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Amana Mutual Funds Trust – ‘N-CSR’ for 5/31/17

On:  Monday, 7/31/17, at 8:28pm ET   ·   As of:  8/1/17   ·   Effective:  8/1/17   ·   For:  5/31/17   ·   Accession #:  766285-17-12   ·   File #:  811-04276

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  As Of                Filer                Filing    For·On·As Docs:Size

 8/01/17  Amana Mutual Funds Trust          N-CSR       5/31/17    4:894K
          → Amana Developing World Fund ⇒ Amana Developing World Fund Institutional Shares (AMIDX) — Amana Developing World Fund Investor Shares (AMDWX)
          → Amana Growth Fund ⇒ Amana Growth Fund Institutional Shares (AMIGX) — Amana Growth Fund Investor Shares (AMAGX)
          → Amana Income Fund ⇒ Amana Income Fund Institutional Shares (AMINX) — Amana Income Fund Investor Shares (AMANX)
          → Amana Participation Fund ⇒ Amana Participation Fund Institutional Shares (AMIPX) — Amana Participation Fund Investor Shares (AMAPX)

Document/Exhibit                   Description                      Pages   Size 

 1: N-CSR       Amana Mutual Funds Trust Form N-CSR                 HTML    344K 
 4: EX-99.906 CERT  906 Certifications                              HTML      5K 
 3: EX-99.CERT  302 Certifications                                  HTML     11K 
 2: EX-99.CODE ETH  Code of Ethics                                  HTML     44K 

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549

FORM N-CSR

CERTIFIED SHAREHOLDER REPORT OF REGISTERED
MANAGEMENT INVESTMENT COMPANIES

Investment Company Act file number: 2-96924

AMANA MUTUAL FUNDS TRUST
(Exact Name of Registrant as Specified in Charter)

1300 N. State Street
Bellingham, Washington 98225-4730
(Address of Principal Executive Offices, including ZIP Code)

Nicholas F. Kaiser
1300 N. State Street
Bellingham, Washington 98225-4730
(Name and Address of Agent for Service)

Registrant's Telephone Number – (360) 734-9900

Date of fiscal year end: May 31, 2017
Date of reporting period: May 31, 2017

1. Report to Shareowners

As of May 31, 2017

As of June 30, 2017

Performance data quoted in this report 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 1-888-732-6262 or visiting www.amanafunds.com. 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. The Amana Funds limit the securities they purchase to those consistent with Islamic principles, which limits opportunities and may affect performance.

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

Institutional Shares of the Amana Income, Growth, and Developing World Funds began operations September 25, 2013.

The Amana Participation Fund began operations September 28, 2015.

A note about risk: Please see the Notes to Financial Statements beginning on page 39 for a discussion of investment risks. For a more detailed discussion of the risks associated with each Fund, please see the Funds' prospectus or each Fund's summary prospectus.

¹ By regulation, expense ratios shown in this table are as stated in the Funds' most recent prospectus which is dated September 22, 2016, and incorporates results for the fiscal year ended May 31, 2016. Ratios presented in this table differ from the expense ratios shown elsewhere in this report as they represent different fiscal periods. Also by regulation, this page shows performance as of the most recent calendar quarter-end in addition to performance through the Funds' most recent fiscal period.

Please consider an investment's objective, risks, charges, and expenses carefully before investing. To obtain a free prospectus or summary prospectus that contains this and other important information on the Amana Funds, please call toll-free 1-888-732-6262 or visit www.amanafunds.com. Please read the prospectus or summary prospectus carefully before investing.

Fellow Shareowners:

Equity markets continued rising for the fiscal year ended May 31, 2017. Total return for the S&P 500 Index was 17.47%, and the broader Dow Jones Islamic Market World Developed Total Return Index rose 16.65%. Smaller US companies were also strong, with the Russell 2000 Index up 20.34%. Foreign markets performed even better, with the MSCI Emerging Markets Index up 27.41%. Islamic fixed-income markets were more subdued, with the Citi Sukuk Index rising 3.99%

The Amana Fund portfolios performed respectfully compared to these domestic and foreign indices, which do not have operating expenses. Amana Growth Investor Shares gained 18.38%, Amana Income Investor Shares returned 12.67%, Amana Developing World Investor Shares rose 6.59%, and Amana Participation Investor Shares rose 2.87% for the fiscal year. As expected, lower expenses allowed the Institutional class shares to post slightly better returns: Amana Growth 18.67%, Amana Income 12.96%, Amana Developing World 6.74%, and Amana Participation 3.09%.

