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Amana Mutual Funds Trust – ‘N-CSR’ for 5/31/06

On:  Thursday, 7/27/06, at 5:31pm ET   ·   Effective:  7/27/06   ·   For:  5/31/06   ·   Accession #:  766285-6-15   ·   File #:  811-04276

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

 7/27/06  Amana Mutual Funds Trust          N-CSR       5/31/06    3:185K
          → Amana Income Fund ⇒ Amana Growth Fund (AMAGX) — Amana Income Fund Investor Shares (AMANX)

Document/Exhibit                   Description                      Pages   Size 

 1: N-CSR       Amana Mutual Funds Trust Annual Report, May 2006    HTML    143K 
 2: EX-99.CERT  Officers Certifications                             HTML     13K 
 3: EX-99.CODE ETH  Code of Ethics, March 2006                      HTML     52K 

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549

FORM N-CSR

CERTIFIED SHAREHOLDER REPORT OF REGISTERED
MANAGEMENT INVESTMENT COMPANIES

Investment Company Act file number: 2-96924

AMANA MUTUAL FUNDS TRUST
(Exact Name of Registrant as Specified in Charter)

1300 N. State Street
Bellingham, Washington 98225-4730
(Address of Principal Executive Offices, including ZIP Code)

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: May 31, 2006
Date of reporting period: May 31, 2006

(Graphic omitted)

Fellow Shareowners:

The Amana Funds again provided exceptional results for the fiscal year ended May 31, 2006. Amana Income Fund’s total return was +21.17%. Amana Growth Fund’s total return was almost identical at +20.95%. In comparison, the S&P 500 Index returned 8.64% and the Dow Jones Islamic Market US Index returned 6.84% [dividends omitted] for the same period.

Helped by thousands of new investors plus market appreciation, total Trust assets grew dramatically: 233% to $289 million at May 31. Please find details of each Fund’s operations and May 31 investment portfolios inside.

Higher assets benefit shareowners as fixed expenses are spread over more accounts. The Income Fund’s operating expense ratio declined to 1.49%, and the Growth Fund’s expense ratio dropped to 1.41%. Remember that all mutual fund total returns are after their operating expenses. Payments to third-party intermediaries increased sharply, as investors took advantage of their services. The low portfolio turnover ratios and the waiver of all portfolio brokerage commissions continue.

The higher assets allowed the Funds to increase their investments in many solid companies as well as pursue greater portfolio diversification. Both Funds favor companies with strong financial histories and robust outlooks for the future. This year, companies in the Energy, Mining, Steel, Technology, and Health industries favored by the Funds all did well.

The Funds also diversify globally with approximately 23% of each portfolio invested in non-USA equities. The international exposure benefited both Funds during the year, but does add an element of risk from currency fluctuations.

While consistently outperforming benchmark indices brings with it a sense of pride and accomplishment, Fund management’s primary focus remains long-term, value investing. The Amana Funds benefitted this year by adhering to this approach. However, shareowners are cautioned that these exceptional results may not continue in the future. As of this writing, market volatility has reared its fearsome head after a two-year hiatus and whipsawed the equity markets. The Funds discourage speculation with a 30-day early redemption penalty. It is crucial for investors to understand that long-term growth comes with short-term variations.

Saturna Capital is opening branch offices in the Washington DC area and Chicago IL this year to better serve our investors. Our representatives increasingly appear at Islamic gatherings to educate on investing and Islamic finance. We welcomed two new independent trustees, Mr. Abdul Wahab of Lynwood CA and Mr. M. Abid Malik of Santa Clara CA, to our board. Three respected Sharia scholars have been named to consult with Saturna Capital: Dr. Muzammil Siddiqi, Dr. Salah Soltan, and Sheikh Yusuf Talal DeLorenzo.

We welcome your questions, and invite you to visit www.amanafunds.com or call 1-888/73-AMANA.

Respectfully,

Performance Review: (Graphic omitted)

The Amana Funds performed exceptionally well for the fiscal year ended May 31, 2006. While we caution investors that the outstanding performance may not continue, we are pleased to report some of the recognition our performance history has generated.

(Graphic omitted) At a March ceremony in Bahrain, Amana Funds’ investment adviser, Saturna Capital, received the handsome Best Islamic Fund Manager 2005 trophy from Failaka International, Inc., which monitors approximately 100 Islamic equity funds worldwide.*

The U.S. mutual fund rating service, Morningstar, honored Amana by awarding both Funds their highest rating: ***** overall. The strong performance history of both Funds is also illustrated in their high “% Rank in category” standings. Here are the details:**

Performance data quoted in this report represents past performance, is before any taxes payable by shareowners, and is no guarantee of future performance. Mutual Fund performance changes over time and currently may be significantly lower than that stated. Recent performance is published online at each month’s end. Please visit amanafunds.com or call 1-800-73AMANA for current performance figures. Total returns are historical and include change in share value and reinvestment of dividends and capital gains, if any. Share price, yield and return will vary and you may have a gain or loss when you sell your shares.

