Sit Investment Fixed Income Advisors Inc

Fees and Compensation Item 5

The specific manner in which fees are calculated and paid to Sit FIA is established in the investment
management agreement with each client. Generally, fees are stated at an annual rate, calculated quarterly
as a percentage of net asset value at the end of each calendar quarter, and payable quarterly in arrears.
The net asset value is generally determined based on the aggregate market value of all assets held in the
account. Management fees are prorated for material capital contributions or withdrawals made during the
calendar quarter, and fees are prorated for accounts initiated or terminated during the quarter.

Depending on specific circumstances, such as, for example, a large amount of assets managed for a client,
fees may be subject to negotiation.

Sit FIA’s fees are exclusive of brokerage commissions, transaction fees, and other portfolio related costs
and expenses which are incurred by the client. Clients may incur charges imposed by custodians, brokers,
and consultants. Item 12 further describes the factors that Sit FIA considers in selecting or
recommending broker-dealers for client transactions and determining the reasonableness of the
commissions.

Clients may request to be billed in advance, and in the event such a client terminates its agreement,
unearned fees will be promptly refunded. Clients may also request that Sit FIA send a copy of its invoice
directly to its custodian, who will in turn direct payment from the client’s account.

Generally, clients may terminate their contract with Sit FIA on thirty days written notice, or in some cases
at any time without notice. The investment management agreements are terminated automatically if
assigned. All terminations are without penalty.

Sit FIA provides investment management services to tax-exempt charitable organizations and makes a
charitable contribution to certain of such organizations. The charitable contributions are generally equal
to a fixed percentage of the investment management fees paid to Sit FIA by the charitable organizations.

Sit FIA’s most significant fee schedules are presented below.

    Separate Account Management by strategy:

                   Balanced
                         Net Asset Value              Annual Rate
                         First $10 million               0.75%
                         Next $10 million                0.70%
                         Next $10 million                0.65%
                         Next $10 million                0.60%
                         Next $10 million                0.55%
                         Over $50 million              Negotiable

              Taxable Short Duration
              Quality Income
              Taxable Municipal Bond
              Municipal Short Duration
              Municipal Intermediate Duration
                    Net Asset Value         Annual Rate
                    First $20 million          0.40%
                    Next $30 million           0.30%
                    Next $50 million           0.25%
                    Over $100 million         Negotiable

             Municipal 7-Year Duration
                    Net Asset Value            Annual Rate
                    First $20 million             0.35%
                    Next $30 million              0.25%
                    Next $50 million              0.20%

             Municipal Total Return
                    Net Asset Value            Annual Rate
                    First $20 million             0.35%
                    Next $50 million              0.30%
                    Next $50 million              0.25%
                    Over $120 million           Negotiable

              Taxable Intermediate Duration (Govt/Corp)
              Taxable Intermediate Duration (Government)
              Taxable Total Return
                    Net Asset Value              Annual Rate
                    First $10 million               0.35%
                    Next $10 million                0.25%
                    Over $20 million                0.20%

              Taxable Return Plus
              Municipal Return Plus
                   0.40% on all assets, plus a performance fee equal to 20% of the excess
                   return over benchmark; or a 1.00% fee and no performance fee.

              Municipal High Income
                   Net Asset Value                      Annual Rate
                   All assets                             0.50%

   The rate applicable to any particular portfolio may reflect the total of all assets managed on behalf
   of a client by Sit FIA and its affiliates. The rate applicable may also reflect the total of all assets
   managed on behalf of a client’s financial consultant or financial intermediary by Sit FIA and its
   affiliates.

Affiliated Registered Investment Company Management (Mutual Funds):

   Sit FIA assists its parent company Sit Investment Associates, Inc. in the management of the
   following registered investment companies that are part of the Sit Mutual Funds, a family of no-
   load mutual funds:

           Sit Tax-Free Income Fund
           Sit Balanced Fund
           Sit Minnesota Tax-Free Income Fund
           Sit U.S. Government Securities Fund
           Sit Quality Income Fund

Affiliated Collective Investment Trust Management:

   Sit Investment Associates, Inc. has entered into an investment advisor agreement with Global
   Trust Company (“GTC”) to serve as investment adviser with respect to the assets of collective
   investment funds under the Sit Collective Investment Trust (the “Trust”) established by GTC.
   GTC serves as Trustee of the Trust. The Trust was established to provide for the collective
   investment and reinvestment of assets of tax-exempt employee benefit plans. The fees charged
   for investing in a fund are set forth in the fund’s Offering Memorandum, Participation Agreement
   and Fund Declaration.
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Types of Clients Item 7

Sit FIA manages client assets on a discretionary basis for several types of clients, including, institutional
investors, pension funds, foundations, endowments, corporations, and high net worth individuals. As of
December 31, 2018, we managed $815 million.

