East End Mutual Funds, Inc. - Capital Appreciation Series
NOTES TO FINANCIAL STATEMENTS
December 31, 1998
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Organization: East End Mutual Funds, Inc. - Capital
Appreciation Series (the "Fund") is a series of East End Mutual
Funds, Inc. (the "Company"), a Maryland Corporation, is a
diversified, open end management investment company registered
under the Investment Company Act of 1940, as amended.
The following is a summary of significant accounting
policies followed by the Fund.
Security Valuation: Securities are valued at the last
reported sales price or in the case of securities where there
is no reported last sale, the closing bid price. Securities for
which market quotations are not readily available are valued at
their fair values as determined in good faith by or under the
supervision of the Company's Board of Directors in accordance
with methods which have been authorized by the Board. Short
term debt obligations with maturities of 60 days or less are
valued at amortized cost which approximates market value.
Securities Transactions and Investment Income: Security
transactions are recorded on the dates the transactions are
entered into (the trade dates). Realized gains and losses on
security transactions are determined on the identified cost
basis. Dividend income is recorded on the ex-dividend date.
Interest income is determined on the accrual basis. Discount on
fixed income securities is amortized.
Dividends and Distributions to Shareholders: The Fund
records all dividends and distributions payable to shareholders
on the ex-dividend date.
Federal Income Taxes: It is the Fund's intention to qualify
as a regulated investment company and distribute all of its
taxable income. Accordingly, no provision for Federal income
taxes will be required in the financial statements.
Deferred Organization Expenses: East End Investment Manage-
ment Company (the "Manager") has paid the deferred organization
expenses of the Fund. The deferred organization expenses will
be amortized over a period not exceeding five years once the
Fund has the ability to amortize the expenses and not exceed the
most restrictive annual expense limitation (see Note 2). The
Manager will be repaid at the rate in which the deferred
organization expenses are amortized. In the event that the
Manager (or any subsequent holder) redeems any of its original
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East End Mutual Funds, Inc. - Capital Appreciation Series
NOTES TO FINANCIAL STATEMENTS (Continued)
December 31, 1998
shares prior to the end of the five-year period, the proceeds of
the redemption payable in respect of such shares shall be
reduced by the pro-rata share (based on the proportionate share
of the original shares redeemed to the total number of original
shares outstanding at the time of redemption) of the
unamortized deferred organization expenses as of the date of
such redemption. In the event that the Fund is liquidated prior
to the end of the five-year period, the Manager (or any
subsequent holder) shall bear the unamortized deferred
organization expenses.
2. MANAGEMENT FEE AND TRANSACTIONS WITH AFFILIATES
Under the terms of the investment management agreement, the
Manager has agreed to provide the Fund investment management
services and be responsible for the day to day operations of
the Fund. The Manager will receive a fee, payable monthly, for
the performance of its services at an annual rate of 1% on the
first $500 million of average daily net assets, .75% in excess
of $500 million of average daily net assets. The fee will be
accrued daily and paid monthly. A management fee of $1,143
was accrued and paid for the six month period ending December
31, 1998.
In the event normal operating expenses of the Fund,
exclusive of certain expenses prescribed by state law, are in
excess of the most restrictive state limit where the Fund is
registered to sell shares, the fees payable to the Manager will
be deferred to the extent of such excess, and the Manager may
voluntarily advance money for expenses in order to keep the
Fund's annual expenses at or below the maximum allowable
amount. The most restrictive annual expense limitation is 2.5%
of the first $30 million of average daily net assets, 2.0% of
the next $75 million, and 1.5% of the remaining average daily
net assets. The manager reimbursed the Fund and deferred fees
and expenses totalling $ 0 or the six month period ending
December 31, 1998.
Any deferrals or advances made by the Manager will be
subject to recoupment by the Manager and reimbursement by the
Fund within the following three fiscal years, provided the Fund
is able to effect such reimbursement and remain in compliance
with applicable state expense limitations and further provided,
that such payment would not adversely impact the Fund's tax
status or otherwise have an adverse tax impact on the Fund or
its shareholders. The Fund is contingently liable to the
Manager subject to such recoupment in the amount of $ 0 for
the six month period ending December 31, 1998.
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East End Mutual Funds, Inc. - Capital Appreciation Series
NOTES TO FINANCIAL STATEMENTS (Continued)
December 31, 1998
The Manager will also provide transfer agency, and
portfolio pricing services to the Fund. Under the terms of the
Transfer Agency and Service Agreement, the Manager will charge
a minimum annual fee of $15,000 to the Fund. The terms of the
Portfolio Pricing Agreement provide for an annual fee of
$12,000. In addition, the Manager will also provide
administrative services, accounting services, financial
reporting services, tax accounting services and compliance
control services. The Manager will charge a minimum annual fee
of $38,000 for these additional services. The Manager did not
charge the Fund for any of the above services for the six month
period ending December 31, 1998.
The Fund has adopted a Distribution Plan (the "Plan")
pursuant to Rule 12b-1 under the Investment Company Act of
1940. The Plan provides that the Fund may finance activities
which are primarily intended to result in the sale of the Fund's
shares. The Fund may incur distribution expenses of up to 0.50%
of average daily net assets. A distribution fee of $ 0 was
accrued but none paid for the six month period ending December
31, 1998.
Certain officers and directors of the Fund are officers and
directors of the Manager.
3. INVESTMENT TRANSACTIONS
Purchases and sales of investment securities (excluding
short-term securities) for the period July 1,1998 to December
31,1998 were $ 0 and $ 0 respectively.
As of December 31,1998 net realized appreciation for Federal
income tax purposes aggregated was none. Unrealized
depreciation of $ 31,105 and unrealized appreciation $40,141.
Cost of investments on December 31, 1998 for Federal income tax
purposes was $195,262.
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