NEW YORK MUNI FUND
Dear Fellow Shareholder:
The first half of 1997 was a difficult one for fixed income investors. New York
Muni Fund saw its share price drop from 87 cents to 84 cents per share in the
January-June period for a total return of -1.96%. This placed the Fund at the
bottom tier of New York municipal bond funds according to Morningstar Inc.
The year began on a sour note as strength in the economy triggered a new round
of inflation jitters. Even the Federal Reserve was affected by inflation fears
because in late March the Federal Open Market Committee decided that tighter
credit was necessary. The Federal Reserve hiked interest rates modestly, and
made it clear that additional increases would be forthcoming unless demand
conditions in the economy eased. We have fought this view continuously in recent
years, arguing that inflation would remain calm even in the face of steady
economic growth.
By late April it seems that market psychology may have finally begun shifting
toward a benign view of inflation. Economic growth is continuing unabated, and
with signs of inflation still totally absent, the fixed income investment arena
has begun to improve. Thus, the New York Muni Fund's share price steadied in May
and June.
During this year's first half significant changes were made to the New York Muni
Fund portfolio so as to improve credit quality and enhance liquidity. To this
end the percentage of BBB rated bonds was reduced in favor of municipal bonds
rated A or better by the major rating services. In addition, the Fund's holdings
of inverse floating rate bonds was further reduced during the first half.
Inverse floaters have a higher degree of sensitivity to interest rate changes
than regular bonds, so by reducing the Fund's holdings of inverse floaters it
has become less sensitive to significant swings in the overall bond market.
Finally, while the Fund still employs leverage, the Fund has been borrowing
significantly less than in past periods. The net effect of these changes has
been to reduce the Fund's volatility while still enabling it to move in line
with the general market. Another side effect has been to lower the Fund's yield.
Looking ahead then we expect a relatively calm bond market environment with
relatively stable interest rates. Municipal bonds modestly outperformed Treasury
bonds in the first half of the year, and over the next six months we would
expect both sectors to move similarly. We are looking forward to the upcoming
merger with the Tocqueville Fund Family, and we thank you for your continued
trust.
Sincerely,
Dr. Vincent J. Malanga
President
<PAGE>
NEW YORK MUNI FUND
PORTFOLIO COMPOSITION
JUNE 30, 1997
[The following tables represent charts in the printed piece.]
BY TYPE
FCLT ....... (39.1%)
INLT ....... (29.0%)
LRIB ....... (16.4%)
FCSI ....... (15.5%)
BY RATING+
AAA ............................. (54.7%)
A ............................... (36.7%)
Non-income producing bonds ...... (4.1%)
NR .............................. (3.2%)
AA .............................. (1.3%)
FIXED COUPON BONDS
FCLT -- Long (maturity greater than 15 years) (includes long zero coupons)
FCSI -- Short or Intermediate (maturity less than 15 years) (includes zero
coupon bonds)
VARIABLE RATE BONDS
RIB (RESIDUAL INTEREST BOND) type inverse floaters. These are leveraged bonds
whose coupon varies inversely with rates on short term companion issues. The
inverse floater's price will be more volatile than that of a fixed coupon bond.
LRIB -- Long Term (maturity greater 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 inverse floater's price will be more volatile than that of a
fixed coupon bond.
INLT -- Long Term (maturity greater than 15 years)
INSI -- Short or Intermediate Term (maturity less than 15 years)
+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.
