This fund’s sister offering, Amana Growth (AMAGX), has cycled in and out of the Rukeyser 100 because it lacks exposure to the financial sector. Amana Income (AMANX), on the other hand has continued to perform. Here’s a reprise of the methods behind this Sharia-compliant offering, originally penned by our former deputy managing editor, Kate Zanoni.

There are plenty of funds available in the investment universe tailored to meet investors’ specific investment objectives. Here’s one fund that moves beyond the financial objectives typically outlined in a prospectus.

The US-registered Amana Income (AMANX) is Sharia-compliant, meaning that it’s specifically designed for investors seeking a fund that trades in accordance with Islamic principles. To ensure that investments meet the requirements of the Islamic faith, the adviser (Saturn Capital) follows guidelines established by the Fiqh Council of North America (FCNA), a non-profit organization that interprets Islamic law.

Generally speaking, Islamic law requires investors to share in profits and losses and avoid businesses that go against Islamic principles. Companies that offer liquor, wine, casinos, gambling, pornography, insurance, pork processing or interest-based financial services are verboten.

These criteria underpin Amana’s long-term, value-oriented approach to investing, which strives to deliver strong and consistent returns to its shareholders. To that end, the fund invests in companies with relatively low price-to-earnings multiples, strong balance sheets and proven businesses.

The fund also doesn’t make investments that pay interest; in accordance with Islamic principles, Amana doesn’t purchase bonds, debentures or other interest paying obligations of indebtedness.

The fund’s policy is to invest at least 80 percent of its assets in income-producing equity securities. Some assets may be held as cash to cover redemptions or for temporary defensive purposes.

During periods of uncertainty, the fund may shift to defense but can’t invest in interest-paying instruments frequently used by other mutual funds for this purpose. When markets are unappealing, Saturn Capital evaluates market conditions and the fund’s portfolio holdings to decide whether it should continue the fund’s current investment policy or convert securities to cash. Although cash assets don’t contribute to the fund’s primary objective of current income, they do assist in its secondary objective–capital preservation.

Investing in securities involves both market risk and risk of price variation in individual names. Common stock investments involve greater risk and, therefore, greater opportunity for reward than investments, in short-term bonds and money market funds. Islamic principles restrict the fund’s ability to invest in certain stocks and market sectors, increasing the risk of loss during market declines.

Investing in foreign securities involves risks that aren’t typically associated with directly investing in US securities. These risks include fluctuations in foreign currency exchange rates; less public information regarding issuers of securities; less government supervision of exchanges, issuers and brokers; and a lack of uniform accounting, auditing and financial reporting standards. There’s also risk of adverse political, social and diplomatic developments that affect investment in foreign countries.

But by diversifying investments across dividend paying industries and companies–which are expected to hold more stable stock prices–Amana reduces the risks inherent in a focused portfolio.

Despite the fund’s focus on Muslim investors, it draws accolades from secular sources. In March 2007 Lipper honored Amana Income Fund with a Lipper Fund Award for the fund’s three-year performance in the US Equity Income category. Chosen from 180 funds in its category, the Amana Income Fund was rated the best fund over a three-year period for demonstrating consistently strong risk-adjusted returns compared to its peers.

This year the fund has turned in a similarly impressive performance.

Investors should only consider buying into the Amana Income Fund if they’re willing to accept the risks involved. Fund share prices, yields and total returns will vary with fluctuations in the securities markets as well as the success of the industries and companies in which the fund invests.

If you’re looking for a Sharia-compliant fund along with diversification and long-range profits, take a chance on the Amana Income Fund. With its consistent growth over the past five years, you’ll be rewarded with robust distributions over the long term.