Q2 2016 • June 30, 2016 | Saturna Capital

Following Principles of Islamic Finance

Q2 2016 Highlights:

Amana Income and Growth Funds finished the second quarter with strong performances, while an emerging markets rebound lifted Developing World, and Participation Fund operations continued ramping up.

  • As Brexit's dark cloud casts a shadow of uncertainty over the European Union, we discount short-term market gyrations while continuing our focus on long-term value investing.
  • Select emerging markets re-emerge as attractive opportunities.
  • Despite China's dimming economic outlook, we see some bright spots.
  • Consumer Staples stayed strong, while Finance remained weak.


Second quarter comments from the galaxy of investment managers will likely focus on Brexit (the United Kingdom's vote by referendum to leave the European Union) and the economic outlook for the UK and the EU now that the former has voted to depart the latter. The word "uncertainty" will be in heavy rotation. We do not intend to participate. We are long-term investors working to identify the best companies at the most attractive prices, and, in the majority of cases, the best companies prior to the Brexit vote will remain good companies following the vote. Nor do we believe it currently possible to determine the eventual outcome, although we find unconvincing the idea that the EU will punish the UK to dissuade other countries from leaving. Finally, we do not speculate around political events.

We do, however, look for opportunities and will devote this quarter's commentary to one possible opportunity: emerging markets. Emerging markets, as defined by the MSCI Emerging Markets Index, have been in steady decline since 2011. As one might expect from a volatile asset class, the strong outperformance demonstrated by emerging markets in the run-up to the Global Financial Crisis (GFC) was followed by dramatic underperformance, then a rapid post-GFC rebound that pushed the index well ahead of developed-market benchmarks through 2010 and into early 2011. It's been mostly downhill since. Unlike the S&P 500 Index, which soared past its pre-GFC peak back in 2013, the MSCI Emerging Markets Index finished Q 2016 in excess of 40% lower than its 2007 apogee. In 2013, emerging markets were pushed down by the "taper tantrum," or fears that a tapering of the Federal Reserve's stimulus efforts in the United States would pull capital away from emerging markets. After a directionless 2014, concerns of a slowdown in China and interest rate hikes in the US, exacerbated by a sharp fall in commodity prices (especially oil), conspired to drive emerging markets equities lower. The sell-off gathered pace with the Fed's first rate hike last December, and early this year the MSCI EM Index was plumbing depths not experienced since the GFC. All that said, emerging markets, while lagging the US, have outpaced the MSCI EAFE Index, which tracks markets in the international developed world. Given Brexit and Japan's challenges, we expect that to continue.

Emerging Markets vs Developed Markets

As a result of the long-term sell-off, emerging markets as a group now trade at a substantial valuation discount to the US. In Projected Growth: Emerging vs Developed Markets we provide estimates of the current forward price to earnings ratio for major indexes, as well as anticipated long-term (minimum three years) earnings per share growth. We provide the latter figure with the caveat that earnings forecasts and reality rarely arrive at the same point.

Projected Growth: Emerging vs Developed Markets
Index Forward P/E Ratio Long-term Earnings Per Share (EPS) Growth
MSCI EM Index 11.15x 7.98%
MSCI EAFE Index 13.17x 4.89%
S&P 500 Index 15.71x 8.39%
Topix Index (Japan) 11.57x 8.09%
Source: Bloomberg

While we see no reason to argue with the S&P 500, MSCI EAFE, or MSCI EM forecast earnings figures, we find the Japanese Topix Index outlook curious given the country's rapidly aging population and shrinking workforce. To be clear, we remain positive on the outlook for the US market in a global context, but there's value in diversification and we would currently weight such diversification in favor of emerging markets over developed international markets.

