The California Muni Fund
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
increased by 15%.
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 investment 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 well skirt a recession in 1996, the downside risks
to the economy seem greater than the upside potential.
In our view, the credit easing that began in 1995 is likely to continue in
1996, resulting in a downward trend in interest rates while bond prices trend
up. Unlike 1995, though, we would expect short term interest rates to begin
falling somewhat faster than long term rates in 1996.
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.
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.
1
<PAGE>
Investors in the California Muni Fund were handsomely rewarded in 1995. The
Net Asset Value rose from $7.10 per share at the end of 1994 to $8.91 at the end
of 1995 for an astonishing 32% total return. As a result, California Muni Fund
was not only the year's highest ranking California Fund, but it was also the
year's best performer among all municipal bond funds.
California Muni is particularly sensitive to fluctuations in short term
interest rates, so as the Federal Reserve began to ease credit around mid-year,
the Fund was positively affected. Additionally, as the hangover effect of the
Orange County bankruptcy of late 1994 began to fade, California credits
generally rebounded from very depressed levels. Indeed, California Muni's
portfolio did not include any direct Orange County credits.
Finally, because we were generally constructive on the interest rate outlook
for 1995, the Fund's portfolio maintained a long duration. However, many of the
Fund's principal holdings were either insured or secured by letters of credit.
This continues to be the case, and with evidence of a rebound in the California
economy beginning to mount, these securities will perform especially well.
Finally, if in fact the Federal Reserve continues gradually lowering short term
interest rates in 1996, California Muni Fund will further benefit.
Nonetheless, returns such as those generated in 1995 should not be expected
to recur. Interest rates will probably not fall as sharply in 1996 as they did
in 1995. However, as discussions about the flat tax are clarified, or more
likely amended, municipal bonds will outperform Treasuries. This will positively
affect the California Muni Fund.
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 California Muni
Fund on 9/24/84 (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 9/28/84 is used as the beginning value on 9/24/84. All dividends
and capital gain distributions are reinvested.
The Fund invests primarily in California 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 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>
The California 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)
+ 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.
4
<PAGE>
(Left column)
THE CALIFORNIA MUNI FUND
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1995
- --------------------------------------------------------------------------------
ASSETS
Cash.......................................................... $ 88,714
Investment in securities at value (cost $17,427,017).......... 18,194,659
Interest receivable........................................... 258,709
-----------
Total assets............................................ 18,542,082
-----------
LIABILITIES
Payables
Dividends................................................... 14,473
Capital Shares Redeemed..................................... 5,812,594
Accrued expenses.............................................. 92,683
-----------
Total liabilities....................................... 5,919,750
-----------
NET ASSETS consisting of:
Accumulated net realized loss.................... $ (373,252)
Unrealized appreciation of securities............ 767,642
Paid-in-capital applicable to 1,416,845 shares
of beneficial interest (Note 4)................ 12,227,942
----------- -----------
$12,622,332
===========
NET ASSET VALUE PER SHARE....................................... $8.91
=====
(Right column)
STATEMENT OF OPERATIONS
For the Year Ended December 31, 1995
- --------------------------------------------------------------------------------
INVESTMENT INCOME
Interest income............................................... $1,111,595
EXPENSES (Notes 2 and 3)
Management fee....................................... $67,639
Custodian and accounting fees........................ 61,158
Transfer agent fees.................................. 27,231
Professional fees.................................... 142,856
Printing and postage................................. 9,607
Interest............................................. 53,171
Distribution expenses................................ 51,029
Shareholder communication............................ 12,000
Trustees' fees....................................... 7,532
Miscellaneous........................................ 730
-------
Total expenses.......................................... 432,953
----------
Net investment income................................... 678,642
----------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS
Net realized gain on investments.............................. 152,418
Unrealized appreciation of investments for the year........... 3,192,187
----------
Net gain on investments................................. 3,344,605
----------
NET INCREASE IN NET ASSETS FROM OPERATIONS...................... $4,023,247
==========
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............................................. $ 678,642 $ 947,323
Net realized gain (loss) on investments........................... 152,418 (525,670)
Unrealized appreciation (depreciation) of investments for the year 3,192,187 (3,571,076)
------------ ------------
Net increase (decrease) in net assets from operations....... 4,023,247 (3,149,423)
DIVIDENDS PAID TO SHAREHOLDERS FROM
Investment income................................................. (678,642) (947,323)
CAPITAL SHARE TRANSACTIONS (Note 4)................................. (1,279,945) (1,625,159)
------------ ------------
Total increase (decrease)................................... 2,064,660 (5,721,905)
NET ASSETS:
Beginning of year................................................. 10,557,672 16,279,577
------------ ------------
End of year....................................................... $12,622,332 $10,557,672
============ ============
</TABLE>
See Notes to Financial Statements.
