On September 1, 2006, the Amana Trustees approved continuation of the Funds’ investment advisory and administration contracts with Saturna Capital Corporation. In doing so, the Trustees considered a number of factors and made specific determinations relevant to that approval.In addition to information provided throughout the year, the Trustees utilized a comparison of services, performance and fees for six funds with roughly comparable objectives and sizes that the Trustees had previously selected as a relevant peer group, The Trustees found such information helpful in establishing expectations regarding Saturna’s performance and whether to continue the advisory contracts.
In their review, the Trustees noted that the Funds offer a full range of high-quality investor services, including unique services for Islamic investors. The Trustees reviewed enhancements in Saturna’s operations during the last year. An important factor in the consideration by the Trustees was Saturna’s experience, ability and continued commitment to perform internally shareowner servicing, administration, accounting, marketing and distribution to maintain quality servicing at a reasonable expense.
The Trustees also reviewed Morningstar and Lipper mutual fund ratings, and found that the performance of each of the Funds, both in absolute numbers and relative to peers, was exceptional. Lipper’s Leader Scorecard ranked Amana Growth in the top quintile (20%) of its Multi-Cap Core category on total return and tax efficiency, second quintile on consistent return, and the middle quintile on preservation. Lipper’s Scorecard ranked Amana Income in the top quintile (20%) of its Equity Income category on total return, consistent return, preservation and tax efficiency.
The Trustees also noted that the Funds’ primary objective – making investments appropriate for Islamic investors – has consistently been achieved by Saturna. They recognized that the requirements of Islamic investing affect Fund performance relative to major market indices, and that performance has been achieved despite such requirements. They understood this specialized focus – compliance with Islamic Sharia – increases Saturna’s research expenses and obligations. The Trustees expressed satisfaction with the positive publicity generated by Saturna’s efforts with Amana.
The Trustees also took into consideration Saturna’s continued avoidance of significant operational problems, its efforts to comply with increased investment company rules and regulations, and substantial investments in compliance, personnel, training and equipment to meet present, and anticipated, increased demands for service. In addition, they recognized Saturna’s efforts to improve compensation to attract and retain increasingly qualified, experienced, and specialized staff.
The Trustees reviewed the fees and expenses of the Funds. They found each Fund’s expense ratio to be comparable to those of other funds in its peer group and to be fair given the size of the Fund and the services provided and expenses incurred by the adviser. They also considered the fees charged by Saturna to other kinds of accounts and the different services provided to those accounts, as well as the ways in which Saturna’s service and work done for other accounts it manages benefits the Funds. The Trustees recognized that the Funds’ positive performance record had likely contributed to their growth in asset size, which resulted in fixed costs being spread over a larger asset base. Noting the decrease in Fund expense ratios, the Trustees saw no need for advisory fee changes or breakpoints. The Trustees noted that to the extent in the future it were determined that material economies of scale had not been shared with the Funds, the Trustees would seek to have those economies of scale shared with the Funds.
The Trustees reviewed Saturna’s profitability with respect to the Funds as part of their evaluation of whether the fees under the advisory contract bear a reasonable relationship to the mix of services provided by Saturna, including the nature, extent and quality of such services. The Trustees also considered potential benefits to Saturna from acting as investment adviser and noted that there were no soft dollar arrangements with respect to trading in the Funds’ portfolios, and that Saturna continues to voluntarily waive brokerage commissions for Fund portfolio trades, resulting in lower Fund expenses. The Trustees concluded that the fees paid by the Funds to Saturna were reasonable in light of the services provided, comparative performance, expense and advisory fee information, costs of services provided and profits to be realized and benefits derived or to be derived by Saturna from its relationship with the Funds.