Having used the phrase "emerging markets" several times in the previous paragraphs, we must now concede that we do not find the phrase very helpful in defining an asset class. Portions of the emerging market universe are of minimal interest, including much of Eastern Europe and Russia, and parts of Latin America. Other areas have tremendous potential but are trapped in difficult circumstances, whether due to failures of policy (Turkey and South Africa) or geographic factors (Turkey). On the other hand, we find Southeast Asia attractive from the point of view of national, corporate, and personal balance sheets, governmental competence (varying levels), and the opportunity to drive earnings through developing domestic infrastructure and consumption. Despite the wide-ranging fearmongering concerning China, we also see opportunity there, especially in the social networking and e-commerce industries. What other country besides the US has a homegrown and highly successful Google, Facebook, and Amazon? The answer is China with Baidu, Tencent, Alibaba, and JD.com.


Amana Income Fund

The Amana Income Fund followed its strong first quarter with another solid performance in the second. Its Investor Shares returned 3.48%, compared to 2.46% for the S&P 500 and 4.58% for the Russell 1000 Value Index. Year-to-date the Investor Shares have returned 7.75%, ahead of both the S&P 500 and Russell Value Indexes at 3.84% and 6.30%, respectively. Investors have rewarded dividend-paying stocks this year and punished banks (regardless of their dividend yield), two trends that have worked in the Fund's favor. With post-Brexit consensus delaying expectations of the next rate hike beyond the end of 2016, those trends may remain in place.

In the first quarter, returns were driven by strong performance among Industrials, while Health Care stocks lagged. That was reversed in the second quarter with Health Care accounting for half the stocks among the Fund's top 10 contributors. During the heat of the presidential primaries, the Health Care industry was a frequent target, which may have contributed to first-quarter weakness. Indeed, regulatory issues, especially with regard to pricing, are one of the major risk factors for the industry. Nonetheless, demographics throughout the Organization for Economic Co-operation and Development (OECD) member countries argue for higher health care spending in the years ahead.

While the improvement in Health Care is certainly welcome, Consumer Staples have been the leading contributor to year-to-date returns due to the sector being among the best-performing in the market, our overweight position, and excellent stock selection. As always, we focus on companies with minimal debt, strong cash generation, and attractive dividend yields. In an investment landscape where fixed-income yields continue to plummet, stocks such as General Mills, Colgate-Palmolive, and Unilever have drawn significant investor attention. Similarly, it's possible the second-quarter rebound in Health Care derived from the attractive dividends paid by many of the companies, especially within major pharma.

The Fund does not have a large exposure to Information Technology, but that sector's contribution to returns has been good. Once again, we can likely trace this to strong cash positions and high dividend yields among companies held, such as Intel, Microchip, and Taiwan Semiconductor. Microsoft might have been included in that list but for the negative reaction to its announced acquisition of LinkedIn, and we are still evaluating the decision.

In reviewing the negative returns among the top 10 detractors, we see that none fell more than -10.00%. The closest to that level was Nike, at -9.94%. From 2013 through 2015 Nike performed very well and consistently appeared among the top contributors. This year, performance has faltered. Many have pointed to increasing competition from Adidas, Under Armour, and others. Adidas has made several moves to re-vamp its business following a long period of underperformance, while Under Armour is growing more rapidly than Nike but from a much smaller base. Not to diminish the risk, but we believe Nike remains the team to beat in the industry.

From a sector perspective, Energy has been the weakest link in year-to-date performance. We are far underweight the benchmark exposure to Energy, and the rebound in oil prices has pushed stock prices higher after a dreadful 2015. Utilities have also performed very well (again likely due to the hunt for yield), while we are severely underweight because the high debt loads carried by most utilities preclude our investment.

With General Mills among the top performers, it has replaced Microsoft, which lost value during the quarter, among the 10 largest holdings.

