The California Muni Fund
Dear Fellow Shareholder:
The Net Asset Value of the California Muni Fund ended 1996 at $7.79 per
share, and the Fund posted a dismal \'968.01% total return. This put the Fund at
the bottom of all municipal funds as measured by Morningstar Inc., and it
partially offset the superior positive return that was achieved in 1995.
1996 was a disappointing year for the entire municipal bond market. Bond
prices began the year at a peak and yields were at a low amidst high hopes for a
balanced budget agreement between the Clinton Administration and Congress.
Additionally the Federal Reserve actually lowered interest rates early in the
year. But as the election season progressed, a budget deal became elusive; the
possibility of income tax cuts reemerged-reducing the allure of tax free
munis-and economic activity rebounded. These all combined to send shudders
through the bond market.
California Muni Fund's portfolio was not positioned to defend against these
circumstances. A large portion of the Fund's assets, relative to other funds
with similar investment objectives was in California bonds having a high degree
of sensitivity to interest rate changes and adverse credit events. Lingering
fallout from the 1994 Orange County bankruptcy continued to cause such issues to
underperform.
Nevertheless, the fundamental of low inflation prevailed through the year,
and expectations of tax rate cuts faded as the election drew closer. With
economic growth moderating in late summer and early fall, municipals began a
recovery. However, late in the year this was snuffed out upon Federal Reserve
Chairman Greenspan's warning that irrational exuberance may be gripping
financial markets.
Heading into 1997 we expect continued moderate growth and low inflation.
Once again hopes are high for a balanced budget agreement, and in this
environment we would expect a steady policy by the Federal Reserve. By most
measures equity values are high relative to fixed income securities so a stable
business climate should favorably affect the municipal market in 1997.
In this climate zero coupon and other long duration bonds in the California
market appear attractive. The yield spread between these and shorter duration
credits is substantially greater than the spreads existing in the issues of most
other states. We would expect this condition to return to normal, benefiting the
Fund. We thank you for your continued support and we are looking forward to
continuing to serve you in the future.
Sincerely,
Dr. Vincent J. Malanga
President
1
<PAGE>
LINE CHART GOES HERE
2
<PAGE>
PIE CHART
3
<PAGE>
THE CALIFORNIA MUNI FUND
(LEFT COLUMN)
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1996
- ---------------------------------------------------------------------
ASSETS
Cash .................................................. $ 13,490
Investment in securities at value
(cost $16,775,950) .................................. 16,667,579
Interest receivable ................................... 246,433
-----------
Total assets .................................... 16,927,502
-----------
LIABILITIES
Payables
Dividends ........................................... 45,013
Investment securities purchased ..................... 496,160
Accrued expenses ...................................... 134,750
-----------
Total liabilities ............................... 675,923
-----------
NET ASSETS consisting of:
Accumulated net realized loss ......... $ (272,519)
Unrealized depreciation of
securities .......................... (108,371)
Paid-in-capital applicable to
2,086,694 shares of beneficial
interest (Note 4) ................... 16,632,469
----------- -----------
$16,251,579
===========
NET ASSET VALUE PER SHARE ............................... $7.79
=====
(RIGHT COLUMN)
STATEMENT OF OPERATIONS
Year Ended December 31, 1996
- ---------------------------------------------------------------------
INVESTMENT INCOME
Interest income ........................... $1,158,971
EXPENSES (Notes 2 and 3)
Management fee ............................ $71,024
Custodian and accounting fees ............. 71,221
