ITE
(Graphic Omitted)
IDAHO TAX-EXEMPT FUND
MAY 31, 1998 REPORT
MORNINGSTAR MUTUAL FUNDS HAS AWARDED ITS HIGHEST "FIVE-STAR" RATING TO IDAHO
==============================================================================
TAX-EXEMPT FUND AS OF MAY 31, 1998. THE MORNINGSTAR RATING IS A WIDELY
==============================================================================
RESPECTED MEASURE OF RISK-ADJUSTED PERFORMANCE.* THE FUND'S MANAGERS ARE
==============================================================================
PROUD THIS ACCOMPLISHMENT AND WORK HARD TO CONTINUE EXCELLENT RESULTS.
==============================================================================
Dear Shareowners:
For the twelve-month period ending May 31, 1998 your Idaho Tax Exempt
Fund provided a total return of 7.58%. The current 30-day yield on your Fund is
4.20%, tax-free. This is the equivalent of 7.57% of taxable income to top
bracket Idaho taxpayers.
Since May 31,1997, the 30-day yield on your Fund has fallen from 4.90%.
During this time, interest rates have fallen and many issuers have called or
refunded their older higher paying bonds. The Idaho Tax Exempt Fund has
experienced its share of calls, refundings and maturities. As this cash is
returned to the Fund, the manager has been forced to reinvest at successively
lower prevailing yields. Nationally, interest rates continue to fall. Rates on
Idaho municipal bonds remain near the lowest levels seen in the last thirty
years.
What lies ahead? We continue to expect positive single digit total
returns from the Idaho Tax Exempt Fund in the year ahead. However, our outlook
suggests we will have to adjust our expectations to lower yields and lower
income dividends. The economic and cyclical background for bonds remains
positive. The US dollar will remain strong for another twelve months. The
situation in Asia is moving towards a more damaging phase for the US economy. US
economic growth and corporate earnings will come under growing pressure from the
"Asian Flu." US inflation will remain subdued. Interest rates, especially
short-term rates, have the potential to fall substantially.
Since 1987, falling inflation and interest rates have boosted both bond
and stock prices together. But this has not always been the case. In the late
seventies and early eighties, stock and bond prices generally moved in opposite
directions. With today's low inflation, any sign of a weakening economy will be
welcomed as good news for bond prices. However, with today's high equity
valuations, any sign of an economic slowdown or lower earnings will send stock
prices lower.
As always, our staff and portfolio managers welcome your comments and
suggestions. Only with your help can we be certain that we are meeting your
investment needs- our primary objective. Thank you for investing in the Idaho
Tax Exempt Fund.
NICHOLAS KAISER, PHELPS MCILVAINE,
PRESIDENT VICE PRESIDENT, PORTFOLIO MANAGER
June 19, 1998
- ------------------
*Morningstar's proprietary ratings reflect historical risk-adjusted performance.
The ratings are subject to change each month, and are calculated from a fund's 3
and 5-year average annual returns with sales charge adjustments (if any) and a
risk factor that reflects performance relative to three month Treasury bill
returns. Ten per cent of the funds in a Morningstar investment category receive
five stars. From time to time the adviser has waived all or a portion of fees or
expenses, resulting in higher returns. Naturally, past performance may not
indicate future results.
