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Amana Mutual Funds Trust – ‘N-CSR’ for 5/31/19

On:  Tuesday, 8/6/19, at 1:48pm ET   ·   Effective:  8/6/19   ·   For:  5/31/19   ·   Accession #:  766285-19-15   ·   File #:  811-04276

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

 8/06/19  Amana Mutual Funds Trust          N-CSR       5/31/19    4:4.2M
          → 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 Annual Report May 31,      HTML   1.45M 
                2019                                                             
 4: EX-99.906 CERT  Rule 906 Certifications                         HTML      5K 
 3: EX-99.CERT  Rule 302 Certifications                             HTML     11K 
 2: EX-99.CODE ETH  Code of Ethics                                  HTML     42K 

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)

Nicole Trudeau, Esq.
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, 2019
Date of reporting period: May 31, 2019

1. Report to Shareowners

As of May 31, 2019

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 40 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.

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:

Securities market returns varied over the 12 months ended May 31, 2019. Total return for the S&P 500 Index was 3.78%, and for the broader Dow Jones Islamic Market World Index was 0.37%. Developing markets were poor, with the MSCI Emerging Markets Index falling -8.70%. Islamic fixed-income markets were the best, with the FTSE Sukuk Index jumping 7.24%.

The Amana Fund equity portfolios performed exceptionally well compared to these domestic and foreign indices, which do not have operating expenses. Amana Growth Investor Shares gained 12.28%, Amana Income Investor Shares gained 5.35%, Amana Developing World Investor Shares lost -6.70%, and Amana Participation Investor Shares rose 4.70% for the 12 month period. As expected, lower expenses allowed the Institutional class shares of each Fund to post slightly better returns: Amana Growth 12.54%, Amana Income 5.63%, Amana Developing World -6.58%, and Amana Participation 4.93%. Almost 38% of Amana’s assets are now in Institutional shares.

The Amana Funds follow Islamic principles, which preclude most investments in banking and finance. We favor companies with good sustainability factors, low debt levels, and strong balance sheets.

Strong 2019 Following Mixed 2018

Markets swung with abandon during the year, as euphoria melting to caution brought volatility and doubt. Emerging markets, led by China, suffered as the dollar surged and trade battles commenced. Wars were mostly fought with money, not arms. Global prices for carbon fuels (coal, oil, gas) are weak, as US shale production surges and demand softens. Lower taxes and interest rates are stimulating high employment, especially in technology, while the global supply chain is being rattled by trade revamps. The future, as always, is murky.

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 long-term performance recognition that Amana has received is so important to our shareowners.

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% of Morningstar’s “Large Blend” category, out of 548 similar funds surviving for at least 15 years. Amana Growth Investor Shares ranked in the top 6% of the “Large Growth” category, out of 564 similar funds surviving for 15 years. Please refer to “Morningstar Ratings” on pages 6 and 7 for more details.

New Lower Fees

Saturna Capital has voluntarily lowered advisory fees for the Amana equity funds. The Trustees approved the advisory fee reduction beginning with the new fiscal year on June 1, 2019. The lower rates for the Income, Growth, and Developing World Funds are 0.80% on the first $1 billion of a fund’s average daily net assets, 0.70% on the next $1 billion, and 0.60% on assets over $2 billion. There is no change to the 0.50% advisory fee for the Participation Fund.

Saturna Capital also eliminated the transfer agent fee charged to the Amana funds. The lower fees should reduce expenses paid by Fund shareowners, improve long-term performance, and increase attractiveness to potential Amana Fund investors.

Amana Fund Assets Grow 8%

Amana Fund assets grew for the year, with the total up 8% at $3.37 billion. The newest fund is the Participation Fund, whose objectives are capital preservation and current income, consistent with Islamic principles. Participation Fund assets as of May 31, 2019, were $76 million, up 21% from May 31, 2018. The Fund may be especially appealing to investors seeking a balance to the other three Amana Funds, which invest only in equities.

