Renewal of Investment Advisory Contract
During their meeting of September 28, 2009, Sextant’s trustees discussed the Trust’s various operating agreements. They focused on renewing the Investment Advisory and Administration Agreements with Saturna Capital Corporation, discussing various materials provided by Saturna. The Trustees took into consideration that the Funds offer a full range of high-quality investor services, and that there had been enhancements in Saturna’s operations during the last year. The Trustees remarked on 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 — in addition to investment management.
The Trustees found that the investment performance of the Sextant International Fund, both in absolute numbers and relative to funds in its Morningstar category, was outstanding. The Sextant Short-term Bond Fund and Sextant Core Fund were highly satisfactory. The investment performance of Sextant Growth Fund and the Sextant Bond Income Fund were satisfactory.
The Trustees took into consideration Saturna’s continued avoidance of significant operational problems, plus its substantial investments in premises, personnel, training and equipment to 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 all mutual funds.
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. The Trustees considered the increasing assets of the Sextant Funds, and the extent to which advisory fees reflected economies of scale. 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 kinds 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 benefit the Funds.
The Trustees reviewed Saturna’s profitability with respect to the Sextant Funds as part of their evaluation of whether the fee under the advisory contracts bear a reasonable relationship to the mix of services provided by Saturna, including the nature, extent and quality of such services. The Trustees noted that, although the assets of the Funds have grown, the Funds remain small, and there has been no opportunity for Saturna to demonstrate economies of scale. In fact, Saturna continues to operate the Funds at significant cost to itself. The Trustees also considered whether there are other potential benefits to Saturna from acting as investment adviser and found none. The Trustees also noted Saturna’s continued efforts to build a capital base in order that it might properly service the Funds, the value of which was apparent during recent financial turmoil.
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 at a considerable and growing cost to Saturna and that this results in savings to Fund shareowners.
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. Following this discussion, the Trustees unanimously agreed to renew the Investment Advisory and Administration Agreements between each Fund and Saturna Capital Corporation.
