggregate cost of purchases and proceeds from sales of investment securities, excluding short-term securities, are shown below for the six months ended September 30, 2016.
| Funds | | Cost of Investments Purchased | | | Proceeds from Investments Sold | |
| Index Funds S&P 500 Equal Weight | | $ | 1,697,102 | | | $ | 858,642 | |
| Semi-Annual Report | September 30, 2016 | 17 |
| Index Funds S&P 500 Equal Weight | Notes to Financial Statements |
September 30, 2016 (Unaudited)
5. TAX BASIS INFORMATION
Distributions are determined in accordance with federal income tax regulations, which differ from GAAP, and, therefore, may differ significantly in amount or character from net investment income and realized gains for financial reporting purposes. Financial reporting records are adjusted for permanent book/tax differences to reflect tax character but are not adjusted for temporary differences. The amounts and characteristics of tax basis distributions and composition of distributable earnings/(accumulated losses) are finalized at fiscal year-end.
The tax character of distributions paid during the period ended March 31, 2016, were as follows:
| | | Ordinary Income | | | Long-Term Capital Gain | |
| Index Funds S&P 500 Equal Weight | | $ | 89,396 | | | $ | 465 | |
As of September 30, 2016, net unrealized appreciation/(depreciation) of investments based on the federal tax cost were as follows:
| | | Gross Appreciation (excess of value over tax cost) | | | Gross Depreciation (excess of tax cost over value) | | | Net Unrealized Depreciation | | | Cost of Investments for Income Tax Purposes | |
| Index Funds S&P 500 Equal Weight | | $ | 185,345 | | | $ | (296,429 | ) | | $ | (111,084 | ) | | $ | 4,305,412 | |
The difference between book basis and tax basis is primarily attributable to wash sales.
6. BENEFICIAL OWNERSHIP
At September 30, 2016, two shareholders are each record owner of 25% or more of the Fund’s shares.
7. COMMITMENTS AND CONTINGENCIES
Under the Trust’s organizational documents, its Officers and Trustees are indemnified against certain liabilities arising out of the performance of their duties to the Fund. In addition, in the normal course of business, the Trust entered into contracts with its service providers, on behalf of the Fund, and others that provide for general indemnifications. The Fund’s maximum exposure under these arrangements is unknown, as this would involve future claims that may be made against the Fund. The Fund expects the risk of loss to be remote.
| Index Funds S&P 500 Equal Weight | Additional Information |
September 30, 2016 (Unaudited)
1. PROXY VOTING POLICIES AND VOTING RECORD
A copy of the Trust’s Proxy Voting and Disclosure Policy and the Advisor’s Proxy Voting and Disclosure Policy are included as Appendix B to the Fund’s Statement of Additional Information and are available, (1) without charge, upon request, by calling (1-888-544-2685) and (2) on the SEC’s website at http://ww.sec.gov. Information regarding how the Fund voted proxies relating to portfolio securities during the most recent 12-month period ended June 30 will be available (1) through a link, available on the Adviser’s website at www.index.world, to the Fund’s publicly filed proxy information (2) by calling the Fund at 1-844-464-6339; and (3) on the SEC's website at www.sec.gov.
2. QUARTERLY PORTFOLIO HOLDINGS
The Fund files its complete schedule of portfolio holdings with the SEC for the first and third quarters of each fiscal year on Form N-Q. The Fund’s Forms N-Q are available on the SEC’s website at http://www.sec.gov. You may review and make copies at the SEC’s Public Reference Room in Washington, D.C. You may also obtain copies after paying a duplicating fee by writing the SEC’s Public Reference Section, Washington, D.C. 20549- 0102 or by electronic request to publicinfo@sec.gov, or is available without charge, upon request, by calling the Funds at 1-888-544-2685. Information on the operation of the Public Reference Room may be obtained by calling the SEC at 1-800-SEC-0330, (1-800-732-0330).
| Semi-Annual Report | September 30, 2016 | 19 |
