Renewal of Investment Advisory Contract
During their meeting of September 25, 2009, Amana’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 two existing Funds of the Trust offer a full range of high-quality investor services, including unique services for Islamic investors, and that there had been enhancements in Saturna’s operations during the last year. The Trustees also noted Saturna’s creation of a third Fund: Amana Developing World Fund. 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 two Funds, both in absolute numbers and relative to peers, continued to be exceptional in a very difficult and volatile year. The Trustees found that Saturna managed the Funds so as to be an allowed investment for Muslims as well as being highly attractive to all kinds of equity investors. They understood the Islamic restrictions increased Saturna’s research expenses and obligations.
As of August 31, 2009, Lipper’s Leader Scorecard ranked Amana Growth in the first quintile of its Multi-Cap Growth category on total return, consistent return, and preservation. Lipper’s Scorecard ranked Amana Income in the first quintile of its Equity Income category on total return, preservation and tax efficiency. At their annual awards in New York during April, in their categories Lipper recognized Amana Growth for Best Fund for 3 and 5 years, and Amana Income as Best Fund for 5 years. And as of August 31, 2009, Morningstar continued to give both Amana Funds its top 5-Star rating overall. At their annual ceremony in Malaysia during March, Failaka Advisors gave Amana Income Fund the 2008 Best Islamic U.S. Equity Fund award.
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 any mutual fund.
The Trustees reviewed the fees and expenses of the Funds. They found each Fund’s expense ratio to be comparable to retail funds in its peer group and to be fair given the size of a Fund and the services provided and expenses incurred by the adviser. They noted that "revenue sharing" paid to unaffiliated broker-dealers made the Funds widely available and popular with investors, but it was the Funds’ largest expense. They considered the fees charged by Saturna to other kinds of accounts and the different services provided to those accounts, as well as the ways in which Saturna’s service and work done for other accounts it manages benefit the Funds. The Trustees recognized that the Funds’ positive performance record had likely contributed to their growth in asset size, which resulted in lower expense ratios due to rising fixed costs being spread over a larger asset base.
The Trustees considered the extent to which advisory fees paid to the Adviser reflect economies of scale. The Trustees noted that again this year, the Adviser had contractually agreed to include an additional breakpoint within each Fund’s advisory fee structure. Fee breakpoints not only result in lowering operating expenses of the Funds and lower expense ratios but it also demonstrate that economies of scale are being shared with shareowners.
The Trustees reviewed Saturna’s financial information and discussed the issue of profitability related to management and administration of the Funds, as well as the reasonability of profitability with respect to each of 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 noted the twenty years of constantly growing support for Amana shareowners by Saturna Capital and the value of a financially strong adviser.
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. In fact, Saturna voluntarily waives brokerage commissions for Fund portfolio trades at a considerable and growing cost to Saturna, which 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. Following this discussion, the Trustees unanimously agreed to renew the two Investment Advisory and Administration Agreements.