As of June 30, 2016

Ten Largest Contributors Return Contribution
Pfizer 19.87% 0.53
Bristol-Myers Squibb 15.74% 0.51
JM Smucker 17.89% 0.41
General Mills 13.40% 0.39
Novartis ADR 13.90% 0.36
Eli Lilly 10.09% 0.35
Johnson Controls 14.31% 0.22
Johnson & Johnson 12.90% 0.19
3M 5.79% 0.19
McCormick & Co 7.69% 0.18
Ten Largest Detractors Return Contribution
Nike, Class B -9.94% -0.36
PPG Industries -6.24% -0.22
Microsoft -6.69% -0.21
Phillips 66 -7.64% -0.11
Canadian National Railway -3.45% -0.09
Abbott Laboratories -5.46% -0.06
Methanex -8.59% -0.06
Parker Hannifin -2.18% -0.05
Emerson Electric -3.22% -0.04
W.W. Grainger -2.14% -0.03
Top Ten Holdings Portfolio Weight
Illinois Tool Works 4.0%
Eli Lilly 3.7%
Bristol-Myers Squibb 3.6%
Honeywell International 3.5%
3M 3.5%
Colgate-Palmolive 3.3%
General Mills 3.3%
Nike, Class B 3.2%
PPG Industries 3.2%
Kimberly-Clark 3.1%
30-Day Yield
 Investor Shares (AMANX): 1.31%
 Institutional Shares (AMINX): 1.54%

Asset Weighted Average Debt to Market Cap: 15.8%


Amana Growth Fund

Value continued to outpace growth in the second quarter but the Amana Growth Fund Investor shares held their own, rising 2.77% against 2.46% for the S&P 500 and 0.61% for the Russell 1000 Growth Index. Year-to-date the Investor Shares have returned 4.13%, versus 3.84% for the S&P 500 and 1.35% for the Russell 1000 Growth Index.

Information Technology represents the largest exposure in the Fund by a wide margin, and the return on our year-to-date selections has been positive versus a negative return for the benchmark. As a result, Technology provided the single largest contribution to Fund performance through the first half of the calendar year. Only one Technology company appears among our best performers, but the large majority of positions provided positive returns. Our Consumer Staples exposure is far lower but the contribution has also been strong due to superior selection. Undoubtedly, the hunt for yield has been a factor in the performance of our Consumer Staples positions.

Health Care faced challenges in the first quarter but performed better in the second, as shown by six of our 10 largest contributors (seven if you include pet Health Care with VCA's chain of veterinary clinics) belonging to the sector. Consumer Staples and Technology rounded out the list.

Apart from Health Care, Technology, and Consumer Staples, the Fund has also enjoyed positive year-to-date returns from Industrials and Consumer Discretionary stocks. Only Materials exposure has led to a negligible loss.

While sector returns are almost uniformly positive, individual stocks have suffered losses. Perhaps most vexing is Apple. Indications are that the next iteration of the iPhone will not be the breakthrough product to re-invigorate sales as the company holds off until the iPhone's June 2017 10-year anniversary to roll out the really big innovation guns. To us, that does not seem a long time to wait. In the meantime, the stock pays a 2.4% yield.

There were no changes among the top 10 largest positons in the second quarter.

As of June 30, 2016

Ten Largest Contributors Return Contribution
Church & Dwight 12.03% 0.52
VCA 17.20% 0.36
Intuit 7.62% 0.36
Johnson & Johnson 12.90% 0.34
Novartis ADR 13.90% 0.32
Eli Lilly 10.09% 0.27
Express Scripts Holding 10.35% 0.26
Agilent Technologies 11.92% 0.25
Clorox 10.45% 0.22
Stryker 12.05% 0.22
Ten Largest Detractors Return Contribution
Apple -11.75% -0.51
Alphabet, Class A -7.78% -0.19
Fastenal -8.81% -0.15
Estee Lauder, Class A -3.17% -0.12
Infosys ADS -5.14% -0.09
Convergys -9.66% -0.08
SAP ADS -5.15% -0.07
Trimble Navigation -1.77% -0.05
TJX Companies -1.10% -0.04
Novo-Nordisk ADS -0.76% -0.03
Top Ten Holdings Portfolio Weight
Adobe Systems 5.0%
Intuit 4.9%
Church & Dwight 4.7%
Amgen 4.7%
Apple 3.9%
Lowe's 3.6%
TJX Companies 3.6%
Novo Nordisk ADS 3.4%
Estee Lauder, Class A 3.4%
Eli Lilly 3.0%

Asset Weighted Average Debt to Market Cap: 12.5%


Amana Developing World Fund

Emerging markets have registered a surprisingly strong return in 2016, while the Amana Developing World Fund Investor Shares have more than participated, gaining 3.33% in the second quarter and 9.69% year-to-date. The MSCI Emerging Markets Index increased 0.66% for the quarter and 6.41% year-to-date. The Fund achieved these returns despite having a cash balance that averaged roughly 12% over the quarter.