The account minimum for separately managed accounts is generally $10 million.

Sit FIA’s affiliates serve as the adviser, sponsor, general partner or manager for several investment
companies to which the affiliates provide investment advisory services. See the response to Item 10 for
information on these affiliated investment companies.

Sit FIA’s affiliated company, Sit Fixed Income Advisors II, LLC also manages $8.4 billion of fixed
income assets on a discretionary basis for the same types of clients and $242 million on a non-
discretionary basis. Sit FIA’s parent, Sit Investment Associates, Inc., manages equity securities on a
discretionary basis for the same types of clients, and manages the Sit Mutual Funds, a family of funds
which includes fixed income funds totaling $1.3 billion. Sit Fixed Income Advisors II, LLC assists in the
management of the Sit Mutual Funds’ fixed income securities. Therefore, the total fixed income
securities managed by Sit FIA and its affiliate Sit Fixed Income Advisors II, LLC totals approximately
$10.9 billion.

Together, Sit FIA, its affiliated company, Sit Fixed Income Advisors II, LLC, and its parent company, Sit
Investment Associates, Inc., manage $12.8 billion in fixed income and equity securities as of December
31, 2018.

Methods of Analysis, Investment Strategies and Risk of Loss Item 8

Analysis - Fixed Income Philosophy

We believe the consistent attainment of superior risk-adjusted returns is achievable using a conservative
investment management approach with:
    • investment grade securities;
    • special emphasis on interest income; and
    • significant stability of principal value.

To this end, we utilize a bottom-up strategy which looks for securities and market sectors with strong
risk/reward potential. Although we do place a great deal of emphasis on interest rate projection and
interest rate movement, we are not duration managers.

Within the stated philosophy, our fixed income separate account objectives are established to:
   • provide superior results compared to benchmarks and managers of a similar style;
   • avoid excessive return volatility and generate consistent returns over an economic cycle;
   • structure portfolios to meet specific client needs.

Taxable Fixed Income General Strategy

Interest income provides the vast majority of a bond portfolio’s total return over an interest rate cycle. Sit
Investment’s taxable fixed income process focuses on earning high levels of interest income from high
quality securities. In general, we underweight U.S. Government & Agency bonds and overweight
corporate, asset-backed and mortgage pass through-securities. Overall, our clients’ investment objectives
and guidelines govern our industry and sector limits more so than the benchmark.

Municipal Fixed Income General Strategy

Interest income provides the vast majority of a bond portfolio’s total return over an interest rate cycle. Sit
Investment’s municipal fixed income process focuses on strong individual security analysis and seeks
investment grade quality securities which have high levels of coupon interest income and complexities
such as sinking fund and prepayment provisions. The former provides income and lower volatility. The
latter produces shorter expected lives and relatively higher yield. The combination is a strong book yield
and after-tax return advantage using high quality securities.

Investment Strategies and Risk of Loss

Sit FIA manages client accounts with the following general investment strategies. Specific client
objectives and restrictions are set forth in the investment management agreement with each client and
differ from client to client. For example, clients may impose restrictions on investing in certain issuers or
types of securities, or may define a benchmark differently than other clients. The following descriptions
of investment strategies and instruments are not intended to be exhaustive. Sit FIA may employ various
additional strategies and instruments from time to time in a manner consistent a client’s investment
management agreement.

Investments in the fixed income portfolios may include:
    • Obligations of the U.S. government, its agencies and instrumentalities;
    • Mortgage-backed securities (including collateralized mortgage obligations (CMOs));
    • Asset-backed securities;
    • Corporate debt securities;
    • Municipal obligations issued by U.S. states, territories, and possessions and the District of
       Columbia, and their political subdivisions, agencies and instrumentalities (both revenue bonds
       and general obligation bonds);
    • Registered investment companies (open-end funds (mutual funds) and closed-end funds);
    • Preferred securities and preferred convertible securities;
    • Fixed income derivatives;
    • Exchange traded futures contracts and options for hedging purposes only and not for leverage or
       speculative purposes;
    • Whole loans;
    • Publicly traded master limited partnerships, and
    • Short-term debt obligations, including commercial paper and bank instruments.

The model portfolios used to manage client accounts include portfolios with the following objectives:

    Taxable Portfolios:
       • Taxable Municipal Securities – Bloomberg Barclays Aggregate Bond Index
       • Return Plus (closed-end bond funds) – Bloomberg Barclays Aggregate Bond Index
       • Targeted Opportunity (closed-end funds) – Bloomberg Barclays Aggregate Bond Index
       • Total Return – Bloomberg Barclays Aggregate Bond Index
       • Intermediate Duration – government – Bloomberg Barclays Intermediate Government Bond
           Index
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