On September 18, 2006, the trustees of Saturna Investment Trust approved continuation of the Sextant Funds’ investment advisory and administrative services agreements with Saturna Capital Corporation. In doing so, the Board considered a number of factors and made specific determinations relevant to that approval.
In addition to information provided throughout the year, the trustees utilized a comparison of performance and fees of funds in each of the Sextant Morningstar peer categories. The trustees found such information helpful in establishing expectations regarding the performance of the adviser and whether to continue the advisory contracts.
In their review, the trustees noted that the Funds offer a full range of high-quality investor services. The trustees reviewed improvements in Saturna’s operations during the last year, substantial investments in staffing, training, compliance, office space and hardware and its increasing assets under management. An important factor in the consideration by the trustees was Saturna Capital’s experience, ability and commitment to perform internally shareowner servicing, administration, accounting, marketing and distribution to maintain quality servicing at a reasonable expense. In addition, they recognized Saturna’s efforts to improve compensation to attract and retain increasingly qualified, experienced, and specialized staff. The Trustees also took into consideration Saturna’s continued avoidance of significant operational problems, and its efforts to comply with increased investment company rules and regulations.
The trustees found that the investment performance of the Sextant Growth Fund, both in absolute numbers and relative to funds in its Morningstar categories and Lipper categories, was outstanding. The investment performance of Sextant International, Sextant Bond Income and Sextant Short-term Bond Funds was found to be acceptable.
The trustees reviewed the fees and expenses of the Funds. They noted that the performance-based advisory fees are unusual in the industry and fair and reasonable to shareowners. In addition, the trustees found the expense ratios less than those of similar funds and to be advantageous to shareowners given the sizes of the funds, services provided and expenses incurred. They also considered the fees charged by the adviser to other kind of accounts and the different services provided to those accounts, as well as the ways in which Saturna’s services and work done for other accounts it manages benefits the Funds. The trustees considered the ten-year history of the funds under their current advisory agreements. The adviser had recommended, and the shareowners recently approved, a 12b-1 distribution plan designed to increase assets.
The Trustees reviewed Saturna’s profitability with respect to the Funds 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 took note that the Sextant Funds continue to operate at a loss to the adviser. The Trustees also 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, and that Saturna continues to voluntarily waive brokerage commissions for Fund portfolio trades, resulting in lower Fund expenses. The Trustees concluded that the fees paid by the Funds 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 Funds. The Trustees saw no need for advisory fee changes or breakpoints.
