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Renewal of Investment Advisory Contract

Sextant Funds

During their meeting of September 6, 2015 the Trustees of Saturna Investment Trust discussed the continuance of the Investment Advisory and Administration Agreements between each Sextant Fund (Bond Income Fund, Global High Income Fund, Growth Fund, International Fund, and Short-Term Bond Fund) (the "Funds") and Saturna Capital Corporation ("Saturna"). In considering the renewal of the agreements with Saturna, the Trustees discussed the nature, extent, and quality of the services provided by Saturna to the Trust and each of the Funds. The Trustees considered that the Funds offer a full range of high-quality investor services. The Trustees discussed Saturna's experience, ability, and commitment to quality service through performing internally such functions as shareowner servicing, administration, retirement plan and trust services, accounting, marketing, and distribution — all in addition to investment management.

The Trustees took into consideration Saturna's continued avoidance of significant operational and compliance problems, plus its investments in infrastructure, information management systems, personnel, training, and investor education materials, all designed to provide high quality investor services and meet investor needs. They recognized Saturna's efforts to recruit and retain increasingly qualified, experienced, and specialized staff and improve the capital base on which Saturna operates, which the Trustees believe is important to the long-term success of the Funds. They appreciate Saturna's focus on investors and avoidance of potential conflicts of interest.

The Trustees considered the investment performance of each Fund over time, including comparative information published by Morningstar Inc. ("Morningstar"), an independent data service provider that, among other things, ranks mutual fund performance within categories comprised of similarly managed funds. The Trustees considered and discussed at length each Fund's performance relative to the Fund's Morningstar category for the one-, three-, five- and ten-year periods ended June 30, 2015. The Trustees also considered each Fund's Morningstar rankings (one through five stars) for the one-, three-, five- and ten-year periods, ended as of July 31, 2015.

The Trustees found that the long-term investment performance of the Sextant International Fund, both in absolute numbers and relative to the Morningstar foreign large blend category, remained strong. The Trustees noted that the Fund's average annual total return for the ten-year period ended on June 30, 2015 exceeded the Morningstar category average and ranked in the 31st percentile out of 331 similarly managed funds. The Trustees noted that Sextant Growth Fund average annual total return for the ten-year period ended June 30, 2015, was 0.10% less than the Fund's Morningstar category average, and the Fund ranked in the 51st percentile out of 918 similarly managed funds within the Morningstar category for the same period. The Trustees noted that Sextant Short-Term Bond Fund and Sextant Bond-Income Fund had underperformed their respective Morningstar categories for the ten-year period ended on June 30, 2015.

The Trustees considered the short- and medium-term performance of the Funds, noting that Sextant Short-Term Bond Fund performance for the one-year period ended on June 30, 2015, exceeded the average for the Morningstar short-term bond category for the same period. The Trustees noted that each of the other Funds' one-year performance was below the Fund's respective Morningstar category average. The Trustees also noted that average annual total returns for each Fund were below their respective Morningstar category averages for the three- and five-year periods ended on June 30, 2015.

The Trustees noted the risk-averse investment style and other factors, which can affect a Fund's performance relative to the Fund's broader Morningstar categories. The Trustees also noted certain differences between a Fund and the peer funds within the relevant Morningstar category, including differences in investment strategies and asset size. The Trustees found that Saturna continued to manage the Funds in a manner that is designed to be risk-averse and attractive to long-term investors. The Trustees discussed and considered the efforts of Saturna to make additional resources available to assist in managing the Funds. The Trustees also considered Saturna's focus on improving investment performance without incurring materially higher levels of risk.

The Trustees also considered the performance and expenses of each Fund as compared to a smaller group of funds with similar assets and investment objectives and strategies. The Trustees considered these comparative data, along with the comparative data published by Morningstar and each Fund's performance relative to its benchmark, to evaluate each Fund's performance over near-term and long-term time periods.

The Trustees also reviewed the fees and expenses of the Funds and considered the components of each Fund's operating expenses. The Trustees noted the steps that Saturna has undertaken to maintain competitive levels of Fund operating expenses. They noted the significant sponsorship of the Funds by Saturna evidenced, in part, by the amount of fees and expenses paid by Saturna out of its own resources (known as "revenue sharing") to unaffiliated intermediaries, as well as Saturna's initiatives to reduce its advisory fees. Recognizing that Saturna pays certain fees and expenses that are often borne by funds, the Trustees appreciated Saturna's efforts to help make the Funds more widely available and less expensive than would otherwise be the case without Saturna's efforts.

The Trustees recognized that the Funds remain relatively small and there have not been opportunities to consider economies of scale. The Trustees noted that Saturna continues to operate the Funds, oftentimes at considerable costs to itself. The Trustees considered whether there are other potential benefits to Saturna in continuing to manage the Funds and the Trustees found that there were no material benefits other than Saturna's receipt of advisory fees.

The Trustees reviewed Saturna's financial information and discussed the issue of Saturna's profitability as related to management and administration of the Funds. They discussed the reasonableness of Saturna's profitability as part of their evaluation of whether the advisory fees bear a reasonable relationship to the mix of services provided by Saturna, including the nature, extent, and quality of such services.