2
<PAGE>
NEW YORK MUNI FUND
STATEMENT OF ASSETS AND LIABILITIES
June 30, 1997 (Unaudited)
- --------------------------------------------------------------------------------
ASSETS
Investment in securities at value (Note 4) (cost $147,197,231) $ 137,469,368
Receivables:
Interest ................................................... 2,211,365
Investment securities sold ................................. 4,900,007
Capital stock sold ......................................... 25,425
-------------
Total assets ............................................. 144,606,165
-------------
LIABILITIES
Notes payable (Note 6) ....................................... 42,300,000
Payables:
Investment securities purchased ............................ 12,368,351
Bank overdraft payable ..................................... 186,986
Dividend declared .......................................... 41,386
Capital stock redeemed ..................................... 69,436
Accrued expenses ........................................... 296,797
-------------
Total liabilities ........................................ 55,262,956
-------------
NET ASSETS consisting of:
Accumulated net realized loss .............. $ (24,443,656)
Unrealized depreciation of securities ...... (9,727,863)
Paid-in-capital applicable to 106,858,452
shares of $.01 par value capital stock ... 123,514,728
-------------
$ 89,343,209
=============
NET ASSET VALUE PER SHARE .................................... $.84
=====
STATEMENT OF OPERATIONS
Six Months Ended June 30, 1997 (Unaudited)
- --------------------------------------------------------------------------------
INVESTMENT INCOME
Interest income .............................................. $ 4,616,233
EXPENSES (Notes 2 and 3)
Management fee ............................... $ 340,703
Custodian and accounting fees ................ 57,769
Transfer agent fees .......................... 141,181
Professional fees ............................ 343,017
Directors' fees .............................. 80,427
Printing and postage ......................... 9,741
Interest ..................................... 1,075,484
Distribution expenses ........................ 387,779
Other ........................................ 2,511
-------------
Total expenses ............................................. 2,438,612
-----------
Net investment income ...................................... 2,177,621
-----------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net realized loss on:
Investments ................................ (2,550,774)
Net unrealized appreciation of investments ... 554,129
-------------
Net loss on investments ...................................... (1,996,645)
-----------
NET INCREASE IN NET ASSETS FROM OPERATIONS ....................... $ 180,976
===========
See Notes to Financial Statements.
3
<PAGE>
NEW YORK MUNI FUND
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the Six
Months Ended Year Ended
June 30, 1997 December 31,
(Unaudited) 1996
------------ ------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS
Net investment income ..................................... $ 2,177,621 $6,229,467
Net realized (loss) gain on investments ................... (2,550,774) (2,404,362)
Unrealized (depreciation) appreciation on investments ..... 554,129 (4,292,643)
------------ ------------
Net (decrease) increase in net assets from operations ... 180,976 (467,538)
DIVIDENDS PAID TO SHAREHOLDERS FROM:
Investment income ......................................... (2,177,621) (6,229,467)
CAPITAL SHARE TRANSACTIONS (Note 5) ....................... (105,405,939) (23,248,833)
------------ ------------
Total (decrease) increase ............................... (107,402,584) (29,945,838)
NET ASSETS:
Beginning of period ....................................... 196,745,793 226,691,631
------------ ------------
End of period ............................................. $ 89,343,209 $196,745,793
============ ============
</TABLE>
STATEMENT OF CASH FLOWS
Six Months Ended June 30, 1997 (Unaudited)
- --------------------------------------------------------------------------------
Increase (Decrease) in Cash
Cash Flows From Operating Activities
Net increase to net assets from operations .......... $ 180,976
Adjustments to reconcile net increase in net assets
from operations to net cash provided by operating
activities:
Purchase of investment securities ................. (657,627,838)
Proceeds on sale of securities .................... 721,163,675
Decrease in interest receivable ................... 1,597,056
Decrease in accrued expenses ...................... (486,850)
Net accretion of discount on securities ........... (84,289)
Net realized (gain) loss:
Investments ..................................... 2,550,774
Unrealized appreciation on securities ............. (554,129)
---------------
Net cash provided by operating activities ... 66,739,375
---------------
Cash Flows From Financing Activities:*
Net proceeds from notes payable ..................... 41,155,643
Proceeds on shares sold ............................. 1,263,856,654
Payment on shares repurchased ....................... (1,371,403,482)
Cash dividends paid ................................. (348,190)
---------------
Net cash used in financing activities........ (66,739,375)
---------------
Net decrease in cash
Cash at beginning of period ........................... 0
---------------
Cash at end of period ................................. $ 0
===============
------------------
*Non-cash financing activities not included herein consist of reinvestment of
dividends of $2,184,901.
Cash payments for interest expense totaled $1,318,267.
See Notes to Financial Statements.