The Amana Funds follow Islamic principles, which preclude most investments in the banking and financial sectors. We favor companies with low debt levels and strong balance sheets.

Top Long-Term Results

As experienced investors, we know that gains or losses over a short interval tell an incomplete story compared to performance evaluated over a lengthier time span. That's why the recognition that Amana has received for long-term performance is so important to our shareowners. As of June 30, 2017, Morningstar has awarded Amana Income Fund a 5-star performance rating and Amana Growth Fund a 4-star performance rating for their returns over 10 years.

Furthermore, as of June 30, Amana Income and Amana Growth maintained strong long-term rankings in their respective mutual fund categories. Amana Income Investor Shares ranked in the top 2% in Morningstar's "Large Blend" category, out of 507 similar funds surviving for 15 years. Amana Growth Investor Shares ranked in the top 5% in the "Large Growth" category, out of 539 similar funds surviving for 15 years. Please refer to "Morningstar Ratings" on pages 6 and 7 for more details.

Institutional Shares

Without 12b-1 distribution expenses and related services, lower-cost Institutional Shares are recommended to all shareowners who meet the requirements. During the past year, the Trust's total number of Investor Shares declined while the number of Institutional Shares outstanding grew. By May 31, 2017, assets in Amana's Institutional Shares totaled more than $855 million – increasing 20% for the year.

Amana Participation Fund Continues Strong

Amana's fourth mutual fund portfolio began operations on September 28, 2015. The objectives of the Participation Fund are capital preservation and current income, consistent with Islamic principles. Assets at the end of this fiscal year were $38 million, up 143% from the prior year-end.

The Fund invests primarily in income-producing notes and certificates issued by foreign governments, their agencies, and financial institutions in transactions structured to be in accordance with Islamic principles – commonly known as sukuk. While the risks of investing in foreign fixed income issues are material, we believe the Amana Participation Fund offers investors seeking exposure to Islamic fixed income an excellent opportunity. The Fund may be especially appealing to investors seeking a balance to the other three Amana Funds, which invest only in equity securities.

Amana Income Fund – 31 Years of Solid Investing

On June 23, 1986, thirty-one years ago, Amana Income Fund began operations, with both Dr. Yaqub Mirza and Mr. Nicholas Kaiser as founding members of the board of trustees. From inception to June 23, 2017 – for 31 years – the Fund's Investor Shares provided an average annual return of 8.69% (net of expenses). Very few investment vehicles have such a long-term record of success.

As Dr. Mirza and Mr. Kaiser plan for eventual retirement, and as careful stewards, they are working to ensure the established methods of Amana's successful investing are continued by strong hands in the next generation.

As a group, the five Amana trustees are solidly committed to investing in Amana mutual funds. Including their affiliated accounts, they currently have over $16 million invested in the four mutual funds of the Trust.

Morningstar Awards Amana Top Sustainability Ratings

The Morningstar Sustainability Rating^™ for funds premiered in March of 2016 (see details on next page), giving investors across the globe a way to compare mutual fund portfolios based on a an independent measure of sustainability. The Morningstar ratings are calculated using fund holdings data underpinned with company-level environmental, social, and governance (ESG) information from Sustainalytics, a leading provider of ESG research.

Income Fund ranked in the first percentile of 1,222 funds in its category, and Growth Fund likewise ranked in the first percentile of 1,284 funds in its category. Developing World Fund ranked in the 25th percentile of 634 funds in its category.

We believe the high ratings the Amana Funds received provide strong evidence of the linkage between Islamic and sustainable investing. Investors are cautioned, however, that more than 100 vendors offer "sustainable" investments data, and that no accepted global measurement yet exists.

