NEW YORK MUNI FUND, INC.
Dear Fellow Shareholder:
Interest rates rose sharply in this year's first half, and bond prices
consequently fell. As a result, the Net Asset Value of New York Muni Fund
dropped from $0.98 per share at December 31, 1995 to $0.88 per share on June 30,
1996. This was disappointing. However, municipal bonds generally outperformed
taxable bonds in the period. This reflected improving credit conditions for
municipals, favorable supply conditions, and diminished expectations for tax
reform legislation.
1996 began with a high degree of optimism in the global financial markets that
Congress and the Clinton Administration would reach a bipartisan agreement to
eliminate the federal budget deficit by the turn of the century. This hope
seemed to be shattered in mid-winter. At the same time, evidence began to
surface that economic activity was accelerating. This raised anxieties about a
possible credit tightening move by the Federal Reserve, which drove down bond
prices.
None of this seemed to concern the equity market. Strong money flows propelled
equity prices to new heights. By mid-year the Bond Buyer Municipal Bond Index
dropped by 6.7% from year end 1995, while the Dow Jones Industrial Average
posted a 10.5% advance. No doubt some investors shifted funds from bonds to
equities in the period. This weakened the entire fixed income market, and
eventually made equities expensive relative to bonds by most measures.
We were disappointed by the collapse of federal budget negotiations, but view
this as a buying opportunity in the fixed income markets. After all, despite the
political stalemate, policies toward deficit reduction remain firmly entrenched,
and the deficit continues to shrink both absolutely and as a share of the
economy. Meanwhile, although the economy is continuing to grow, this growth is
moderate and noninflationary. For these reasons we have not thought the Federal
Reserve would tighten credit by raising short term interest rates. But even if
the Fed were so inclined, any tightening is likely to be minor, and not
indicative of a trend.
Given this, the Fund's portfolio was positioned to benefit from a decline in
municipal bond interest rates in 1996. A large portion of the Fund's assets,
relative to other Funds with similar investment objectives, were in municipal
bonds having a high degree of sensitivity to interest rates. In addition, the
Fund borrows more than other Funds with similar investment objectives, paying
short term interest rates to buy higher yielding long term municipal bonds.
Borrowing also increases the Fund's sensitivity to interest rates.
This approach worked well in 1995. However, it was disadvantageous in the first
half of this year. Since the bond market weakended in the first half of the
year, New York Muni Fund underperformed most funds with similar investment
objecitves. Our expectation is that our approach will be beneficial going
forward if the bond market climate improves as we anticipate. Moreover,
municipals face an extremely favorable net supply conditions going forward as
bond calls, redemptions, prepayments, and coupon payments will exceed the amount
of new municipal bond issuance in the next year. Thus, if there is any
rechanneling of funds out of equities and into fixed income securities, a
dramatic improvement in municipal bond prices could be expected.
In this year's first half the Fund was able to improve the credit quality of its
portfolio without significantly affecting the Fund's yield. This was possible
because of a narrowing in the differential of yields among various categories of
investment grade securities as a result of extensive delays in passing the New
York State budget.
We thank you for your continued trust, and we look forward to continuing to
serve you in the future.
Sincerely,
Dr. Vincent J. Malanga
President
<PAGE>
CHARTS
2
<PAGE>
(left column)
FUNDAMENTAL FUNDS, INC.
