-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, JKUzVd8Y6kwS0+mD0wtwh6MemTf1vYAe1fxsFa5a/th8I1JJTkmpevcFVB5aYZix bwCRM0WFTjnI+pm0rmhWwA== 0000930413-97-000563.txt : 19971002 0000930413-97-000563.hdr.sgml : 19971002 ACCESSION NUMBER: 0000930413-97-000563 CONFORMED SUBMISSION TYPE: N-30D PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19970630 FILED AS OF DATE: 19971001 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: FUNDAMENTAL FUNDS INC CENTRAL INDEX KEY: 0000315811 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 133076279 FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: N-30D SEC ACT: SEC FILE NUMBER: 811-03032 FILM NUMBER: 97689007 BUSINESS ADDRESS: STREET 1: 70 WASHINGTON ST - 19TH FL CITY: NEW YORK STATE: NY ZIP: 10006 BUSINESS PHONE: 2126353005 MAIL ADDRESS: STREET 1: 90 WASHINGTON ST CITY: NEW YORK STATE: NY ZIP: 10006 FORMER COMPANY: FORMER CONFORMED NAME: NEW YORK MUNI FUND INC DATE OF NAME CHANGE: 19920703 N-30D 1 SEMI-ANNUAL REPORT 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 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 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 NEW YORK MUNI FUND STATEMENTS OF CHANGES IN NET ASSETS - --------------------------------------------------------------------------------
For the Six Months Ended Year Ended June 30, 1997 December 31, (Unaudited) 1996 ------------ ------------ 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 ============ ============
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 NEW YORK MUNI FUND STATEMENT OF INVESTMENTS June 30, 1997 (Unaudited) - --------------------------------------------------------------------------------
PRINCIPAL AMOUNT ISSUE ooo TYPE o RATING oo VALUE -------- ----- ---- ------ ------- 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
5 NEW YORK MUNI FUND STATEMENT OF INVESTMENTS (continued) June 30, 1997 (Unaudited) - --------------------------------------------------------------------------------
PRINCIPAL AMOUNT ISSUE ooo TYPE o RATING oo VALUE -------- ----- ---- ------ ------- 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 ============
* 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 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 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 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:
SIX MONTHS ENDED YEAR ENDED JUNE 30, 1997 DECEMBER 31, 1996 -------------------------------- ------------------------------- SHARES AMOUNT SHARES AMOUNT ------------ ------------ ------------ ------------ 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) ============== ============== ============== ==============
9 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 NEW YORK MUNI FUND NOTES TO FINANCIAL STATEMENTS (continued) June 30, 1997 (Unaudited) - --------------------------------------------------------------------------------
8. SELECTED FINANCIAL INFORMATION SIX MONTHS YEARS ENDED DECEMBER 31, ENDED ------------------------------------------------------------ JUNE 30, 1997 1996 1995 1994 1993 ------------- ---- ---- ---- ---- 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
*Annualized. 11 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 - -------------------------------------------------------------------------------- -----END PRIVACY-ENHANCED MESSAGE-----