4
<PAGE>
NEW YORK MUNI FUND
STATEMENT OF INVESTMENTS
June 30, 1997 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT ISSUE ooo TYPE o RATING oo VALUE
-------- ----- ---- ------ -------
<S> <C> <C> <C> <C>
1,850,000++ Battery Park City, HDA, RB, Series 96A, Junior Lien,
AMBAC Insured 5.50, 11/1/26 ........................................... FCLT AAA $ 1,812,908
2,000,000++ East Rochester, NY Housing Authority, RB, Senior Lien, St Johns Meadows,
MBIA Insured, FHA Insured, 5.75, 8/1/37 ............................... FCLT AAA 1,993,660
695,000++ Glen Cove, IDA, CFR, The Regency at Glen Cove Project, AMBAC Insured,
ETM, CAB, 10/15/19 .................................................... FCLT AAA 192,619
7,000,000++ MTA Dedicated Tax Fund, RB, Series A, MBIA Insured, 5.25, 4/1/26 ......... FCLT AAA 6,718,810
11,870,000++x New York City, GO, IFRN*, 4.26, 8/15/10 .................................. INLT A- 11,708,331
13,640,000++ New York City, GO, IFRN*, 5.15, 8/1/14 ................................... INLT A- 13,640,000
14,600,000++x New York City, GO, IFRN*, 3.65, 8/15/17 .................................. INLT A- 14,469,622
2,520,000++ New York City, GO, Series 96J, FGIC Insured, 5.50, 2/15/26 ............... FCLT AAA 2,477,034
5,290,000++x New York City, ECF, MBIA Insured, STEP** 3.75, 4/1/08 .................... FCSI AAA 5,329,675
5,925,000++x New York City, ECF, MBIA Insured, STEP** 3.75, 10/1/08 ................... FCSI AAA 5,969,438
2,200,000++x New York City, IDA, Imclone Systems Inc Project, AMT, 11.25, 5/1/04 ...... FCSI NR 2,317,062
5,000,000++ New York City, MWFA, Water & Sewer Systems,, RB, Series 95A,
FGIC Insured, 5.50, 6/15/23 ........................................... FCLT AAA 4,905,050
4,000,000++ New York City, MWFA, Water & Sewer Systems,, RB, Series 97B,
MBA Insured, 5.50, 6/15/27 ............................................ FCLT AAA 3,902,400
3,640,000++ New York City, IDA, CFR, The Rockefeller Foundation Project,
5.37, 7/1/23 .......................................................... FCLT AAA 3,535,750
2,113,000++x New York City, IDA, Imclone Systems Inc Project, AMT, 10.75, 12/15/97 .... FCSI NR 2,113,106
3,000,000++ New York State, DAR, RB, Millard Fillmore Hospital, AMBAC Insured,
FHA Insured, 5.37, 2/1/32 ............................................. FCLT AAA 2,859,690
5,400,000++ New York State, DAR, City University System, Third General
Resolution Board, MBIA Insured, 5.50, 7/1/24 .......................... FCLT AAA 5,325,263
1,750,000++ New York State, Mortgage Agency, RB, Homeowner Mortgage, Series 66,
5.60, 10/1/17 ......................................................... FCLT AA 1,737,260
3,000,000++ New York State, MCFFA, Mental Healeth Services Facilities, FSA Insured,
5.25, 2/15/19 ......................................................... FCLT AAA 2,854,650
25,000,000++xOx New York State Thruway Authority, FGIC Insured, IFRN*, 5.47, 1/1/04 ...... LRIB AAA 22,500,000
</TABLE>
5
<PAGE>
NEW YORK MUNI FUND
STATEMENT OF INVESTMENTS (continued)
June 30, 1997 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT ISSUE ooo TYPE o RATING oo VALUE
-------- ----- ---- ------ -------
<S> <C> <C> <C> <C>
5,000,000++ New York State, UDC, Corporate Purpose, Senior Lien, 5.37, 7/1/22 ......... FCLT AAA $ 4,885,700
6,975,000++ New York State, UDC, Corporate Purpose, Subordinate Lien, 5.50, 7/1/22 .... FCLT A 6,790,302
15,675,000++x+ Niagara County, IDA Bonds and Niagara Falls URABond;
Falls Street Faire Project, Falls Street Station Project,
AMT, 10.00% 9/1/06 Old Falls Street Improvement Project,
11% 5/1/09 (see Note 4 to Financial Statements) ....................... FCSI NR 5,610,867
3,400,000++ Onondaga County, IDA, Series A, Crouse Irving Project, LOC Fleet Bank,
7.90, 1/1/17 .......................................................... FCLT A- 3,820,171
------------
Total Investments (Cost $147,197,231@) ..................... $137,469,368
============
</TABLE>
* 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 June 30, 1997.