NEW YORK MUNI FUND, INC. SERIES
STATEMENT OF ASSETS AND LIABILITIES
June 30, 1996
(Unaudited)
- --------------------------------------------------------------------------------
ASSETS
Investment in securities at value
(Note 4) (cost $217,864,286) ................ $ 205,923,886
Receivables:
Interest .................................... 3,549,460
Investment securities sold .................. 14,649,519
Capital stock sold .......................... 63,123,814
------------
Total assets ............................ 287,246,679
------------
LIABILITIES
Notes payable (Note 6) ........................ 80,472,106
Payables:
Investment securities purchased ............. 24,288,490
Capital stock redeemed ...................... 17,632
Dividend declared ........................... 74,877
Accrued expenses ............................ 1,031,265
------------
Total liabilities ....................... 105,884,370
------------
NET ASSETS consisting of:
Accumulated net realized loss ................. $(24,073,277)
Unrealized depreciation of
securities .................................. (11,940,400)
Paid-in-capital applicable to
206,823,883 shares of $.01 par
value capital stock ......................... 217,375,986
------------ ------------
$181,362,309
============
NET ASSET VALUE PER SHARE ....................... $.88
====
(right column)
STATEMENT OF OPERATIONS
Six Months Ended June 30, 1996
(Unaudited)
- --------------------------------------------------------------------------------
INVESTMENT INCOME
Interest income ................................. $ 6,304,338
EXPENSES (Notes 2 and 3)
Management fee .................................. $ 403,391
Custodian and accounting fees ................... 46,453
Transfer agent fees ............................. 164,297
Professional fees ............................... 70,959
Directors' fees ................................. 54,425
Printing and postage ............................ 2,057
Interest ........................................ 1,697,653
Distribution expenses ........................... 410,739
Operating expenses on defaulted
bonds ......................................... 92,956
Other ........................................... 2,283
----------
Total expenses ............................ 2,945,213
-----------
Net investment income ..................... 3,359,125
-----------
REALIZED AND UNREALIZED LOSS
ON INVESTMENTS
Net realized loss on investments ................ (4,584,757)
Net unrealized depreciation of
investments ................................... (5,951,051)
-----------
Net loss on investments ......................... (10,535,807)
-----------
NET DECREASE IN NET ASSETS
FROM OPERATIONS ................................. $(7,176,683)
===========
See Notes to Financial Statements.
3
<PAGE>
(left column)
FUNDAMENTAL FUNDS, INC.
NEW YORK MUNI FUND, INC. SERIES
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
Six Months
Ended Year Ended
June 30, 1996 December 31,
(Unaudited) 1995
------------ ------------
INCREASE (DECREASE) IN
NET ASSETS FROM:
OPERATIONS
Net investment income ...................... $ 3,359,125 $ 6,873,684
Net realized loss on
investments .............................. (4,584,757) 2,451,958
Net realized loss on option
contracts written ........................ - (73,794)
Unrealized appreciation
(depreciation) on
investments .............................. (5,951,051) 25,287,298
------------ ------------
Net increase
(decrease) in net
assets from
operations ......................... (7,176,683) 34,539,146
DIVIDENDS PAID TO
SHAREHOLDERS FROM:
Investment income ......................... (3,359,125) (6,873,684)
Net realized gain from
investments - (112,509)
CAPITAL SHARE
TRANSACTIONS (Note 5) ...................... (34,793,514) (13,526,231)
------------ ------------
Total increase
(decrease) ......................... (45,329,322) 14,026,722
NET ASSETS:
Beginning of period ........................ 226,691,631 212,664,909
------------ ------------
End of period .............................. $181,362,309 $226,691,631
============ ============
(right column)
STATEMENT OF CASH FLOWS
For the Six Months Ended June 30, 1996
(Unaudited)
- --------------------------------------------------------------------------------
Increase (Decrease) in Cash
Cash Flows From Operating Activities
Net increase to net assets from operations ................. $ (7,176,683)
Adjustments to reconcile net increase in net
assets from operations to net cash provided
by operating activities:
Purchase of investment securities ........................ (445,468,438)
Proceeds on sale of securities ........................... 446,614,514
Decrease in interest receivable .......................... 459,551
Increase in accrued expenses ............................. 209,507
Net accretion of discount on securities .................. (74,360)
Net realized loss on investments ......................... 4,434,757
Unrealized depreciation on securities and
options written for the period ......................... 5,951,050
---------------
Net cash provided by operating
activities ......................................... 4,949,898
---------------
Cash Flows From Financing Activities:*
Net proceeds from notes payable ............................ 15,897,106
Proceeds on shares sold .................................... 1,599,802,970
Payment on shares repurchased .............................. (1,620,524,045)
===============
Cash dividends paid ........................................ (534,969)
---------------
Net cash used in financing activities ................ (5,358,938)
---------------
Net decrease in cash ................................. (409,040)
Cash at beginning of period .................................. 409,040
---------------
Cash at end of period ........................................ $ - 0 -
===============
*Non-cash financing activities not included herein consist of reinvestment of
dividends of $2,838,754.
Cash payments for interest expense totaled $1,473,876.
See Notes to Financial Statements.
4
<PAGE>
FUNDAMENTAL FUNDS, INC.