Amana Income Fund – 33 Years of Solid Investing

On June 23, 1986, 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 May 31, 2019 – almost 33 years – the Fund’s Investor Shares provided an average annual return of 8.53% (after expenses). 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 capable 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 $25 million invested in the four mutual funds of the Trust.

Morningstar Awards Amana Highest Sustainability Ratings

The Morningstar Sustainability Rating^™ for funds gives investors across the globe a way to compare mutual fund portfolios based on 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. Both Amana Income and Amana Growth Funds received Morningstar’s highest “5 Globe” Sustainability Rating at May 31, 2019, and the Amana Developing World Fund received a “4 Globe” rating.

The Income Fund ranked in the third percentile of 1,197 funds in its category, and the Growth Fund ranked in the first percentile of 1,229 funds in its category. The Developing World Fund ranked in the 20th percentile of 711 funds in its category.

Morningstar also awards “Low Carbon” designations for funds which allow investors to identify low-carbon funds within the global universe (see page 7).

We believe the excellent ratings the Amana equity funds received provide strong evidence of the linkage between Islamic and sustainable investing. Investors are cautioned, however, that more than 150 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

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

^© 2019 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, 2019. 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:

The Funds’ portfolios are actively managed and are 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.

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

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

Morningstar carbon metrics are asset-weighted portfolio calculations based on their Sustainalytics subsidiary’s carbon-risk research. Based on two of these metrics – Carbon Risk Score and Fossil Fund Involvement % – funds may receive the Low Carbon designation, which allows investors to easily identify low-carbon funds within the global universe.

The portfolio Carbon Risk Score is a number between 0 and 100 (a lower score is better). A portfolio’s Carbon Risk Score is the asset-weighted sum of the carbon risk scores of its holdings, averaged over the trailing 12 months. The carbon risk of a company is Sustainalytics’ evaluation of the degree to which a firm’s activities and products are aligned with the transition to a low-carbon economy. The assessment includes carbon intensity, fossil fuel involvement, stranded assets exposure, mitigation strategies, and green product solutions.

Fossil Fuel Involvement % is the portfolio’s asset-weighted percentage exposure to fossil fuels, averaged over the trailing 12 months. Companies with fossil fuel involvement are defined as these in the following subindustries: Thermal Coal Extraction, Thermal Coal Power Generation, Oil & Gas Production, Oil & Gas Power Generation, and Oil and Gas Products and Services.

To receive the Low Carbon designation a fund must have Carbon Risk Score below 10 and a Fossil Fuel Involvement % of less than 7% of assets. For these metrics to be calculated, at least 67% of a portfolio’s assets must be covered by Sustainalytics company carbon-risk research. All Morningstar carbon metrics are calculated quarterly.

Amana Income Fund was rated on 95% and Amana Growth Fund was rated on 90% of assets under management.

Growth of $10,000

		Comparison of any mutual fund to a market index must be made bearing in mind that the index is unmanaged and expense-free. Conversely, the Fund will (1) be actively managed; (2) have an objective other than mirroring the index, such as limiting risk; (3) bear transaction and other operational costs; (4) stand ready to buy and sell its securities to shareowners on a daily basis; and (5) provide a wide range of services. The graph compares $10,000 invested in Investor Shares of the Fund on May 31, 2009, to an identical amount invested in the S&P 500 Index, a broad-based stock market index. The graph shows that an investment in Investor Shares of the Fund would have risen to $27,626 versus $36,894 in the Index. Investor Shares are used in this chart because they represent the larger share class in terms of assets and have a longer track record. Please note that investors cannot invest directly in the index.

Past performance does not guarantee future results. The “Growth of $10,000” graph and “Average Annual Returns” performance table assume the reinvestment of dividends and capital gains. They do not reflect the deduction of taxes that a shareowner might pay on fund distributions or the redemption of fund shares.