Respectfully,

(photo omitted)

Nicholas Kaiser,
President

(photo omitted)

M. Yaqub Mirza,
Independent Board Chairman

At Saturna Capital, we have long described ourselves as value and values-based investors. We believe our approach improves the likelihood of achieving superior investment results over the long term. Our approach also leads to investment portfolios we can be proud of from the perspective of Environmental, Social, and Governance (ESG) issues. Morningstar partners with leading ESG research firm Sustainalytics to publish the Morningstar Sustainability Rating^™ – here are the rated Amana Funds' fiscal year-end results:

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

© 2017 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.

Morningstar Sustainability Ratings are as of May 31, 2017. 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 Funds were rated on the following percentages of Assets Under Management:

Amana Income Fund 99%
Amana Growth Fund 99%
Amana Developing World Fund 64%

% 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.

The Amana Funds limit the securities they purchase to those consistent with Islamic principles. This limits opportunities and may affect performance.

The Amana Participation Fund has not yet received a Morningstar Sustainability Rating.

¹ Source: Morningstar May 31, 2017 & June 30, 2017. Morningstar, Inc. is an independent fund performance monitor. The Morningstar Rating^™ for funds, or "star rating", is calculated for managed products (including mutual funds, variable annuity and variable life subaccounts, exchange-traded funds, closed-end funds, and separate accounts) with at least a three-year history. Exchange-traded funds and open-ended mutual funds are considered a single population for comparative purposes. It is calculated based on a Morningstar Risk-Adjusted Return measure that accounts for variation in a managed product's monthly excess performance (not including the effects of sales charges, loads, and redemption fees), placing more emphasis on downward variations and rewarding consistent performance. The top 10% of products in each product category receive 5 stars, the next 22.5% receive 4 stars, the next 35% receive 3 stars, the next 22.5% receive 2 stars, and the bottom 10% receive 1 star. The Overall Morningstar Rating for a managed product is derived from a weighted average of the performance figures associated with its three-, five-, and 10-year (if applicable) Morningstar Rating metrics. The weights are: 100% three-year rating for 36-59 months of total returns, 60% five-year rating/40% three-year rating for 60-119 months of total returns, and 50% 10-year rating/30% five-year rating/20% three-year rating for 120 or more months of total returns. While the 10-year overall star rating formula seems to give the most weight to the 10-year period, the most recent three-year period actually has the greatest impact because it is included in all three rating periods. 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.

% 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.

Performance data quoted in this report represents past performance, is before any taxes payable by shareowners, and is no guarantee of future results.

Survivorship Bias: A concept in the mutual fund industry intended to describe the upward bias in aggregate fund statistics that occurs gradually over time as poorly performing funds are routinely closed or merged with better performing "survivors" and are therefore excluded from future performance calculations.

Average Annual Returns (as of May 31, 2017)

Growth of $10,000

Fund Objective

The objectives of the Income Fund are current income and preservation of capital, consistent with Islamic principles; current income is its primary objective.

Fiscal Year 2017

For the fiscal year ended May 31, 2017, the Amana Income Fund Investor Shares returned 12.67% (versus 0.81% the year before). Reflecting its lower expense structure, Amana Income Fund Institutional Shares returned 12.96% for the year. Both underperformed the broad S&P 500 Index, up 17.47%, and the large-cap Russell 1000 Value Index, up 14.64%.

Amana Income Investor Shares paid qualified income dividends totaling 58¢ per share, and the Institutional Shares paid 77¢ per share in qualified income dividends. Careful attention kept the expense ratio in check: 1.12% for Investor Shares and 0.89% for Institutional Shares. Total Fund assets increased 3.60% during fiscal 2017.

For the 10 years ended May 31, 2017, the Amana Income Investor Shares earned a high Morningstar 5-star performance rating. This ranked in the 17th percentile of the 798 funds surviving in Morningstar's "Large Blend" Category peer group.

