Amana Participation Fund

As of August 11, 2020
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Overview

Investment Style

The Amana Participation Fund is the first non-equity, halal income fund offered in the US. It seeks to earn current income and preserve capital with a portfolio of securities designed to be less volatile than equities.

  • Invests in short-term and intermediate-term Islamic income-producing investment certificates (sukuk, murabaha, wakala)
  • Global scope, with a minimum of 50% US dollar denominated securities and no more than 10% in any other currency
  • Investments are made in accordance with Islamic principles

The name, Participation, describes the characteristics of sukuk – investment certificates structured so that investors share in their economic profits and losses. Sukuk have characteristics similar to conventional bonds, such as a maturity and a coupon; however, unlike conventional bonds, they typically reflect an undivided beneficial ownership interest in an underlying asset, similar to an equity.

 

Investment Objective

Capital preservation and current income, consistent with Islamic principles. Capital preservation is its primary objective.

Principal Investment Strategies

Under normal conditions, the Participation Fund invests at least 80% of its total net assets in short and intermediate-term Islamic income-producing investments. Up to 25% of the Fund’s total net assets can be invested in a wholly owned and controlled subsidiary (the “Subsidiary”) that also invests in short and intermediate-term Islamic income-producing investments. The Fund (and the Subsidiary) invests primarily in notes and certificates issued for payment by foreign governments, their agencies, and financial institutions in transactions structured to be in accordance with Islamic principles. Examples of these notes and certificates include (a) sukuk, which link the returns and cash flows of financing to the assets purchased, or the returns generated from an asset purchased, (b) murabaha, which involves a purchase and sale contract, and (c) wakala, in which accounts are operated under the Islamic finance principle of wakala (an agency agreement).

These investments typically involve the purchase of financial certificates representing investments in tangible assets, project financing, sale and leaseback arrangements, and the distribution of profits (as opposed to the payment of interest) related to the underlying asset or project. Unlike an investment in a bond that represents a promise to pay interest, these investments involve the sharing of profits and losses in the assets or projects financed by the Fund’s investment in the notes and certificates. In addition, the Fund may invest in time deposits with banks that involve underlying purchase and sale agreements to generate the return on the deposit.

Generally, Islamic principles require that investors participate in profit and loss, that they receive no usury or interest, and that they do not invest in a prohibited business. Some of the businesses not permitted are liquor, wine, casinos, pornography, insurance, gambling, pork processing, and interest-based banks or finance associations.

In accordance with Islamic principles, the Fund shall not purchase conventional bonds, debentures, or other interest-paying obligations of indebtedness. Islamic principles discourage speculation, and the Fund tends to hold investments for several years. Under normal circumstances the Fund maintains a dollar-weighted average maturity of two to five years.

The Participation Fund restricts its investments so that at least 50% are denominated in US dollars, with no more than 10% in any other single currency.

Under normal conditions, the Fund invests at least 65% of its assets in securities rated within the four highest grades (Aaa, Aa, A, Baa) by a nationally-recognized rating agency and may invest up to 35% in unrated and high-yield notes and certificates, which may be considered equivalent to “junk bonds.”

The Subsidiary’s principal investment strategy and principal risks of investing are identical to those of the Fund, and the Subsidiary invests principally in sukuk, murabaha, and wakala. The Fund’s investment in the Subsidiary may not exceed 25% of the value of its total net assets at the end of each quarter of its taxable year. The Subsidiary, on a consolidated basis, is also subject to the same requirements relating to liquidity, and the timing and method of valuation of portfolio investments described elsewhere in this Prospectus and in the Statement of Additional Information. The Fund is the sole shareholder of the Subsidiary and does not expect shares of the Subsidiary to be offered or sold to other investors.

