Saturna Investment Trust

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Idaho Tax-Exempt
 

Sextant Funds

During their meeting of September 24, 2016 the Trustees of Saturna Investment Trust discussed the continuance of the Investment Advisory and Administration Agreements between each of the Sextant Funds (Bond Income Fund, Global High Income Fund, Growth Fund, International Fund, Core 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 its efforts to avoid potential conflicts of interest.

The Trustees considered the investment performance of each Fund over time, including each Fund’s average annual total returns relative to its benchmark for the one-, three-, five-, and ten-year periods, all as of July 31, 2016.  The Trustees also considered 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 August 31, 2016.  The Trustees also considered each Fund’s Morningstar performance rankings (one through five stars) for the one-, three-, five- and ten-year periods, ended as of July 31, 2016, and also noted the recent sustainability ratings assigned to some of the Funds by Morningstar. In addition, the Trustees also considered each Fund’s performance ranking relative to the Fund’s category selected by Lipper, Inc.

With respect to long-term (10-year) performance, the Trustees found that the investment performance of the Sextant International Fund, both in absolute numbers and relative to the Fund’s Morningstar category remained strong.  The Trustees noted that the Fund’s average annual total return for the ten-year period ended on August 31, 2016 exceeded the Morningstar category average and the Fund outperformed its benchmark during the same period.  The Trustees noted that Sextant Growth Fund, Sextant Short-Term Bond Fund, and Sextant Bond Income Fund each had underperformed their respective Morningstar category averages and benchmarks for the same 10-year period.

The Trustees considered the short- and medium-term performance of the Funds, noting that each Fund’s average annual total return for the five-year period ended on August 31, 2016 was below the respective Morningstar category average for the same period.  The Trustees noted that for the three-year period ended on August 31, 2016, Sextant Bond Income Fund, and Sextant Growth Fund each underperformed their respective Morningstar category averages, while Sextant Global High Income Fund, Sextant International Fund, and Sextant Short-Term Bond Fund each outperformed their respective Morningstar category average.  The Trustees also considered the Funds’ short-term performance, noting that for the one-year period ended on August 31, 2016, Sextant Bond Income Fund, Sextant Growth Fund, and Sextant Short-Term Bond Fund each underperformed their respective Morningstar category averages, while Sextant Core Fund, Sextant Global High Income Fund, and Sextant International Fund each outperformed their respective Morningstar category averages.

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 noted instances where a Fund had underperformed relative to its Morningstar category average during a period, but had outperformed the Fund’s benchmark during the same period.  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-adverse 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 performance expense 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 reviewed Saturna’s financial information and discussed the issue of Saturna’s profitability as related to management and administration of the 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 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’s other business lines from acting as investment adviser to the Funds, but also recognized that Saturna’s other business lines benefit the Funds.  The Trustees also noted that there were no soft dollar arrangements with respect to trading in the Funds’ portfolios.  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 and the fact that Saturna Brokerage Services, a wholly owned subsidiary of Saturna, receives distribution and shareholder services fees under Rule 12b-1, which it would not otherwise receive if Saturna did not serve as the investment manager for the Funds.  The Trustees also noted that 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 of Sextant Bond Income Fund, Sextant Global High Income Fund, Sextant Growth Fund, Sextant International Fund, Sextant Core Fund, and Sextant Short-Term Bond Fund, with Saturna Capital Corporation.

Saturna Sustainable Funds

During their meeting of September 24, 2016 the Trustees of Saturna Investment Trust discussed the continuance of the Investment Advisory and Administration Agreements between each of Sustainable Equity Fund and Sustainable 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 its efforts to avoid potential conflicts of interest.

The Trustees considered the investment performance of each Fund, recognizing that because the Funds had commenced investment operations on March 27, 2015, each Fund had a relatively short operating history.  The Trustees considered 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 each Fund’s performance relative to the Fund’s Morningstar category for the one-year period ended August 31, 2016, noting that Sustainable Equity Fund had outperformed its Morningstar category average and Sustainable Bond Fund had underperformed its Morningstar category average during that period.  The Trustees also noted the recent sustainability ratings assigned to the Funds by Morningstar.  In addition, the Trustees also considered each Fund’s performance ranking relative to the Fund’s category selected by Lipper, Inc.