5
<PAGE>
THE CALIFORNIA MUNI FUND
STATEMENT OF INVESTMENTS
December 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Amount Issue000 Type0 Rating00 Value
------ -------- ----- -------- -----
<S> <C> <C> <C> <C>
$ 100,000 Arvin Development Corporation, COP, RB, 8.750%, 9/01/18........................ FCLT NR $ 24,015
9,395,000 Bakersfield, COP, ETM, CAB, 4/15/21............................................ FCLT AAA 2,335,127
200,000 Beverly Hills, PFA, RB, IFRN*, MBIA Insured, 6/01/15........................... LRIB AAA 192,344
250,000 Big Independent Cities, Pooled Insurance Program, RB, Series A,
8.250%, 3/01/09.............................................................. FCLT NR 258,205
100,000 CSAC Finance Corp, COP, Sutter County Health Facilities Project,
7.800%, 1/01/21.............................................................. FCLT BAA1 101,873
40,000 California Health Facilities Authority, Pomona Valley Community Hospital
Project, Series A, 7.000%, 1/01/17........................................... FCLT A- 40,527
1,050,000 California Health Facilities Authority, Valley Presbyterian Hospital Project,
RB, Series A, 9.000%, 5/01/12................................................ FCLT BB 1,051,333
300,000 California Statewide Communities Development Authority, Cedars Sinai Medical
Project, COP, RB, IFRN*, 11/01/15............................................ LRIB A1 248,232
15,000 Corona City, CRA, SFRM, RB, 9.000%, 11/15/12................................... FCLT A 15,395
300,000 East Bay, Wastewater System Project, RB, Refunding, AMBAC Insured,
IFRN*, 6/01/20............................................................... LRIB AAA 297,774
500,000 Foothill/Eastern Transportation Corridor Agency, Toll Road Revenue,
CAB, 1/01/26................................................................. FCLT BBB- 74,410
250,000 Hawthorne, CRA, TAR, 6.750%, 9/01/24........................................... FCLT BAA 264,592
1,800,000 Irvine Ranch Water District, Consolidated Improvement Districts,
LOC Industrialized Bank of Japan, VRDN, 6/01/15.............................. VRDN VMIG1 1,800,000
200,000 Lake Elsinore, USD, Refunding, COP, 6.900%, 2/01/20............................ FCLT BBB 215,066
1,700,000 Los Angeles Regional Airports Improvement Corp, LOC Societe Generale,
VRDN, 12/01/25............................................................... VRDN A1+ 1,700,000
1,192,923 Los Angeles, HFA, MFH Project C, CAB, RB, 12/01/2.............................. FCLT NR 1,192,923
15,000 Los Angeles, Home Mortgage, RB, 9.000%, 6/15/18................................ FCLT A 15,620
300,000 Los Angeles, Multiple Capital Facilities Project III, COP, IFRN*, 11/01/11..... INLT A1 300,438
575,000 Madera, USD, COP, Educational Facilities Project, 5.750%, 9/01/13.............. FCLT BAA1 560,027
35,000 Modesto, Valley Oak Project, RB, 10.60%, 5/01/09............................... FCSI NR 36,450
350,000 New Haven, USD, AMBAC Insured, CAB, 8/01/16.................................... FCLT AAA 107,636
250,000 Northern California Power Agency, Multiple Capital Facilities, RB,
MBIA Insured, IFRN*, 8/01/25................................................. LRIB AAA 292,083
250,000 Northern California Transmission Agency, CA-ORE Transmission Project, RB,
MBIA insured, IFRN*, 4/29/24................................................. LRIB AAA 245,325
250,000 Orange County, LTA, RB, IFRN*, 2/14/11......................................... LRIB AA 272,963
250,000 Orange County, LTA, RB, IFRN*, 2/14/11......................................... LRIB AAA 271,358
250,000 Palmdale, SFRM, Series A, CAB, 3/01/17......................................... FCLT AAA 75,903
200,000 Panoche, Water District, COP, 7.500%, 12/01/08................................. FCSI BBB 219,374
250,000 Rancho, Water District Financing Authority, RB, Prerefunded @104,
AMBAC Insured, IFRN*, 8/17/21................................................ LRIB AAA 318,075
250,000 Redding, Electric System, COP, Series A, FGIC Insured, IFRN*, 6/01/19.......... LRIB AAA 254,368
500,000 Rio, USD, COP, FSA Insured, Convertible, CAB, 9/01/28.......................... FCLT AAA 332,780
</TABLE>
6
<PAGE>
THE CALIFORNIA MUNI FUND
STATEMENT OF INVESTMENTS (continued)
December 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Amount Issue000 Type0 Rating00 Value