For the 15 years ended May 31, 2017, the Fund provided an annualized total return of 9.63%. And for the almost 31 years since the Fund's inception on June 23, 1986, it has provided investors a compounded annual return of 8.66%.

Factors Affecting Past Performance

The economic cycle has entered its ninth year, but it does not display end-of-cycle trends, such as wage pressures, inflation, or rising interest rates. Personal consumption is driving economic growth, and there are few warnings of a recession soon. The unexpected Trump administration began 2017 with much fanfare, media madness, and "temper tweets." Although the Trump initiatives of tax cutting, health care reform, and border security are blocked by the divisions within political parties, the equity markets have powered upward.

Amana Income Fund follows a value investing strategy that has served investors well over the years, buying only dividend-paying equities of financially strong companies. Avoiding leveraged and financial stocks, and all bonds, again reduced risks during the year, as the market's focus changed to slower growth, overvaluations, and growing financial sector risks.

The portfolio benefited from our positions in the Industrials, Technology, and Materials sectors. Comparatively, we suffered from low participation in the Financials and Utilities sectors, where many companies do not fit our Islamic screens. We maintained a low level of cash reserves, usually less than 2%. Most of our positions are held at significant gains over their original cost, and we again managed portfolio turnover to minimize capital gain distributions that often are taxable to investors.

Our portfolio of well-established equities has more than 6% in each of the industries Large Pharmaceuticals, Household Products, Packaged Food, and Speciality Chemicals. Our five largest individual security holdings – Illinois Tool Works, Honeywell, 3M, Rockwell Automation, and Eli Lilly – boosted our results with an average 25.85% return.

Based on our team's evaluation of their market prospects, we closed our positions in AdvanSix, Adient, Versum Materials, and Phillips 66.

Concerned about climate change, we have no companies listed on the Carbon Underground 200^™. As values-based investors, we are pleased that Morningstar rated Amana Income Fund in the top 1% for sustainability out of 1,223 funds in its "Large Blend" fund category.

Looking Forward

We hold no positions in the telecommunication, utility, or financial industries, and no bonds or interest-paying securities – all issues likely to decline in price from rising interest rates.

US GDP growth is moderate, the unemployment rate and interest rates are low, and consumers have cash to spend – in short, a "Goldilocks" moment in the economic cycle. Aided by low inflation, largely resulting from weak energy prices, global growth estimates for the year are positive. Political forces pushing back on globalization are losing strength.

Central bankers are reversing policy and understandably slowing the flow from their stimulus. An extraordinary era of low interest rates fueled upward moves in economies and markets. Central banks in Europe, the US, Japan, China, the UK, and even Canada, are all shifting gears toward raising rates and/or removing stimulus. We must be vigilant in the coming months for signs of a recession – a riskier period looms ahead.

Amana Income Fund selects its portfolio from financially strong, Islamically acceptable, dividend-paying securities judged likely to appreciate. Our companies are well-regarded on environmental, social, and governance (ESG) measures. Many of our securities regularly increase their dividend payout rates and/or buy back shares in the market. We look for above-average earnings growth in our businesses to improve both the Fund's dividend and price growth long-term.

Amana Income Fund

Amana Income Fund

Amana Income Fund: Financial Highlights

^A Calculated using average shares outstanding
^B Amount is less than $0.01
^C Operations commenced on 09/25/2013
^D Not Annualized
^E Annualized

Average Annual Returns (as of May 31, 2017)

Growth of $10,000

Fund Objective

The objective of the Growth Fund is long-term capital growth, consistent with Islamic principles.

Fiscal Year 2017

For the fiscal year ended May 31, 2017, Amana Growth Fund Investor Shares total return was 18.38% (versus 1.06% the year before). Reflecting its lower expense structure, Amana Growth Fund Institutional Shares returned 18.67% for the year. Both outperformed the broad S&P 500 Index, up 17.47%, but underperformed the large-cap Russell 1000 Growth Index, up 20.27%.

While income is not an investment objective, the Fund paid another qualified income dividend (22¢ per Investor share and 27¢ per Institutional share). Careful attention kept the expense ratio in check: 1.09% for Investor Shares and 0.85% for Institutional Shares. New legal pressures on retirement plans caused our two largest accounts to leave. Redemptions exceeded purchases for the year, and Fund's total net assets decreased -11% during the fiscal year.

