SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED
MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number: 811-05071 or 33-13247
SATURNA INVESTMENT 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: November 30, 2003
Date of reporting period: November 30, 2003
REPORT TO STOCKHOLDERS
Sextant Mutual Funds | (graphic omitted) |
Fellow Shareowners:
Everybody wins! Bonds and stocks both did well in 2003. After three consecutive years of losses, stock markets bounced back nicely in calendar 2003. Fearing that interest rates will not remain so low, the bond markets marked time and their big gain years ended.
Buoyed by consumer spending, low interest rates, tax cuts, defense and aid spending, and a weakening dollar, corporate earnings of companies in the S&P 500 Index set a new record. Their 2003 combined earnings are estimated at $474 billion, up from $179 billion in 2002. Millions of job cuts kept costs low as consumers bought cars, houses and electronics. A surging stock market helped financial-services earnings, while exporters basked in new volume. Rapid economic growth is expected to continue well into 2004, and new jobs are finally appearing.
The no-load Sextant Funds are designed to address a broad spectrum of investment needs. In the up markets of 2003, returns increased with higher risks, just as would be expected. All stress low operating expenses and employ a "fulcrum" advisory fee structure that rewards or penalizes Saturna Capital for investment results. For the fiscal year ended November 30, 2003, comparative total returns and percentile Morningstar category rankings (1 is best) are:
Sextant Fund | Total Return | vs. Morningstar | Total Return | 12-mo. Rank (group size)* |
Short-Term Bond | 5.00% | Short-Term Bonds | 2.93% | 8 (276) |
Bond Income | 6.52% | Long-Term Bonds | 9.58% | 62 (73) |
Growth | 21.31% | Mid-Cap Growth | 32.65% | 79 (768) |
International | 33.23% | Foreign Large Growth | 24.22% | 3 (210) |
Further information on each Fund is found in the following sections of this report. Our portfolio managers welcome your comments and suggestions. The entire staff works to minimize operating expenses, which are well below industry standards. In the footnotes, you will notice another unusual feature of the Sextant funds: on average, almost 24% of each Sextant Fund is owned by the trustees, officers, and their immediate families. We invite you to invest your money with ours.
Nicholas Kaiser, President | Phelps McIlvaine, Vice President |
(Manager, Sextant Growth; Sextant International) | (Manager, Sextant Bond Income; Sextant Short-Term Bond) |
*The 12-month Rank shows how each Fund ranks (from 1 best to 100 worst) in its Morningstar peer category for the year ended November 30, 2003 - please see next page for more performance information, or see back of brochure for Morningstar disclosure.
January 2, 2004
November 30, 2003 Annual Report | 1 |
Additional Performance Information
Average Annual Total Returns (as of 12/31/2003) | 1 year | 5 years | 10 years OR | Since inception on 9/28/1995 |
Sextant Growth Fund | 26.16% | 6.36% | 9.42%^ | |
Sextant International Fund | 49.54% | 5.20% | 7.95% | |
Sextant Short-Term Bond Fund | 3.51% | 5.55% | 5.60% | |
Sextant Bond Income Fund | 3.80% | 6.28% | 6.14% |
Performance data quoted in this report represents past performance, is before any taxes payable by shareowners, and is no guarantee of future performance. Mutual fund performance changes over time and currently may be significantly lower than stated. Recent performance and Morningstar rating data is published online at each month’s end. Please visit saturna.com or call Saturna Capital for current performance figures. Total returns are historical and include change in share value and reinvestment of dividends and capital gains, if any. Share price, yield and return will vary and you may have a gain or loss when you sell your shares. Funds that invest in foreign securities may involve greater risk, including political and economic uncertainties of foreign countries as well as the risk of currency fluctuations. Morningstar, Inc. is an independent fund performance monitor. Rankings are determined monthly from total returns by Morningstar, by category as determined by Morningstar. The overall Morningstar rating for a fund is derived from a weighted average of the performance figures associated with its 3-, 5-, and 10-year (if applicable) Morningstar Rating. The average total return for a category is determined by Saturna Capital, utilizing the Morningstar database. Results are shown for twelve months because the Sextant Funds’ performance fees are based on the same period. |
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
/s/ TAIT, WELLER & BAKER
|
2 | November 30, 2003 Annual Report |
(graphic omitted)SEXTANT SHORT-TERM BOND FUND | INVESTMENTS |
As of November 30, 2003 | ||||
Rating* | Issuer | Coupon/Maturity | Face Amount | Market Value |
Banking (11.5%) | ||||
A+ | Australia & New Zealand Bank | 6.25% due 2/1/2004 | $85,000 | $85,306 |
A | Bankers Trust (DB) sub notes | 8.25% due 5/1/2005 | 85,000 | 91,160 |
A+ | JP Morgan | 7.625% due 9/15/2004 | 80,000 | 83,093 |
SUB-TOTAL | 250,000 | 259,559 | ||
Building Products (3.4%) | ||||
A- | Lowe's Companies | 7.50% due 12/15/2005 | 70,000 | 76,832 |
Computer (3.3%) | ||||
AA- | Hewlett Packard | 7.15% due 6/15/2005 | 70,000 | 74,364 |
Finance & Insurance (20.3%) | ||||
A | Allliance Capital Management | 5.625% due 8/15/2006 | 65,000 | 69,245 |
A+ | International Finance AIG | 5.75% due 10/15/2006 | 95,000 | 101,257 |
A- | Lincoln National Insurance | 7.25% due 5/15/2005 | 100,000 | 106,915 |
BBB+ | Sears Roebuck Acc. | 3.30% due 6/15/2006 | 100,000 | 99,276 |
A- | Washington Mutual Financial | 8.25% due 6/15/2005 | 75,000 | 81,197 |
SUB-TOTAL | 435,000 | 457,890 | ||
Machinery (12.5%) | ||||
A | Deere | 6.55% due 7/15/2004 | 90,000 | 92,265 |
A | Eaton | 6.95% due 11/15/2004 | 85,000 | 88,692 |
A- | Rockwell Automation International | 6.15% due 1/15/2008 | 95,000 | 102,533 |
SUB-TOTAL | 270,000 | 283,490 | ||
Medical Drugs (15.7%) | ||||
AAA | Bristol Myers Squibb | 4.75% due 10/1/2006 | 90,000 | 92,666 |
A | Cardinal Health | 6.50% due 2/15/2004 | 75,000 | 75,434 |
AAA | Pfizer | 5.625% due 2/1/2006 | 100,000 | 106,209 |
A- | Wyeth | 7.90% due 2/15/2005 | 75,000 | 79,745 |
SUB-TOTAL | 340,000 | 354,054 | ||
Oil & Gas (4.8%) | ||||
BBB+ | Union Oil of California | 7.20% due 5/15/2005 | 100,000 | 108,018 |
Publishing (2.1%) | ||||
A- | Tribune | 6.875% due 11/1/2006 | 45,000 | 48,515 |
Utilities (17.3%) | ||||
AA- | Florida Power & Light | 6.875% due 12/1/2005 | 95,000 | 102,952 |
A- | Sempra Energy | 6.95% due 12/1/2005 | 92,000 | 97,993 |
AA- | Southwestern Bell Telephone | 6.625% due 7/15/2007 | 95,000 | 104,356 |
A- | Verizon Wireless | 5.375% due 12/15/2006 | 82,000 | 86,582 |
SUB-TOTAL | 364,000 | 391,883 | ||
Total Investments (90.9%) | (Cost = $1,991,873) | $1,944,000 | $2,054,605 | |
Other Assets (net of liabilities) (9.1%) | 204,692 | |||
Total Net Assets (100%) | $2,259,297 | |||
*Ratings are the lesser of S&P or Moody's (unaudited) |
November 30, 2003 Annual Report | 3 |
(Graphic Omitted) FINANCIAL HIGHLIGHTS | SEXTANT SHORT-TERM BOND FUND |
Selected data per share of capital stock outstanding throughout the year | For Year ended November 30, | |||||
2003 | 2002 | 2001 | 2000 | 1999 | ||
Net asset value at beginning of year | $5.07 | $5.10 | $4.95 | $4.92 | $5.04 | |
Income from investment operations | ||||||
Net investment income | 0.23 | 0.27 | 0.26 | 0.27 | 0.26 | |
Net gains or losses on securities (both realized and unrealized) | 0.02 | (0.02) | 0.14 | 0.03 | (0.12) | |
Total from investment operations | 0.25 | 0.25 | 0.40 | 0.30 | 0.14 | |
Less distributions | ||||||
Dividends (from net investment income) | (0.23) | (0.28) | (0.25) | (0.27) | (0.26) | |
Distributions (from capital gains) | - | - | - | - | - | |
Total distributions | (0.23) | (0.28) | (0.25) | (0.27) | (0.26) | |
Net asset value at end of year | $5.09 | $5.07 | $5.10 | $4.95 | $4.92 | |
Total Return | 5.00% | 4.90% | 8.37% | 6.20% | 2.88% | |
Ratios / Supplemental Data | ||||||
Net assets ($000), end of year | $2,259 | $2,177 | $2,189 | $2,555 | $1,795 | |
Ratio of expenses to average net assets* | 0.60% | 0.93% | 0.51% | 0.61% | 0.47% | |
Ratio of net investment income to average net assets | 4.47% | 5.23% | 5.45% | 5.45% | 5.22% | |
Portfolio turnover rate | 22% | 28% | 28% | 12% | 21% |
*For each of the above years, all or a portion of the operating expenses were waived. If costs had not been waived, the resulting increase to the ratio of expenses to average monthly net assets would be .57, .21%, .43%, .41%, and .57%, respectively. |
STATEMENT OF ASSETS AND LIABILITIES |
As of November 30, 2003
Assets | |||
Bond investments (Cost $1,991,873) | $2,054,605 | ||
Cash | 170,017 | ||
Interest Receivable | 35,579 | ||
Total Assets | $2,260,201 | ||
Liabilities | |||
Other Liabilities | 904 | ||
Total Liabilities | 904 | ||
Net Assets | $2,259,297 | ||
Fund shares outstanding | 443,627 | ||
Analysis of Net Assets | |||
Paid in Capital (unlimited shares authorized, without par value) | 2,226,088 | ||
Accumlated net realized loss | (29,523) | ||
Unrealized net appreciation on investments | 62,732 | ||
Net Assets applicable to Fund shares outstanding | $2,259,297 | ||
Net Asset Value, Offering and Redemption price per share | $5.09 |
(The accompanying notes are an integral part of these financial statements)
4 | November 30, 2003 Annual Report |
SEXTANT SHORT-TERM BOND FUND | STATEMENT OF OPERATIONS (Graphic Omitted) |
For the year ended November 30, 2003 | |||
Investment Income | |||
Interest income | $131,034 | ||
Amortization of bond premium | (19,444 | ||
Accretion | 3,980 | ||
Gross investment income | $115,570 | ||
Expenses | |||
Investment adviser and administration fees | 15,979 | ||
Professional fees | 3,712 | ||
Filing and registration fees | 2,790 | ||
Custodian fees | 1,983 | ||
Insurance | 1,149 | ||
Other expenses | 613 | ||
Printing and postage | 558 | ||
Total gross expenses | 26,784 | ||
Less adviser fees waived | (11,092) | ||
Less custodian fees waived | (1,983) | ||
Net expenses | 13,709 | ||
Net investment income | 101,861 | ||
Net realized gain on investments | |||
Proceeds from sales | 464,965 | ||
Less: cost of securities sold based on identified cost | 458,769 | ||
Realized net gain | 6,196 | ||
Unrealized gain on investments | |||
End of year | 62,732 | ||
Beginning of year | 63,527 | ||
Decrease in unrealized gain for the year | (795) | ||
Net realized and unrealized gain | 5,401 | ||
Net increase in net assets resulting from operations | $107,262 |
(The accompanying notes are an integral part of these financial statements)
November 30, 2003 Annual Report | 5 |
(Graphic Omitted) STATEMENT OF CHANGES IN NET ASSETS | SEXTANT SHORT-TERM BOND FUND |
Year ended | Year ended | |
Nov. 30, 2003 | Nov. 30, 2002 | |
INCREASE (DECREASE) IN NET ASSETS | ||
From Operations | ||
Net investment income | $101,861 | $115,149 |
Net realized gain on investments | 6,196 | 1,414 |
Net decrease in unrealized appreciation | (795) | (12,326) |
Net increase in net assets | 107,262 | 104,237 |
Dividends to shareowners from | ||
Net investment income | (101,962) | (118,239) |
Fund Share transactions | ||
Proceeds from sales of shares | 551,793 | 439,793 |
Value of shares issued in reinvestment of dividends | 100,884 | 117,683 |
652,677 | 557,476 | |
Cost of shares redeemed | (575,737) | (555,278) |
Net increase in net assets | 76,940 | 2,198 |
Total increase (decrease) in net assets | $82,240 | $(11,804) |
NET ASSETS | ||
Beginning of year | 2,177,057 | 2,188,861 |
End of year | $2,259,297 | $2,177,057 |
Shares of the fund sold and redeemed | ||
Number of shares sold | 107,305 | 86,066 |
Number of shares issued in reinvestment of dividends | 19,603 | 23,087 |
126,908 | 109,153 | |
Number of shares redeemed | (112,516) | (109,001) |
Net increase in number of shares outstanding | 14,392 | 152 |
(The accompanying notes are an integral part of these financial statements)
DISCUSSION OF SEXTANT SHORT-TERM BOND FUND PERFORMANCE |
(unaudited) |
FISCAL YEAR 2003
6 | November 30, 2003 Annual Report |
FACTORS AFFECTING PERFOMANCE
Over the last twelve months, the Federal Reserve maintained very low interest rates to boost the economy. Long US Treasury rates stayed below five percent, unleashing more mortgage refinancing and home buying. Credit spreads narrowed considerably in 2003 as economic growth reemerged. 2002’s general fear of corporate accounting problems disappeared, and investor confidence was restored. The Fund’s portfolio of higher-coupon short-maturity corporate bonds helped total return. The Fund’s average maturity continued at just over 2.0 years, with an average S&P quality rating of A.