The Trustees considered and compared the fees charged by Saturna to other types of accounts, including non-mutual fund advisory clients. The Trustees noted the differences between the full range of services Saturna provides to the Funds, including investment advisory services, transfer agency services, shareholder services, and other services, as compared to the investment advisory services provided to the other advisory accounts.

The Trustees 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. The Trustees also noted that Saturna's affiliated broker, Saturna Brokerage Services, voluntarily waives brokerage commissions for executing Fund portfolio transactions, resulting in lower transaction costs.

The Trustees concluded that the fees paid by the Funds to Saturna were, from an arm's-length bargaining perspective, reasonable and in the best interest of the Funds and their shareowners in light of the services provided, comparative performance, expense and advisory fee information, costs of services provided, profits to be realized, and benefits derived or to be derived by Saturna from its relationship with the Funds. Following this discussion, the Trustees unanimously agreed to renew the agreements with Saturna Capital Corporation on behalf of Sextant Bond Income Fund, Sextant Global High Income Fund, Sextant Growth Fund, Sextant International Fund, and Sextant Short-Term Bond Fund.

Idaho Tax-Exempt Fund

During their meeting of September 6, 2015 the Trustees of Saturna Investment Trust discussed the continuance of the Investment Advisory and Administration Agreements between the Idaho Tax-Exempt Fund (the "Fund") and Saturna Capital Corporation ("Saturna"). In considering the renewal of the agreements with Saturna, the Trustees discussed the nature, extent, and quality of the services provided by Saturna to the Fund. The Trustees considered that the Fund offers a full range of high-quality investor services. The Trustees discussed Saturna's experience, ability, and commitment to quality service through performing internally such functions as shareowner servicing, administration, accounting, marketing, and distribution — all in addition to investment management.

The Trustees took into consideration Saturna's continued avoidance of significant operational and compliance problems, plus its investments in infrastructure, information management systems, personnel, training, and investor education materials, all designed to provide high quality investor services and meet investor needs. They recognized Saturna's efforts to recruit and retain increasingly qualified, experienced, and specialized staff and improve the capital base on which Saturna operates, which the Trustees believe is important to the long-term success of the Fund. They appreciate Saturna's focus on investors and avoidance of potential conflicts of interest.

The Trustees considered the investment performance of the Fund over time, including comparative information published by Morningstar Inc. ("Morningstar"), an independent data service provider that, among other things, ranks mutual fund performance within categories comprised of similarly managed funds. The Trustees considered and discussed at length the Fund's performance relative to the Fund's Morningstar category for the one-, three-, five- and ten-year periods ended June 30, 2015. The Trustees also considered the Fund's Morningstar ranking (one through five stars) for the one-, three-, five- and ten-year periods, ended as of July 31, 2015.

The Trustees found that the investment performance of the Fund, both in absolute numbers and relative to the Morningstar single-state municipal intermediate bond fund category, remained strong. The Trustees noted that the Fund's average annual total return for the three-, five- and ten-year periods ended on June 30, 2015 was close to or exceeded the Morningstar category average. The Trustees also noted that the Fund maintains an overall 3-star Morningstar ranking, a 4-star ranking for the three-year period, and a 3-star ranking for the five-and ten-year periods, each as of July 31, 2015.

The Trustees noted the risk-averse investment style and other factors, which can affect a Fund's performance relative to the Fund's broader Morningstar categories. The Trustees also noted certain differences between the Fund and other municipal funds, including, for example, the Fund's avoidance of problematic municipal debt issued by Puerto Rico. The Trustees found that Saturna continued to manage the Fund in a manner that is designed to be risk-adverse and attractive to long-term investors.

The Trustees also reviewed the fees and expenses of the Fund and considered the components of the Fund's operating expenses. The Trustees noted the steps that Saturna has undertaken to maintain competitive levels of Fund operating expenses. The Trustees also considered Saturna's sharing of its revenues to pay marketing and distribution costs of the Fund.

The Trustees reviewed Saturna's financial information and discussed the issue of Saturna's profitability as related to management and administration of the Funds within Saturna Investment Trust. They discussed the reasonableness of Saturna's profitability as part of their evaluation of whether the advisory fees bear a reasonable relationship to the mix of services provided by Saturna, including the nature, extent, and quality of such services.

The Trustees recognized that the Fund remains small and there have not been opportunities to consider economies of scale. The Trustees noted that Saturna continues to operate the Fund at a cost to itself. The Trustees considered whether there are other potential benefits to Saturna in continuing to manage the Fund and the Trustees found that there were no material benefits other than Saturna's receipt of advisory fees.

The Trustees considered and compared the fees charged by Saturna to other types of accounts, including non-mutual fund advisory clients. The Trustees noted the differences between the full range of services Saturna provides to the Fund, including investment advisory services, transfer agency services, shareholder services, and other services, as compared to the investment advisory services provided to the other advisory accounts.

The Trustees concluded that the fees paid by the Fund to Saturna were, from an arm's-length bargaining perspective, reasonable and in the best interest of the Fund and its shareowners in light of the services provided, comparative performance, expense and advisory fee information, costs of services provided, profits to be realized, and benefits derived or to be derived by Saturna from its relationship with the Fund. Following this discussion, the Trustees unanimously agreed to renew the Investment Advisory and Administrative Service Agreement of Idaho Tax-Exempt Fund with Saturna.

 

 

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