Transfer agent fees ....................... 40,827
Professional fees ......................... 96,641
Printing and postage ...................... 14,196
Interest .................................. 64,279
Distribution expenses ..................... 54,333
Shareholder communication ................. 23,850
Trustees' fees ............................ 19,038
Miscellaneous ............................. 8,633
-------
Total expenses ...................... 464,042
----------
Net investment income ............... 694,929
----------
REALIZED AND UNREALIZED GAIN
(LOSS) ON INVESTMENTS
Net realized gain on investments .......... 100,733
Unrealized depreciation of
investments for the year ................ (876,013)
----------
Net loss on investments ............. (775,280)
----------
NET DECREASE IN NET ASSETS FROM
OPERATIONS .................................. $ (80,351)
----------
STATEMENTS OF CHANGES IN NET ASSETS
- -------------------------------------------------------------------------------
Year Ended Year Ended
December 31, December 31,
1996 1995
------------ ------------
INCREASE (DECREASE) IN NET ASSETS FROM:
OPERATIONS
Net investment income ............................. $ 694,929 $ 678,642
Net realized gain on investments .................. 100,733 152,418
Unrealized appreciation (depreciation) of
investments for the year ........................ (876,013) 3,192,187
Net increase (decrease) in net assets
from operations ............................. (80,351) 4,023,247
DIVIDENDS PAID TO SHAREHOLDERS FROM
Net investment income ............................. (694,929) (678,642)
CAPITAL SHARE TRANSACTIONS (Note 4) ................. 4,404,527 (1,279,945)
----------- -----------
Total increase .......................... 3,629,247 2,064,660
NET ASSETS:
Beginning of year ................................. 12,622,332 10,557,672
----------- -----------
End of year .......................................$16,251,579 $12,622,332
=========== ===========
See Notes to Financial Statements.
4
<PAGE>
THE CALIFORNIA MUNI FUND
STATEMENT OF INVESTMENTS
December 31, 1996
<TABLE>
- ---------------------------------------------------------------------------------------------------------------
Principal
Amount Issue(degree)(degree)(degree) Type(degree) Rating(degree)(degree) Value
------ ----- ---- ------ -----
<C> <C> <C> <C>
$ 100,000(D) Arvin, Development Corporation, COP, RB, 8.75%, 9/1/18 ........... FCLT NR $ 24,516
8,980,000 Bakersfield, COP, ETM, CAB, 4/15/21 .............................. FCLT AAA 2,213,300
200,000 Beverly Hills, PFA, RB, IFRN*, MBIA Insured, 7.47%, 6/1/15 ....... LRIB AAA 189,528
100,000 CSAC Finance Corp, COP, Sutter County Health Facilities
Project, 7.80%, 1/1/21 ......................................... FCLT BAA1 101,848
460,000 Cabrillo USD, CAB, AMBAC Insured, 8/1/19 ......................... FCLT AAA 125,092
75,000 California, HFA, Home Mortgage, RB, Series A, MBIA Insured,
5.70%, 8/1/10 .................................................. FCSI AAA 76,140
40,000 California Health Facilities Authority, Pomona Valley Community
Hospital Project, Series A, 7.00%, 1/1/17 ...................... FCLT A- 40,874
1,400,000 California PCR, Southern California Edison, 4.70%, 2/28/08 ....... VRDN A1+ 1,399,972
400,000 California Statewide Communities Development Authority,
Cedars Sinai Medical Project, COP, RB, 5.40%, 11/1/15 .......... FCLT A1 373,956
300,000 California Statewide Communities Development Authority,
Cedars Sinai Medical Project, COP, RB, IFRN*, 6.97%,
11/1/15 ........................................................ LRIB A1 251,625
300,000 East Bay, Wastewater System Project, RB, Refunding, AMBAC
Insured, IFRN*, 7.17%, 6/1/20 .................................. LRIB AAA 281,064
500,000 Foothill / Eastern Transportation Corridor Agency, Toll Road
Revenue, CAB, 1/1/26 ........................................... FCLT BBB- 80,455
220,000 Hawthorne, CRA, TAR, 6.75%, 9/1/24 ............................... FCLT BAA 233,437
700,000 Irvine Ranch Water District, COP, LOC Landesbank Hessen,