 

Portfolio Managers


Patrick Drum MBA, CFA®, CFP®
Portfolio Manager since 2015
Elizabeth Alm CFA®
Deputy Portfolio Manager since 2019

Performance

Short Term Performance

As of July 31, 2020 Ticker 3 Month 6 Month YTD
Amana Participation Investor Shares AMAPX 4.77% 2.21% 3.22%
Amana Participation Institutional Shares AMIPX 4.92% 2.33% 3.36%
FTSE Sukuk 6.69% 4.37% 5.92%

Average Annual Total Returns

Month-end, as of July 31, 2020 Ticker 1 Year 3 Year 5 Year 10 Year Expense Ratio² 30-Day Yield¹
Amana Participation Investor Shares AMAPX 4.49% 3.28% n/a n/a 0.88% 1.42%
Amana Participation Institutional Shares AMIPX 4.73% 3.55% n/a n/a 0.64% 1.67%
FTSE Sukuk 8.54% 5.85% 4.91% 4.95% n/a n/a
Quarter-end, as of June 30, 2020 Ticker 1 Year 3 Year 5 Year 10 Year Expense Ratio² 30-Day Yield¹
Amana Participation Investor Shares AMAPX 3.85% 2.95% n/a n/a 0.88% 1.80%
Amana Participation Institutional Shares AMIPX 4.20% 3.22% n/a n/a 0.64% 2.04%
FTSE Sukuk 7.07% 5.15% 4.50% n/a n/a n/a

Performance data quoted represents past performance which is no guarantee of future results. 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. Current performance may be higher or lower than performance data quoted. Standardized returns current to the most recent month-end can be obtained by visiting our Month-End Returns Page or by calling toll free 1-800-728-8762. The Fund cannot guarantee that its investment objective will be met. Securities of the Fund are offered and sold only through the prospectus or summary prospectus.

¹ A Fund's 30-Day Yield, sometimes referred to as "standardized yield" or "SEC yield,” is expressed as an annual percentage rate using a method of calculation adopted by the Securities and Exchange Commission (SEC). The 30-Day Yield provides an estimate of a Fund's investment income rate, but may not equal the actual income distribution rate.

² Expense ratios shown are as stated in the Fund's most recent prospectus or summary prospectus dated September 27, 2019.

Growth of $10,000

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Amana Participation Fund Growth of $10,000

This chart illustrates the performance of a hypothetical $10,000 invested at the beginning of the period and redeemed at the end of the period, and assumes reinvestment of all dividends and capital gains.

The Citi Sukuk Index measures the performance of global Islamic fixed income securities, also known as sukuk.

