The Cavanaugh Group Inc

FEES AND COMPENSATION

The fees charged for service is 1% per annum, payable quarterly in advance. The initial fee is
based on the market value of the particular securities placed under our supervision, valued as of
the inception of the agreement and valued thereafter at the end of each calendar quarter. This fee
for service is withdrawn directly from the client’s account at the brokerage firm. Client’s do
have the option of being billed for services in lieu of the automatic withdrawal from their
brokerage firm.
The Cavanaugh Group does not receive any other types of compensation in connection with the
purchase or sale of securities. The firm does not accept performance-based fees.
For those clients with a significantly larger amount of assets under management, the following
fee schedule is offered to them.

Fee Schedule

First $5 Million       1.00% per annum
Next $5 Million         .80% per annum
Next $10 Million        .65% per annum
Over $20 Million        .35% per annum

    PERFOMANCE-BASED FEES AND SIDE-BY-SIDE MANAGEMENT

Neither The Cavanaugh Group nor any supervised persons accept performance-based fees.
Neither The Cavanaugh Group nor any supervised persons manages both accounts that are
charged a performance-based fee and accounts that are charged another type of fee.

TYPES OF CLIENTS
The Cavanaugh Group provides investment advisory services to Individuals, Trusts, Non-Profit
Organizations and The Cavanaugh Group Profit Sharing Plan.

METHODS OF INVESTMENT ANALYSIS, INVESTMENT STRATEGIES
                  AND RISK OF LOSS

Equity Selection Process
Investing in securities involves risk of loss that clients should be prepared to bear. However, The
Cavanaugh Group tries to minimize that risk by investing in companies with a history of
consistently outperforming their industry group, while maintaining the highest level of financial
responsibility. The firm focuses primarily on well capitalized, diversified, dividend paying
companies. Priority is given to those who consistently increase dividends on an annual or
semiannual basis. Emphasis is placed on the company’s management structure as it pertains to
the goal of enhancing shareholder value. Of particular importance is the amount of financial
resources devoted to research and development with the companies we monitor. The valuation
process is based on the above criteria as well as the current price of the company common stock
in determining whether the opportunity for capital appreciation and increasing income are
present in the current market environment.
It is preferable that the various debt ratings associated with our equity holdings are above the
industry average. In applying historical financial information, we view the company’s financial
strength in times of recession and difficult market environments. This may also be applicable to
future challenges that every company and economy face.
We acquire companies who offer diversity, not only in their product offering to the consumer,
but also in their geographic market position. A global penetration is essential in today’s
marketplace. The firm monitor’s the worlds’ economies to determine areas of strength and
weakness that are ever present. From this standpoint, we determine which industry will most
likely prosper in the foreseeable future. Applying the above criteria, the firm narrows it’s focus
to those companies which are expanding both horizontally and vertically within the established
markets.

The benefit of this philosophy over time is a rate of return that is consistent with the goals and
objectives of the client. The firm does not make dramatic changes based on the day-to-day
fluctuations in the financial markets. Historically, it is this disciplined philosophy of long-term,
constantly monitored investment opportunities that has proven to be reliable and consistent in
achieving desirable returns.

Fixed Income Selection Process
The Cavanaugh group invests in fixed income instruments when the macro-economic indicators
justify a fixed income allocation.
In determining the appropriate balance of fixed income holdings within a client’s portfolio, we
look to short and medium range interest rate forecasts. By analyzing economic statistics, as well
as the commodity prices at the consumer and producer levels, we select a coupon rate and decide
on the length of the maturity. The majority of our decisions are based on internal economic
models.
We assess the creditworthiness of all debt instruments in order to determine the assumed risk to
the investor. We utilize significant research of the various ratings agencies including Standard &
Poor’s and Moody’s. Consequently, one strict standard we impose is the utilization of corporate
debt instruments, rated A or better.
In order to maintain the highest standard of fixed income allocation, we principally invest in US
Government obligations such as Treasury Bills, Notes and Bonds. By utilizing a staggered
maturity, we mitigate the day-to-day volatility of the interest rate markets.
When utilizing a tax-free fixed income investment, we analyze the creditworthiness of the
municipality in which the client resides. The firm determines an appropriate price and yield, as
well as a maturity range. The emphasis on staggering the maturities in municipalities is
paramount to best protecting the client against interest rate volatility.