SECURITIES AND EXCHANGE COMMISSION
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED
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, 2013
Date of reporting period: November 30, 2013
Item 1. Annual Report
Sextant Mutual Funds
Annual Report
November 30, 2013
Performance Summary (as of December 31, 2013) (unaudited)
Comparative returns and percentile Morningstar™ category rankings (1 is best)†
Average Annual Returns vs. Category Average Returns | 10 Year | 5 Year | 3 Year | 1 Year | Expense Ratio1 |
Sextant Short-Term Bond vs. Short-Term Bond category | |||||
Fund return | 2.64% | 2.55% | 1.01% | 0.22% | 1.26% |
Morningstar category | 2.95% | 3.93% | 1.96% | 0.45% | n/a |
% Rank in category (funds in category) | 69 (240) | 76 (344) | 81 (394) | 58 (458) | n/a |
Sextant Bond Income vs. Long-Term Bond category | |||||
Fund return | 3.97% | 5.33% | 3.80% | -4.20% | 1.36% |
Morningstar category | 5.10% | 5.81% | 6.04% | -5.31% | n/a |
% Rank in category (funds in category) | 100 (2) | 65 (18) | 87 (25) | 24 (35) | n/a |
Sextant Core2 vs. Moderate Allocation category | |||||
Fund return | n/a | 9.34% | 6.35% | 11.05% | 1.32% |
Morningstar category | 6.06% | 12.83% | 9.17% | 16.48% | n/a |
% Rank in category (funds in category) | n/a | 97 (674) | 92 (739) | 91 (877) | n/a |
Sextant Global High Income3 vs. Tactical Allocation category | |||||
Fund return | n/a | n/a | n/a | 8.61% | 1.22% |
Morningstar category | 4.38% | 9.57% | 5.00% | 8.62% | n/a |
% Rank in category (funds in category) | n/a | n/a | n/a | n/a | n/a |
Sextant Growth vs. Large Growth category | |||||
Fund return | 8.37% | 14.84% | 13.43% | 30.29% | 1.10% |
Morningstar category | 7.60% | 19.01% | 14.88% | 33.92% | n/a |
% Rank in category (funds in category) | 27 (903) | 95 (1303) | 75 (1486) | 78 (1712) | n/a |
Sextant International vs. Foreign Large Blend category | |||||
Fund return | 7.61% | 7.89% | 1.97% | 7.49% | 1.10% |
Morningstar category | 6.95% | 12.30% | 6.73% | 19.44% | n/a |
% Rank in category (funds in category) | 31 (323) | 97 (629) | 94 (700) | 99 (791) | n/a |
Performance data quoted above represents past performance, is before any taxes payable by shareowners, and is no guarantee of future results. Current performance may be higher or lower than that stated herein. Performance current to the most recent month-end is available by calling toll-free 800/SATURNA or visiting www.sextantfunds.com. Average annual total returns are historical and include change in share value as well as reinvestment of dividends and capital gains, if any. The investment return and principal value of an investment will fluctuate so that an investor's shares, when redeemed, may be worth more or less than their original cost. 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.
Please consider an investment's objectives, risks, charges, and expenses carefully before investing. To obtain this and other important information about the Sextant Funds in a prospectus or summary prospectus, ask your financial advisor, visit www.sextantfunds.com, or call toll-free 800/SATURNA. Please read the prospectus or summary prospectus carefully before investing.
1By regulation, the expense ratios shown in this table are as of the Funds' most recent prospectus which is dated March 22, 2013, and incorporates results from the fiscal year ended November 30, 2012. Ratios presented in this table differ from the expense ratios shown elsewhere in this report as they represent different periods. Also by regulation, the performance in this table represents the most recent quarter-end performance rather than performance through the Funds' most recent fiscal period (shown on page 4). Average annual total returns include changes in principal value, reinvested dividends and capital gain distributions, if any.
2Sextant Core began operations March 30, 2007.
3Sextant Global High Income Fund began operations March 30, 2012 and is not yet rated or ranked by Morningstar.
† Morningstar 12/31/2013. Morningstar, Inc. is an independent fund performance monitor. Rankings are determined monthly from total returns by Morningstar, by category as determined by Morningstar. The 12-month Rank shows how each Fund ranks in its Morningstar peer category for the 12 months ended Dec. 31, 2013. Morningstar calculates total return by taking the change in a fund's NAV, assuming the reinvestment of all income and capital gains distributions (on the actual reinvestment date used by the fund) during the period, and then dividing by the initial NAV. Unless marked as load-adjusted total returns, Morningstar does not adjust total return for sales charges or for redemption fees. (Morningstar Return™, Morningstar Risk-Adjusted Ratings™, and the load-adjusted returns do incorporate those fees.) Total returns do account for management, administrative, and 12b-1 fees and other costs automatically deducted from fund assets.
% Rank in Category: This is the fund's total-return percentile rank for the specified time period relative to all funds that have the same Morningstar category. The highest (or most favorable) percentile rank is 1 and the lowest (or least favorable) percentile rank is 100. The top-performing fund in a category will always receive a rank of 1. Percentile ranks within categories are most useful in those categories that have a large number of funds.
Sextant Short-Term Bond was 166th of 240 Short-Term Bond funds in the last 10 years, 264th of 344 funds in the last 5 years, 319th of 394 funds in the last 3 years, and 268th of 458 funds in the last year. Sextant Bond Income was 2nd of 2 Long-Term Bond funds in the last 10 years, 12th of 18 funds in the last 5 years, 22nd of 25 funds in the last 3 years, and 9th of 35 funds in the last year. Sextant Core was 654th of 674 Moderate Allocation funds in the last 5 years, 685th of 739 funds in the last 3 years, and 803rd of 877 funds in the last year. Sextant Growth was 243rd of 903 Large Growth funds in the last 10 years, 1249th of 1303 funds in the last 5 years, 1121st of 1486 funds in the last 3 years, and 1348th of 1712 funds in the last year. Sextant International was 100th of 323 Foreign Large Blend funds in the last 10 years, 611th of 629 funds in the last 5 years, 662nd of 700 funds in the last 3 years, and 788th of 791 funds in the last year.
2 | November 30, 2013 Annual Report |
Fellow Shareowners:
During another year marked by abnormally low interest rates, the Sextant equity and balanced funds continued to serve their investors with strong returns. For the fiscal year ended November 30, 2013, Sextant Growth returned 29.39%, Sextant Core Fund appreciated 10.96%, Sextant Global High Income returned 10.06%, and Sextant International returned 8.67%. Over the same period, the S&P US 500 Index returned 30.30%, while the S&P Global 1200 Index appreciated 26.33%.
With growth in economic production and declines in unemployment, interest rates in the later part of 2013 began to rise. As expected, this hurt returns for bond investors, and the low volatility Sextant Short-Term Bond Fund returned 0.82%. The longer-term Sextant Bond Income Fund returned -3.59%.
Three of the six Sextant Funds increased assets during the year. The combination of spreading fixed expenses over higher assets and the effects of Sextant's performance fee structure (based on one-year results relative to Morningstar categories) result in low annualized expense ratios. To help investment results through lowering expenses, Saturna Capital caps expenses for the Bond Income Fund, the Global High Income Fund, and the Short-Term Bond Fund; their expense ratios were unchanged. The expense ratios for the Core Fund, the Growth Fund, and the International Fund all declined for the year to 1.01%, 0.94%, and 0.66%, respectively.
Long-term Results
As long-term investors, we stress the importance of measuring performance over multiple years. This reveals how a fund performs during both good times and bad. The Performance Summary tables (for calendar years ended December 31, 2013, on the previous page, and for fiscal years ended November 30, 2013, on the next page) provide comparative returns and Morningstar category rankings, so you may review Fund performance for periods up to ten years.
Going Forward
The US economy is notably improving: unemployment is declining, construction is back, and consumer spending is rising. US manufacturing is strengthening, with exports rising. Consumer confidence has recovered, with low interest rates boosting auto sales and housing. Significant federal government tax increases are collecting more than expected, at least in the short-term. Sequestration actually worked to moderate federal spending, and the Congress agreed to a rare budget compromise that projects less spending. Corporate earnings for 2014 may not improve over a healthy 2013, but the outlook for every industry varies.
The future is always different from the past, and we vigilantly watch for significant changes in major trends. Past concerns about inflation, which drove up prices for precious metals and other commodities, are giving way to worries about deflation. After a fifty-year expansion built on ever-increasing credit, we welcome deleveraging by governments and consumers. Governments are making progress at strengthening the global financial system. More efficient, web-based organizations are deflationary, meaning the internet's main effect on business is broadly lower prices and less need for employment. Yet, regardless of the trend, the Sextant Funds will continue to invest in companies with solid revenues, earnings, dividends, and balance sheets.
Forecasts of both inflation and deflation create a mixed climate for the world's financial markets. We will continue to invest in innovative companies with the strong business advantages and balance sheets needed to navigate these shifting times. We aim to avoid companies dependent on government spending, and the regions and countries that are hurt the most in continuing austerity.
Global economic activity continues to be weak, so we expect a slow transition to higher interest rates. Bondholders should be rewarded with real returns. Low interest rates today reflect high confidence among Americans and investors around the world that current economic storms will be survived.
The Sextant Funds continue to offer investors a broad mix of investment vehicles: growth equities, international exposure, two blended portfolios, plus short-term and long-term fixed income options. The new Global High Income Fund is especially attractive to risk-averse investors seeking income from a broadly diversified portfolio. This Fund array serves our investors in both bull and bear markets by seeking steady, long-term growth with a focus on preservation of capital.
The Sextant Funds are crafted in part to provide investment vehicles for tax-deferred retirement and savings plans. Saturna Capital offers well-regarded administration services for Individual Retirement Accounts, Health Savings Accounts, Education Savings Accounts, and 401(k) plans. Please consider the extra advantages of compounding your returns inside these plans. Kindly review the following pages for more information about each Fund.
Respectfully,
(photo omitted)
Nicholas Kaiser MBA, CFA
President
November 30, 2013 Annual Report | 3 |
Performance Summary (as of November 30, 2013) (unaudited)
Comparative returns and percentile Morningstar™ category rankings (1 is best)†
Average Annual Returns vs. Category Average Returns | 10 Year | 5 Year | 3 Year | 1 Year | Expense Ratio1 |
Sextant Short-Term Bond vs. Short-Term Bond category | |||||
Fund return | 2.75% | 2.93% | 1.04% | 0.82% | 1.26% |
Morningstar category | 3.03% | 4.27% | 1.87% | 0.64% | n/a |
% Rank (category size) | 69 (240) | 76 (344) | 79 (388) | 44 (447) | n/a |
Sextant Bond Income vs. Long-Term Bond category | |||||
Fund return | 4.15% | 6.35% | 3.53% | -3.59% | 1.36% |
Morningstar category | 5.30% | 7.29% | 5.34% | -5.92% | n/a |
% Rank (category size) | 100 (2) | 59 (18) | 83 (25) | 24 (30) | n/a |
Sextant Core2 vs. Moderate Allocation category | |||||
Fund return | n/a | 9.74% | 7.00% | 10.96% | 1.32% |
Morningstar category | 6.29% | 13.29% | 10.27% | 16.48% | n/a |
% Rank (category size) | n/a | 97 (671) | 94 (729) | 93 (861) | n/a |
Sextant Global High Income3 vs. Tactical Allocation category | |||||
Fund return | n/a | n/a | n/a | 10.06% | 1.22% |
Morningstar category | 4.84% | 10.39% | 5.97% | 9.29% | n/a |
% Rank (category size) | n/a | n/a | n/a | n/a | n/a |
Sextant Growth vs. Large Growth category | |||||
Fund return | 8.05% | 14.67% | 14.53% | 29.39% | 1.10% |
Morningstar category | 7.61% | 18.80% | 15.80% | 30.71% | n/a |
% Rank (category size) | 35 (891) | 95 (1303) | 72 (1482) | 61 (1696) | n/a |
Sextant International vs. Foreign Large Blend category | |||||
Fund return | 8.03% | 8.05% | 3.01% | 8.67% | 1.10% |
Morningstar category | 7.50% | 13.44% | 8.69% | 21.69% | n/a |
% Rank (category size) | 34 (314) | 98 (625) | 95 (690) | 99 (780) | n/a |
Performance data quoted above represents past performance and is no guarantee of future results. Results are shown for 12 months ended November 30, 2013 ("1 Year" column above) because the Sextant Funds' performance fees are based on the same period. Results are shown for other fiscal periods by regulation. The Adviser has absorbed, currently or in the past, certain Fund expenses, without which total returns would have been lower.
1By regulation, the expense ratios shown in this table are as of the Funds' most recent prospectus which is dated March 22, 2013, and incorporates results from the fiscal year ended November 30, 2012. Ratios presented in this table differ from expense ratios shown elsewhere in this report as they represent different fiscal periods.
2Sextant Core began operations on March 30, 2007.
3Sextant Global High Income Fund began operations March 30, 2012 and is not yet rated or ranked by Morningstar.
† Morningstar 11/30/2013. Morningstar, Inc. is an independent fund performance monitor. Rankings are determined monthly from total returns by Morningstar, by category as determined by Morningstar. The 1 Year Rank shows how each Fund ranks in its Morningstar peer category for the year ended November 30, 2013.
% Rank in Category: This is the fund's total-return percentile rank for the specified time period relative to all funds that have the same Morningstar category. The highest (or most favorable) percentile rank is 1 and the lowest (or least favorable) percentile rank is 100. The top-performing fund in a category will always receive a rank of 1. Percentile ranks within categories are most useful in those categories that have a large number of funds.
Sextant Short-Term Bond was 166th of 240 Short-Term Bond funds in the last 10 years, 264th of 344 funds in the last 5 years, 307th of 388 funds in the last 3 years, and 197th of 447 funds in the last year. Sextant Bond Income was 2nd of 2 Long-Term Bond funds in the last 10 years, 11th of 18 funds in the last 5 years, 21st of 25 funds in the last 3 years, and 8th of 30 funds in the last year. Sextant Core was 651st of 671 Moderate Allocation funds in the last 5 years, 692nd of 729 funds in the last 3 years, and 806th of 861 funds in the last year. Sextant Growth was 312th of 891 Large Growth funds in the last 10 years, 1244th of 1303 funds in the last 5 years, 1075th of 1482 funds in the last 3 years, and 1041st of 1696 funds in the last year. Sextant International was 107th of 314 Foreign Large Blend funds in the last 10 years, 614th of 625 funds in the last 5 years, 661st of 690 funds in the last 3 years, and 777th of 780 funds in the last year.
4 | Annual Report November 30, 2013 |
Sextant Short-Term Bond Fund
Performance Summary (unaudited)
Average Annual Returns (as of November 30, 2013) | ||||
10 Year | 5 Year | 1 Year | Expense Ratio1 | |
Sextant Short-Term Bond Fund | 2.75% | 2.93% | 0.82% | 1.26% |
Citigroup Gov./Corp. Inv. Grade Index 1-3 Years | 2.98% | 2.28% | 0.82% | n/a |
Growth of $10,000
Comparison of any mutual fund to a market index must be made bearing in mind that the index is unmanaged, and expense-free. Conversely, the Fund will (1) be actively managed; (2) have an objective other than mirroring the index, such as limiting risk; (3) bear transaction and other costs; (4) stand ready to buy and sell its securities to shareowners on a daily basis; and (5) provide a wide range of services. The graph compares $10,000 invested in the Fund on November 30, 2003, to an identical amount invested in the Citigroup Gov./Corp. Investment Grade Index 1-3 Years, a broad-based index of investment grade bond prices. The graph shows that an investment in the Fund would have risen to $13,121 versus $13,415 in the index. | |
Past performance does not guarantee future results. The "Growth of $10,000" graph and "Average Annual Returns" performance table assume the reinvestment of dividends and capital gains. They do not reflect the deduction of taxes that a shareowner might pay on fund distributions or the redemption of fund shares. The Adviser has absorbed, currently or in the past, certain Fund expenses, without which total returns would have been lower. 1 By regulation, the expense ratio for the Fund shown in this table is as of the Fund's most recent prospectus, which is dated March 22, 2013, and incorporates results for the fiscal year ended November 30, 2012, before fee waivers. The expense ratio shown in the most recent prospectus after fee waivers was 0.75%. The ratio presented in this table differs from the expense ratios shown elsewhere in this report as they represent different fiscal periods and differs from the actual expense ratio which reflects the adviser's expense cap. |
Fund Objective
The objectives of the Short-Term Bond Fund are capital preservation and current income.
Portfolio Diversification | Top Ten Holdings | ||
% of total net assets | |||
Industry weightings are shown as a percentage of total net assets. | Murray Street Trust 1 4.647% due 03/09/2017 | 4.5% | |
Cintas Corp No. 2 6.125% due 12/01/2017 | 4.2% | ||
Broadrige Financial Solutions 6.125% due 06/01/2017 | 4.1% | ||
LaClede Gas 5.75% due 08/15/2018 | 4.1% | ||
Oracle 5.75% due 04/15/2018 | 4.0% | ||
General Electric Capital 5.625% due 09/15/2017 | 3.9% | ||
Georgia Power 5.70% due 06/01/2017 | 3.9% | ||
Petrobras International Finance 6.125% due 10/06/2016 | 3.7% | ||
BlackRock 3.50% due 12/10/2014 | 3.5% | ||
America Movil Sab de CV 2.375% due 09/18/2016 | 3.5% |
November 30, 2013 Annual Report | 5 |
Sextant Short-Term Bond Fund
Discussion of Fund Performance (unaudited)
(photo omitted)
Phelps McIlvaine
Portfolio Manager
Fiscal Year 2013
For the fiscal year ended November 30, 2013, the Sextant Short-Term Bond Fund returned 0.82%. This annual return compared favorably with its Morningstar category peer group, which returned an average of 0.64% during the same period. For the five years ending November 30, 2013, the Fund provided a 2.93% annualized total return versus 4.27% for its Morningstar peer category group. The Fund's share price fell slightly from $5.07 to $5.05. Net investment income, reflecting the market's low rates, declined from 1.47% to 1.20%. Fund shares outstanding rose 9.8%. Fund assets rose 9.2%. The Fund's 30-day SEC yield was 0.90%, and its unsubsidized 30-day SEC yield was 0.45%. Reflecting Saturna Capital's voluntary subsidies to cap operating expenses, the Fund's effective expense ratio remained at 0.75%.
Factors Affecting Past Performance
In 2013, economic growth in the US, China, and Japan was better than expected. Rates around the world generally rose. The eurozone managed to avoid a crisis, and the fixed income markets functioned smoothly. For a third year returns were in large part policy-driven by the Federal Reserve Bank. The Federal Reserve near-zero Fed Funds policy kept rates tethered, leading to total returns close to the Fund's 30-day SEC yield (0.90%) for a second year. The Federal Reserve's initial reduction in quantitative easing allowed intermediate and long rates to normalize, ending negative real yields beyond seven years and producing a steeper yield curve. Longer paper experienced higher losses than shorter paper. The improving economy led to more spread compression, with high-yield paper returning more than investment-grade paper. Corporates returned more than US Treasury paper under three years. The Fund's overweight position in corporate paper boosted returns while our positions in taxable municipal paper lagged. In response to a steeper yield curve, the Fund moved dollar-weighted average maturity close to its normal maximum of three years.
Looking Forward
For 2014 we expect returns similar to 2013. The US economy will continue to improve, barring any serious financial disruptions. The Federal Reserve has announced a continuation of the zero interest rate policy for 2014 resulting in a free "put" for bondholders in short-term markets.
The Federal Reserve will reduce quantitative easing, allowing intermediate and long rates to normalize (rise) further. The yield curve will steepen more.
However, the Federal Reserve is a long way from being able to justify an end to its near-zero Federal Funds rate policy. While US economic growth, stock markets, housing, and auto sectors are improving, Fed policy has proven less effective at boosting real wages, total employment, debt reduction, the velocity of money, and inflation. Cyclical upward pressure on inflation and interest rates has been and will continue to be modest. It is essential for bond investors to recognize the difference between a normalization of bond yields after a period of deliberate suppression by the Federal Reserve and a cyclical bottom in rates based on rising wages and inflation. We expect the former and not the latter.
On balance, we expect US corporate balance sheets to improve further even as earnings flatten. However, we are aware the impact of some of last year's record borrowing may have weakened issuer credit when the money was used for share buybacks or dividend payments instead of new investments. We expect 2014 will be a good year for some sectors of the US economy, the equity markets, and for wealthy, high-income taxpayers.
The Fund expects to maintain a dollar-weighted average maturity close to three years, an overweight position in corporate and taxable municipal paper, and initiate principal protection in longer floating-rate or step-up coupon securities.
The short bond market can continue to provide uncorrelated positive returns, lowered volatility, and diversification for risk-conscious investors.
Management Fee Calculations
The Sextant Short-Term Bond Fund calculates the performance part of its management fee by comparing the Fund's return to the average return of Morningstar's™ "Short-Term Bond" category. The Fund's 12-month return (0.82%) was less than 1% percent above the Morningstar™ average (0.64%) at month-end November 30, 2013. Therefore, no bonus was earned, and the basic annual management fee of 0.60% was charged for the month of December 2013. Note that the management fee is partially waived due to the adviser's voluntary cap (at 0.75%) on total Fund expenses.
6 | Annual Report November 30, 2013 |
Sextant Short-Term Bond Fund
Schedule of Investments | ||||
Corporate Bonds — 87.3% | Coupon/Maturity | Face Amount | Market Value | Percentage of Assets |
Communications | ||||
Telecom Carriers | ||||
America Movil Sab de CV | 2.375% due 09/18/2016 | $250,000 | $256,973 | 3.5% |
250,000 | 256,973 | 3.5% | ||
Consumer Discretionary | ||||
Apparel, Footwear, Accessory Design | ||||
Cintas Corp No. 2 | 6.125% due 12/01/2017 | 270,000 | 308,537 | 4.2% |
Automobile OEM | ||||
American Honda | 1.50% due 09/11/2017 | 250,000 | 248,839 | 3.4% |
Toyota Motor Credit | 1.25% due 10/05/2017 | 226,000 | 224,592 | 3.1% |
476,000 | 473,431 | 6.5% | ||
746,000 | 781,968 | 10.7% | ||
Consumer Staples | ||||
Beverages | ||||
Coca Cola Hellenic | 5.50% due 09/17/2015 | 175,000 | 187,388 | 2.5% |
Food Manufacturing | ||||
Sara Lee | 2.75% due 09/15/2015 | 245,000 | 252,773 | 3.5% |
Household Products Manufacturing | ||||
Clorox | 5.00% due 01/15/2015 | 200,000 | 209,298 | 2.9% |
620,000 | 649,459 | 8.9% | ||
Energy | ||||
Exploration & Production | ||||
Enbridge (Pipeline) | 5.60% due 04/01/2017 | 200,000 | 224,780 | 3.1% |
Petrobras International Finance | 6.125% due 10/06/2016 | 250,000 | 273,438 | 3.7% |
450,000 | 498,218 | 6.8% | ||
Midstream — Oil & Gas | ||||
Kinder Morgan Energy Partners | 5.00% due 12/15/2013 | 100,000 | 100,141 | 1.4% |
Power Generation | ||||
Georgia Power | 5.70% due 06/01/2017 | 250,000 | 284,789 | 3.9% |
Refining & Marketing | ||||
Ultramar Diamond Shamrock | 7.20% due 10/15/2017 | 189,000 | 218,216 | 3.0% |
989,000 | 1,101,364 | 15.1% | ||
Financials | ||||
Banks | ||||
BNP Paribas | 2.375% due 09/14/2017 | 250,000 | 256,633 | 3.5% |
Murray Street Trust 1 | 4.647% due 03/09/2017 | 300,000 | 325,995 | 4.5% |
PNC Funding | 5.40% due 06/10/2014 | 200,000 | 205,188 | 2.8% |
750,000 | 787,816 | 10.8% | ||
Continued on next page. |
The accompanying notes are an integral part of these financial statements. | November 30, 2013 Annual Report | 7 |
Sextant Short-Term Bond Fund
Schedule of Investments | ||||
Corporate Bonds — 87.3% | Coupon/Maturity | Face Amount | Market Value | Percentage of Assets |
Financials (continued) | ||||
Commercial Finance | ||||
General Electric Capital | 5.625% due 09/15/2017 | $250,000 | $287,089 | 3.9% |
Investment Management | ||||
BlackRock | 3.50% due 12/10/2014 | 250,000 | 257,859 | 3.5% |
Payment & Data | ||||
Broadrige Financial Solutions | 6.125% due 06/01/2017 | 275,000 | 301,781 | 4.1% |
Retail REIT | ||||
Simon Property Group | 5.10% due 06/15/2015 | 220,000 | 234,891 | 3.2% |
1,745,000 | 1,869,436 | 25.5% | ||
Industrials | ||||
Electrical Components | ||||
ABB Finance | 1.625% due 05/08/2017 | 250,000 | 251,229 | 3.5% |
Rail Freight Transportation | ||||
Burlington Northern Santa Fe | 5.65% due 05/01/2017 | 200,000 | 227,709 | 3.1% |
450,000 | 478,938 | 6.6% | ||
Materials | ||||
Base Metals | ||||
Rio Tinto Finance | 8.95% due 05/01/2014 | 150,000 | 155,098 | 2.1% |
Basic & Diversified Chemicals | ||||
Air Products & Chemicals | 1.20% due 10/15/2017 | 250,000 | 247,033 | 3.4% |
Chemicals Distribution | ||||
Sherwin Williams | 1.35% due 12/15/2017 | 250,000 | 247,112 | 3.4% |
650,000 | 649,243 | 8.9% | ||
Technology | ||||
Infrastructure Software | ||||
Oracle | 5.75% due 04/15/2018 | 250,000 | 292,207 | 4.0% |
250,000 | 292,207 | 4.0% | ||
Utilities | ||||
Utility Networks | ||||
LaClede Gas | 2.00% due 08/15/2018 | 300,000 | 300,300 | 4.1% |
300,000 | 300,300 | 4.1% | ||
Total Corporate Bonds | 6,000,000 | 6,379,888 | 87.3% | |
Continued on next page. |
8 | Annual Report November 30, 2013 | The accompanying notes are an integral part of these financial statements. |
Sextant Short-Term Bond Fund
Schedule of Investments | ||||
Municipal Bonds — 7.6% | Coupon/Maturity | Face Amount | Market Value | Percentage of Assets |
General Obligation | ||||
Commerce Charter Township MI | 5.50% due 12/01/2013 | $125,000 | $125,000 | 1.7% |
Manhattan KS | 3.276% due 12/01/2013 | 180,000 | 180,000 | 2.5% |
Southwestern MI Community College | 4.875% due 05/01/2015 | 125,000 | 130,659 | 1.8% |
430,000 | 435,659 | 6.0% | ||
Revenue | ||||
Kansas City Special Facility Revenue | 4.25% due 09/01/2016 | 110,000 | 117,044 | 1.6% |
110,000 | 117,044 | 1.6% | ||
Total Municipal Bonds | 540,000 | 552,703 | 7.6% | |
Total investments | (Cost = $6,905,511) | $6,540,000 | 6,932,591 | 94.9% |
Other assets (net of liabilities) | 374,501 | 5.1% | ||
Total net assets | $7,307,092 | 100.0% |
Bond Quality Diversification |
Based on total net assets as of 11/30/2013. Source: Moody's Investors Services. |
The accompanying notes are an integral part of these financial statements. | November 30, 2013 Annual Report | 9 |
Sextant Short-Term Bond Fund
Statement of Assets and Liabilities | |
As of November 30, 2013 | |
Assets | |
Investments in securities, at value (Cost $6,905,511) | $6,932,591 |
Cash | 285,374 |
Interest receivable | 82,749 |
Receivable for Fund shares sold | 13,071 |
Total assets | 7,313,785 |
Liabilities | |
Payable to affiliates | 4,114 |
Accrued expenses | 2,039 |
Accrued distribution fee | 501 |
Distributions payable | 39 |
Total liabilities | 6,693 |
Net Assets | $7,307,092 |
Analysis of net assets | |
Paid-in capital (unlimited shares authorized, without par value) | $7,296,024 |
Undistributed net investment income | 1,308 |
Accumulated net realized loss | (17,320) |
Unrealized net appreciation on investments | 27,080 |
Net assets applicable to Fund shares outstanding | $7,307,092 |
Fund shares outstanding | 1,447,870 |
Net asset value, offering and redemption price per share | $5.05 |
Statement of Operations | |
Year ended November 30, 2013 | |
Investment income | |
Interest income | $151,036 |
Miscellaneous Income | 3 |
Gross investment income | 151,039 |
Expenses | |
Investment adviser fees | 38,960 |
Distribution fees | 19,297 |
Filing and registration fees | 15,770 |
Audit fees | 5,002 |
Retirement plan custodial fees | 3,387 |
Printing and postage | 1,808 |
Chief Compliance Officer expenses | 1,428 |
Trustee fees | 1,241 |
Other expenses | 652 |
Custodian fees | 351 |
Legal fees | 339 |
Total gross expenses | 88,235 |
Less adviser fees waived | (29,822) |
Less custodian fee credits | (351) |
Net expenses | 58,062 |
Net investment income | $92,977 |
Net realized gain from investments | $21,302 |
Net decrease in unrealized appreciation on investments | (75,115) |
Net loss on investments | $(53,813) |
Net increase in net assets resulting from operations | $39,164 |
10 | Annual Report November 30, 2013 | The accompanying notes are an integral part of these financial statements. |
Sextant Short-Term Bond Fund
Statements of Changes in Net Assets | Year ended Nov. 30, 2013 | Year ended Nov. 30, 2012 |
Increase (decrease) in net assets from operations | ||
From operations | ||
Net investment income | $92,977 | $95,126 |
Net realized gain (loss) on investments | 21,302 | (25,395) |
Net decrease in unrealized appreciation | (75,115) | (8,532) |
Net increase in net assets | 39,164 | 61,199 |
Distributions to shareholders from | ||
Net investment income | (92,977) | (95,199) |
Capital share transactions | ||
Proceeds from sales of shares | 2,407,968 | 1,532,236 |
Value of shares issued in reinvestment of dividends | 92,022 | 94,423 |
Early redemption fees retained | - | 2 |
Cost of shares redeemed | (1,827,832) | (990,325) |
Net increase in net assets | 672,158 | 636,336 |
Total increase in net assets | 618,345 | 602,336 |
Net assets | ||
Beginning of year | 6,688,747 | 6,086,411 |
End of year | 7,307,092 | 6,688,747 |
Undistributed net investment income | $1,308 | $1,308 |
Shares of the Fund sold and redeemed | ||
Number of shares sold | 475,701 | 300,843 |
Number of shares issued in reinvestment of dividends | 18,254 | 18,555 |
Number of shares redeemed | (364,256) | (194,555) |
Net increase in number of shares outstanding | 129,699 | 124,843 |
Financial Highlights | For year ended November 30, | ||||
Selected data per share of outstanding capital stock throughout each year: | 2013 | 2012 | 2011 | 2010 | 2009 |
Net asset value at beginning of year | $5.07 | $5.10 | $5.12 | $5.10 | $4.84 |
Income from investment operations | |||||
Net investment income | 0.06 | 0.07 | 0.09 | 0.12 | 0.16 |
Net gain (loss) on securities (both realized and unrealized) | (0.02) | (0.03) | (0.02) | 0.02 | 0.26 |
Total from investment operations | 0.04 | 0.04 | 0.07 | 0.14 | 0.42 |
Less distributions | |||||
Dividends (from net investment income) | (0.06) | (0.07) | (0.09) | (0.12) | (0.16) |
Total distributions | (0.06) | (0.07) | (0.09) | (0.12) | (0.16) |
Paid-in capital from early redemption fees | - | 0.001 | 0.001 | 0.001 | 0.001 |
Net asset value at end of year | $5.05 | $5.07 | $5.10 | $5.12 | $5.10 |
Total return | 0.82% | 0.89% | 1.42% | 2.87% | 8.87% |
Ratios / supplemental data | |||||
Net assets ($000), end of year | $7,307 | $6,689 | $6,086 | $5,136 | $4,070 |
Ratio of expenses to average net assets | |||||
Before fee waivers and custodian fee credits | 1.14% | 1.26% | 1.33% | 1.34% | 1.49% |
After fee waivers | 0.76% | 0.76% | 0.75% | 0.76% | 0.76% |
After fee waivers and custodian fee credits | 0.75% | 0.75% | 0.75% | 0.75% | 0.75% |
Ratio of net investment income after fee waivers and custodian fee credits to average net assets | 1.20% | 1.47% | 1.79% | 2.42% | 3.26% |
Portfolio turnover rate | 50% | 26% | 14% | 27% | 28% |
1Amount is less than $0.01 |
The accompanying notes are an integral part of these financial statements. | November 30, 2013 Annual Report | 11 |
Sextant Bond Income Fund
Performance Summary (unaudited)
Average Annual Returns (as of November 30, 2013) | ||||
10 Year | 5 Year | 1 Year | Expense Ratio1 | |
Sextant Bond Income Fund | 4.15% | 6.35% | -3.59% | 1.36% |
Citigroup Broad Investment Grade Bond Index | 4.82% | 5.04% | -1.60% | n/a |
Growth of $10,000
Comparison of any mutual fund to a market index must be made bearing in mind that the index is unmanaged, and expense-free. Conversely, the Fund will (1) be actively managed; (2) have an objective other than mirroring the index, such as limiting risk; (3) bear transaction and other costs; (4) stand ready to buy and sell its securities to shareowners on a daily basis; and (5) provide a wide range of services. The graph compares $10,000 invested in the Fund on November 30, 2003, to an identical amount invested in the Citigroup Broad Investment Grade Bond Index, a broad-based index of investment grade bond prices. The graph shows that an investment in the Fund would have risen to $15,018 versus $16,018 in the index. | |
Past performance does not guarantee future results. The "Growth of $10,000" graph and "Average Annual Returns" performance table assume the reinvestment of dividends and capital gains. They do not reflect the deduction of taxes that a shareowner might pay on fund distributions or the redemption of fund shares. The Adviser has absorbed, currently or in the past, certain Fund expenses, without which total returns would have been lower. 1 By regulation, the expense ratio for the Fund shown in this table is as of the Fund's most recent prospectus, which is dated March 22, 2013, and incorporates results for the fiscal year ended November 30, 2012, before fee waivers. The expense ratio shown in the most recent prospectus after fee waivers was 0.90%. The ratio presented in this table differs from the expense ratios shown elsewhere in this report as they represent different fiscal periods and differs from the actual expense ratio which reflects the adviser's expense cap. |
Fund Objective
The objective of the Bond Income Fund is current income.