We found little rhyme or reason to the second quarter's top-performing stocks, with representatives from Indonesia, Mexico, India, China, the Philippines, Argentina, Jordan, and South Africa. Two of the positions are relatively new: Hikma Pharmaceuticals and Tencent Holdings. It was gratifying to see Aspen Pharmacare and Clicks Group perform well. Both are in South Africa, a country beset by multiple political and macroeconomic challenges. Nonetheless, we believe Aspen has built an impressive global Health Care business, while Clicks is likely the best retail operation in the country. Sometimes the top-down country view is sufficient to discourage investment in any stock. Venezuela would be one such example. Other times we uncover companies we believe can succeed in challenging environments. Argentina-based MercadoLibre falls into the latter category. Argentina was surely one of the worst managed countries in the world under President Cristina Fernández de Kirchner, but MercadoLibre, with a large part of its business in Brazil and Mexico, showed its ability to thrive.

Emerging markets can be volatile, and a number of this quarter's largest detractors were among the best performers last quarter, including Samsonite, Ford Otomotive, and Advanced Info Service. Samsonite and Ford Oto both declined in the wake of the Brexit vote, while in neither case do we believe there has been a fundamental change to the business.
Abbott Laboratories sold off sharply following its announced plan to acquire St. Jude Medical. We sold the shares shortly thereafter as the acquisition will push the company's proportion of emerging market sales below 50%.

Aforementioned Clicks Group, as well as Unilever, entered the top 10 holdings list, while Turk Traktor and Malaysian hospital operator KPJ Healthcare, neither of which performed that poorly, fell out.

As of June 30, 2016

Ten Largest Contributors Return Contribution
Telekomunikasi Indonesia ADS 24.09% 0.72
Clicks Group 27.92% 0.71
SM Prime Holdings 22.52% 0.69
MercadoLibre 19.50% 0.64
10cent Holdings ADR 12.71% 0.38
Hikma Pharmaceuticals 17.07% 0.35
Aspen Pharmacare Holdings 13.89% 0.32
Dr. Reddy's Laboratories ADR 13.37% 0.29
Indofood CBP Sukses Makmur 15.31% 0.27
Genomma Lab Internacional, Class B 30.51% 0.25
Ten Largest Detractors Return Contribution
Samsonite International -15.68% -0.54
Ford Otomotiv Sanayi -17.28% -0.44
Baidu ADS -13.48% -0.35
Advanced Info Service -13.18% -0.27
Kerry Logistics Network -9.68% -0.22
Abbott Laboratories -7.57% -0.18
VF -4.49% -0.14
Manila Electric -5.92% -0.13
KPJ Healthcare -3.86% -0.11
Infosys ADS -5.14% -0.10
Top Ten Holdings Portfolio Weight
MercadoLibre 3.8%
SM Prime Holdings 3.6%
Telekomunikasi Indonesia ADS 3.6%
Bangkok Dusit Medical Services NVDR 3.3%
Tencent Holdings ADR 3.2%
Clicks Group 3.2%
AboitizPower 3.1%
VF 2.8%
Samsonite International 2.8%
Unilever ADS 2.7%

Asset Weighted Average Debt to Market Cap: 14.8%


Amana Participation Fund

The familiar expression "the more things change, the more they stay the same" seems to adeptly describe the state of the capital markets for the past eight years. Ever since the global financial crisis (GFC), central banks around the world have been engaged in a series of massive monetary programs aimed to stabilize markets while simultaneously stimulating economic growth, with the latter being more elusive. Throughout this period global debt levels rose while interest rates moved toward historically low levels, with some regions experiencing negative yields. There is now over $10 trillion of negative-yielding debt,¹ with 29% of Bloomberg's Global Developed Sovereign Bond Index posting a yield below zero. Throughout the past eight years, geopolitical instability and policy challenges seem also to have been a constant as we observe the rise of strife in the Middle East (such as in Yemen and Syria), Russia's expansion into Crimea, the Chinese government's attempts to stabilize the Shanghai Stock Exchange, and questionable EU unity (marked more recently by the UK's stunning Brexit vote). The consequence has been a period of market volatility as we navigate a post-GFC era.