For the 10 years ended May 31, 2017, the Amana Growth Investor Shares earned an above-average Morningstar 4-star performance ranking. This ranked in the 51st percentile of the 805 funds surviving in Morningstar's "Large Growth" Category peer group.

For the 15 years ended May 31, 2017, the Fund provided an annualized total return of 10.10%. And for the over 23 years since the Fund's inception on February 3, 1994, it has provided investors a compounded annual return of 10.50%.

Factors Affecting Past Performance

The economic cycle has entered its ninth year, but it does not display end-of-cycle trends, such as wage pressures, inflation, or rising interest rates. Personal consumption is driving economic growth, and there are few warnings of a recession soon. The unexpected Trump administration began 2017 with much fanfare, media madness, and "temper tweets." Although the Trump initiatives of tax cutting, health care reform, and border security are blocked by the divisions within political parties, the equity markets have powered upward.

Amana Growth Fund follows a value investing strategy that has served investors well over the years, buying equities of financially strong companies evidencing solid earnings growth. Avoiding leveraged and financial stocks, and all bonds, again reduced risks during the year, as the market's focus changed to slower growth, overvaluations, and growing financial sector risks.

The portfolio benefited from our positions in the Technology, Health Care, and Industrials sectors. Comparatively, we suffered from low participation in the Consumer Staples and Financials sectors, where many companies do not fit our Islamic screens. We maintained a low level of cash reserves, usually less than 3%. Most of our positions are held at significant gains over their original cost, and we again managed portfolio turnover to minimize capital gain distributions that often are taxable to investors.

Our portfolio of well-established equities has more than 6% in each of the industries Software, Large Pharmaceuticals, Household Products, Communications Equipment, and Semiconductor Manufacturing. Our five largest individual security holdings – Apple, Adobe Systems, Church & Dwight, Intuit, and Trimble – boosted our results with an average 35.86% return.

Based on our team's evaluation of their market prospects, we closed our positions in Express Scripts Holdings, Gentex, Infosys, Genuine Parts, Akamai Technologies, and Potash Corp. of Saskatchewan. Concerned about climate change, we have no companies listed on the Carbon Underground 200^™. As values-based investors, we are pleased that Morningstar rated Amana Growth Fund in the top 1% for sustainability out of 1,284 funds in its "Large Growth" fund category.

Looking Forward

US GDP growth is moderate, the unemployment rate and interest rates are low, and consumers have cash to spend - in short, a "Goldilocks" moment in the economic cycle. Aided by low inflation, largely resulting from weak energy prices, global growth estimates for the year are positive. Political forces pushing back on globalization are losing strength.

The European Union and its related institutions, challenged by Great Britain's desire to float away from the continent, are benefiting from working together in a common cause. Against some odds, France opted for a middle path that looks positive for business and growth.

Central bankers are reversing policy and understandably slowing the flow from their stimulus. An extraordinary era of low interest rates fueled upward moves in economies and markets. Central banks in Europe, the US, Japan, China, the UK, and even Canada, are all shifting gears toward raising rates and/or removing stimulus. We must be vigilant in the coming months for signs of a recession - a riskier period looms ahead.

Amana Growth Fund selects its portfolio from financially strong, Islamically acceptable, growth securities judged likely to appreciate. We look for above-average earnings growth in the Fund's investments to improve the Fund's price long-term.

Amana Growth Fund

Amana Growth Fund

Amana Growth Fund: Financial Highlights

^A Calculated using average shares outstanding
^B Amount is less than $0.01
^C Amount is less than 0.5%
^D Operations commenced on 09/25/2013
^E Not Annualized
^F Annualized

Average Annual Returns as of May 31, 2017

Growth of $10,000

Fund Objective

The objective of the Developing World Fund is long-term capital growth, consistent with Islamic principles.