Portfolio Diversification | Top Ten Holdings | ||
% of total net assets | |||
Industry weightings are shown as a percentage of total net assets. | United States Treasury Note 1.00% due 11/30/2019 | 5.4% | |
Puget Sound Energy 7.02% due 12/01/2027 | 4.2% | ||
American Municipal Power Ohio Rev. 7.20% due 02/15/2029 | 4.1% | ||
Blaine Co. ID SCD #61 Hailey 5.25% due 08/01/2020 | 3.9% | ||
Merck & Co. (Schering) 6.50% due 12/01/2033 | 3.8% | ||
Boeing 6.125% due 02/15/2033 | 3.6% | ||
Canadian Natural Resources 6.45% due 06/30/2033 | 3.6% | ||
Johnson Co. KS Bldg. Ls./Pr. REV. BAB 4.60% due 09/01/2026 | 3.6% | ||
Bank of Nova Scotia Yankee 3.00% due 11/16/2026 | 3.5% | ||
UBS AG Stamford CT 7.75% due 09/01/2026 | 3.5% |
12 | Annual Report November 30, 2013 |
Sextant Bond Income Fund
Discussion of Fund Performance (unaudited)
(photo omitted)
Phelps McIlvaine
Portfolio Manager
Fiscal Year 2013
For the fiscal year ended November 30, 2013, the Sextant Bond Income Fund returned -3.59%. This annual return compared favorably with that of its Morningstar Category "Long-Term Bond" peer group, which returned -5.92 % during the same period. The Fund's 30-day SEC yield was 2.77%, and its unsubsidized 30-day SEC yield was also 2.77%. The Fund's share price declined from $5.41 to $5.05. For the five years ended November 30, 2013, the Fund provided an annualized total return of 6.35%, below the 7.29% annualized return for the Morningstar peer group category. 2013 net investment income was unchanged at 3.23%. Fund shares outstanding fell 4% with total net assets declining 10% during fiscal 2013. The Fund's expense ratio declined to 0.89% due to the Fund's fulcrum advisory fee, the expense cap, and Fund's performance relative to its peer group category.
Factors Affecting Past Performance
Federal Reserve Bank policies continued to influence returns across the yield curve. The ongoing near-zero federal funds rate tethered short rates and provided a free "put" for short-term bond investors. The Federal Reserve's initial reduction in quantitative easing allowed intermediate and long rates to begin to normalize (rise), ending negative real yields beyond seven years and creating a significantly steeper yield curve. In general, longer maturities experienced larger losses than shorter maturities. Improving credit metrics and risk-seeking investors produced significantly higher returns for high-yield bonds than for investment-grade bonds. Interest-sensitive sectors such as housing, automobiles, and banking outperformed for the year.
Rate volatility saw a temporary spike at mid-year in response to the Federal Reserve's initial attempt at "tapering" its open market bond purchases, called quantitative easing. The Federal Reserve's second attempt included a calming assurance of an extended period of low short-term rates. Corporate bond issuance surged in anticipation of higher rates with inconsistent impacts on issuer credit quality.
In response to a significantly steeper yield curve, the Fund extended its dollar-weighted average maturity to the "under normal circumstances" ten-year area while holding average credit quality constant. The Fund remained underweight US Treasury and Agency bonds and overweight high-grade, taxable corporate and municipal bonds.
Looking Forward
For 2014, we expect the near-zero federal funds rate policy to continue through 2014, anchoring the short end of the yield curve. We expect the Federal Reserve will recognize the limits and hazards inherent in quantitative easing and slow the policy, resulting in higher long rates and a steeper yield curve. We expect economic growth to continue to strengthen modestly. However, the Federal Reserve is not yet able to justify an end to its near-zero Federal Funds rate policy. While US economic growth, equity prices, housing, and auto sectors may have improved, quantitative easing has proven less effective at boosting real wages, employment, debt reduction, the velocity of money, and inflation. Cyclical upward pressure on inflation and interest rates has been and will continue to be modest. It is essential for bond investors to recognize the difference between a normalization of bond yields after a period of deliberate suppression by the Federal Reserve and a cyclical bottom in rates based on rising wages and inflation. We expect the former and not the latter.
The US taxable yield curve today is consistently steep and near historically wide spreads. We expect the curve can widen further in 2014. However, higher long yields will generate global demand from retirees and underfunded pensions sufficient to keep a ceiling on long rates and a floor under long bond prices. The reemergence of positive real rates and continued stable low inflation imply today is not the time to shy away from long bonds. The Fund expects to maintain and/or extend duration in the coming year.
Credit spreads ended 2013 at their narrowest levels of the year. Despite a move to modestly higher yields and a steeper yield curve, we expect corporate bonds and taxable municipal bonds will continue to outperform US Treasury and Agency paper even if only by a narrow margin. We expect to maintain the overall credit quality of the portfolio at current level as the risk/return ratio of lower-rated paper has now become less appealing.
Management Fee Calculations
The Sextant Bond Income Fund calculates the performance part of its management fee by comparing the Fund's return to the return of Morningstar's™ "Long-Term Bond" category. The Fund's 12-month return (-3.59%) was more than 2% above the Morningstar™ category average (-5.92%) at month-end November 30, 2013. Therefore, the basic annual management fee of 0.60% was increased by the maximum 0.20% to 0.80% for the month of December 2013. Note that significant portions of the Fund's expenses are waived due to the adviser's voluntary cap on total Fund expenses.
November 30, 2013 Annual Report | 13 |
Sextant Bond Income Fund
Schedule of Investments | ||||
Corporate Bonds — 51.4% | Coupon/Maturity | Face Amount | Market Value | Percentage of Assets |
Consumer Discretionary | ||||
Auto Retail Stores | ||||
AutoZone | 5.50% due 11/15/2015 | $95,000 | $103,284 | 1.5% |
95,000 | 103,284 | 1.5% | ||
Consumer Staples | ||||
Pharmacies & Drug Stores | ||||
CVS Caremark | 6.25% due 06/01/2027 | 200,000 | 235,757 | 3.3% |
200,000 | 235,757 | 3.3% | ||
Energy | ||||
Exploration & Production | ||||
Canadian Natural Resources | 6.45% due 06/30/2033 | 225,000 | 255,024 | 3.6% |
Integrated Oils | ||||
ConocoPhillips | 6.00% due 01/15/2020 | 150,000 | 176,695 | 2.5% |
StatoilHydro | 2.90% due 10/15/2014 | 200,000 | 204,283 | 2.9% |
350,000 | 380,978 | 5.4% | ||
Oil & Gas Services | ||||
Baker Hughes | 6.875% due 01/15/2029 | 100,000 | 125,682 | 1.7% |
675,000 | 761,684 | 10.7% | ||
Financials | ||||
Banks | ||||
Bank of Nova Scotia Yankee | 3.00% due 11/16/2026 | 250,000 | 249,702 | 3.5% |
Institutional Brokerage | ||||
Paine Webber Group | 7.625% due 02/15/2014 | 50,000 | 50,450 | 0.7% |
UBS AG Stamford CT | 7.75% due 09/01/2026 | 200,000 | 248,745 | 3.5% |
250,000 | 299,195 | 4.2% | ||
Property & Casualty | ||||
St. Pauls Travelers Insurance | 5.50% due 12/01/2015 | 125,000 | 136,981 | 1.9% |
625,000 | 685,878 | 9.6% | ||
Health Care | ||||
Generic Pharmaceuticals | ||||
Teva Pharmaceutical | 3.65% due 11/10/2021 | 250,000 | 245,082 | 3.5% |
Large Pharmaceuticals | ||||
Merck & Co. (Schering) | 6.50% due 12/01/2033 | 215,000 | 270,574 | 3.8% |
Pharmacia | 6.50% due 12/01/2018 | 100,000 | 122,409 | 1.7% |
315,000 | 392,983 | 5.5% | ||
565,000 | 638,065 | 9.0% | ||
Continued on next page. |
14 | Annual Report November 30, 2013 | The accompanying notes are an integral part of these financial statements. |
Sextant Bond Income Fund
Schedule of Investments | ||||
Corporate Bonds — 51.4% | Coupon/Maturity | Face Amount | Market Value | Percentage of Assets |
Industrials | ||||
Agricultural Machinery | ||||
Deere & Company | 8.10% due 05/15/2030 | $95,000 | $131,548 | 1.8% |
Commercial Aircraft | ||||
Boeing | 6.125% due 02/15/2033 | 215,000 | 256,120 | 3.6% |
310,000 | 387,668 | 5.4% | ||
Materials | ||||
Basic & Diversified Chemicals | ||||
Air Products & Chemicals | 8.75% due 04/15/2021 | 50,000 | 65,423 | 0.9% |
Raw Material Suppliers | ||||
BHP Finance USA | 5.25% due 12/15/2015 | 125,000 | 136,132 | 1.9% |
175,000 | 201,555 | 2.8% | ||
Utilities | ||||
Integrated Utilities | ||||
Entergy Louisiana | 5.40% due 11/01/2024 | 200,000 | 227,568 | 3.2% |
Florida Power & Light | 5.95% due 10/01/2033 | 100,000 | 119,732 | 1.7% |
300,000 | 347,300 | 4.9% | ||
Power Generation | ||||
Puget Sound Energy | 7.02% due 12/01/2027 | 237,000 | 301,615 | 4.2% |
537,000 | 648,915 | 9.1% | ||
Total Corporate Bonds | 3,182,000 | 3,662,806 | 51.4% | |
Foreign Government Bonds — 3.1% | Coupon/Maturity | Face Amount | Market Value | Percentage of Assets |
Canadian Government | ||||
Quebec Canada Yankee | 7.125% due 02/09/2024 | 175,000 | 222,867 | 3.1% |
175,000 | 222,867 | 3.1% | ||
Municipal Bonds — 33.2% | Coupon/Maturity | Face Amount | Market Value | Percentage of Assets |
General Obligation | ||||
Blaine Co. ID SCD #61 Hailey | 5.25% due 08/01/2020 | 250,000 | 279,777 | 3.9% |
City of Burlington Taxable GO 2009 Series B | 5.75% due 11/01/2028 | 160,000 | 142,998 | 2.0% |
Dell Rapids SCD 49-3 | 6.257% due 01/15/2030 | 200,000 | 219,138 | 3.1% |
Dupage Co. IL SCD #502 | 5.50% due 01/01/2026 | 150,000 | 164,270 | 2.3% |
Idaho Hsg. & Fin. GARVEE BAB A-2 | 5.379% due 07/15/2020 | 180,000 | 199,292 | 2.8% |
Milan Co. MI Area Schools | 6.45% due 05/01/2024 | 150,000 | 167,018 | 2.4% |
San Marcos Texas ULTD GO BAB | 6.028% due 08/15/2030 | 200,000 | 211,712 | 3.0% |
Springville UT GO BAB | 5.30% due 05/01/2031 | 240,000 | 244,841 | 3.4% |
1,530,000 | 1,629,046 | 22.9% | ||
Continued on next page. |
The accompanying notes are an integral part of these financial statements. | November 30, 2013 Annual Report | 15 |
Sextant Bond Income Fund
Schedule of Investments | ||||
Municipal Bonds — 33.2% | Coupon/Maturity | Face Amount | Market Value | Percentage of Assets |
Revenue | ||||
American Municipal Power Ohio Rev. | 7.20% due 02/15/2029 | $250,000 | $293,970 | 4.1% |
Johnson Co. KS Bldg. Ls./Pr. REV. BAB | 4.60% due 09/01/2026 | 250,000 | 253,500 | 3.6% |
Oklahoma City Fin. Auth. Ed. Lease Rev. | 6.60% due 09/01/2022 | 160,000 | 183,638 | 2.6% |
660,000 | 731,108 | 10.3% | ||
Total Municipal Bonds | 2,190,000 | 2,360,154 | 33.2% | |
US Government Bonds — 5.4% | Coupon/Maturity | Face Amount | Market Value | Percentage of Assets |
Treasury Notes | ||||
United States Treasury Note | 1.00% due 11/30/2019 | 400,000 | 382,375 | 5.4% |
400,000 | 382,375 | 5.4% | ||
Total investments | (Cost = $6,434,367) | $5,947,000 | 6,628,202 | 93.1% |
Other assets (net of liabilities) | 489,229 | 6.9% | ||
Total net assets | $7,117,431 | 100.0% |
Bond Quality Diversification |
Based on total net assets as of 11/30/2013. Source: Moody's Investors Services. |
16 | Annual Report November 30, 2013 | The accompanying notes are an integral part of these financial statements. |
Sextant Bond Income Fund
Statement of Assets and Liabilities | |
As of November 30, 2013 | |
Assets | |
Investments in securities, at value (Cost $6,434,367) | $6,628,202 |
Cash | 407,591 |
Interest receivable | 88,213 |
Receivable for Fund shares sold | 1,282 |
Insurance reserve premium | 400 |
Total assets | 7,125,688 |
Liabilities | |
Payable to affiliates | 5,698 |
Accrued expenses | 1,905 |
Accrued distribution fee | 486 |
Distributions payable | 168 |
Total liabilities | 8,257 |
Net assets | $7,117,431 |
Analysis of net assets | |
Paid-in capital (unlimited shares authorized, without par value) | $6,961,451 |
Accumulated net realized loss | (37,855) |
Unrealized net appreciation on investments | 193,835 |
Net assets applicable to Fund shares outstanding | $7,117,431 |
Fund shares outstanding | 1,410,638 |
Net asset value, offering and redemption price per share | $5.05 |
Statement of Operations | |
Year ended November 30, 2013 | |
Investment income | |
Interest income | $305,916 |
Gross investment income | 305,916 |
Expenses | |
Investment adviser fees | 36,385 |
Distribution fees | 18,579 |
Filing and registration fees | 15,048 |
Audit fees | 5,003 |
Printing and postage | 1,981 |
Retirement plan custodial fees | 1,926 |
Chief Compliance Officer expenses | 1,534 |
Trustee fees | 1,325 |
Other expenses | 742 |
Legal fees | 366 |
Custodian fees | 348 |
Total gross expenses | 83,237 |
Less adviser fees waived | (16,676) |
Less custodian fee credits | (348) |
Net expenses | 66,213 |
Net investment income | $239,703 |
Net realized gain on securities sold | $804 |
Net decrease in unrealized appreciation on investments | (518,569) |
Net loss on investments | $(517,765) |
Net decrease in net assets resulting from operations | $(278,062) |
The accompanying notes are an integral part of these financial statements. | November 30, 2013 Annual Report | 17 |
Sextant Bond Income Fund
Statements of Changes in Net Assets | Year ended Nov. 30, 2013 | Year ended Nov. 30, 2012 |
Increase (decrease) in net assets from operations | ||
From operations | ||
Net investment income | $239,703 | $235,934 |
Net realized gain on investments | 804 | 1,393 |
Net increase (decrease) in unrealized appreciation | (518,569) | 301,371 |
Net increase (decrease) in net assets | (278,062) | 538,698 |
Distributions to shareholders from | ||
Net investment income | (239,703) | (236,032) |
Capital share transactions | ||
Proceeds from sales of shares | 696,753 | 1,153,680 |
Value of shares issued in reinvestment of dividends | 236,870 | 233,164 |
Early redemption fees retained | - | 412 |
Cost of shares redeemed | (1,220,041) | (554,753) |
Net increase (decrease) in net assets | (286,418) | 832,503 |
Total increase (decrease) in net assets | (804,183) | 1,135,169 |
Net assets | ||
Beginning of year | 7,921,614 | 6,786,445 |
End of year | $7,117,431 | $7,921,614 |
Shares of the Fund sold and redeemed | ||
Number of shares sold | 132,048 | 217,617 |
Number of shares issued in reinvestment of dividends | 45,578 | 43,756 |
Number of shares redeemed | (231,174) | (104,519) |
Net increase (decrease) in number of shares outstanding | (53,548) | 156,854 |
Financial Highlights | For year ended November 30, | ||||
Selected data per share of outstanding capital stock throughout each year: | 2013 | 2012 | 2011 | 2010 | 2009 |
Net asset value at beginning of year | $5.41 | $5.19 | $5.03 | $4.96 | $4.46 |
Income from investment operations | |||||
Net investment income | 0.17 | 0.17 | 0.18 | 0.19 | 0.21 |
Net gain (loss) on securities (both realized and unrealized) | (0.36) | 0.22 | 0.16 | 0.07 | 0.50 |
Total from investment operations | (0.19) | 0.39 | 0.34 | 0.26 | 0.71 |
Less distributions | |||||
Dividends (from net investment income) | (0.17) | (0.17) | (0.18) | (0.19) | (0.21) |
Total distributions | (0.17) | (0.17) | (0.18) | (0.19) | (0.21) |
Paid-in capital from early redemption fees | - | - | 0.001 | 0.001 | - |
Net asset value at end of year | $5.05 | $5.41 | $5.19 | $5.03 | $4.96 |
Total return | (3.59)% | 7.64% | 6.95% | 5.43% | 16.33% |
Ratios / supplemental data | |||||
Net assets ($000), end of year | $7,117 | $7,922 | $6,786 | $5,418 | $3,951 |
Ratio of expenses to average net assets | |||||
Before fee waivers and custodian fee credits | 1.12% | 1.36% | 1.26% | 1.24% | 1.70% |
After fee waivers | 0.90% | 0.91% | 0.91% | 0.91% | 0.90% |
After fee waivers and custodian fee credits | 0.89% | 0.90% | 0.90% | 0.90% | 0.89% |
Ratio of net investment income after fee waivers and custodian fee credits to average net assets | 3.23% | 3.23% | 3.56% | 3.89% | 4.46% |
Portfolio turnover rate | 8% | 6% | 14% | 10% | 38% |
1Amount is less than $0.01 |
18 | Annual Report November 30, 2013 | The accompanying notes are an integral part of these financial statements. |
Sextant Core Fund
Performance Summary (unaudited)
Average Annual Returns (as of November 30, 2013) | ||||
10 Year | 5 Year | 1 Year | Expense Ratio1 | |
Sextant Core Fund | n/a | 9.74% | 10.96% | 1.32% |
Dow Jones Moderate US Portfolio Index | 7.42% | 13.21% | 14.97% | n/a |
Growth of $10,000
Comparison of any mutual fund to a market index must be made bearing in mind that the index is unmanaged, and expense-free. Conversely, the Fund will (1) be actively managed; (2) have an objective other than mirroring the index, such as limiting risk; (3) bear transaction and other costs; (4) stand ready to buy and sell its securities to shareowners on a daily basis; and (5) provide a wide range of services. The graph compares $10,000 invested in the Fund on March 30, 2007 to an identical amount invested in the Dow Jones Moderate Portfolio Index, a broad-based index of stock and bond prices. The graph shows that an investment in the Fund would have risen to $13,163 versus $14,186 in the index. | |
Past performance does not guarantee future results. The "Growth of $10,000" graph and "Average Annual Returns" performance table assume the reinvestment of dividends and capital gains. They do not reflect the deduction of taxes that a shareowner might pay on fund distributions or the redemption of fund shares. 1 By regulation, the expense ratio for the Fund shown in this table is as of the Fund's most recent prospectus, which is dated March 22, 2013 and incorporates results for the fiscal year ended November 30, 2012. The ratio presented in this table differs from the expense ratios shown elsewhere in this report as they represent different fiscal periods. |
Fund Objective
The objectives of the Core Fund are long-term appreciation and capital preservation.
Portfolio Diversification | Top Ten Holdings | ||
% of total net assets | |||
Industry weightings are shown as a percentage of total net assets. | Bellsouth Capital Funding 7.875% due 02/15/2030 | 2.6% | |
3M | 2.3% | ||
ConocoPhillips | 2.1% | ||
Chubb | 2.1% | ||
Nike | 2.0% | ||
Express Scripts | 2.0% | ||
Sanofi-Aventis ADS | 1.9% | ||
ADT Corp 4.125% due 06/15/2023 | 1.9% | ||
Tyco International 8.50% due 01/15/2019 | 1.8% | ||
Williams Companies | 1.8% | ||
November 30, 2013 Annual Report | 19 |
Sextant Core Fund
Discussion of Fund Performance (unaudited)
(photo omitted)
Peter Nielsen MBA, CFA, CIPM
Portfolio Manager
Fiscal Year 2013
Risk appetite was fueled by further Federal Reserve asset purchase programs, producing an outsized gain for the equity markets. For the fiscal year, the S&P 500 Index returned 30.30%. US markets were favored due to economic stability along with improving economic growth. As with the prior fiscal year, the main driver of stock returns was the growth in valuation multiples. The S&P 500 Index started the fiscal year trading at 14.2x earnings and ended at 17.0x earnings. Future gains will require earnings growth, though in this age of activist central bankers it is impossible to discount further increases in investor risk appetite.
The Sextant Core Fund produced a solid 10.96% total return. This lagged the benchmark Dow Jones Moderate Portfolio Index by 4.01%, as the portfolio remains conservative in its equity allocation. With inflation expectations remaining stable, there is little apparent concern over the longer-term impacts of unconventional monetary policy. No one really knows what the effects of these policies are as we have ventured down a path not taken before. With some signs that the Federal Reserve will now reduce its asset purchases, markets may react negatively. With the world afloat in a sea of capital that can move quickly, policy changes have the potential for unexpected impacts on the global capital markets.
As is our focus, we remain committed to a bottom-up investment process that identifies companies having solid fundamentals and only investing at valuations that provide for a margin of safety, believing that, in the long run, investors will benefit from an investment strategy that remains disciplined as well as broadly diversified. On the point of valuation, it is becoming increasingly difficult to identify opportunities that have the margin of safety given the run-up in prices.
Factors Affecting Past Performance
Equities
Sector allocation largely explains the lagging performance of the Fund in fiscal 2013. The fund was underweight the Information Technology, Financials, and the Consumer Discretionary sectors, and the performance differentials of these three sectors effectively explain the variance in performance between the Fund and benchmark. The fund increased its exposure to Financials during the year though it remained underweight relative to broad benchmarks. We continue to be overweight the Health Care sector, which performed well as the market anticipates the arrival of new demand via the implementation of the Affordable Care Act in 2014. The Utility sector did well and added value through investments in assets that continue to show the potential for future earnings growth.
Fixed Income
The bond portfolio maintained its lower-than-benchmark duration, and this benefited investors during the year as benchmark rates started the year at depressed levels and generally rose as the months passed. The Sextant Core Fund also benefited by taking measured credit risk and not investing in US Treasurys. The spread between Treasurys and corporate bonds continued to narrow, and this resulted in superior performance for the Fund. Lastly, recognizing the opportunities presented in the yield curve, the Fund has taken some key rate risk that has produced opportunities for capital appreciation despite the rising rate environment.
Looking Forward
As fast as investors sought out fixed income products in 2012, they shunned them in 2013. Investor mania currently favors equities though their timing is often wrong. It is difficult to manage the risk of missing exposure to a rising equity market relative to the safety of low-yielding, lower-risk fixed income investments. However, balanced funds such as the Sextant Core Fund with its mandated asset mix inherently manage this risk without attempting to time the market in terms of asset class selection.
The Fund benefited from risk-seeking behavior in its fixed income allocation as spreads compressed. This is unlikely to continue much longer. The outsized gains in fixed income are behind us. While forecasters have typically been overly pessimistic on fixed income rates in past years, estimates for 2014 appear to be a reasonable indicator of what is probably the single biggest risk for fixed income investors (barring exogenous macro factors) — rising yields. We will seek to take some key rate risk to offset some of the drag from the potential rise in interest rates.
As for corporate profits, current expectations are for high single-digit earnings growth based on aggregate bottom-up estimates. Comments from the management of many companies suggest that economic growth continues to be weak and sometimes elusive. In a low-growth environment, earnings quality, dividend growth, and value matter all the more in terms of achieving steady, long-term investment returns.
Management Fee Calculations
The Sextant Core Fund calculates the performance part of its management fee by comparing the Fund's return to the return of Morningstar's™ "Moderate Allocation" category. The Fund's 12-month return (10.96%) was more than four percent below the Morningstar™ category average (16.48%) as of November 30, 2013. Therefore, the basic 0.60% annual management fee was reduced to 0.30% for the month of December 2013.