** 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 $147,205,582.
+ 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.
Ox The value of this security has been estimated by the Fund's Board of
Directors using methods the Directors believe reflect fair value. See Note
4 to the financial statements.
++ Approximately $137,469,368 market value of securities are segregated in
whole or in part as collateral securing a line of credit.
x The Fund owns 100% of the security and therefore there is no trading in the
security. See Note 4 to the financial statements.
LEGEND
o Type FCLT --Fixed Coupon Long Term
FCSI --Fixed Coupon Short or Intermediate Term
LRIB --Residual Interest Bond Long Term
INLT --Indexed Inverse Floating Rate Bond Long Term
oo Ratings 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
ooo Issue AMBAC American Municipal Bond Assurance Corporation
AMT Alternative Minimum Tax
CAB Capital Appreciation Bond
CFR Civic Facility Revenue
COP Certificates of Participation
DAR Dormitory Authority Revenue
ECF Educational Construction Fund
EFC Environmental Facilities Corp.
ETM Escrowed to Maturity
FGIC Financial Guaranty Insurance Corporation
FHA Federal Housing Administration
FSA Financial Security Association
GO General Obligation
HDA Housing Development Agency
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
MTA Metropolitan Transit Authority
MWFA Municipal Water Finance Authority
NHRB Nursing Home Revenue Bond
RB Revenue Bond
RDA Research and Development Authority
SWMA Solid Waste Management Authority
URA Urban Renewal Authority
See Notes to Financial Statements.
6
<PAGE>
NEW YORK MUNI FUND
NOTES TO FINANCIAL STATEMENTS
June 30, 1997 (Unaudited)
- --------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES
New York Muni Fund (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.
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.
7
<PAGE>
NEW YORK MUNI FUND
NOTES TO FINANCIAL STATEMENTS (continued)
June 30, 1997 (Unaudited)
- --------------------------------------------------------------------------------
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, 1997.
The Manager has cooperated in an investigation conducted by the
Securities and Exchange Commission concerning an affiliated fund. The
Commission's staff indicated that the Commission has authorized the commencement
of certain proceedings against the Manager, the Distributor and two individuals
associated with the manager. All parties intend to vigorously contest any
charges.
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 $153,600 for the six months ended June 30,
1997.
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 six months ended June 30, 1997 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. Additionally, some of these securities contain a
"leverage factor"whereby the interest rate moves inversely by a "factor" to the
benchmark rate. For example, the rates on the inverse floating rate note may
move inversely at three times the benchmark rate. Certain interest rate
movements and other market factors can substantially affect the liquidity of
IFRN's. Subsequent to June 30, 1997 all but one of the inverse floaters held by
the Fund were sold at prices at or above carrying costs. Thus as of August 29,
1997 inverse floaters constituted 16.3% of the portfolio.
CONCENTRATION OF CREDIT RISK AND TRANSACTIONS IN DEFAULTED BONDS:
The Fund owned 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.
8
<PAGE>
NEW YORK MUNI FUND
NOTES TO FINANCIAL STATEMENTS (continued)
June 30, 1997 (Unaudited)
- --------------------------------------------------------------------------------
The Fund, through its investment banker and manager, negotiated
agreements whereby the Fund received cash of $3,000,000 subsequent to December
31, 1996 and executed an assumption agreement with the purchasers of the Falls
Street Faire and Station Projects. Under the assumption agreement the purchaser
has agreed to assume debt of $8,000,000 bearing interest at 10% per annum in
exchange for the Fall Street Faire Project. The assumption agreement provides
for certain interest and forbearance payments in accordance with the agreement's
payment schedule.