5.00%, 10/1/00 ................................................. VRDN A1+ 700,000
170,000 Lake Elsinore, USD, Refunding, COP, 6.90%, 2/1/20 ................ FCLT BBB 180,457
15,000 Los Angeles, Home Mortgage, RB, 9.00%, 6/15/18 ................... FCLT A 15,469
800,000 Los Angeles Regional Airports Improvement Corp, LOC Societe
Generale, VRDN, 4.95%, 12/1/25 ................................. VRDN BBB+ 800,000
300,000 Los Angeles, Multiple Capital Facilities Project III, COP, 6.60%,
11/1/11 ........................................................ FCLT BBB 309,768
1,340,319 Los Angeles, HFA, MFH Project C, CAB, RB, 12.00%, 12/1/29 ........ FCLT NR 990,804
35,000 Modesto, Valley Oak Project, RB, 10.60%, 5/1/09 .................. FCSI NR 35,968
350,000 New Haven, USD, AMBAC Insured, CAB, 8/1/16 ....................... FCLT AAA 111,871
800,000 Newport Beach, Hoag Memorial Hospital, SPA Credit Suisse,
5.15%, 10/1/26 ................................................. VRDN A1+ 800,000
250,000 Northern California Power Agency, Multiple Capital Facilities,
RB, MBIA Insured, IFRN*, 9.05%, 8/1/25 ......................... LRIB AAA 286,205
250,000 Northern California Transmission Agency, CA-ORE
Transmission Project, RB, MBIA Insured, IFRN*, 6.92%,
4/29/24 ........................................................ LRIB AAA 225,770
500,000++ Orange County Airport, RB, Refunding, MBIA Insured, 5.62%,
7/1/12 ......................................................... FCLT AAA 499,485
250,000 Orange County, LTA, RB, IFRN*, 7.50%, 2/14/11 .................... LRIB AA 266,348
250,000 Orange County, LTA, RB, IFRN*, 6.85%, 2/14/11 .................... LRIB AAA 268,103
250,000 Palmdale, SFRM, Series A, CAB, 3/1/17 ............................ FCLT AAA 75,740
200,000 Panoche, Water District, COP, 7.50%, 12/1/08 ..................... FCSI BBB 216,714
250,000 Rancho, Water District Financing Authority, RB, Prerefunded @
104, AMBAC Insured, IFRN*, 8.87%, 8/17/21 ...................... LRIB AAA $ 303,263
250,000 Redding, Electric System, COP, Series A, FGIC Insured, IFRN*,
7.44%, 6/1/19 .................................................. LRIB AAA 242,593
</TABLE>
5
<PAGE>
THE CALIFORNIA MUNI FUND
STATEMENT OF INVESTMENTS (continued)
December 31, 1996
<TABLE>
- ---------------------------------------------------------------------------------------------------------------------------------
Principal
Amount Issue(degree)(degree)(degree) Type(D) Rating(D) Value
------ ----- ---- ------ -----
<C> <C> <C> <C>
$ 565,000 Rio, USD, COP, FSA Insured, Convertible, CAB, 9/1/03,
STEP*** ........................................................ FCLT AAA 391,720
175,000 Riverside, HFA, Riverside Apartment Project, RB, 7.87%,
11/1/19 ........................................................ FCLT BB- 171,523
2,000,000 Salinas, Redevelopment Agency, TAB, CGIC Insured, Central
City Project, CAB, 11/1/22 ..................................... FCLT AAA 455,480
500,000 San Bernardino, COP, Series B. MBIA Insured, IFRN*, 6.57%,
7/1/16 ......................................................... INLT AAA 501,425
900,000 San Bernardino, COP, Series PA-38, MBIA Insured, IFRN*,
9.66%, 7/1/16, Rule 144A Security (restricted as to resale
except to qualified institutions)............................... LRIB AAA 864,252
200,000 San Diego Water Authority, COP, FGIC Insured, IFRN*, 7.53%,
4/22/09 ........................................................ LRIB AAA 222,592
1,440,000 San Jose, CRA, Series PA-42(I)A, TAB, MBIA Insured, IFRN*,
5.72%, 8/1/16, Rule 144A Security (restricted as to resale
except to qualified institutions) .............................. LRIB AAA 1,197,259
250,000 Southern California Public Power Authority, FGIC Isured, IFRN*,
6.79%, 7/1/17 .................................................. LRIB AAA 234,435
500,000 Southern California Public Power Authority, AMBAC Insured,
IFRN*, 6.19%, 7/1/15 ........................................... LRIB AAA 458,330
55,000 Tri City, HFA, FNMA/GNMA Collateralized, AMT, 6.45%, 12/1/28 ..... FCLT AAA 56,998
30,000 Tri City, HFA, FNMA/GNMA Collateralized, AMT, Series B,