20 | Annual Report November 30, 2013 |
Sextant Core Fund
Schedule of Investments | ||||||
Common Stocks — 60.3% | Number of Shares | Cost | Market Value | Country1 | Percentage of Assets | |
Communications | ||||||
Telecom Carriers | ||||||
AT&T | 3,000 | $92,759 | $105,630 | 1.5% | ||
Telenor | 1,000 | 23,202 | 24,040 | Norway | 0.4% | |
Vodafone Group ADS | 2,500 | 64,150 | 92,725 | United Kingdom | 1.3% | |
180,111 | 222,395 | 3.2% | ||||
Consumer Discretionary | ||||||
Apparel, Footwear, Accessory Design | ||||||
Nike | 1,800 | 51,646 | 142,452 | 2.0% | ||
Prada ADR | 3,500 | 70,259 | 68,250 | Italy | 1.0% | |
121,905 | 210,702 | 3.0% | ||||
E-Commerce Discretionary | ||||||
eBay² | 2,000 | 105,719 | 101,040 | 1.4% | ||
Home Improvement | ||||||
Stanley Black & Decker | 446 | 29,654 | 36,300 | 0.5% | ||
Home Products Stores | ||||||
Lowe's | 1,400 | 39,433 | 66,472 | 1.0% | ||
Passenger Transportation | ||||||
LATAM Airlines ADS | 5,000 | 73,671 | 80,550 | Chile | 1.2% | |
370,382 | 495,064 | 7.1% | ||||
Consumer Staples | ||||||
Beverages | ||||||
Ambev ADR | 10,000 | 60,610 | 75,600 | Brazil | 1.1% | |
PepsiCo | 1,000 | 66,423 | 84,460 | 1.2% | ||
127,033 | 160,060 | 2.3% | ||||
Food Manufacturing | ||||||
General Mills | 2,000 | 57,764 | 100,860 | 1.4% | ||
Household Products Manufacturing | ||||||
Kimberly-Clark | 925 | 61,586 | 100,973 | 1.5% | ||
Procter & Gamble | 900 | 58,842 | 75,798 | 1.1% | ||
Unilever ADS | 1,850 | 58,335 | 74,925 | United Kingdom | 1.1% | |
178,763 | 251,696 | 3.7% | ||||
363,560 | 512,616 | 7.4% | ||||
Energy | ||||||
Exploration & Production | ||||||
Devon Energy | 1,800 | 116,362 | 109,116 | 1.6% | ||
Integrated Oils | ||||||
ConocoPhillips | 2,000 | 103,522 | 145,600 | 2.1% | ||
Statoil ADS | 3,003 | 71,749 | 67,688 | Norway | 1.0% | |
Total ADS | 1,100 | 60,836 | 66,352 | France | 0.9% | |
236,107 | 279,640 | 4.0% | ||||
Continued on next page. |
The accompanying notes are an integral part of these financial statements. | November 30, 2013 Annual Report | 21 |
Sextant Core Fund
Schedule of Investments | ||||||
Common Stocks — 60.3% | Number of Shares | Cost | Market Value | Country¹ | Percentage of Assets | |
Energy (continued) | ||||||
Midstream — Oil & Gas | ||||||
Williams Companies | 3,500 | $55,989 | $123,270 | 1.8% | ||
408,458 | 512,026 | 7.4% | ||||
Financials | ||||||
Banks | ||||||
PNC Bank | 1,250 | 83,780 | 96,187 | 1.4% | ||
Toronto-Dominion Bank | 1,000 | 72,240 | 91,410 | Canada | 1.3% | |
156,020 | 187,597 | 2.7% | ||||
Property & Casualty | ||||||
Chubb | 1,500 | 95,336 | 144,675 | 2.1% | ||
251,356 | 332,272 | 4.8% | ||||
Health Care | ||||||
Health Care Supply Chain | ||||||
Express Scripts2 | 2,000 | 78,650 | 134,700 | 2.0% | ||
Large Pharmaceuticals | ||||||
Abbott Laboratories | 2,000 | 66,354 | 76,380 | 1.1% | ||
AbbVie | 1,000 | 32,536 | 48,450 | 0.7% | ||
Johnson & Johnson | 900 | 54,761 | 85,194 | 1.2% | ||
Novartis ADS | 1,500 | 78,080 | 118,680 | Switzerland | 1.7% | |
Novo Nordisk ADS | 400 | 18,098 | 71,492 | Denmark | 1.0% | |
Sanofi-Aventis ADS | 2,537 | 105,823 | 134,030 | France | 1.9% | |
355,652 | 534,226 | 7.6% | ||||
434,302 | 668,926 | 9.6% | ||||
Industrials | ||||||
Fabricating Metal & Hardware Manufacturing | ||||||
Valmont Industries | 750 | 100,938 | 108,533 | 1.5% | ||
Flow Control Equipment | ||||||
Parker Hannifin | 500 | 29,672 | 58,920 | 0.8% | ||
Infrastructure Construction | ||||||
Companhia de Concessoes Rodoviarias | 1,500 | 11,839 | 11,850 | Brazil | 0.2% | |
Industrial Automation Controls | ||||||
Honeywell International | 1,250 | 67,321 | 110,637 | 1.6% | ||
Rail Freight Transportation | ||||||
Canadian National Railway | 800 | 40,237 | 90,000 | Canada | 1.3% | |
Norfolk Southern | 1,000 | 71,852 | 87,690 | 1.3% | ||
112,089 | 177,690 | 2.6% | ||||
321,859 | 467,630 | 6.7% | ||||
Continued on next page. |
22 | Annual Report November 30, 2013 | The accompanying notes are an integral part of these financial statements. |
Sextant Core Fund
Schedule of Investments | ||||||
Common Stocks — 60.3% | Number of Shares | Cost | Market Value | Country¹ | Percentage of Assets | |
Materials | ||||||
Basic & Diversified Chemicals | ||||||
Praxair | 700 | $44,349 | $88,382 | 1.3% | ||
Containers & Packaging Manufacturing | ||||||
3M | 1,200 | 104,586 | 160,212 | 2.3% | ||
Raw Materials Suppliers | ||||||
BHP Billiton ADS | 650 | 31,866 | 44,343 | Australia | 0.6% | |
Specialty Chemicals | ||||||
BASF ADR | 400 | 22,550 | 42,776 | Germany | 0.6% | |
RPM International | 2,000 | 51,772 | 79,200 | 1.1% | ||
74,322 | 121,976 | 1.7% | ||||
Steel Producers | ||||||
Nucor | 800 | 48,085 | 40,848 | 0.6% | ||
303,208 | 455,761 | 6.5% | ||||
Technology | ||||||
Communications Equipment | ||||||
Cisco Systems | 3,000 | 63,266 | 63,750 | 0.9% | ||
Semiconductor Devices | ||||||
Qualcomm | 1,500 | 91,113 | 110,370 | 1.6% | ||
Semiconductor Manufacturing Services | ||||||
Taiwan Semiconductor ADS | 4,534 | 39,575 | 80,388 | Taiwan | 1.2% | |
193,954 | 254,508 | 3.7% | ||||
Utilities | ||||||
Integrated Utilities | ||||||
NextEra Energy | 1,250 | 90,644 | 105,737 | 1.5% | ||
Power Generation | ||||||
NRG Energy | 3,000 | 65,841 | 79,380 | 1.1% | ||
Utility Networks | ||||||
Sempra Energy | 1,000 | 67,669 | 88,440 | 1.3% | ||
224,154 | 273,557 | 3.9% | ||||
Total Common Stocks | $3,051,344 | $4,194,755 | 60.3% |
Derivatives — 0.0%3 | Number of Shares | Cost | Market Value | Country1 | Percentage of Assets |
Consumer Discretionary | |||||
Passenger Transportation | |||||
LATAM Airlines Rights2 | 448 | $ - | $399 | Chile | 0.0%3 |
$- | $399 | 0.0%3 | |||
Continued on next page. |
The accompanying notes are an integral part of these financial statements. | November 30, 2013 Annual Report | 23 |
Sextant Core Fund
Schedule of Investments | |||||
Corporate Bonds — 34.4% | Coupon / Maturity | Face Amount | Market Value | Percentage of Assets | |
Communications | |||||
Telecom Carriers | |||||
Bellsouth Capital Funding | 7.875% due 02/15/2030 | $150,000 | $177,787 | 2.6% | |
150,000 | 177,787 | 2.6% | |||
Consumer Discretionary | |||||
Commercial & Residential Building Equipment & Systems | |||||
ADT Corp | 4.125% due 06/15/2023 | 150,000 | 132,800 | 1.9% | |
150,000 | 132,800 | 1.9% | |||
Consumer Staples | |||||
Beverages | |||||
Coca Cola Hellenic | 5.50% due 09/17/2015 | 100,000 | 107,079 | 1.5% | |
100,000 | 107,079 | 1.5% | |||
Energy | |||||
Utility Networks | |||||
Boardwalk Pipelines | 5.50% due 02/01/2017 | 100,000 | 108,301 | 1.6% | |
100,000 | 108,301 | 1.6% | |||
Financials | |||||
Banks | |||||
Branch Banking & Trust | 5.625% due 09/15/2016 | 100,000 | 112,232 | 1.6% | |
Wilmington Trust Corp | 8.50% due 04/02/2018 | 100,000 | 120,145 | 1.7% | |
200,000 | 232,377 | 3.3% | |||
Commercial Finance | |||||
General Electric Capital | 5.35% due 04/15/2022 | 101,000 | 109,057 | 1.5% | |
Consumer Finance | |||||
American Express | 5.50% due 09/12/2016 | 100,000 | 111,944 | 1.6% | |
Western Union | 5.93% due 10/01/2016 | 30,000 | 33,536 | 0.5% | |
130,000 | 145,480 | 2.1% | |||
Insurance Services & Other | |||||
Partnerre Finance | 5.50% due 06/01/2020 | 100,000 | 109,573 | 1.6% | |
Investment Management | |||||
Blackstone Holdings | 5.875% due 03/15/2021 | 100,000 | 111,462 | 1.6% | |
Life Insurance | |||||
Genworth Financial | 5.75% due 06/15/2014 | 100,000 | 103,029 | 1.5% | |
Security & Commodity Exchanges | |||||
NASDAQ OMX Group | 5.55% due 01/15/2020 | 50,000 | 54,190 | 0.8% | |
781,000 | 865,168 | 12.4% | |||
Continued on next page. | |||||
24 | Annual Report November 30, 2013 | The accompanying notes are an integral part of these financial statements. |
Sextant Core Fund
Schedule of Investments | ||||
Corporate Bonds — 34.4% | Coupon/Maturity | Face Amount | Market Value | Percentage of Assets |
Industrials | ||||
Agricultural Machinery | ||||
John Deere Capital | 2.25% due 06/07/2016 | $100,000 | $103,740 | 1.5% |
Commercial & Residential Building Equipment & Systems | ||||
Tyco International | 8.50% due 01/15/2019 | 100,000 | 124,882 | 1.8% |
Construction & Mining Machinery | ||||
Joy Global | 6.00% due 11/15/2016 | 100,000 | 111,720 | 1.6% |
Industrial Automation Controls | ||||
Emerson Electric | 5.375% due 10/15/2017 | 100,000 | 114,950 | 1.6% |
Transportation Logistics Services | ||||
Ryder System | 5.85% due 11/01/2016 | 100,000 | 111,749 | 1.6% |
500,000 | 567,041 | 8.1% | ||
Materials | ||||
Chemicals Distribution | ||||
Air Products & Chemicals | 4.375% due 08/21/2019 | 100,000 | 109,436 | 1.6% |
100,000 | 109,436 | 1.6% | ||
Technology | ||||
Computer Hardware | ||||
Hewlett-Packard | 2.35% due 03/15/2015 | 100,000 | 101,753 | 1.4% |
Infrastructure Software | ||||
Oracle | 5.25% due 01/15/2016 | 100,000 | 109,591 | 1.6% |
IT Services | ||||
Computer Sciences | 6.50% due 03/15/2018 | 100,000 | 116,194 | 1.7% |
300,000 | 327,538 | 4.7% | ||
Total Corporate Bonds | 2,181,000 | 2,395,150 | 34.4% | |
Municipal Bonds — 3.1% | Coupon / Maturity | Face Amount | Market Value | Percentage of Assets |
General Obligation | ||||
Lake Washington SCD #414 WA BAB | 4.906% due 12/01/2027 | 100,000 | 106,210 | 1.5% |
Skagit SCD #1 | 4.613% due 12/01/2022 | 100,000 | 109,316 | 1.6% |
200,000 | 215,526 | 3.1% | ||
Total investments | (Cost = $5,643,504) | 6,805,830 | 97.8% | |
Other assets (net of liabilities) | 154,098 | 2.2% | ||
Total net assets | $6,959,928 | 100.0% | ||
1 Country of domicile unless otherwise indicated; equities are issued from U.S. domiciled companies where no Country is listed ADS: American Depositary Share |
The accompanying notes are an integral part of these financial statements. | November 30, 2013 Annual Report | 25 |
Sextant Core Fund
Statement of Assets and Liabilities | |
As of November 30, 2013 | |
Assets | |
Investments in securities, at value (Cost $5,643,504) | $6,805,830 |
Cash | 115,354 |
Dividends and interest receivable | 47,196 |
Receivable for Fund shares sold | 5,548 |
Total assets | 6,973,928 |
Liabilities | |
Accrued expenses | 5,724 |
Payable to affiliates | 5,401 |
Payable for Fund shares redeemed | 2,400 |
Accrued distribution fee | 475 |
Total liabilities | 14,000 |
Net assets | $6,959,928 |
Analysis of net assets | |
Paid-in capital (unlimited shares authorized, without par value) | $5,977,027 |
Undistributed net investment income | (3,277) |
Accumulated net realized loss | (176,144) |
Unrealized net appreciation on investments | 1,162,322 |
Net assets applicable to Fund shares outstanding | $6,959,928 |
Fund shares outstanding | 590,581 |
Net asset value, offering and redemption price per share | $11.78 |
Statement of Operations | |
Year ended November 30, 2013 | |
Investment income | |
Dividends (net of foreign tax of $3,937) | $100,951 |
Interest income | 93,074 |
Gross investment income | 194,025 |
Expenses | |
Investment adviser fees | 23,457 |
Filing and registration fees | 19,029 |
Distribution fees | 18,066 |
Audit fees | 5,001 |
Retirement plan custodial fees | 1,821 |
Printing and postage | 1,677 |
Chief Compliance Officer expenses | 1,428 |
Trustee fees | 1,239 |
Other expenses | 681 |
Legal fees | 350 |
Custodian fees | 332 |
Total gross expenses | 73,081 |
Less custodian fee credits | (332) |
Net expenses | 72,749 |
Net investment income | $121,276 |
Net realized gain from investments and foreign currency | $201,245 |
Net increase in unrealized appreciation on investments and foreign currency | 426,769 |
Net gain on investments | $628,014 |
Net increase in net assets resulting from operations | $749,290 |
Bond Quality Diversification |
Based on total net assets as of 11/30/2013. Source: Moody's Investors Services. |
26 | Annual Report November 30, 2013 | The accompanying notes are an integral part of these financial statements. |
Sextant Core Fund
Statements of Changes in Net Assets | Year ended Nov. 30, 2013 | Year ended Nov. 30, 2012 |
Increase (decrease) in net assets from operations | ||
From operations | ||
Net investment income | $121,276 | $85,291 |
Net realized gain (loss) on investments | 201,245 | (154,316) |
Net increase in unrealized appreciation | 426,769 | 405,990 |
Net increase in net assets | 749,290 | 336,965 |
Distributions to shareholders from | ||
Net investment income | (124,229) | (87,854) |
Capital share transactions | ||
Proceeds from sales of shares | 992,609 | 1,285,048 |
Value of shares issued in reinvestment of dividends | 124,229 | 87,854 |
Cost of shares redeemed | (1,900,829) | (305,399) |
Net increase (decrease) in net assets | (783,991) | 1,067,503 |
Total increase (decrease) in net assets | (158,930) | 1,316,614 |
Net assets | ||
Beginning of year | 7,118,858 | 5,802,244 |
End of year | 6,959,928 | 7,118,858 |
Undistributed net investment income | $(3,277) | $- |
Shares of the Fund sold and redeemed | ||
Number of shares sold | 87,483 | 118,266 |
Number of shares issued in reinvestment of dividends | 10,546 | 8,127 |
Number of shares redeemed | (166,124) | (28,120) |
Net increase (decrease) in number of shares outstanding | (68,095) | 98,273 |
Financial Highlights | For year ended November 30, | ||||
Selected data per share of outstanding capital stock throughout each year: | 2013 | 2012 | 2011 | 2010 | 2009 |
Net asset value at beginning of year | $10.81 | $10.35 | $10.06 | $9.58 | $7.97 |
Income from investment operations | |||||
Net investment income | 0.20 | 0.14 | 0.15 | 0.16 | 0.13 |
Net gain on securities (both realized and unrealized) | 0.98 | 0.46 | 0.29 | 0.48 | 1.61 |
Total from investment operations | 1.18 | 0.60 | 0.44 | 0.64 | 1.74 |
Less distributions | |||||
Dividends (from net investment income) | (0.21) | (0.14) | (0.15) | (0.16) | (0.13) |
Total distributions | (0.21) | (0.14) | (0.15) | (0.16) | (0.13) |
Paid-in capital from early redemption fees | - | - | 0.001 | 0.001 | - |
Net asset value at end of year | $11.78 | $10.81 | $10.35 | $10.06 | $9.58 |
Total return | 10.96% | 5.75% | 4.42% | 6.67% | 21.81% |
Ratios / supplemental data | |||||
Net assets ($000), end of year | $6,960 | $7,119 | $5,802 | $5,228 | $4,171 |
Ratio of expenses to average net assets | |||||
Before custodian fee credits | 1.01% | 1.32% | 1.14% | 1.21% | 1.78% |
After custodian fee credits | 1.01% | 1.32% | 1.13% | 1.21% | 1.78% |
Ratio of net investment income after custodian fee credits to average net assets | 1.68% | 1.29% | 1.56% | 1.74% | 1.57% |
Portfolio turnover rate | 29% | 19% | 13% | 13% | 40% |
1 Amount is less than $0.01 |
The accompanying notes are an integral part of these financial statements. | November 30, 2013 Annual Report | 27 |
Sextant Global High Income Fund
Performance Summary (unaudited)
Average Annual Returns (as of November 30, 2013) | ||||
10 Year | 5 Year | 1 Year | Expense Ratio1 | |
Sextant Global High Income Fund | n/a | n/a | 10.06% | 1.22% |
S&P Global 1200 Index | 8.30% | 16.02% | 26.33% | n/a |
Growth of $10,000
Comparison of any mutual fund to a market index must be made bearing in mind that the index is 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 compares $10,000 invested in the Fund on March 30, 2012 (the Fund's inception), to an identical amount invested in the S&P Global 1200 Index, a global stock market index covering nearly 70% of the world's equity markets. The graph shows that an investment in the Fund would have risen to $11,090 versus $12,362 in the index. | |
Past performance does not guarantee future results. The "Growth of $10,000" graph and "Average Annual Returns" performance table assume the reinvestment of dividends and capital gains. They do not reflect the deduction of taxes that a shareowner might pay on fund distributions or the redemption of fund shares. 1 By regulation, the expense ratio shown in this table is as of the Fund's most recent prospectus, which is dated March 22, 2013, and incorporates results for the fiscal year ended November 30, 2012, before fee waivers. The expense ratio shown in the most recent prospectus after fee waivers was 0.90%. The ratio presented in this table differs from expense ratios shown elsewhere in this report as they represent different periods. |
Fund Objective
The objectives of the Global High Income Fund are high income and capital preservation.
Portfolio Diversification | Top Ten Holdings | ||
% of total net assets | |||
Industry weightings are shown as a percentage of total net assets. | Whistler Blackcomb Holdings | 2.9% | |
Refresco Group 7.375% due 05/15/2018 | 2.9% | ||
San Miguel 4.875% due 04/26/2023 | 2.7% | ||
Daimler | 2.6% | ||
Hanesbrands 6.375% due 12/15/2020 | 2.6% | ||
Huntsman International 8.625% due 03/15/2020 | 2.5% | ||
Mexico Bonos Desarrollo 6.50% due 06/10/2021 | 2.5% | ||
Amkor Technology 7.375% due 05/01/2018 | 2.5% | ||
Vodafone Group ADS | 2.4% | ||
Allegheny Technologies Bond 5.875% due 05/15/2023 | 2.4% |
28 | Annual Report November 30, 2013 |
Sextant Global High Income Fund
Discussion of Fund Performance (unaudited)
(photo omitted)
Bryce Fegley CFA, CIPM
Co-Portfolio Manager
(photo omitted)
John Scott CFA
Co-Portfolio Manager
Fiscal Year 2013
The Sextant Global High Income Fund completed its first full fiscal year of operation on November 29, 2013. Total return for the fiscal year was 10.06%. On November 29, the Fund distributed qualified dividends of 22¢ per share, and income dividends of 17¢ per share. Together, this 39¢ distribution represented net investment income of 3.87% during the fiscal year. The 30-day SEC yield was 4.09% (3.69% without the adviser's expense cap subsidy) at fiscal year-end. The remaining portion of total return was the result of appreciation of portfolio holdings during the year.
Morningstar changed the Fund's peer group during the year, from World Allocation to Tactical Allocation, which returned 9.29% for the period.
Factors Affecting Past Performance
Entrenched Businesses
The Fund's strongest performances for the year came from its investments in common stocks of companies with strong dividend yields and entrenched businesses.
Company | Fiscal year total return | Competitive advantage |
Daimler | 76.77% | Premier luxury car brand |
SK Telecom | 65.52% | 50% share of Korea market |
Vodafone | 51.63% | Verizon value harvest |
Microchip Tech | 47.57% | Dominant processors |
Novartis | 32.15% | Stong pipeline, distribution |
Whistler Blackcomb | 27.93% | Premier ski resort |
The Fund maintained low exposure to US stocks during the fiscal year (about 8% of assets at the fiscal year end), which detracted from relative performance, as the S&P 500 returned 30.30%, compared to 25.36% for the MSCI EAFE (non-US developed world) and 3.66% for the MSCI Emerging Markets indices.
In contrast to their counterparts in other countries, US companies tend to allocate an increasing portion of their free cash flow toward share repurchases (buybacks), at the expense of dividends and capital expenditures.
Foreign Currencies
Looking Forward
Fixed Income
We believe a "natural" level for long-term US government bond rates is about 4%, comparable to our expectation for nominal economic growth (real GDP plus inflation). As the Fed begins scaling back its purchases of government bonds, investors who (unlike the Fed) are sensitive to the cost and return of capital should increasingly replace the marginal demand for these securities, pressuring interest rates gradually higher.
Equities
After a strong 2013, global equities are valued higher relative to current and prospective earnings than they were at the beginning of the previous year. As a result, we expect future returns to be commensurately lower. We will continue to search for and invest in companies that offer an attractive dividend yield, sustainable business, and potential to grow earnings at least in line with economic growth and inflation.
Foreign Currencies
The exposure of companies and their stocks to exchange rate changes can be mitigated by a number of factors, but no such relief exists for fixed-coupon bonds denominated in foreign currencies. Strong demand for natural resources from China over the past decade helped to drive up exchange rates in countries that produced those resources. Investors seeking higher interest rates and faster economic growth in regions such as Asia, Australia, and Latin America, also pressure exchange rates higher with their investment flows. As a result of these trends, we find that few currencies are attractive on the basis of their purchasing power relative to the US dollar, and purchasing power has been a strong long-term arbiter of exchange rates. Even after the considerable declines in exchange rates in countries such as India, Indonesia, and Turkey during 2013, we find their currencies to be unattractive, and we will continue to avoid them until this changes.
Management Fee Calculations
The Sextant Global High Income Fund calculates the performance part of its management fee by comparing the Fund's return to the return of Morningstar's™ "Tactical Allocation" category. The Fund's 12-month return (10.06%) was less than one percent above the Morningstar™ category average (9.29%) at month-end November 30, 2013. Therefore, the basic annual management fee of 0.60% was not performance-adjusted for the month of December 2013.