Fiscal Year 2017

For the fiscal year ended May 31, 2017, the Amana Developing World Fund Investor Shares returned 6.59% (versus -8.32% the year before). The Fund's annual return underperformed the MSCI Emerging Markets Index, which returned 27.41%, as well as the MSCI All Country World Index Ex-USA, which returned 18.17. The Amana Developing World Fund Institutional Shares returned 6.74% during the same period. While income is not an investment objective, the Fund paid a qualified income dividend (2¢ per share for Investor Shares and 7¢ per share for Institutional Shares) in December 2016. The net expense ratio of Amana Developing World Investor Shares was 1.30% versus 1.45% for the year before. The reduced expense goal for the Institutional Shares was achieved with a 1.09% ratio versus 1.14% for the year before. During the year Fund assets grew 15.52%.

Factors Affecting Past Performance

Emerging markets, as measured by the MSCI Emerging Markets Index, performed strongly in the fiscal year ended May 31, 2017. This occurred despite short-term disruption around the US presidential election that was based on fears the new administration would adopt trade and taxation policies disadvantageous to countries exporting goods to the United States. Meanwhile, the Amana Developing World Fund returns were substantially lower than the Emerging Markets Index, primarily due to lack of access to strongly-performing countries and sectors, as well as a degree of cash drag. By country, the top three strongest contributors to benchmark performance were China, South Korea, and Taiwan. Since South Korea and Taiwan are not considered "developing" under the Fund's mandate, we do not have investments in either of those countries. Recently, we have undertaken to establish trading capability in Taiwan with the view that many Taiwanese companies base the majority of their operations in China, which would qualify them for inclusion in the Fund. There currently are no such plans for South Korea, which tends to rely more on domestic production. Our exposure to China was below the benchmark weight for two reasons: Financials, which the Fund avoids, accounts for 30% of the benchmark; and e-commerce leader Alibaba, the second largest stock in China's booming Information Technology sector, does not meet our requirement of having been a listed stock for at least three years. Financials was the second best-performing sector in China, behind Information Technology.

Reviewing the emerging markets universe, Asia-Pacific made the largest contribution to benchmark returns by far at roughly two-thirds of the total contribution. That's not surprising, considering the region accounts for over 60% of the benchmark weight. South and Central America is the next largest region and also made the second largest contribution, which was almost entirely due to the recovery of Brazil's stock market and currency. With the odds of a second consecutive presidential removal now increasing, the outlook for Brazil has once again clouded over.

The region of Africa and the Middle East is dominated by South Africa, which did manage a positive contribution despite political turmoil surrounding the removal of a respected finance minister. Eastern Europe also provided a positive contribution, led by Turkey, which is impressive considering the neighborhood and the failed coup that was launched during the year.

At least 5% of the portfolio is invested in companies headquartered in each of China, the United States, Indonesia, the Philippines, Brazil, Malaysia, Hong Kong, and South Africa. More than 5% of the portfolio is invested in each of the following industries: Telecom Carriers, E-Commerce Discretionary, Household Products, Apparel, Footwear and Accessory Design, and Generic Pharma.

Contrary to last year, Health Care performed poorly during the year. While we remain committed to the medical tourism theme and our hospital stocks in Southeast Asia, the businesses need to catch up to earlier price appreciation. Consumer Staples strongly outperformed. This sector contains a larger proportion of developed-market domiciled businesses, such as Unilever and Colgate, that undertake the majority of their business in the developing world. The Fund's strongest-performing sector during the year in terms of total return and contribution was Information Technology, led by exceptional returns from Argentinian e-commerce player MercadoLibre and Chinese messaging and mobile gaming giant Tencent.

During the annual fiscal period, the Fund's conservative approach to emerging market investing meant that it continued to keep an unusually high proportion of its assets in cash.

Looking Forward

Despite the strong emerging market performance over the past 12 months, the asset class remains at a valuation discount to the United States across the majority of sectors. Top-down country analysis, as well as fundamental bottom-up research, remain integral to success given the disruptions we see in countries such as Venezuela, Turkey, and South Africa, and the improving conditions in Argentina, Colombia, and Indonesia, among others.