1
<PAGE>
(Graphic Omitted)
IDAHO TAX-EXEMPT FUND
May 31, 1998 Semi-Annual Report
Investments
<TABLE>
<CAPTION>
Investments
<S> <C> <C> <C> <C>
RATING ISSUER Coupon/Maturity Face Amount Market Value
AIRPORT PARKING (2.2%) - - -
AAA Boise City ID Airport Rev COP 5.40% due 8/1/2011 $ 115,000 $ 119,370
ELECTRIC POWER (3.2%) - - -
AAA Idaho Falls - - -
- - Electric Revenue 6.75% due 4/1/2019 160,000 175,696
GENERAL OBLIGATIONS (38.6%)
AA Ada & Canyon Ctys ID - -
- - JSD #2 Meridian 5.50% due 7/30/2011 150,000 156,340
A+ Bannock Cnty ID GO Jail 5.05% due 9/1/2012 95,000 96,330
A Bannock Cnty ID SD #25 4.90% due 8/01/2009 90,000 91,719
- - " 5.25% due 8/1/2016 110,000 111,254
AAA Boise City ID GO ISD 5.50% due 7/30/2011 95,000 98,971
AA- " 5.50% due 7/30/2016 150,000 153,762
A Boise Cty ID SD #73 5.15% due 7/31/2010 125,000 127,175
AAA Canyon Cty ID SD #132 5.40% due 7/30/2011 100,000 103,800
- - " 5.40% due 7/30/2012 100,000 103,261
A Canyon Cty ID SD #135 Notus 6.00% due 8/1/2007 50,000 51,652
- - Series 1994 - - -
AAA Cassia, Twin Falls ID JSD #151 5.10% due 8/1/2009 90,000 93,204
- - " 5.375% due 8/1/2013 85,000 87,524
- - " 5.375% due 8/1/2015 75,000 76,777
AAA Gooding Cty ID SD #232 - -
- - Wendell 6.00% due 8/1/2008 55,000 57,417
AAA Kootenai Cty ID SD #273 6.00% due 8/1/2012 100,000 103,930
AAA Madison Cty ID SD #321 5.60% due 2/1/2010 150,000 154,095
AA Payette Cty ID SD #372 6.50% due 7/31/2008 80,000 88,104
- - Payette Cty ID SD #372 6.75% due 7/31/2009 155,000 172,252
- - Payette Cty ID SD #372 6.75% due 7/31/2010 100,000 111,130
AAA Teton Cty ID SD #401 GO 5.50% due 8/1/2012 75,000 77,302
------------ -------------
- - SUB-TOTAL - 2,030,000 2,115,999
HOUSING (8.0%) - - -
AA Idaho Housing Authority
- - Single Fam Mortgage, B-1 6.85% due 7/1/2012 105,000 108,719
AA Idaho Housing Authority
- - Refunding Ser A 6.15% due 7/1/2024 150,000 154,800
AA Idaho Housing Authority
- - Single Fam Mort Mezz-E-1 6.60% due 7/1/2011 100,000 103,263
AA Idaho Housing Authority
- - Single Fam Mort Rev Ser B1 8.125% due 7/1/2019 5,000 5,185
- - " 8.00% due 1/1/2020 25,000 25,488
AA Idaho Housing Authority
- - Single Fam Mort SR Ser C1 7.70% due 7/1/2017 40,000 40,846
------------ -------------
- - SUB-TOTAL - 425,000 438,301
IRRIGATION (3.8%)
AA Boise Kuna Irr. Dist. 6.00% due 7/1/2008 200,000 210,000
MEDICAL/HOSPITALS (4.7%) - - -
- - Idaho Health Facility - - -
A St. Alphonsus Medical Center 6.25% due 12/1/2012 195,000 210,658
AA " 6.25% due 12/1/2022 45,000 48,208
------------ -------------
- - SUB-TOTAL - 240,000 258,866
</TABLE>
2
<PAGE>
IDAHO TAX-EXEMPT FUND
May 31, 1998 Semi-Annual Report
(Graphic Omitted)
Investments, continued
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
RATING ISSUER Coupon/Maturity Face Amount Market Value
REAL ESTATE (3.7%)
AAA Idaho St Bldg Authority Ser C 5.70% due 9/1/2007 $ 100,000 $ 105,970
AAA Idaho State Building Authority 5.00% due 9/1/2021 100,000 97,550
------------ -------------
200,000 203,520
ROADS (3.6%)
A Payette L.I.D. #89-1 7.60% due 5/1/2005 30,000 30,212
A Post Falls, Kootenai Cty 7.20% due 4/15/1999 15,000 15,109
L.I.D. #91-1 7.40% due 4/15/2000 15,000 15,041
" 7.60% due 4/15/2001 15,000 15,048
" 7.75% due 4/15/2002 20,000 20,062
" 7.95% due 4/15/2003 20,000 20,075
" 7.95% due 4/15/2004 20,000 20,102
L.I.D. #91-4 7.95% due 4/15/2005 20,000 20,065
L.I.D. #91-4 7.95% due 4/15/2006 20,000 20,080
L.I.D. #91-4 7.95% due 4/15/2007 20,000 20,075
------------ -------------
SUB-TOTAL 195,000 195,869
STATE EDUCATION (15.4%)
