NEW YORK MUNI FUND, INC.
Dear Fellow Shareholder:
Financial assets scored remarkable gains in 1995. For example, the Dow Jones
Industrial Average ended the year above 5000, for a gain of about 33%. The
Treasury bellweather thirty year "long" bond finished 1995 with a yield less
than 6%, and the Bond Buyer index of forty actively traded municipal bonds
registered a 15% rise.
A plethora of favorable developments was behind these gains. The economic
fundamentals of modest growth and low inflation not only remained in tact, but
actually began to be thought of as an enduring phenomenon. Rhetoric flowing from
the White House and Congress seemed to indicate that genuine progress could be
made toward erasing the federal budget deficit. Finally, the Federal Reserve
began to reverse its tightfisted policy of 1994 by modestly reducing short term
interest rates, for the first time in July, and then again in December. Saving
and investing seemed to become fashionable again, as wage earners poured record
sums into IRA and 401K retirement plans.
Importantly, unlike 1993 when the Federal Reserve actively lowered interest
rates to stimulate business activity, the Fed pursued a different strategy in
1995. Indeed, throughout the year the Central Bank was being accused of being
too stringent rather than too lenient. The upshot was that market interest rates
fell faster than the Federal Reserve's own rate cuts, such that the spread
between short and long term interest rates narrowed dramatically throughout the
year.
This is important for 1996 in two respects. First, the narrowness of the
interest rate spread discourages speculation and leverage. Second, since the
spread itself is a reflection of a stringent monetary policy, it is highly
unlikely that either economic activity or inflation will get off the ground.
Indeed, while the economy may skirt a recession in 1996, the downside risks seem
greater than the upside potential.
Thus, in our view, the credit easing that began in 1995 is likely to continue in
1996. As a result, interest rates are likely to continue to trend down while
bond prices trend up. Unlike 1995, though, we would expect short term interest
rates to begin falling somewhat faster than long term rates.
Throughout 1995 we maintained a constructive view toward the municipal bond
market, and this proved to be correct. A large proportion of the Fund's assets,
relative to other funds with similar investment objectives, were in municipal
bonds having a high degree of sensitivity to changes in interest rates. In
addition, the Fund borrows more than other funds with similar investment
objectives, paying short term interest rates to buy long term municipal bonds.
Borrowing also increased the Fund's sensitivity to interest rates. This boosted
the Fund's total return, but lowered net interest income because short term
rates were relatively high. Recent declines in short term rates should enable
the Fund to earn more net interest income and dividends in 1996. On balance, we
remain constructive for the municipal market in 1996, and of course since the
Fund is actively managed, any change in this outlook would cause us to reduce
the Fund's sensitivity to interest rates.
The municipal bond market began 1995 on a strong note as it benefited from the
positive fundamentals of slow growth and low inflation, and the reduction in the
issuance of state and local bonds. By late spring, however, municipals began to
underperform Treasuries as discussions about a reform of the tax system, and
specifically a flat tax, received attention.
In a pure flat tax system all incomes would be taxed at the same rate. In its
most extreme form, all deductions would be eliminated, including those for real
estate taxes, mortgage interest, municipal bond interest, and state and local
income taxes.
1
<PAGE>
The flat tax is a long way from being enacted, and even if it ever is enacted,
it will be significantly amended. In our view it is unlikely to ever be enacted,
and indeed, the Clinton Administration has already come out squarely against it.
Nevertheless, the mere mention of eliminating the interest exclusion on
municipal bonds hurt the market. By autumn, yields on municipal bonds were about
comparable to the yield on Treasury bonds, instead of being lower, as is normal.
In our view this anomaly is presenting municipal bond investors with a unique
opportunity. As this tax hysteria subsides, municipal bonds will once again sell
at a premium relative to Treasuries, meaning that municipal bond prices will
rise relative to Treasuries. In the worst case, municipal bonds will yield on a
par with Treasuries, which is practically the case currently.
Investors in New York Muni Fund saw the Net Asset Value recover from $0.88 cents
per share at the end of 1994 to $0.98 cents at the end of 1995. The Fund's total
return was a respectable 15.7%, or somewhat more than the Bond Buyer Index. The
issue of the flat tax unquestionably held back the Fund's performance, as it did
all municipal bond funds, and so too did the narrowness of the spread between
short and long term interest rates.