LOOKING FORWARD
We expect the US economy to grow 4% to 6% in 2004, and corporate profits to increase 15% to 20%. Focused on national elections in November, governments will be stimulative. Low mortgage rates and low prices have supported consumer spending, however we look for manufacturing and capital spending to be the engine of growth in 2004. The collapse of the US dollar threatens future inflation, and we expect the Federal Reserve to slowly push short-term interest rates up. Despite assurances to the contrary, we expect monetary policy will become tighter. The Fund will continue to overweight high grade corporate notes, which should provide another year of positive real returns.
MANAGEMENT FEE CALCULATIONS
The Sextant Short-Term Bond Fund calculates part of its management fee based on a comparison of the Fund’s return to the average return of the Morningstar category Short-Term Bond. The Fund’s 12-month return (5.00%) bettered by more than two percent that of the Morningstar average (2.93%) on November 30, 2003. Therefore, a performance bonus adjustment of 0.20% was added to the basic 0.60% annual management fee for the month of December 2003. The Fund’s total expense ratio decreased to 0.60%, reflecting the adviser’s voluntary expense cap.
COMPARISON TO INDEX
Comparison of any mutual fund to a market index must be made bearing in mind that the Index is unmanaged, and expense-free. The graph below compares $10,000 invested in the Fund at its inception in September 1995, compared to a similar amount invested in the Salomon Brothers Gov/Corp Investment Grade Bond Index for maturities between one and three years. The graph shows that a $10,000 investment made on September 1995 would have risen to $15,592 in the Fund and $16,232 in the Index. The returns shown do not reflect the deduction of income taxes that an investor could pay on income received or the sale of profitable investments.
Sextant Short-Term Bond Fund vs. Salomon Gov/Corp 1-3 yr. (unaudited)
(graph omitted)
November 30, 2003 Annual Report | 7 |
INVESTMENTS | SEXTANT BOND INCOME FUND (Graphic Omitted) |
As of November 30, 2003 | ||||
Rating* | Issuer | Coupon/Maturity | Face Amount | Market Value |
Banking (9.9%) | ||||
A+ | Chase Manhattan | 7.125% due 6/15/2009 | $50,000 | $56,240 |
A+ | Citicorp | 7.25% due 10/15/2011 | 50,000 | 57,501 |
A- | Comerica Bank | 7.125% due 12/1/2013 | 50,000 | 54,942 |
A+ | Norwest Financial | 6.85% due 7/15/2009 | 50,000 | 56,732 |
SUB-TOTAL | 200,000 | 225,415 | ||
Building Products (3%) | ||||
BBB+ | Masco Corporation | 7.125% due 8/15/2013 | 60,000 | 68,938 |
Chemicals (2.4%) | ||||
A | Air Products & Chemicals | 8.75% due 4/15/2021 | 50,000 | 55,566 |
Diversified Financial Services (3.2%) | ||||
AAA | General Electric Capital | 8.125% due 5/15/2012 | 60,000 | 72,332 |
Electric Utilities (2.5%) | ||||
A- | Commonwealth Edison | 7.50% due 7/1/2013 | 50,000 | 58,072 |
Electronics (5.1%) | ||||
A- | Koninlijke Phillips Electronics | 7.25% due 8/15/2013 | 50,000 | 56,797 |
A- | Sempra Energy | 7.95% due 8/15/2010 | 50,000 | 58,163 |
SUB-TOTAL | 100,000 | 114,960 | ||
Food (8.7%) | ||||
BBB+ | Conagra | 7.875% due 9/15/2010 | 50,000 | 59,112 |
A+ | Hershy Foods | 6.95% due 8/15/2012 | 50,000 | 57,056 |
A- | HJ Heinz | 6.00 % due 3/15/2012 | 75,000 | 80,812 |
SUB-TOTAL | 175,000 | 196,980 | ||
Insurance (10.7%) | ||||
A+ | Allstate | 7.50% due 6/15/2013 | 50,000 | 59,025 |
A | Progressive | 7.00% due 10/1/2013 | 75,000 | 85,534 |
A+ | XL Capital | 6.50% due 1/15/2012 | 90,000 | 98,623 |
SUB-TOTAL | 215,000 | 243,182 | ||
Investment Finance (5%) | ||||
AA- | Morgan Stanley Dean Witter | 6.75% due 10/15/2013 | 50,000 | 54,147 |
AA+ | Paine Webber Group | 7.625% due 2/15/2014 | 50,000 | 58,472 |
SUB-TOTAL | 100,000 | 112,619 |
8 | November 30, 2003 Annual Report |
INVESTMENTS | SEXTANT BOND INCOME FUND (Graphic Omitted) |
Rating* | Issuer | Coupon/Maturity | Face Amount | Market Value |
Machinery (5.7%) | ||||
A+ | Caterpillar | 9.375% due 8/15/2011 | $40,000 | $51,701 |
A+ | Dover | 6.25% due 6/1/2008 | 70,000 | 76,901 |
SUB-TOTAL | 110,000 | 128,602 | ||
Medical Supplies (2%) | ||||
A+ | Becton Dickinson | 7.15% due 10/1/2009 | 40,000 | 45,341 |
Oil & Gas (5.5%) | ||||
A | Baker Hughes | 6.00% due 2/15/2009 | 70,000 | 76,736 |
A+ | Texaco Capital | 8.625% due 6/30/2010 | 40,000 | 48,424 |
SUB-TOTAL | 110,000 | 125,160 | ||
Retailing (10.3%) | ||||
A | Dayton Hudson (Target Stores) | 10.00% due 1/1/2011 | 50,000 | 63,691 |
A | Lowe's Companies | 8.25% due 6/1/2010 | 50,000 | 60,567 |
A | May Department Stores | 8.00% due 7/15/2012 | 50,000 | 57,068 |
AA | Wal-Mart Stores | 7.25% due 6/1/2013 | 45,000 | 52,723 |
SUB-TOTAL | 195,000 | 234,049 | ||
Telecommunications (2.4%) | ||||
A+ | GTE | 6.90% due 11/1/2008 | 50,000 | 55,740 |
Transportation (6.1%) | ||||
A | Southwest Airlines | 6.50% due 3/1/2012 | 75,000 | 80,753 |
A- | US Freightways | 8.50% due 4/25/2010 | 50,000 | 57,850 |
SUB-TOTAL | 125,000 | 138,603 | ||
US Government (10.9%) | ||||
AAA | US Treasury Bond | 5.50% due 2/15/2008 | 225,000 | 246,867 |
Total Investments (93.4%) | (Cost = $1,953,310) | $1,865,000 | $2,122,426 | |
Other Assets (net of liabilities) (6.6%) | 149,697 | |||
Total Net Assets (100%) | $2,272,123 | |||
*Ratings are the lesser of S&P or Moody's (unaudited) |
November 30, 2003 Annual Report | 9 |
FINANCIAL HIGHLIGHTS | SEXTANT BOND INCOME FUND (graphic omitted) |
Selected data per share of capital stock outstanding throughoutthe year | For Year Ended November 30, | |||||
2003 | 2002 | 2001 | 2000 | 1999 | ||
Net asset value at beginning of year | $4.97 | $4.81 | $4.56 | $4.59 | $5.00 | |
Income from investment operations | ||||||
Net investment income | 0.22 | 0.26 | 0.30 | 0.29 | 0.30 | |
Net gains or losses on securities (both realized and unrealized) | 0.10 | 0.16 | 0.25 | (0.03) | (0.41) | |
Total from investment operations | 0.32 | 0.42 | 0.55 | 0.26 | (0.11) | |
Less distributions | ||||||
Dividends (from net investment income) | (0.22) | (0.26) | (0.30) | (0.29) | (0.30) | |
Distributions (from capital gains) | - | - | - | - | - | |
Total distributions | (0.22) | (0.26) | (0.30) | (0.29) | (0.30) | |
Net asset value at end of year | $5.07 | $4.97 | $4.81 | $4.56 | $4.59 | |
Total return | 6.52% | 9.02% | 12.40% | 6.05% | (2.20)% | |
Ratios/supplemental data | ||||||
Net assets ($000), end of year | $2,272 | $2,105 | $1,965 | $1,505 | $885 | |
Ratio of expenses to average net assets* | 0.97% | 0.72% | 0.34% | 0.35% | 0.39% | |
Ratio of net investment income to average net assets | 4.29% | 5.40% | 6.71% | 6.58% | 6.31% | |
Portfolio turnover rate | 0% | 29% | 30% | 0% | 20% |
*For each of the above years, all or a portion of the operating expenses were waived. If these costs had not been waived, the resulting increases to the ratio of expenses to average monthly net assets would be .18%, .34%, .72%, .64%, and .66%, respectively. |
STATEMENT OF ASSETS AND LIABILITIES |
As of November 30, 2003 | |||
Assets | |||
Bond investments (cost $1,953,310) | $2,122,426 | ||
Cash | 111,036 | ||
Interest receivable | 37,917 | ||
Insurance reserve premium | 1,221 | ||
Total Assets | $2,272,600 | ||
Liabilities | |||
Other Liabilities | 477 | ||
Total Liabilities | 477 | ||
Net Assets | $2,272,123 | ||
Fund Shares Outstanding | 448,182 | ||
Analysis of Net Assets | |||
Paid in capital (unlimited shares authorized, without par value) | 2,136,847 | ||
Accumlated net realized loss | (96,696) | ||
Unrealized net appreciation on investments | 169,117 | ||
Net Assets applicable to Fund shares outstanding | $2,272,123 | ||
Net Asset Value, Offering and Redemption price per share | $5.07 |
(The accompanying notes are an integral part of these financial statements)
10 | November 30, 2003 Annual Report |
(graphic omitted) SEXTANT BOND INCOME FUND | STATEMENT OF OPERATIONS |
For the year ended November 30, 2003 | |||
Investment income | |||
Interest income | $129,810 | ||
Amortization of bond premium | (11,092) | ||
Miscellaneous income | 171 | ||
Accretion | 112 | ||
Gross investment income | $119,001 | ||
Expenses | |||
Investment adviser and administration fees | 15,620 | ||
Professional fees | 3,949 | ||
Filing and registration fees | 3,550 | ||
Insurance | 1,151 | ||
Printing and postage | 650 | ||
Custodian fees | 641 | ||
Other expenses | 588 | ||
Total gross expenses | 26,149 | ||
Less adviser fees waived | (3,530) | ||
Less custodian fees waived | (641) | ||
Net expenses | 21,978 | ||
Net investment income | 97,023 | ||
Net realized gain on investments | |||
Proceeds from sales | - | ||
Less cost of securities sold (based on identified cost) | - | ||
Realized net gain | - | ||
Unrealized gain on investments | |||
End of year | 169,117 | ||
Beginning of year | 123,383 | ||
Increase in unrealized gain for the period | 45,734 | ||
Net realized and unrealized gain | 45,734 | ||
Net increase in net assets resulting from operations | $142,757 |
STATEMENT OF CHANGES IN NET ASSETS |
|
Year ended | Year ended | |
Nov. 30, 2002 | Nov. 30, 2002 | |
INCREASE IN NET ASSETS | ||
From Operations | ||
Net investment income | $97,023 | $106,916 |
Net realized loss on investments | - | (14,253) |
Net increase in unealized appreciation | 45,734 | 74,471 |
Net increase in net assets | 142,757 | 167,134 |
Dividends to shareowners from | ||
Net investment income | (97,200) | (107,024) |
From tund share transactions | ||
Proceeds from sales of shares | 187,626 | 365,971 |
Value of shares issued in reinvestment of dividends | 91,934 | 103,671 |
279,560 | 469,642 | |
Cost of shares redeemed | (158,167) | (389,165) |
Net increase in net assets | 121,393 | 80,477 |
Total increase in net assets | $166,950 | $140,587 |
NET ASSETS | ||
Beginning of year | 2,105,173 | 1,964,586 |
End of year | $2,272,123 | $2,105,173 |
Shares of the fund sold and redeemed | ||
Number of shares sold | 36,687 | 75,292 |
Number of shares issued in reinvestment of dividends | 17,851 | 21,389 |
54,538 | 96,681 | |
Number of shares redeemed | (30,137) | (80,967) |
Net increase in number of shares outstanding | 24,401 | 15,714 |
(The accompanying notes are an integral part of these financial statements)
November 30, 2003 Annual Report | 11 |
DISCUSSION OF SEXTANT BOND INCOME FUND PERFORMANCE |
|
FISCAL YEAR 2003
For the fiscal year ending November 30, 2003, the Sextant Bond Income Fund returned 6.52%. At the end of the fiscal year, the Fund ranked in the top 62% of the 73 funds in the Morningstar “Long-term Bond” category and held Morningstar’s medium “3-star” rating (judged against 58 long-term bond funds). At the end of five years, the Fund had provided a 6.27% annualized total return and ranked in the top 33% of 47 funds in its Morningstar category. The Fund’s most recent thirty-day SEC current yield is 4.01%, less than the 4.60% at the end of last year. This reflects lower market rates and a shorter average maturity. The Fund reduced its average portfolio maturity substantially during the year to 7.4 years, and maintained its average S&P credit quality rating of A.