NEW YORK MUNI FUND, INC. SERIES
STATEMENT OF INVESTMENTS
June 30, 1996
(Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Amount Issue(o)(o)(o) Typeo Ratingoo Value
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$ 4,855,000(dd) Cayuga County, HIC, Auburn Memorial Hospital, Asset Guaranty Insured, 6.00,
1/01/21 ......................................................................... FCLT AAA $ 4,769,406
2,050,000 Franklin County, SWMA, Solid Waste System Project, RB, 6.25, 6/01/15 .............. FCLT BBB- 1,994,527
1,025,000(dd) Glen Cove, IDA, CFR, The Regency at Glen Cove Project, ETM, CAB, 10/15/19 ......... FCLT AAA 239,942
3,310,000(dd) Glen Cove, IDA, CFR, The Regency at Glen Cove Project, AMBAC Insured, ETM,
CAB, 10/15/19 ................................................................... FCLT AAA 774,838
1,880,000(dd) Lyons, MCF, Initatives Corporation Project, RB, 6.80, 9/01/24 ..................... FCLT BAA1 1,956,760
11,870,000(dd) New York City, GO, IFRN*, 6.60, 8/15/10 ........................................... INLT A- 11,756,167
18,330,000(dd) New York City, GO, IFRN*, 6.365, 8/01/12 .......................................... INLT A- 17,054,782
13,640,000(dd) New York City, GO, IFRN*, 6.365, 8/01/14 .......................................... INLT A- 13,640,000
14,600,000(dd) New York City, GO, IFRN*, 4.29, 8/15/17 ........................................... INLT A- 14,618,834
5,290,000(dd) New York City, ECF, MBIA Insured, STEP**, 3.75, 4/01/08 ........................... FCSI AAA 5,253,340
5,925,000(dd) New York City, ECF, MBIA Insured, STEP**, 3.75, 10/1/08 ........................... FCSI AAA 5,882,755
16,220,000(dd) New York City, Health & Hospital Corp, RB, Series A, 6.30, 2/15/20 ................ FCLT BAA 15,253,288
2,200,000(dd) New York City, IDA, Imclone Systems Inc Project, AMT, 11.25, 5/01/04 .............. FCSI NR 2,355,650
8,000,000 New York City, MWFA, Water & Sewer System, RB, MBIA Insured, 5.35, 6/15/13 ........ FCLT AAA 7,426,960
1,205,000 New York City, MWFA, Water & Sewer System, RB, FGIC Insured, 5.00, 6/15/17 ........ FCLT AAA 1,067,546
6,550,000(dd) New York City, Transportation Authority, RB, Livingston Plaza Project, FSA
Insured, 5.25, 1/01/20 .......................................................... FCLT AAA 6,012,245
2,113,000(dd) New York City, IDA, Imclone Systems Inc Project, AMT, 10.75, 12/15/97 ............. FCSI NR 2,113,000
11,305,000 New York State, DAR, RB, Court Facilities, 5.25, 5/15/21 .......................... FCLT BBB+ 10,003,229
7,000,000(dd) New York State, DAR, NHRB, LOC Chemical Bank, 5.75, 7/01/17 ....................... FCLT AA3 6,816,950
640,000 New York State, DAR, NHRB, Bishop Henry B Hucles Nursing Home, SONYMA
Insured, 6.00, 7/01/24 .......................................................... FCLT AA 628,922
11,085,000 New York State Energy, RDA, Consolidated Edison Project, AMT, 6.375, 12/01/27 ..... FCLT A1 11,129,783
1,020,000 New York State Energy, RDA, Consolidated Edison Project, AMBAC Insured,
5.25, 8/15/20 ................................................................... FCLT AAA 923,039
280,000 New York State, EFC, State Water Pollution Control, RB, Pooled Loan Issue, 5.20,
6/15/17 ......................................................................... FCLT AAA 262,343
360,000 New York State, EFC, State Water Pollution Control, RB, Pooled Loan Issue, 5.20,
2/15/17 ......................................................................... FCLT AAA 336,596
880,000 New York State, HFA, RB, Multi Family Housing, SONYMA Insured, 6.20, 8/15/16 ...... FCLT AA 877,914
3,140,000 New York State, HFA, RB, Multi Family Housing, SONYMA Insured, 6.25, 8/15/27 ...... FCLT AA 3,118,397
230,000 New York State, Local Government Assistance Corporation, 5.50, 4/01/21 ............ FCLT A 215,246
1,750,000(dd) New York State, MCFFA, RB, 6.50, 11/01/14 ......................................... FCLT BAA1 1,769,495