6.30%, 12/1/28 ................................................. FCLT AAA 30,937
250,000 Tri City, HFA, FNMA/GNMA Collateralized, AMT, Series E,
6.40%, 12/1/28 ................................................. FCLT AAA 256,620
100,000 Upland, HFA, RB, 7.85%, 7/1/20 ................................... FCLT BBB 105,643
-----------
Total Investments (Cost $16,775,950**) $16,667,579
===========
</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.
***Step Bonds (STEP) are instruments whose interest rate is fixed at an initial
rate and then increases ("Step Up") to another fixed rate until maturity.
(D)Denotes non-income producing security. Security in default.
++When-issued security.
Legend
(left column)
(degree)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
VRDN -Variable Rate Demand Note
(deg)(deg)Ratings If a security has a split rating the highest applicable
rating is used, including published ratings on identicial
credits for individual securities not individually rated.
Ratings are unaudited.
NR -Not Rated
(deg)(deg)(deg)Issue 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
(right column)
ETM Escrowed to Maturity
FGIC Financial Guaranty Insurance Corporation
FNMA Federal National Mortgage Association
FSA Financial Security Assurance, Inc.
GNMA Government National Mortgage Association
HFA Housing Finance Authority
LOC Letter of Credit
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
SPA Stand by Bond Purchase Agreement
TAB Tax Allocation Bond
TAR Tax Allocation Refunding
USD Unified School District
See Notes to Financial Statements.
6
<PAGE>
THE CALIFORNIA MUNI FUND
NOTES TO FINANCIAL STATEMENTS
December 31, 1996
- --------------------------------------------------------------------------------
(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's objective is to provide 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-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 trustees, 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. Securities not priced in a
manner described above and other assets are valued by persons designated by the
Fund's trustees using methods which the trustees believe accurately reflects
fair value.
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.
(RIGHT COLUMN)
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. 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 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 and the Fund's Trustees are cooperating in an investigation
being conducted by the Securities and Exchange Commission concerning an
affiliated fund. The Commission's staff indicated an intention to recommend to
the Commission the commencement of certain proceedings.
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
7
<PAGE>
THE CALIFORNIA MUNI FUND
NOTES TO FINANCIAL STATEMENTS (continued)
December 31, 1996
- --------------------------------------------------------------------------------
(LEFT COLUMN)
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 approximately
$28,000 for the year ended December 31, 1996.
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, 1996 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, 1996 there were an unlimited number of shares of
beneficial interest (no par value) authorized and capital paid in amounted to
$16,632,469. Transactions in shares were as follows:
Year Ended Year Ended
December 31, 1996 December 31, 1995
------------------ ------------------
Shares Amount Shares Amount
------ ------ ------ ------
Shares sold 29,177,580 $234,552,576 7,881,857 $66,180,540
Shares issued on
reinvestment of
dividends 58,802 472,727 60,506 494,825
Shares redeemed (28,566,533) (230,620,776)(8,012,453) (67,955,310)
------------ ------------ --------- ----------
Net increase (decrease) 669,849 $ 4,404,527 (70,090) ($1,279,945)
============ ============ ========= ==========
(RIGHT COLUMN)
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, 1996, the cost of purchases and proceeds
from sales of investment securities, other than short-term obligations, were
$12,309,736 and $13,435,031 respectively.