FACTORS AFFECTING PAST PERFORMANCE
Under normal circumstances, the Fund’s policy is to maintain a dollar-weighted average maturity of ten years or more. However, with interest rate levels lower than they have been in over 40 years, the price risk of holding very long-term bonds is excessive in light of the Fund’s capital preservation goal. While inflation is not yet evident, the Fund’s average effective maturity is conservatively being kept to less than 8 years. While we were early in reducing the average maturity, the Fund is now well-protected should the expected rise in interest rates materialize.
The intransigent US economy kept Federal Reserve monetary policy in an accommodative posture all year. Investment grade credits generally outperformed US Treasuries with similar maturities. The Fund’s portfolio remains overwieght in investment grade corporate bonds. This position boosts total return over government issues. The resurgence of the eocnomy and the improvement in stock prices recently has exerted upward pressure on interest rates and downward pressure on bond prices.
LOOKING FORWARD
For 2004, we expect 10-year US Treasury rates will rise slowly from 4.2% to around 5.0%. The real rate of return (after inflation adjustment) has already increased from around 1.4% at the end of 2002 to 3.0%. We expect the US economy to grow 4-6% in 2004 and corporate profits to increase 15 to 20%. Low mortgage rates and low prices supported consumer spending and the economy in 2003. However, we look for manufacturing and capital spending to be the engine of growth in 2004. We expect the Federal Reserve Bank to push short-term interest rates up slowly in the second half of the year and investment grade spreads to narrow. The Fund will continue to overweight high grade corporate notes over other instruments.
Commodity prices are rising, but inflation remains absent. The economic recovery, now well underway, has yet to cause higher interest rates. This still leaves investors with an extended period of time that is favorable for investing in investment grade corporate notes and bonds. As ten-year rates climb over 5.25%, the Fund is prepared to reinvest at these higher yields and extend the portfolio maturity. Investment grade spreads are narrow, but we do not expect this sector to underperform government issues during the coming year.
12 | November 30, 2003 Annual Report |
MANAGEMENT FEE CALCULATIONS
The Sextant Bond Income Fund calculates its management fee based on a comparison of the Fund’s return to the return of Morningstar’s “Long-term Bond” category. This category consists of mutual fund portfolios that “focus on corporate and other investment grade issues with an average duration of more than six years or an effective average maturity of more than ten years.” The Fund’s +6.52% 12-month return was below that of the index (+9.58%) on November 30, 2003. Therefore, the basic 0.60% management fee was decreased by the maximum amount of 0.20%, to 0.40%, for the month of December 2003 because the Fund underperformed its benchmark index by more than 2%. The Fund’s total expense ratio increased to 0.97%, reflecting performance bonsuses earned earlier in the year.
COMPARISON TO INDEX
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 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 below compares $10,000 invested in the Fund at its inception, compared to a similar amount invested in The Salomon Brothers Broad Investment-Grade Bond Index. The graph shows that the investment at the beginning of November 1993 would have risen to $18,149 in the Fund and $19,508 in the Index. The September 1995 changes in this Fund’s investment policy limit the usefulness of this comparison. The returns shown do not reflect the deduction of income taxes that an investor could pay on income received or the sale of profitable investments.
Sextant Bond Income Fund vs. Salomon Broad Investment Grade Bond Index (unaudited)
(graph omitted)
November 30, 2003 Annual Report | 13 |
INVESTMENTS | SEXTANT GROWTH FUND (graphic omitted) |
As of November 30, 2002 | |||
Issue | Number of Shares | Cost | Market Value |
Common Stocks (85.7%) | |||
Banking (10.2%) | |||
Convergys* | 2,500 | $51,926 | $38,350 |
Frontier Financial | 4,000 | 90,207 | 137,120 |
Washington Mutual | 6,750 | 44,124 | 309,127 |
SUB-TOTAL | 186,257 | 484,687 | |
Communications (1.3%) | |||
Sprint (FON Group) | 4,000 | 48,152 | 59,960 |
Computers (16.3%) | |||
3 Com* | 10,000 | 51,891 | 74,800 |
Adobe Systems | 4,800 | 50,490 | 198,288 |
Apple Computer* | 7,000 | 132,046 | 146,370 |
Earthlink* | 8,000 | 62,448 | 76,320 |
Intuit* | 3,000 | 131,758 | 150,840 |
Oracle* | 8,000 | 28,059 | 96,160 |
Phoenix Technologies Ltd.* | 3,062 | 29,149 | 26,701 |
SUB-TOTAL | 485,841 | 769,479 | |
Construction (7.3%) | |||
Lowe's Companies | 4,000 | 135,141 | 233,200 |
Weyerhaeuser | 2,000 | 93,867 | 114,000 |
SUB-TOTAL | 229,008 | 347,200 | |
Electronics (6.2%) | |||
Advanced Micro Devices* | 10,000 | 41,708 | 179,800 |
Agilent Technologies* | 4,000 | 108,894 | 113,120 |
SUB-TOTAL | 150,602 | 292,920 | |
Food (2.5%) | |||
Performance Food Group* | 3,000 | 96,917 | 117,930 |
Hotels & Motels (1.6%) | |||
Westcoast Hospitality* | 15,000 | 111,771 | 73,500 |
Investments (5%) | |||
Schwab (Charles) | 20,415 | 9,117 | 236,814 |
Machinery (.9%) | |||
Regal-Beloit | 2,000 | 52,106 | 41,300 |
Medical (20.9%) | |||
Affymetrix* | 2,000 | 26,863 | 49,340 |
Amgen* | 2,640 | 34,598 | 152,117 |
Barr Laboratories* | 3,000 | 159,489 | 247,620 |
Bristol-Myers Squibb | 3,000 | 79,121 | 79,050 |
Caremark Rx* | 3,000 | 60,125 | 80,100 |
Ligand Pharmaceuticals* | 5,000 | 56,429 | 66,300 |
Lilly (Eli) | 800 | 77,567 | 54,848 |
Pharmaceutical Product Development* | 9,000 | 80,608 | 266,490 |
SUB-TOTAL | 574,800 | 995,865 | |
Metal Ores (1.8%) | |||
Phelps Dodge* | 1,330 | 76,218 | 84,694 |
Oil &Gas (1.5%) | |||
Noble* | 2,000 | 14,212 | 69,160 |
Publishing (1.3%) | |||
Wiley (John) & Sons, Class A | 2,400 | 47,112 | 62,400 |
14 | November 30, 2003 Annual Report |
INVESTMENTS | SEXTANT GROWTH FUND (graphic omitted) |
Issue | Number of Shares | Cost | Market Value |
Retail (2.7%) | |||
Bed Bath & Beyond | 3,000 | $100,052 | $126,720 |
Transportation (2.3%) | |||
Southwest Airlines | 6,000 | 90,163 | 107,880 |
Utilities (3.9%) | |||
FL Group | 1,500 | 87,711 | 95,325 |
Idacorp | 3,000 | 78,287 | 88,200 |
SUB-TOTAL | 165,998 | 183,525 | |
Total Investments (85.7%) | $2,438,326 | $4,054,034 | |
Other Assets (net of liabilities) (14.3%) | 678,042 | ||
Total Net Assets (100%) | $4,732,076 | ||
*Non-income producing |
Trustees and Officers (unaudited) | ||||
Name and (age) | Position(s) held with Trust and Length of Time Served | Principal Occupation(s) during past 5 Years | Number of Portfolios in Fund Complex overseen by Trustee | Other Directorships Held by Trustee |
INDEPENDENT TRUSTEES | ||||
A. Herbet Ershig (65) 22 Shorewood Drive Bellingham, WA 98225 | Independent Trustee since 1997 | President (now retired), Ershigs, Inc. (industrial fabrication) | Five | None |
Gary A. Goldfogel (45) 1500 N. State Street Bellingham, WA 98226 | Independent Trustee since 1995 | Medical Examiner (pathologist) Owner, Avocet Environmental Testing (laboratory) | Five | None |
John E. Love (71) 1002 Spokane Street Garfield, WA 99130 | Independent Trustee since 1987 | Owner, J.E. Love Co., (agricultural equipment manufacturer) | Five | None |
John S. Moore (72) 346 Bayside Road Bellingham, WA 98225 | Independent Trustee since 1993 | Professor (now retired), College of Business and Economics, Western Washington University | Five | None |
INTERESTED TRUSTEES | ||||
Nicholas F. Kaiser, CFA (57) 1300 N. State Street Bellingham, WA 98225 | President and Trustee since 1989 | President, Saturna Capital Corporation President, Saturna Brokerage Services | Seven | Amana Mutual Funds Trust |
OFFICERS WHO ARE NOT TRUSTEES | ||||
Phelps S. McIlvaine (50) 1300 N. State Streeet Bellingham, WA 98225 | Vice President since 1994 | Vice President, Saturna Capital Corporation Treasurer, Saturna Brokerage Services | N/A | N/A |
Chrisopher R. Fankhauser (31) 1300 N. State Street Bellingham, WA 98225 | Treasurer since 2002 | Manager of Operations, Saturna Capital Corporation | N/A | N/A |
Ethel B. Bartolome (31) 1300 N. State Street Bellingham, WA 98225 | Secretary since 2001 | Corporate Administrator, Saturna Capital Corporation [since 2000] Administrator, Cytel Corporation [1994-1999] | N/A | N/A |
Term of Office: Each Trustee serves for the lifetime of the Trust or until he dies, resigns, is removed, or not re-elected by the shareowners. Each officer serves a one-year term subject to annual reappointment by the Trustees. Mr. Kaiser is an interested person of the Trust by reason of his positions with the Trust's adviser and underwriter. Mr. McIlvaine is the primary manager of the Fund's portfolio. Saturna Capital Corporation is the Fund's advisor, and Saturna Brokerage Services, Inc. is the distributor. |
