-----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, V1UU8TNiH0QC6KiawQhKugyRIoVQLaVT7Lyr2O2H748VnB8IfV2HMaVHzTNCh0Lp vCJIKWoI5TcOOHW+gc0xHw== 0000950007-96-000154.txt : 19960829 0000950007-96-000154.hdr.sgml : 19960829 ACCESSION NUMBER: 0000950007-96-000154 CONFORMED SUBMISSION TYPE: N-30D PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19960630 FILED AS OF DATE: 19960828 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: 1940 Act SEC FILE NUMBER: 811-03032 FILM NUMBER: 96622148 BUSINESS ADDRESS: STREET 1: 90 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 NEW YORK MUNI FUND, INC. Dear Fellow Shareholder: Interest rates rose sharply in this year's first half, and bond prices consequently fell. As a result, the Net Asset Value of New York Muni Fund dropped from $0.98 per share at December 31, 1995 to $0.88 per share on June 30, 1996. This was disappointing. However, municipal bonds generally outperformed taxable bonds in the period. This reflected improving credit conditions for municipals, favorable supply conditions, and diminished expectations for tax reform legislation. 1996 began with a high degree of optimism in the global financial markets that Congress and the Clinton Administration would reach a bipartisan agreement to eliminate the federal budget deficit by the turn of the century. This hope seemed to be shattered in mid-winter. At the same time, evidence began to surface that economic activity was accelerating. This raised anxieties about a possible credit tightening move by the Federal Reserve, which drove down bond prices. None of this seemed to concern the equity market. Strong money flows propelled equity prices to new heights. By mid-year the Bond Buyer Municipal Bond Index dropped by 6.7% from year end 1995, while the Dow Jones Industrial Average posted a 10.5% advance. No doubt some investors shifted funds from bonds to equities in the period. This weakened the entire fixed income market, and eventually made equities expensive relative to bonds by most measures. We were disappointed by the collapse of federal budget negotiations, but view this as a buying opportunity in the fixed income markets. After all, despite the political stalemate, policies toward deficit reduction remain firmly entrenched, and the deficit continues to shrink both absolutely and as a share of the economy. Meanwhile, although the economy is continuing to grow, this growth is moderate and noninflationary. For these reasons we have not thought the Federal Reserve would tighten credit by raising short term interest rates. But even if the Fed were so inclined, any tightening is likely to be minor, and not indicative of a trend. Given this, the Fund's portfolio was positioned to benefit from a decline in municipal bond interest rates in 1996. A large portion of the Fund's assets, relative to other Funds with similar investment objectives, were in municipal bonds having a high degree of sensitivity to interest rates. In addition, the Fund borrows more than other Funds with similar investment objectives, paying short term interest rates to buy higher yielding long term municipal bonds. Borrowing also increases the Fund's sensitivity to interest rates. This approach worked well in 1995. However, it was disadvantageous in the first half of this year. Since the bond market weakended in the first half of the year, New York Muni Fund underperformed most funds with similar investment objecitves. Our expectation is that our approach will be beneficial going forward if the bond market climate improves as we anticipate. Moreover, municipals face an extremely favorable net supply conditions going forward as bond calls, redemptions, prepayments, and coupon payments will exceed the amount of new municipal bond issuance in the next year. Thus, if there is any rechanneling of funds out of equities and into fixed income securities, a dramatic improvement in municipal bond prices could be expected. In this year's first half the Fund was able to improve the credit quality of its portfolio without significantly affecting the Fund's yield. This was possible because of a narrowing in the differential of yields among various categories of investment grade securities as a result of extensive delays in passing the New York State budget. 