These securities are being valued under methods approved by the Board of
Directors. The aggregate value of these securities is $5,610,867 (35.80% to
their aggregate face value of $15,675,000). There is uncertainty as to the
timing of events and the subsequent ability of the Projects to generate cash
flows sufficient to provide repayment of the bonds. No interest income was
accrued on these bonds during the year ended December 31, 1996. There were no
Legal investment banking, and other restructuring costs charged to realized loss
for the six months ended June 30, 1997. ($1,487,000 cumulatively from October 6,
1992 to June 30, 1997). The Fund through its investment banker, engaged a
manager to maintain 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, 1996 are disclosed in the statement of
operations, and cumulatively from October 6, 1992 to June 30, 1997 totaled
approximately $612,629.
Additionally, the Fund owns 100% of several securities as indicated in
the Statement of Investments. As a result of its ownership position there is no
active trading in these securities. Valuations of these securities are provided
by a pricing service and are believed by the Manager to reflect fair value. The
market value of securities owned 100% by the Fund was approximately $70,018,101
(78% of net assets), including the securities described in the previous
paragraph at June 30, 1997. With respect to securities owned 100% by the Fund,
the $22,500,000 New York State Thruway FGIC Insured, IFRN Bonds, in addition to
the $5,610,867 bonds described in the preceding paragraph, have been valued
using methods approved by the Board of Directors. Subsequent to June 30, 1997
$34,208,331 of the securities owned 100% by the Fund were sold at prices at or
above the prices at which they were carried. Thus, as of August 29, 1997, the
Fund had $35,831,151 (43.5% of net assets) of securities owned 100% by the Fund.
OTHER INVESTMENT TRANSACTIONS:
During the six months ended June 30, 1997, purchases and sales of
investment securities, other than short-term obligations, were $261,711,207 and
$324,924,313 respectively.
As of June 30, 1997 net unrealized depreciation of portfolio securities
on a federal income tax basis amounted to $9,736,214 composed of unrealized
appreciation of $1,107,351 and unrealized depreciation of $10,843,565.
The Fund has capital loss carryforwards available to offset future
capital gains as follows:
AMOUNT EXPIRATION
------ -----------
$18,503,000 December 31, 2002
2,152,000 December 31, 2004
2,550,774 December 31, 2005
-----------
$23,205,774
===========
5. CAPITAL STOCK
As of June 30, 1997 there were 500,000,000 shares of $.01 par value
capital stock authorized. Transactions in capital stock were as follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 1997 DECEMBER 31, 1996
-------------------------------- -------------------------------
SHARES AMOUNT SHARES AMOUNT
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Shares sold ....................... 1,477,539,358 $1,263,882,079 3,704,110,578 $3,314,430,819
Shares issued on reinvestment
of dividends .................... 2,551,375 2,184,901 5,501,544 4,939,206
Shares redeemed ................... (1,599,190,017) (1,371,472,919) (3,714,943,217) (3,342,618,858)
-------------- -------------- -------------- --------------
Net (decrease) .................... (119,099,284) $ (105,405,939) (5,331,095) $ (23,248,833)
============== ============== ============== ==============
</TABLE>
9
<PAGE>
NEW YORK MUNI FUND
NOTES TO FINANCIAL STATEMENTS (continued)
June 30, 1997 (Unaudited)
- --------------------------------------------------------------------------------
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. Pursuant to these agreements $42,300,000 was
outstanding at June 30, 1997.
The maximum month end and the average borrowings outstanding during the
six months ended June 30, 1997 were $75,000,000, and $31,777,000, respectively.
7. SUBSEQUENT TRANSFER
On July 16, 1997 each of Fundamental's mutual funds (consisting of: New
York Muni Fund, The California Muni Fund, Fundamental Fixed Income Fund:Tax Free
Money Market Series, High Yield Municipal Bond Series, and Fundamental U.S.
Government Strategic Income Fund) have adopted, subject to shareholder approval,
an Agreement and Plan of Reorganization (the "Plan") under which each fund (the
"Fundamental Fund")will transfer all of its assets and liabilities to a
newly-created corresponding series of The Tocqueville Trust (the "Tocqueville
Fund") in exchange for shares of the Tocqueville Fund. Shareholders of each
Fundamental Fund will receive shares of the corresponding Tocqueville Fund equal
in value to their shares in the Fundamental Fund. Shareholders will not have to
pay a sales load upon receiving shares of the Tocqueville Fund.