November 30, 2003 Annual Report | 15 |
FINANCIAL HIGHLIGHTS | SEXTANT GROWTH FUND (graphic omitted) |
Selected data per share of capital stock outstanding throughout the year | For Year Ended November 30, |
2003 | 2002 | 2001 | 2000 | 1999 | ||
Net asset value at beginning of year | $10.64 | $11.90 | $13.16 | $12.68 | $9.29 | |
Income from investment operations | ||||||
Net investment income | (0.04) | (0.05) | (0.02) | (0.07) | (0.06) | |
Net gains or losses on securities (both realized and unrealized) | 2.31 | (1.21) | (1.24) | 1.36 | 4.26 | |
Total from investment operations | 2.27 | (1.26) | (1.26) | 1.29 | 4.20 | |
Less distributions | ||||||
Dividends (from net investment income) | - | - | - | - | (0.14) | |
Distributions (from capital gains) | - | - | - | (0.81) | (0.67) | |
Total distributions | - | - | - | (0.81) | (0.81) | |
Net asset value at end of period | $12.91 | $10.64 | $11.90 | $13.16 | $12.68 | |
Total Return | 21.31% | (10.51)% | (9.57)% | 10.16% | 44.76% | |
Ratios / Supplemental Data | ||||||
Net assets ($000), end of year | $4,732 | $3,373 | $3,792 | $3,862 | $3,116 | |
Ratio of expenses to average net assets* | 1.14% | 1.11% | 0.78% | 1.05% | 1.12% | |
Ratio of net investment income to average net assets | (0.40)% | (0.48)% | (0.18)% | (0.51)% | (0.50)% | |
Portfolio turnover rate | 12% | 15% | 8% | 20% | 28% |
*For each of the above years, all or a portion of the operating expenses were waived. If these costs had not been waived, the resulting increases to the ratio of expenses to average monthly net assets would be .06%, .06%, .06%, .06%, and .09%, respectively. |
STATEMENT OF ASSETS AND LIABILITIES |
As of November 30, 2003 | |||
Assets | |||
Investments (cost $2,438,326) | $4,054,034 | ||
Cash | 642,495 | ||
Receivable for security sales | 37,846 | ||
Dividends receivable | 2,868 | ||
Insurance reserve premium | 1,214 | ||
Total Assets | $4,738,457 | ||
Liabilities | |||
Payable to adviser | 3,959 | ||
Other Liabilities | 2,422 | ||
Total Liabilities | 6,381 | ||
Net Assets | $4,732,076 | ||
Fund Shares Outstanding | 366,404 | ||
Analysis of Net Assets | |||
Paid in Capital (unlimited shares authorized, without par value) | 3,147,746 | ||
Accumlated net realized loss | (31,379) | ||
Unrealized net appreciation on investments | 1,615,709 | ||
Net Assets applicable to Fund shares outstanding | $4,732,076 | ||
Net Asset Value, Offering and Redemption price per share | $12.91 |
(The accompanying notes are an integral part of these financial statements)
16 | November 30, 2003 Annual Report |
(Graphic Omitted) SEXTANT GROWTH FUND | STATEMENT OF OPERATIONS |
For the year ended November 30, 2003 | |||
Investment income | |||
Dividend income | $28,193 | ||
Miscllaneous income | 109 | ||
Gross investment income | $28,302 | ||
Expenses | |||
Investment adviser and administration fees | 31,950 | ||
Professional fees | 5,376 | ||
Filing and registration fees | 2,790 | ||
Custodian fees | 2,282 | ||
Insurance | 1,710 | ||
Other expenses | 945 | ||
Printing and postage | 888 | ||
Total gross expenses | 45,941 | ||
Less custodian fees waived | (2,282) | ||
Net expenses | 43,659 | ||
Net investment loss | (15,357) | ||
Net realized gain on investments | |||
Proceeds from sales | 422,958 | ||
Less cost of securities sold (based on identified cost) | 393,941 | ||
Realized net gain | 29,017 | ||
Unrealized gain on investments | |||
End of year | 1,615,709 | ||
Beginning of year | 800,316 | ||
Increase in unrealized gain for the year | 815,393 | ||
Net realized and unrealized gain | 844,410 | ||
Net increase in net assets resulting from operations | $829,053 |
STATEMENT OF CHANGES IN NET ASSETS |
Year ended | Year ended | |
Nov. 30, 2003 | Nov. 30, 2002 | |
INCREASE (DECREASE) IN NET ASSETS | ||
From Operations | ||
Net investment loss | $(15,357) | $(17,391) |
Net realized gain (loss) on investments | 29,017 | (10,677) |
Net increase (decrease) in unealized appreciation | 815,393 | (372,034) |
Net increase (decrease) in net assets | 829,053 | (400,102) |
Dividends to shareowners from | ||
Net investment income | - | - |
From fund share transactions | ||
Proceeds from sales of shares | 764,452 | 366,963 |
Value of shares issued in reinvestment of dividends | - | - |
764,452 | 366,963 | |
Cost of shares redeemed | (234,506) | (385,297) |
Net increase (decrease) in net assets | 529,946 | (18,334) |
Total increase (decrease) in net assets | $1,358,999 | $(418,436) |
NET ASSETS | ||
Beginning of year | 3,373,077 | 3,791,513 |
End of year | $4,732,076 | $3,373,077 |
Shares of the fund sold and redeemed | ||
Number of shares sold | 70,509 | 32,585 |
Number of shares issued in reinvestment of dividends | - | - |
70,509 | 32,585 | |
Number of shares redeemed | (21,038) | (34,371) |
Net increase (decrease) in number of shares outstanding | 49,471 | (1,786) |
(The accompanying notes are an integral part of these financial statements)
November 30, 2003 Annual Report | 17 |
DISCUSSION OF SEXTANT GROWTH FUND PERFORMANCE |
|
FISCAL YEAR 2003
For the fiscal year ending November 30, 2003, the Sextant Growth Fund gained 21.31%. Stock prices of smaller companies, generally down the most over the last four years, bounced back sharply during 2003. For the fiscal year, the broad S&P 500 Index gained 15.04%, while the smaller-company NASDAQ Composite Index jumped 33.24%. At the end of the fiscal year, the Fund ranked in the top 79% of the 768 funds in the Morningstar Mid-cap Growth category. At the end of the last five years, the Fund had provided a 9.38% average annualized total return and ranks in the top 17% of 385 funds in its Morningstar peer category*. At November 30, 2003, the Fund held Morningstar’s above-average “4-star” rating (judged against 606 Mid-cap Growth funds)*.
The volatility, risks and returns of the stock market continue. The poor stock market performances in 2000, 2001 and 2002 were reversed in 2003 and stocks provided investors with strong investment returns. Remember, a long-term approach is the best opportunity to prosper: the Fund has provided almost 10% average annualized total return (+9.91%) for the last 10 fiscal years.
FACTORS AFFECTING PAST PERFORMANCE
The economy in 2003 got better and better, buoyed by consumer spending, tax cuts, and a weakening dollar. It was a “perfect storm” where every factor, even unpopular foreign wars, worked to the country’s economic benefit.
The Fund seeks long-term growth through investment in common stocks of U.S. companies. It generally follows a value investment approach, favoring companies with good fundamentals and relatively low price/earnings ratios. This year's market recovery favored stocks of smaller companies and technology, which had declined the most in the three-year bear market that ended in the spring.
LOOKING FORWARD
Stocks ultimately reflect their underlying business values. While prices rallied in 2003, after their weak performances for three years, we feel many stocks are still attractively priced. Growth of the U.S. economy is expected at 4% to 6% in 2004, as low interest rates boost consumer confidence, spending and investment. Corporate profits should raise 15% to 20%, and employment should grow quickly.
MANAGEMENT FEE CALCULATIONS
The Sextant Growth Fund calculates part of its management fee based on a comparison of the Fund’s return to the average return in Morningstar's “Domestic Growth” category. At November 30, 2003, the one-year return for this category average was +20.89%. Because the Fund's 12-month return outperformed this average by less than 1% at November 30,
18 | November 30, 2003 Annual Report |
2003, the adviser earned no bonus or penalty fee for the month of December 2003. The Fund’s total expense ratio, 1.14% was little changed from the prior year. Like all mutual funds, Sextant Growth Fund’s annual performance results are only stated after deduction of operating expenses. The Fund is purchased directly by investors without any sales charges, which eliminated the risk of late trading and other ethical lapses discovered at some broker-distributed equity mutual funds during 2003.
COMPARISON TO INDEX
The line graph compares Sextant Growth Fund's performance to that of a broad-based stock market index, the Standard & Poor's 500 Index. 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 costs, (4) stand ready to buy and sell its securities to shareholders on a daily basis, and (5) provide a wide range of services. The graph below compares $10,000 invested in the Fund at November 30, 1993 (ten years ago), compared to a similar amount invested in Standard & Poor's 500 Index. The graph shows that the investment in the Fund would have risen to $25,720 and $27,468 in the Index. The 1995 changes in this Fund’s investment objectives and policies limit the usefulness of this comparison. The returns shown do not reflect the deduction of income taxes that an investor could pay on income received or the sale of profitable investments.