The fact that New York City bonds were downgraded by the rating agencies in last
year's first half was an added negative. We viewed this downgrade as
unjustified. We believe since New York City has the strictest financial controls
of any municipality, and since perennial budget gaps are always closed, the
City's bond rating should be raised.
For this reason the Fund continues to be heavily invested in New York City
bonds. The Fund has also been actively investing in bonds that have been both
insured by US Government agencies and municipal bond insurance companies.
Indeed, as the Fund increased its activity in these issues, it reduced its
holdings of LILCO bonds and resource recovery bonds, both of which were sold at
substantial profits.
Interest rates will probably not fall as sharply in 1996 as they did in 1995, so
returns to fixed income investors will not be as great. As discussions about the
flat tax are clarified, or more likely amended, municipal bonds will outperform
Treasuries. This will benefit the New York Muni Fund. Regardless, though, the
fundamentals of slow growth and low inflation seem firmly entrenched, so the
extreme volatility of the past few years is unlikely to recur.
Of course, interest rates and bond prices will always fluctuate, so investors
are urged to undertake an investment program over time rather than in one lump
sum. Meanwhile, 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
2
<PAGE>
[CHART]
Past performance is not predictive of future performance.
The above illustration compares a $10,000 investment made in the New York Muni
Fund on 4/27/81 (Inception Date) to a $10,000 investment made in the Lehman
Brothers Municipal Bond Index on that date. For comparative purposes the value
of the Index on 4/30/81 is used as the beginning vcalue on 4/27/81. All
dividends and capital gain distributions are reinvested.
The Fund invests primarily in New York municipal securities and its performance
takes into account fees and expenses. Unlike the Fund, the Lehman Brothers
Municipal Bond Index is an unmanaged total return performance benchmark for the
long-term, investment-grade tax exempt bond market, calculated by using
municipal bonds selected to be representative of the market. The Index does not
take into account fees and expenses. Further information relating to the Fund
performance, including expense reimbursements, if applicable, is contained in
the Fund's Prospectus and elsewhere in this report.
*Source: Lehman Brothers.
The Consumer Price Index is a commonly used measure of inflation; it does not
represent an investment return.
3
<PAGE>
New York Muni Fund, Inc.
Portfolio Composition
December 31, 1995
[PI CHARTS]
FIXED COUPON BONDS
FCLT-Long (maturity more than 15 years) (includes long zero coupons)
FCSI-Short or Intermediate-(maturity less than 15 years)
(includes zero coupon bonds)
VARIABLE RATE BONDS
RIB (Residential Interest Bond) type inverse floaters. These are leveraged bonds
whose coupon varies with rates on short term corporate issues, and whose value
will fluctuate by some multiple of the fluctuations in value of a fixed rate
bond with the same maturity and coupon as the underlying bond.
LRIB-Long Term (maturity more than 15 years)
SRIB-Short or Intermediate Term (less than 15 year maturity)
IN (Index) based inverse floaters are bonds whose interest coupons vary
inversely with an index of short term interest rates and then revert to a fixed
rate mode. The duration and fluctuations on these bonds will be similar to fixed
rate bonds with the same maturity.
INLT-Long Term (maturity more than 15 years)
INSI-Short or Intermediate Term (maturity less than 15 years)
\'86If a security has a split rating, the highest applicable rating is used,
including published ratings on identical credits for individual securities
not individually rated.
4
<PAGE>
(Left column)
NEW YORK MUNI FUND, INC.