Distributions

Record Date Ex, Pay and
Reinvest Date
Ordinary
Income
Qualified
Income
Short-Term
Capital Gains
Long-Term
Capital Gains
Total Distributions
(per share)
Institutional Shares (AMIPX)
07/30/2020 07/31/2020 $0.01935 $0.00 $0.00 $0.00 $0.01935
06/29/2020 06/30/2020 $0.01900 $0.00 $0.00 $0.00 $0.01900
05/28/2020 05/29/2020 $0.01988 $0.00 $0.00 $0.00 $0.01988
04/29/2020 04/30/2020 $0.01731 $0.00 $0.00 $0.00 $0.01731
03/30/2020 03/31/2020 $0.01914 $0.00 $0.00 $0.00 $0.01914
02/27/2020 02/28/2020 $0.02022 $0.00 $0.00 $0.00 $0.02022
01/30/2020 01/31/2020 $0.02266 $0.00 $0.00 $0.00 $0.02266
12/30/2019 12/31/2019 $0.02281 $0.00 $0.00 $0.00 $0.02281
11/27/2019 11/29/2019 $0.02262 $0.00 $0.00 $0.00 $0.02262
10/30/2019 10/31/2019 $0.02336 $0.00 $0.00 $0.00 $0.02336
09/27/2019 09/30/2019 $0.02236 $0.00 $0.00 $0.00 $0.02236
08/29/2019 08/30/2019 $0.02352 $0.00 $0.00 $0.00 $0.02352
07/30/2019 07/31/2019 $0.02503 $0.00 $0.00 $0.00 $0.02503
06/27/2019 06/28/2019 $0.02019 $0.00 $0.00 $0.00 $0.02019
05/30/2019 05/31/2019 $0.02344 $0.00 $0.00 $0.00 $0.02344
04/29/2019 04/30/2019 $0.02317 $0.00 $0.00 $0.00 $0.02317
03/28/2019 03/29/2019 $0.02316 $0.00 $0.00 $0.00 $0.02316
02/27/2019 02/28/2019 $0.02035 $0.00 $0.00 $0.00 $0.02035
01/30/2019 01/31/2019 $0.02303 $0.00 $0.00 $0.00 $0.02303
12/28/2018 12/31/2018 $0.02271 $0.00 $0.00 $0.00 $0.02271
11/29/2018 11/30/2018 $0.02092 $0.00 $0.00 $0.00 $0.02092
10/30/2018 10/31/2018 $0.02340 $0.00 $0.00 $0.00 $0.02340
09/27/2018 09/28/2018 $0.01933 $0.00 $0.00 $0.00 $0.01933
08/30/2018 08/31/2018 $0.02191 $0.00 $0.00 $0.00 $0.02191
Investor Shares (AMAPX)
07/30/2020 07/31/2020 $0.01713 $0.00 $0.00 $0.00 $0.01713
06/29/2020 06/30/2020 $0.01687 $0.00 $0.00 $0.00 $0.01687
05/28/2020 05/29/2020 $0.01772 $0.00 $0.00 $0.00 $0.01772
04/29/2020 04/30/2020 $0.01529 $0.00 $0.00 $0.00 $0.01529
03/30/2020 03/31/2020 $0.01699 $0.00 $0.00 $0.00 $0.01699
02/27/2020 02/28/2020 $0.01830 $0.00 $0.00 $0.00 $0.01830
01/30/2020 01/31/2020 $0.02073 $0.00 $0.00 $0.00 $0.02073
12/30/2019 12/31/2019 $0.02090 $0.00 $0.00 $0.00 $0.02090
11/27/2019 11/29/2019 $0.02053 $0.00 $0.00 $0.00 $0.02053
10/30/2019 10/31/2019 $0.02113 $0.00 $0.00 $0.00 $0.02113
09/27/2019 09/30/2019 $0.02021 $0.00 $0.00 $0.00 $0.02021
08/29/2019 08/30/2019 $0.02131 $0.00 $0.00 $0.00 $0.02131
07/30/2019 07/31/2019 $0.02273 $0.00 $0.00 $0.00 $0.02273
06/27/2019 06/28/2019 $0.01831 $0.00 $0.00 $0.00 $0.01831
05/30/2019 05/31/2019 $0.02139 $0.00 $0.00 $0.00 $0.02139
04/29/2019 04/30/2019 $0.02108 $0.00 $0.00 $0.00 $0.02108
03/28/2019 03/29/2019 $0.02132 $0.00 $0.00 $0.00 $0.02132
02/27/2019 02/28/2019 $0.01861 $0.00 $0.00 $0.00 $0.01861
01/30/2019 01/31/2019 $0.02104 $0.00 $0.00 $0.00 $0.02104
12/28/2018 12/31/2018 $0.02075 $0.00 $0.00 $0.00 $0.02075
11/29/2018 11/30/2018 $0.01901 $0.00 $0.00 $0.00 $0.01901
10/30/2018 10/31/2018 $0.02129 $0.00 $0.00 $0.00 $0.02129
09/27/2018 09/28/2018 $0.01753 $0.00 $0.00 $0.00 $0.01753

The Amana Participation Fund intends to declare dividends daily pay income distributions monthly. Distributions from net capital gains, if any, are paid at the end of December and May.

Dividends paid by the Fund with respect to each class of shares are calculated in the same manner and at the same time.

Both dividends and capital gain distributions are paid in additional full and fractional shares of the share class owned. At your option, you may receive dividends and/or capital gain distributions in cash. You are notified of each dividend and capital gain distribution when paid. Returned dividend payments will be automatically reinvested into your account and invested in additional shares of the Fund; future dividends in such accounts will continue to be reinvested until the shareowner is located or the account is closed.