November 30, 2013 Annual Report | 29 |
Sextant Global High Income Fund
Schedule of Investments | |||||
Common Stocks — 42.5% | Number of Shares | Cost | Market Value | Country1 | Percentage of Assets |
Communications | |||||
Telecom Carriers | |||||
Orange | 5,900 | $84,351 | $76,582 | France | 1.2% |
Portugal Telecom ADS | 17,000 | 80,599 | 75,310 | Portugal | 1.2% |
SK Telecom ADS | 6,200 | 82,085 | 148,056 | South Korea | 2.3% |
Telenor | 5,000 | 102,390 | 120,200 | Norway | 1.9% |
Vodafone Group ADS | 4,200 | 114,996 | 155,778 | United Kingdom | 2.4% |
464,421 | 575,926 | 9.0% | |||
Consumer Discretionary | |||||
Automobile OEM | |||||
Daimler | 2,000 | 100,847 | 165,798 | Germany | 2.6% |
Lodging | |||||
Whistler Blackcomb Holdings | 12,000 | 129,651 | 186,908 | Canada | 2.9% |
230,498 | 352,706 | 5.5% | |||
Consumer Staples | |||||
Household Products Manufacturing | |||||
Unilever | 3,200 | 113,070 | 125,632 | Netherlands | 2.0% |
113,070 | 125,632 | 2.0% | |||
Energy | |||||
Integrated Oils | |||||
Royal Dutch Shell ADS | 1,900 | 125,543 | 126,730 | United Kingdom | 2.0% |
Total ADS | 2,200 | 113,753 | 132,704 | France | 2.1% |
239,296 | 259,434 | 4.1% | |||
Financials | |||||
Banks | |||||
Itau Unibanco Holding ADS | 6,600 | 83,886 | 92,862 | Brazil | 1.5% |
Malayan Banking | 32,000 | 93,555 | 97,115 | Malaysia | 1.5% |
NY Community Bancorp | 7,000 | 93,254 | 115,640 | United States | 1.8% |
270,695 | 305,617 | 4.8% | |||
Other Financial Services | |||||
Groupe Bruxelles Lambert | 1,600 | 124,499 | 141,678 | Belgium | 2.2% |
395,194 | 447,295 | 7.0% | |||
Health Care | |||||
Large Pharmaceuticals | |||||
GlaxoSmithKline ADS | 2,500 | 111,018 | 132,300 | United Kingdom | 2.1% |
Novartis ADS | 1,700 | 91,973 | 134,504 | Switzerland | 2.1% |
202,991 | 266,804 | 4.2% | |||
Industrials | |||||
Infrastructure Construction | |||||
Hopewell Highway Infrastructure | 225,000 | 117,330 | 109,955 | China | 1.7% |
117,330 | 109,955 | 1.7% | |||
Continued on next page. |
30 | Annual Report November 30, 2013 | The accompanying notes are an integral part of these financial statements. |
Sextant Global High Income Fund
Schedule of Investments | ||||||
Common Stocks — 42.5% | Number of Shares | Cost | Market Value | Country¹ | Percentage of Assets | |
Materials | ||||||
Precious Metal Mining | ||||||
Gold Fields ADS | 16,000 | $124,236 | $64,160 | South Africa | 1.0% | |
Sibanye Gold ADS | 2,000 | 13,944 | 9,900 | South Africa | 0.2% | |
138,180 | 74,060 | 1.2% | ||||
Specialty Chemicals | ||||||
BASF | 1,400 | 128,066 | 149,716 | Germany | 2.3% | |
266,246 | 223,776 | 3.5% | ||||
Technology | ||||||
Semiconductor Devices | ||||||
Microchip Technology | 3,500 | 111,383 | 151,515 | United States | 2.4% | |
111,383 | 151,515 | 2.4% | ||||
Utilities | ||||||
Electric & Gas Marketing & Trading | ||||||
E.ON ADR | 6,000 | 125,528 | 115,560 | Germany | 1.8% | |
Power Generation | ||||||
GDF Suez ADR | 3,600 | 93,286 | 83,664 | France | 1.3% | |
218,814 | 199,224 | 3.1% | ||||
Total Common Stocks | 2,359,243 | 2,712,267 | 42.5% |
Preferred Stocks — 7.4% | Number of Shares | Cost | Market Value | Country1 | Percentage of Assets |
Financials | |||||
Banks | |||||
Santander 10.50% Pfd Series 10 | 4,000 | 108,558 | 107,920 | Spain | 1.7% |
Institutional Brokerage | |||||
JPM Chase Capital Pfd C 6.70% | 5,000 | 128,707 | 129,150 | United States | 2.0% |
Morgan Stanley Cap Tr Cum Pfd 6.60% | 4,500 | 111,294 | 111,645 | United States | 1.8% |
240,001 | 240,795 | 3.8% | |||
Life Insurance | |||||
ING Groep 8.50% Pfd | 5,000 | 127,952 | 124,900 | Netherlands | 1.9% |
476,511 | 473,615 | 7.4% |
Corporate Bonds — 32.7% | Coupon / Maturity | Face Amount | Market Value | Country1 | Percentage of Assets |
Consumer Discretionary | |||||
Apparel, Footwear, Accessory Design | |||||
Hanesbrands | 6.375% due 12/15/2020 | 150,000 | 163,875 | United States | 2.6% |
Commercial & Residential Building Equipment & Systems | |||||
ADT Corp | 4.125% due 06/15/2023 | 150,000 | 132,800 | United States | 2.1% |
Consumer Electronics & Appliance Stores | |||||
Best Buy | 3.75% due 03/15/2016 | 62,000 | 64,170 | United States | 1.0% |
Continued on next page. |
The accompanying notes are an integral part of these financial statements. | November 30, 2013 Annual Report | 31 |
Sextant Global High Income Fund
Schedule of Investments | ||||||
Corporate Bonds — 32.7% | Coupon / Maturity | Face Amount | Market Value | Country¹ | Percentage of Assets | |
Consumer Discretionary (continued) | ||||||
Other Spec Retail — Discretionary | ||||||
Toys R Us Property Co. II | 8.50% due 12/01/2017 | $40,000 | $41,450 | United States | 0.6% | |
Specialty Apparel Stores | ||||||
GAP | 5.95% due 04/12/2021 | 100,000 | 110,830 | United States | 1.7% | |
502,000 | 513,125 | 8.0% | ||||
Consumer Staples | ||||||
Beverages | ||||||
San Miguel | 4.875% due 04/26/2023 | 200,000 | 171,000 | Philippines | 2.7% | |
Food Manufacturing | ||||||
Refresco Group | 7.375% due 05/15/2018 | 125,000 | 182,381 | Netherlands | 2.9% | |
Household Products Manufacturing | ||||||
Elizabeth Arden | 7.375% due 03/15/2021 | 47,000 | 51,289 | United States | 0.8% | |
372,000 | 404,670 | 6.4% | ||||
Energy | ||||||
Integrated Oils | ||||||
Petrobras International Finance | 6.875% due 01/20/2040 | 50,000 | 48,539 | Brazil | 0.8% | |
Petrobras International Finance | 6.75% due 07/27/2041 | 80,000 | 76,069 | Brazil | 1.2% | |
130,000 | 124,608 | 2.0% | ||||
Midstream — Oil & Gas | ||||||
Chesapeake Midstream Partners | 6.125% due 07/15/2020 | 125,000 | 134,063 | United States | 2.1% | |
Refining & Marketing | ||||||
Star Gas Partners | 8.875% due 12/01/2017 | 93,000 | 97,650 | United States | 1.5% | |
348,000 | 356,321 | 5.6% | ||||
Materials | ||||||
Basic & Diversified Chemicals | ||||||
Huntsman International | 8.625% due 03/15/2020 | 145,000 | 160,225 | United States | 2.5% | |
Precious Metal Mining | ||||||
Anglogold Ashanti Holdings | 5.375% due 04/15/2020 | 100,000 | 94,500 | South Africa | 1.5% | |
Steel Producers | ||||||
Allegheny Technologies Bond | 5.875% due 05/15/2023 | 150,000 | 152,750 | United States | 2.4% | |
395,000 | 407,475 | 6.4% | ||||
Technology | ||||||
Computer Hardware | ||||||
Hewlett Packard | 4.65% due 12/09/2021 | 100,000 | 102,754 | United States | 1.6% | |
Semiconductor Capital Equipment | ||||||
Amkor Technology | 7.375% due 05/01/2018 | 150,000 | 158,625 | United States | 2.5% | |
250,000 | 261,379 | 4.1% | ||||
Continued on next page. |
32 | Annual Report November 30, 2013 | The accompanying notes are an integral part of these financial statements. |
Sextant Global High Income Fund
Schedule of Investments | |||||
Corporate Bonds — 32.7% | Coupon / Maturity | Face Amount | Market Value | Country¹ | Percentage of Assets |
Utilities | |||||
Utility Networks | |||||
Iberdrola International Perpetual | 5.75% due 02/27/2049 | $100,000 | $142,675 | Spain | 2.2% |
100,000 | 142,675 | 2.2% | |||
Total Corporate Bonds | $1,967,000 | $2,085,645 | 32.7% | ||
Government Bonds — 6.2% | Coupon / Maturity | Face Amount | Market Value | Country1 | Percentage of Assets |
Foreign Government Bonds | |||||
Colombia Republic | 8.375% due 02/15/2027 | $125,000 | $145,625 | Colombia | 2.3% |
Mexico Bonos Desarrollo | 6.50% due 06/10/2021 | MXN 2,000,000 | 158,750 | Mexico | 2.5% |
Republic of South Africa | 8.25% due 09/15/2017 | ZAR 900,000 | 92,021 | South Africa | 1.4% |
396,396 | 6.2% | ||||
Municipal Bonds — 2.9% | Coupon / Maturity | Face Amount | Market Value | Country1 | Percentage of Assets |
General Obligation | |||||
Puerto Rico Commonwealth | 4.00% due 07/01/2021 | 120,000 | 92,196 | Puerto Rico | 1.4% |
Puerto Rico Commonwealth² | 4.125% due 07/01/2022 | 50,000 | 37,283 | Puerto Rico | 0.6% |
170,000 | 129,479 | 2.0% | |||
Revenue | |||||
Puerto Rico Aqueduct & Sewer² | 5.00% due 07/01/2019 | 70,000 | 57,263 | Puerto Rico | 0.9% |
70,000 | 57,263 | 0.9% | |||
Total Municipal Bonds | $240,000 | 186,742 | 2.9% | ||
Total investments | (Cost = $5,499,449) | 5,854,665 | 91.7% | ||
Other assets (net of liabilities) | 533,367 | 8.3% | |||
Total net assets | $6,388,032 | 100.0% | |||
¹ Country of domicile unless otherwise indicated. ² Indicates an odd lot. See note regarding odd lot securities on page 53. ADS: American Depositary Share |
Countries |
The accompanying notes are an integral part of these financial statements. | November 30, 2013 Annual Report | 33 |
Sextant Global High Income Fund
Statement of Assets and Liabilities | |
As of November 30, 2013 | |
Assets | |
Investments in securities, at value (Cost $5,499,449) | $5,854,665 |
Cash | 478,854 |
Dividends and interest receivable | 65,888 |
Receivable for Fund shares sold | 4,709 |
Total assets | 6,404,116 |
Liabilities | |
Payable for Fund shares redeemed | 6,632 |
Accrued expenses | 5,769 |
Distributions payable | 1,850 |
Payable to affiliates | 1,400 |
Accrued distribution fee | 433 |
Total liabilities | 16,084 |
Net assets | $6,388,032 |
Analysis of net assets | |
Paid-in capital (unlimited shares authorized, without par value) | $6,117,771 |
Undistributed net investment income | (14,826) |
Accumulated net realized loss | (70,213) |
Unrealized net appreciation on investments | 355,300 |
Net assets applicable to Fund shares outstanding | $6,388,032 |
Fund shares outstanding | 607,761 |
Net asset value, offering and redemption price per share | $10.51 |
Statement of Operations | |
Year ended November 30, 2013 | |
Investment income | |
Dividends (net of foreign tax of $22,115) | $151,753 |
Interest income | 110,439 |
Gross investment income | 262,192 |
Expenses | |
Investment adviser fees | 27,668 |
Filing and registration fees | 17,384 |
Distribution fees | 13,728 |
Audit fees | 5,001 |
Printing and postage | 1,437 |
Chief Compliance Officer expenses | 954 |
Trustee fees | 706 |
Custodian fees | 559 |
Retirement plan custodial fees | 446 |
Other expenses | 419 |
Legal fees | 103 |
Total gross expenses | 68,405 |
Less adviser fees waived | (18,287) |
Less custodian fee credits | (559) |
Net expenses | 49,559 |
Net investment income | $212,633 |
Net realized loss from investments and foreign currency | $(17,862) |
Net increase in unrealized appreciation on investments and foreign currency | 333,376 |
Net gain on investments | $315,514 |
Net increase in net assets resulting from operations | $528,147 |
Bond Quality Diversification |
Based on total net assets as of 11/30/2013. Source: Moody's Investors Services. |
34 | Annual Report November 30, 2013 | The accompanying notes are an integral part of these financial statements. |
Sextant Global High Income Fund
Statements of Changes in Net Assets | Year ended November 30, 2013 | Period ended November 30, 2012 |
Increase (decrease) in net assets from operations | ||
From operations | ||
Net investment income | $212,633 | $80,933 |
Net realized loss on investments | (17,862) | (51,900) |
Net increase in unrealized appreciation | 333,376 | 21,924 |
Net increase in net assets | 528,147 | 50,957 |
Distributions to shareholders from | ||
Net investment income | (226,294) | (82,549) |
Total distributions | (226,294) | (82,549) |
Capital share transactions | ||
Proceeds from sales of shares | 1,527,623 | 4,788,968 |
Value of shares issued in reinvestment of dividends | 224,444 | 82,372 |
Cost of shares redeemed | (395,684) | (109,952) |
Net increase in net assets | 1,356,383 | 4,761,388 |
Total increase in net assets | 1,658,236 | 4,729,796 |
Net assets | ||
Beginning of period | 4,729,796 | - |
End of period | 6,388,032 | 4,729,796 |
Undistributed net investment income | $(14,826) | $44 |
Shares of the Fund sold and redeemed | ||
Number of shares sold | 146,261 | 480,099 |
Number of shares issued in reinvestment of dividends | 21,355 | 8,321 |
Number of shares redeemed | (37,485) | (10,790) |
Net increase in number of shares outstanding | 130,131 | 477,630 |
Financial Highlights | Year ended | Period ended |
Selected data per share of outstanding capital stock throughout each period: | November 30, 2013 | November 30, 2012 |
Net asset value at beginning of period | $9.90 | $10.00 |
Income from investment operations | ||
Net investment income | 0.37 | 0.18 |
Net gain (loss) on securities (both realized and unrealized) | 0.63 | (0.10) |
Total from investment operations | 1.00 | 0.08 |
Less distributions | ||
Dividends (from net investment income) | (0.39) | (0.18) |
Total distributions | (0.39) | (0.18) |
Net asset value at end of period | $10.51 | $9.90 |
Total return | 10.06% | 0.76%¹ |
Ratios / supplemental data | ||
Net assets ($000), end of period | $6,388 | $4,730 |
Ratio of expenses to average net assets | ||
Before fee waivers | 1.25% | 1.22%² |
After fee waivers | 0.91% | 0.90%² |
After fee waivers and custodian fee credits | 0.90% | 0.90%² |
Ratio of net investment income after custodian fee credits to average net assets | 3.87% | 3.03%² |
Portfolio turnover rate | 23% | 32%¹ |
¹Since inception March 30, 2012; not annualized | ² Since inception March 30, 2012; annualized |
The accompanying notes are an integral part of these financial statements. | November 30, 2013 Annual Report | 35 |
Sextant Growth Fund
Performance Summary (unaudited)
Average Annual Returns (as of November 30, 2013) | ||||
10 Year | 5 Year | 1 Year | Expense Ratio¹ | |
Sextant Growth Fund | 8.05% | 14.67% | 29.39% | 1.10% |
S&P 500 Index | 7.68% | 17.58% | 30.30% | n/a |
Growth of $10,000
Comparison of any mutual fund to a market index must be made bearing in mind that the index is unmanaged, and expense-free. Conversely, the Fund will (1) be actively managed; (2) have an objective other than mirroring the index, such as limiting risk; (3) bear transaction and other costs; (4) stand ready to buy and sell its securities to shareowners on a daily basis; and (5) provide a wide range of services. The graph compares $10,000 invested in the Fund on November 30, 2003, to an identical amount invested in the S&P 500 Index, a broad-based stock market index. The graph shows that an investment in the Fund would have risen to $21,684 versus $20,970 in the index. | |
Past performance does not guarantee future results. The "Growth of $10,000" graph and "Average Annual Returns" performance table assume the reinvestment of dividends and capital gains. They do not reflect the deduction of taxes that a shareowner might pay on fund distributions or the redemption of fund shares. ¹ By regulation, the expense ratio for the Fund shown in this table is as of the Fund's most recent prospectus, which is dated March 22, 2013, and incorporates results for the fiscal year ended November 30, 2012. The ratio presented in this table differs from the expense ratios shown elsewhere in this report as they represent different fiscal periods. |
Fund Objective
The objective of the Growth Fund is long-term capital growth.
Portfolio Diversification | Top Ten Holdings | ||
% of total net assets | |||
Industry weightings are shown as a percentage of total net assets. | Amazon.com | 5.4% | |
Apple | 3.8% | ||
Delta Air Lines | 3.2% | ||
Apache | 3.0% | ||
eBay | 2.8% | ||
Johnson & Johnson | 2.6% | ||
Trimble Navigation | 2.5% | ||
Honeywell International | 2.4% | ||
F5 Networks | 2.4% | ||
Lincoln Electric | 2.4% |
36 | Annual Report November 30, 2013 |
Sextant Growth Fund
Discussion of Fund Performance (unaudited)
(graphic omitted)
Paul Meeks MBA, CFA
Portfolio Manager
Fiscal Year 2013
For the fiscal year ended November 30, 2013, the Sextant Growth Fund returned 29.39% versus 29.75% for the Russell 1000 Growth Index and 30.30% for the S&P 500 Index. In efforts to improve global economic conditions and employment, central banks maintained abnormally low interest rates in 2013, with the consequence that the prices of financial assets such as stocks soared, especially in America.
In April 2013, the Fund's leadership rotated from Nicholas Kaiser, CFA to Paul Meeks, CFA. Mr. Kaiser, age 67, had led it since 1990. In addition to managing the Sextant Growth Fund, Mr. Meeks, age 51, is Saturna Capital's technology analyst and director of institutional investing. An experienced technology mutual fund manager, Paul Meeks is a good fit for the Fund as technology comprises a major portion of this portfolio.
Factors Affecting Past Performance
Mr. Meeks is making changes to the Fund while keeping true to Saturna Capital's investment policies. The transformation meant the portfolio's cash averaged 10.7%, which negatively impacted performance but reduced risk.
The following were the greatest contributors to the Sextant Growth Fund's performance in fiscal 2013:
Stock | Return | Contribution |
Delta Air Lines | 191.26% | 3.01 |
Amazon.com | 56.17% | 2.86 |
Alaska Air Group | 82.91% | 1.35 |
Boeing | 84.35% | 1.20 |
Lincoln Electric | 52.62% | 1.18 |
Honeywell | 47.40% | 1.17 |
Johnson & Johnson | 39.87% | 1.12 |
Western Digital | 78.95% | 1.05 |
Amsurg | 72.45% | 1.01 |
Adobe Systems | 64.06% | 0.97 |
Total | 14.92 |
Next were the biggest detractors to performance:
Stock | Return | Contribution |
Apple | -2.61% | -1.88 |
Coeur Mining | -45.53% | -0.53 |
John Wiley | -11.99% | -0.23 |
EMC | -10.50% | -0.22 |
Red Lion | -8.97% | -0.12 |
eBay | -1.64% | -0.09 |
Cisco Systems | 14.91% | -0.03 |
Alcoa | -4.20% | -0.03 |
Regal Beloit | 1.62% | -0.02 |
Coca-Cola | -1.35% | -0.01 |
Total | -3.16 |
Among the Fund's biggest losers, Coeur Mining, John Wiley & Sons, Red Lion Hotels, Alcoa, Regal Beloit, and Coca-Cola have been eliminated from the portfolio. Exposure to cyclical companies is reduced as firms that consistently grow earnings over a business cycle gain new favor.
With the succession to Mr. Meeks' leadership some changes are noted. First, four of the top ten holdings changed by the end of fiscal 2013. Second, the portfolio has become less concentrated as defined by the proportion of its assets allocated to the top ten holdings. This is largely because Apple was reduced from an 11.1% position at the beginning of the fiscal year to a 3.8% stake by the end. The weight dedicated to the top ten was 38.1% on November 30, 2012. It had decreased to 30.5% a year later.
Looking Forward
On December 31, 2013, the Fund owned 52 stocks. Long-term, we expect the Fund to hold around 40 names, as small positions unlikely to meaningfully contribute to long-term results are eliminated. The Fund's portfolio turnover rate increased to 29%, but continues to be significantly below the average for domestic equity mutual funds.
The Fund's relative short-term performance is improving. Regardless of the change at the helm, the Fund continues to follow Saturna Capital's style of long-term, values-based, risk-averse investing under the continuing guidance of Mr. Nicholas Kaiser.
Management Fee Calculations
The Sextant Growth Fund calculates the performance part of its management fee by comparing the Fund's return to the average return in Morningstar's "Large Growth" category. The Fund's 12-month return (29.39%) was more than one percent but less than 2 percent below the Morningstar™ category average (30.71%) at month-end November 30, 2013. Therefore, the basic annual management fee of 0.60% was reduced by 0.10% to 0.50% for the month of December 2013.
November 30, 2013 Annual Report | 37 |
Sextant Growth Fund
Schedule of Investments | ||||
Common Stocks — 89.2% | Number of Shares | Cost | Market Value | Percentage of Assets |
Communications | ||||
Internet Media | ||||
Facebook¹ | 2,031 | $91,395 | $95,477 | 0.3% |
Google¹ | 380 | 321,822 | 402,644 | 1.1% |
413,217 | 498,121 | 1.4% | ||
Telecom Carriers | ||||
AT&T | 5,000 | 116,350 | 176,050 | 0.5% |
529,567 | 674,171 | 1.9% | ||
Consumer Discretionary | ||||
Automobile OEM | ||||
Ford Motor | 43,010 | 570,891 | 734,611 | 2.0% |
E-Commerce Discretionary | ||||
Amazon.com¹ | 5,000 | 201,410 | 1,968,100 | 5.4% |
eBay¹ | 20,418 | 1,062,283 | 1,031,517 | 2.8% |
1,263,693 | 2,999,617 | 8.2% | ||
Home Improvement | ||||
Stanley Black & Decker | 3,600 | 237,257 | 293,004 | 0.8% |
Home Products Stores | ||||
Bed Bath & Beyond¹ | 9,000 | 331,221 | 702,270 | 1.9% |
Lowe's | 15,000 | 295,388 | 712,200 | 1.9% |
626,609 | 1,414,470 | 3.8% | ||
Passenger Transportation | ||||
Alaska Air | 10,302 | 390,794 | 800,878 | 2.2% |
Delta Air Lines | 40,000 | 419,447 | 1,159,200 | 3.2% |
810,241 | 1,960,078 | 5.4% | ||
Specialty Apparel Stores | ||||
Urban Outfitters¹ | 9,030 | 352,013 | 352,351 | 1.0% |
3,860,704 | 7,754,131 | 21.2% | ||
Consumer Staples | ||||
Beverages | ||||
PepsiCo | 8,000 | 459,066 | 675,680 | 1.9% |
Mass Merchants | ||||
Costco Wholesale | 3,000 | 248,150 | 376,290 | 1.0% |
707,216 | 1,051,970 | 2.9% | ||
Continued on next page. |
38 | Annual Report November 30, 2013 | The accompanying notes are an integral part of these financial statements. |
Sextant Growth Fund
Schedule of Investments | ||||
Common Stocks — 89.2% | Number of Shares | Cost | Market Value | Percentage of Assets |
Energy | ||||
Exploration & Production | ||||
Apache | 12,024 | $1,067,475 | $1,100,076 | 3.0% |
Whiting Petroleum¹ | 8,470 | 408,805 | 511,588 | 1.4% |
1,476,280 | 1,611,664 | 4.4% | ||
Financials | ||||
Investment Management | ||||
Invesco Limited | 16,240 | 450,309 | 565,964 | 1.6% |
Property & Casualty | ||||
Chubb | 7,000 | 308,505 | 675,150 | 1.8% |
758,814 | 1,241,114 | 3.4% | ||
Health Care | ||||
Biotech | ||||
Amgen | 2,640 | 34,598 | 301,171 | 0.8% |
Health Care Facilities | ||||
AmSurg¹ | 7,895 | 168,965 | 381,486 | 1.1% |
Health Care Supply Chain | ||||
Express Scripts¹ | 5,372 | 332,172 | 361,804 | 1.0% |
Large Pharmaceuticals | ||||
Abbott Laboratories | 19,192 | 588,890 | 732,943 | 2.0% |
Johnson & Johnson | 10,000 | 642,017 | 946,600 | 2.6% |
1,230,907 | 1,679,543 | 4.6% | ||
Pharmacies & Drug Stores | ||||
CVS Caremark | 10,000 | 339,270 | 669,600 | 1.8% |
Specialty Pharmaceuticals | ||||
Salix Pharmaceuticals¹ | 8,292 | 588,637 | 703,245 | 1.9% |
2,694,549 | 4,096,849 | 11.2% | ||
Industrials | ||||
Building Sub Contractors | ||||
EMCOR | 4,798 | 179,753 | 190,625 | 0.5% |
Commercial Aircraft | ||||
Boeing | 5,000 | 361,516 | 671,250 | 1.8% |
Engine & Transmission Manufacturing | ||||
Power Solutions International | 6,708 | 296,364 | 501,758 | 1.4% |
Continued on next page. |
The accompanying notes are an integral part of these financial statements. | November 30, 2013 Annual Report | 39 |
Sextant Growth Fund
Schedule of Investments | ||||
Common Stocks — 89.2% | Number of Shares | Cost | Market Value | Percentage of Assets |
Industrials (continued) | ||||
Fab Metal & Hardware Manufacturing | ||||
Valmont Industries | 4,851 | $703,064 | $701,988 | 1.9% |
Industrial Automation Controls | ||||
Honeywell International | 10,000 | 330,476 | 885,100 | 2.4% |
Industrial Machinery Manufacturing | ||||
Middleby¹ | 2,000 | 205,540 | 441,680 | 1.2% |
Measurement Instruments | ||||
Agilent Technologies | 11,800 | 258,434 | 632,126 | 1.7% |
Trimble Navigation¹ | 28,000 | 202,081 | 893,200 | 2.5% |
460,515 | 1,525,326 | 4.2% | ||
Metalworking Machinery Manufacturing | ||||
Lincoln Electric | 12,000 | 325,653 | 857,760 | 2.4% |
Post & Courier Services | ||||
United Parcel Service | 6,000 | 395,746 | 614,280 | 1.7% |
Rail Freight Transportation | ||||
Norfolk Southern | 7,000 | 318,942 | 613,830 | 1.7% |
Union Pacific | 4,590 | 485,782 | 743,764 | 2.0% |
804,724 | 1,357,594 | 3.7% | ||
4,063,351 | 7,747,361 | 21.2% | ||
Technology | ||||
Application Software | ||||
Adobe Systems¹ | 11,000 | 144,216 | 624,580 | 1.7% |
Intuit | 9,000 | 197,624 | 668,070 | 1.8% |
341,840 | 1,292,650 | 3.5% | ||
Communications Equipment | ||||
Apple | 2,460 | 20,298 | 1,367,932 | 3.8% |
Cisco Systems | 28,154 | 640,144 | 598,273 | 1.6% |
F5 Networks¹ | 10,685 | 842,539 | 878,948 | 2.4% |
1,502,981 | 2,845,153 | 7.8% | ||
Computer Storage | ||||
EMC | 23,337 | 620,561 | 556,587 | 1.5% |
Western Digital | 8,000 | 300,951 | 600,320 | 1.7% |
921,512 | 1,156,907 | 3.2% | ||
Infrastructure Software | ||||
Oracle | 19,000 | 241,810 | 670,510 | 1.8% |
Continued on next page. |
40 | Annual Report November 30, 2013 | The accompanying notes are an integral part of these financial statements. |
Sextant Growth Fund
Schedule of Investments | ||||
Common Stocks — 89.2% | Number of Shares | Cost | Market Value | Percentage of Assets |
Technology (continued) | ||||
IT Services | ||||
International Business Machines | 884 | $160,287 | $158,837 | 0.4% |
Semiconductor Devices | ||||
Microchip Technology | 7,555 | 274,246 | 327,056 | 0.9% |
Qualcomm | 9,561 | 547,215 | 703,498 | 1.9% |
821,461 | 1,030,554 | 2.8% | ||
3,989,891 | 7,154,611 | 19.5% | ||
Utilities | ||||
Integrated Utilities | ||||
Duke Energy | 3,333 | 172,211 | 233,177 | 0.6% |
Utility Networks | ||||
Piedmont Natural Gas | 8,000 | 220,875 | 265,200 | 0.7% |
Sempra Energy | 6,000 | 276,535 | 530,640 | 1.5% |
Spectra Energy | 7,500 | 113,625 | 251,625 | 0.7% |
611,035 | 1,047,465 | 2.9% | ||
783,246 | 1,280,642 | 3.5% | ||
Total investments | $18,863,618 | 32,612,513 | 89.2% | |
Other assets (net of liabilities) | 3,961,799 | 10.8% | ||
Total net assets | $36,574,312 | 100.0% | ||
¹ Non-income producing security |
The accompanying notes are an integral part of these financial statements. | November 30, 2013 Annual Report | 41 |
Sextant Growth Fund
Statement of Assets and Liabilities | |
As of November 30, 2013 | |
Assets | |
Investments in securities, at value (Cost $18,863,618) | $32,612,513 |
Cash | 4,071,437 |
Dividends receivable | 46,718 |
Receivable for Fund shares sold | 23,893 |
Insurance reserve premium | 1,214 |
Total assets | 36,755,775 |
Liabilities | |
Payable for Fund shares redeemed | 114,001 |
Payable to affiliates | 25,183 |
Distributions payable | 20,367 |
Accrued expenses | 19,450 |
Accrued distribution fee | 2,462 |
Total liabilities | 181,463 |
Net assets | $36,574,312 |
Analysis of net assets | |
Paid-in capital (unlimited shares authorized, without par value) | $22,804,451 |
Undistributed net investment income | 20,962 |
Accumulated net realized gain | 4 |
Unrealized net appreciation on investments | 13,748,895 |
Net assets applicable to Fund shares outstanding | $36,574,312 |
Fund shares outstanding | 1,529,233 |
Net asset value, offering and redemption price per share | $23.92 |
Statement of Operations | |
Year ended November 30, 2013 | |
Investment income | |
Dividends | $444,002 |
Miscellaneous income | 98 |
Gross investment income | 444,100 |
Expenses | |
Investment adviser fees | 145,905 |
Distribution fees | 72,678 |
Filing and registration fees | 17,929 |
Audit fees | 12,046 |
Retirement plan custodial fees | 6,891 |
Chief Compliance Officer expenses | 5,014 |
Printing and postage | 4,596 |
Trustee fees | 4,023 |
Other expenses | 2,446 |
Custodian fees | 1,279 |
Legal fees | 1,017 |
Total gross expenses | 273,824 |
Less custodian fee credits | (1,279) |
Net expenses | 272,545 |
Net investment income | $171,555 |
Net realized gain from investments | $3,265,690 |
Net increase in unrealized appreciation on investments | 4,192,605 |
Net gain on investments | $7,458,295 |
Net increase in net assets resulting from operations | $7,629,850 |
42 | Annual Report November 30, 2013 | The accompanying notes are an integral part of these financial statements. |
Sextant Growth Fund
Statements of Changes in Net Assets | Year ended Nov. 30, 2013 | Year ended Nov. 30, 2012 |
Increase (decrease) in net assets from operations | ||
From operations | ||
Net investment income | $171,555 | $101,750 |
Net realized gain on investments | 3,265,690 | 211,971 |
Net increase in unrealized appreciation | 4,192,605 | 2,527,733 |
Net increase in net assets | 7,629,850 | 2,841,454 |
Distributions to shareholders from | ||
Net investment income | (178,378) | (101,993) |
Capital gains distribution | (3,182,432) | - |
Total distributions | (3,360,810) | (101,993) |
Capital share transactions | ||
Proceeds from sales of shares | 7,509,714 | 2,345,800 |
Value of shares issued in reinvestment of dividends | 3,340,443 | 98,152 |
Early redemption fees retained | - | 373 |
Cost of shares redeemed | (3,795,068) | (2,801,411) |
Net increase (decrease) in net assets | 7,055,089 | (357,086) |
Total increase in net assets | 11,324,129 | 2,382,375 |
Net assets | ||
Beginning of year | 25,250,183 | 22,867,808 |
End of year | 36,574,312 | 25,250,183 |
Undistributed net investment income | $20,962 | $27,785 |
Shares of the Fund sold and redeemed | ||
Number of shares sold | 314,720 | 118,664 |
Number of shares issued in reinvestment of dividends | 139,651 | 4,823 |
Number of shares redeemed | (165,884) | (143,445) |
Net increase (decrease) in number of shares outstanding | 288,487 | (19,958) |
Financial Highlights | For year ended November 30, | ||||
Selected data per share of outstanding capital stock throughout each year: | 2013 | 2012 | 2011 | 2010 | 2009 |
Net asset value at beginning of year | $20.35 | $18.14 | $17.70 | $16.00 | $13.45 |
Income from investment operations | |||||
Net investment income (loss) | 0.12 | 0.08 | 0.11 | 0.05 | (0.04) |
Net gains on securities (both realized and unrealized) | 5.86 | 2.21 | 0.43 | 1.70 | 2.59 |
Total from investment operations | 5.98 | 2.29 | 0.54 | 1.75 | 2.55 |
Less distributions | |||||
Dividends (from net investment income) | (0.13) | (0.08) | (0.09) | (0.05) | (0.00)¹ |
Distributions (from capital gains) | (2.28) | - | (0.01) | - | - |
Total distributions | (2.41) | (0.08) | (0.10) | (0.05) | (0.00)¹ |
Paid-in capital from early redemption fees | - | 0.00¹ | 0.00¹ | 0.00¹ | 0.00¹ |
Net asset value at end of year | $23.92 | $20.35 | $18.14 | $17.70 | $16.00 |
Total return | 29.39% | 12.64% | 3.07% | 10.93% | 18.98% |
Ratios / supplemental data | |||||
Net assets ($000), end of year | $36,574 | $25,250 | $22,868 | $24,205 | $21,534 |
Ratio of expenses to average net assets | |||||
Before custodian fee credits | 0.94% | 1.10% | 0.84% | 1.01% | 1.34% |
After custodian fee credits | 0.94% | 1.10% | 0.84% | 1.00% | 1.34% |
Ratio of net investment income (loss) after custodian fee credits to average net assets | 0.59% | 0.42% | 0.57% | 0.30% | (0.25)% |
Portfolio turnover rate | 29% | 10% | 15% | 16% | 7% |
¹ Amount is less than $0.01 |
The accompanying notes are an integral part of these financial statements. | November 30, 2013 Annual Report | 43 |
Sextant International Fund
Performance Summary (unaudited)
Average Annual Returns (as of November 30, 2013) | ||||
10 Year | 5 Year | 1 Year | Expense Ratio¹ | |
Sextant International Fund | 8.03% | 8.05% | 8.67% | 1.10% |
NYSE Arca International Index | 8.75% | 12.75% | 23.37% | n/a |
MSCI EAFE Index | 8.03% | 13.93% | 25.36% | n/a |
Growth of $10,000
Comparison of any mutual fund to a market index must be made bearing in mind that the index is unmanaged, and expense-free. Conversely, the Fund will (1) be actively managed; (2) have an objective other than mirroring the index, such as limiting risk; (3) bear transaction and other costs; (4) stand ready to buy and sell its securities to shareowners on a daily basis; and (5) provide a wide range of services. The graph compares $10,000 invested in the Fund on November 30, 2003 to an identical amount invested in the NYSE Arca International Index, a broad-based index of international stock prices, and the MSCI EAFE Index, an international index focused on Europe, Australasia, and the Far East. The graph shows that an investment in the Fund would have risen to $21,640 versus $23,148 in the NYSE Arca International Index, and $21,675 in the MSCI EAFE Index. | |
Past performance does not guarantee future results. The "Growth of $10,000" graph and "Average Annual Returns" performance table assume the reinvestment of dividends and capital gains. They do not reflect the deduction of taxes that a shareowner might pay on fund distributions or the redemption of fund shares. ¹ By regulation, the expense ratio for the Fund shown in this table is as of the Fund's most recent prospectus, which is dated March 22, 2013, and incorporates results for the fiscal year ended November 30, 2012. The ratio presented in this table differs from the expense ratios shown elsewhere in this report as they represent different fiscal periods. |
Fund Objective
The objective of the International Fund is long-term capital growth.