Sextant Growth Fund vs. S&P 500 Index (unaudited)
(graph omitted)
November 30, 2003 Annual Report | 19 |
INVESTMENTS | SEXTANT INTERNATIONAL FUND (Graphic Omitted) |
As of November 30, 2003 | ||||
Issue | Number of Shares | Cost | Market Value | Country |
Common Stocks (91.9%) | ||||
Aircraft (3.1%) | ||||
Embraer Aircraft ADR | 1,713 | $38,169 | $50,397 | Brazil |
Banking and Financial (11.2%) | ||||
Aegon NV ADR | 2,196 | 19,736 | 29,273 | Netherlands |
AXA ADS | 3,000 | 59,784 | 57,780 | France |
Banco Bilbao Vizcaya ADS | 1,800 | 7,702 | 21,636 | Spain |
ING Groep ADS | 1,448 | 36,134 | 31,219 | Netherlands |
Toronto-Dominion Bank | 1,400 | 18,159 | 44,086 | Canada |
SUB-TOTAL | 141,515 | 183,994 | ||
Building Materials (4.6%) | ||||
CRH plc ADR | 2,000 | 23,075 | 37,300 | Ireland |
Hanson plc ADR | 1,100 | 33,055 | 38,566 | UK |
SUB-TOTAL | 56,130 | 75,866 | ||
Computers (15.1%) | ||||
Business Objects SA ADS* | 6,000 | 19,570 | 204,600 | France |
Dassault Systems ADR | 1,000 | 28,380 | 44,950 | France |
SUB-TOTAL | 47,950 | 249,550 | ||
Consumer Products (2.9%) | ||||
Coca-Cola Femsa ADS | 1,500 | 9,750 | 30,675 | Mexico |
Gucci Group NV | 200 | 10,925 | 16,992 | Italy |
SUB-TOTAL | 20,675 | 47,667 | ||
Electronics (5.6%) | ||||
Epcos AG ADS | 2,500 | 57,307 | 57,475 | Germany |
Sony ADR | 1,000 | 47,517 | 34,350 | Japan |
SUB-TOTAL | 104,824 | 91,825 | ||
Hotels (1.8%) | ||||
Fairmont Hotels & Resorts | 1,100 | 24,385 | 30,305 | Canada |
Medical-Drugs (2.9%) | ||||
Aventis ADS | 508 | 15,859 | 29,286 | France |
Glaxo Smithkline plc ADR | 400 | 9,800 | 18,352 | UK |
SUB-TOTAL | 25,659 | 47,638 | ||
Metals & Mining (5.4%) | ||||
Potash Corp. of Saskatchewan | 500 | 34,234 | 40,570 | Canada |
Rio Tinto plc ADS | 500 | 31,175 | 49,125 | UK |
SUB-TOTAL | 65,409 | 89,695 | ||
Oil & Gas Production (6.8%) | ||||
EnCana | 1,000 | 35,020 | 36,730 | Canada |
Repsol-YPF ADR | 2,000 | 43,592 | 34,980 | Spain |
Total Fina Elf ADR | 500 | 21,864 | 40,385 | France |
SUB-TOTAL | 100,476 | 112,095 |
20 | November 30, 2003 Annual Report |
(Graphic Omitted) SEXTANT INTERNATIONAL FUND | INVESTMENTS |
Issue | Number of Shares | Cost | Market Value | Country |
Paper Products (3.8%) | ||||
Metso ADS* | 2,100 | $22,802 | $24,675 | Finland |
UPM-Kymmene Oyj ADS | 2,000 | 34,399 | 37,440 | Finland |
SUB-TOTAL | 57,201 | 62,115 | ||
Photographic Equipment (3.5%) | ||||
Canon ADR | 1,000 | 23,426 | 46,650 | Japan |
Fuji Photo Film ADR | 400 | 10,050 | 11,436 | Japan |
SUB-TOTAL | 33,476 | 58,086 | ||
Real Estate (2.8%) | ||||
Intrawest | 2,400 | 41,342 | 45,264 | Canada |
Telecommunications (8.7%) | ||||
America Movil ADR | 2,000 | 29,725 | 51,280 | Mexico |
BCE | 1,600 | 30,120 | 35,792 | Canada |
British Sky Broadcasting ADS* | 450 | 11.062 | 21,096 | UK |
PT Indosat ADR | 1,000 | 20,952 | 13,260 | Indonesia |
Telefonica ADS | 586 | 12,058 | 22,748 | Spain |
SUB-TOTAL | 103,917 | 144,716 | ||
Transportation (8.9%) | ||||
Canadian Pacific Railway Ltd. | 1,200 | 20,338 | 32,688 | Canada |
Desc SA ADR | 2,700 | 42,981 | 15,120 | Mexico |
Lan Chile ADS | 3,500 | 24,636 | 53,725 | Chile |
Nissan Motor ADR | 2,000 | 30,085 | 45,560 | Japan |
SUB-TOTAL | 118,040 | 147,093 | ||
Utilities-Electric (4.5%) | ||||
Enel ADS | 800 | 35,372 | 25,640 | Italy |
Enersis ADS | 4,000 | 37,125 | 25,760 | Chile |
Korea Electric Power ADS | 2,000 | 31,961 | 22,760 | Korea |
SUB-TOTAL | 104,458 | 74,160 | ||
Utilities-Gas (.3%) | ||||
Transport de Gas del Sur ADR | 1,500 | 18,807 | 5,550 | Argentina |
Total Investments (91.9%) | $1,102,433 | $1,515,476 | ||
Other Assets (net of liabilities) (8.1%) | 134,155 | |||
Total Net Assets (100%) | $1,649,631 | |||
* Non-income producing |
November 30, 2003 Annual Report | 21 |
FINANCIAL HIGHLIGHTS | SEXTANT INTERNATIONAL FUND (graphic omitted) |
Selected data per share of capital stock outstanding throughout each year | ||||||
For Year Ended November 30, | ||||||
2003 | 2002 | 2001 | 2000 | 1999 | ||
Net asset value at beginning of year | $6.07 | $7.24 | $8.52 | $8.32 | $6.81 | |
Income from investment operations | ||||||
Net investment income | 0.01 | 0.02 | 0.04 | 0.43 | 0.13 | |
Net gains or losses on securities (both realized and unrealized) | 2.00 | (1.16) | (1.30) | 0.20 | 1.57 | |
Total from investment operations | 2.01 | (1.14) | (1.26) | 0.63 | 1.70 | |
Less distributions | ||||||
Dividends (from net investment income) | (0.03) | (0.03) | (0.02) | (0.43) | (0.12) | |
Distributions (from capital gains) | - | - | - | - | (0.07) | |
Total distributions | (0.03) | (0.03) | (0.02) | (0.43) | (0.19) | |
Net asset value at end of year | $8.05 | $6.07 | $7.24 | $8.52 | $8.32 | |
Total return | 33.23% | (15.80)% | (14.80)% | 7.62% | 24.90% | |
Ratios/supplemental data | ||||||
Net assets ($000), end of year | $1,650 | $1,150 | $1,445 | $1,736 | $1,162 | |
Ratio of expenses to average net assets* | 1.10% | 1.17% | 1.17% | 1.20% | 0.72% | |
Ratio of net investment income to average net assets | 0.75% | 0.20% | 0.34% | 4.74% | 1.74% | |
Portfolio turnover rate | 4% | 4% | 6% | 11% | 17% |
*For each of the above years, all or a portion of the operating expenses were waived. If these costs had not been waived, the resulting increases to the ratio of expenses to average monthly net assets would be .19%, .19%, .20%, .16%, and .26%, respectively. |
STATEMENT OF ASSETS AND LIABILITIES |
As of November 30, 2003 | |||
Assets | |||
Investments (cost $1,102,433) | $1,515,476 | ||
Cash | 137,802 | ||
Dividends receivable | 1,330 | ||
Total Assets | $1,654,608 | ||
Liabilities | |||
Payable to adviser | 600 | ||
Other Liabilities | 4,377 | ||
Total Liabilities | 4,977 | ||
Net Assets | $1,649,631 | ||
Fund shares outstanding | 204,953 | ||
Analysis of Net Assets | |||
Paid in Capital (unlimited shares authorized, without par value) | 1,410,430 | ||
Accumulated net investment income | 1,962 | ||
Accumulated net realized loss | (175,804) | ||
Unrealized net appreciation on investments | 413,043 | ||
Net Assets applicable to Fund shares outstanding | $1,649,631 | ||
Net Asset Value, Offering and Redemption price per share | $8.05 |
(The accompanying notes are an integral part of these financial statements)
22 | November 30, 2003 Annual Report |
(graphic omitted) SEXTANT INTERNATIONAL FUND | STATEMENT OF OPERATIONS |
For the year ended November 30, 2003 | |||
Investment income | |||
Dividend income (net foreign taxes of $4,085) | $23,177 | ||
Miscellaneous income | 284 | ||
Gross investment income | $23,461 | ||
Expenses | |||
Investment adviser and administration fee | 7,914 | ||
Filing and registration fees | 3,075 | ||
Custodian fees | 2,460 | ||
Professional fees | 1,725 | ||
Other expenses | 909 | ||
Printing and postage | 330 | ||
Total gross expenses | 16,413 | ||
Less custodian fees waived | (2,460) | ||
Net expenses | 13,953 | ||
Net investment income | 9,508 | ||
Net realized loss on investments | |||
Proceeds from sales | 47,387 | ||
Less cost of securities sold (based on identified cost) | 78,057 | ||
Realized net loss | (30,670) | ||
Unrealized gain on investments | |||
End of year | 413,043 | ||
Beginning of year | (5,947) | ||
Increase in unrealized gain for the year | 418,990 | ||
Net realized and unrealized gain | 388,320 | ||
Net increase in net assets resulting from operations | $397,828 | ||
STATEMENT OF CHANGES IN NET ASSETS |
Year ended | Year ended | |
Nov. 30, 2003 | Nov. 30, 2002 | |
INCREASE (DECREASE) IN NET ASSETS | ||
From Operations | ||
Net investment income | $9,508 | $2,569 |
Net realized loss on investments | (30,670) | (70,706) |
Net increase (decrease) in unealized appreciation | 418,990 | (141,217) |
Net increase (decrease) in net assets | 397,828 | (209,354) |
Dividends to shareowners from | ||
Net investment income | (7,547) | (4,909) |
From fund share transactions | ||
Proceeds from sales of shares | 222,528 | 58,704 |
Value of shares issued in reinvestment of dividends | 7,529 | 4,897 |
230,057 | 63,601 | |
Cost of shares redeemed | (121,076) | (143,789) |
Net increase (decrease) in net assets from share transactions | 108,981 | (80,188) |
Total increase (decrease) in net assets | $499,262 | $(294,451) |
NET ASSETS | ||
Beginning of year | 1,150,369 | 1,444,820 |
End of year | $1,649,631 | $1,150,369 |
Undistributed net investment income | 1,962 | - |
Shares of the fund sold and redeemed | ||
Number of shares sold | 32,286 | 9,019 |
Number of shares issued in reinvestment of dividends | 935 | 807 |
33,231 | 9,826 | |
Number of shares redeemed | (17,938) | (19,618) |
Net increase (decrease) in number of shares outstanding | 15,283 | (9,792) |
(The accompanying notes are an integral part of these financial statements)
November 30, 2003 Annual Report | 23 |
DISCUSSION OF SEXTANT INTERNATIONAL FUND PERFORMANCE |
|
FISCAL YEAR 2003
For the fiscal year ended November 30, 2003, the Sextant International Fund gained 33.23%. The comparable Amex International Index gained 21.16%. At the end of this latest fiscal year, the Fund ranked in the 3rd percentile of the 210 funds in Morningstar’s peer Foreign Large Growth category*. For the last five years, the Fund has provided an +5.02% annualized total return. At November 30, 2003, the Fund held Morningstar’s top “5-star” rating (judged against 163 Foreign Large Growth funds)*.
The volatility, risks and returns of the stock market continue. The poor performance of international markets in 2000, 2001 and 2002 were reversed in 2003 and stocks provided investors with strong investment returns. Remember, a long-term approach is the best opportunity to prosper.
FACTORS AFFECTING PAST PERFORMANCE
The US economy in 2003 got better and better, buoyed by consumer spending, tax cuts, and a weakening dollar. It was a “perfect storm” where every factor, even unpopular foreign wars, worked to the country’s economic benefit. Foreign companies, especially the larger companies favored by the Fund, also did well. But, without doubt, the massive decline in the US dollar was the primary factor that benefited the Fund in 2003. The Fund performed exceeding well for investors seeking to hedge their portfolios against the US dollar.
Investing in foreign securities includes risks not present in domestic securities. Unlike most years, foreign stocks were generally less volatile than domestic issues. Our portfolio was more heavily invested in Europe and Canada than Asia, which hurt results slightly. Commodity prices turned upward, bringing substantial appreciation to our cyclical and resource-based issues. Financials did well as global interest rates remained low.
LOOKING FORWARD
The Sextant International Fund is broadly diversified in growing companies headquartered outside the United States. Our focus on value investing continued to serve us in 2003, when markets rallied around the world and the US dollar collapsed.
Stocks ultimately reflect their underlying business values. After their weak performances for three years, we feel many stocks are quite attractively priced. Growth of the U.S. economy is expected at 4% to 6% in 2003, as low interest rates boost consumer confidence, spending and investment. Foreign economies normally recover as the US market buys more foreign goods and services. We expect that our portfolio of securities will continue to show growth and the Fund will further improve its performance.
24 | November 30, 2003 Annual Report |
MANAGEMENT FEE CALCULATIONS
The Sextant International Fund calculates part of its management fee based on a comparison of the Fund’s return to the average return of the Morningstar fund category “Foreign Stock”. At November 30, 2003, the one-year return for this category average was 24.70%. Because the Fund's 12-month return outperformed this average by more than 4% at November 30, 2003, a performance bonus adjustment of 0.30% was added to the basic 0.60% annual management fee for the month of December 2003. While still a small fund, market appreciation boosted the Fund's assets during the year. This helped the total expense ratio decrease slightly to 1.10% from 1.17%.
COMPARISON TO INDEX
Comparison of any fund to an index must be made bearing in mind that the Index is unmanaged, and expense-free. The graph below compares $10,000 invested in the Fund at its inception, compared to a similar amount invested in the AMEX International Index. This capitalization-weighted index averages 50 American Depository Receipts (ADRs) of large worldwide companies, and reflects the types of securities in which Sextant International Fund invests. The graph shows that a $10,000 investment made on September 1995 would have risen to $17,821 in the Fund and $12,069 in the Index. The returns shown do not reflect the deduction of income taxes that an investor could pay on income received or the sale of profitable investments.
