Guyasuta Investment Advisors Incorporated

Fees and Compensation
Description
Our investment management fee is negotiated and typically based on a percentage of the
client’s assets under our management. Fees represent our only form of compensation, so fee
negotiation represents a conflict of interest with each client. We attempt to lessen this conflict of
interest by documenting the fee in the contract executed with each client at the onset of our
relationship. This contract is commonly referred to as the Investment Management Agreement.
In addition, we also present our invoices directly to our clients with their quarterly statements.
We calculate fees on the market value of the accounts under management. We have a few
clients who pay us a fixed fee, such as a fixed dollar amount each quarter, regardless of the
value of their investments. We usually reduce or waive advisory fees for Guyasuta employees,
retirees, their family members, and related parties.

Fee Billing
Below is the starting point of our negotiations with a new client regarding our annual fee
calculation:

                   Account Size              100% Equity             100% Fixed-Income

            1st $2mm                            1.00%                       .60%

            Assets from
                                                 .80%                       .50%
            $2mm – 4mm

            Assets from
                                                 .65%                       .40%
            $4mm – 7mm

            Assets from
                                                 .50%                       .30%
            $7mm – 10mm

            Assets over
            $10mm                                .35%                       .20%

            (mm = million)

Most of our clients are invoiced quarterly, in advance, based on the quarter end valuation in
March, June, September, and December. We also have a few clients who prefer to have their
fees calculated in arrears, (representing the prior quarterly period) based on the quarter end
valuation.

Typically, a client with less than $2 million invested only in equity securities will be invoiced 1%
of assets under management, while an account under $2 million invested only in fixed-income
securities will be invoiced 0.60%.

Most of our client accounts are invested in a mixed allocation of both equities and fixed-income,
with the allocation customized to meet their specific objectives. In these cases, we typically
negotiate with the client a set fee schedule (see example of 60/40 illustration below) so as to
recognize and eliminate the potential conflict of interest of potentially recommending a higher
allocation towards equities, with the perceived motive of earning higher fees. These negotiated
fees will be listed on our Investment Management Agreement and are clearly shown and
calculated on each quarterly invoice.

                                  Blended Asset Example           Effective Rate for
              Account Size
                                  60% Equity / 40% Fixed          Blended Example

                                                           $1.5mm 60/40
        1st $2mm                          .85%
                                                              $1.5mm x .85% = $12,750

                                                           $3mm 60/40
        Assets from                                          $2mm x .85% = 17,000
                                          .70%
        $2mm – 4mm                                           $1mm x .70% = 7,000
                                                                   Total $24,000 0.80%
                                                           $6mm 60/40
                                                             $2mm x .85% = 17,000
        Assets from
                                          .55%               $2mm x .70% = 14,000
        $4mm – 7mm
                                                             $2mm x .55% = 11,000
                                                                   Total $42,000 0.70%
                                                           $9mm 60/40
                                                              $2mm x .85% = 17,000
        Assets from                                           $2mm x .70% = 14,000
                                          .40%
        $7mm – 10mm                                           $3mm x .55% = 16,500
                                                              $2mm x .40% = 8,000
                                                                  Total   $55,500 0.62%
                                                           $15mm 60/40
                                                             $2mm x .85% = 17,000
        Assets over                                          $2mm x .70% = 14,000
        $10mm                             .30%               $3mm x .55% = 16,500
                                                             $3mm x .40% = 12,000
        (mm = million)                                       $5mm x .30% = 15,000
                                                                   Total $74,500 0.496%

Regardless of the allocation of assets between equities and fixed-income investments, the
invoice rates will be tiered as the account assets increase. The $15mm example in the table
above uses all 5 of the breakpoints for a sample 60% equity - 40% fixed-income client:

The first $2mm would be invoiced at 0.85%,
the next $2mm would be invoiced at 0.70%,
the next $3mm would be invoiced at 0.55%,
the next $3mm would be invoiced at 0.40%,
and then any assets over $10mm would be invoiced at 0.30%.
This results in an effective rate of 0.496% for a $15mm account with a 60% equity and 40%
fixed allocation.

Again, these fees are annual rates and are negotiable.

For the client’s convenience, most of our clients provide us with signed permission to deduct
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Types of Clients
Description
Guyasuta offers investment advisory services for individuals, families, trusts, pooled investment
vehicles, endowment funds, retirement plans, governments, non-profits, corporations, and
foundations. On occasion we also serve certain investors whose assets are below our stated $1
million minimum; these individuals typically become our clients because of their personal
relationships with Guyasuta employees, other Guyasuta clients or they have the potential to
increase account size above our minimum in the near future after becoming a client.