* The Failaka criteria for “Best Islamic Fund Manager:”
The fund company must: Have been duly nominated by fully and accurately completing the required nomination form; Have been established for over 5-years as a Sharia compliant fund manager; Have provided a consistent and long-term return relative to prevailing market conditions; Manage more than one Sharia compliant fund; Have surpassed the benchmark for its equity fund(s) in the year for which the award is given.

In the case of a tie, credence is given to: the higher returning fund/family of funds; the better relative performance as compared to the relevant benchmark; asset growth over the past year; any notable achievement or advancement in the field of Islamic compliant asset management.

**Source: Morningstar 5/31/2006. 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.

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.

Discussion of Fund Performance

The general stock market, as measured by the Standard & Poor’s 500 Index, returned +8.64% for the 12 months ended May 31, 2006. Middle and smaller-cap stocks did better, as evidenced by the +18.32% return for the Russell 2000 Index. The NASDAQ Composite Index, heavy in technology issues, appreciated modestly (+6.24%). Perhaps the most relevant benchmark for the Amana Funds, the Dow Jones Islamic Market Index (US Component, dividends excluded), returned +6.84% for the fiscal year.

The performance of each Fund is determined by its investments as well as general market conditions. Islamic restrictions impact the types of investments available to the Funds, as do the objectives of capital preservation and current income (Amana Income) and long-term capital growth (Amana Growth). The Funds do not receive interest on cash balances. Neither do the Funds invest in businesses that have material earnings from interest (such as financial institutions) or other prohibited activities.

Income Fund

For the year ended May 31, 2006, Amana Income Fund’s total return was +21.17% (versus +23.76% the year before). Two income dividends totalling 28.7¢ per share were paid during the year (up 21% from 23.64¢ per share the year before). Higher assets reduced the operating expense ratio to 1.49% from 1.60%.

The Fund is concentrated in basic and cyclical industries. Energy and resource issues performed very well, reflecting higher commodity prices. Steel and railroad companies, boosted by continuing world-wide economic expansion, also did well. The largest industry is still utilities, but its percentage of the portfolio (13%) declined as new issues were added. The Fund only buys equity securities paying dividends, primarily of larger and more established companies. The rising interest rates of the last two years have not hurt the Fund as much as other income funds because we avoid financial issues like banks and favor low-debt companies in our selections.

(Graphic omitted: Primary Industries pie chart, see table below)

(Graphic omitted)

Growth Fund

The Amana Growth Fund’s total return was +20.95% (vs. + 25.69% the year before). Markedly higher assets reduced the operating expense ratio to 1.41% from 1.66%.

Amana Growth’s portfolio is weighted towards technology, where our securities (such as Apple Computer, Intuit, and Trimble Navigation) performed reasonably well for the year. Medical companies, where R&D is a big part of the business, are our largest industry. We have increased allocation in retailing and food production, consistent with our balanced, value approach. Hansen Naturnal Foods performed so well it can no longer be considered a value stock.

Higher interest rates are cooling sectors of the economy, such as construction, where we remain exposed because of the solid values and expectation that the rate cycle is nearing a peak. Worldwide productivity continues to moderate inflation, which is low despite energy prices. Growing corporate earnings and high market liquidity, the foundations of rising stock prices, both foretell long-term stock appreciation.

(Graphic omitted: Primary Industries pie chart, see table below)

The following graphs compare the Funds to major indices, and show the total returns for the one, five, and ten years ended May 31, 2006. The first graph shows that $10,000 invested in Amana Income ten years ago (May 1996) would have grown to $25,068 at the end of May 2006. If $10,000 could have been invested in the S&P 500 Index for this period, it would have grown to $20,221. The second graph shows that $10,000 invested in Amana Growth ten years ago would have grown to $29,694, versus $22,816 if invested in the Russell 2000 Index for this period. Note also that these unmanaged, expense-free indices are not directly comparable to actively managed portfolios such as mutual funds, with advisory fees and other operating costs.

The returns shown in these charts do not reflect the deduction of taxes that a shareowner could pay on fund distributions or the redemption of fund shares.

(Graphic omitted)

Financial Statements

 

 

 

Availability of Amana Portfolio Information

1. The Amana 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 http://www.sec.gov.
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 at http://www.amanafunds.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 1-888/73-AMANA; (b) on the Funds’ website at http://www.amanafunds.com; and (c) on the SEC’s website at http://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 1-888/73-AMANA; (b) on the Funds’ website at http://www.amanafunds.com; and (c) on the SEC’s website at http://www.sec.gov.