2,255,000(dd) New York State, MCFFA, Hospital & Nursing Home FHA Insured Mortgage, MBIA
Insured, 5.40, 8/15/33 .......................................................... FCLT AAA 2,060,642
1,000,000 New York State, MCFFA, Mercy Medical Center, LOC Natwest Bank, 5.875,
11/01/15 ........................................................................ FCLT AA- 991,920
3,570,000(dd) New York State, MCFFA, Mental Health Services Facilities, FGIC Insured, 5.50,
8/15/21 ......................................................................... FCLT AAA 3,388,301
25,000,000(dd) New York State Thruway Authority, FGIC Insured, IFRN*, 6.020, 1/01/24 ............. LRIB AAA 25,000,000
500,000 New York State, Urban Development Corporation, Correctonal Facilities, RB,
5.25, 1/01/13 ................................................................... FCLT BAA1 453,265
9,805,000(dd)(d) Niagara County, IDA, Falls Street Faire Project, AMT, 10.00, 9/01/06 .............. FCSI NR 3,901,606
4,020,000(dd)(d) Niagara County, IDA, Falls Street Station Project, AMT, 10.00, 9/01/06 ............ FCSI NR 1,599,638
5,870,000(dd)(d) Niagara Falls, URA, Old Falls Street Improvement Project, 11.00, 5/01/99 .......... FCSI NR 2,896,023
3,400,000(dd) Onondaga County, IDA, Series A, Crouse Irving Project, LOC Fleet Bank, 7.90,
1/01/17 ......................................................................... FCLT A- 3,845,638
4,170,000(dd) Onondaga County, IDA, Community General Hospital Project, 6.625, 1/01/18 .......... FCLT BAA 4,210,407
2,545,000(dd) Onondaga County, IDA, Resource Recovery Project, AMT, 7.00, 5/01/15 ............... FCLT A- 2,595,340
500,000 Orange County, IDA, The Orange Mental Retardation Project Inc. LOC Fleet
Bank, 6.125, 5/01/16 ............................................................ FCLT A1 494,855
1,220,000(dd) Puerto Rico, ITEMECF Financing Authority, Polytechnic University of Puerto Rico
Project, 5.70, 8/01/13 .......................................................... FCLT BBB- 1,133,136
</TABLE>
5
<PAGE>
FUNDAMENTAL FUNDS, INC.
NEW YORK MUNI FUND, INC. SERIES
STATEMENT OF INVESTMENTS (continued)
June 30, 1996
(Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Amount Issue(o)(o)(o) Typeo Ratingoo Value
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$ 5,215,000(dd) Puerto Rico, ITEMECF Financing Authority, Polytechnic University of Puerto Rico
Project, 5.50, 8/01/24 .......................................................... FCLT BBB- $ 4,539,345
555,000 Puerto Rico, ITEMECF Financing Authority, Dr Pila Hospital Project, FHA Insured,
6.25, 8/01/32 ................................................................... FCLT AAA 561,816
------------
Total Investments (cost $217,864,286@) .................................... $205,923,886
============
<FN>
* Inverse Floating Rate Notes (IFRN) are instruments whose interest rates
bear an inverse relationship to the interest rate on another security or
the value of an index.
** Step Bonds (STEP) are instruments whose interest rate is fixed at an
initial rate and then increases ("steps up") to another fixed rate until
maturity.
@ Cost for Federal income tax purposes is $217,710,764.
(d) The value of these non-income producing securities has been estimated by
persons designated by the Fund's Board of Directors using methods the
Director's believe reflect fair value. See Note 4 to the financial
statements.
(dd) Approximately $191,657,733 market value of securities are segregated in
whole or in part as collateral securing a line of credit.
</FN>
Legend
oType FCLT -Fixed Coupon Long Term
FCSI -Fixed Coupon Short or Intermediate Term
LRIB -Residual Interest Bond Long Term
SRIB -Residual Interest Bond Short or Intermediate Term
INLT -Indexed Inverse Floating Rate Bond Long Term
INSI -Indexed Inverse Floating Rate Bond Short or Intermediate Term
ooRatings If a security has a split rating the highest applicable rating is
used, including published ratings on identical credits for
individual securities not individually rated.
