Garrison Bradford & Associates Inc

Fees and Compensation

Fees are charged as a percentage of assets under management. GBA does not collect
commissions, sales charges or any other type of transaction fees, including on fixed
income annuities. We believe this method aligns the interests of the client and investment
manager because fees increase only as assets increase, not as a function of trading
activity. Fees are billed quarterly after the service is performed. Clients may choose to
pay the fee directly, or they may authorize the custodian to pay it from the assets of the
account. Our advisory agreement permits termination by either party upon 30 days
written notice; during that 30-day period we will honor a request not to engage in any
further trading activity.

Depending on considerations such as long-term objectives, complexity of services
performed, and potential for asset growth, portfolio managers have the option of offering
new clients different fee schedules:
(a) 1.25% on the first $1 million of assets;
1.00% on the next $1.5 million;
0.75% on the next $2.5 million;
0.50% on assets over $5 million.
Accounts in the same family group may be combined to receive the maximum volume
discount.

(b) A single annual rate, generally 1% but in a few cases higher or lower.

Accounts which started several years ago may have different fee rates. These rates are
not offered to new clients.

The minimum fee is $5,000 annually per account. In some cases, however, this fixed
minimum is waived, and the stated percentage fee is applied if the client has multiple
accounts or may open new accounts or add assets.

GBA generally invests directly in equities and fixed income instruments. However, cash
balances invested by the custodian in money-market funds and/or strategic investments
in mutual funds, exchange-traded funds, REITs, structured notes and other managed
entities may result in the payment, in effect, of two management fees. Besides our
management fee, clients incur securities brokerage and other transaction fees (discussed
in more detail in the “Brokerage Practices” section). They may also incur custody and
administrative fees levied by the independent custodian, who holds the assets and is
responsible for tax and other reports.

Performance-Based Fees and Side-By-Side Management

None of GBA’s fees are based on a share of the income, capital gains or capital
appreciation of the assets under management.

Types of Clients

GBA’s clients include individuals and their retirement assets, and tax-exempt entities
such as charitable institutions, endowments and employee benefit trusts. Generally, there
is a $500,000 minimum for a new account. That requirement may be waived, however,
if the account is part of an existing relationship or if a new client is likely to contribute
additional assets over time. There is no minimum size requirement for maintaining an
existing account.

Methods of Analysis, Investment Strategies and Risk of Loss

GBA is a fiduciary and is required at all times to act in its clients’ best interests. Our
basic investment strategy is to “optimize” real returns by investing for long-term growth
while minimizing risk. We categorize the portfolios we manage as “growth”,
“conservative growth with income”, and “income”. In most cases, our core strategy is to
own outstanding growth and income stocks and other securities when investment
conditions are favorable and to limit losses during periods of cyclical decline in the
financial markets.

Philosophically, we believe that strong risk-adjusted investment returns come from the
common stocks of companies that grow their sales and earnings on a consistent basis. As
a group, these stocks have outperformed most other investable asset classes over the long
term, and it is our strong conviction that they will continue to do so. Purchasing these
stocks when they are undervalued or taking profits when they become overvalued can
enhance the return provided by the underlying growth. To reflect clients' individual
objectives, we diversify portfolios by the allocation of assets to cash, fixed income and
equities; by the number and types of securities held; by exposure to different industries;
and by various quality ratings levels. Most of our accounts are “balanced”, meaning they
generally hold a mix of equities, fixed income securities and cash equivalents. At certain
points in the economic and securities market cycles we will increase or decrease the
allocation to these various categories depending upon our analysis of risk and reward
opportunities, with the primary emphasis always on maintaining a low level of overall
portfolio risk.

Mr. Bradford is a Chartered Financial Analyst with a research background. The portfolio
managers have dual roles: (1) as counselors and advisors helping clients develop plans to
achieve their long-term financial goals, including limiting taxes and controlling risks; and
(2) as fundamental investment analysts finding, researching, buying and monitoring
securities that fit our models for growth and risk control. We use many sources of
information, including SEC filings, meetings with company managements, their
competitors and customers, and computer screening. In following a company in depth,
we focus on the “economic moat” that allows it to earn a high return on investment. We
monitor and assess management’s skill in protecting its business franchise and
implementing its growth plan, particularly when confronted with challenges such as
economic cycles, technological change, and new competition. We concentrate on finding
uniquely successful growth companies, rather than trying to forecast economic
conditions or securities market cycles. We use models to help us judge under- or
overvaluation and to time purchases and sales.

Non-equity investments consist primarily of high-quality bonds and notes issued by the
government and corporations. Structured notes and fixed index annuities (FIAs) are also
used in certain circumstances, primarily within the framework of a balanced portfolio to
increase income and offset risk. These instruments may entail unique risks, including
liquidity risk, complexity risk, opportunity cost risk, and counterparty risk. FIAs are not
purchased without consultation with the client. GBA receives no commissions from the
sale of insurance products, including fixed index annuities.

Assessing a client’s tolerance for risk, which involves the chance of the loss of principal
and/or the loss of an anticipated income stream, is an important part of an investment
adviser’s responsibility. Risk is an ever-present part of investing. It comes in two basic
forms: market risk, which derives from cycles and unforeseen events that can affect the
economy and securities markets broadly; and specific risk, which relates to fundamental
problems with individual investments. GBA’s strategy for mitigating market risk is
diversification and flexible asset allocation. Specific risk is addressed by intensive
research and concentrating on high-quality debt issuers and companies with strong
balance sheets and stable business models. Our portfolio managers know from
experience that recognizing problems early and cutting losses quickly are important
elements of risk control.

High brokerage and other transaction costs related to trading frequency have not been an
historic risk for GBA’s clients. Because of the focus on the long-term and high-quality
holdings, turnover in portfolios has been relatively low.