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1995
- --------------------------------------------------------------------------------
ASSETS
Cash............................................ $ 409,040
Investment in securities at value
(Note 4) (cost $277,479,404).................. 271,490,055
Receivables:
Interest...................................... 4,009,011
Investment securities sold.................... 2,013,478
Capital stock sold............................ 80,216,384
------------
Total assets.............................. 358,137,968
------------
LIABILITIES
Notes payable (Note 6).......................... 64,575,000
Payables:
Investment securities purchased............... 65,761,095
Capital stock redeemed........................ 199,009
Dividend declared............................. 89,475
Accrued expenses.............................. 821,758
------------
Total liabilities......................... 131,446,337
------------
NET ASSETS consisting of:
Accumulated net realized loss................... $(19,488,520)
Unrealized depreciation of securities........... (5,989,349)
Paid-in-capital applicable to 231,288,831
shares of $.01 par value capital stock........ 252,169,500
------------ ------------
$226,691,631
============
NET ASSET VALUE PER SHARE......................... $.98
====
(Right column)
STATEMENT OF OPERATIONS
For the Year ended December 31, 1995
- --------------------------------------------------------------------------------
INVESTMENT INCOME
Interest income................................. $ 13,442,670
EXPENSES (Notes 2 and 3)
Management fee.................................. $ 885,389
Custodian and accounting fees................... 218,290
Transfer agent fees............................. 375,225
Professional fees............................... 238,536
Directors' fees................................. 72,596
Printing and postage............................ 30,079
Interest........................................ 3,771,000
Distribution expenses........................... 838,008
Operating expenses on defaulted bonds........... 96,013
Other........................................... 43,850
----------
Total expenses............................ 6,568,986
------------
Net investment income..................... 6,873,684
------------
REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS
Net realized (loss) gain on:
Investments................................... 2,599,302
Futures contracts............................. (147,344)
Options written............................... (73,794)
----------
2,378,164
Net unrealized appreciation of investments...... 25,287,298
------------
Net gain on investments......................... 27,665,462
------------
NET INCREASE IN NET ASSETS FROM OPERATIONS........ $ 34,539,146
============
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended Year Ended
December 31, December 31,
------------ ------------
1995 1994
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS FROM:
OPERATIONS
Net investment income............................................. $ 6,873,684 $ 11,648,285
Net realized gain (loss) on investments and futures contracts..... 2,451,958 (21,046,462)
Net realized (loss) on option contracts written................... (73,794) (96,873)
Unrealized appreciation (depreciation) on investments............. 25,287,298 (27,168,378)
------------ ------------
Net increase (decrease) in net assets from operations....... 34,539,146 (36,663,428)
DIVIDENDS PAID TO SHAREHOLDERS FROM:
Investment income................................................. (6,873,684) (11,649,104)
Net realized gain from investments................................ (112,509) (1,888,345)
CAPITAL SHARE TRANSACTIONS (Note 5)................................. (13,526,231) (12,686,075)
------------ ------------
Total increase (decrease)................................... 14,026,722 (62,886,952)
NET ASSETS:
Beginning of year................................................. 212,664,909 275,551,861
------------ ------------
End of year....................................................... $226,691,631 $212,664,909
============ ============
</TABLE>
See Notes to Financial Statements.
5
<PAGE>
NEW YORK MUNI FUND, INC.
STATEMENT OF CASH FLOWS
For the Year Ended December 31, 1995
- --------------------------------------------------------------------------------
Increase (Decrease) in Cash
Cash Flows From Operating Activities
Net increase to net assets from operations................... $ 34,539,146
Adjustments to reconcile net increase in net assets from
operations to net cash provided by operating activities:
Purchase of investment securities.......................... (880,868,531)
Proceeds on sale of securities............................. 920,163,169
Premiums paid to close options written..................... (197,468)
(Decrease) in interest receivable.......................... 424,294
Increase in accrued expenses............................... 42,616
Net accretion of discount on securities.................... (51,045)
Net realized gain (loss):
Investments.............................................. (2,869,205)
Options written.......................................... 73,794
Unrealized depreciation on securities and options written
for the period........................................... (25,287,298)
-------------
Net cash provided by operating activities.............. 45,969,472
-------------
Cash Flows From Financing Activities:*
Net proceeds from notes payable............................ 44,575,000
Proceeds on shares sold.................................... 2,994,410,794
Payment on shares repurchased.............................. (3,094,316,286)
Cash dividends paid........................................ (1,036,308)
-------------
Net cash used in financing activities.................. (56,366,800)
-------------
Net decrease in cash................................... (10,397,328)
Cash at beginning of year...................................... 10,806,368
-------------
Cash at end of year............................................ $ 409,040
=============
- ---------------
*Non-cash financing activities not included herein consist of reinvestment of
dividends of $6,361,886.
Cash payments for interest expense totaled $3,667,093.
See Notes to Financial Statements.