Portfolio Diversification | Top Ten Holdings | ||
% of total net assets | |||
Industry weightings are shown as a percentage of total net assets. | Copa Holdings Class A | 4.1% | |
ASML | 3.6% | ||
Toyota Motor ADS | 3.5% | ||
Wolters Kluwer | 3.5% | ||
Novartis ADS | 3.2% | ||
Vodaphone ADS | 3.1% | ||
Orient-Express Hotels Class A | 3.1% | ||
Novo Nordisk ADS | 3.0% | ||
Shire ADS | 2.9% | ||
BASF ADR | 2.9% |
44 | Annual Report November 30, 2013 |
Sextant International Fund
Discussion of Fund Performance (unaudited)
(graphic omitted)
Nicholas Kaiser MBA, CFA
Portfolio Manager
Fiscal Year 2013
For the fiscal year ended November 30, 2013, the Sextant International Fund returned 8.67%. The Fund's new benchmark, the MSCI EAFE Index, gained 25.36% for fiscal 2013. Its previous benchmark, the NYSE Arca International Market Index, was judged by the trustees to be too limited in representation.
The Fund's annual expense ratio fell to 0.66% from 1.10%, as a result of the fulcrum element of the management fee. The Fund paid a year-end income dividend of 33.7¢ per share, up from last year's 14.3¢ income dividend. Total fund assets decreased by 19.4% for fiscal 2013.
Factors Affecting Past Performance
In a world economy awash with virtually free stimulus funds, the US dollar held relatively steady during 2013. The Fund suffered from investments in the Materials sector, which sharply underperformed as inflation never materialized. Neither did we have significant investments in Japan, which soared with the devaluation of its currency, or in the Financial sector, which continued to outperform as a consequence of low interest rates.
The Fund is diversified across industries and countries, favoring larger and more established companies that are more stable in difficult times. As conservative managers, we are less likely to exceed market returns when prices are rising — a cost of seeking to protect investors when prices are falling.
Our portfolio has more than 5% invested in each of Canada, the United Kingdom, the Netherlands, Germany, Japan, and Brazil. Economic activity continued to be weak in Europe, and declined in Latin America. Canada has our largest country allocation, but its cyclical and resource-based companies hurt its currency and our holdings. We continue to see these sectors as attractive for the long-term. The accompanying tables and graphs show the industry allocation and holdings.
Our holdings in any one issue are relatively small, the largest being Copa Holdings, which performed well this year. Telecom Carriers is our largest industry, followed by Large Pharmaceuticals, Banks, and Application Software. Vodaphone is the largest Telecom holding, which did well by selling its US operations to Verizon. Our larger Pharmaceutical positions in Novartis and Shire both gained significantly.
Looking Forward
The US has recovered better than most of the world from the recession caused by the 2008 world credit collapse. And the US Federal Reserve is slowly scaling back costly stimulus and spending programs, albeit at a cost to world markets. The opaque Chinese economy is noticably slowing, hurting those companies around the globe that supply its raw materials. Emerging markets, where the Fund is not significantly invested, are clearly vulnerable in 2014.
The Sextant International Fund is broadly diversified in companies headquartered outside the United States. Many have worldwide operations, including in the US. Burdened by decades of overspending and borrowing, the financial systems of most countries will take years to recover. Europe, with its many cultures, continues to suffer from enforced austerity. Global deflation is more probable as public debt, taxes, job losses, and efficiencies from internet communications all grow.
Our analysts increasingly travel the globe, believing that firsthand observations are needed when conditions are so murky. Saturna Capital established a research office in Malaysia in 2010, and looks to doing the same in England. We continue to focus on larger companies, which tend to provide current income and stability. We expect technology and basic industry investments to be profitable as we invest for the long term. We prefer to hold cash rather than make risky investment bets.
Management Fee Calculations
The Sextant International Fund calculates the performance part of its management fee by comparing the Fund's return to the average return of Morningstar's™ "Foreign Large Blend" category. The Fund's 12-month return (8.67%) was more than four percent below the Morningstar™ category average (21.69%) at month-end November 30, 2013. Therefore, the basic annual management fee of 0.60% was decreased to 0.30% for the month of December 2013
November 30, 2013 Annual Report | 45 |
Sextant International Fund
Schedule of Investments | |||||
Common Stocks — 95.1% | Number of Shares | Cost | Market Value | Country¹ | Percentage of Assets |
Communications | |||||
Local Media | |||||
Pearson ADS | 90,000 | $1,021,915 | $1,989,900 | United Kingdom | 1.3% |
Telecom Carriers | |||||
BCE | 60,000 | 1,414,018 | 2,651,400 | Canada | 1.8% |
PT Indosat | 1,150,000 | 623,953 | 369,742 | Indonesia | 0.3% |
SK Telecom ADS | 30,000 | 511,437 | 716,400 | South Korea | 0.5% |
Telecom New Zealand ADS | 50,000 | 470,097 | 462,500 | New Zealand | 0.3% |
Telefonica ADS | 214,736 | 3,751,737 | 3,528,112 | Spain | 2.4% |
Telefonica Brasil ADS | 50,000 | 1,322,495 | 973,000 | Brazil | 0.7% |
Telenor | 100,000 | 2,131,350 | 2,404,000 | Malaysia | 1.6% |
Telus | 70,000 | 1,012,694 | 2,477,300 | Canada | 1.7% |
Turkcell Iletisim Hizmetleri ADS² | 90,000 | 1,268,958 | 1,378,800 | Turkey | 0.9% |
Vodaphone ADS | 125,000 | 3,043,685 | 4,636,250 | United Kingdom | 3.1% |
15,550,424 | 19,597,504 | 13.3% | |||
16,572,339 | 21,587,404 | 14.6% | |||
Consumer Discretionary | |||||
Automobile OEM | |||||
Toyota Motor ADS | 42,000 | 3,249,259 | 5,252,100 | Japan | 3.5% |
E-Commerce Discretionary | |||||
MercadoLibre | 10,000 | 829,340 | 1,107,100 | Brazil³ | 0.8% |
Lodging | |||||
Orient-Express Hotels Class A² | 310,000 | 2,994,487 | 4,566,300 | United States | 3.1% |
Passenger Transportation | |||||
Copa Holdings Class A | 40,000 | 2,343,320 | 6,056,800 | Panama | 4.1% |
LATAM Airlines ADS | 140,000 | 1,409,238 | 2,255,400 | Chile | 1.5% |
Ryanair ADS² | 20,000 | 623,100 | 960,500 | Ireland | 0.7% |
4,375,658 | 9,272,700 | 6.3% | |||
11,448,744 | 20,198,200 | 13.7% | |||
Consumer Staples | |||||
Beverages | |||||
Coca-Cola Femsa ADS | 27,557 | 1,357,613 | 3,338,531 | Mexico | 2.3% |
Fomento Economico Mexico ADS | 30,000 | 1,614,722 | 2,848,500 | Mexico | 1.9% |
2,972,335 | 6,187,031 | 4.2% | |||
Food Retailers | |||||
Carrefour ADS | 170,000 | 761,908 | 1,332,800 | France | 0.9% |
Household Products Manufacturing | |||||
Unilever ADS | 75,000 | 2,284,504 | 3,037,500 | United Kingdom | 2.0% |
6,018,747 | 10,557,331 | 7.1% | |||
Energy | |||||
Exploration & Production | |||||
EnCana | 70,000 | 1,583,757 | 1,343,300 | Canada | 0.9% |
Continued on next page. |
46 | Annual Report November 30, 2013 | The accompanying notes are an integral part of these financial statements. |
Sextant International Fund
Schedule of Investments | |||||
Common Stocks — 95.1% | Number of Shares | Cost | Market Value | Country¹ | Percentage of Assets |
Energy (continued) | |||||
Integrated Oils | |||||
BG ADS | 70,000 | $1,253,784 | $1,432,900 | United Kingdom | 1.0% |
Cenovus Energy | 60,000 | 1,516,298 | 1,752,600 | Canada | 1.2% |
Eni ADS | 50,000 | 2,212,041 | 2,393,000 | Italy | 1.6% |
Statoil ADS | 60,000 | 1,551,895 | 1,352,400 | Norway | 0.9% |
Total ADS | 45,000 | 2,528,346 | 2,714,400 | France | 1.8% |
9,062,364 | 9,645,300 | 6.5% | |||
10,646,121 | 10,988,600 | 7.4% | |||
Financials | |||||
Banks | |||||
Australia & New Zealand Banking Group ADR | 80,000 | 1,581,457 | 2,322,400 | Australia | 1.6% |
Banco Santander ADS | 100,000 | 835,800 | 894,000 | Spain | 0.6% |
Mitsubishi UFJ Financial Group ADS | 500,000 | 2,697,948 | 3,245,000 | Japan | 2.2% |
Standard Chartered | 20,000 | 539,942 | 473,562 | United Kingdom | 0.3% |
Toronto-Dominion Bank | 40,000 | 2,302,163 | 3,656,400 | Canada | 2.5% |
7,957,310 | 10,591,362 | 7.2% | |||
Health Care | |||||
Generic Pharmaceuticals | |||||
Teva Pharmaceutical ADS | 50,000 | 2,472,947 | 2,038,000 | Israel | 1.4% |
Health Care Supply Chain | |||||
Sinopharm Group | 250,000 | 798,792 | 742,433 | China | 0.5% |
Large Pharmaceuticals | |||||
GlaxoSmithKline ADS | 44,000 | 1,669,383 | 2,328,480 | United Kingdom | 1.6% |
Novartis ADS | 60,000 | 3,076,591 | 4,747,200 | Switzerland | 3.2% |
Novo Nordisk ADS | 25,000 | 1,631,867 | 4,468,250 | Denmark | 3.0% |
Sanofi ADS | 40,000 | 1,980,491 | 2,113,200 | Denmark | 1.4% |
8,358,332 | 13,657,130 | 9.2% | |||
Specialty Pharmaceuticals | |||||
Shire ADR | 32,000 | 1,738,765 | 4,345,920 | Ireland | 2.9% |
13,368,836 | 20,783,483 | 14.0% | |||
Industrials | |||||
Construction & Mining Machinery | |||||
Metso ADS | 12,100 | 130,802 | 488,719 | Finland | 0.3% |
130,802 | 488,719 | 0.3% | |||
Materials | |||||
Agricultural Chemicals | |||||
Potash Corp. of Saskatchewan | 80,000 | 2,699,902 | 2,532,000 | Canada | 1.7% |
Quimica y Minera ADS | 40,000 | 2,361,095 | 1,000,400 | Chile | 0.7% |
5,060,997 | 3,532,400 | 2.4% | |||
Continued on next page. |
The accompanying notes are an integral part of these financial statements. | November 30, 2013 Annual Report | 47 |
Sextant International Fund
Schedule of Investments | |||||
Common Stocks — 95.1% | Number of Shares | Cost | Market Value | Country¹ | Percentage of Assets |
Materials (continued) | |||||
Base Metals | |||||
Anglo American ADR | 150,000 | $2,300,535 | $1,645,500 | South Africa | 1.1% |
Teck Resources | 100,000 | 458,225 | 2,421,000 | Canada | 1.6% |
2,758,760 | 4,066,500 | 2.7% | |||
Basic & Diversified Chemicals | |||||
Methanex | 20,000 | 690,000 | 1,228,000 | Canada | 0.8% |
Forestry & Logging | |||||
Fibria Celulose ADS² | 150,000 | 2,152,042 | 1,810,500 | Brazil | 1.2% |
Precious Metal Mining | |||||
Newcrest Mining ADS | 52,591 | 1,815,646 | 375,500 | Australia | 0.3% |
Raw Material Suppliers | |||||
BHP Billiton ADS | 40,000 | 2,493,559 | 2,728,800 | Australia | 1.8% |
Vale ADS | 110,000 | 2,177,291 | 1,685,200 | Brazil | 1.2% |
4,670,850 | 4,414,000 | 3.0% | |||
Specialty Chemicals | |||||
BASF ADR | 40,000 | 2,888,666 | 4,277,600 | Germany | 2.9% |
Steel Producers | |||||
Tenaris ADR | 15,000 | 583,169 | 672,150 | Argentina³ | 0.5% |
20,620,130 | 20,376,650 | 13.8% | |||
Technology | |||||
Application Software | |||||
Dassault Systems ADR | 30,000 | 2,222,944 | 3,454,200 | France | 2.3% |
Nice Systems ADS | 80,000 | 2,901,033 | 3,148,800 | Israel | 2.1% |
SAP ADS | 50,000 | 2,794,738 | 4,136,000 | Germany | 2.8% |
7,918,715 | 10,739,000 | 7.2% | |||
Electronics Components | |||||
Nidec ADS | 26,703 | 514,164 | 647,147 | China³ | 0.5% |
IT Services | |||||
Wolters Kluwer | 180,000 | 3,369,276 | 5,080,395 | Netherlands | 3.5% |
Semiconductor Capital Equipment | |||||
ASML | 57,750 | 2,144,504 | 5,392,695 | Netherlands | 3.6% |
13,946,659 | 21,859,237 | 14.8% | |||
Utilities | |||||
Utility Networks | |||||
CPFL Energia ADS | 120,000 | 2,784,531 | 1,988,400 | Brazil | 1.3% |
Enersis ADS | 65,000 | 1,024,863 | 1,016,600 | Chile | 0.7% |
Korea Electric Power ADS² | 20,000 | 304,261 | 304,400 | South Korea | 0.2% |
4,113,655 | 3,309,400 | 2.2% | |||
Total Common Stock | 104,823,343 | 140,740,386 | 95.1% | ||
Continued on next page. |
48 | Annual Report November 30, 2013 | The accompanying notes are an integral part of these financial statements. |
Sextant International Fund
Schedule of Investments | |||||
Derivatives — 0.0%4 | Number of Shares | Cost | Market Value | Country¹ | Percentage of Assets |
Consumer Discretionary | |||||
Passenger Transportation | |||||
LATAM Airlines Rights² | 17,950 | - | $15,975 | Chile | 0.0%4 |
15,975 | 0.0%4 | ||||
Total investments | $104,823,343 | $140,756,361 | 95.1% | ||
Other assets (net of liabilities) | 7,259,887 | 4.9% | |||
Total net assets | $148,016,248 | 100.0% | |||
¹ Country of domicile unless otherwise indicated ADS: American Depositary Share |
Countries |
The accompanying notes are an integral part of these financial statements. | November 30, 2013 Annual Report | 49 |
Sextant International Fund
Statement of Assets and Liabilities | |
As of November 30, 2013 | |
Assets | |
Investments in securities, at value (Cost $104,823,343) | $140,756,361 |
Cash | 7,471,145 |
Dividends receivable | 457,545 |
Receivable for Fund shares sold | 33,487 |
Total assets | 148,718,538 |
Liabilities | |
Payable for Fund shares redeemed | 480,685 |
Payable to affiliates | 83,365 |
Accrued expenses | 71,214 |
Distributions payable | 56,871 |
Accrued distribution fee | 10,155 |
Total liabilities | 702,290 |
Net assets | $148,016,248 |
Analysis of net assets | |
Paid-in capital (unlimited shares authorized, without par value) | $118,220,687 |
Undistributed net investment income | (218,308) |
Accumulated net realized loss on investments | (5,918,939) |
Unrealized net appreciation on investments | 35,932,808 |
Net assets applicable to Fund shares outstanding | $148,016,248 |
Fund shares outstanding | 9,365,748 |
Net asset value, offering and redemption price per share | $15.80 |
Statement of Operations | |
Year ended November 30, 2013 | |
Investment income | |
Dividends (net foreign tax of $564,255) | $4,030,647 |
Miscellaneous income | 50 |
Gross investment income | 4,030,697 |
Expenses | |
Investment adviser fees | 491,223 |
Distribution fees | 429,673 |
Audit fees | 56,443 |
Chief Compliance Officer expenses | 34,863 |
Printing and postage | 34,807 |
Trustee fees | 30,381 |
Filing and registration fees | 20,713 |
Other expenses | 17,838 |
Custodian fees | 9,882 |
Legal fees | 8,681 |
Retirement plan custodial fees | 6,252 |
Total gross expenses | 1,140,756 |
Less custodian fee credits | (9,882) |
Net expenses | 1,130,874 |
Net investment income | $2,899,823 |
Net realized loss from investments and foreign currency | $(3,899,299) |
Net increase in unrealized appreciation on investments and foreign currency | 14,713,771 |
Net gain on investments | $10,814,472 |
Net increase in net assets resulting from operations | $13,714,295 |
50 | Annual Report November 30, 2013 | The accompanying notes are an integral part of these financial statements. |
Sextant International Fund
Statements of Changes in Net Assets | Year ended Nov. 30, 2013 | Year ended Nov. 30, 2012 |
Increase (decrease) in net assets from operations | ||
From operations | ||
Net investment income | $2,899,823 | $1,745,820 |
Net realized loss on investments | (3,899,299) | (522,458) |
Net increase in unrealized appreciation | 14,713,771 | 5,176,302 |
Net increase in net assets | 13,714,295 | 6,399,664 |
Distributions to shareholders from | ||
Net investment income | (3,102,776) | (1,752,397) |
Total distributions | (3,102,776) | (1,752,397) |
Capital share transactions | ||
Proceeds from sales of shares | 43,895,948 | 71,414,557 |
Value of shares issued in reinvestment of dividends | 3,045,905 | 1,712,748 |
Early redemption fees retained | 678 | 10,463 |
Cost of shares redeemed | (93,269,319) | (59,179,801) |
Net increase (decrease) in net assets | (46,326,788) | 13,957,967 |
Total increase (decrease) in net assets | (35,715,269) | 18,605,234 |
Net assets | ||
Beginning of year | 183,731,517 | 165,126,283 |
End of year | 148,016,248 | 183,731,517 |
Undistributed net investment income | $(218,308) | $ - |
Shares of the Fund sold and redeemed | ||
Number of shares sold | 2,846,581 | 4,849,441 |
Number of shares issued in reinvestment of dividends | 192,779 | 115,492 |
Number of shares redeemed | (6,047,664) | (4,048,398) |
Net increase (decrease) in number of shares outstanding | (3,008,304) | 916,535 |
Financial Highlights | For year ended November 30, | ||||
Selected data per share of outstanding capital stock throughout each year: | 2013 | 2012 | 2011 | 2010 | 2009 |
Net asset value at beginning of year | $14.85 | $14.41 | $15.03 | $14.03 | $11.32 |
Income from investment operations | |||||
Net investment income | 0.32 | 0.14 | 0.12 | 0.06 | 0.02 |
Net gains (losses) on securities (both realized and unrealized) | 0.97 | 0.44 | (0.63) | 1.12 | 2.72 |
Total from investment operations | 1.29 | 0.58 | (0.51) | 1.18 | 2.74 |
Less distributions | |||||
Dividends (from net investment income) | (0.34) | (0.14) | (0.12) | (0.06) | (0.03) |
Distributions (from capital gains) | - | - | - | (0.12) | - |
Total distributions | (0.34) | (0.14) | (0.12) | (0.18) | (0.03) |
Paid-in capital from early redemption fees | 0.00¹ | 0.00¹ | 0.01 | 0.00¹ | 0.00¹ |
Net asset value at end of year | $15.80 | $14.85 | $14.41 | $15.03 | $14.03 |
Total return | 8.67% | 4.05% | (3.31)% | 8.43% | 24.22% |
Ratios / supplemental data | |||||
Net assets ($000), end of year | $148,016 | $183,732 | $165,126 | $150,788 | $95,885 |
Ratio of expenses to average net assets | |||||
Before custodian fee credits | 0.66% | 1.10% | 0.88% | 1.03% | 1.14% |
After custodian fee credits | 0.66% | 1.10% | 0.88% | 1.03% | 1.13% |
Ratio of net investment income after custodian fee credits to average net assets | 1.69% | 0.98% | 0.81% | 0.51% | 0.27% |
Portfolio turnover rate | 7% | 10% | 7% | 2% | 2% |
¹ Amount is less than $0.01 |
The accompanying notes are an integral part of these financial statements. | November 30, 2013 Annual Report | 51 |
Notes To Financial Statements
NOTE 1 — Organization
Saturna Investment Trust (the "Trust") was established under Washington State Law as a Business Trust on February 20, 1987. The Trust is registered as a no-load, open-end, diversified series investment management company under the Investment Company Act of 1940, as amended. Seven portfolio series have been created to date: Sextant Short-Term Bond Fund, Sextant Bond Income Fund, Sextant Core Fund, Sextant Global High Income Fund, Sextant Growth Fund, Sextant International Fund (the "Funds"), and Idaho Tax-Exempt Fund, which is offered through a separate prospectus and the results of which are contained in a separate report.
Sextant Growth (previously known as Idaho Limited Maturity Tax-Exempt Fund until October 12, 1990, then Northwest Growth until September 28, 1995, when the investment objective of only Northwest stocks was changed) commenced operations as an equity fund on December 30, 1990. Sextant International and Sextant Short-Term Bond began operations September 28, 1995. Sextant Bond Income Fund (previously known as Washington Tax-Exempt Fund until September 28, 1995, when the investment objective of only Washington State Municipal Bonds was changed) began operations on March 1, 1993. Sextant Core Fund commenced operations March 30, 2007. Sextant Global High Income Fund commenced operations March 30, 2012.
NOTE 2 — Significant Accounting Policies
The following is a summary of the significant accounting policies, in conformity with accounting principles generally accepted in the United States of America, which are consistently followed by the Funds in preparation of their financial statements.
Security valuation:
Investments in securities traded on a national securities exchange and over-the-counter securities for which sale prices are available are valued at that price. Securities for which there are no sales are valued at latest bid price.
Debt securities are valued using bid-side valuations provided by an independent service. The service determines valuations using factors such as yields or prices of bonds of comparable quality, type of issue, coupon maturity, ratings, trading activity, and general market conditions.
Fixed-income debt instruments, such as commercial paper, bankers' acceptances and US Treasury Bills, with a maturity of 60 days or less are valued at amortized cost, which approximates market value. Any discount or premium is accreted or amortized on a straight-line basis until maturity.
Foreign markets may close before the time as of which the Funds' share prices are determined. Because of this, events occurring after the close and before the determination of the Funds' share prices may have a material effect on the values of some or all of the Funds' foreign securities. To account for this, the Funds may use outside pricing services for valuation of their non-US securities.
In cases in which there is not a readily available market price, a fair value for such security is determined in good faith by or under the direction of the Board of Trustees.
Security transactions are recorded on trade date. Realized gains and losses on sales of securities are recorded on the identified cost basis.
Foreign currency:
Investment securities and other assets and liabilities denominated in foreign currencies are translated into US dollar amounts at the date of valuation. Purchases and sales of investment securities and income and expense items denominated in foreign currencies are translated into US dollar amounts on the respective dates of such transactions.
The Funds do not isolate that portion of the results of operations resulting from changes in foreign exchange rates on investments from the fluctuations arising from changes in market prices of securities held. Such fluctuations are included with the net realized and unrealized gain or loss from investments.
Reported net realized foreign exchange gains or losses arise from sales of foreign currencies, currency gains or losses realized between the trade and settlement dates on securities transactions, and the difference between the amounts of dividends, interest, and foreign withholding taxes recorded on the Funds' books and the US dollar equivalent of the amounts actually received or paid. Net unrealized foreign exchange gains and losses arise from changes in the fair values of assets and liabilities, other than investments in securities at fiscal period end, resulting from changes in exchange rates.
Share valuation:
The net asset value ("NAV") per share of each Fund is calculated by dividing the sum of the value of the securities held by each Fund, plus cash and other assets, minus all liabilities (including estimated accrued expenses) by the total number of shares outstanding for each Fund, rounded to the nearest cent. The Funds' shares are not priced or traded on days the NYSE is closed. The NAV is the offering and redemption price per share.
Fair value measurements:
Accounting Standards Codification (ASC) 820-10 establishes a three-tier framework for measuring fair value based on a hierarchy of inputs. The hierarchy distinguishes between market data obtained from independent sources (observable inputs) and the Funds' own market assumptions (unobservable inputs). These inputs are used in determining the value of the Funds' investments and are summarized below.
Level 1 — Unadjusted quoted prices in active markets for identical assets or liabilities that the Trust has the ability to access.
Level 2 — Observable inputs other than quoted prices in Level 1 that are observable for the asset or liability, either directly or indirectly. These inputs may include quoted prices for the identical instrument on an inactive market, prices for similar instruments, interest rates, prepayment speeds, credit risk, yield curves, default rates, and similar data.
Level 3 — Unobservable inputs for the asset or liability, to the extent relevant observable inputs are not available, representing the Trust's own assumptions about the assumptions a market participant would use in valuing the asset or liability, and would be based on the best information available.
The availability of observable inputs can vary from security to security and is affected by a wide variety of factors, including, for example, the type of security, whether the security is new and not yet established in the marketplace, the liquidity of markets, and other characteristics particular to the security. To the extent that valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment. Accordingly, the degree of judgment exercised in determining fair value is greatest for instruments categorized in Level 3.
The inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, for disclosure purposes, the level in the fair value hierarchy within which the fair value measurement falls in its entirety, is determined based on the lowest level input that is significant to the fair value measurement in its entirety.
The inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities.
52 | Annual Report November 30, 2013 |
Notes To Financial Statements (continued)
The following is a summary of the inputs used as of November 30, 2013 in valuing the Funds' investments carried at value:
Funds | Total | Level 1 Quoted Price | Level 2 Significant Observable Input | Level 3 Significant Unobservable Input |
Short-Term Bond | ||||
Corporate Bonds | $6,379,888 | $- | $6,379,888 | $- |
Municipal Bonds | 552,703 | - | 552,703 | - |
Total Assets | $6,932,591 | $- | $6,932,591 | $- |
Short-Term Bond Level 3 Roll-Forward Municipal Securities | ||||
Beginning balance | $96,561 | |||
Total unrealized losses | (1,561) | |||
Purchases | - | |||
Maturity | (95,000) | |||
Transfers in and/or out of level 3 | - | |||
Ending Balance | $- | |||
Bond Income | ||||
Corporate Bonds | $3,662,806 | $- | $3,662,806 | $- |
Foreign Government Bonds | 222,867 | - | 222,867 | - |
Municipal Bonds | 2,360,154 | - | 2,360,154 | - |
US Government Bonds | 382,375 | - | 382,375 | - |
Total Assets | $6,628,202 | $- | $6,628,202 | $- |
Core | ||||
Common Stocks | $4,194,755 | $4,158,865 | $35,890 | $- |
Derivatives | 399 | - | 399 | - |
Corporate Bonds | 2,395,150 | - | 2,395,150 | - |
Municipal Bonds | 215,526 | - | 215,526 | - |
Total Assets | $6,805,830 | $4,158,865 | $2,646,965 | $- |
Global High Income | ||||
Common Stocks | $2,712,267 | $1,890,613 | $821,654 | $- |
Corporate Bonds | 2,085,645 | - | 2,085,645 | - |
Foreign Government Bonds | 396,396 | - | 396,396 | - |
Municipal Bonds | 186,742 | - | 92,196 | 94,546 |
Preferred Stocks | 473,615 | 473,615 | - | - |
Total Assets | $5,854,665 | $2,364,228 | $3,395,891 | $94,546 |
Global High Income Level 3 Roll-Forward Municipal Securities | ||||
Beginning balance | $- | |||
Total unrealized gains | 1,473 | |||
Purchases | 93,073 | |||
Maturity | - | |||
Transfers in and/or out of level 3 | - | |||
Ending Balance | $94,546 | |||
Growth | ||||
Common Stocks | $32,612,513 | $32,612,513 | $- | $- |
Total Assets | $32,612,513 | $32,612,513 | $- | $- |
International | ||||
Common Stocks | $140,740,386 | $131,670,254 | $9,070,132 | $- |
Derivatives | 15,975 | - | 15,975 | - |
Total Assets | $140,756,361 | $131,670,254 | $9,086,107 | $- |
During the period ended November 30, 2013, no Fund had transfers between Level 1 and Level 2.