We anticipate global interest rates will remain low for a longer term, all in a continued attempt to spur global growth. We anticipate economic growth in the US will remain positive as Europe and Asia continue to offer accommodative monetary and fiscal policies. The US dollar should retain its relative strength compared to the currencies of its trading partners. We also expect interest rates in the US to remain higher relative to interest rates observed in foreign markets.

As we mark our midyear review, we are proud to close out the Participation Fund's ninth month of operation. The name, Participation, reflects the characteristics of sukuk (the plural form of sak) as non-equity securities that share in the economic profits and losses of their underlying assets. Sukuk is an Arabic word describing investment certificates that share similar characteristics with conventional bonds yet are structured to adhere to Islamic investing principles. As such, the Participation Fund is designed for investors who prioritize preservation of capital and current income. Sukuk are an asset class distinct from both stocks and bonds.

Since the Participation Fund's inception date of September 28, 2015, the Investor Shares returned 2.13%, compared to 4.18% for the benchmark Citi Sukuk Index. The underperformance is largely due to holding cash while the investment operations ramped up. During the second quarter, the Investor Shares returned 2.03% compared to the benchmark's return of 2.12%. The portfolio is diversified among 19 issues reporting a modified duration of 5.0 years.

Among some of the top performing issues for the quarter include the Emirate of Sharjah and the Emirate of Ras Al Khaimah (RAK) offering a return of 4.92% and 4.00%, respectively. The two bottom-performing issues for the quarter include Tamweel, a real estate financing subsidiary of the Dubai Islamic Bank, and DP World, a global shipping and logistics firm, posting a return of 0.49% and 1.04%, respectively.

Over the second half of the upcoming year we will continue to focus our investment activities on high-quality, US dollar-denominated issues better positioned to endure an environment characterized by lower-priced oil.

As of June 30, 2016

Top Ten Holdings Portfolio Weight
 Majid Al Futtaim  8.0%
 Dubai Islamic Bank  7.6%
 Sharjah  6.4%
 Perusahaan Penerbit SBSN  6.4%
 Saudi Electric Global  6.3%
 Dubai DOF  6.3%
 Qatar Islamic Bank  6.1%
 RAK Capital  6.1%
 TF Varlik Kiralama  4.8%
 Emirates Madina Group  4.8%
30-Day Yield
 Investor Shares (AMAPX): 2.34%
 Institutional Shares (AMIPX): 2.60%

Credit Profile

Moody's Investor Services
Aa2 3.2%
A1 4.6%
A2 6.3%
A3 6.4%
Baa1 13.8%
Baa2 4.8%
Baa3 22.3%
Unrated 35.8%
Cash and equivalents 2.8%


¹ Eisen, Ben. Negative-Yielding Debt Tops $10 Trillion, The Wall Street Journal, June 2, 2016.


Performance Summary

As of June 30, 2016

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Average Annual Total Returns (Before Taxes) 1 Year 3 Year 5 Year 10 Year Expense Ratio
Amana Income Investor Shares (AMANX) 5.48% 9.67% 9.16% 8.26% 1.13%
Amana Income Institutional Shares (AMINX)¹ 5.75% n/a   n/a   n/a   0.88%
S&P 500 Index 3.99% 11.62% 12.09% 7.42% n/a
Russell 1000 Value Index 2.85% 9.83% 11.34% 6.11% n/a
Amana Growth Investor Shares (AMAGX) 3.96% 11.24% 8.94% 7.93% 1.08%
Amana Growth Institutional Shares (AMIGX)¹ 4.24% n/a   n/a   n/a   0.83%
S&P 500 Index 3.99% 11.62% 12.09% 7.42% n/a
Russell 1000 Growth Index 3.02% 13.03% 12.33% 8.78% n/a
Amana Developing World Investor Shares (AMDWX)² -3.44% -2.59% -2.14% n/a   1.54%
Amana Developing World Institutional Shares (AMIDX)¹ -3.23% n/a   n/a   n/a   1.24%
MSCI Emerging Markets Index -12.06% -1.56% -3.78% 3.54% n/a