AAA Boise State University 6.20% due 4/1/2010 200,000 215,610
Fee Revenue 6.30% due 4/1/2014 100,000 108,130
A- Idaho State University
Student Fee Revenue 6.40% due 4/1/2014 250,000 271,075
AAA University of Idaho
Student Fee Revenue 5.60% due 4/1/2015 185,000 192,344
A- University of Idaho
Fee Revenue 6.85% due 4/1/2016 50,000 54,985
------------ -------------
SUB-TOTAL 785,000 842,144
SEWER (3.0%)
A Troy ID, Sewer Revenue 7.10% due 2/1/1999 10,000 10,061
" 7.20% due 2/1/2000 10,000 10,217
" 7.30% due 2/1/2001 10,000 10,278
" 7.40% due 2/1/2002 10,000 10,274
" 7.50% due 2/1/2003 10,000 10,280
" 7.60% due 2/1/2004 10,000 10,295
" 7.70% due 2/1/2005 15,000 15,461
" 7.80% due 2/1/2006 15,000 15,482
" 7.90% due 2/1/2007 15,000 15,491
" 8.00% due 2/1/2008 15,000 15,495
" 8.00% due 2/1/2009 20,000 20,673
" 8.00% due 2/1/2010 20,000 20,679
------------ -------------
SUB-TOTAL 160,000 164,686
WATER SUPPLY (10.3%)
A- American Falls ID Reservoir 7.25% due 5/1/2004 70,000 75,509
Ref. Series A 7.625% due 5/1/2021 150,000 160,095
A McCall Water Rev., Ser 1994 6.25% due 9/1/2008 200,000 217,132
A McCall Water Revenue 6.375% due 9/1/2014 70,000 75,397
A Ucon Water & Sewer Rev. Ref. 7.75% due 12/1/2002 35,000 36,225
------------ -------------
SUB-TOTAL 525,000 564,358
TOTAL INVESTMENTS (96.5%) Cost = $5,053,830 $ 5,035,000 $ 5,288,809
============ -------------
Other Assets (net of liabilities) (3.5%) 193,555
-------------
TOTAL NET ASSETS (100%) $ 5,482364
=============
<FN>
* These unaudited bond ratings reflect the adviser's current rating of each
bond, as determined using Standard & Poor's and Moody's ratings.
</FN>
</TABLE>
<PAGE>
IDAHO TAX-EXEMPT FUND
May 31, 1998 Semi-Annual Report
(Graphic Omitted)
Financial Highlights
<TABLE>
<CAPTION>
For Year Ended November 30
<S> <C> <C> <C> <C> <C> <C>
May
1998 1997 1996 1995 1994 1993
------- ------- ------- ------- -------- -------
NET ASSET VALUE AT BEGINNING OF YEAR $ 5.28 $ 5.25 $ 5.28 $ 4.76 $ 5.23 $ 5.16
------- ------- ------- ------- -------- -------
INCOME FROM INVESTMENT OPERATIONS
Net investment income 0.13 0.26 0.27 0.26 0.27 0.25
Net gains or losses on securities
(Both realized & unrealized) 0.03 0.03 (0.03) 0.52 (0.46) 0.12
------- ------- ------- ------- -------- -------
Total From Investment Operations 0.16 0.29 0.24 0.78 (0.19) 0.37
LESS DISTRIBUTIONS
Dividends (from net investment income) (0.13) (0.26) (0.27) (0.26) (0.27) (0.25)
Distributions (from capital gains) 0.00 0.00 0.00 0.00 (0.01) (0.05)
------- ------- ------- ------- -------- -------
Total Distributions (0.13) (0.26) (0.27) (0.26) (0.28) (0.30)
NET ASSET VALUE AT END OF YEAR $ 5.31 $ 5.28 $ 5.25 $ 5.28 $ 4.76 $ 5.23
======= ======= ======= ======= ======== =======
TOTAL RETURN 7.58% 5.69% 4.66% 16.68% (3.76)% 7.35%
RATIOS / SUPPLEMENTAL DATA
- --------------------------------------
Net assets ($000), end of period $5,266 $5,255 $5,064 $5,220 $ 6,841 $7,367
Ratio of expenses to average
net assets 0.80% 0.80% 0.79% 0.75% 0.75% 0.75%
Ratio of net investment income
to average net assets 2.41% 4.99% 5.10% 5.07% 5.28% 4.79%
Portfolio turnover rate 3% 20% 10% 28% 36% 31%
<FN>
For each of the above years, all or a portion of the expenses were waived. If
these costs had not been waived, the resulting increase to expenses per share in
each of the above periods would be $.00, $.01, $.01, $.016, $.007, and $.009,
respectively. The increase to the ratio of expenses to average daily net assets
would be .07%, .16%, .27%, .26%, .14%, and .18%, respectively.