Odd Lots:
The bid-side valuations provided by the independent pricing service are for institutional "round-lot" holdings ("Round Lots"). Round Lots consist of 100 bonds (approximately $100,000 each). Some of a Fund's holdings may consist of less than a Round Lot and are considered "Odd Lots." Odd Lot municipal bonds trade at a discount to Round Lot municipal bonds to compensate for the effect of the fixed costs associated with any trade. To reflect this discount, the Funds apply a discount to the valuation of Odd Lot municipal bonds holdings as shown in the following chart.
Total Face Value | Adjustment to Price |
Under 10,000 | -0.750% |
10,000-24,999 | -0.625% |
25,000-49,999 | -0.500% |
50,000-74,999 | -0.375% |
75,000-99,999 | -0.250% |
100,000 and up | none |
Derivative instruments and hedging activities:
The Funds have adopted the financial accounting reporting rules required by the Derivatives and Hedging Topic of the FASB Accounting Standards Codification. The Funds are required to include enhanced disclosure which enables investors to understand how and why an entity uses derivatives, how derivatives are accounted for, and how derivative instruments affect an entity's results of operations and financial position.
During the fiscal period ended November 30, 2013 the funds held positions in Rights Offerings as a result of actions taken by the boards of directors of the underlying companies. Rights offerings are issued to existing shareholders of companies and allow shareholders to purchase additional company shares, generally at a discount to the current market price, prior to a set expiration date.
The effects of these derivative instruments on the Funds' financial position and financial performance as reflected in the Statement of Assets and Liabilities and Statement of Operations are presented in the tables below. The fair values of derivative instruments as of November 30, 2013, by risk category are as follows:
Statement of Assets and Liabilities Location | Derivatives not designated as hedging instruments | Asset Derivatives | |
Core | |||
Investments in securities, at value | Rights offerings | $399 | |
Total | $399 | ||
International | |||
Investments in securities, at value | Rights offerings | $15,975 | |
Total | $15,975 |
November 30, 2013 Annual Report | 53 |
Notes To Financial Statements (continued)
The effects of derivative instruments on the Statement of Operations for the year ended November 30, 2013, are as follows:
Derivatives not designated as hedging instruments | Realized Gains | Unrealized Gains | |
International | |||
Rights offerings | $2,267 | $15,975 | |
Total | $2,267 | $15,975 | |
Core | |||
Rights offerings | $ | $399 | |
Total | $ | $399 |
Investment concentration:
The Funds may have deposits of cash with the custodian from time to time for one or more reasons. "Other assets (net of liabilities)" in the Funds' Schedules of Investments primarily represents cash on deposit with the custodian. Cash on deposit will vary widely over time. Accounting standards identify these items as a concentration of credit risk, requiring disclosure regardless of the degree of risk. The risk is managed by financial analysis and review of the custodian's operations, resources, and protections available to the Trust. This periodic process includes evaluation of other financial institutions providing investment company custody services.
Federal income taxes:
The Funds intend to comply with the requirements of the Internal Revenue Code necessary to qualify as a regulated investment company and to make the requisite distributions of income and capital gains to its shareowners sufficient to relieve it from all or substantially all federal income taxes. Therefore, no federal income tax provision is required.
The Funds recognize the tax benefits of uncertain tax positions only where the position is "more likely than not" to be sustained assuming examination by tax authorities. Management has analyzed the Funds' tax positions and has concluded that no liability for unrecognized tax benefits should be recorded related to uncertain tax positions taken on returns filed for open tax years (2010 — 2012), or expected to be taken in the Funds' 2013 tax returns. The Funds identify their major tax jurisdiction as US federal and foreign jurisdictions where the Funds make significant investments; however, the Funds are not aware of any tax positions for which it is reasonably possible that the total amounts of unrecognized tax benefits will change materially in the next twelve months.
Reclassification of capital accounts:
Accounting principles generally accepted in the United States of America require that certain components of net assets relating to permanent differences be reclassified between financial and tax reporting. These reclassifications have no effect on net assets or net asset value per share. As of November 30, 2013, the reclassification of capital accounts were as follows:
Short-Term Bond | Bond Income | |
Undistributed net investment income | $ - | $ - |
Accumulated gains (losses) | - | - |
Paid-in capital | $ - | $ - |
Core | Global High Income | |
Undistributed net investment income | $(324) | $(1,209) |
Accumulated gains (losses) | 324 | 1,209 |
Paid-in capital | $- | $- |
Growth | International | |
Undistributed net investment income | $ - | $(15,355) |
Accumulated gains (losses) | - | 15,355 |
Paid-in capital | $ - | $- |
These reclassifications were due to the treatment of foreign currencies.
Distributions to shareowners:
For the Sextant Short-Term Bond Fund and Sextant Bond Income Fund, dividends to shareowners from net investment income are paid daily and distributed on the last business day of each month. For the Sextant Core Fund, Sextant Global High Income Fund, Sextant Growth Fund, and Sextant International Fund, dividends to shareholders from net investment income are payable at the end of each November.
Distributions of capital gains, if any, are made at least annually, and as required to comply with federal excise tax requirements. Distributions to shareowners are determined in accordance with income tax regulations and are recorded on the ex-dividend date. Dividends are paid in shares of the Funds at the net asset value on the payable date. Shareowners may elect to take dividends in cash.
Use of estimates:
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of increases and decreases in net assets from operations during the reporting period. Actual results could differ from those estimates.
Other:
Interest income is recognized on an accrual basis. Premiums on securities purchased are amortized and discounts are accreted over the lives of the respective securities. Cash dividends from equity securities are recorded as income on the ex-dividend date.
NOTE 3 — Transactions with Affiliated Persons
Under a contract approved by shareowners on September 28, 1995 (March 30, 2007, for Sextant Core Fund and March 30, 2012, for Sextant Global High Income Fund), Saturna Capital Corporation provides investment advisory services and certain other administrative services required to conduct Trust business. Expenses incurred by the Trust on behalf of the Funds (e.g., legal fees) are allocated to the Funds on the basis of relative daily average net assets. For such services, each of the Funds pays the Adviser a base Investment Advisory and Administrative Services Fee of .60% of average net assets per annum, payable monthly. The Adviser has agreed to certain limits on expenses, as described below.
The base Advisory Fee is subject to adjustment up or down depending on the investment performance of the Fund relative to a specified index.
Performance Adjustment for Sextant Global High Income Fund, Sextant Short-Term Bond Fund and Sextant Bond Income Fund:
- For each month in which either of these Funds' total investment return (change in net asset value plus all distributions reinvested) for the one year period through that month outperforms or underperforms the total return of a specified index for that period by 1% or more but less than 2%, the Base Fee is increased or decreased by the annual rate of .10% of the Fund's average daily net assets for the preceding year.
- If the outperformance or underperformance is 2% or more, then the adjustment is at the annual rate of .20%.
54 | Annual Report November 30, 2013 |
Notes To Financial Statements (continued)
Performance adjustment for Sextant Core Fund, Sextant Growth Fund, and Sextant International Fund:
- For each month in which these Funds' total investment returns (change in net asset value plus all distributions reinvested) for the one year period through that month outperforms or underperforms the total return of a specified index for that period by 1% or more but less than 2%, the Base Fee is increased or decreased by the annual rate of .10% of the Fund's average daily net assets for the preceding year.
- If the outperformance or underperformance is 2% or more but less than 4%, then the adjustment is at the annual rate of .20%.
- If the outperformance or underperformance is 4% or more, the adjustment is at an annual rate of .30%.
The Adviser has voluntarily undertaken to limit expenses of Sextant Global High Income Fund and Sextant Bond Income Fund to 0.90%, and Sextant Short-Term Bond Fund to 0.75%, through March 31, 2014. It waives its investment advisory and administrative fee to Sextant Short-Term Bond Fund and Sextant Bond Income Fund completely should assets of such Fund be less than $2 million. For the fiscal year ended November 30, 2013, the advisory fees incurred were as follows:
Adviser Fees | Adviser Fees Waived | Expense Reimbursement | |
Short-Term Bond | $38,960 | $29,822 | $ - |
Bond Income | 36,385 | 16,676 | - |
Core | 23,457 | n/a | - |
Global High Income | 27,668 | 18,287 | - |
Growth | 145,905 | n/a | - |
International | $491,223 | n/a | $ - |
In accordance with the expense waiver noted above, for the fiscal year ended November 30, 2013, Saturna Capital waived a portion of the advisory fees of the Sextant Short-Term Bond Fund, Sextant Bond Income Fund, and Sextant Global High Income Fund. The adviser cannot recoup previously waived fees.
Saturna Brokerage Services, Inc. ("SBS"), a discount brokerage and subsidiary of Saturna Capital Corporation, is registered as a broker-dealer and acts as distributor. On October 3, 2006, The Funds adopted a Distribution Plan in accordance with Rule 12b-1 under the 1940 Act. The plan provides that the Funds will pay a fee to SBS at an annual rate of .25% of the average net assets of the Funds. During the fiscal year ended November 30, 2013, the Trust paid SBS the following amounts:
12b-1 fees | |
Short-Term Bond | $19,297 |
Bond Income | 18,579 |
Core | 18,066 |
Global High Income | 13,728 |
Growth | 72,678 |
International | $429,673 |
For the year ended November 30, 2013, Saturna Capital spent $100,409 from additional resources of its own, and not part of the 12b-1 expense of the Funds, to compensate broker-dealers or other financial intermediaries, or their affiliates, in connection with the sale, distribution, retention, and/or servicing of Fund shares. To the extent that these resources are derived from advisory fees paid by the Funds, these payments could be considered "revenue sharing." Any such payments will not change the net asset value or the price of a Fund's shares.
SBS is the primary broker used to effect portfolio transactions for the Trust. SBS currently executes portfolio transactions for the Trust for free (no commissions). Should any change occur in this policy, shareowners would be notified. Transactions effected through other brokers may be subject to a commission payable to that broker.
Saturna Trust Company ("STC"), a subsidiary of Saturna Capital, acts as retirement plan custodian for Fund shareowners. For the year ended November 30, 2013, the Fund paid STC the following amounts:
Retirement plan custodial fees | |
Short-Term Bond | $3,387 |
Bond Income | 1,926 |
Core | 1,821 |
Global High Income | 446 |
Growth | 6,891 |
International | $6,252 |
Mr. Nicholas Kaiser serves as a trustee and president of the Trust. He is also a director and the chairman of Saturna Capital, Saturna Brokerage Services, and Saturna Trust Company. Mr Kaiser is not compensated by the Trust. For the fiscal year ended November 30, 2013, the Trust incurred compensation expenses of $29,000, which is included in $41,103 of total expenses for the independent Trustees.
The officers of the Trust are paid by Saturna Capital, not the Trust, except the Chief Compliance Officer, who may be partially compensated by the Trust. For the year ended November 30, 2013, the Funds paid the following compensation expenses for the Chief Compliance Officer:
Chief Compliance Officer | |
Short-Term Bond | $1,241 |
Bond Income | 1,534 |
Core | 1,428 |
Global High Income | 954 |
Growth | 5,014 |
International | $34,863 |
On November 30, 2013, the trustees, officers, and their affiliates as a group owned 34.6%, 32.2%, 42.7%, 35.7%, 9.2% and 2.1% of the outstanding shares of Short-Term Bond, Bond Income, Core, Global High Income, Growth, and International, respectively.
NOTE 4 — Distributions to Shareowners
The tax characteristics of distributions paid during the fiscal years ended November 30, 2012, and 2013, were as follows:
Year ended Nov. 30, 2013 | Year ended Nov. 30, 2012 | |
Short-Term Bond Fund | ||
Ordinary income | $92,977 | $95,199 |
Bond Income Fund | ||
Ordinary income | 239,703 | 236,032 |
Core Fund | ||
Ordinary income | 124,229 | 87,854 |
Global High Income Fund | ||
Ordinary income | 226,294 | 82,549 |
Growth Fund | ||
Ordinary income | 178,378 | 101,993 |
Long-term capital gain¹ | 3,182,432 | - |
International Fund | ||
Ordinary income | $3,102,776 | $1,752,397 |
¹Long-term capital gain dividend designated pursuant to Section 852(b)(3) of the Internal Revenue Code.
November 30, 2013 Annual Report | 55 |
Notes To Financial Statements (continued)
NOTE 5 — Federal Income Taxes
The cost basis of investments for federal income tax purposes at November 30, 2013, were as follows:
Short-Term Bond | Bond Income | |
Cost of investments | $6,905,511 | $6,434,367 |
Gross tax unrealized appreciation | 56,513 | 301,867 |
Gross tax unrealized depreciation | (29,433) | (108,032) |
Net tax unrealized appreciation | $27,080 | $193,835 |
Core | Global High Income | |
Cost of investments | $5,643,504 | $5,499,449 |
Gross tax unrealized appreciation | 1,244,312 | 534,423 |
Gross tax unrealized depreciation | (81,986) | (179,207) |
Net tax unrealized appreciation | $1,162,326 | $355,216 |
Growth | International | |
Cost of investments | $18,863,618 | $104,823,343 |
Gross tax unrealized appreciation | 13,926,895 | 44,348,724 |
Gross tax unrealized depreciation | (178,000) | (8,415,706) |
Net tax unrealized appreciation | $13,748,895 | $35,933,018 |
As of November 30, 2013, components of distributable earnings on a tax basis were as follows:
Short-Term Bond | |
Undistributed ordinary income | $1,308 |
Tax accumulated earnings | 1,308 |
Accumulated capital losses | (17,320) |
Unrealized appreciation | 27,080 |
Total accumulated earnings | $11,068 |
Bond Income | |
Accumulated capital losses | $(37,855) |
Unrealized appreciation | 193,835 |
Total accumulated earnings | $155,980 |
Core | |
Undistributed ordinary loss | $(3,277) |
Tax accumulated earnings | (3,277) |
Accumulated capital losses | (176,144) |
Unrealized appreciation | 1,162,326 |
Other unrealized losses | (4) |
Total accumulated earnings | $982,901 |
Global High Income | |
Undistributed ordinary loss | $(14,826) |
Tax accumulated earnings | (14,826) |
Accumulated capital losses | (70,213) |
Unrealized appreciation | 355,216 |
Other unrealized gains | 84 |
Total accumulated earnings | $270,261 |
Growth | |
Undistributed ordinary income | $20,962 |
Tax accumulated earnings | 20,962 |
Accumulated capital gains | 4 |
Unrealized appreciation | 13,748,895 |
Total accumulated earnings | $13,769,861 |
International | |
Undistributed ordinary loss | $(218,308) |
Tax accumulated earnings | (218,308) |
Accumulated capital losses | (5,918,939) |
Unrealized appreciation | 35,933,018 |
Other unrealized losses | (210) |
Total accumulated earnings | $29,795,561 |
At November 30, 2013, the Funds had capital loss carryforwards as follows, subject to regulation. Prior to their expiration, such loss carryforwards may be used to offset future net capital gains realized for federal income tax purposes.
Carryforward | Expiration | |
Short-Term Bond | ||
$2,972 | 2014 | |
10,255 | 2016 | |
Short-term loss carryforward | 4,093 | Unlimited |
$17,320 | ||
Bond Income | ||
$17,388 | 2016 | |
20,467 | 2017 | |
$37,855 | ||
Core | ||
$27,632 | 2016 | |
62,995 | 2017 | |
11,779 | 2018 | |
73,738 | 2019 | |
$176,144 | ||
Global High Income | ||
Short-term loss carryforward | $47,693 | Unlimited |
Long-term loss carryforward | 22,520 | Unlimited |
$70,213 | ||
International | ||
$1,528,334 | 2019 | |
Short-term loss carryforward | 506,661 | Unlimited |
Long-term loss carryforward | 3,883,944 | Unlimited |
$5,918,939 |
56 | Annual Report November 30, 2013 |
Notes To Financial Statements (continued)
Utilized Capital Loss Carryforwards | Expiration | |
Short-Term Bond | ||
Utilized capital loss carryforward | $21,302 | Short-term unlimited |
Bond Income | ||
Utilized capital loss carryforward | $804 | 2016 |
Core | ||
Utilized capital loss carryforward | $47,251 | 2016 |
14,314 | Short-term Unlimited | |
$140,184 | Long-term Unlimited | |
Global High Income | ||
Utilized capital loss carryforward | $5,867 | Short-term Unlimited |
Growth | ||
Utilized capital loss carryforward | $83,254 | 2019 |
NOTE 6 — Investments
Investment transactions other than short-term investments for the fiscal year ended November 30, 2013, were as follows:
Purchases | Sales | |
Short-Term Bond | $4,421,639 | $3,535,655 |
Bond Income | 700,048 | 555,000 |
Core | 1,888,493 | 2,165,013 |
Global High Income | 2,416,537 | 1,143,380 |
Growth | 9,981,002 | 7,593,189 |
International | $9,879,230 | $26,385,141 |
NOTE 7 — Custodian
Under agreements in place with the Trust's custodian, Bank of New York Mellon, custody fees are reduced by credits for cash balances. Such reductions for the fiscal year ended November 30, 2013, were as follows:
Custodian Fee Credits | |
Short-Term Bond | $351 |
Bond Income | 348 |
Core | 332 |
Global High Income | 559 |
Growth | 1,279 |
International | $9,882 |
NOTE 8 — Subsequent Events
In preparing these financial statements, the Funds have evaluated events and transactions for potential recognition or disclosure through the date the financial statements were issued. There were no events or transactions during the period that materially impacted the amounts or disclosures in the Funds' financial statements.
November 30, 2013 Annual Report | 57 |
Report of Independent Registered Public Accounting Firm
To the Shareholders and Board of Trustees
Saturna Investment Trust,
We have audited the accompanying statement of assets and liabilities of Sextant Short-Term Bond Fund, Sextant Bond Income Fund, Sextant Core Fund, Sextant Growth Fund, Sextant International Fund and Sextant Global High Income Fund, each a series of Saturna Investment Trust (the "Trust"), including the schedules of investments, as of November 30, 2013, and the related statements of operations for the year then ended, the statements of changes in net assets for each of the two years in the period then ended and the financial highlights for each of the five years in the period then ended, with respect for Sextant Global High Income Fund, the statement of operations, the statement of changes in net assets and the financial highlights for the period March 30, 2012 (commencement of operations) to November 30, 2013. 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 the standards of the Public Company Accounting Oversight Board (United States). 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. The Trust is not required to have, nor were we engaged to perform, an audit of their internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Trust's internal control over financial reporting. Accordingly, we express no such opinion. 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, 2013, by correspondence with the custodian and brokers or by other appropriate auditing procedures where replies from brokers were not received. An 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 Sextant Short-Term Bond Fund, Sextant Bond Income Fund, Sextant Core Fund, Sextant Growth Fund, Sextant International Fund and Sextant Global High Income Fund as of November 30, 2013, the results of their operations, the changes in their net assets and the financial highlights for the periods indicated above, in conformity with accounting principles generally accepted in the United States of America.
Philadelphia, Pennsylvania
January 23, 2014
/s/ Tait, Weller & Baker LLP
Tait, Weller & Baker LLP
58 | Annual Report November 30, 2013 |
Expenses (unaudited)
All mutual funds have operating expenses. As a Sextant Fund shareowner, you incur ongoing costs, including management fees, distribution (or service) 12b-1 fees, and other fund expenses such as shareowner reports (such as this one). Operating expenses, which are deducted from a fund's gross earnings, directly reduce the investment return of a fund. Mutual funds (unlike other financial investments) only report their results after deduction of operating expenses.
With the Sextant Funds, unlike many other mutual funds, you do not incur sales charges (loads) on purchases, reinvested dividends, or other distributions. You do not incur redemption fees or exchange fees related to Saturna Individual Retirement Accounts. You may incur fees related to extra services requested by you for your account, such as bank wires. The examples below are intended to help you understand your ongoing costs (in dollars) of investing in the Funds and to compare these costs with the ongoing costs of investing in other mutual funds.
Examples
The following example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period (June 1, 2013 to November 30, 2013).
Actual Expenses
The first line for each Fund provides information about actual account values and actual expenses. You may use the information in this line, together with the amount you have invested, to estimate the expenses you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first line under the heading entitled "Expenses Paid During Period" to estimate the expenses you paid on your account during this period. The Funds may charge for extra services (such as domestic bank wires, international bank wires, or overnight courier delivery of redemption checks) rendered on request, which you may need to estimate to determine your total expenses.
Hypothetical Example For Comparison Purposes
The second line provides information about hypothetical account values and hypothetical expenses based on the Funds' actual expense ratios (based on the last six months) and an assumed rate of return of 5% per year before expenses, which is not any Funds' actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in a Fund and other mutual funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareowner reports of other mutual funds. You may wish to add other fees that are not included in the expenses shown in the table, such as charges for extra services like bank wires.
Please note that the expenses shown in the tables are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as sales charges (loads), redemption fees or exchange fees (note that the Sextant Funds do not charge any such transactional costs). Therefore, the "Hypothetical" line of each fund is useful in comparing ongoing costs only, and may not help you determine the relative total costs of owning different funds.
Beginning Account Value (June 1, 2013) | Ending Account Value (November 30, 2013) | Expenses Paid During Period¹ | Annualized Expense Ratio | ||
Short-Term Bond Fund | |||||
Actual | $1,000 | $1,008.20 | $3.83 | 0.76% | |
Hypothetical (5% return before expenses) | $1,000 | $1,021.26 | $3.85 | 0.76% | |
Bond Income Fund | |||||
Actual | $1,000 | $979.50 | $4.37 | 0.88% | |
Hypothetical (5% return before expenses) | $1,000 | $1,020.66 | $4.46 | 0.88% | |
Core Fund | |||||
Actual | $1,000 | $1,049.40 | $4.93 | 0.96% | |
Hypothetical (5% return before expenses) | $1,000 | $1,020.26 | $4.86 | 0.96% | |
Global High Income Fund | |||||
Actual | $1,000 | $1,056.80 | $4.64 | 0.90% | |
Hypothetical (5% return before expenses) | $1,000 | $1,020.56 | $4.56 | 0.90% | |
Growth Fund | |||||
Actual | $1,000 | $1,157.40 | $4.76 | 0.88% | |
Hypothetical (5% return before expenses) | $1,000 | $1,020.66 | $4.46 | 0.88% | |
International Fund | |||||
Actual | $1,000 | $1,054.00 | $3.30 | 0.64% | |
Hypothetical (5% return before expenses) | $1,000 | $1,021.86 | $3.24 | 0.64% |
¹ Expenses are equal to the annualized expense ratio indicated above (based on the most recent semi-annual period of June 1, 2013, through November 30, 2013), multiplied by the average account value over the period multiplied by 183/365 (to reflect the one-half year period).
November 30, 2013 Annual Report | 59 |
Trustees and Officers (unaudited) | |||||
Name, Address, and Age | Position(s) held with Trust; term of office and length of time served | Principal occupation(s) during past 5 years | Number of portfolios in Saturna fund complex overseen by Trustee | Other directorships held by Trustee during past 5 years | |
Independent Trustees | |||||
(photo omitted) | John E. Love 1300 N. State Street Bellingham WA 98225 Age: 81 | Independent Trustee since 1987; Independent Chairman | Owner, J.E. Love Co., (agricultural equipment manufacturer) | Seven | None |
(photo omitted) | Gary A. Goldfogel, MD 1300 N. State Street Bellingham WA 98225 Age: 55 | Independent Trustee since 1995 | Medical Examiner (pathologist); Owner, Avocet Environmental Testing (laboratory) | Seven | None |
(photo omitted) | Herbert G. Grubel, PhD 1300 N. State Street Bellingham WA 98225 Age: 79 | Independent Trustee since 2005 | Senior Fellow, Fraser Institute; Professor (Emeritus) of Economics, Simon Fraser University; Author | Seven | Amana Mutual Funds Trust (retired 2011) |
(photo omitted) | Ronald H. Fielding, MA, MBA, CFA 1300 N. State Street Bellingham WA 98225 Age: 64 | Independent Trustee since 2009 | Retired (2009); Senior Vice President & Portfolio Manager, OppenheimerFunds Rochester Division | Ten | Amana Mutual Funds Trust; ICI Mutual Insurance Company |
Interested Trustee | |||||
(photo omitted) | Nicholas F. Kaiser, MBA, CFA¹ 1300 N. State Street Bellingham WA 98225 Age: 67 | President and Trustee since 1990 | Chairman (retired president 2009), Saturna Capital Corporation (the Trust's investment adviser); Director, Saturna Brokerage Services (the Trust's distributor); Director, Saturna Trust Company | Ten | Amana Mutual Funds Trust |
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.
The Fund's Statement of Additional Information, available without charge upon request by calling Saturna Capital at 800/SATURNA and on the Funds' website, www.sextantfunds.com, includes additional information about the Trustees.
On November 30, 2013, the trustees, officers, and their affiliates as a group owned 34.6%, 32.2%, 42.7%, 35.7%, 9.2% and 2.1% of the outstanding shares of Short-Term Bond, Bond Income, Core, Global High Income, Growth and International Funds, respectively. Saturna Capital Corporation is the Trust's adviser and Saturna Brokerage Services, Inc. is the Trust's distributor. Mr. Kaiser is the portfolio manager of the Sextant International Fund. He is an interested person of the Trust by reason of his positions with the Trust's adviser and distributor, and with the Amana Mutual Funds Trust. Mr. McIlvaine is the portfolio manager of the Sextant Bond Income Fund, Sextant Short-Term Bond Fund, and Idaho Tax-Exempt Fund. He is an interested person of the Trust by reason of his positions with the Trust's adviser and distributor.
¹ Holds same position with Amana Mutual Funds Trust.
60 | Annual Report November 30, 2013 |
Trustees and Officers (continued) (unaudited) | |||||
Name, Address, and Age | Position(s) held with Trust; term of office and length of time served | Principal occupation(s) during past 5 years | Number of portfolios in Saturna fund complex overseen by Trustee | Other directorships held by Trustee during past 5 years | |
Officers Who Are Not Trustees | |||||
(photo omitted) | Phelps S. McIlvaine¹ 1300 N. State Street Bellingham, WA 98225 Age: 60 | Vice President since 1994 | Vice President, Saturna Capital Corporation (the Trust's investment adviser); Director, Saturna Brokerage Services (the Trust's distributor) | N/A | N/A |
(photo omitted) | Ethel B. Bartolome¹ 1300 N. State Street Bellingham, WA 98225 Age: 41 | Secretary since 2001 | Corporate Administrator, Saturna Capital Corporation (the Trust's investment adviser) | N/A | N/A |
(photo omitted) | Christopher R. Fankhauser¹ 1300 N. State Street Bellingham, WA 98225 Age: 41 | Treasurer since 2002 | Chief Operations Officer, Saturna Capital Corporation (the Trust's investment adviser); Vice President and Chief Operations Officer, Saturna Brokerage Services (the Trust's Distributor); Director, Vice President, and Chief Operations Officer, Saturna Trust Company | N/A | N/A |
(photo omitted) | Michael E. Lewis¹ 1300 N. State Street Bellingham, WA 98225 Age: 52 | Chief Compliance Officer since 2012 | Chief Compliance Officer, Saturna Capital, Saturna Trust Company, and Affiliated Funds; District Director, Seattle Office, Financial Industry Regulatory Authority (FINRA) | N/A | N/A |
¹ Messrs. McIlvaine, Fankhauser, and Lewis, and Mrs. Bartolome are "interested persons" of the Trust as officers and/or employees of the Adviser, Saturna Capital Corporation. Messrs. Fankhauser and Lewis, and and Mrs. Bartolome hold the same positions with Amana Mutual Funds Trust, which has three fund portfolios, and is also managed by Saturna Capital Corporation.
November 30, 2013 Annual Report | 61 |
Renewal of Investment Advisory Contract (unaudited)
During their meeting of September 13, 2013, the Trustees of Saturna Investment Trust discussed the continuance of the various operating agreements related to each of the following Sextant Funds: Global High-Income Fund, Short-Term Bond Fund, Bond Income Fund, Core Fund, Growth Fund, and International Fund ("Funds"). The Trustees focused on renewing the Investment Advisory and Administration Agreements between the Funds and Saturna Capital Corporation ("Saturna"), and discussed the nature, extent, and quality of the services provided by Saturna. The Trustees took into consideration that the Funds of the Trust offer a full range of high-quality investor services and that these services had been enhanced, rather than scaled back, during recent economic difficulties. The Trustees discussed Saturna's experience, ability, and commitment to quality service through performing internally such functions as shareowner servicing, administration, retirement plan and trust services, accounting, marketing, and distribution — all in addition to investment management.
The Trustees took into consideration Saturna's continued avoidance of significant operational problems, plus its substantial investments in premises, personnel, training, and equipment to meet investor needs. They recognized Saturna's efforts to recruit and retain increasingly qualified, experienced, and specialized staff and improve the capital base on which Saturna operates, which the Trustees believe is important to the long-term success of the Funds. They appreciate Saturna' s focus on investors, avoiding potential conflicts of interest.
The Trustees found that the long-term investment performance of the Sextant International Fund, was very good and that of Sextant Growth Fund was good, relative to funds in their Morningstar categories. The investment performance of the Sextant Core Fund was barely satisfactory. The Trustees judged the performance of Sextant Short-Term Bond Fund and Sextant Bond Income as satisfactory, particularly considering the quality focus of their portfolios, which is not universally the case among bond funds, many of which incur greater risk in the name of performance. The Trustees judged the performance of Sextant Global High Income Fund to be satisfactory, given the fund's recent inception. The Trustees found such information helpful in establishing expectations regarding the performance of the adviser and whether to continue the advisory contract.