6
<PAGE>
NEW YORK MUNI FUND
STATEMENT OF INVESTMENTS
December 31, 1995
<TABLE>
<CAPTION>
Principal
Amount Issue000 Type0 Rating00 Value
------ -------- ----- -------- -----
<S> <C> <C> <C> <C>
$10,075,000 Battery Park City, HDA, RB, Series A, 5.25%, 11/01/17........................... FCLT AA $ 9,818,793
4,780,000++ Cayuga County, HIC, Auburn Memorial Hospital, Asset Guaranty
Insured, 6.00%, 1/01/21....................................................... FCLT AAA 4,958,294
2,000,000 City University, NY, COP, John Jay College, AMBAC Insured, 5.00%, 8/15/09....... FCLT AAA 1,940,280
3,045,000++ Franklin County, SWMA, Solid Waste System Project, RB, 6.25%, 6/01/15........... FCLT BBB 3,129,864
3,615,000++ Glen Cove, IDA, CFR, The Regency at Glen Cove Project, AMBAC
Insured, ETM, CAB, 10/15/19................................................... FCLT AAA 871,034
2,165,000++ Glen Cove, IDA, CFR, The Regency at Glen Cove Project, ETM, CAB, 10/15/19....... FCLT AAA 521,657
2,000,000++ Lyons, MCF, Initiatives Corporation Project, RB, 6.80%, 9/01/24................. FCLT BAA1 2,142,460
5,290,000++ New York City, ECF, MBIA lnsured, 5.50%, 10/01/08............................... FCSI AAA 5,448,435
5,925,000++ New York City, ECF, MBIA lnsured, 5.50%, 4/01/08................................ FCSI AAA 6,102,454
4,225,000++ New York City, GO, IFRN*, 17.36%, 10/01/03...................................... SRIB A- 6,899,805
18,330,000 New York City, GO, IFRN*, 3.725%, 8/01/12....................................... INLT A- 18,354,012
13,640,000++ New York City, GO, IFRN*, 3.725%, 8/01/14....................................... INLT A- 13,581,621
14,600,000 New York City, GO, IFRN*, 3.939%, 8/15/17....................................... INLT A- 13,939,058
6,680,000++ New York City, Health & Hospital Corp, RB, Series A, 6.00%, 2/15/05............. FCSI BBB- 6,707,388
25,315,000++ New York City, Health & Hospital Corp, RB, Series A, 6.30%, 2/15/20............. FCLT BBB 25,787,125
5,375,000 New York City, Health & Hospital Corp, RB, Series A, AMBAC Insured,
5.75%, 2/15/22................................................................ FCLT AAA 5,466,160
2,113,000++ New York City, IDA, Imclone Systems Inc Project, AMT, 10.75%, 6/15/96........... FCSI NR 2,103,217
2,200,000 New York City, IDA, Imclone Systems Inc Project, AMT, 11.25%, 5/01/04........... FCSI NR 2,407,416
8,500,000 New York City, IDA, SFR, Terminal One Group Association Project, AMT,
6.00%, 1/01/15................................................................ FCLT A 8,621,210
11,870,000++ New York City, IFRN*, 8/15/10................................................... INLT A- 11,964,960
2,000,000 New York State DAR, HNHRB, LOC Republic National Bank, 5.50%, 7/01/09........... FCSI AA 1,942,520
700,000 New York State DAR, HNHRB, LOC Republic National Bank, 5. 75%, 7/01/14.......... FCLT AA 685,951
4,500,000++ New York State DAR, NHRB, LOC Chemical Bank, 5.75%, 7/01/17..................... FCLT AA3 4,518,765
1,350,000 New York State DAR, NHRB, Our Lady of Consolation, Geriatric Care,
FHA Insured, 6.05%, 8/01/35................................................... FCLT AA 1,386,139
1,000,000 New York State DAR, NHRB, Wesley Gardens Corporation, FHA Insured,
6.125%, 8/01/35............................................................... FCLT AA 1,014,850
4,000,000 New York State DAR, RB, Court Facilities Lease 5.25%, 5/15/21................... FCLT BBB+ 3,749,600
4,760,000 New York State DAR, RB, Court Facilities Lease 5.50%, 5/15/23................... FCLT BBB+ 4,615,677
2,400,000 New York State DAR, RB, University of Rochester Strong Memorial Hospital,
MBIA Insured, 5.50%, 7/01/21.................................................. FCLT AAA 2,405,688
500,000 New York State Energy, RDA, Western New York Nuclear Service Center Project,