NR-Not Rated
oooIssue AMBAC American Municipal Bond Assurance Corporation
AMT Alternative Minimum Tax
CAB Capital Appreciation Bond
CFR Civic Facility Revenue
DAR Dormitory Authority Revenue
ECF Educational Construction Fund
EFC Environmental Facilities Corp.
ETM Escrowed to Maturity
FGIC Financial Guaranty Insurance Corporation
FSA Financial Security Association
GO General Obligation
HFA Housing Financing Agency
HIC Hospital Improvement Corporation
IDA Industrial Development Authority
ITEMECF Industrial, Tourist, Education, Medical and Environmental Control Facilities
LOC Letter of Credit
MBIA Municipal Bond Insurance Assurance Corporation
MCF Medical Care Facilities
MCFFA Medical Care Facilities Finance Agency
MWFA Municipal Water Finance Authority
NHRB Nursing Home Revenue Bond
RB Revenue Bond
RDA Research and Development Authority
SWMA Solid Waste Management Authority
SONYMAE State of New York Mortgage Agency
URA Urban Renewal Authority
</TABLE>
See Notes to Financial Statements.
6
<PAGE>
FUNDAMENTAL FUNDS, INC.
NEW YORK MUNI FUND, INC. SERIES
NOTES TO FINANCIAL STATEMENTS
June 30, 1996
(Unaudited)
- --------------------------------------------------------------------------------
1. Significant Accounting Policies
New York Muni Fund, Inc. (the Fund) is a series of Fundamental Funds, Inc.
(the "Company"). The Company is an open-end management investment company
registered under the Investment Company Act of 1940. The Fund seeks to provide a
high level of income that is excluded from gross income for Federal income tax
purposes and exempt from New York State and New York City personal income taxes.
The Fund intends to achieve its objective by investing substantially all of its
total assets in municipal obligations of New York State, its political
subdivisions and its duly constituted authorities and corporations. The Fund
employs leverage in attempting to achieve this objective. The following is a
summary of significant accounting policies followed in the preparation of its
financial statements:
Valuation of Securities-The Fund's portfolio securities are valued on
the basis of prices provided by an independent pricing service when, in the
opinion of persons designated by the Fund's directors, such prices are
believed to reflect the fair market value of such securities. Prices of
non-exchange traded portfolio securities provided by independent pricing
services are generally determined without regard to bid or last sale prices
but take into account institutional size trading in similar groups of
securities, yield, quality, coupon rate, maturity, type of issue, trading
characteristics and other market data. Securities traded or dealt in upon a
securities exchange and not subject to restrictions against resale as well
as options and futures contracts listed for trading on a securities exchange
or board of trade are valued at the last quoted sales price, or, in the
absence of a sale, at the mean of the last bid and asked prices. Options not
listed for trading on a securities exchange or board of trade for which
over-the-counter market quotations are readily available are valued at the
mean of the current bid and asked prices. Money market and short-term debt
instruments with a remaining maturity of 60 days or less will be valued on
an amortized cost basis. Municipal daily or weekly variable rate demand
instruments will be priced at par value plus accrued interest. Securities
not priced in a manner described above and other assets are valued by
persons designated by the Fund's directors using methods which the directors
believe reflect fair value.
Futures Contracts and Options Written on Future Contracts-Initial margin
deposits with respect to these contracts are maintained by the Fund's
custodian in segregated asset accounts. Subsequent changes in the daily
valuation of open contracts are recognized as unrealized gains or losses.
Variation margin payments are made or received as daily appreciation or
depreciation in the value of these contracts occurs. Realized gains or
losses are recorded when a contract is closed.
Options Written on Municipal Bonds-The Fund may write options on
municipal bonds. Premiums received for options written are recorded as a
liability and subsequently marked to market daily to reflect the current
value of the options written. If the written option expires unexercised, the
premium received is treated as realized gain. If the option is exercised,
the premium received is used to reduce the cost of the security purchased or
sold.
Federal Income Taxes-It is the Fund's policy to comply with the
requirements of the Internal Revenue Code applicable to "regulated
investment companies" and to distribute all of its taxable and tax exempt
income to its shareholders. Therefore, no provision for federal income tax
is required.
Distributions-The Fund declares dividends daily from its net investment
income and pays such dividends on the last business day of each month.
Distributions of net capital gains, if any, realized on sales of investments
are made annually, as declared by the Fund's Board of Directors.
Distributions are determined in accordance with income tax regulations.