</FN>
</TABLE>
(The accompanying notes are an integral part of these financial statements)
<PAGE>
(Graphic Omitted)
IDAHO TAX-EXEMPT FUND
May 31, 1998 Semi-Annual Report
Statement of Assets and Liabilities
<TABLE>
<CAPTION>
As of May 31, 1998
<S> <C> <C>
ASSETS
Bond investments (cost $5,053,800) $5,288,809
Cash 199,085
Interest receivable 90,314
Insurance Reserve Premium 801
5,579,009
----------
LIABILITIES
Other Liabilities 96,645
-----------
96,645
----------
NET ASSETS $5,482,364
==========
Fund shares outstanding 1,032,197
ANALYSIS OF NET ASSETS
Paid in capital (unlimited shares authorized, without par value) $5,266,107
Accumulated net realized gain (loss) on investments (18,743)
Unrealized net appreciation on investments 235,000
-----------
Net Assets applicable to Fund shares outstanding $5,482,364
===========
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE $ 5.31
==========
</TABLE>
Statement of Operations
<TABLE>
<CAPTION>
For the semi-annual period ended May 31, 1998
<S> <C> <C>
INVESTMENT INCOME
Interest income $154,362
Amortization of bond premiums (4,849)
Accretion 973
Miscellaneous Income 35
---------
Gross investment income $150,521
EXPENSES
Investment adviser 13,352
Professional fees 5,950
Printing and postage 2,129
Shareholder Service Fees 2,036
Other expenses 936
Filing and registration fees 525
---------
Total gross expenses 24,928
Less advisory fee waived (3,565)
---------
Net expenses 21,363
------
Net investment income 129,158
---------
NET REALIZED GAIN ON INVESTMENTS
Proceeds from sales 138,405
Less cost of securities sold based on identified cost 135,108
---------
Realized net gain 3,297
---------
UNREALIZED GAIN ON INVESTMENTS
End of period 235,000
Beginning of period 208,126
---------
Increase in unrealized gain for the period 26,874
---------
Net realized and unrealized gain on investments 30,171
---------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $159,329
========
</TABLE>
(The accompanying notes are an integral part of these financial statements)
<PAGE>
IDAHO TAX-EXEMPT FUND
May 31, 1998 Semi-Annual Report
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
Period ended Year ended
May 31, 1998 Nov. 30, 1997
------------ --------------
<S> <C> <C> <C>
INCREASE IN NET ASSETS - -
FROM OPERATIONS
Net investment Income $ 129,158 $ 253,087
Net realized gain on investments 3,297 47,467
Net increase (decrease) in unrealized appreciation 26,874 (17,678)
----------- -----------
Net increase in net assets from operations 159,329 282,876
----------- -----------
DIVIDENDS TO SHAREOWNERS FROM
Net investment income (128,328) (253,388)
Capital gains distributions - -
----------- -----------
(128,328) (253,388)
----------- -----------
FUND SHARE TRANSACTIONS
Proceeds from sales of shares 603,880 661,445
Value of shares issued in reinvestment of dividends 96,148 190,941
----------- -----------
700,028 852,386
Cost of shares redeemed (503,663) (691,110)
----------- -----------
Net Increase in net assets from share transactions 196,365 161,276
----------- -----------
Total increase in net assets 227,366 190,764
NET ASSETS
Beginning of period 5,254,998 5,064,234
----------- -----------
End of period $5,482,364 $5,254,998
=========== ===========
Shares of the Fund Sold and Redeemed
Number of shares sold 113,461 126,666
Number of shares issued in reinvestment of dividends 18,068 36,545
----------- -----------
131,529 163,211
Number of shares redeemed (94,640) (132,545)
----------- -----------
Net Increase in Number of Shares Outstanding 36,889 30,666
=========== ===========
</TABLE>
(The accompanying notes are an integral part of these financial statements)
<PAGE>
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 series invest-ment company under the Investment Company Act of
1940, as amended. Four portfolios have been created to date in addition to Idaho
Tax-Exempt Fund (the "Fund"). The other four portfolios distribute through a
separate prospectus and the results of those funds are contained in a separate
report.
NOTE 2-SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of the sig-nificant accounting policies followed by
the Fund.