5.50%, 4/01/05................................................................ FCSI BAA1 496,735
3,500,000 New York State HFA, RB, Service Contract Obligation, 5.375%, 3/15/23............ FCLT BAA1 3,290,385
5,000,000 New York State MCFFA, Mental Health Services Facilities, FGIC Insured,
5.50%, 8/15/21................................................................ FCLT AAA 5,012,500
</TABLE>
7
<PAGE>
NEW YORK MUNI FUND
STATEMENT OF INVESTMENTS (continued)
December 31, 1995
<TABLE>
<CAPTION>
Principal
Amount Issue000 Type0 Rating00 Value
------ -------- ----- -------- -----
<S> <C> <C> <C> <C>
3,700,000 New York State Mortgage Agency, RB, AMT,6.10%, 4/01/26.......................... FCLT AA $ 3,728,157
25,000,000++ New York State Thruway Authority, Convertible, FGIC lnsured, IFRN*,
3.57%, 1/01/04................................................................ LRIB AAA 25,081,000
450,000 New York State Thruway Authority, General Revenue, MBIA Insured, 5.75%, 1/01/19. FCLT AAA 453,726
5,000,000 New York State Thruway Authority, Highway & Bridge Trust Fund, 5.80%, 4/01/09... FCSI A+ 5,163,400
1,500,000 New York State UDC, Correctional Capital Facilities, 5.75%, 1/01/13............. FCLT A 1,498,380
5,000,000 New York State UDC, Correctional Capital Facilities, FSA Insured, 5.25%, 1/01/21 FCLT AAA 4,993,050
5,500,000 New York State UDC, RB, Correctional Capital Facilities, FSA Insured,
5.375%, 1/01/25............................................................... FCLT AAA 5,444,120
6,445,000++ New York State, Housing of New York Corp, RB, Refunding, 5.50%, 11/01/20........ FCLT AA 6,324,672
1,120,000++ New York State, MCFFA, Central Suffolk Hospital Project, 6.125%, 11/01/16....... FCLT BBB 1,101,766
2,000,000++ New York State, MCFFA, Insured Mortgage Project, FHA Insured, 6.20%, 2/15/35.... FCLT AA+ 2,110,140
12,080,000++ New York State, MCFFA, Insured Mortgage Project, MBIA Insured, 5.90%, 8/15/33... FCLT AAA 12,500,505
1,000,000 New York State, MCFFA, Mercy Medical Center, LOC Natwest Bank, 5.875%, 11/01/15. FCLT AA- 1,030,820
1,750,000++ New York State, MCFFA, RB, 6.50%, 11/01/14...................................... FCLT BBB 1,843,065
4,020,000~++ Niagara County, IDA, Falls Street Faire Project, AMT, 10.00%, 9/01/06........... FCSI NR 1,599,638
9,805,000~++ Niagara County, IDA, Falls Street Faire Project, AMT, 10.00%, 9/01/06........... FCSI NR 3,901,606
5,870,000~++ Niagara Falls, URA, Old Falls Street Improvement Project, 11.00%, 5/01/99....... FCSI NR 2,896,023
4,350,000++ Onondaga County, IDA, Community General Hospital Project, 6.625%, 1/01/18....... FCLT BAA1 4,507,992
2,470,000++ Onondaga County, IDA, Resource Recovery Project, AMT, 7.00%, 5/01/15............ FCLT A- 2,590,388
3,400,000++ Onondaga County, IDA, Series A, Crouse Irving Project, LOC Fleet Bank,
7.90%, 1/01/17................................................................ FCLT A- 3,937,880
855,000 Puerto Rico Industrial, Tourist, Educational, Medical & Environmental
Control Facs, 6.25% Dr Pila Hospital Proj, FHA Insured, 8/01/32............... FCLT AAA 899,674
------------
Total Investments (cost $277,479,404**)................................ $271,490,055
============
<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. Rates shown are at year end.
** Cost for Federal income tax purposes is $277,130,118.
~ The value of these non-income producing securities has been estimated in good
faith using procedures approved by the Fund's Board of Directors. See Note 4
to the financial statements.
++ Approximately $163,131,754 market value of securities are segregated in whole
or in part as collateral securing a line of credit.
</FN>
</TABLE>
8
<PAGE>
NEW YORK MUNI FUND
STATEMENT OF INVESTMENTS (continued)
December 31, 1995
Legend
0Type 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
00Ratings 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. Ratings are unaudited.