Sextant International Fund vs. AMEX International Index (unaudited)
(graph omitted)
November 30, 2003 Annual Report | 25 |
NOTES TO FINANCIAL STATEMENTS |
Note 1 -Organization Note 2 -Significant Accounting Policies Investments: The cost of securities is the same for accounting and Federal income tax purposes. Securities transactions are recorded on trade date. Realized gains and losses are recorded on the identified cost basis. Income and Expenses: Expenses incurred by the Trust on behalf of the Funds (e.g., professional fees) are allocated to the Funds on the basis of relative daily average net assets. The Adviser has agreed to certain limits on expenses, as described below. Income taxes: Reclassification of capital accounts: | increased accumulated net realized loss by $15,107 and decreased paid in capital by $15,107. The Growth Fund increased accumulated net investment loss by $15,357 and decreased paid in capital by $15,357. Dividends and distributions to shareowners: Use of Estimates: Note 3 -Transactions with Affiliated Persons
In accordance with the expense waiver noted above, for the year ended November 30, 2003, Saturna Capital waived $11,092 of the Sextant Short-Term Bond Fund advisory fee and $3,530 of that of Sextant Bond Income Fund. In accordance with the Funds' custodian agreements with National City Bank, for the year ended November 30, 2003, custodian fees for Bond Income, Short-Term Bond, Growth, and International, were $641, $1,971, $2,285, and $2,482, respectively. The custodian waived its fees for earnings credits.
|
26 | November 30, 2003 Annual Report |
One trustee, who also serves as the president of the Trust, is a director and president of the Adviser. The four unaffiliated trustees receive $100 per Board or committee meeting attended. On November 30, 2003, the turstees, officers and their immediate families as a group owned 18.7%, 25.6%, 17.2% and 34.2% of the outstanding shares of Bond Income, Short-Term Bond, Growth and International, respectively. The Trust acts as a distributor of its own shares, except in those states in which Saturna Brokerage Services, Inc. (a subsidiary of Saturna Capital Corporation) is itself registered as a broker-dealer and acts as distributor without compensation. Saturna Brokerage Services is the primary stockbroker used to effect portfolio transactions for Sextant Growth Fund and Sextant International Fund, and was paid $2,002 and $1,287, respectively in commissions at discount rates during the year ended November 30, 2003. Note 4 -Federal Income Taxes For the year ended November 30, 2003, the undistributed net investment income on a tax basis for Short-Term Fund, Bond Income Fund, Growth Fund, and International Fund was $0, $0, $0, and $1,962, respectively. Note 5 -Investments During the year ended November 30, 2003, Bond Income purchased $155,197 of securities and sold $0 of securities. Comparable figures for Short-Term Bond are $503,224 purchased $464,965 sold; for Growth $582,482 and $422,958; and for International, $240,363 and $47,387.
| Note 6 -Distribution to shareholders Bond Income Fund International Fund
PRIVACY STATEMENT At Saturna Capital, we understand the importance of maintaining the privacy of your financial information. To that end, we want to insure that we protect the confidentiality of any personal information you share with us.
|
November 30, 2003 Annual Report | 27 |
Web: http://www.saturna.com
(logo) Saturna Capital 1-800/SATURNA *Source: Morningstar 11/30/03. Past performance does not guarantee future results. 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. (Each share class is counted as a fraction of one fund within this scale and rated separately, which may cause slight variations in the distribution percentages.) 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. Sextant International was ranked 13th against 163 Foreign Large Growth funds in the last 3 years and 7th against 128 funds in the last 5 years. With respect to these Foreign Large Growth funds, Sextant International received a Morningstar Rating of 4 and 5 stars for the 3- and 5- year periods, ended 11/30/03 respectively. Sextant Growth was ranked 20th against 606 Mid-Cap Growth funds in the last 3 years, 17th against 385 funds in the last 5 years, and 38th against 124 funds in the last 10 years. With respect to these Mid-Cap Growth funds, Sextant Growth received a Morningstar Rating of 4, 4, and 4 stars for the 3-,5-, and 10- year periods, ended 11/30/03 respectively. Sextant Short-Term Bond was ranked 18th against 197 Short-Term Bond funds over the last 3 years and 24th against 162 funds in the last 5 years. With respect to these Short-Term Bond funds, Sextant Short-Term received a Morningstar Rating of 4 and 4 stars for the 3- and 5- year periods, ended 11/30/03 respectively. Sextant Bond Income was ranked 25th against 58 Long-Term Bond funds in the last 3 years, 33rd against 47 funds in the last 5 years, and 73rd against 20 funds in the last 10 years. With respect to these Long-Term Bond funds, Sextant Bond Income received a Morningstar Rating of 4, 4 and 2 stars for the 3, 5 and 10 year periods, ended 11/30/03 respectively. This report is issued for the information of the shareoweners of the Fund. It is not authorized for distribution to prospective investors unless it is accompanied or preceded by an effective prospectus relating to the securities of the Fund. Idaho Tax-Exempt Fund is a series of Saturna Investment Trust.
| (graphic omitted) SEXTANT |
28 | November 30, 2003 Annual Report |
Idaho Tax-Exempt Fund
November 30, 2003 Report
Fellow Shareowners:
For the fiscal year ending November 30, 2003, Idaho Tax Exempt Fund provided a total return of +5.40%. The net asset value was $5.46 per share compared to $5.38 one year ago and $5.57 in our May semi-annual report. Over the past twelve months, the Federal Reserve Bank‘s policy has remained preoccupied with guarding against persistent deflationary forces. The potential damage caused by a cycle of falling prices convinced the central bank to lower the Federal Funds rate to a new generational low of 1.00%.
Fortunately, we now have a strong economic recovery. Large productivity increases have reduced the inflationary threat usually posed by rapid economic growth. This means the potential non-inflationary growth rate for the US economy has risen significantly. The Federal Reserve Bank now believes that the US economy can grow significantly faster than in the past without triggering a new inflationary cycle.
The rapid economic recovery has unnerved many fixed income investors who associate cyclical turning points in the economy with cyclical increases in interest rates. Today however the forces restraining inflation remain potent and as such the cyclical increase in interest rates (over the next twelve months) caused by the current economic recovery may be significantly less than in past cycles. In fact, despite the surge in rates since June, rates on US Treasuries are virtually unchanged from a year ago and municipal rates are still slightly lower than one year ago.
Looking ahead, the revival in capital spending will continue and rising employment will follow. Strong commodity prices, a rising budget deficit and a weak dollar will keep the US yield curve steep. In 2004, rates will continue to slowly rise from the lows set last June. Management intends to limit the weighted average maturity of the fund to reduce downside price risk for shareowners. Conservative investors choose the Idaho Fund for tax-free income and low price volatility when they reallocate assets from common stock portfolios to the relative safety of municipal bonds. We remain convinced that well-balanced, diversified investor portfolios including Idaho Tax Exempt Fund shares will produce another year of positive results in 2004.
Idaho’s farmers and hydroelectric power generators are benefiting from good rains this winter. Idaho continues to have some of the best demographics of any state. Global demand for Idaho’s high technology products is growing again, and tourism is recovering. Construction remains firm. The state’s tightly controlled budget and pro-business policies still give the Idaho a sharp edge.
We invite you to review the advantages of the Idaho Tax-Exempt Fund, including low expenses, income free from Idaho and federal income taxes, a high-quality diversified bond portfolio and daily supervision by professional managers. We welcome your suggestions. Only with your help can we be certain that we are meeting your investment needs — our primary objective.
Nicholas Kaiser, | Phelps McIlvaine, |
President | Vice President, Portfolio Manager |
January 3, 2004
November 30, 2003 Annual Report | 29 |
INVESTMENTS |
Rating* | Issuer | Coupon/Maturity | Face Amount | Market Value |
As of November 30, 2003 | ||||
Airport Parking (2.9%) | ||||
AAA | Boise City Airport Revenue COP | 5.40% due 8/1/2011 | $215,000 | $221,788 |
Electric Power (2.1%) | ||||
AAA | Idaho Falls Electric Revenue | 6.75% due 4/12/2019 | 155,000 | 165,855 |
Financial Services (2.3%) | ||||
AAA | Boise City General Fund Revenue | 5.20% due 12/1/2017 | 160,000 | 173,645 |
General Obligations (50.4%) | ||||
AA- | Ada & Canyon Counties JSD #2 | 5.50% due 7/30/2011 | 175,000 | 199,668 |
" | 5.50% due 7/30/2015 | 100,000 | 115,060 | |
AAA | Adams County | 5.00% due 8/1/2014 | 110,000 | 116,628 |
A+ | Bannock County Jail | 5.05% due 9/1/2012 | 95,000 | 101,023 |
AAA | Bannock County SD #25 Pocatello | 5.20% due 8/1/2014 | 100,000 | 108,387 |
A | " | 5.25% due 8/1/2016 | 110,000 | 118,359 |
A | " | 4.90% due 8/1/2009 | 90,000 | 97,379 |
AAA | Bingham County SCD #55 Blackfoot | 4.65% due 8/1/2017 | 285,000 | 298,763 |
AA- | Boise City ISD UTGO 1996 | 5.50% due 7/30/2016 | 150,000 | 161,196 |
AA | Boise City ISD Rev. Ada & Boise | 5.00 due 8/15/2014 | 100,000 | 109,983 |
A | Boise County SD #73 Horshoe Bend | 5.15% due 7/31/2010 | 125,000 | 134,296 |
AAA | Boundary County SCD #101 | 4.05% due 8/1/2015 | 200,000 | 201,232 |
AAA | Caldwell, Idaho | 5.30% due 5/15/2014 | 150,000 | 166,918 |
AAA | Canyon County SCD #139 Valley View | 4.05% due 8/15/2016 | 80,000 | 78,546 |
AAA | Canyon County SD #132 | 5.40% due 7/30/2011 | 195,000 | 201,721 |
" | 5.40% due 7/30/2012 | 100,000 | 103,447 | |
AAA | Canyon County SD #134 Middleton | 4.65% due 7/31/2016 | 170,000 | 181,524 |
A | Canyon County SD #135 Notus | |||
Series 1994 | 6.00% due 8/1/2007 | 50,000 | 49,912 | |
AAA | Cassia & Twin Falls JSD #151 | 5.375% due 8/1/2013 | 85,000 | 91,884 |
" | 5.375% due 8/1/2015 | 75,000 | 81,014 | |
AAA | Clark County SD #161 Dubois | 5.00 % due 8/1/2015 | 270,000 | 291,345 |
AA | Idaho Housing and Finance Association | 4.80% due 6/1/2017 | 100,000 | 105,680 |
AAA | Kootenai County SD #273 | 5.00% due 7/30/2016 | 70,000 | 73,181 |
AAA | Kuna Sch/Comm Library District | 4.90% due 8/1/2013 | 75,000 | 80,967 |
AAA | Latah County SCD #287 | 4.10% due 8/1/2021 | 150,000 | 143,678 |
AAA | Lemhi County | 4.20% due 8/1/2015 | 100,000 | 101,956 |
AAA | Meridian Free Library District | 5.00% due 8/1/2015 | 200,000 | 212,742 |
AAA | Power & Cassia Cos. JSD #381 | 5.25% due 8/1/2012 | 60,000 | 66,929 |
AAA | Teton County SD #401 | 5.50% due 8/1/2012 | 75,000 | 80,753 |
SUB-TOTAL | 3,645,000 | 3,874,171 | ||
Housing (3.7%) | ||||
AA | Idaho Housing Authority | |||
Single Fam Mortgage, B-1 | 6.85% due 7/1/2012 | 40,000 | 40,363 | |
AA | Idaho Housing Authority | |||
Refunding Series A | 6.15% due 7/1/2024 | 80,000 | 81,494 | |
AA+ | Idaho Housing Authority | |||
Single Fam Mort Mezz-E-1 | 6.60% due 7/1/2011 | 25,000 | 25,415 | |
AA | Idaho Housing Authority | |||
Single Fam Mort Rev Ser B1 | 8.00% due 1/1/2020 | 5,000 | 5,174 | |
AAA | Valley County Jail Project Ref. | 4.70% due 8/1/2014 | 125,000 | 130,580 |
SUB-TOTAL | 275,000 | 283,026 |
30 | November 30, 2003 Annual Report |
Rating* | Issuer | Coupon/Maturity | Face Amount | Market Value |
Medical/Hospitals (4%) | ||||
AAA | Idaho Health Facility Auth. Ref. | |||
Holy Cross | 5.25% due 12/1/2011 | $65,000 | $70,829 | |
AAA | Idaho Health Facility Auth. Ref. | |||
Holy Cross Sys Corp Rev | 5.00% due 12/1/2014 | 110,000 | 118,457 | |
AAA | Idaho Health Facility Auth. Corp. | |||
Holy Cross Rev Refunding | 5.25% due 12/1/2022 | 115,000 | 117,399 | |
SUB-TOTAL | 290,000 | 306,685 | ||
Real Estate (5%) | ||||
AAA | Boise City Urban Renewal Agency Pk Rev & RA | 5.00% due 9/1/2012 | 65,000 | 71,086 |