The Trustees reviewed the fees and expenses of the Funds. They noted that the Funds' performance-based advisory fees are reasonable and fair to the shareowners, and unusual in the industry. The Trustees found the expense ratios to be highly competitive and fair, given the sizes of the Funds, services provided, and expenses incurred.
The Trustees reviewed Saturna's financial information and discussed the issue of Saturna's lack of profitability as related to management and administration of the Funds. They discussed the reasonableness of the mix of services provided by Saturna, including the nature, extent and quality of such services. The Trustees noted the many years of dedicated service provided to Sextant shareowners by Saturna Capital.
The Trustees considered the assets of the Funds, and the extent to which advisory fees reflected economies of scale. The Trustees noted that, although the assets of the Funds generally have grown, the Funds remain small, and there has been no opportunity for Saturna to demonstrate economies of scale. In fact, Saturna continues to operate the Funds at significant cost to itself. The Trustees also considered whether there are other potential benefits to Saturna from acting as investment adviser and found none.
The Trustees considered the fees charged by Saturna to other kinds of accounts and the different services provided to those accounts, as well as the ways in which Saturna's investment management, research, and customer service operations performed for other accounts benefit the Funds.
The Trustees considered potential benefits to Saturna from acting as investment adviser and noted that there were no soft dollar arrangements with respect to trading in the Funds' portfolios. In fact, Saturna voluntarily waives brokerage commissions for Fund portfolio trades executed through its affiliated broker at a considerable cost to Saturna. This commission waiver results in savings to Fund shareowners.
The Trustees concluded that the fees paid by the Funds to Saturna were reasonable in light of the services provided, comparative performance, expense and fees, costs of services provided and profits to be realized, and benefits derived or to be derived by Saturna from its relationship with the Funds. Following this discussion, the Trustees unanimously agreed to renew the Investment Advisory and Administration Agreements between Saturna and each of Sextant Bond Income, Sextant Short Term Bond, Sextant Core, Sextant Growth, Sextant Global High Income, and Sextant International Funds.
62 | Annual Report November 30, 2013 |
Availability of Quarterly Portfolio Information
(1) The Sextant Funds file complete schedules of portfolio holdings with the SEC for the first and third quarters of each fiscal year on Form N-Q.
(2) The Funds' Forms N-Q are available on the SEC's website at www.sec.gov, and at www.sextantfunds.com.
(3) The Funds' Forms N-Q may be reviewed and copied at the SEC's Public Reference Room in Washington, DC. Information on the operation of the Public Reference Room may be obtained by calling 1-800-SEC-0330.
(4) The Funds make a complete schedule of portfolio holdings after the end of each month available to investors at www.sextantfunds.com.
Availability of Proxy Voting Information
(1) A description of the policies and procedures that the Funds use to determine how to vote proxies relating to portfolio securities is available (a) without charge, upon request, by calling Saturna Capital at 1-800-728-8762; (b) on the Funds' website at www. sextantfunds.com; and (c) on the SEC's website at www.sec.gov.
(2) Information regarding how each Fund voted proxies relating to portfolio securities during the most recent 12-month period ended June 30 is available (a) without charge, upon request, by calling Saturna Capital at 1-800-728-8762; (b) on the Funds' website at www.sextantfunds.com; and (c) on the SEC's website at www.sec.gov.
Privacy Statement
At Saturna Capital and the Sextant Mutual Funds, we understand the importance of maintaining the privacy of your financial information. We want to assure you that we protect the confidentiality of any personal information that you share with us. In addition, we do not sell information about our current or former customers.
In the course of our relationship, we gather certain nonpublic information about you, including your name, address, investment choices, and account information. We do not disclose your information to unaffiliated third parties unless it is necessary to process a transaction; service your account; deliver your account statements, shareholder reports and other information; or as required by law. When we disclose information to unaffiliated third parties, we require a contract to restrict the companies' use of customer information and from sharing or using it for any purposes other than performing the services for which they were required.
We may share information within the Saturna Capital family of companies in the course of informing you about products or services that may address your investing needs.
We maintain our own technology resources to minimize the need for any third party services, and restrict access to information within Saturna. We maintain physical, electronic, and procedural safeguards to guard your personal information. If you have any questions or concerns about the security or privacy of your information please call us at 800/SATURNA (800-728-8762)
Householding Policy
To reduce expenses, we may mail only one copy of the Funds' prospectus, each annual and semi-annual report, and proxy statements when necessary, to those addresses shared by two or more accounts. If you wish to receive individual and/or more copies of these documents, please call us at 800/SATURNA or write to us at Saturna Capital/Sextant Mutual Funds, P.O. Box N, Bellingham, WA 98227. We will begin sending you individual copies 30 days after receiving your request.
If you are currently receiving multiple copies and wish to receive only one copy, please call us at 800/SATURNA or write to us at Saturna Capital/Sextant Mutual Funds, P.O. Box N, Bellingham, WA 98227. We will begin sending you a single copy with subsequent report mailings.
November 30, 2013 Annual Report | 63 |
www.sextantfunds.com
(graphic omitted)
Saturna Capital
1300 North State Street
Bellingham, WA 98225
www.saturna.com
800/SATURNA
This report is issued for the information of the shareowners of the Funds. 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 Funds. The Sextant Funds are series of Saturna Investment Trust.
Saturna Brokerage Services, Distributor
Idaho Tax-Exempt Fund
ANNUAL REPORT
November 30, 2013
Performance Summary (as of December 31, 2013) (unaudited)
Average Annual Returns (before any taxes paid by shareowners)
10 Year | 5 Year | 3 Year | 1 Year | Expense Ratio¹ | |
Idaho Tax-Exempt Fund | 3.19% | 4.26% | 3.20% | -2.03% | 0.62% |
S&P Idaho Municipal Bond Index | 4.84% | 7.49% | 5.67% | -1.51% | n/a |
"Muni Single State Intermediate" Category Average² | 3.18% | 4.51% | 3.48% | -2.82% | n/a |
Morningstar™ Rating²
"Muni Single State Intermediate" Category | Overall | 10 Year | 5 Year | 3 Year | 1 Year |
Idaho Tax-Exempt Fund | ★★★ | ★★★ | ★★★ | ★★★ | n/a |
% Rank in Category | n/a | 55 | 61 | 68 | 22 |
Absolute Rank | n/a | 103 | 125 | 142 | 49 |
Funds in Category | 208 | 188 | 205 | 208 | 219 |
Performance data quoted in this report represents past performance, is before any taxes payable by shareowners, and is no guarantee of future results. Current performance may be higher or lower than that stated herein. Performance current to the most recent month-end is available by calling toll-free (800) SATURNA or visiting www.idahotaxexemptfund.com. Average annual total returns are historical and include change in share value as well as reinvestment of dividends and capital gains, if any. The investment return and principal value of an investment will fluctuate so that an investor's shares, when redeemed, may be worth more or less than their original cost.
Please consider an investment's objectives, risks, charges, and expenses carefully before investing. To obtain this and other important information about the Idaho Tax-Exempt Fund in a prospectus or summary prospectus, ask your financial advisor, visit www.idahotaxexemptfund.com, or call toll free 1-800/SATURNA. Please read the prospectus or summary prospectus carefully before investing.
¹ By regulation, the expense ratio shown in this table is as of the Fund's most recent prospectus, which is dated March 22, 2013, and incorporates results for the fiscal year ended November 30, 2012. The ratio presented in this table differs from expense ratios shown elsewhere in this report as they represent different fiscal periods.
² Source: Morningstar December 31, 2013. Morningstar, Inc. is an independent fund performance monitor. Rankings and category returns are determined monthly from total returns by Morningstar, by category as determined by Morningstar. Morningstar calculates total return by taking the change in a fund's NAV, assuming the reinvestment of all income and capital gains distributions (on the actual reinvestment date used by the fund) during the period, and then dividing by the initial NAV. Unless marked as load-adjusted total returns, Morningstar does not adjust total return for sales charges or for redemption fees. (Morningstar Return™, Morningstar Risk-Adjusted Ratings™, and the load-adjusted returns do incorporate those fees.) Total returns account for management, administrative, 12b-1 fees, and other costs automatically deducted from fund assets.
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. 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.
"% Rank in Category" is the fund's total-return percentile rank for the specified time period relative to all funds that have the same Morningstar category. The highest (or most favorable) percentile rank is 1, and the lowest (or least favorable) percentile rank is 100. The top-performing fund in a category will always receive a rank of 1. Percentile ranks within categories are most useful in those categories that have a large number of funds.
2 | November 30, 2013 | Annual Report |
(graphic omitted)
Fellow Shareowners:
For the six months ended November 30, 2013, Idaho Tax-Exempt Fund returned -1.33%. For the twelve months ended November 30, the Fund returned -2.70%. Over the one-year period, the Fund's outstanding shares remained relatively stable at 2.89 million, while net assets declined 6.2% to $15.5 million. The Fund's Net Asset Value ended the year at $5.36, down $0.32 from $5.68.
In 2013, Idaho total employment declined and the unemployment rate rose slightly. During the recent Great Recession Idaho experienced a decline in state GDP. Growth has not recovered as quickly as neighboring states or the nation. The federal budget sequestration reduction on military spending is partially responsible. Nonetheless, 2013 Idaho tax revenues are modestly above budget with only sales tax revenue lagging projections.
While Idaho may struggle to grow, disciplined budgeting and spending will keep the state's creditworthiness on solid ground. Local school districts will continue to see lowered levels of state funding. State and state agency credit remains of high quality.
Looking ahead, we expect the national and regional economies, as well as state exports to China and ASEAN economies, will provide support to Idaho growth and employment.
For those seeking a conservative investment vehicle, the Idaho Tax-Exempt Fund offers a diversified portfolio of high-grade issues intended to provide income exempt from federal income, federal alternative minimum, and Idaho state income taxes. In the current low interest rate environment, the Fund may purchase more carefully vetted, marketable, non-rated Idaho bonds.
Unlike many municipal funds, Idaho Tax-Exempt Fund has not suffered from investing in US territories such as Puerto Rico, Guam, and the US Virgin Islands to boost income at the expense of creditworthiness. Neither does the Fund employ derivatives or other financial engineering tools that often increase the risk of bond fund investments.
We invite you to review the advantages of the Idaho Tax- Exempt Fund, and we welcome your suggestions. Only with your help can we be certain that we are meeting our primary objective — fulfilling your investment needs.
Respectfully,
(photo omitted)
Nicholas Kaiser,
President
(photo omitted)
Phelps McIlvaine,
Vice President, Portfolio Manager
Annual Report | November 30, 2013 | 3 |
Performance Summary (unaudited)
Average Annual Returns (as of November 30, 2013) | ||||
10 Year | 5 Year | 1 Year | Expense Ratio¹ | |
Idaho Tax-Exempt Fund | 3.25% | 4.93% | -2.70% | 0.62% |
S&P Idaho Municipal Bond Index | 5.00% | 7.47% | -2.29% | N/A |
Growth of $10,000
Comparison of any mutual fund to a market index must be made bearing in mind that the Index is unmanaged and expense-free. Conversely, the fund will (1) be actively managed; (2) have an objective other than mirroring the index, such as limiting risk; (3) bear transaction and other costs; (4) stand ready to buy and sell its securities to shareowners on a daily basis; and (5) provide a wide range of services. The graph compares $10,000 invested in the Fund on November 30, 2003, to an identical amount invested in the Standard & Poor's Idaho Municipal Bond Index, a broad-based index of Idaho municipal bond prices. The graph shows that an investment in the Fund would have risen to $13,776 versus $16,295 in the S&P Idaho Municipal Bond Index. | |
Past performance does not guarantee future results. The "Growth of $10,000" graph and "Average Annual Returns" performance table assume the reinvestment of dividends and capital gains. They do not reflect the deduction of taxes that a shareowner might pay on fund distributions or the redemption of fund shares. ¹ By regulation, the expense ratio for the Fund shown in this table is as of the Fund's most recent prospectus, which is dated March 22, 2013, and incorporates results for the fiscal year ended November 30, 2012. The ratio presented in this table differs from expense ratios shown elsewhere in this report as they represent different fiscal periods. |
Fund Objective
Idaho Tax-Exempt Fund seeks to provide income free from federal income, federal alternative minimum, and Idaho state income taxes. Preservation of capital is a secondary objective.
Portfolio Diversification | Top Ten Holdings | ||
% of Fund Assets | |||
Weightings are shown as a percentage of total net assets. | Twin Falls Co. ID SCD #414 4.25% due 09/15/2028 | 3.0% | |
Ada & Canyon Cos. ID JSD #3 Kuna 4.00% due 08/15/2022 | 2.8% | ||
Idaho State Building Authority Revenue 5.00% due 09/01/2032 | 2.8% | ||
Madison Co. ID SCD #321 Rexburg 4.50% due 08/15/2024 | 2.7% | ||
Boise State University ID Revenues 5.00% due 04/01/2034 | 2.6% | ||
Owyhee & Elmore Cos. ID JSD #365 4.00% due 08/15/2027 | 2.4% | ||
Payette Co. ID SCD #373 5.00% due 09/15/2024 | 2.4% | ||
Canyon Co. ID SCD #139 Vallivue 4.35% due 09/15/2025 | 2.3% | ||
Pocatello ID Water Revenue 4.75% due 02/01/2026 | 2.3% | ||
Valley & Adams Cos. ID JSD #421 4.50% due 08/01/2024 | 2.1% |
4 | November 30, 2013 | Annual Report |
Discussion of Fund Performance (unaudited)
For the 12 months ended November 30, 2013, Idaho Tax-Exempt Fund returned -2.70%. The Fund's operating expense ratio was a low 0.64%. For the year, the Fund's net assets fell 6.2% to $15.5 million. The Fund's Net Asset Value per share moved in a narrow range from $5.68 to $5.36.
Factors Affecting Past Performance
One year ago the Fund decided to hold its short duration positions and to not extend average maturity during a period of negative real yields engineered by the Federal Reserve. That decision initially meant Idaho Fund's duration and return lagged peers by a wide margin.
During 2013, the Federal Reserve Bank reduced quantitative easing designed to suppress long-term rates and continued their policy of near-zero short-term interest rates. The result was a sharp spike in long-term rates, a major steepening in the municipal yield curve, and the return of positive real long-term rates. As a result, the Fund's relatively short duration profile limited losses from rising market interest rates.
The US Federal Reserve near-zero federal funds policy continues to pressure investors to take more risk to earn sufficient income. Some municipal bond funds enhance income by investing in higher yielding bonds issued by Puerto Rico, Guam, and the US Virgin Islands. The Idaho Fund has not purchased municipal bonds from issuers outside Idaho. The Fund may also purchase bonds rated BBB but did not do so during 2013 due to limited gain from taking the extra risk. The Fund's high credit profile may limit losses in the event of a widening of credit spreads in a rising rate environment.
In 2013, the public's confidence in the municipal bond market was shaken by Detroit's bankruptcy filing. A federal court has rendered an opinion questioning the seniority of Detroit's general obligation bond owners. We see the situation in Detroit as the result of 50 years of mismanagement and fiscal abuse. Detroit's actions are not representative of the conduct of most municipal bond issuers.
Looking Forward
For 2014, we expect the economy to modestly strengthen. We expect the Federal Reserve to stop quantitative easing during the year, resulting in higher long-term rates and a steep yield curve. We expect the near-zero federal funds rate policy to continue through 2014, anchoring the short end of the yield curve.
While we expect rates to rise, we do not expect a significant move. Deflationary forces remain. Lagging employment and wage growth, declining unemployment benefits, rising health care taxes, hobbled interbank liquidity, falling velocity of money, a strengthening US dollar, and high debt burdens limit the potential for rates to rise.
In 2014, higher absolute yields, positive real yields, a historically steep yield curve, compressed credit spreads, and weak inflation present an opportunity for the Fund to extend duration and increase income with reduced risk. Idaho Tax-Exempt Fund expects to extend duration in the coming year.
Idaho credit quality has improved over the last five years. We expect higher general fund revenues, surpluses, and rising reserve funds balances. Idaho has done comparatively well structuring and funding state pensions. 2013's strong equity returns and higher bond yields will reduce Idaho's unfunded pension liability further.
Municipal bonds remain cheap with yields reflecting the public's concern over future bond returns in general and municipal credit in particular. Furthermore, intermediate and long investment grade municipal bond yields remain above those of US Treasurys, which no longer contain a flight-to-quality price premium. As such, municipal bonds are a good value compared to US Treasury paper and high grade corporate bonds.
Bond Quality Diversification |
Based on total net assets as of November 30, 2013. Source: Moody's Investors Services. |
Annual Report | November 30, 2013 | 5 |
Schedule of Investments | ||||
Tax-Exempt Municipal Bonds | Coupon / Maturity | Face Amount | Market Value | Percentage of Assets |
Financial Services | ||||
Idaho Bond Bank Authority¹ | 4.00% due 09/15/2019 | $90,000 | $99,370 | 0.6% |
90,000 | 99,370 | 0.6% | ||
General Obligation | ||||
Ada & Canyon Cos. ID JSD #2 Meridian | 5.00% due 08/15/2020 | 165,000 | 178,117 | 1.2% |
Ada & Canyon Cos. ID JSD #2 Meridian | 5.00% due 08/15/2021 | 155,000 | 167,322 | 1.1% |
Ada & Canyon Cos. ID JSD #3 Kuna | 5.00% due 09/15/2019 | 240,000 | 264,000 | 1.7% |
Ada & Canyon Cos. ID JSD #3 Kuna | 4.00% due 08/15/2022 | 400,000 | 441,360 | 2.8% |
Adams & Washington Cos. ID JSD #432 | 4.00% due 08/15/2019 | 100,000 | 104,396 | 0.7% |
Bingham Co. ID SCD #52 Snake HS | 4.00% due 09/01/2020 | 250,000 | 272,387 | 1.8% |
Bingham Co. ID SCD #52 Snake HS | 4.00% due 09/01/2027 | 200,000 | 207,874 | 1.3% |
Blaine Co. ID Series A | 4.05% due 08/01/2023 | 150,000 | 158,560 | 1.0% |
Bonneville & Bingham Cos. ID JSD #93 | 5.00% due 09/15/2029 | 250,000 | 275,148 | 1.8% |
Bonneville & Bingham Cos. ID JSD #93 | 5.00% due 09/15/2031 | 200,000 | 216,988 | 1.4% |
Bonneville Co. ID SCD #91¹ | 4.00% due 09/15/2026 | 50,000 | 51,994 | 0.3% |
Bonneville Co. ID SCD #91 | 3.75% due 09/15/2032 | 285,000 | 273,093 | 1.8% |
Boundary Co. ID SCD #101 | 4.00% due 08/15/2021 | 240,000 | 253,675 | 1.6% |
Canyon Co. ID SCD #131 Nampa | 5.00% due 08/15/2023 | 105,000 | 113,347 | 0.7% |
Canyon Co. ID SCD #139 Vallivue | 5.00% due 09/15/2024 | 260,000 | 298,353 | 1.9% |
Canyon Co. ID SCD #139 Vallivue | 4.35% due 09/15/2025 | 350,000 | 362,029 | 2.3% |
Fremont & Madison Cos. ID JSD #215 | 4.00% due 08/15/2019 | 200,000 | 218,810 | 1.4% |
Fremont & Madison Cos. ID JSD #215 | 4.125% due 08/15/2024 | 130,000 | 137,459 | 0.9% |
Jefferson & Madison Cos. ID JSD #251 Rigby | 4.25% due 09/01/2024 | 100,000 | 106,500 | 0.7% |
Jerome, Lincoln & Gooding Cos. JSD #261 | 3.75% due 09/15/2018 | 125,000 | 131,800 | 0.9% |
Jerome, Lincoln & Gooding Cos. JSD #261 | 5.00% due 09/15/2022 | 250,000 | 264,217 | 1.7% |
Kootenai Co. ID SCD #271 | 4.00% due 09/15/2025 | 165,000 | 175,679 | 1.1% |
Kootenai-Shoshone ID Area Libraries | 4.25% due 08/01/2021 | 220,000 | 226,101 | 1.5% |
Latah Co. ID SCD #281 | 4.00% due 08/15/2027 | 100,000 | 107,485 | 0.7% |
Latah Co. ID SCD #281 | 4.00% due 08/15/2028 | 200,000 | 212,726 | 1.4% |
Latah, Nez Perce, & Clearwater Cos. ID JSD #283 | 4.50% due 08/15/2027 | 190,000 | 199,838 | 1.3% |
Madison Co. ID SCD #321 Rexburg | 4.50% due 08/15/2024 | 410,000 | 421,406 | 2.7% |
Madison Co. ID SCD #321 Rexburg | 4.50% due 08/15/2026 | 250,000 | 254,680 | 1.6% |
Meridian ID Free Library District | 5.00% due 08/01/2015 | 100,000 | 100,735 | 0.7% |
Minidoka & Jerome Cos. ID JSD #331¹ | 4.50% due 08/15/2018 | 75,000 | 80,489 | 0.5% |
Minidoka & Jerome Cos. ID JSD #331¹ | 4.50% due 08/15/2020 | 75,000 | 79,082 | 0.5% |
Minidoka & Jerome Cos. ID JSD #331 | 4.375% due 08/15/2024 | 225,000 | 231,948 | 1.5% |
Minidoka & Jerome Cos. ID JSD #331 | 4.50% due 08/15/2025 | 160,000 | 164,077 | 1.1% |
Nampa ID Series B | 5.00% due 08/01/2020 | 200,000 | 215,538 | 1.4% |
Owyhee & Elmore Cos. ID JSD #365 | 4.00% due 08/15/2027 | 350,000 | 371,504 | 2.4% |
Payette Co. ID SCD #373 | 5.00% due 09/15/2024 | 350,000 | 367,857 | 2.4% |
Twin Falls & Gooding Cos. JSD #412 | 4.125% due 09/01/2023 | 100,000 | 109,453 | 0.7% |
Twin Falls Co. ID SCD #411 | 4.30% due 09/15/2025 | 120,000 | 123,965 | 0.8% |
Twin Falls Co. ID SCD #414 | 4.25% due 09/15/2028 | 445,000 | 478,918 | 3.0% |
Valley & Adams Cos. ID JSD #421 | 4.50% due 08/01/2022 | 135,000 | 149,317 | 1.0% |
Valley & Adams Cos. ID JSD #421 | 4.50% due 08/01/2024 | 290,000 | 320,755 | 2.1% |
Valley & Adams Cos. ID JSD #421 | 3.00% due 08/01/2026 | 220,000 | 199,712 | 1.3% |
8,585,000 | 9,088,694 | 58.7% | ||
Medical/Hospitals | ||||
Idaho Health Facility Authority Revenue | 6.00% due 12/01/2023 | 200,000 | 229,520 | 1.5% |
Idaho Health Facility Authority Revenue | 6.25% due 12/01/2033 | 115,000 | 127,977 | 0.8% |
315,000 | 357,497 | 2.3% | ||
Continued on next page. |
6 | November 30, 2013 | Annual Report | The accompanying notes are an integral part of these financial statements. |
Schedule of Investments | ||||
Tax-Exempt Municipal Bonds | Coupon / Maturity | Face Amount | Market Value | Percentage of Assets |
Municipal Leases | ||||
Nez Perce Co. ID COPS | 4.50% due 02/01/2021 | $150,000 | $152,064 | 1.0% |
150,000 | 152,064 | 1.0% | ||
Pollution Control | ||||
Caldwell ID Sewer Revenue | 4.50% due 09/01/2019 | 100,000 | 111,938 | 0.7% |
Idaho Bond Bank Authority | 4.30% due 09/01/2022 | 135,000 | 137,001 | 0.9% |
Idaho Bond Bank Authority¹ | 4.125% due 09/15/2023 | 75,000 | 79,014 | 0.5% |
Moscow ID Sewer Revenue | 4.45% due 05/01/2028 | 200,000 | 207,860 | 1.4% |
510,000 | 535,813 | 3.5% | ||
Power Generation | ||||
Idaho Falls ID Electric Revenue¹ | 6.75% due 04/01/2019 | 90,000 | 98,749 | 0.6% |
90,000 | 98,749 | 0.6% | ||
Real Estate | ||||
Idaho State Building Authority Revenue | 5.00% due 09/01/2032 | 400,000 | 428,628 | 2.8% |
Post Falls ID LID SPA | 5.00% due 05/01/2021 | 240,000 | 236,201 | 1.5% |
640,000 | 664,829 | 4.3% | ||
State Education | ||||
Boise State University ID Revenues | 4.50% due 04/01/2027 | 250,000 | 257,375 | 1.7% |
Boise State University ID Revenues | 5.00% due 04/01/2034 | 385,000 | 395,102 | 2.6% |
Idaho State University Revenues | 4.625% due 04/01/2024 | 220,000 | 222,757 | 1.4% |
University of Idaho Revenues | 5.00% due 04/01/2019 | 200,000 | 209,496 | 1.3% |
University of Idaho Revenues | 5.00% due 04/01/2020 | 260,000 | 271,502 | 1.8% |
University of Idaho Revenues | 5.00% due 04/01/2028 | 225,000 | 239,002 | 1.5% |
1,540,000 | 1,595,234 | 10.3% | ||
Transportation | ||||
Boise ID Airport Parking Facility Revenue | 3.00% due 09/01/2028 | 210,000 | 178,122 | 1.2% |
Idaho Housing & Finance Association | 4.60% due 07/15/2023 | 250,000 | 264,235 | 1.7% |
Idaho Housing & Finance Association | 5.00% due 07/15/2024 | 200,000 | 213,250 | 1.4% |
Idaho Housing & Finance Association¹ | 5.00% due 07/15/2027 | 50,000 | 52,430 | 0.3% |
710,000 | 708,037 | 4.6% | ||
Urban Renewal | ||||
Boise City ID Urban Renewal Agency Lease Revenue | 5.00% due 08/15/2020 | 160,000 | 169,179 | 1.1% |
Boise City ID Urban Renewal Agency Lease Revenue¹ | 5.00% due 08/15/2021 | 90,000 | 94,596 | 0.6% |
250,000 | 263,775 | 1.7% | ||
Water Supply | ||||
Chubbuck ID Water Revenue | 4.00% due 09/01/2025 | 155,000 | 161,814 | 1.0% |
Idaho Bond Bank Authority | 4.00% due 09/15/2024 | 100,000 | 104,749 | 0.7% |
Idaho Bond Bank Authority | 5.00% due 09/15/2026 | 250,000 | 266,193 | 1.7% |
Pocatello ID Water Revenue | 4.50% due 02/01/2024 | 100,000 | 102,975 | 0.7% |
Pocatello ID Water Revenue | 4.75% due 02/01/2026 | 350,000 | 359,678 | 2.3% |
955,000 | 995,409 | 6.4% | ||
Total investments | (Cost = $14,360,074) | $13,835,000 | 14,559,471 | 94.0% |
Other assets (net of liabilities) | 932,436 | 6.0% | ||
Total net assets | $15,491,907 | 100.0% | ||
¹ Indicates an odd lot. See note regarding odd lot securities on page 11. |
The accompanying notes are an integral part of these financial statements. | Annual Report | November 30, 2013 | 7 |
Statement of Assets and Liabilities | |
As of November 30, 2013 | |
Assets | |
Investments in securities, at value (Cost $14,360,074) | $14,559,471 |
Cash | 812,652 |
Interest receivable | 168,902 |
Insurance reserve premium | 800 |
Receivable for Fund shares sold | 150 |
Total assets | 15,541,975 |
Liabilities | |
Payable for Fund shares redeemed | 15,808 |
Accrued expenses | 15,799 |
Distributions payable | 11,610 |
Payable to affiliates | 6,851 |
Total liabilities | 50,068 |
Net assets | $15,491,907 |
Analysis of net assets | |
Paid-in capital (unlimited shares authorized, without par value) | $15,287,887 |
Undistributed tax free income | 3,622 |
Accumulated net realized gain | 1,001 |
Unrealized net appreciation on investments | 199,397 |
Net assets applicable to Fund shares outstanding | $15,491,907 |
Fund shares outstanding | 2,892,771 |
Net asset value, offering and redemption price per share | $5.36 |
Statement of Operations | |
Year ended November 30, 2013 | |
Investment income | |
Interest income | $563,619 |
Gross investment income | 563,619 |
Expenses | |
Investment adviser fees | 80,158 |
Audit fees | 9,620 |
Chief Compliance Officer expenses | 3,209 |
Shareowner servicing | 2,736 |
Filing and registration fees | 2,539 |
Printing and postage | 2,239 |
Trustee fees | 2,188 |
Other expenses | 1,578 |
Custodian fees | 761 |
Legal fees | 411 |
Retirement plan custodial fees | 71 |
Total gross expenses | 105,510 |
Less shareowner servicing fees waived | (2,736) |
Less custodian fee credits | (761) |
Net expenses | 102,013 |
Net investment income | $461,606 |
Net realized gain from investments | $29,545 |
Net decrease in unrealized appreciation on investments | (954,720) |
Net loss on investments | $(925,175) |
Net decrease in net assets resulting from operations | $(463,569) |
8 | November 30, 2013 | Annual Report | The accompanying notes are an integral part of these financial statements. |
Statements of Changes of Net Assets | Year ended November 30, 2013 | Year ended November 30, 2012 |
Increase (decrease) in net assets from operations | ||
From operations | ||
Net investment income | $461,606 | $460,600 |
Net realized gain on investments | 29,545 | 36,728 |
Net increase (decrease) in unrealized appreciation | (954,720) | 495,979 |
Net increase (decrease) in net assets | (463,569) | 993,307 |
Distributions to shareholders from | ||
Net investment income | (461,601) | (460,825) |
Capital gains distributions | (28,544) | (36,739) |
Total distributions | (490,145) | (497,564) |
Capital share transactions | ||
Proceeds from sales of shares | 2,303,561 | 1,081,366 |
Value of shares issued in reinvestment of dividends | 395,157 | 396,137 |
Cost of shares redeemed | (2,768,811) | (1,574,954) |
Net decrease in net assets | (70,093) | (97,451) |
Total increase (decrease) in net assets | (1,023,807) | 398,292 |
Net assets | ||
Beginning of year | 16,515,714 | 16,117,422 |
End of year | 15,491,907 | 16,515,714 |
Undistributed tax-free income | $3,622 | $3,617 |
Shares of the Fund sold and redeemed | ||
Number of shares sold | 422,138 | 192,360 |
Number of shares issued in reinvestment of dividends | 72,290 | 70,444 |
Number of shares redeemed | (510,385) | (280,880) |
Net decrease in number of shares outstanding | (15,957) | (18,076) |
Financial Highlights | For Year Ended November 30, | ||||
Selected data per share of outstanding capital stock throughout each year: | 2013 | 2012 | 2011 | 2010 | 2009 |
Net asset value at beginning of year | $5.68 | $5.51 | $5.43 | $5.43 | $4.94 |
Income from investment operations | |||||
Net investment income | 0.16 | 0.16 | 0.18 | 0.17 | 0.17 |
Net gain (loss) on securities (both realized & unrealized) | (0.31) | 0.18 | 0.08 | - | 0.49 |
Total from investment operations | (0.15) | 0.34 | 0.26 | 0.17 | 0.66 |
Less distributions | |||||
Dividends (from net investment income) | (0.16) | (0.16) | (0.18) | (0.17) | (0.17) |
Distributions (from capital gains) | (0.01) | (0.01) | 0.001 | 0.001 | - |
Total distributions | (0.17) | (0.17) | (0.18) | (0.17) | (0.17) |
Paid-in capital from early redemption fees | - | - | 0.00¹ | 0.00¹ | 0.00¹ |
Net asset value at end of year | $5.36 | $5.68 | $5.51 | $5.43 | $5.43 |
Total return | (2.70)% | 6.33% | 4.91% | 3.26% | 13.46% |
Ratios / supplemental data | |||||
Net assets ($000), end of year | $15,492 | $16,516 | $16,117 | $15,230 | $14,610 |
Ratio of expenses to average net assets | |||||
Before shareowner servicing fee waiver and custodian fee credits | 0.66% | 0.62% | 0.62% | 0.74% | 0.85% |
After shareowner servicing fee waiver | 0.64% | n/a | n/a | n/a | n/a |
After shareowner servicing fee waiver and custodian fee credits | 0.64% | 0.62% | 0.61% | 0.73% | 0.84% |
Ratio of net investment income after custodian fee credits to average net assets | 2.88% | 2.89% | 3.27% | 3.23% | 3.19% |
Portfolio turnover rate | 9% | 12% | 4% | 2% | 3% |
¹ Amount is less than $0.01 |
The accompanying notes are an integral part of these financial statements. | Annual Report | November 30, 2013 | 9 |
Notes To Financial Statements
Note 1 — Organization
Saturna Investment Trust (the "Trust") was established under Washington State Law as a business trust on February 20, 1987. The Trust is registered as a no-load, open-end, diversified series investment company under the Investment Company Act of 1940, as amended. Six portfolios have been created to date in addition to Idaho Tax-Exempt Fund (the "Fund"). The other six portfolios are distributed through a separate prospectus and the results of those funds are contained in a separate report.