NR-Not Rated
000Issue AMBAC American Municipal Bond Assurance Corporation
AMT Alternative Minimum Tax
CAB Capital Appreciation Bond
CFR Civic Facility Revenue
COP Certificate of Participation
DAR Dormitory Authority Revenue
ECF Educational Construction Fund
ETM Escrowed to Maturity
FGIC Financial Guaranty Insurance Corporation
FHA Federal Housing Administration
FSA Financial Security Association
GO General Obligation
HDA Housing Development Authority
HIC Hospital Improvement Corporation
HFA Housing Finance Agency
HNHRB Hospital and Nursing Home Revenue Bonds
IDA Industrial Development Authority
MBIA Municipal Bond Insurance Assurance Corporation
MCF Medical Care Facilities
MCFFA Medical Care Facilities Finance Agency
NHRB Nursing Home Revenue Bonds
RB Revenue Bond
RDA Research and Development Authority
SFR Special Facilities Revenue
SWMA Solid Waste Management Authority
UDC Urban Development Corporation
URA Urban Renewal Authority
See Notes to Financial Statements.
9
<PAGE>
NEW YORK MUNI FUND
NOTES TO FINANCIAL STATEMENTS
December 31, 1995
- --------------------------------------------------------------------------------
1. Significant Accounting Policies
New York Muni Fund, Inc. (the Fund) 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 and is consistent with the preservation of capital. The following
is a summary of significant accounting policies followed in the preparation of
its financial statements:
Valuation of Securities-Investments are stated at value based on prices
provided by a pricing service when such prices are believed to reflect the
fair market value of such securities. Securities not priced in this manner
are at the mean of the last reported bid and asked prices provided by
principal market makers and recognized dealers in such securities. Other
assets and securities for which no quotations are readily available are
valued in good faith under methods approved by the Board of Directors.
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 writes 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.
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.
10
<PAGE>
NEW YORK MUNI FUND
NOTES TO FINANCIAL STATEMENTS (continued)
December 31, 1995
- --------------------------------------------------------------------------------
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 year ended December 31, 1995.
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 expenses related to the
Fund 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 $420,197 for the year ended December 31, 1995. The Fund
compensates Fundamental Shareholder Services, Inc., an affiliate of the manager,
for the services it provides under a Transfer Agent and Service Agreement.
Transfer agent fees for the year ended December 31, 1995 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
Transactions
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.
11
<PAGE>
NEW YORK MUNI FUND
NOTES TO FINANCIAL STATEMENTS (continued)
December 31, 1995
- --------------------------------------------------------------------------------
Futures Contracts and Options on Futures Contracts:
The Fund invests in futures contracts, consisting primarily of US Treasury
Bond Futures. A futures contract is an agreement between two parties to buy and
sell a security for a set price on a future date. Futures contracts are traded
on designated "contract markets" which through their clearing corporations,
guarantee performance of the contracts. In addition the Fund invests in options
on US Treasury Bond Futures which give the holder a right to buy or sell futures
contracts in the future. Unlike a futures contract which requires the parties to
the contract to buy and sell a security on a set date, an option on a futures
contract entitles its holder to decide before a future date whether to enter
into such a futures contract. Both types of contracts are marked to market daily
and changes in valuation will effect the net asset value of the Fund.
The Fund's principal investment objective in holding or issuing derivative
financial instruments is as a hedge against interest-rate fluctuations in its
municipal bond portfolio, and to enhance its total return. The Fund's principal
objective is to maximize the level of tax-exempt interest income while
maintaining acceptable levels of interest rate and liquidity risk. To achieve
this objective, the Fund uses a combination of derivative financial instruments
principally consisting of US Treasury Bond Futures and Options on US Treasury
Bond Futures. Typically the Fund sells treasury bond futures contracts or writes
treasury bond option contracts. These activities create off balance sheet risk
since the Fund may be unable to enter into an offsetting position and under the
terms of the contract must deliver the underlying security at a specified time
at a specified price. The cost to the Fund of acquiring the security to deliver
may be in excess of recorded amounts and result in a loss to the Fund. During
the year ended December 31, 1995, the Fund had daily average notional amounts
outstanding of approximately $6,300 and $904,100 of short positions on US
Treasury Bond Futures and options written on US Treasury Bond Futures,
respectively. Realized gains and losses from these transactions are stated
separately in the Statement of Operations.