------ -------- ----- -------- -----
<S> <C> <C> <C> <C>
$ 175,000 Riverside, HFA, Riverside Apartment Project, RB, 7.875%, 11/01/19.............. FCSI BB- $ 185,133
2,000,000 Salinas Redevelopment Agency, TAB, CGIC Insured, Central City Project,
CAB, 11/01/22................................................................ FCLT AAA 453,040
500,000 San Bernardino, COP, Series B, MBIA Insured, IFRN*, 7/01/16.................... INLT AAA 515,550
900,000 San Bernardino, COP, Series PA-38, MBIA Insured, IFRN*, 7/01/16................ LRIB AAA 937,512
200,000 San Diego Water Authority, COP, FGIC Insured, IFRN*, 4/22/09................... LRIB AAA 220,992
1,440,000 San Jose, CRA, TAB, MBIA Insured, IFRN*, 8/01/16............................... LRIB AAA 1,325,174
250,000 Solana County, IHFA, Northbay Hospital, COP, 7.750%, 11/01/19.................. FCLT BBB- 261,855
500,000 Southern California Public Power Authority, AMBAC Insured, IFRN*, 7/01/15...... LRIB AAA 461,015
250,000 Southern California Public Power Authority, FGIC Insured, IFRN*, 7/01/17....... LRIB AAA 244,297
105,000 Tri City, HFA, FNMA/GNMA Collateralized, AMT, Series A, 6.450%, 12/01/28....... FCLT AAA 110,029
250,000 Tri City, HFA, FNMA/GNMA Collateralized, AMT, Series B, 6.300%, 12/01/28....... FCLT AAA 258,482
100,000 Upland, HFA, RB, 7.850%, 7/01/20............................................... FCLT BBB 107,364
-----------
Total Investments (Cost $17,427,017**)................................. $18,194,659
===========
</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. (see Note 5). Rates shown are at year end.
** Cost is the same for Federal income tax purposes.
7
<PAGE>
THE CALIFORNIA 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
VRDN -Variable Rate Demand Note
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
CGIC Capital Guaranty Insurance Company
COP Certificate of Participation
CRA California Redevelopment Agency
ETM Escrowed to Maturity
FGIC Financial Guaranty Insurance Corporation
FNMA Federal National Mortgage Association
FSA Financial Security Association
GNMA Government National Mortgage Association
HFA Housing Finance Authority
IHFA Intercommunity Hospital Financing Authority
LTA Local Transportation Authority
MBIA Municipal Bond Insurance Assurance Corporation
MFH Multi Family Housing
PFA Public Financing Authority
RB Revenue Bond
SFRM Single Family Residential Mortgage
TAB Tax Allocation Bond
TAR Tax Allocation Refunding
USD Unified School District
See Notes to Financial Statements.
8
<PAGE>
THE CALIFORNIA MUNI FUND
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
(Left Column)
1. Significant Accounting Policies
The California Muni Fund (the Fund) was organized as a Massachusetts
business trust and is registered as an open end management investment company
under the Investment Company Act of 1940. The Fund seeks to provide investors
with as high a level of income that is excluded from gross income for Federal
income tax purposes and exempt from California personal income tax as 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 Trustees.
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 Trustees. 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.
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 Man-
(Right column)
ager) 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.
Under the Agreement, the Manager is required to reimburse to 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 expense, taxes, brokerage fees and
commissions, extraordinary expenses beyond the control of the Manager and other
fees and expenses properly excludable from the definition of "aggregate annual
expenses" under California law) exceed any expense limitation imposed under
California law. No such reimbursements was required during the year ended
December 31, 1995.
Pursuant to a Distribution Plan (the Plan) adopted pursuant to Rule12b-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. Fees for those services aggregated $9,600 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. Trustees' Fees
All of the Trustees 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 Trustee 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. Shares of Beneficial Interest
As of December 31, 1995 there were an unlimited number of shares of
beneficial interest (no par value) authorized.