AAA | Idaho State Bldg Authority | 5.00% due 9/1/2021 | 100,000 | 103,330 |
A | Jerome Urban Renewal District | 5.40% due 9/1/2013 | 200,000 | 209,670 |
365,000 | 384,086 | |||
Roads (1.4%) | ||||
A | Payette L.I.D. #89-1 | 7.60% due 5/1/2005 | 30,000 | 30,306 |
A | Post Falls L.I.D. #91-1 | 7.95% due 4/15/2004 | 20,000 | 19,978 |
A | Post FallsL.I.D. #91-4 | 7.95% due 4/15/2005 | 20,000 | 19,970 |
" | 7.95% due 4/15/2006 | 20,000 | 19,970 | |
" | 7.95% due 4/15/2007 | 20,000 | 19,997 | |
SUB-TOTAL | 110,000 | 110,221 | ||
State Education (12.1%) | ||||
AAA | Boise State University Revs-Ref. | 5.10% due 4/1/2014 | 300,000 | 326,528 |
AAA | Idaho State Building Authority | 4.00% due 9/1/2016 | 105,000 | 105,309 |
AAA | Idaho State University Ref & I mpt | 4.90% due 4/1/2017 | 150,000 | 159,162 |
AAA | University of Idaho | 5.60% due 4/1/2015 | 185,000 | 204,332 |
AAA | University of Idaho | |||
Student Fee Revenue | 5.25% due 4/1/2014 | 120,000 | 133,375 | |
SUB-TOTAL | 860,000 | 928,706 | ||
Sewer (1.4%) | ||||
A | Troy, Sewer Revenue | 7.60% due 2/1/2004 | 10,000 | 9,962 |
" | 7.70% due 2/1/2005 | 15,000 | 14,942 | |
" | 7.80% due 2/1/2006 | 15,000 | 14,954 | |
" | 7.90% due 2/1/2007 | 15,000 | 14,962 | |
" | 8.00% due 2/1/2008 | 15,000 | 14,966 | |
" | 8.00% due 2/1/2009 | 20,000 | 19,957 | |
" | 8.00% due 2/1/2010 | 20,000 | 19,964 | |
SUB-TOTAL | 110,000 | 109,707 | ||
Urban Renewal (4.8%) | ||||
AAA | Boise City Urban Ren Agcy Lease Rev | 5.875% due 8/15/2025 | 190,000 | 208,068 |
AA | Pocatello Dev Auth Rev Al Tax Inc | 5.15% due 3/1/2011 | 150,000 | 160,364 |
SUB-TOTAL | 340,000 | 368,432 | ||
Water Supply (7%) | ||||
AAA | Ketchum Water Revenue | 4.75% due 9/1/2013 | 60,000 | 63,700 |
AAA | McCall Water Rev., Series 1994 | 6.25% due 9/1/2008 | 200,000 | 221,860 |
November 30, 2003 Annual Report | 31 |
Rating* | Issuer | Coupon/Maturity | Face Amount | Market Value |
AAA | McCall Water Revenue | 6.375% due 9/1/2014 | $70,000 | $76,113 |
AAA | Moscow Sewer Revenue | 4.125% due 11/1/2008 | 165,000 | 177,752 |
SUB-TOTAL | 495,000 | 539,425 | ||
Total Investments (97.1%) | (Cost = $7,095,386) | $7,020,000 | $7,465,747 | |
Other Assets (net of liabilities) (2.9%) | 225,970 | |||
Total Net Assets (100%) | $7,691,717 | |||
* These unaudited bond ratings reflect the adviser's current rating of each bond, as determined using Standard & Poor's and Moody's ratings. |
Trustees and Officers (unaudited) | ||||
Name and (age) | Position(s) held with Trust and Length of Time Served | Principal Occupation(s) during past 5 Years | Number of Portfolios in Fund Complex overseen by Trustee | Other Directorships Held by Trustee |
INDEPENDENT TRUSTEES | ||||
A. Herbet Ershig (65) 22 Shorewood Drive Bellingham, WA 98225 | Independent Trustee since 1997 | President (now retired), Ershigs, Inc. (industrial fabrication) | Five | None |
Gary A. Goldfogel (4454) 1500 N. State Street Bellingham, WA 98226 | Independent Trustee since 1995 | Medical Examiner (pathologist) Owner, Avocet Environmental Testing (laboratory) | Five | None |
John E. Love (71) 1002 Spokane Street Garfield, WA 99130 | Independent Trustee since 1987 | Owner, J.E. Love Co., (agricultural equipment manufacturer) | Five | None |
John S. Moore (72) 346 Bayside Road Bellingham, WA 98225 | Independent Trustee since 1993 | Professor (now retired), College of Business and Economics, Western Washington University | Five | None |
INTERESTED TRUSTEES | ||||
Nicholas F. Kaiser, CFA (57) 1300 N. State Street Bellingham, WA 98225 | President and Trustee since 1989 | President, Saturna Capital Corporation President, Saturna Brokerage Services | Seven | Amana Mutual Funds Trust |
OFFICERS WHO ARE NOT TRUSTEES | ||||
Phelps S. McIlvaine (50) 1300 N. State Streeet Bellingham, WA 98225 | Vice President since 1994 | Vice President, Saturna Capital Corporation Treasurer, Saturna Brokerage Services | N/A | N/A |
Chrisopher R. Fankhauser (31) 1300 N. State Street Bellingham, WA 98225 | Treasurer since 2002 | Manager of Operations, Saturna Capital Corporation | N/A | N/A |
Ethel B. Bartolome(31) 1300 N. State Street Bellingham, WA 98225 | Secretary since 2001 | Corporate Administrator, Saturna Capital Corporation [since 2000] Administrator, Cytel Corporation [1994-1999] | N/A | N/A |
Term of Office: Each Trustee serves for the lifetime of the Trust or until he dies, resigns, is removed, or not re-elected by the shareowners. Each officer serves a one-year term subject to annual reappointment by the Trustees. Mr. Kaiser is an interested person of the Trust by reason of his positions with the Trust's adviser and underwriter. Mr. McIlvaine is the primary manager of the Fund's portfolio. Saturna Capital Corporation is the Fund's advisor, and Saturna Brokerage Services, Inc. is the distributor. |
32 | November 30, 2003 Annual Report |
FINANCIAL HIGHLIGHTS |
Selected data per share of capital stock outstanding throughout the year: | For Year Ended November 30, | |||||
2003 | 2002 | 2001 | 2000 | 1999 | ||
Net asset value at beginning of year | $5.37 | $5.28 | $5.13 | $5.01 | $5.36 | |
Income from investment operations | ||||||
Net investment income | 0.21 | 0.22 | 0.22 | 0.23 | 0.24 | |
Net gains or losses on securities (both realized and unrealized) | 0.09 | 0.09 | 0.15 | 0.12 | (0.35) | |
Total from investment operations | 0.30 | 0.31 | 0.37 | 0.35 | (0.11) | |
Less distributions | ||||||
Dividends (from net investment income) | (0.21) | (0.22) | (0.22) | (0.23) | (0.24) | |
Distributions (from capital gains) | - | - | - | - | - | |
Total distributions | (0.21) | (0.22) | (0.22) | (0.23) | (0.24) | |
Net asset value at end of year | $5.46 | $5.37 | $5.28 | $5.13 | $5.01 | |
Total Return | 5.40% | 5.98% | 7.40% | 7.28% | (2.18)% | |
Ratios / Supplemental Data | ||||||
Net assets ($000), end of year | $7,692 | $6,943 | $6,650 | $5,628 | $6,151 | |
Ratio of gross expenses to average net assets* | 0.85% | 0.80% | 0.79% | 0.80% | 0.80% | |
Ratio of net investment income to average net assets | 3.78% | 4.14% | 4.21% | 4.69% | 4.55% | |
Portfolio turnover rate | 6% | 11% | 13% | 14% | 13% | |
*For each of the above years, all or a portion of the expenses were waived. If these costs had not been waived, the resulting increase to the ratio of expenses to average net assets would be .03%, .08%, .11%, .14%, and .05%, respectively. |
STATEMENT OF ASSETS AND LIABILITIES |
As of November 30, 2003 | ||
Assets | ||
Bond investments (cost $7,095,386) | $7,465,747 | |
Cash | 128,320 | |
Interest receivable | 107,865 | |
Insurance Reserve Premium | 2,473 | |
Total Assets | $7,704,405 | |
Liabilities | ||
Payable to adviser | 3,200 | |
Shareholder servicing fees | 350 | |
Other Liabilities | 9,138 | |
Total Liabilities | 12,688 | |
Net Assets | $7,691,717 | |
Fund Shares Outstanding | 1,409,855 | |
Analysis of Net Assets | ||
Paid in Capital (unlimited shares authorized, without par value) | 7,342,356 | |
Accumulated net realized loss | (20,999) | |
Unrealized net appreciation to on investments | 370,360 | |
Net Assets applicable to Fund shares outstanding | $7,691,717 | |
Net Asset Value, Offering and Redemption price per share | $5.46 |
(The accompanying notes are an integral part of these financial statements)
November 30, 2003 Annual Report | 33 |
STATEMENT OF OPERATIONS |
For the year ended November 30, 2003 | |||
Investment income | |||
Interest income | $350,362 | ||
Amortization of bond premium | (13,316) | ||
Accretion | 1,062 | ||
Gross investment income | $338,108 | ||
Expenses | |||
Investment adviser and administration fee | 36,578 | ||
Professional fees | 11,718 | ||
Shareholder service fee | 4,250 | ||
Insurance | 3,741 | ||
Other expenses | 2,834 | ||
Printing and postage | 2,322 | ||
Custodian fees | 1,623 | ||
Filing and registration fees | 904 | ||
Total gross expenses | 63,970 | ||
Less adviser fees waived | (329) | ||
Less custodian fees waived | (1,623) | ||
Net expenses | 62,018 | ||
Net investment income | 276,090 | ||
Net realized gain on investments | |||
Proceeds from sales | 437,962 | ||
Less: cost of securities sold (based on identified cost) | 427,299 | ||
Realized net gain | 10,663 | ||
Unrealized gain on investments | |||
End of year | 370,360 | ||
Beginning of year | 275,905 | ||
Increase in unrealized gain for the year | 94,455 | ||
Net realized and unrealized gain | 105,118 | ||
Net increase in net assets resulting from operations | $381,208 |
(The accompanying notes are an integral part of these financial statements)
34 | November 30, 2003 Annual Report |
STATEMENT OF CHANGES IN NET ASSETS |
Year ended | Year ended | |
Nov. 30, 2003 | Nov. 30, 2002 | |
INCREASE IN NET ASSETS | ||
From Operations | ||
Net investment income | $276,090 | $279,783 |
Net realized gain on investments | 10,663 | 8,373 |
Net increase in unrealized appreciation | 94,455 | 103,577 |
Net increase in net assets | 381,208 | 391,733 |
Dividends to shareowners from | ||
Net investment income | (276,090) | (280,029) |
From fund share transactions | ||
Proceeds from sales of shares | 1,140,412 | 633,759 |
Value of shares issued in reinvestment of dividends | 216,574 | 222,546 |
1,356,986 | 856,305 | |
Cost of shares redeemed | (713,555) | (674,999) |
Net increase in net assets | 643,431 | 181,306 |
Total increase in net assets | $748,549 | $293,010 |
NET ASSETS | ||
Beginning of year | 6,943,168 | 6,650,158 |
End of year | $7,691,717 | $6,943,168 |
Shares of the fund sold and redeemed | ||
Number of shares sold | 209,181 | 118,569 |
Number of shares issued in reinvestment of dividends | 39,726 | 41,714 |
248,907 | 160,283 | |
Number of shares redeemed | (131,040) | (126,945) |
Net increase in number of shares outstanding | 117,867 | 33,338 |
(The accompanying notes are an integral part of these financial statements)
Privacy Statement (unaudited)
At Saturna Capital, we understand the importance of maintaining the privacy of your financial information. To that end, we want to insure that we protect the confidentiality of any personal information you share with us. We collect personal information about you from information we receive from you on applications and other forms and from transactions or trades placed with us. Please be assured that except to administer a transaction with an affiliated third party upon your request, we do not disclose any personal information about our customers, or our former customers, to anyone, except as may be required by law. We maintain our own technology resources to minimize the use of outside service providers. Additionally, Saturna Capital restricts access to personal information about you to those employees who need to know that information to provide products or services to you. We maintain physical, electronic, and procedural safeguards that comply with federal standards to guard your personal information. If you have further questions or concerns about the security or privacy of the information we receive from you, please call us at 1-888/732-6262. |
November 30, 2003 Annual Report | 35 |
Discussion of Fund Performance
(unaudited)
FISCAL YEAR 2003 For the year ending November 30, 2003, Idaho Tax Exempt Fund returned 5.40%. For the last five years, the Fund has provided a 4.76% average annualized return. At November 30, 2003 the Fund held Morningstar’s* 4-star rating (judged against 224 funds in the Muni Single State Intermediate/Short-Term category). At fiscal year end, the thirty-day SEC current yield was 3.20%, down from 3.80% one year ago. The Fund’s net assets grew 10.7% during the year. Consistent with the Fund’s conservative investment philosophy, the Fund’s price ranged between $5.33 and $5.61 per share (a 5.3% variation from low to high). . | Average Annual Total Returns | ||
1 year | 5 years | 10 years | |
4.03% | 4.79% | 5.20% | |
Performance data for calendar years ended 12/31/2003. Performance data quoted represents past performance and investment return and principal value of investment will fluctuate so that an investor’s shares, when redeemed maybe worth more or less than their original cost. |
FACTORS AFFECTING PAST PERFORMANCE
Stimulative Federal fiscal and monetary policies produced a sharp growth in the economy and profits in 2003. Inflation and interest rates remained low, and the equity markets went sharply higher. Bond prices were stable. Idaho’s economy, based on technology, agriculture and tourism, managed some improvements and the outlook is good.