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Expense ratios shown are as stated in the Funds' most recent Prospectus dated September 28, 2015.

The Amana Participation Fund began operations September 28, 2015, and consequently has no historical standardized performance to report and is not yet rated by Morningstar.

Performance data quoted represents past performance, is before any taxes payable by shareowners, and is no guarantee of future results. Current performance may be higher or lower than that stated herein. Performance current to the most recent month-end is available by calling toll-free 888-732-6262 or visiting Month-end Performance. Average annual total returns are historical and include change in share value as well as reinvestment of dividends and capital gains, if any. The investment return and principal value of an investment will fluctuate so that an investor's shares, when redeemed, may be worth more or less than their original cost. Shares of a Fund may only be offered for sale through the Fund's prospectus or summary prospectus.

The S&P 500 is an index comprised of 500 widely held common stocks considered to be representative of the US stock market in general. The Russell 1000 Growth Index measures the performance of the large-cap growth segment of the US equity universe. It includes those Russell 1000 Index companies with higher price-to-book ratios and higher forecasted growth values. The Russell 1000 Value Index measures the performance of the large-cap value segment of the US equity universe. It includes those Russell 1000 Index companies with lower price-to-book ratios and lower expected growth values. The MSCI Emerging Markets Index, produced by Morgan Stanley Capital International, measures equity market performance in over 20 emerging market countries. When available, Saturna uses total return components of indices mentioned. Investors cannot invest directly in the indices.

¹ Institutional Shares of the Amana Funds began operations September 25, 2013.

² The Amana Developing World Fund began operations September 28, 2009.

Income, Growth Fund, Developing World, and Participation Fund Funds: The value of the shares of each of the Funds rises and falls as the value of the securities in which the Funds invest go up and down. The Amana Mutual Funds limit the securities they purchase to those consistent with Islamic principles. This limits opportunities and may affect performance. Each of the Funds may invest in securities that are not traded in the United States. Investments in the securities of foreign issuers may involve risks in addition to those normally associated with investments in the securities of US issuers. These risks include currency and market fluctuations, and political or social instability. The risks of foreign investing are generally magnified in the smaller and more volatile securities markets of the developing world.

Growth Fund: The smaller and less seasoned companies that may be in the Growth Fund have a greater risk of price volatility.

Participation Fund: While the Participation Fund does not invest in conventional bonds, risks similar to those of conventional nondiversified fixed-income funds apply. These include: diversification and concentration risk, liquidity risk, interest rate risk, credit risk, and high-yield risk. The Participation Fund also includes risks specific to investments in Islamic fixed-income instruments. The structural complexity of sukuk, along with the weak infrastructure of the sukuk market, increases risk. Compared to rights of conventional bondholders, holders of sukuk may have limited ability to pursue legal recourse to enforce the terms of the sukuk or to restructure the sukuk in order to seek recovery of principal. Sukuk are also subject to the risk that some Islamic scholars may deem certain sukuk as not meeting Islamic investment principles subsequent to the sukuk being issued.

Shares of the Participation Fund held less than 182 calendar days are subject to a 2% early redemption fee.