The corresponding Tocqueville Fund will have investment objectives,
policies and restrictions substantially identical to those of the Fundamental
Fund. The Board of Trustees of the Tocqueville Funds is comprised of individuals
other than those who currently serve as Directors (Trustees) of the Fundamental
Funds. Tocqueville Asset Management L.P. is the investment adviser to the
Tocqueville Funds.
Fundamental's Board Members determined that the Plan would be in the best
interests of shareholders of the Fundamental Funds and recommended that
shareholders of each of the Fundamental Funds approve the Plan at a meeting
anticipated to be held in the Fall of 1997.
Tocqueville Asset Management L.P. serves as investment adviser to four
mutual funds and a number of private accounts. Tocqueville Asset Management L.P.
has approximately $720 million in assets under management.
10
<PAGE>
NEW YORK MUNI FUND
NOTES TO FINANCIAL STATEMENTS (continued)
June 30, 1997 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
8. SELECTED FINANCIAL INFORMATION
SIX MONTHS YEARS ENDED DECEMBER 31,
ENDED ------------------------------------------------------------
JUNE 30, 1997 1996 1995 1994 1993
------------- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the period)
Net Asset Value, Beginning of Period ............ $0.87 $0.98 $0.88 $1.18 $1.21
------ ------ ------ ------ ------
Income from investment operations:
Net investment income ........................... .013 .035 .035 .056 .065
Net realized and unrealized gains (losses)
on investments ................................ (.030) (.110) .101 (.290) .082
------ ------ ------ ------ ------
Total from investment operations ...... (.017) (.075) .136 (.234) .147
------ ------ ------ ------ ------
Less Distributions:
Dividends from net investment income ............ (.013) (.035) (.035) (.056) (.065)
Dividends from net realized gains ............... -- -- (.001) (.010) (.112)
------ ------ ------ ------ ------
Total distributions ................... (.013) (.035) (.036) (.066) (.177)
------ ------ ------ ------ ------
Net Asset Value, End of Period .................. $ .84 $0.87 $0.98 $0.88 $1.18
====== ====== ====== ====== ======
Total Return .......................... (1.96%) (7.73%) 15.67% (20.47%) 12.58%
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (000) ................. $89,343 $196,746 $226,692 $212,665 $275,552
Ratios to Average Net Assets:
Interest expense .............................. 1.57%* 2.11% 2.09% 1.59% .61%
Operating expenses ............................ 1.99%* 1.66% 1.55% 1.62% 1.44%
------ ------ ------ ------ ------
Total expenses ........................ 3.56%* 3.77% 3.64% 3.21% 2.05%
====== ====== ====== ====== ======
Net investment income ................. 3.18%* 3.89% 3.81% 5.34% 5.20%
Portfolio turnover rate ......................... 155.27% 347.44% 347.50% 289.69% 404.05%
BANK LOANS
Amount outstanding at end of period (000 omitted) $42,300 $ 1,200 $ 64,575 $ 20,000 $ 20,873
Average amount of bank loans outstanding
during the period (000 omitted) ............... $31,777 $ 49,448 $ 49,603 $ 54,479 $ 24,100
Average number of shares outstanding
during the period (000 omitted) ............... 161,474 178,456 191,692 206,323 184,664
Average amount of debt per share during the period $ .197 $ .277 $ .259 $ .264 $ .131
</TABLE>
*Annualized.
11
<PAGE>
NEW YORK MUNI FUND(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.
- --------------------------------------------------------------------------------
NEW YORK MUNI FUND(R)
SEMI-ANNUAL REPORT
JUNE 30, 1997
(UNAUDITED)
NEW YORK [LOGO] MUNI FUND
TRIPLE
TAX-FREE INVESTING
[LOGO] FUNDAMENTAL
FUNDAMENTAL FAMILY OF FUNDS
- --------------------------------------------------------------------------------
