During their meeting of September 19, 2016, the Trustees of Amana Mutual Funds Trust discussed the continuance of the Investment Advisory and Administration Agreements between the Trust, on behalf of each 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 Trust and each of the Funds.  The Trustees considered that the Funds offer a full range of high-quality investor services, including unique services for Islamic investors.  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 regulatory compliance problems, plus its continued 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 its efforts to avoid 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-, 10-, and 15-year periods and the related Morningstar rankings (one through five stars) for the one-, three-, five- and 10-year periods, ended as of July 31, 2016.  The Trustees also noted the recent sustainability ratings assigned to the Funds by Morningstar.  In addition, the Trustees considered each Fund’s performance relative to the Fund’s category selected by Lipper, Inc. (“Lipper”), a nationally recognized organization that ranks mutual fund performance.  The Trustees considered each Fund’s performance within its Lipper category, as measured in quintile rankings.

The Trustees found that the Funds’ short-term investment performance had improved over the past year and the long-term investment performance of the Funds, both in absolute numbers and relative to the Morningstar and Lipper categories, remained strong.  The Trustees noted the risk-averse investment style used by Saturna to manage the Funds and considered other factors, which can affect a Fund’s performance relative to the Fund’s broader Morningstar and Lipper peer categories.  The Trustees considered the short-, medium-, and long-term investment performance of the Amana Income Fund and the Amana Growth Fund, the short- and medium-term investment performance of Amana Developing World Fund, each relative to the Fund’s respective Morningstar and Lipper categories.  The Trustees also considered the short-term performance of Amana Participation Fund.  In evaluating such performance data, the Trustees noted that Islamic investment restrictions to which the Funds adhere increase Saturna’s research expenses and obligations and impose major constraints on Saturna’s selection of the Funds’ portfolio investments.  The Trustees found that Saturna continued to manage the Funds in a manner that is designed to be acceptable to Islamic investors and that the risk-averse approach also is attractive to non-Islamic long-term investors.

Recognizing the investment mandate of the Funds, the Trustees also considered the performance of the Funds as compared to a group of other faith-based managed funds with similar assets and investment objectives and strategies.  The Trustees considered these comparative performance data, along with the comparative data published by Morningstar and Lipper, as well as each Fund’s performance relative to its benchmark, to evaluate each Fund’s performance over near-term and long-term time periods.  When evaluating the Funds’ performance record, the Board noted that relative performance comparisons, especially over limited periods of time, is only one of the factors that it deems relevant to its consideration of each Fund's agreement.  The Board noted that, after considering all relevant factors, it may be appropriate to approve the continuation of the agreement notwithstanding a Fund’s underperformance relative to its Morningstar or Lipper peer groups during certain 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 that the expense ratios for the Investor share classes of Amana Growth Fund and Amana Developing World Fund were less than their Morningstar category averages, and the expense ratios for the Investor share classes of Amana Income Fund and Amana Participation Fund were above their Morningstar category averages.  In light of the services provided by Saturna, the Trustees found each Fund’s advisory fee structure and expense ratios compared to the peer group presented to be fair given the size of each Fund, the services provided, the volume of transaction orders processed by the adviser, and the expenses incurred by the adviser.  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. The Trustees noted that these fees and expenses imposed by financial intermediaries are often borne by funds and the Trustees appreciated that Saturna’s efforts help make the Funds more widely available and otherwise less expensive had the Funds borne these operational expenses.  The Trustees recognized that the competitive performance record of Amana Income Fund and Amana Growth Fund over the long-term had likely contributed to their asset size, which resulted in lower expense ratios due to rising costs being spread over a larger asset base.  The Trustees also took note of the costs borne by Saturna in subsidizing operations of the Amana Developing World Fund and Amana Participation Fund, noting that it had committed significant resources in developing and managing these Funds.

The Trustees reviewed Saturna’s financial information and discussed the issue of Saturna’s profitability related to its management and administration of the Funds.  They discussed the reasonableness of Saturna’s profitability with respect to each of the Funds 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 noted Saturna’s decades of dedicated service provided to Amana Mutual Fund Trust and its shareowners.

The Trustees considered the extent to which advisory fees paid to Saturna reflect economies of scale.  The Trustees noted that as the Funds have grown, Saturna agreed to include breakpoints within the advisory fee structures and agreed that any changes to the breakpoint schedule would require the approval of the Trustees.  The Trustees considered the fact that fee breakpoints lower the operating expenses and expense ratios of the Funds as assets grow and demonstrate the benefits of economies of scale are being shared with shareowners.  The Trustees also noted the successful introduction of lower-cost Institutional shares and Saturna’s ongoing efforts to make the Institutional shares widely available without increasing operating expenses.

The Trustees considered and compared the fees charged by Saturna to other types of advisory accounts for which Saturna serves as an investment adviser, including non-mutual fund advisory clients and individual advisory clients.  The Trustees noted the significant differences between the full range of services Saturna provides to the Funds, including investment advisory services, transfer agency services, administration and other services, as compared to the investment advisory services provided to the other advisory accounts.  The Trustees also considered how the various services provided to those other accounts, which include Saturna’s investment management, research, and customer service operations performed for those accounts, benefit the Funds.

The Trustees considered potential benefits to Saturna and its other businesses from acting as investment adviser for the Funds, but also noted that Saturna’s other business lines also potentially benefit the Funds.  The Trustees also noted that there were no soft dollar arrangements with respect to trading in the Funds’ portfolios and that Saturna’s affiliated broker, Saturna Brokerage Services, voluntarily waives brokerage commissions for executing Fund portfolio transactions, resulting in lower transaction costs for the Funds.

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 between Saturna and Amana Growth Fund, Amana Income Fund, Amana Developing World Fund, and Amana Participation Fund.