Investment Counsel

Potential Conflicts of Interest

Saturna seeks to minimize potential conflicts of interest in its account relationships. We use independent banks and brokerages to custody assets. We do not charge or benefit from brokerage commissions, which enhances account returns. We have adopted a Code of Ethics which governs trading by employees to avoid conflicts. We employ an independent public accounting firm (Tait Weller & Baker, Philadephia) to examine our funds as well as Saturna Capital and its affiliates. We have internal legal, audit and compliance staff, operating under guidance and review from our national regulators. Our affiliated mutual funds (97% of investor assets) are governed by boards with an independent chairman and independent trustees only (except Mr. Kaiser). Our portfolio managers, Saturna Capital, and our trustees all invest in our mutual funds.

Saturna manages accounts under three basic fee structures: fee based solely on assets, fee based both on assets and performance, and fee based solely on performance. The fee rates vary as well. In selecting an account, note that its fee structure may not be the most advantageous in all circumstances. Fees based on performance mean we participate directly in an account's results.

To avoid any single managed account receiving a trading advantage, portfolio transactions are done as a "bunched" order, then allocated pro-rata to managed accounts as may be appropriate to their objectives and client instructions.

Saturna's management of accounts with performance fees while at the same time managing accounts (perhaps with similar objectives) without performance fees may constitute a conflict of interest in that a performance fee might provide incentive to Saturna to favor that account to the disadvantage of other non-performance fee accounts. However, Saturna's policies such as bunching client trades and certain practical considerations mitigate the possible conflict. In Saturna's opinion no such conflict exists in actual practice.

Including brokerage in the fee structure ("wrap fee") may not always be in your best interests, as you might pay less if Saturna lowered its advisory fee and charged commissions on trades. You have the option of using other advisers and brokers at anytime. You may be able to purchase these services separately elsewhere and obtain a lower cost than in a Saturna account the fee for which includes these services.

Portfolio Manager Compensation

All Saturna Capital employees, including Nicholas Kaiser and other portfolio managers, are paid an annual salary, as set by the board of Saturna Capital. The board also pays annual bonuses to employees, that are dependent on the profits of Saturna Capital and not the results of any specific managed account or specific business of Saturna Capital. All employees are eligible for a 401(k) retirement plan, health and other benefits, and a stock option plan. Stock options are annually awarded on the basis of years of service, and not individual performance.

To align the mutual fund Managers' interests with those of shareowners, mutual fund portfolio managers, such as Mr. Kaiser, are also paid a monthly bonus when a fund achieves an overall rating of 4 or 5 stars from Morningstar™. The bonus is 1% of the adviser's net monthly fee for a 4-star rating, and 2% of the monthly fee for a 5-star rating. Morningstar™ ratings are determined within categories, and primarily reflect total returns for the last 3, 5 and 10 years. The adviser's net monthly fee from Amana's funds is solely dependent on Fund assets, but the net monthly fee from the Sextant Funds is partly based on Sextant Fund performance results. The Sextant equity funds which Mr. Kaiser manages, and the Sextant Core Fund which Mr. Nielsen manages, pay a base fee of 0.60% of average daily net assets, adjusted up or down by up to 0.30% depending upon a fund's performance over the previous 12 months compared to the average fund in its Morningstar category. The Sextant bond funds which Mr. McIlvaine manages pay a base fee of 0.60% of average daily net assets, adjusted up or down by up to 0.20% depending upon a fund's performance over the previous 12 months compared to the average fund in its Morningstar category. The Idaho Tax-Exempt Fund pays a fee of 0.5% of average daily net assets.

Since all fund assets vary over time with performance, as investors favor mutual funds with superior investment records, the portfolio manager's bonus is a function of both performance and assets. The two private pooled investment portfolios managed by Mr. Kaiser pay Saturna Capital as adviser a performance fee of 10% of the year's increase achieved from the previous highest year-end net asset value. There is no base fee, and no performance fee in years when the net asset value is below the highest previous value. As portfolio manager, Mr. Kaiser normally receives a significant portion of any fee earned as a bonus.

Saturna Capital has a 401(k) retirement plan for all its employees. It contributes to participant accounts on a matching basis to encourage voluntary salary deductions by employees, and may contribute a portion of its annual profits.

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