Sterling Asset Management Co Inc

FEES AND COMPENSATION

Sterling is generally compensated for its investment advisory services on the basis of fees calculated as a
percentage of assets under management. All fees are subject to negotiation. Sterling is generally paid one
percent (l.0%) of assets under management for client assets totaling $0-$1,000,000 and three quarters of a
percent (.75%) for client assets totaling $1,000,000 - $2,000,000. Management fees for client assets
totaling over $2,000,000 are as negotiated. Sterling may also on occasion be compensated through fixed
fee arrangements.

The specific manner in which fees are charged by Sterling is established in each client’s written
agreement with Sterling. Sterling will generally bill its fees on a quarterly basis in arrears. Management
fees shall be prorated for each capital contribution and withdrawal made during the applicable calendar
quarter. Accounts initiated or terminated during a calendar quarter will be charged a prorated fee.

Sterling’s fees are exclusive of brokerage commissions, transaction fees, and other related costs and
expenses which shall be incurred by the client. Clients may incur certain charges imposed by custodians,
brokers, third party investment and other third parties such as fees charged by managers, custodial fees,
deferred sales charges, odd-lot differentials, transfer taxes, wire transfer and electronic fund fees, and
other fees and taxes on brokerage accounts and securities transactions. Mutual funds and exchange traded
funds also charge internal management fees, which are disclosed in a fund’s prospectus. Such charges,
fees and commissions are exclusive of and in addition to Sterling’s fees.

Sterling does not accept compensation for the sale of securities or other investment products from third
parties.

See “Brokerage Practices” below for a description of the factors that Sterling considers in selecting or
recommending broker-dealers for client transactions and determining the reasonableness of their
compensation (e.g., commissions).

          PERFORMANCE-BASED FEES AND SIDE-BY-SIDE MANAGEMENT

Sterling does not charge any performance-based fees (fees based on a share of capital gains on or capital
appreciation of the assets of a client).

TYPES OF CLIENTS

Sterling provides portfolio management services to individuals, high net worth individuals, corporate
pension and profit-sharing plans and other U.S. and international institutions.

A minimum initial investment of $250,000 is generally required to establish an investment account with
Sterling. Sterling may waive this minimum investment amount in its discretion.

    METHODS OF ANALYSIS, INVESTMENT STRATEGIES AND RISK OF LOSS

Sterling uses the following methods of analysis and investment strategies when formulating investment
advice for our clients:

As stated earlier, fundamental and technical analysis are the two paramount pillars for investment
analysis. However, diversification is probably the most important component to minimize risk.

Examples of fundamental data are the management team of the company; earnings projections: financials
(e.g. balance sheet, income statement et cetera); capitalization of the company (e.g. shares outstanding
and debt structure); analyst upgrades or down grades and earning up grades or down grades to name a
few.

Examples of technical specifics would be price and volume activity. With regard to price, Sterling
generally considers the 10 day, 50 day and 200 day moving averages of the price of an investment to be
helpful in projecting the condition of that investment.

Volume is another example of a tool of technical analysis. Sterling may, for instance, compare the daily
volume of a specific stock against its own 50 day moving average volume in an attempt to predict the
direction of that stock.

Sterling’s investment strategies can be separated into three general categories: Growth; Growth and
Income, and Income. The particular strategy or strategies employed for a client will depend on the client
client’s investment objectives, age and risk tolerance.

The material risks related to these methods of analysis and investment strategies are as follows:

General Investment Risk.

The business of investing in securities is highly competitive and the identification of attractive investment
opportunities is difficult and involves a high degree of uncertainty.

All investments in securities and other financial instruments involve substantial risk of volatility
(potentially resulting in rapid declines in market prices and significant losses) arising from any number of
factors that are beyond the control of Sterling, such as: changing market sentiment; changes in industrial
conditions, competition and technology; changes in inflation, exchange or interest rates; changing
domestic or international economic or political conditions or events; changes in tax laws and
governmental regulation; and changes in trade, fiscal, monetary or exchange control programs or policies

of governments or their agencies (including their central banks). Changes such as these, as well as
innumerable other factors, are often unpredictable and unforeseeable, rendering it difficult or impossible
to predict or foresee future market movements.

Investment Selection

The success of client positions depends in large part on Sterling’s ability to accurately assess the
fundamental value of those positions. An accurate assessment of fundamental value depends on a
complex analysis of a number of financial and legal factors. No assurance can be given that Sterling will
be in a position to assess the nature and magnitude of all material factors having a bearing on the value of
client positions, or that Sterling will accurately assess the impact of all factors of which it is aware.

Equity Risks

Sterling expects to invest client assets in equity and equity derivative securities. The value of these
securities generally will vary with the performance of the issuer and movements in the equity markets. As
a result, clients may suffer losses if Sterling selects equity securities of issuers whose performance
diverges from Sterling’s expectations or if the equity markets generally move in a single direction and
Sterling has not anticipated such a general move.

Debt Securities

Sterling expects to invest client assets in debt securities. A debt security typically has a fixed payment
schedule which obligates the issuer to pay interest to the lender and to return the lender’s money over a
certain time period. A company typically meets its payment obligations associated with its outstanding
debt securities before it declares and pays any dividends to holders of its equity securities. While most
debt securities are used as an investment to produce income to an investor as a result of the fixed payment
schedule, debt securities also may increase or decrease in value. The market value of debt securities
generally varies in response to changes in interest rates and the financial condition of each issuer. During
periods of declining interest rates, the value of debt securities generally increases. Conversely, during
periods of rising interest rates, the value of such securities generally declines. This increase or decrease in
value will affect the value of client accounts. These increases or decreases are likely to be more
significant for longer duration debt securities.

Changing Market Conditions

Certain changes in general market conditions — for example, markets in which new inputs or an influx of
new market participants disrupt the historical relationship between econometric factors and equity price
movements — could materially reduce the profit potential for Sterling’s clients.

There can be no assurance that the methods described above will be successful or that clients will not
suffer losses. Investing in securities involves risk of loss that clients should be prepared to bear.