Account Minimums
We generally require a minimum of $1,000,000 in investable assets to begin a client
relationship, but we reserve the right to waive this minimum. When smaller accounts are
accepted, we seek sufficient diversification in line with unique client objectives to fulfill our
fiduciary duty.

Methods of Analysis, Investment
Strategies and Risk of Loss
Methods of Investment Analysis
Our investment approach begins with “top down” analysis of the global economy where we
consider a variety of factors, including but not limited to:

   •   GDP growth factors and how these affect industries/sectors
   •   Demographic changes and emerging middle-class populations
   •   Infrastructure/Technology/Healthcare requirements

From here, our process moves to “bottom up” analysis of individual companies:

   •   10-K/annual report review with an emphasis on footnotes to fully analyze "hidden" risks
   •   Comprehensive analysis of balance sheet and cash flow statement
   •   Phone or face-to-face meetings with management; Guyasuta asks its own due diligence
       questions
   •   Guyasuta often talks with competing companies to increase our understanding of the
       industry and confirm/deny various investment assumptions of our target companies

Investment Strategies
Equity Investment Strategy

We believe the purpose of investing in equity securities (stocks) is to grow your capital.
Investing in equity securities involves a risk of loss and Guyasuta cannot guarantee the results
or return of any investment or advice provided.

We take an ownership perspective to investing in individual equities with an objective to grow
capital and minimize risk. Through the direct ownership of individual companies, we base every
investment decision on a thorough fundamental analysis of the underlying business and
financial statements. By thoroughly analyzing the merits of each investment individually and as
a portion of a larger portfolio, we focus on protecting our clients' assets from permanent capital
loss. Our typical holding period for an individual stock is between 3 – 5 years, but we are
constantly monitoring the price movements of each security. The Investment Committee has
discretion to fine tune the timing of security purchases and sales. (Please see the section on our
Investment Strategies below).

We maintain a consistent process designed to own a diversified portfolio of up to 40 high quality
companies with strong balance sheets that generate a significant free cash flow yield and have
sustainable revenue growth opportunities. Free cash flow is the amount of money a company
has left after paying all expenses, including capital investments for future growth. We invest
across multiple market capitalizations, seeking the most favorable risk/reward opportunities with
a focus on protecting each investment from permanent capital loss.

Our clients are owners of the companies in which we invest on their behalf. We believe in direct
stock ownership so that our clients are as close as possible to their investments. This removes
layers of fees and provides more control.
   Equity Selection Process:
   • Screen for companies with sound balance sheets and substantial “free cash flow;”
      companies must have well defined revenue growth plans
   • Evaluate company management and define potential risks
   • Select 25 - 40 holdings diversified by industry and sector, with 15 – 30% annual turnover
      resulting in an average holding period of 3 – 5 years
   • Sales of holdings are triggered by a fundamental deterioration in the business, declining
      free cash flow yields, and/or exceeding price expectations

We do not have a defined allocation to international equities, though we own non-U.S. domiciled
companies. In certain circumstances, we will utilize a mutual fund or ETF to have exposure to
International or Emerging Markets.

We occasionally recommend equity securities characterized by high dividend yields, including
Real Estate Investment Trusts (REITs) and Master Limited Partnerships (MLPs). According to
the IRS, to qualify as a REIT, a real estate company must agree to pay-out in dividends at least
90% of its taxable income. An MLP has no tax at the corporate level as long as the entity
derives at least 90% of its income from real estate, commodities, or natural resources. These
investments are more volatile and riskier than our conservative bond strategy, which is
explained in the next section, but offer growth potential and income for equity investors. The
REITs and MLPs we recommend for clients are subject to the same rigorous analysis and due
diligence as our equity investments.
We utilize an ETF strategy for accounts where it aligns with the client’s investment guidelines.
The ETF strategy mirrors the asset allocation to the same S&P Sector weighting as the core
equity strategy but is able to gain diversification through sector based ETFs. We also offer fixed-
income ETFs to mimic the Fixed-income strategy listed below.
Fixed-Income Investment Strategy

We believe the purpose of a fixed-income portfolio is to provide a steady and dependable
stream of income, while reducing the volatility of the overall portfolio. Guyasuta uses our own
fundamental research for the purchase decision of each individual bond issue, carefully
weighing macroeconomic and issue-specific risks. When buying bonds, we consider the
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