Distributions for the last two years are listed in the table above. For prior distributions, please contact a Saturna representative.

Regulations regarding distributions can be complex, and there are several methods for managing your tax liability. Please consult a tax advisor about your particular circumstances. You also may obtain helpful information by calling the Internal Revenue Service at 1-800-829-1040 or visiting www.irs.gov.

If applicable, distribution information will appear on Form 1099-DIV, typically sent in late January. For more information on tax documentation, please visit our Tax Documentation page.

The Fund pays per-share distributions to shareowners invested on the Record Date. On the Payable Date, the fund's share price is reduced by the amount of its distribution.

Fees & Minimums

The following tables describe the fees and expenses mutual fund shareowners may pay. There are no shareowner fees (fees paid directly from an investment). The Fund imposes no sales charge (load) on purchases or reinvested dividends, or any deferred sales charge (load) upon redemption. There are no exchange fees or account fees. Investments in mutual funds are subject to ongoing expenses. Saturna endeavors to keep these fees low. We encourage you to compare the following fees with similar fees of other no-load mutual funds:

Shareowner Fees (fees paid directly from your investment)

None.

Annual Fund Operating Expenses (expenses that you pay each year as a percentage of the value of your investment)
  Investor Shares (AMAPX) Institutional Shares (AMIPX)
Management Fees 0.50% 0.50%
Distribution (12b-1) Fees 0.25% None
Other Expenses 0.13% 0.14%
Total Annual Fund Operating Expenses 0.88% 0.64%

 

Investment Minimum

The minimum initial investment for Investor Shares is $5,000 (for tax-sheltered accounts, there is no minimum).

Institutional Shares are available with a minimum investment of $100,000.

Literature

Summary Prospectus

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Prospectus

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Annual Report

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Semi-Annual Report

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Statement of Additional Information

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Principal Risks of Investing in the Fund

Market risk: The value of Participation Fund shares rises and falls as the value of the securities in which the Fund invests goes up and down. Consider investing in the Fund only if you are willing to accept the risk that you may lose money. Fund share prices, yields, and total returns will change with the fluctuations in the securities and currency markets as well as the fortunes of the countries, industries, and companies in which the Fund invests.

Diversification and concentration risks: The Fund is nondiversified and may invest a larger percentage of its assets in fewer issuers, which may cause the Fund to experience more volatility than diversified funds. In addition, the Fund may concentrate its investments within the financial services industry and real estate sector.

Investment strategy risk: The Fund’s restricted ability to invest in certain market sectors, such as non-Islamic financial companies and conventional fixed-income securities, limits opportunities and may adversely affect the Fund’s performance. Because Islamic principles preclude the use of interest-paying instruments, cash reserves do not earn income.

Liquidity risk: Liquidity risk exists when particular investments are difficult to sell. Investments by the Fund in foreign securities and those that are thinly traded, such as lower quality issuers, tend to involve greater liquidity risk. The market for certain investments may become illiquid under adverse market or economic conditions.

The Fund invests substantially in sukuk certificates that are traded outside of the US or within the US subject to certain trading restrictions which may increase the liquidity risks associated with the Fund’s investments.

Foreign investing risk: The Participation Fund involves risks not typically associated with investing in US securities. Investments in the securities of foreign issuers may involve risks in addition to those normally associated with investments in the securities of US issuers. All foreign investments are subject to risks of: (1) foreign political and economic instability; (2) adverse movements in foreign exchange rates; (3) currency devaluation; (4) the imposition or tightening of exchange controls or other limitations on repatriation of foreign capital; (5) changes in foreign governmental attitudes towards private investment, including potential nationalization, increased taxation, or confiscation of assets, and (6) differing reporting, accounting, and auditing standards of foreign countries. The risks of foreign investing are generally magnified in the smaller and more volatile securities markets of the Participation Fund.