Idaho’s high personal income tax rates create a substantial appetite among residents for tax-exempt bonds, while municipalities are inherently shy of debt accumulations. The imbalance between the demand for and the supply of Idaho bonds is an important element in the overall performance of all Idaho tax-exempt bonds in both bull and bear markets. In 2003, Municipal bonds generally outperformed comparable government issues of rising rates and underperformed in periods of falling rates.
The average maturity of the Fund is the most important short-term factor affecting principal values in the portfolio. The Fund’s maturity is now 5.33 years, down from 5.81 years last November. This is the short end of its “normal” six to fifteen year maturity range. This shorter maturity reduces price risk in a rising rate environment, but sacrifices slightly higher yields available in longer maturity bonds. As rates did not increase materially in 2003, the Fund erred on the side of caution in choosing the shorter average maturity.
LOOKING FORWARD
In 2004, we expect the US economy to grow 4% to 6%, and corporate profits to increase 15% to 20%. Short-term rates are likely to rise slowly in the second half of the year. We expect high quality Idaho 10 year municipals yields to increase modestly from 4.00% to just under 5%. With higher productivity
*Source: Morningstar 11/30/03. Past performance does not guarantee future results. 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. (Each share class is counted as a fraction of one fund within this scale and rated separately, which may cause slight variations in the distribution percentages.) 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. Idaho Tax-Exempt was ranked 35th against 224 Muni Single State Interm/Short-Term funds over the last 3 years, 34th against 208 funds over the last 5 years, and 27st against 108 funds in the last 10 years. With respect to these numbers of Muni Single-State Iterm/Short-Term funds, Idaho Tax-Exempt received a Morningstar rating of 4, 4, and 4 stars for the 3-, 5-, and 10- year periods, ended 11/30/03 respectively.
36 | November 30, 2003 Annual Report |
offsetting rising commodity prices, material inflation is not expected to return. Investors should have the opportunity to continue to earn positive real returns in high quality Idaho municipal bonds for another year. Unfortunately, the availability of new quality non-rated Idaho bonds continues to wither, while refinancings remove existing issues from this attractive sector.
COMPARISON TO INDEX
The graph compares the Idaho Tax-Exempt Fund‘s performance to the performance of the Lehman Brothers Composite Municipal Bond Index, a broad-based municipal bond market index. To be comparable, the Municipal Index data includes reinvested income (as computed by Lehman Brothers Fixed Income Research).
Note that this graph compares an unmanaged, expense free index to an actively managed Fund that has transaction and other costs. The Fund also stands ready to buy and sell its own securities to shareholders on a daily basis, as well as providing a wide range of services to them. Few investors are able to invest in an exact index portfolio because of the large amount of securities required to model such an index.
The graph shows that $10,000 invested in the Idaho Tax Exempt Fund on 11/30/93 would have grown to $16,817 at the end of November 2003. If $10,000 could have been invested in the Lehman Brothers Composite Municipal Bond Index on 11/30/93, it would have grown to $18,179. These returns do not reflect the deduction of taxes that a shareowner could pay on fund capital gain distributions or the redemption of fund shares for a profit.
Idaho Tax Exempt Bond Fund vs. Lehman Composite Municipal Bond Index (unaudited)
(graphic omitted)
November 30, 2003 Annual Report | 37 |
NOTES TO FINANCIAL STATEMENTS
Note 1 - Organization Note 2 - Significant Accounting Policies Investments: Income and Expenses: Income taxes: Dividends and distributions to shareowners: Use of Estimates:
| Note 3 - Transactions with Affiliated Persons Note 4 - Federal Income Taxes Note 5 - Investments 11/30/03 11/30/02
|
38 | November 30, 2003 Annual Report |
REPORT of
INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Shareowners and Board of Trustees
Idaho Tax-Exempt Fund
We have audited the accompanying statement of assets and liabilities of the Idaho Tax-Exempt Fund, a series of shares of the Saturna Investment Trust, including the schedules of investments as of November 30, 2003, and the related statements of operations for the year then ended, the changes in net assets for each of the two years then ended, and the financial highlights for the five years then ended. These financial statements and financial highlights are the responsibility of the Trust’s management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits.
We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of November 30, 2003, by correspondence with the custodian and broker. Our audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of Idaho Tax-Exempt Fund as of November 30, 2003, the results of its operations for the year then ended, the changes in net assets for each of the two years then ended, and the financial highlights for each of the five years then ended, in conformity with accounting principles generally accepted in the United States of America.
Philadelphia, Pennsylvania
January 8, 2004
/s/ signature
Tait, Weller & Baker
November 30, 2003 Annual Report | 39 |
Web: http://www.saturna.com
(logo)
1300 N. State Street This report is issued for the information of the shareowners of the Fund. It is not authorized for distribution to prospective investors unless it is accompanied or preceded by an effective prospectus relating to the securities of the Fund. Idaho Tax-Exempt Fund is a series of Saturna Investment Trust. | (graphic omitted)
I D A H O
ANNUAL REPORT |
40 | November 30, 2003 Annual Report |
CODE OF ETHICS
Registrant has adopted a code of ethics and is included with this submission as Exhibit (a).
AUDIT COMMITTEE FINANCIAL EXPERT
(a) (1) (i) The Trustees of Saturna Investment Trust determined, at their quarterly meeting of September 25, 2003, that the Trust has at least one audit committee financial expert serving on its audit committee.
(a) (2) (ii) Mr. John Moore, an independent Trustee (as defined for investment companies), was deemed qualified and agreed to serve.
PRINCIPAL ACCOUNTANT FEES AND SERVICES
(a) Audit Fees
For the fiscal years ending November 30, 2003 and 2002, the aggregate audit fees billed for professional services rendered by the principal accountant were $22,000 and $21,000, respectively.
(b) Audit-Related Fees
For the fiscal years ending November 30, 2003 and 2002, the aggregate audit-related fees were $17,000 and $16,000, respectively. The nature of the services are: (1) auditing of the statements of assets and liabilities, related statements of operations and changes in net assets, and the financial highlights of each of the Funds; (2) auditing and reporting on the financial statements to be included in the Amendment to the Funds’ Registration Statement, Form N-1A, to be filed with the Securities and Exchange Commission; (3) review of the Amendment to the Registration Statement; and (4) issuance of a Report on Internal Control Structure for inclusion in Form N-SAR.
(c) Tax Fees
For the fiscal years ending November 30, 2003 and 2002, the aggregate tax fees billed for professional services rendered by the principal accountant were $5,000 for each year. Service includes preparation of the Funds’ federal and state income tax returns.
(d) All Other Fees
There were no other fees billed by the principal accountant for the fiscal years ending November 30, 2003 and 2002.
(e)(1) Audit Committee Pre-Approval Policies and Procedures
The following is an excerpt from the Amana Mutual Funds Trust Audit Committee Charter:
D. Oversight of Independent Auditors
3. Pre-approval of Audit and Non-Audit Services. Except as provided below, the Committee’s prior approval is necessary for the engagement of the independent auditors to provide any audit or non-audit services for the Trust and any non-audit services for any entity controlling, controlled by or under common control with Saturna that provides ongoing services to the Trust (Saturna and each such entity, an “Adviser Affiliate”) where the engagement relates directly to the operations or financial reporting of the Trust. Non-audit services that qualify under the de minimis exception described in the Securities Exchange Act of 1934, as amended, and applicable rules thereunder, that were not pre-approved by the Committee, must be approved by the Committee prior to the completion of the audit. Pre-approval by the Committee is not required for engagements entered into pursuant to (a) pre-approval policies and procedures established by the Committee, or (b) pre-approval granted by one or more members of the Committee to whom, or by a subcommittee to which, the Committee has delegated pre-approval authority, provided in either case, that the Committee is informed of each such service at its next regular meeting.
(e) (2) Percentages of Services
One hundred percent of the services described in each of paragraphs (b) through (d) were approved by the audit committee pursuant to paragraph (c)(7)(i)(C) of Rule 2-01 of Regulation S-X.
(f) Not applicable.
(g) Not applicable.
(h) Not applicable.
AUDIT COMMITTEE OF LISTED REGISTRANTS
The registrant has designated the independent members of the Saturna Investment Trust board of directors as the audit committee. The members are: Herbert Ershig, Gary Goldfogel, John Love, and John Moore.
CONTROLS AND PROCEDURES
Exempt pursuant to Section 405 of the Sarbanes-Oxley Act of 2002.
EXHIBITS
Exhibits included with this filing:
(a) Code of Ethics.
(b) Certifications.
(1) Nicholas Kaiser, President, Saturna Investment Trust
(2) Christopher Fankhauser, Treasurer, Saturna Investment Trust
November 30, 2003 Annual Report | 41 |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
SATURNA INVESTMENT TRUST
By:
/s/ Nicholas Kaiser
Nicholas Kaiser, President
Date: January 30, 2004
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
By:
/s/ Nicholas Kaiser
Nicholas Kaiser, President
Date: January 30, 2004
By:
/s/ Christopher Fankhouser
Christopher Fankhouser, Treasurer
Date: January 30, 2004
42 | November 30, 2003 Annual Report |