The following table summarizes option contracts written by the Fund for the
year ended December 31, 1995.
Number of Premiums Realized
Contracts Received Cost Loss
--------- -------- ---- ----
Contracts outstanding December 31, 1994 100 $123,674
Options written........................ - - -
Contracts closed or expired............ 100 (123,674) $197,468 ($73,794)
--- --------
Contracts outstanding December 31, 1995 - $ 0
=== ========
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 December 31,
1995 (42.64% of their face value of $19,695,000). No interest income was accrued
on these bonds during the year ended December 31, 1995.
12
<PAGE>
NEW YORK MUNI FUND
NOTES TO FINANCIAL STATEMENTS (continued)
December 31, 1995
- --------------------------------------------------------------------------------
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 $269,900 for year ended December
31, 1995 ($1,193,500 cumulatively from October 6, 1992 to December 31, 1995).
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 year ended December 31, 1995 are disclosed in the statement of
operations, and cumulatively from October 6, 1992 to December 31, 1995 totaled
approximately $372,000.
Other Investment Transactions:
During the year ended December 31, 1995, purchases and sales of investment
securities, other than short-term obligations, were $865,543,943 and
$878,083,183 respectively.
As of December 31, 1995 net unrealized depreciation of portfolio securities
on a federal income tax basis amounted to $5,640,063 composed of unrealized
appreciation of $8,244,445 and unrealized depreciation of $13,884,508.
5. Capital Stock
As of December 31, 1995 there were 500,000,000 shares of $.01 par value
capital stock authorized. Transactions in capital stock were as follows:
<TABLE>
<CAPTION>
Year Ended Year Ended
December 31, 1995 December 31, 1994
------------------------------- -------------------------------
Shares Amount Shares Amount
------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Shares sold.................................. 3,269,945,429 $3,074,627,178 2,943,748,646 $3,005,186,891
Shares issued on reinvestment of dividends... 6,772,089 6,361,886 10,690,975 11,094,904
Shares redeemed.............................. (3,287,552,791) (3,094,515,295) 2,946,253,498) (3,028,967,870)
------------- -------------- ------------- --------------
Net increase (decrease)...................... (10,835,273) $ (13,526,231) 8,186,123 $ (12,686,075)
============= ============== ============= ==============
</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 banks' prime rate.
13
<PAGE>
NEW YORK MUNI FUND
NOTES TO FINANCIAL STATEMENTS (continued)
December 31, 1995
- --------------------------------------------------------------------------------
7.Selected Financial Information
<TABLE>
<CAPTION>
Years Ended December 31,
----------------------------------------------------
1995 1994 1993 1992 1991
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net Asset Value, Beginning of Year......................... $0.88 $1.18 $1.21 $1.14 $1.04
----- ----- ----- ----- -----
Income from investment operations:
Net investment income...................................... .035 .056 .065 .061 .059
Net realized and unrealized gains (losses)
on investments........................................... .101 (.290) .082 .070 .100
----- ----- ----- ----- -----
Total from investment operations................... .136 (.234) .147 .131 .159
----- ----- ----- ----- -----
Less Distributions:
Dividends from net investment income....................... (.035) (.056) (.065) (.060) (.059)
Dividends from net realized gains.......................... (.001) (.010) (.112) (.001) -
----- ----- ----- ----- -----
Total distributions................................ (.036) (.066) (.177) (.061) (.059)
----- ----- ----- ----- -----
Net Asset Value, End of Year............................... $0.98 $0.88 $1.18 $1.21 $1.14
===== ===== ===== ===== =====
Total Return............................................... 15.67% (20.47%) 12.58% 11.83% 15.73%
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Year (000).............................. $226,692 $212,665 $275,552 $196,516 $183,307
Ratios to Average Net Assets:
Interest expense......................................... 2.09% 1.59% .61% .19% .09%
Operating expenses....................................... 1.55% 1.62% 1.44% 1.50% 1.69%
----- ----- ----- ----- -----
Total expenses..................................... 3.64% 3.21% 2.05% 1.69% 1.78%
===== ===== ===== ===== =====
Net investment income.............................. 3.81% 5.34% 5.20% 5.16% 5.47%
Portfolio turnover rate.................................... 347.50% 289.69% 404.05% 460.58% 365.12%
BANK LOANS
Amount outstanding at end of year (000 omitted)............ $ 64,575 $ 20,000 $ 20,873 $ 725 $ -
Average amount of bank loans outstanding during the year
(000 omitted)............................................ $ 49,603 $ 54,479 $ 24,100 $ 5,194 $ 1,483*
Average number of shares outstanding during the year
(000 omitted)............................................ 191,692 206,323 184,664 161,404 167,206*
Average amount of debt per share during the year........... $ .259 $ .264 $ .131 $ .032 $ .009
*Based on monthly average
</TABLE>
14
<PAGE>
NEW YORK MUNI FUND
NOTES TO FINANCIAL STATEMENTS (continued)
December 31, 1995
- --------------------------------------------------------------------------------
8. Contingencies
The Fund has been named as a defendant in a class action lawsuit alleging
that the Fund invested in certain derivative financial instruments that were
inconsistent with the Fund's stated investment objectives. The suit claims that
the defendants, which include the Fund's investment adviser, distributor, and
certain control persons, are liable for damages because there existed material
misstatements or omissions in the prospectuses that rendered them misleading.