Morningstar Ratings™

As of June 30, 2016

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Morningstar Ratings™ ¹ Overall 1 Year 3 Year 5 Year 10 Year Sustainability Rating™ ²
Amana Income Fund — "Large Blend" Category  
Investor Shares (AMANX) ★ ★ ★ ★ n/a ★ ★ ★ ★ ★ ★ ★ ★ ★ ★ ★ false
    % Rank in Category n/a 8 53 74 5 1
Institutional Shares (AMINX) ☆ ☆ ☆ ☆ n/a ☆ ☆ ☆ ☆ ☆ ☆ ☆ ☆ ☆ ☆ ☆ false
    % Rank in Category n/a 8 49 71 5 1
    Number of Funds in Category 1,392 1,523 1,392 1,206 895 1,411
Amana Growth Fund — "Large Growth" Category  
Investor Shares (AMAGX) ★ ★ ★ ★ n/a ★ ★ ★ ★ ★ ★ ★ ★ ★ ★ false
    % Rank in Category n/a 6 43 75 31 1
Institutional Shares (AMIGX) ☆ ☆ ☆ ☆ n/a ☆ ☆ ☆ ☆ ☆ ☆ ☆ ☆ ☆ ☆ ☆ false
    % Rank in Category n/a 5 39 72 29 1
    Number of Funds in Category 1,483 1,627 1,483 1,289 931 1,467
Amana Developing World Fund — "Diversified Emerging Markets" Category  
Investor Shares (AMDWX) ★ ★ ★ ★ n/a ★ ★ ★ ★ ★ ★ ★ n/a false
    % Rank in Category n/a 8 73 28 n/a 19
Institutional Shares (AMIDX) ☆ ☆ ☆ ☆ n/a ☆ ☆ ☆ ☆ ☆ ☆ ☆ n/a false
    % Rank in Category n/a 7 69 26 n/a 19
    Number of Funds in Category 590 856 590 416 n/a 591

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Performance data quoted herein represents past performance and does not guarantee future results.

The Morningstar Sustainability Rating and the Morningstar Portfolio Sustainability Score are not based on fund performance and are not equivalent to the Morningstar Rating ("Star Rating").

© 2016 Morningstar®. All rights reserved. Morningstar, Inc. is an independent fund performance monitor. The information contained herein: (1) is proprietary to Morningstar and/or its content providers; (2) may not be copied or distributed; and (3) is not warranted to be accurate, complete, or timely. Neither Morningstar nor its content providers are responsible for any damages or losses arising from any use of this information.

¹ Morningstar Ratings™ ("Star Ratings") are As of June 30, 2016. For each fund with at least a three-year history, Morningstar calculates a Morningstar Rating™ based on a Morningstar Risk-Adjusted Return measure that accounts for variation in a fund's monthly performance (including the effects of sales charges, loads, and redemption fees), placing more emphasis on downward variations and rewarding consistent performance. The top 10% in each category receive 5 stars, the next 22.5% 4 stars, the next 35% 3 stars, the next 22.5% 2 stars, and the bottom 10% receive 1 star. The Overall Morningstar Rating for a fund is derived from a weighted average of performance figures associated with its 3, 5, and 10 year (if applicable) Morningstar Rating metrics. Morningstar ratings represented as unshaded stars are based on extended performance. These extended performance ratings are based on the historical adjusted returns prior to the inception date of the institutional shares and reflect the historical performance of the investor shares, adjusted to reflect the fees and expenses of the institutional shares.

² Morningstar Sustainability Ratings and Portfolio Sustainability Scores are as of May 31, 2016. The Morningstar Sustainability Rating™ is intended to measure how well the issuing companies of the securities within a fund's portfolio are managing their environmental, social, and governance ("ESG") risks and opportunities relative to the fund's Morningstar category peers. The Morningstar Sustainability Rating calculation is a two-step process. First, each fund with at least 50% of assets covered by a company-level ESG score from Sustainalytics receives a Morningstar Portfolio Sustainability Score™. The Morningstar Portfolio Sustainability Score is an asset-weighted average of normalized company-level ESG scores with deductions made for controversial incidents by the issuing companies, such as environmental accidents, fraud, or discriminatory behavior. The Morningstar Sustainability Rating is then assigned to all scored funds within Morningstar Categories in which at least ten (10) funds receive a Portfolio Sustainability Score and is determined by each fund's rank within the following distribution: High (highest 10%), Above Average (next 22.5%), Average (next 35%), Below Average (next 22.5%), and Low (lowest 10%). The Morningstar Sustainability Rating is depicted by globe icons where High equals 5 globes and Low equals 1 globe. A Sustainability Rating is assigned to any fund that has more than half of its underlying assets rated by Sustainalytics and is within a Morningstar Category with at least 10 scored funds; therefore, the rating it is not limited to funds with explicit sustainable or responsible investment mandates. Morningstar updates its Sustainability Ratings monthly. Portfolios receive a Morningstar Portfolio Sustainability Score and Sustainability Rating one month and six business days after their reported as-of date based on the most recent portfolio. As part of the evaluation process, Morningstar uses Sustainalytics' ESG scores from the same month as the portfolio as-of date. The Amana Income Fund, Amana Growth Fund, and Amana Developing World Fund were rated based on 98%, 98%, and 65% of Assets Under Management, respectively.