Income Fund

Investments

*non-income producing security
ADS - American Depositary Share
ADR - American Depositary Receipt

Income Fund

Income Fund

Financial Highlights

* Calculated using average shares outstanding
**Amount in less than $0.01

Income Fund

Growth Fund

Investments

*non-income producing security
ADS - American Depositary Share
ADR - American Depositary Receipt

Growth Fund

Growth Fund

Financial Highlights

* Calculated using average shares outstanding
**Amount in less than $0.01

Growth Fund

Expenses (unaudited)

All mutual funds have operating expenses. As an Amana mutual fund shareowner, you incur ongoing costs, including management fees; distribution (or service) 12b-1 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. All mutual funds (unlike some other financial investments) only report their results after deduction of operating expenses.

With the Amana funds, unlike many mutual funds, you do not incur sales charges (loads) on purchase payments, reinvested dividends, or other distributions. You do not incur redemption fees, exchange fees, or fees related to Individual Retirement Accounts. However, to discourage speculation, you may incur a penalty for redemption of shares held less than 30 days. You may incur fees related to extra services requested by you for your account, such as a checkbook to use for redemptions or bank wires.

Examples
The examples, one for each Fund, are based on an investment of $1,000 invested for the semi-annual period ended May 31, 2006 [Thursday, December 1, 2005 to Wednesday, May 31, 2006].

Actual Expenses
The first line of each table 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, a $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first line under heading entitled “Expenses Paid During Year” to estimate the expenses you paid on your account during this fiscal year. The Funds also charge the following fees for extra services rendered on request, which you may need to add to determine your total expenses: $10 per checkbook, $25 per bank wire, $15 per overnight courier delivery.

Hypothetical Example For Comparison Purposes
The second line of each table provides information about hypothetical account values and hypothetical expenses based on each 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 year. You may use this information to compare the ongoing costs of investing in the Funds and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareowner reports of the other funds. You may wish to add other fees that are not included in the expenses shown in the table, such as IRA fees (there are no IRA fees with the Amana Funds), and charges for extra services such as check writing and 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 Amana Funds do not have any such transactional costs). Therefore, the second line of each table is useful in comparing ongoing costs only, and may not help you determine the relative total costs of owning different funds.

* Expenses are equal to Amana Income Fund’s annualized expense ratio of 1.48% (based on the most recent semi-annual period of December 1, 2005 through May 31, 2006), multiplied by the average account value of $1,052.70 over the period, multiplied by 182/365 to reflect the semi-annual period.

* Expenses are equal to Amana Growth Fund’s annualized expense ratio of 1.40% (based on the most recent semi-annual period of December 1, 2005 through May 31, 2006), multiplied by the average account value of $1,029.95 over the period, multiplied by 182/365 to reflect the semi-annual period.

Trustees and Officers (unaudited)

Term of Office: Trustees serve for the lifetime of the Trust or until death, resignation, removal, or non re-election by the shareowners. Officers serve one-year terms subject to annual reappointment by the Trustees.

Amana’s Statement of Additional Information, available without charge by calling Saturna Capital at 800/SATURNA, includes additional information about Trustees. As of May 31, 2006, officers and trustees (plus affiliated entities, such as Saturna Capital Corporation), as a group, owned 2.90% and 1.26% of the outstanding shares of the Income Fund and the Growth Fund, respectively.

Mr. Kaiser is an interested person of the Trust by reason of his positions with the Trust’s adviser (Saturna Capital Corporation) and underwriter (Saturna Brokerage Services), and is the primary manager of the Trust’s portfolios. As portfolio manager, he is paid a bonus by Saturna Capital for each month an Amana portfolio earns a 4 or 5 star rating from Morningstar (see page 3). The Independent Trustees elect to serve without compensation. Officers other than the Chief Compliance Officer are paid by Saturna Capital Corporation (the adviser) and not the Trust.

* Holds the same position with Saturna Investment Trust.

Notes To Financial Statements

Code Of Ethics

Registrant has adopted a code of ethics, which is posted on the adviser’s Internet website at www.saturna.com. Minor changes to conformthe code to new SEC requirements for investment advisers were made in the last year. The registrant has also undertaken to provide to any person without charge, upon request, a copy of such code of ethics. Requests may be made via internet or telephone at 1-800/728-8762, and will be processed within one business day of receiving such request.

Audit Committee Financial Expert

(a)(1)(i) The Trustees of Amana Mutual Funds Trust determined, at their quarterly meeting of June 12, 2003, that the Trust has at least one audit committee financial expert serving on its audit committee.