Developing world risk: All foreign investments are subject to risks of: (1) foreign political and economic instability; (2) adverse movements in foreign exchange rates; (3) currency devaluation; (4) the imposition or tightening of exchange controls or other limitations on repatriation of foreign capital; (5) changes in foreign governmental attitudes towards private investment, including potential nationalization, increased taxation, or confiscation of assets, and (6) differing reporting, accounting, and auditing standards of foreign countries. In developing markets, these risks are magnified by less mature political systems and weaker corporate governance standards than typically found in the developed world.

Sukuk risk: Sukuk are specifically structured to adhere to Islamic investment principles, but also must be engineered to be economically feasible in order to attract investment. Sukuk structures may be significantly more complicated than conventional bonds and often include a series of entities created specifically to support the sukuk structure. In addition, sukuk are largely created in or otherwise subject to the risks of developing economies, many of which have weak or inconsistent accounting, legal, and financial infrastructure. The structural complexity of sukuk, along with the weak infrastructure of the sukuk market, increases risks of investing in sukuk, including operational, legal, and investment risks. In addition, adherence to Islamic investment principles increases the risk of loss in the event of a default. As 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 issuers or Islamic scholars may deem certain sukuk as not meeting Islamic investment principles subsequent to the sukuk being issued and therefore classify the investments as noncompliant with Islamic principles.

Interest rate risk: Changes in interest rates impact prices of fixed-income and related investments. When interest rates rise, the value of fixed-income investments (paying a lower rate of interest) generally will fall. Investments with shorter terms may have less interest rate risk, but generally have lower returns and, because of the more frequent maturity dates, may involve higher re-investment costs.

Credit risk: Corporate and sovereign issuers of the notes and certificates in which the Fund invests may not be able or willing to make payments when due, which may lead to default or restructuring of the investment. In addition, if the market perceives deterioration in the creditworthiness of an issuer, the value and liquidity of the issuer’s securities may decline.

High-yield risk: Securities that are rated below investment grade may have greater price fluctuations and have a higher risk of default than investment grade securities. Below investment grade securities may be difficult to sell at an acceptable price, especially during periods of increased market volatility or significant market decline.

Subsidiary Investment risk: By investing in the Subsidiary, the Fund is subject to the risks associated with the Subsidiary’s investments. Those investments are similar to the investments that are premitted to be held by the Fund and are subject to the same risks that would apply to similar investments if held directly by the Fund. The Subsidiary is organized under the laws of the Cayman Islands and is not registered with the SEC under the Investment Company Act of 1940, as amended. Accordingly, the Fund will not receive all of the protections offered to shareholders of registered investment companies. Changes in the laws of the United States and/or the Cayman Islands could result in the inability of the Fund and/or the Subsidiary to operate as intended, which may negatively affect the Fund and its shareholders.

Tax risk: To qualify as a regulated investment company (“RIC”), the Fund must meet certain requirements concerning the source of its income. The Fund’s investment in the Subsidiary is intended to provide exposure to sukuk, murabaha, and wakala in a manner that is consistent with the “qualifying income” requirement applicable to RICs. The Internal Revenue Service (“IRS”) has ceased issuing private letter rulings regarding whether the use of subsidiaries by investment companies constitutes qualifying income. If the IRS determines that this source of income is not “qualifying income,” the Fund may cease to qualify as a RIC because the Fund has not received a private letter ruling and is not able to rely on private letter rulings issued to other taxpayers. Failure to qualify as a RIC could subject the Fund to adverse tax consequences, including a federal income tax on its net income at regular corporate rates, as well as a tax to shareholders on such income when distributed as an ordinary dividend.

Based on the principles underlying private letter rulings previously issued to other taxpayers (which the Fund may not cite as a precedent), the Fund intends to treat its income from the Subsidiary as qualifying income without any such ruling from the IRS. The tax treatment of the Fund’s investment in the Subsidiary may be adversely affected by future legislation, court decisions, Treasury Regulations, and/or guidance issued by the IRS that could affect whether income derived from such investments is “qualifying income” under Subchapter M of the Internal Revenue Code, or otherwise affect the character, timing, and/or amount of the Fund’s taxable income or any gains or distributions made by the Fund.

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