Dividends are reinvested at the net asset value unless shareholders request
payment in cash.
General-Securities transactions are accounted for on a trade date basis.
Interest income is accrued as earned. Premiums and original issue discount
on securities purchased are amortized over the life of the respective
securities. Realized gains and losses from the sale of securities are
recorded on an identified cost basis. Net operating expenses incurred on
properties collateralizing defaulted bonds are charged to operating expenses
as incurred. Costs incurred to restructure defaulted bonds are charged to
realized losses as incurred.
7
<PAGE>
FUNDAMENTAL FUNDS, INC.
NEW YORK MUNI FUND, INC. SERIES
NOTES TO FINANCIAL STATEMENTS (continued)
June 30, 1996
(Unaudited)
- --------------------------------------------------------------------------------
Accounting Estimates-The preparation of financial statements in
conformity with generally accepted accounting principles requires management
to make estimates and assumptions that affect the reported amounts of assets
and liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of increases and
decreases in net assets from operations during the reporting period. Actual
results could differ from those estimates.
2. Investment Advisory Fees and Other Transactions with Affiliates
Under a Management Agreement, the Fund pays an investment management fee to
Fundamental Portfolio Advisors, Inc. (the Manager) equal to 0.5% of the Fund's
average daily net asset value up to $100 million and decreasing by .02% of each
$100 million increase in net assets down to 0.4% of net assets in excess of $500
million. The Manager is required to reimburse the Fund an amount not exceeding
the amount of fees payable to the Manager under the agreement for any fiscal
year, if, and to the extent that the aggregate operating expenses of the Fund
for any fiscal year including the fees payable to the Manager, but excluding
interest expenses, taxes, brokerage fees and commissions, expenses paid pursuant
to the Distribution Plan, and extraordinary expenses exceeds, on an annual
basis, 1.5% of the average daily net assets of the Fund. No such reimbursement
was required for the six months ended June 30, 1996.
Pursuant to a Distribution Plan (the Plan) adopted pursuant to Rule 12b-1
promulgated under the Investment Company Act of 1940, the Fund may pay certain
promotional and advertising expenses and may compensate certain registered
securities dealers and financial institutions for services provided in
connection with the processing of orders for purchase or redemption of the
Fund's shares and furnishing other shareholder services. Payments by the Fund
shall not in the aggregate, in any fiscal year, exceed 0.5% of the average daily
net assets of the Fund.
Under a distribution agreement with Fundamental Service Corporation (FSC),
an affiliate of the Manager, amounts are paid under the Plan to compensate FSC
for the services it provides and the expenses it bears in distributing the
Fund's shares to investors. Any cumulative distribution related to expenses
incurred by FSC in excess of the annual maximum amount payable by the Fund under
the Plan may be carried forward for three years in anticipation of reimbursement
by the Fund on a "first in-first out" basis. If the Plan is terminated or
discontinued in accordance with its terms, the obligation of the Fund to make
payments to FSC will cease and the Fund will not be required to make payments
past the termination date. Amounts paid to FSC pursuant to the agreement totaled
$179,200 for the six months ended June 30, 1996. The Fund compensates
Fundamental Shareholder Services, Inc., as an affiliate of the manager, for the
services it provides under a Transfer Agent and Service Agreement. Transfer
agent fees for the period ended June 30, 1996 are set forth in the statement of
operations.
3. Directors' Fees
All of the Directors of the Fund are also directors or trustees of two other
affiliated mutual funds for which the Manager acts as investment adviser. For
services and attendance at board meetings and meetings of committees which are
common to each Fund, each Director who is not affiliated with the Manager is
compensated at the rate of $6,500 per quarter pro rated among the funds based on
their respective average net assets.
4. Complex Securities, Concentrations of Credit Risk, and Investment
Transaction Inverse Floating Rate Notes (IFRN):
The Fund invests in variable rate securities commonly called "inverse
floaters". The interest rates on these securities have an inverse relationship
to the interest rate of other securities or the value of an index. Changes in
interest rate on the other security or index inversely affect the rate paid on
the inverse floater, and the inverse floater's price will be more volatile than
that of a fixed-rate bond. Certain interest rate movements and other market
factors can substantially affect the liquidity of IFRN's.
8
<PAGE>
FUNDAMENTAL FUNDS, INC.