The Amana Mutual Funds offer two share classes – Investor Shares and Institutional Shares, each of which has different expense structures.

The Morningstar Portfolio Sustainability Scores and Morningstar Sustainability Ratings are new and it is anticipated that Morningstar will issue the scores and ratings monthly. The Fund's portfolio is actively managed and is subject to change, which may result in a different Morningstar Sustainability Score and Rating.

% Rank in Category is the fund's percentile rank for the specified time period relative to all funds that have the same Morningstar category. The highest (or most favorable) percentile rank is 1 and the lowest (or least favorable) percentile rank is 100. The top-performing fund in a category will always receive a rank of 1. Percentile ranks within categories are most useful in those categories that have a large number of funds.


Important Disclaimers and Disclosure

Performance data quoted represents past performance which is no guarantee of future results.

This publication should not be considered investment, legal, accounting, or tax advice or a representation that any investment or strategy is suitable or appropriate to a particular investor's circumstances or otherwise constitutes a personal recommendation to any investor. This material does not form an adequate basis for any investment decision by any reader and Saturna may not have taken any steps to ensure that the securities referred to in this publication are suitable for any particular investor. Saturna will not treat recipients as its customers by virtue of their reading or receiving the publication.

The information in this publication was obtained from sources Saturna believes to be reliable and accurate at the time of publication.

All material presented in this publication, unless specifically indicated otherwise, is under copyright to Saturna. No part of this publication may be altered in any way, copied, or distributed without the prior express written permission of Saturna.

Asset-weighted average debt to market capitalization: his ratio represents the average debt to market capitalization of the portfolio. It is calculated by taking the debt to market capitalization for each company (its debt divided by its market capitalization), then weighting these values (multiplying each by the company's percent share of total portfolio assets), then totaling the weighted values.

Effective maturity and modified duration are measures of a fund's sensitivity to changes in interest rates and the markets. A fund's effective maturity is a dollar-weighted average length of time until principal payments must be paid. Longer maturities typically indicate greater sensitivity to interest rate changes than shorter maturities. Modified duration differs from effective maturity in that it accounts for interest payments in addition to the length of time until principal payments must be paid. Longer durations tend to indicate greater sensitivity to interest rate changes than shorter durations. Call options and other security specific covenants may be used when calculating effective maturity and modified duration.

A Fund's 30-Day Yield, sometimes referred to as standardized yield, current yield, or SEC yield, is based on methods of computation prescribed in SEC Form N-1A. Calculated by dividing the net investment income per share during the preceding 30 days by the net asset value per share on the last day of the period, the 30-Day Yield provides an estimate of a Fund's investment income rate, but may not equal the actual income distribution rate.

The TOPIX Index, also knownas the Tokyo Stock Price Index, is a capitalization-weighted index of all companies listed on the First Section (the largest companies) of the Tokyo Stock Exchange.

The MSCI EAFE Index is an international index focused on Europe, Australasia, and the Far East.

The Bloomberg Global Developed Sovereign Bond Index is a rules-based market-value weighted index engineered to measure the fixed-rate local currency public obligations of developed countries. The index is USD based and contains issues from the US, Canada, Europe, and Pacific Rim countries.