9
<PAGE>
THE CALIFORNIA MUNI FUND
NOTES TO FINANCIAL STATEMENTS (continued)
- --------------------------------------------------------------------------------
(left column)
Transactions in shares of beneficial interest were as follows:
Year Ended Year Ended
December 31, 1995 December 31, 1994
------------------------ ------------------------
Shares Amount Shares Amount
--------- ---------- --------- -----------
Shares sold............. 7,881,857 $66,180,540 1,971,607 $15,716,250
Shares issued on
reinvestment of
dividends............. 60,506 494,825 69,822 570,507
Shares redeemed......... (8,012,453) (67,955,310) (2,270,355) (17,911,916)
--------- ---------- --------- -----------
Net increase (decrease). (70,090) ($1,279,945) (228,926) ($1,625,159)
========= ========== ========= ===========
5. Complex Securities and Investment Transactions
Inverse Floating Rate Notes:
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.
Investment Transactions:
During the year ended December 31, 1995, the cost of purchases and proceeds
from sales of investment securities, other than short-term obligations, were
$7,389,258 and $7,877,645 respectively.
As of December 31, 1995 the net unrealized appreciation of portfolio
securities amounted to $767,642 composed of unrealized appreciation of
$1,033,537 and unrealized depreciation of $265,895.
(Right column)
6. Line of Credit
The Fund has a line of credit agreement with its custodian bank
collateralized by portfolio securities. Borrowings under this agreement bear
interest linked to the bank's prime rate.
7. 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 settlement 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. 8. Selected Financial
Information
10
<PAGE>
THE CALIFORNIA MUNI FUND
NOTES TO FINANCIAL STATEMENTS (continued)
- --------------------------------------------------------------------------------
<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......................... $ 7.10 $ 9.49 $ 8.81 $ 8.80 $ 8.64
Income from investment operations:
Net investment income...................................... .419 .553 .563 .604 .571
Net realized and unrealized gains (losses) on investments.. 1.810 (2.390) .876 .010 .160
Total from investment operations................... 2.229 (1.837) 1.439 .614 .731
Less Distributions:
Dividends from net investment income....................... (.419) (.553) (.563) (.604) (.571)
Dividends from net realized gains.......................... - - (.196) - -
Total distributions................................ (.419) (.553) (.759) (.604) (.571)
Net Asset Value, End of Year............................... $ 8.91 $ 7.10 $ 9.49 $ 8.81 $ 8.80
Total Return .............................................. 32.02% (19.89%) 16.80% 7.23% 8.75%
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Year (000).............................. 12,622 10,558 16,280 11,549 9,669
Ratios to Average Net Assets:
Interest expense......................................... .39% .98% .39% .16% .14%
Operating expenses....................................... 2.81% 2.50% 1.77%* 1.47%* 2.24%
Total expenses..................................... 3.20% 3.48% 2.16%* 1.63%* 2.38%
Net investment income.............................. 5.02% 6.80% 6.04%* 6.87%* 6.58%*
Portfolio turnover rate.................................... 53.27% 15.88% 51.26% 18.91% 47.34%
BANK LOANS
Amount outstanding at end of year (000 omitted)............ $ 0 $1,292 $3,714 0 645
Average amount of bank loans outstanding during the year
(000 omitted)............................................ $ 642 $1,690 $ 958 274 155+
Average number of shares outstanding during the year
(000 omitted)............................................ 1,635 1,711 1,517 1,214 1,115+
Average amount of debt per share during the year........... $ .39 $ .95 $ .63 $ .23 $ .14
<FN>
+Monthly average.
**These ratios are after expense reimbursement of .50% for each of the years ended December 31, 1993, and 1992.
</FN>
</TABLE>
11
<PAGE>
INDEPENDENT AUDITOR'S REPORT
The Board of Trustees and Shareholders
The California Muni Fund
We have audited the accompanying statement of assets and liabilities
including the statement of investments of The California Muni Fund as of
Decernber 31, 1995 and the related statement of operations for the year then
ended, statements of changes in net assets for each of the two years in the
period then ended, and the 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. 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 The California Muni Fund as of December 31, 1995, the results of its
operations, changes in its net assets, and selected financial information for
the periods indicated, in conformity with generally accepted accounting
principles.
S I G N A T U R E
New York, New York
February 13, 1996
12
<PAGE>
(Left column)
THE CALIFORNIA MUNI FUND
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)
THE CALIFORNIA MUNI FUND
Annual Report
December 31, 1995
THE CALIFORNIA MUNI FUND
Double
Tax-Free Investing
FUNDAMENTAL
Fundamental Family of Funds