As of December 31, 1996 the net unrealized depreciation of portfolio
securities amounted to $108,371 composed of unrealized appreciation of $654,311
and unrealized depreciation of $762,682. The Fund has a capital loss
carryforward of $272,500 expiring December 31, 2002 available to offset future
capital gains.
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. The maximum month end and the average
borrowings outstanding during the year ended December 1996, were $2,000,000 and
$823,000, respectively.
8
<PAGE>
THE CALIFORNIA MUNI FUND
NOTES TO FINANCIAL STATEMENTS (continued)
December 31, 1996
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
7. Selected Financial Information
Years Ended December 31,
--------------------------------------------------------------------------
1996 1995 1994 1993 1992
---- ---- --- ---- ----
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net Asset Value, Beginning of Year .................. $ 8.91 $ 7.10 $ 9.49 $ 8.81 $ 8.80
------- ------- ------- ------- ------
Income from investment operations:
Net investment income ............................... .409 .419 .553 .563 .604
Net realized and unrealized gains (losses)
on investments .................................... (1.120) 1.810 (2.390) .876 .010
------- ------- ------- ------- -------
Total from investment operations ............ (.711) 2.229 (1.837) 1.439 .614
------- ------- ------- ------- -------
Less Distributions:
Dividends from net investment income ................ (.409) (.419) (.553) (.563) (.604)
Dividends from net realized gains ................... - - - (.196) -
------- ------- ------- ------- -------
Total distributions ......................... (.409) (.419) (.553) (.759) (.604)
------- ------- ------- ------- -------
Net Asset Value, End of Year ........................ $ 7.79 $ 8.91 $ 7.10 $ 9.49 $ 8.81
======= ======= ======= ======= =======
Total Return ........................................ (8.01%) 32.02% (19.89%) 16.80% 7.23%
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Year (000) ....................... 16,252 12,622 10,558 16,280 11,549
Ratios to Average Net Assets:
Interest expense .................................. .45% .39% .98% .39% .16%
Operating expenses ................................ 2.81% 2.81% 2.50% 1.77% *1.47%*
------- ------- ------- ------- -------
Total expenses .............................. 3.26% 3.20% 3.48% 2.16% *1.63%*
======= ======= ======= ======= =======
Net investment income ....................... 4.88% 5.02% 6.80% 6.04% *6.87%*
Portfolio turnover rate ............................. 89.83% 53.27% 15.88% 51.26% 18.91%
BANK LOANS
Amount outstanding at end of year (000 omitted) ..... $ 0 $ 0 $1,292 $3,714 0
Average amount of bank loans outstanding
during the year (000 omitted) .................... $ 823 $ 642 $1,690 $ 958 274
Average number of shares outstanding
during the year (000 omitted) .................... 1,768 1,635 1,711 1,517 1,214
Average amount of debt per share during the year .... $ .47 $ .39 $ .95 $ .63 $ .23
</TABLE>
*These ratios are after expense reimbursement of .50% for each of the years
ended December 31, 1993, and 1992.
9
<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
December 31, 1996 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, 1996 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 The California Muni Fund as of December 31, 1996, 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 21, 1997
10
<PAGE>
THE CALIFORNIA MUNI FUND
90 Washington Street
New York, NY 10006
1-800-322-6864
Independent Auditros
McGladrey & Pullen, LLP
New York, NY 10017
Legal Counsel
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 the Fund. The report is not
authorized for distribution to prospective investors
in the Fund unless preceded or accompanied by an
effective prospectus.
THE CALIFORNIA MUNI FUND
Annual Report
December 31, 1996
THE CALIFORNIA MUNI FUND
Double
Tax-Free Investing
FUNDAMENTAL