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.

Portfolio Diversification

% of Total Net Assets

Large Pharma

19.0%

∎

Household Products

7.8%

∎

Basic & Diversified Chemicals

6.6%

∎

Semiconductor Devices

6.3%

∎

Specialty Chemicals

5.6%

∎

Commercial & Residential Building Equipment & Systems

5.5%

∎

Packaged Food

5.4%

∎

Infrastructure Software

5.3%

∎

Rail Freight

3.7%

∎

Measurement Instruments

3.5%

∎

Non Wood Building Materials

3.4%

∎

Flow Control Equipment

3.3%

∎

Industrial Machinery

3.3%

∎

Automotive Retailers

3.0%

∎

Other Industries < 3.0

15.6%

∎

Other Assets (net of liabilities)

2.7%

∎

Fiscal Year 2019

For the fiscal year ended May 31, 2019, the Amana Income Fund Investor Shares returned 5.35%. Reflecting its lower expense structure, Amana Income Fund Institutional Shares returned 5.63% for the year. Both outperformed the broad S&P 500 Index, up 3.78%.

Amana Income Investor Shares paid qualified income dividends totaling 62¢ per share, and the Institutional Shares paid 75¢ per share in qualified income dividends. All owners received a capital gain distribution of $2.38 per share. Careful attention lowered the expense ratios to 1.10% for Investor Shares and 0.86% for Institutional Shares. Shareowner redemptions exceeded new investments, and total Fund assets fell 4.2% during fiscal 2019.

For the 15 years ended May 31, 2019, the Amana Income Investor Shares provided an average annual total return of 9.97%. And for the almost 33 years since the Fund’s inception on June 23, 1986, it has provided investors a average annual compounded return of 8.53%.

Factors Affecting Past Performance

The 1960s and the 1990s were decades of nearly uninterrupted economic growth and the 2010s have now staked their longevity claim. The last time the economy contracted for two consecutive quarters (the standard definition of a recession) was in the first two quarters of 2009, and current conditions are buoyant. Despite record-low unemployment rates, inflation remains subdued, while corporate profitability and consumer confidence are robust. Conditions over the past several years have contributed to a go-go mentality and income-oriented value stocks have been relatively lackluster performers.

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

Being underweight the Information Technology sector was the largest detractor to Fund returns during the year, followed by being overweight in Industrials. This value sector has been weak for several years and is currently coming under pressure due to trade uncertainty. Consumer Staples and Health Care provided positive returns. We had no positions in the Energy sector, which helped our performance as these issues were weak. Having no positions in Real Estate or Utilities was slightly detrimental to results. We maintained low levels of cash reserves, generally in the neighborhood of 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 following industries: Large Pharma, Household Products, Chemicals, Semiconductors, and Building Equipment.

We closed our positions in Nike, Garrett Motion, and JM Smucker.

Concerned about climate change, we are pleased to report that Morningstar designated Amana Income Fund as a “Low Carbon” fund (see page 7).

As values-based investors, we are pleased that Morningstar rated Amana Income Fund in the top 3% for sustainability out of 1,197 funds in its “Large Blend Funds” category for the period ended May 31, 2019 (see page 5).

Looking Forward

The Fund holds no positions in the Energy, Real Estate, or Utility sectors, and no bonds or interest-paying securities – all issues likely to decline in price from rising interest rates.

At this point, the greatest risk to continued economic buoyancy appears to be trade friction, a development that could spin out of control or be contained rather easily with greater flexibility. Economic policies can and do change frequently.

An extraordinary era of low interest rates fueled upward moves in economies and markets. The US economy is in a “goldilocks” phase, with employment for those who want it, and little need for more government stimulus.

We must be vigilant in the coming months for signs of a recession – we believe a riskier period looms ahead. Amana Income Fund selects its portfolio from financially strong, Islamically acceptable, income producing 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.

Continued on next page.