INVESTMENTS:
Fixed-income securities for which there are no publicly available market
quo-tations are valued using matrices based on maturity, quality, yield and
similar factors, which are compared periodically to multiple dealer bids and
ad-justed by the adviser under policies established by the Trustees.
The cost of securities is the same for accounting and Federal income tax
purposes. Securities trans-actions are recorded on trade date. Realized gains
and losses are recorded on the identified cost basis.
INCOME AND EXPENSES:
Interest income is reduced by the amortization of bond premiums, on a con-stant
yield-to-maturity basis from pur-chase date to maturity or call, as appropriate.
Interest income is increased by accretion only for bonds underwritten as
original issue discounts. Market dis-counts are recorded as realized gains upon
disposition.
Expenses incurred by the Trust on be-half of the Fund (e.g., professional fees)
are allocated to the Fund and the other Funds of the Trust on the basis of
relative daily average net assets. The Adviser has agreed to certain limits on
ex-penses, as described below.
INCOME TAXES:
The Fund has elected to be taxed as a regulated investment company under the
Internal Revenue Code and distribute sub-stantially all of its taxable net
invest-ment income and realized net gains on in-vest-ments. Therefore, no
provision for Federal income taxes is required. Further, the Fund intends to
meet IRS requirements for tax-free income divi-dends, and requirements of the
Idaho Department of Revenue for income dividends free of Idaho state income tax.
DIVIDENDS AND DISTRIBUTIONS TO SHAREOWNERS:
Dividends and distributions to share-owners are recorded on the ex-dividend
date. Div-idends are paid daily and distributed on the last business day of each
month. Shareowners electing to reinvest dividends and distributions pur-chase
additional shares at the net asset value on the payable date.
NOTE 3-TRANSACTIONS WITH AFFILIATED PERSONS
Under a contract approved by shareowners on October 12, 1990, Saturna Capital
Corporation provides investment ad-vi-sory services and certain other
adminis-tra-tive and distribution services to conduct the Fund's busi-ness. For
such services, the Fund pays an annual fee equal to .50% of av-erage daily net
assets. For the six months ended May 31, 1998, the Fund incurred advisory fee
expenses of $13,352.
Saturna Capital has volunteered to reimburse the Fund to the extent that total
expenses of the Fund, (excluding interest, brokerage commis-sions and taxes)
exceeds .80% through March 31, 1999. Accordingly, for the six months ended May
31, 1998, Saturna Capital waived $3,565 of the advisory fee.
In accordance with the Fund's agreement with its custodian, National City Bank
of Indiana, for the six months ended May 31, 1998, custodian fees incurred by
the Fund, amounted to $545.
One trustee is also a director and officer of Saturna Capital Corporation.
The Trust acts as a distributor of its own shares, except in those states in
which Investors National Corporation (a sub-si-diary of Saturna Capital
Corporation) is itself registered as a broker-dealer and acts as dis-tributor
without compensation. Saturna Capital Corporation acts as shareowner servicing
(transfer) agent for the Fund, for a monthly fee plus certain expenses. For the
six months ended May 31, 1998, the Fund paid such a fee of $2,036.
The unaffiliated trustees receive a fee of $100 per meeting attended, and in the
period ending May 31, 1998, such fees totalled $1200.
NOTE 4-INVESTMENTS
At May 31, 1998, the net unreal-ized appreciation of investments for the Fund of
$26,874 com-prised gross unrealized gains of $28,435 and gross unrealized losses
of ($1,561).
During the six months ended May 31, 1998, the Fund pur-chased $305,232 of
securities and sold/matured $138,405 of securities.
<PAGE>
(Graphic Omitted)
Web: http://www.saturna.com
E-mail: [email protected]
(GRAPHIC OMITTED)
SATURNA CAPITAL
MUTUAL FUNDS
1-800/SATURNA
(800/728-8762)
(GRAPHIC OMITTED)
This report is issued for the information of the shareowners of the Fund. It is
not authorized for distribution to prospective investors unless it is
accompanied or preceded by an effective prospectus relating to the securities of
the Fund. Idaho Tax-Exempt Fund is a series of Saturna Investment Trust.
IDAHO
TAX-EXEMPT FUND
(Graphic Omitted)
A Portfolio of Saturna Investment Trust
(Graphic Omitted)
SEMI-ANNUAL REPORT
MAY 31, 1998