NEW YORK MUNI FUND, INC. SERIES
NOTES TO FINANCIAL STATEMENTS (continued)
June 30, 1996
(Unaudited)
- --------------------------------------------------------------------------------
Concentration of Credit Risk:
The Fund owns 100% of two Niagara Falls Industrial Development Agency bonds
("IDA Bonds") due to mature on September 1, 2006, and 98.3% of a Niagara Falls
New York Urban Renewal Agency 11% bond ("URA Bond") due to mature on May 1, 2009
which are in default. The IDA Bonds are secured by commercial retail and office
buildings known as the Falls Street Faire and Falls Street Station Projects
("Projects"). The URA Bond is secured by certain rental payments from the
Projects. There is uncertainty as to the timing of events and the subsequent
ability of the Projects to generate cash flows sufficient to service the IDA and
URA Bonds. These bonds are valued under methods determined by the Board of
Directors. In the aggregate these bonds are valued at $8,397,267 at June 30,
1996 (42.64% of their face value of $19,695,000). No interest income was accrued
on these bonds during the six months ended June 30, 1996.
On October 6, 1992 the Fund entered into an agreement to restructure the
terms of the IDA bonds whereby the lessors of the Projects agreed to surrender
control of the Projects and waive any and all rights and interests of any kind
in the Projects. Legal, investment banking, and other restructuring costs
charged to realized loss totaled approximately $150,000 for six months ended
June 30, 1996 ($1,343,500 cumulatively from October 6, 1992 to six months ended
June 30, 1996). The Fund has retained an investment banker to assist them in
finding the highest and best use for the Projects. The Fund, through its
investment banker, engaged a manager to operate the Projects on its behalf, and
the Fund is paying the net operating expenses of the Projects. Net operating
expenses related to the Projects for the six months ended June 30, 1996 are
disclosed in the statement of operations, and cumulatively from October 6, 1992
to June 30, 1996 totaled approximately $464,955.
Other Investment Transactions:
During the six months ended June 30, 1996, purchases and sales of investment
securities, other than short-term obligations, were $330,275,833 and
$376,573,055 respectively.
As of June 30, 1996 net unrealized depreciation of portfolio securities on a
federal income tax basis amounted to $11,786,878 composed of unrealized
appreciation of $3,260,461 and unrealized depreciation of $15,047,339.
5. Capital Stock
As of June 30, 1996 there were 500,000,000 shares of $.01 par value capital
stock authorized, and capital paid in amounted to $217,375,986. Transactions in
capital stock were as follows:
<TABLE>
<CAPTION>
Six Months Ended Year Ended
June 30, 1996 December 31, 1995
---------------------------------- ----------------------------------
Shares Amount Shares Amount
------ ------ ------ ------
<S> <C> <C> <C> <C>
Shares sold .................................... 1,718,710,924 $1,582,710,400 3,269,945,429 $3,074,627,178
Shares issued on reinvestment of dividends ..... 3,097,171 2,838,754 6,772,089 6,361,886
Shares redeemed ................................ (1,746,273,043) (1,620,342,668) (3,287,552,791) (3,094,515,295)
------------- -------------- ------------- --------------
Net increase ................................... (24,464,948) $ (34,793,514) (10,835,273) $ (13,526,231)
============= ============== ============= ==============
</TABLE>
6.Line of Credit
The Fund has line of credit agreements with banks collateralized by cash and
portfolio securities. Borrowings under these agreements bear interest linked to
the bank's prime rate. Pursuant to these agreements $80,472,106 was outstanding
at June 30, 1996.
The maximum month end and the average borrowings outstanding during the six
months ended June 30, 1996 were $88,500,000 and $50,181,555, respectively.
9
<PAGE>
FUNDAMENTAL FUNDS, INC.