Management has entered into negotiations with the plaintiffs who have
consented to a series of adjournments of all operative dates in the litigation.
These negotiations have resulted in a settlement in principle with the
plaintiffs that, if consummated, would require a payment of approximately
$500,000 or more under certain future circumstances by the Fund's investment
adviser and no liability or cost to the Fund or its shareholders. The
contemplated stipulation of settlement expressly states that the setttlement
does not constitute an admission of wrongdoing by the Fund or any of the other
defendants. The settlement remains subject to final documentation and agreement
by the parties and approval by the Court. If the settlement is not successfully
concluded, the Fund intends to contest the litigation vigorously. If this
litigation ever goes forward, it would involve significant complexities that
preclude a present determination of whether any liability to the Fund ultimately
would result and, if so, whether any such liability would be material to the
financial position of the Fund. Accordingly, and because the contemplated
settlement does not require any payment by the Fund, no amount has been accrued
in the financial statements with respect to this matter.
15
<PAGE>
INDEPENDENT AUDITOR'S REPORT
The Board of Directors and Shareholders
New York Muni Fund, Inc.
We have audited the accompanying statement of assets and liabilities, including
the statement of investments, of New York Muni Fund, Inc. as of December 31,
1995, and the related statements of operations and cash flows for the year then
ended, the statements of changes in net assets for each of the two years in the
period then ended, and selected financial information for each of the five years
in the period then ended. These financial statements and selected financial
information are the responsibility of the Fund's management. Our responsibility
is to express an opinion on these financial statements and selected financial
information based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and selected
financial information are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. Our procedures included confirmation of securities
owned as of December 31, 1995 by correspondence with the custodian and brokers.
An audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements and selected financial information
referred to above present fairly, in all material respects, the financial
position of New York Muni Fund, Inc. as of December 31, 1995 and the results of
its operations, cash flows, changes in net assets, and selected financial
information for the periods indicated, in conformity with generally accepted
accounting principles.
As explained in Note 4, the financial statements include securities valued at
$8,397,267 (3.7% of net assets) whose values have been estimated by the Board
Directors in the absence of readily estimatable market values. We have reviewed
the procedures used by the Board of Directors in arriving at its estimate of
value of such securities and have inspected underlying documentation, and, in
the circumstances, we believe the procedures are reasonable and the
documentation appropriate. However, those estimated values may differ
significantly from the values that would have been used had a ready market for
the securities existed, and the differences could be material.
New York, New York
February 13, 1996
16
<PAGE>
(Left column)
NEW YORK MUNI FUND, INC.(r)
90 Washington Street
New York, NY 10006
1-800-322-6864
Independent Auditors
McGladrey & Pullen, LLP
New York, NY 10017
Attorney
Kramer, Levin, Naftalis,
Nessen, Kamin & Frankel
919 Third Avenue
New York, NY 10022
This report and the financial statements contained
herein are submitted for the general information of
the shareholders of theFund. 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)
Annual Report
December 31, 1995
NEW YORK MUNI FUND
Triple
Tax-Free Investing
FUNDAMENTAL
Fundamental Family of Funds