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 manages 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 performance expense 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 their relatively short operating history.

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.  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 yet been opportunities to consider economies of scale.  The Trustees noted that Saturna operates the Funds at considerable costs to itself.

The Trustees reviewed Saturna’s financial information and discussed the issue of Saturna’s profitability as related to management and administration of the 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 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’s other business lines from acting as investment adviser to the Funds, but also recognized that Saturna’s other business lines benefit the Funds.  The Trustees also noted that there were no soft dollar arrangements and considered whether there are other potential benefits to Saturna in continuing to manage the Funds.  The Trustees found that there were no material benefits other than Saturna’s receipt of advisory fees and the fact that Saturna Brokerage Services, a wholly owned subsidiary of Saturna, receives distribution and shareholder services fees under Rule 12b-1, which it would not otherwise receive if Saturna did not serve as the investment manager for the Funds.  The Trustees also noted that 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 of Sustainable Equity Fund and Sustainable Bond Fund, with Saturna Capital Corporation.

Idaho Tax-Exempt Fund

During their meeting of September 24, 2016 the Trustees of Saturna Investment Trust discussed the continuance of the Investment Advisory and Administration Agreement between Idaho Tax-Exempt Fund (the “Fund”) and Saturna Capital Corporation (“Saturna”).  In considering the renewal of the agreement with Saturna, the Trustees discussed the nature, extent, and quality of the services provided by Saturna to the Trust and the Fund.  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 its efforts to avoid potential conflicts of interest.

The Trustees considered the investment performance of the Fund over time, including the Fund’s average annual total returns relative to its benchmark for the one-, three-, five-, and 10-year periods, all as of July 31, 2016.  The Trustees also considered 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 its Morningstar category for the one-, three-, five- and 10-year periods ended August 31, 2016.  The Trustees also considered the Fund’s Morningstar performance rankings (one through five stars) for the one-, three-, five- and 10-year periods, ended as of July 31, 2016, and the Fund’s performance ranking relative to the Fund’s category selected by Lipper, Inc. for the same period.

With respect to long-term (10-year) performance, the Trustees found that the average annual total return of the Fund for the 10-year period ended on August 31, 2016, was equal to its Morningstar category average.  The Trustees considered the short- and medium-term performance of the Fund, noting that the Fund’s average annual total return for the one-, three-, and five-year period ended on August 31, 2016 was below its Morningstar category average.

The Trustees noted the risk-averse investment style and other factors, which can affect the Fund’s performance relative to its broader Morningstar category.  The Trustees also noted certain differences between the Fund and the peer funds within its Morningstar  category, including differences in investment strategies and asset size. The Trustees found that Saturna continued to manage the Fund 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 Fund.  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 the Fund as compared to smaller group of funds with similar assets and investment objectives and strategies.  The Trustees considered these comparative performance expense data, along with the comparative data published by Morningstar and the Fund’s performance relative to its benchmark, to evaluate the Fund’s performance over near-term and long-term time periods.

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.  They noted the significant sponsorship of the Fund by Saturna evidenced, in part, by the amount of fees and expenses paid by Saturna out of its own resources and the Trustees appreciated Saturna’s efforts help make the Fund more widely available and less expensive than would otherwise be the case without Saturna’s efforts.

The Trustees recognized that the Fund remains relatively small and there have not been opportunities to consider economies of scale. The Trustees noted that Saturna continues to operate the Fund, often times at considerable costs to itself.

The Trustees reviewed Saturna’s financial information and discussed the issue of Saturna’s profitability as related to management and administration of the 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 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 considered potential benefits to Saturna’s other business lines from acting as investment adviser to the Fund, but also recognized that Saturna’s other business lines benefit the Fund.  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 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 agreement of Idaho Tax-Exempt Fund with Saturna Capital Corporation.