NEW YORK MUNI FUND, INC. SERIES
NOTES TO FINANCIAL STATEMENTS (continued)
June 30, 1996
(Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
7. Selected Financial Information
Six Months
Ended
June 30, Years Ended December 31,
----------------------------------------
1996 1995 1994 1993 1992
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the period)
Net Asset Value, Beginning of Period ........................... $0.98 $0.88 $1.18 $1.21 $1.14
----- ----- ----- ----- -----
Income from investment operations:
Net investment income .......................................... .018 .035 .056 .065 .061
Net realized and unrealized gains (losses)
on investments ............................................... (.100) .101 (.290) .082 .070
----- ----- ----- ----- -----
Total from investment operations ....................... (.082) .136 (.234) .147 .131
----- ----- ----- ----- -----
Less Distributions:
Dividends from net investment income ........................... (.018) (.035) (.056) (.065) (.060)
Dividends from net realized gains .............................. - (.001) (.010) (.112) (.001)
----- ----- ----- ----- -----
Total distributions .................................... (.018) (.036) (.066) (.177) (.061)
----- ----- ----- ----- -----
Net Asset Value, End of Period ................................. $0.88 $0.98 $0.88 $1.18 $1.21
===== ===== ===== ===== =====
Total Return ........................................... (8.53%) 15.67% (20.47%) 12.58% 11.83%
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (000) ................................ $181,362 $226,692 $212,665 $275,552 $196,516
Ratios to Average Net Assets:
Interest expense ............................................. 2.07%* 2.09% 1.59% .61% .19%
Operating expenses ........................................... 1.51%* 1.55% 1.62% 1.44% 1.50%
----- ----- ----- ----- -----
Total expenses ......................................... 3.58%* 3.64% 3.21% 2.05% 1.69%
===== ===== ===== ===== =====
Net investment income .................................. 4.08%* 3.81% 5.34% 5.20% 5.16%
Portfolio turnover rate ........................................ 164.07% 347.50% 289.64% 404.05% 460.58%
BANK LOANS
Amount outstanding at end of period (000 omitted) .............. $ 80,472 $ 64,575 $ 20,000 $ 20,873 $ 725
Average amount of bank loans outstanding during the period
(000 omitted) ................................................ $ 50,182 $ 49,603 $ 54,479 $ 24,100 $ 5,194
Average number of shares outstanding during the period
(000 omitted) 180,085 191,692 206,323 184,664 161,404
Average amount of debt per share during the period ............. $ .279 $ .259 $ .264 $ .131 $ .032
<FN>
*Annualized
</FN>
</TABLE>
8. Litigation
The Fund was named as a defendant in a class action lawsuit: Herzog v.
Malanga, New York Muni Fund, Inc., et al, United States District Court, Southern
District of New York. Also named as defendants in this action were the Manager.
Fundamental Service Corporation, and an officer of the Company.
10
<PAGE>
FUNDAMENTAL FUNDS, INC.
NEW YORK MUNI FUND, INC. SERIES
NOTES TO FINANCIAL STATEMENTS (continued)
June 30, 1996
(Unaudited)
- --------------------------------------------------------------------------------
The suit was filed in July of 1994 and alleged that the Fund invested in
certain financial instruments, primarily "derivatives," that were inconsistent
with the Fund's stated objectives as set forth in its prospectus. The suit
claimed that defendants are liable under Sections, 11 and/or 12 of the
Securities Act of 1933 because there existed material misstatements or omissions
in the prospectus that rendered it misleading. This suit also alleged common law
fraud and claims that defendants are liable under Section 10(b) of the
Securities and Exchange Act of 1934 (and Rule 10b-5 promulgated thereunder) for
making material misstatements or omissions in connection with the purchase or
sale of securities.
By Stipulation of Settlement dated April 5, 1996, a settlement was reached
with the plaintiffs. By Final Judgement and Order of Consolidation and Dismissal
with Prejudice dated July 17, 1996, the Stipulation of Settlement was approved
by the Court. The settlement required a payment of approximately $500,000 or
more under certain future circumstances by the Fund's investment adviser to the
class members as set forth in the Stipulation of Settlement. Under no
cirumstances will the settlement result in any liability or cost to the Fund or
its shareholders. The settlement has, however, resulted in the dismissal of the
lawsuit and a release from liability issuing in favor of all defendants
including the Fund. The Stipulation of Settlement also expressly states that the
settlement does not constitute an admission of wrongdoing by the Fund or any of
the other defendants.
11
<PAGE>
(left column)
NEW YORK MUNI FUND, INC.r
90 Washington Street
New York NY 10006
1-800-322-6864
This report and the financial statements contained
herein are submitted for the general information of
the shareholders of the Fund. The report is not
authorized for distribution to prospective investors
in the Fund unless preceded or accompanied by an
effective prospectus.
(right column)
NEW YORK MUNI FUND, INC.r
Semi-Annual Report
June 30, 1996
(Unaudited)
NEW YORK MUNI FUND
Triple
Tax-Free Investing
FUNDAMENTAL
Fundamental Family of Funds
