Avalon Advisors LLC

Item 5.
Avalon also has negotiated with the advisor of a Private Fund to waive or reduce the fees charged
to investors in that Private Fund.

Specifically, Product and Advisory Fees usually are waived or reduced for investments made by, or on
behalf of, Avalonand its employees, principals, partners or affiliates, or former principals. Thus, some
Clients or Investors will pay more or less than other Clients or Investors for the same or similar
management services depending, for example, on the Account inception date, the number (or
value) of related Accounts,the total assets under management by Avalon, and fee negotiation or
fee waivers, if any.

Fees, including Advisory Fees and Product Fees will be assessed and paid by deduction from an
account quarterly in arrears or on such other basis as Avalon and the Client subsequently agree in
writing. Product Fees for partial periods will be assessed pro rata.

ACCOUNT PERFORMANCE FEE
In addition to Client’s existing Advisory and Product Fee, Avalon charges a performance fee for the
Avalon Bexar Opportunities Account. The annual performance fee is based on the total return in US
dollars for the Account for each calendar year (or partial calendar year). The performance fee is a flat
fee equal to 10% of the total positive return for the year in US dollars; provided, however, that the
performance fee isonly payable on the positive return in excess of 5%. No performance fee is charged
if the Account returned a total return for the calendar year of less than 5%. The fee is calculated on 31
December unless the Account is closed, in which case it is calculated at the date of closing for the partial
calendaryear. See Item 6 of this Brochure for additional information regarding performance fees.

PRODUCT FEE SCHEDULES
As noted above, fees for Private Clients depend, in part, upon whether the client chooses an
allocation across asset classes and pays the Advisory Fee and Product Fees or chooses a single asset
class and pays one or more Product Fees. A Private Client’s Accounts are allocated and classified
as either Fixed Income or Avalon Equity, as described below. Fee schedules and minimum Product
Fees for the various accounts are described below:

FIXED INCOME
Product Fees for most managed cash, taxable and tax-exempt fixed income Accounts are shown
below; for fee purposes, managed cash, taxable and tax-exempt Accounts, (excluding Total Market
Fixed Incomeand High Income Municipal Accounts) are combined when computing breakpoints:

                           Asset Level                                    Annual Fee

       First $20,000,000                                                     0.35%

       $20,000,001 to $50,000,000                                            0.25%

       $50,000,001 to $100,000,000                                           0.20%

       Above $100,000,000                                                    0.15%

Product Fees for these accounts are charged quarterly in arrears.

Avalon can waive a portion of its Product Fee on clients’ short duration fixed income accounts during
unusually low yield environments. Avalon considers a variety of factors in determining the amount or
percentage of such waivers and is not obligated to waive or continue to waive fees nor to do so
based on any set formula. When the yield environment returns to ordinary levels, Avalon will resume
charging Product Fees in accordance with normal stated rates.

TOTAL MARKET FIXED INCOME
Product Fees for most Total Market Fixed Income Accounts are as follows; for the purpose of
computing breakpoints for the cash and fixed income Accounts, Total Market Fixed Income Account

assets arenot included in the asset size determination or Product Fee calculation:

                           Asset Level                                  Annual Fee

       First $20,000,000                                                   0.45%

       $20,000,001 to $50,000,000                                          0.35%

       $50,000,001 to $100,000,000                                         0.30%

       Above $100,000,000                                                  0.25%

Fees for these Accounts are charged quarterly in arrears.
HIGH INCOME MUNICIPAL
Product Fees for most High Income Municipal Accounts are as follows; for the purpose of computing
breakpoints for the cash and fixed income Accounts, High Income Municipal Account assets are not
included inthe asset size determination or Product Fee calculation:

                           Asset Level                                  Annual Fee

       Under $10,000,000                                               Not available

       $10,000,001 to $20,000,000                                          0.65%

       $20,000,001 to $50,000,000                                          0.50%

       Above $50,000,000                                                   0.40%

Product Fees for these Accounts are charged quarterly in arrears. The High Income Municipal
Account minimum asset size is $10,000,000.

AVALON EQUITY
Product Fees for most equity accounts are as follows; for fee purposes, equity accounts are
combined when computing Product Fee breakpoints:

                           Asset Level                                  Annual Fee

       First $7,500,000                                                    1.00%

       $7,500,001 to $25,000,000                                           0.75%

       $25,000,001 to $50,000,000                                           0.60%

       Above $50,000,000                                                    0.40%

Product Fees for these accounts are charged quarterly in arrears.

OTHER TYPES OF FEES OR EXPENSES
Clients generally are responsible for certain other fees and expenses (e.g., custodial fees, brokerage
commissions, and similar charges) associated with each of the Account types. Please see Item 12 –
...

ITEM 7 - TYPES OF CLIENTS

Avalon provides investment advisory services to:

   •   Individuals

   •   High net worth individuals, trusts, and estates

   •   Banking or thrift institutions

   •   Pooled investment vehicles (other than investment companies)

   •   Pension and profit sharing plans

   •   Charitable organizations

   •   Corporations and other businesses

   •   Other investment advisors

   •   Insurance companies

Avalon prefers to establish relationships of at least $5,000,000 to act as the investment manager for
a Client. Additionally, certain products have investment minimums. The Private Funds typically

    require a minimum initial investment. The minimum initial investment requirement for the High Income
    Municipal Fund is $250,000. Each of Avalon Carlyle, AGRA and APEF required a minimum aggregate
    commitment of $500,000. AIP requires a minimum commitment of $200,000. In addition, investors must
    meet the requirements for “accredited investors” under the 1933 Act and in some cases “qualified
    clients” under the Advisers Act and will also be required to be “qualified purchasers” underthe 1940
    Act and/or “qualified eligible persons” under regulations of the Commodity Futures Trading
    Commission. Avalon can waive any such minimums.

    Lower minimums apply where Avalon’s services are provided through a sub-advisory relationship,
    managed account program.