The Idaho Tax-Exempt Fund was first authorized to sell shares of beneficial interest on September 4, 1987.
Note 2 — Significant Accounting Policies
The following is a summary of the significant accounting policies, in conformity with accounting principles generally accepted in the United States of America, which are consistently followed by the Fund in the preparation of its financial statements.
Security valuation:
Debt securities are valued using bid-side valuations provided by an independent service. The service determines valuations using factors such as yields or prices of bonds of comparable quality, type of issue, coupon maturity, ratings, trading activity, and general market conditions. In the absence of a valuation from an independent service for a security, a fair value for such security is determined in good faith by or under the direction of the Board of Trustees.
Share valuation:
The net asset value ("NAV") per share of the Fund is calculated by dividing the sum of the value of the securities held by the Fund, plus cash and other assets, minus all liabilities (including estimated accrued expenses) by the total number of shares outstanding for the Fund, rounded to the nearest cent. The Fund's shares are not priced or traded on days the New York Stock Exchange is closed. The NAV is the offering and redemption price per share.
The Trustees have adopted certain policies and procedures with respect to frequent trading of Fund shares. The Fund is intended for long-term investment and does not permit rapid trading of its shares. The Fund cannot always identify all intermediaries, or detect or prevent trading that violates the Frequent Trading Policy through intermediaries or omnibus accounts.
Fair value measurements:
Accounting Standards Codification (ASC) 820-10 establishes a three-tier framework for measuring fair value based on a hierarchy of inputs. The hierarchy distinguishes between market data obtained from independent sources (observable inputs) and the Fund's own market assumptions (unobservable inputs). These inputs are used in determining the value of the Fund's investments and are summarized below.
Level 1 — Unadjusted quoted prices in active markets for identical assets or liabilities that the Trust has the ability to access.
Level 2 — Observable inputs other than quoted prices in Level 1 that are observable for the asset or liability, either directly or indirectly. These inputs may include quoted prices for the identical instrument on an inactive market, prices for similar instruments, interest rates, prepayment speeds, credit risk, yield curves, default rates, and similar data.
Level 3 — Unobservable inputs for the asset or liability, to the extent relevant observable inputs are not available, representing the Trust's own assumptions about the assumptions a market participant would use in valuing the asset or liability, and would be based on the best information available.
The availability of observable inputs can vary from security to security and is affected by a wide variety of factors, including, for example, the type of security, whether the security is new and not yet established in the marketplace, the liquidity of markets, and other characteristics particular to the security. To the extent that valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgement. Accordingly, the degree of judgement exercised in determining fair value is greatest for instruments categorized in Level 3.
The inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, for disclosure purposes, the level in the fair value hierarchy within which the fair value measurement falls in its entirety, is determined based on the lowest level input that is significant to the fair value measurement in its entirety.
The inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities.
The table below is a summary of the inputs used as of November 30, 2013, in valuing the Fund's investments carried at value.
Fair Value Inputs | Total | Level 1 Quoted Price | Level 2 Significant Observable Input | Level 3 Significant Unobservable Input |
Municipal Bonds | $14,559,471 | $- | $13,923,747 | $635,724 |
Total Assets | $14,559,471 | $- | $13,923,747 | $635,724 |
10 | November 30, 2013 | Annual Report |
Notes To Financial Statements (continued)
Level 3 Roll-Forward Municipal Securities | |
Beginning balance | $585,180 |
Total unrealized gains or losses | (23,898) |
Purchases | 58,812 |
Sales | (54,370) |
Maturity/call | (20,000) |
Transfers into (out of) Level 3 | 90,000 |
Ending balance | $635,724 |
Odd Lots:
The bid-side valuations provided by the independent pricing service are for institutional "round-lot" holdings ("Round Lots"). Round Lots consist of 100 bonds (approximately $100,000 each). Some of the Fund's holdings consist of less than a Round Lot and are considered "Odd Lots." Odd Lots trade at a discount to Round Lots to compensate for the effect of the fixed costs associated with any trade. To reflect this discount, the Fund applies a discount to the valuation of Odd Lot holdings as shown in the following chart.
Total Face Value | Adjustment to Price |
Under 10,000 | -0.750% |
10,000-24,999 | -0.625% |
25,000-49,999 | -0.500% |
50,000-74,999 | -0.375% |
75,000-99,999 | -0.250% |
100,000 and up | none |
Income taxes:
The Fund intends to comply with the requirements of the Internal Revenue Code necessary to qualify as a regulated investment company and to make the requisite distributions of income and capital gains to its shareowners sufficient to relieve it from all or substantially all federal income taxes. As the Fund intends to meet requirements for tax-free income dividends, and the requirements of the Idaho Department of Revenue for income dividends free of Idaho state income tax, no income tax provisions are required.
The Fund recognizes the tax benefits of uncertain tax positions only where the position is "more likely than not" to be sustained assuming examination by tax authorities. Management has analyzed the Fund's tax positions and has concluded that no liability for unrecognized tax benefits should be recorded related to uncertain tax positions taken on returns filed for open tax years (2010 — 2012), or expected to be taken in the Fund's 2013 tax return. The Fund identifies its major tax jurisdiction as US federal and foreign jurisdictions where the Fund makes significant investments; however, the Fund is not aware of any tax positions for which it is reasonably possible that the total amounts of unrecognized tax benefits will change materially in the next twelve months.
Derivative instruments and hedging activities:
The Fund has adopted the financial reporting rules and regulations that require enhanced disclosure which enables investors to understand how and why an entity uses derivatives, how derivatives are accounted for, and how derivative instruments affect an entity's results of operations and financial position.
During the fiscal year ended November 30, 2013, the Fund did not hold any derivative instruments.
Distributions to shareowners:
The Fund's dividends to shareowners from net investment income are paid daily and distributed on the last business day of each month.
Distributions of capital gains, if any, are made at least annually and as required to comply with federal excise tax requirements. Distributions to shareowners are determined in accordance with income tax regulations and are recorded on the ex-dividend date. Dividends are paid in shares of the Funds, at the net asset value on the payable date. Shareowners may elect to take dividends in cash.
Use of estimates:
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of increases and decreases in net assets from operations during the reporting period. Actual results could differ from those estimates.
Other:
The ability of issuers of debt securities held by the Fund to meet their obligations may be affected by economic and political developments in the state of Idaho.
Interest income is recognized on an accrual basis. Discounts on securities purchased are accreted and premiums are amortized over the lives of the respective securities.
Security transactions are recorded on trade date. Realized gains and losses on sales of securities are recorded on the identified cost basis.
Note 3 — Transactions with Affiliated Persons
Under contracts approved annually by the Fund's independent trustees, Saturna Capital Corporation provides investment advisory services and certain other administrative and distribution services to conduct the Fund's business. For such services, the Fund pays an annual fee equal to 0.50% of its average daily net assets. For the fiscal year ended November 30, 2013, the Fund incurred advisory fee expenses of $80,158. Expenses incurred by the Trust on behalf of the Fund (e.g., legal fees) are allocated to the Fund and the other Funds of the Trust on the basis of relative daily average net assets.
Saturna Capital also acts as transfer agent for the Fund, for which it did not receive any compensation during the year ended November 30, 2013. Saturna Capital has voluntarily elected to waive the transfer agent fee for an indefinite period, which may cease at Saturna Capital's election, to reduce the Fund's operating expenses. Such fees, had they been charged, would have totalled $2,736.
Saturna Brokerage Services, Inc. ("SBS"), a discount brokerage and subsidiary of Saturna Capital, is registered as a broker-dealer and acts as distributor for the Fund.
Annual Report | November 30, 2013 | 11 |
Notes To Financial Statements (continued)
Saturna Trust Company ("STC"), a subsidiary of Saturna Capital, acts as a retirement plan custodian for Fund shareowners. For the year ended November 30, 2013, the Fund incurred retirement plan custodial fees of $71.
Mr. Nicholas Kaiser serves as a trustee and president of the Trust. He is also a director and the chairman of Saturna Capital, Saturna Brokerage Services, and Saturna Trust Company. Mr Kaiser is not compensated by the Trust. For the fiscal year ended November 30, 2013, the Trust incurred compensation expenses of $29,000, which is included in $41,103 of total expenses for the independent Trustees. Idaho Tax-Exempt Fund paid $2,188 of these total expenses.
The officers of the Trust are paid by Saturna Capital, not the Trust, except the Chief Compliance Officer, who is partially compensated by the Trust. For the fiscal year ended November 30, 2013, the Fund paid $3,209 in compensation for such services.
On November 30, 2013, the trustees, officers, and their immediate families as a group directly or indirectly owned 11.36% of the outstanding shares of the Fund.
Note 4 — Investments
During the fiscal year ended November 30, 2013, the Fund purchased $1,534,526 of securities and sold/matured $1,424,732 of securities.
Note 5 — Distributions to Shareowners
The tax characteristics of distributions paid during the fiscal years ended November 30, 2013, and 2012 were as follows:
2013 | 2012 | |
Tax-exempt income | $461,601 | $460,825 |
Capital gain¹ | $28,544 | $36,739 |
¹Long-Term Capital Gain dividend designated pursuant to Section 852(b)(3) of the Internal Revenue Code.
The cost basis of investments for federal income tax purposes at November 30, 2013 were as follows:
Cost of investments | $14,360,074 |
Gross tax unrealized appreciation | 454,667 |
Gross tax unrealized depreciation | (255,270) |
Net tax unrealized appreciation | $199,397 |
As of November 30, 2013, the components of distributable earnings on a tax bases were as follows:
Undistributed tax exempt income | $3,622 |
Tax accumulated earnings | 3,622 |
Undistributed capital gains | 1,001 |
Unrealized appreciation | 199,397 |
Total accumulated earnings | $204,020 |
Note 6 — Custodian
Under the agreement in place with Bank of New York Mellon, custody fees are reduced by credits for cash balances. Such reduction for the fiscal year ended November 30, 2013, amounted to $761.
Note 7 — Subsequent Events
In preparing these financial statements, the Fund has evaluated events and transactions for potential recognition or disclosure through the date the financial statements were issued. There were no events or transactions during the period that materially impacted the amounts or disclosures in the Fund's financial statements.
12 | November 30, 2013 | Annual Report |
Report of Independent Registered Public Accounting Firm
To the Shareholders and Board of Trustees
Saturna Investment Trust,
We have audited the accompanying statements of assets and liabilities of Idaho Tax-Exempt Fund, a series of the Saturna Investment Trust (the "Trust"), including the schedule of investments as of November 30, 2013, and the related statement of operations for the year then ended, and the statements of changes in net assets for each of the two years in the period then ended, and the financial highlights for each of the five years in the period 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 the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. The Trust is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Trust's internal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. Our procedures included confirmation of securities owned as of November 30, 2013, by correspondence with the custodian. 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, 2013, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended, and its financial highlights for each of the five years in the period then ended, in conformity with accounting principles generally accepted in the United States of America.
Philadelphia, Pennsylvania
January 23, 2014
/s/ Tait, Weller & Baker LLP
Tait, Weller & Baker LLP
Annual Report | November 30, 2013 | 13 |
Expenses (unaudited)
All mutual funds have operating expenses. As an Idaho Tax-Exempt Fund shareowner, you incur ongoing costs, including management fees and other fund expenses such as shareowner reports (like this one). Operating expenses, which are deducted from a fund's gross earnings, directly reduce the investment return of a fund. Mutual funds (unlike other financial investments) only report their results after deduction of operating expenses.
With the Idaho Tax-Exempt Fund, unlike many mutual funds, you do not incur sales charges (loads) on purchases, reinvested dividends, or other distributions. You do not incur redemption fees, exchange fees, or fees related to Saturna Individual Retirement Accounts. You may incur fees related to extra services requested by you for your account, such as bank wires. The examples below are intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds.
Example
The following example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period (June 1, 2013, to November 30, 2013).
Actual Expenses
The first line provides information about actual account values and actual expenses. You may use the information in this line, together with the amount you have invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first line under the heading entitled "Expenses Paid During Period" to estimate the expenses you paid on your account during this period. The Fund may charge for extra services (such as domestic bank wires, international bank wires, or overnight courier delivery of redemption checks) rendered on request, which you may need to estimate to determine your total expenses.
Hypothetical Example for Comparison Purposes
The second line provides information about hypothetical account values and hypothetical expenses based on the Fund's actual expense ratio (based on the last six months) and an assumed rate of return of 5% per year before expenses, which is not the Fund's actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other mutual funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareowner reports of other mutual funds. You may wish to add other fees that are not included in the expenses shown in the table, such as charges for extra services like bank wires.
Please note that the expenses shown are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as sales charges (loads), redemption fees, or exchange fees (note that the Idaho Tax-Exempt Fund does not charge any such transactional costs). Therefore, the second line is useful in comparing ongoing costs only, and may not help you determine the relative total costs of owning different funds.
Beginning Account Value [June 1, 2013] | Ending Account Value [November 30, 2013] | Expenses Paid During Period¹ | |
Actual | $1,000.00 | $986.70 | $3.59 |
Hypothetical (5% return before expenses) | $1,000.00 | $1,021.46 | $3.65 |
¹ Expenses are equal to Idaho Tax-Exempt Bond Fund's annualized expense ratio of 0.72% (based on the most recent semi-annual period of June 1, 2013 through November 30, 2013) multiplied by the average account value over the period multiplied by 183/365 (to reflect the one-half year period).
14 | November 30, 2013 | Annual Report |
Trustees and Officers (unaudited) | |||||
Name, Address, and Age | Position(s) held with Trust; term of office and length of time served | Principal occupation(s) during past 5 years | Number of portfolios in Saturna fund complex overseen by Trustee | Other directorships held by Trustee during past 5 years | |
Independent Trustees | |||||
(photo omitted) | John E. Love 1300 N. State Street Bellingham WA 98225 Age: 81 | Independent Trustee since 1987; Independent Chairman | Owner, J.E. Love Co., (agricultural equipment manufacturer) | Seven | None |
(photo omitted) | Gary A. Goldfogel, MD 1300 N. State Street Bellingham WA 98225 Age: 55 | Independent Trustee since 1995 | Medical Examiner (pathologist); Owner, Avocet Environmental Testing (laboratory) | Seven | None |
(photo omitted) | Herbert G. Grubel, PhD 1300 N. State Street Bellingham WA 98225 Age: 79 | Independent Trustee since 2005 | Senior Fellow, Fraser Institute; Professor (Emeritus) of Economics, Simon Fraser University; Author | Seven | Amana Mutual Funds Trust (retired 2011) |
(photo omitted) | Ronald H. Fielding, MA, MBA, CFA 1300 N. State Street Bellingham WA 98225 Age: 64 | Independent Trustee since 2009 | Retired (2009); Senior Vice President & Portfolio Manager, OppenheimerFunds Rochester Division | Ten | Amana Mutual Funds Trust; ICI Mutual Insurance Company |
Interested Trustee | |||||
(photo omitted) | Nicholas F. Kaiser, MBA, CFA¹ 1300 N. State Street Bellingham WA 98225 Age: 67 | President and Trustee since 1990 | Chairman (retired president 2009), Saturna Capital Corporation (the Trust's investment adviser); Director, Saturna Brokerage Services (the Trust's distributor); Director, Saturna Trust Company | Ten | Amana Mutual Funds Trust |
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. The Fund's Statement of Additional Information, available without charge upon request by calling Saturna Capital at 1-800/SATURNA and on the Fund's website, www.idahotaxexemptfund.com, includes additional information about the Trustees.
On November 30, 2013 the Trustees, officers, and their related accounts as a group owned 11.36% of the outstanding shares of the Fund. Saturna Capital Corporation is the Trust's adviser and Saturna Brokerage Services, Inc. is the Trust's distributor.
¹ Mr. Kaiser is an "interested person" of the Trust as an officer of the Adviser, Saturna Capital Corporation ,and a director of the Distributor, Saturna Brokerage Services. He holds the same positions with Amana Mutual Funds Trust, which has three fund portfolios, and is also managed by Saturna Capital Corporation.
Annual Report | November 30, 2013 | 15 |
Trustees and Officers (continued) (unaudited) | |||||
Name, Address, and Age | Position(s) held with Trust; term of office and length of time served | Principal occupation(s) during past 5 years | Number of portfolios in Saturna fund complex overseen by Trustee | Other directorships held by Trustee during past 5 years | |
Officers Who Are Not Trustees | |||||
(photo omitted) | Phelps S. McIlvaine¹ 1300 N. State Street Bellingham, WA 98225 Age: 60 | Vice President since 1994 | Vice President, Saturna Capital Corporation (the Trust's investment adviser); Director, Saturna Brokerage Services (the Trust's distributor) | N/A | N/A |
(photo omitted) | Ethel B. Bartolome¹ 1300 N. State Street Bellingham, WA 98225 Age: 41 | Secretary since 2001 | Corporate Administrator, Saturna Capital Corporation (the Trust's investment adviser) | N/A | N/A |
(photo omitted) | Christopher R. Fankhauser¹ 1300 N. State Street Bellingham, WA 98225 Age: 41 | Treasurer since 2002 | Chief Operations Officer, Saturna Capital Corporation (the Trust's investment adviser); Vice President and Chief Operations Officer, Saturna Brokerage Services (the Trust's Distributor); Director, Vice President, and Chief Operations Officer, Saturna Trust Company | N/A | N/A |
(photo omitted) | Michael E. Lewis¹ 1300 N. State Street Bellingham, WA 98225 Age: 52 | Chief Compliance Officer since 2012 | Chief Compliance Officer, Saturna Capital, Saturna Trust Company, and Affiliated Funds; District Director, Seattle Office, Financial Industry Regulatory Authority (FINRA) | N/A | N/A |
¹ Messrs. McIlvaine, Fankhauser, and Lewis, and Mrs. Bartolome are "interested persons" of the Trust as officers and/or employees of the Adviser, Saturna Capital Corporation. Messrs. Fankhauser and Lewis, and and Mrs. Bartolome hold the same positions with Amana Mutual Funds Trust, which has three fund portfolios, and is also managed by Saturna Capital Corporation.
16 | November 30, 2013 | Annual Report |
Renewal of Investment Advisory Contract
During their meeting of September 13, 2013, the Trustees of Saturna Investment Trust discussed the question of renewing the Investment Advisory and Administration Agreement between Idaho Tax-Exempt Fund ("Fund") and Saturna Capital Corporation ("Saturna"), and discussed the nature, extent, and quality of the services provided by Saturna. The Trustees took into consideration that the Fund offers a full range of high-quality investor services. The Trustees discussed Saturna's experience, ability, and commitment to quality in-house service through performing internally such functions as shareowner servicing, administration, accounting, marketing, and distribution — in addition to investment management.
The Trustees took into consideration Saturna's continued avoidance of significant operational problems, plus its substantial investments in premises, personnel, training, and equipment to meet investor needs. They recognized Saturna's efforts to recruit and retain increasingly qualified, experienced, and specialized staff and improve the capital base on which Saturna operates, which the Trustees believe is important to the long-term success of any mutual fund. They appreciate Saturna' s focus on investors, avoiding potential conflicts of interest.
The Trustees found such information helpful in establishing expectations regarding the performance of the adviser and whether to continue the advisory contract.
The Trustees reviewed the fees and expenses of the Fund. The Trustees found the expense ratio acceptable and to be advantageous to shareowners given the size of the Fund, services provided, and expenses incurred.
The Trustees reviewed Saturna' s financial information and discussed the issue of lack of profitability related to management and administration of the Fund as part of their evaluation of whether the fees under the advisory contract bear a reasonable relationship to the mix of services provided by Saturna, including the nature, extent and quality of such services. The Trustees noted Saturna's sharing of its revenues to pay marketing and distribution costs of the Fund.
The Trustees noted that, although the assets of the Fund have grown, the Fund remains small, and there has been no opportunity for Saturna to demonstrate economies of scale. In fact, Saturna continues to operate the Fund at significant cost to itself. The Trustees also considered whether there are other potential benefits to Saturna from acting as investment adviser and found none.
The Trustees considered the fees charged by Saturna to other kinds of accounts and the different services provided to those accounts, as well as the ways in which Saturna' s service and work done for other accounts it manages benefit the Fund.
The Trustees concluded that the fees paid by the Fund to Saturna were reasonable in light of the services provided, comparative performance, expense and advisory fee information, costs of services provided and profits to be realized, and benefits derived or to be derived by Saturna from its relationship with the Fund. Following this discussion, the Trustees unanimously agreed to renew the Fund's advisory agreement with Saturna.
Annual Report | November 30, 2013 | 17 |
Availability of Quarterly Portfolio Information
(1) The Fund files a complete schedule of portfolio holdings with the SEC for the first and third quarters of each fiscal year on Form N-Q.
(2) The Fund's Form N-Q is available on the SEC's website at www.sec.gov and at www.idahotaxexemptfund.com.
(3) The Fund's Form N-Q may be reviewed and copied at the SEC's Public Reference Room in Washington, DC. Information on the operation of the Public Reference Room may be obtained by calling 1-800/SEC-0330.
(4) The Fund makes a complete schedule of portfolio holdings after the end of each month available to investors at www.idahotaxexemptfund.com.
Availability of Proxy Voting Information
(1) A description of the policies and procedures that the Fund uses to determine how to vote proxies relating to portfolio securities is available (a) without charge, upon request, by calling Saturna Capital at 1-800-728-8762; (b) on the Funds' website at www. idahotaxexemptfund.com; and (c) on the SEC's website at www.sec.gov.
(2) Information regarding how the Fund voted proxies relating to portfolio securities during the most recent 12-month period ended June 30 is available (a) without charge, upon request, by calling Saturna Capital at 1-800-728-8762; (b) on the Funds' website at www.idahotaxexemptfund.com; and (c) on the SEC's website at www.sec.gov.
Privacy Statement
At Saturna Capital and the Idaho Tax-Exempt Fund, we understand the importance of maintaining the privacy of your financial information. We want to assure you that we protect the confidentiality of any personal information that you share with us. In addition, we do not sell information about our current or former customers.
In the course of our relationship, we gather certain nonpublic information about you, including your name, address, investment choices, and account information. We do not disclose your information to unaffiliated third parties unless it is necessary to process a transaction; service your account; deliver your account statements, shareholder reports and other information; or as required by law. When we disclose information to unaffiliated third parties, we require a contract to restrict the companies' use of customer information and from sharing or using it for any purposes other than performing the services for which they were required.
We may share information within the Saturna Capital family of companies in the course of informing you about products or services that may address your investing needs.
We maintain our own technology resources to minimize the need for any third party services, and restrict access to information within Saturna. We maintain physical, electronic, and procedural safeguards to guard your personal information. If you have any questions or concerns about the security or privacy of your information please call us at 1-800/SATURNA (1-800-728-8762).
Householding Policy
To reduce expenses, we may mail only one copy of the Fund's prospectus and each annual and semi-annual report to those addresses shared by two or more accounts. If you wish to receive individual and/or more copies of these documents, please call us at 800/SATURNA or write to us at Saturna Capital/Idaho Tax-Exempt Fund, P.O. Box N, Bellingham, WA 98227. We will begin sending you individual copies thirty days after receiving your request.
If you are currently receiving multiple copies and wish to receive only one copy, please call us at 800/SATURNA or write to us at Saturna Capital/Idaho Tax-Exempt Fund, P.O. Box N, Bellingham, WA 98227. We will begin sending you a single copy with subsequent report mailings.
18 | November 30, 2013 | Annual Report |
Except for this legend, this page has been intentionally left blank.
Annual Report | November 30, 2013 | 19 |
www.idahotaxexemptfund.com
This report is issued for the information of the shareowners of the Idaho Tax-Exempt 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, a series of Saturna Investment Trust.
(logo omitted)
Saturna Capital
1300 N. State Street
Bellingham, WA 98225
www.saturna.com
(800) SATURNA
Saturna Brokerage Services, Distributor
Item 2. Code of Ethics.
Registrant has adopted a code of ethics and is included with this submission as Exhibit (a). It may also be found on Registrant's website at http://www.saturna.com/codeofethics.shtml.
Item 3. Audit Committee Financial Expert.
(a)(1)(i) The Trust has an audit committee financial expert serving on its audit committee.
(a)(2)(ii) As of November 30, 2013, Mr. Ronald H. Fielding, an independent Trustee (as defined for investment companies), was deemed qualified and agreed to serve.
Item 4. Principal Accountant Fees and Services.
(a) Audit Fees
For the fiscal years ending November 30, 2013, and 2012, the aggregate audit fees billed for professional services rendered by the principal accountant were $85,000 and $81,000, respectively.
(b) Audit-Related Fees
There were no fees billed by the principal accountant for assurance and related services that were not included under paragraph (a) for the fiscal years ending November 30, 2013, and 2012.
(c) Tax Fees
For the fiscal years ending November 30, 2013, and 2012, the aggregate tax fees billed for professional services rendered by the principal accountant were $18,000 and $17,100, respectively. 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 27, 2013, and 2012.
(e)(1) Audit & Compliance Committee Pre-Approval Policies and Procedures
The following is an excerpt from the Saturna Investment Trust Audit & Compliance Committee Charter:
C. 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.
Item 5. Audit Committee of Listed Registrants.
Not applicable.
Item 6. Schedule of Investments
The schedule is included as part of the report to shareholders filed under Item 1 of this Form.
Item 7. Disclosure of Proxy Voting Policies and Procedures for Closed-End Management Investment Companies.
Not applicable.
Item 8. Portfolio Managers of Closed-End Management Investment Companies.
Not applicable.
Item 9. Purchases of Equity Securities by Closed-End Management Investment Company and Affiliated Purchasers.
Not applicable.
Item 10. Submission of Matters to a Vote of Security Holders.
Not applicable.
Item 11. Controls and Procedures.
(a) Internal control over financial reporting is under the supervision of the principal executive and financial officers. On December 17, 2013, Mr. Nicholas Kaiser (President) and Mr. Christopher Fankhauser (Treasurer), reviewed the internal control procedures for Saturna Investment Trust and found them reasonable and adequate.
(b) No change.
Item 12. 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
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 29, 2014
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 29, 2014
By:
/s/ Christopher Fankhauser
Christopher Fankhauser, Treasurer
Date: January 29, 2014
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