(a)(2) Mr. Samir Salah, an independent Trustee (as defined for investment companies), was deemed qualified and agreed to serve.

Principal Accountant Fees and Services

(a) Audit Fees
For the fiscal years ending May 31, 2005 and 2006, the aggregate audit fees billed for professional services rendered by the principal accountant was $23,400 and $25,000, respectively.

(b) Audit-Related Fees
For the fiscal years ending May 31, 2005 and 2006, the aggregate audit-related fees were $19,900 and $21,000, respectively. The nature of the services are: (1) auditing of the statements of assets and liabilities, related statements of operations and changes in net assets, and the financial highlights of each of the Funds; (2) auditing and reporting on the financial statements to be included in the Amendment to the Funds’ Registration Statement, Form N-1A, to be filed with the Securities and Exchange Commission; (3) review of the Amendment to the Registration Statement; and (4) issuance of a Report on Internal Control Structure for inclusion in Form N-SAR.

(c) Tax Fees
For the fiscal years ending May 31, 2005 and 2006, the aggregate tax fees billed for professional tax preparation services rendered by the principal accountant were $3,500 and $4,000 respectively.

(d) All Other Fees
There were no other fees billed by the principal accountant for the fiscal years ending May 31, 2005 and 2006.

(e)(1) Audit Committee Pre-Approval Policies and Procedures
The following is an excerpt from the Amana Mutual Funds Trust Audit Committee Charter:

D. Oversight of Independent Auditors

3. Pre-approval of Audit and Non-Audit Services. Except as provided below, the Committee’s prior approval is necessary for the engagement of the independent auditors to provide any audit or non-audit services for the Trust and any non-audit services for any entity controlling, controlled by or under common control with Saturna that provides ongoing services to the Trust (Saturna and each such entity, an “Adviser Affiliate”) where the engagement relates directly to the operations or financial reporting of the Trust. Non-audit services that qualify under the de minimis exception described in the Securities Exchange Act of 1934, as amended, and applicable rules thereunder, that were not pre-approved by the Committee, must be approved by the Committee prior to the completion of the audit. Pre-approval by the Committee is not required for engagements entered into pursuant to (a) pre-approval policies and procedures established by the Committee, or (b) pre-approval granted by one or more members of the Committee to whom, or by a subcommittee to which, the Committee has delegated pre-approval authority, provided in either case, that the Committee is informed of each such service at its next regular meeting.

(e)(2) Percentages of Services
One hundred percent of the services described in each of paragraphs (b) through (d) were approved by the audit committee pursuant to paragraph (c)(7)(i)(C) of Rule 2-01 of Regulation S-X.

(f) Not applicable.

(g) Aggregate nonaudit fees
For the fiscal years ending May 31, 2005 and 2006, the aggregate nonaudit fees billed for professional tax preparation services rendered by the principal accountant to Amana Mutual Funds Trust were $3,500 and $4,000 respectively. For the fiscal years ending June 30, 2005 and 2005, the aggregate nonaudit fees billed for professional tax preparation services rendered by the principal accountant to Saturna Capital Corporation (and subsidiary), the investment adviser and distributor for Amana Mutual Funds Trust, were not material and not specified separately.

(h) Not applicable.

Submission of Matters to a Vote of Security Holders

Not applicable.

Controls and Procedures

Internal control over financial reporting is under the supervision of the principal executive and financial officers. On June 16, 2006, Mr.Nicholas Kaiser (President) and Mr. Christopher Fankhauser (Treasurer), reviewed the internal control procedures for Amana Mutual Funds Trust and found them reasonable and adequate.

Exhibits

Exhibits included with this filing:
(a) Code of Ethics.
(b) Certifications.

(1) Nicholas Kaiser, President, Amana Mutual Funds Trust
(2) Christopher Fankhauser, Treasurer, Amana Mutual Funds 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.

AMANA MUTUAL FUNDS TRUST

By:
/s/ Nicholas Kaiser
President
July 27, 2006

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
President
July 27, 2006

By:
/s/ Christopher Fankhauser
Treasurer
July 27, 2006

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Dates Referenced Herein   and   Documents Incorporated by Reference

This ‘N-CSR’ Filing		Date		Other Filings
Filed on / Effective on:		7/27/06
		7/7/06
		6/16/06
For Period End:		5/31/06		24F-2NT,  N-CSR/A,  NSAR-B
		12/31/05
		12/1/05
		6/30/05		N-PX
		5/31/05		24F-2NT,  N-CSR,  N-CSR/A,  NSAR-B
		8/18/04		485BPOS,  497J
		6/12/03
		2/3/94
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Filing Submission 0000766285-06-000015   –   Alternative Formats (Word / Rich Text, HTML, Plain Text, et al.)

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