Pegasus Asset Management Inc

Item 5           Fees and Compensation

   A. Clients can engage the Registrant to provide discretionary investment advisory services on
      a fee-only basis.

         INVESTMENT ADVISORY SERVICES
         If a client determines to engage the Registrant to provide discretionary investment advisory
         services on a fee-only basis, the Registrant’s annual investment advisory fee shall be based
         upon a percentage (%) of the market value and type of assets placed under the Registrant’s
         management (generally, between 0.50% and 1.25%) as follows:

                 Market Value of Portfolio            % of Assets
                 First $1,000,000                         1.25%
                 Next $1,000,000                          1.00%
                 Next $1,000,000                          0.75%
                 Over $3,000,000                          0.50%

         In limited circumstances, the Registrant’s investment advisory fee is negotiable at
         Registrant’s sole discretion, depending upon objective and subjective factors including but
         not limited to: the amount of assets to be managed; portfolio composition; the scope and
         complexity of the engagement; the anticipated number of meetings and servicing needs;
         related accounts; future earning capacity; anticipated future additional assets; the

professionals rendering the service; prior relationships with the Registrant or its
representatives, and negotiations with the client. In addition, certain legacy clients may
have accepted different pre-existing service offerings from Registrant and may therefore
receive different services under different fee schedules than as set forth above. As a result
of these factors, similarly situated clients could pay different fees, the services to be
provided by the Registrant to any particular client could be available from other advisers
at lower fees, and certain clients may have fees different than those specifically set forth
above. The Registrant’s Chief Compliance Officer, Courtney J. Barba, remains available
to address any questions that a client or prospective client may have regarding the above
fee determination.

Conflict of Interest. Registrant shall generally compensate its representatives based upon
the revenues derived from accounts that they service. The representative generally
maintains the authority to determine/negotiate the percentage advisory fee. Thus, a conflict
of interest is presented because the higher the advisory fee, the greater the representative’s
(and Registrant’s) compensation.

Fee Dispersion. Registrant, in its discretion, may charge a lesser or higher investment
advisory fee, charge a flat fee, waive appliable minimum asset or minimum fee levels,
waive its fee entirely, or charge fee on a different interval, based upon certain criteria (i.e.,
anticipated future earning capacity, anticipated future additional assets, dollar amount of
assets to be managed, related accounts, account composition, complexity of the
engagement, anticipated services to be rendered, grandfathered fee schedules, employees
and family members, courtesy accounts, competition, negotiations with client, etc.). Please
Note: As a result of the above, similarly situated clients could pay different fees. In
addition, similar advisory services may be available from other investment advisers for
similar or lower fees. ANY QUESTIONS: Registrant’s Chief Compliance Officer,
Courtney J. Barba, remains available to address any questions that a client or prospective
client may have regarding advisory fees.

Custodian Charges – Additional Fees. As discussed below at Item 12 below, when
requested to recommend a broker-dealer/custodian for client accounts, Registrant generally
recommends that Schwab serve as the broker-dealer/custodian for client investment
management assets. Broker-dealers such as Schwab charge brokerage commissions,
transaction, and/or other type fees for effecting certain types of securities transactions (i.e.,
including transaction fees for certain mutual funds, and mark-ups and mark-downs charged
for fixed income transactions, etc.). The types of securities for which transaction fees,
commissions, and/or other type fees (as well as the amount of those fees) shall differ
depending upon the broker-dealer/custodian. While certain custodians, including Schwab,
generally (with the potential exception for large orders) do not currently charge fees on
individual equity transactions (including ETFs), others do. There can be no assurance that
Schwab will not change their transaction fee pricing in the future. Please Also Note:
Schwab may also assess fees to clients who elect to receive trade confirmations and account
statements by regular mail rather than electronically. ANY QUESTIONS: Registrant’s
Chief Compliance Officer, Courtney J. Barba, remains available to address any
questions that a client or prospective client may have regarding the above.

Margin Accounts: Risks/Conflict of Interest. Registrant does not recommend the use of
margin for investment purposes. A margin account is a brokerage account that allows
investors to borrow money for other non-investment borrowing purposes. The
broker/custodian charges the investor interest for the right to borrow money and uses the

    securities as collateral. By using borrowed funds, the customer is employing leverage that
    will magnify both account gains and losses. Should a client determine to use margin,
    Registrant will include the entire market value of the margined assets when computing its
    advisory fee. Accordingly, Registrant’s fee shall be based upon a higher margined account
    value, resulting in Registrant earning a correspondingly higher advisory fee. As a result,
    the potential of conflict of interest arises since Registrant may have an economic
    disincentive to recommend that the client terminate the use of margin. The use of margin
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Item 7           Types of Clients

         The Registrant’s clients currently include: individuals, high net worth individuals, trusts,
         estates, pension and profit sharing plans, business entities, and other investment advisers.
         The Registrant does not require a minimum annual fee or asset level for investment
         advisory services. Registrant shall generally price its advisory services based upon various
         objective and subjective factors. As a result, our clients could pay diverse fees based upon
         the type, amount and market value of their assets, the anticipated complexity of the
         engagement, the anticipated level and scope of the overall investment advisory services to
         be rendered, and negotiations. Additional factors affecting pricing can include related
         accounts, employee accounts, competition, and negotiations. As a result of these factors,
         similarly situated clients could pay diverse fees, and the services to be provided by
         Registrant to any particular client could be available from other advisers at lower fees. All
         clients and prospective clients should be guided accordingly.

         ANY QUESTIONS: Registrant’s Chief Compliance Officer, Courtney J. Barba, remains
         available to address any questions regarding advisory fees.