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 CHARTS 2 (left column) FUNDAMENTAL FUNDS, INC. NEW YORK MUNI FUND, INC. SERIES STATEMENT OF ASSETS AND LIABILITIES June 30, 1996 (Unaudited) - -------------------------------------------------------------------------------- ASSETS Investment in securities at value (Note 4) (cost $217,864,286) ................ $ 205,923,886 Receivables: Interest .................................... 3,549,460 Investment securities sold .................. 14,649,519 Capital stock sold .......................... 63,123,814 ------------ Total assets ............................ 287,246,679 ------------ LIABILITIES Notes payable (Note 6) ........................ 80,472,106 Payables: Investment securities purchased ............. 24,288,490 Capital stock redeemed ...................... 17,632 Dividend declared ........................... 74,877 Accrued expenses ............................ 1,031,265 ------------ Total liabilities ....................... 105,884,370 ------------ NET ASSETS consisting of: Accumulated net realized loss ................. $(24,073,277) Unrealized depreciation of securities .................................. (11,940,400) Paid-in-capital applicable to 206,823,883 shares of $.01 par value capital stock ......................... 217,375,986 ------------ ------------ $181,362,309 ============ NET ASSET VALUE PER SHARE ....................... $.88 ==== (right column) STATEMENT OF OPERATIONS Six Months Ended June 30, 1996 (Unaudited) - -------------------------------------------------------------------------------- INVESTMENT INCOME Interest income ................................. $ 6,304,338 EXPENSES (Notes 2 and 3) Management fee .................................. $ 403,391 Custodian and accounting fees ................... 46,453 Transfer agent fees ............................. 164,297 Professional fees ............................... 70,959 Directors' fees ................................. 54,425 Printing and postage ............................ 2,057 Interest ........................................ 1,697,653 Distribution expenses ........................... 410,739 Operating expenses on defaulted bonds ......................................... 92,956 Other ........................................... 2,283 ---------- Total expenses ............................ 2,945,213 ----------- Net investment income ..................... 3,359,125 ----------- REALIZED AND UNREALIZED LOSS ON INVESTMENTS Net realized loss on investments ................ (4,584,757) Net unrealized depreciation of investments ................................... (5,951,051) ----------- Net loss on investments ......................... (10,535,807) ----------- NET DECREASE IN NET ASSETS FROM OPERATIONS ................................. $(7,176,683) =========== See Notes to Financial Statements. 3 (left column) FUNDAMENTAL FUNDS, INC. NEW YORK MUNI FUND, INC. SERIES STATEMENTS OF CHANGES IN NET ASSETS - -------------------------------------------------------------------------------- Six Months Ended Year Ended June 30, 1996 December 31, (Unaudited) 1995 ------------ ------------ INCREASE (DECREASE) IN NET ASSETS FROM: OPERATIONS Net investment income ...................... $ 3,359,125 $ 6,873,684 Net realized loss on investments .............................. (4,584,757) 2,451,958 Net realized loss on option contracts written ........................ - (73,794) Unrealized appreciation (depreciation) on investments .............................. (5,951,051) 25,287,298 ------------ ------------ Net increase (decrease) in net assets from operations ......................... (7,176,683) 34,539,146 DIVIDENDS PAID TO SHAREHOLDERS FROM: Investment income ......................... (3,359,125) (6,873,684) Net realized gain from investments - (112,509) CAPITAL SHARE TRANSACTIONS (Note 5) ...................... (34,793,514) (13,526,231) ------------ ------------ Total increase (decrease) ......................... (45,329,322) 14,026,722 NET ASSETS: Beginning of period ........................ 226,691,631 212,664,909 ------------ ------------ End of period .............................. $181,362,309 $226,691,631 ============ ============ (right column) STATEMENT OF CASH FLOWS For the Six Months Ended June 30, 1996 (Unaudited) - -------------------------------------------------------------------------------- Increase (Decrease) in Cash Cash Flows From Operating Activities Net increase to net assets from operations ................. $ (7,176,683) Adjustments to reconcile net increase in net assets from operations to net cash provided by operating activities: Purchase of investment securities ........................ (445,468,438) Proceeds on sale of securities ........................... 446,614,514 Decrease in interest receivable .......................... 459,551 Increase in accrued expenses ............................. 209,507 Net accretion of discount on securities .................. (74,360) Net realized loss on investments ......................... 4,434,757 Unrealized depreciation on securities and options written for the period ......................... 5,951,050 --------------- Net cash provided by operating activities ......................................... 4,949,898 --------------- Cash Flows From Financing Activities:* Net proceeds from notes payable ............................ 15,897,106 Proceeds on shares sold .................................... 1,599,802,970 Payment on shares repurchased .............................. (1,620,524,045) =============== Cash dividends paid ........................................ (534,969) --------------- Net cash used in financing activities ................ (5,358,938) --------------- Net decrease in cash ................................. (409,040) Cash at beginning of period .................................. 409,040 --------------- Cash at end of period ........................................ $ - 0 - =============== *Non-cash financing activities not included herein consist of reinvestment of dividends of $2,838,754. Cash payments for interest expense totaled $1,473,876. See Notes to Financial Statements. 4 FUNDAMENTAL FUNDS, INC. NEW YORK MUNI FUND, INC. SERIES STATEMENT OF INVESTMENTS June 30, 1996 (Unaudited) - --------------------------------------------------------------------------------
Principal Amount Issue(o)(o)(o) Typeo Ratingoo Value - ----------------------------------------------------------------------------------------------------------------------------------- $ 4,855,000(dd) Cayuga County, HIC, Auburn Memorial Hospital, Asset Guaranty Insured, 6.00, 1/01/21 ......................................................................... FCLT AAA $ 4,769,406 2,050,000 Franklin County, SWMA, Solid Waste System Project, RB, 6.25, 6/01/15 .............. FCLT BBB- 1,994,527 1,025,000(dd) Glen Cove, IDA, CFR, The Regency at Glen Cove Project, ETM, CAB, 10/15/19 ......... FCLT AAA 239,942 3,310,000(dd) Glen Cove, IDA, CFR, The Regency at Glen Cove Project, AMBAC Insured, ETM, CAB, 10/15/19 ................................................................... FCLT AAA 774,838 1,880,000(dd) Lyons, MCF, Initatives Corporation Project, RB, 6.80, 9/01/24 ..................... FCLT BAA1 1,956,760 11,870,000(dd) New York City, GO, IFRN*, 6.60, 8/15/10 ........................................... INLT A- 11,756,167 18,330,000(dd) New York City, GO, IFRN*, 6.365, 8/01/12 .......................................... INLT A- 17,054,782 13,640,000(dd) New York City, GO, IFRN*, 6.365, 8/01/14 .......................................... INLT A- 13,640,000 14,600,000(dd) New York City, GO, IFRN*, 4.29, 8/15/17 ........................................... INLT A- 14,618,834 5,290,000(dd) New York City, ECF, MBIA Insured, STEP**, 3.75, 4/01/08 ........................... FCSI AAA 5,253,340 5,925,000(dd) New York City, ECF, MBIA Insured, STEP**, 3.75, 10/1/08 ........................... FCSI AAA 5,882,755 16,220,000(dd) New York City, Health & Hospital Corp, RB, Series A, 6.30, 2/15/20 ................ FCLT BAA 15,253,288 2,200,000(dd) New York City, IDA, Imclone Systems Inc Project, AMT, 11.25, 5/01/04 .............. FCSI NR 2,355,650 8,000,000 New York City, MWFA, Water & Sewer System, RB, MBIA Insured, 5.35, 6/15/13 ........ FCLT AAA 7,426,960 1,205,000 New York City, MWFA, Water & Sewer System, RB, FGIC Insured, 5.00, 6/15/17 ........ FCLT AAA 1,067,546 6,550,000(dd) New York City, Transportation Authority, RB, Livingston Plaza Project, FSA Insured, 5.25, 1/01/20 .......................................................... FCLT AAA 6,012,245 2,113,000(dd) New York City, IDA, Imclone Systems Inc Project, AMT, 10.75, 12/15/97 ............. FCSI NR 2,113,000 11,305,000 New York State, DAR, RB, Court Facilities, 5.25, 5/15/21 .......................... FCLT BBB+ 10,003,229 7,000,000(dd) New York State, DAR, NHRB, LOC Chemical Bank, 5.75, 7/01/17 ....................... FCLT AA3 6,816,950 640,000 New York State, DAR, NHRB, Bishop Henry B Hucles Nursing Home, SONYMA Insured, 6.00, 7/01/24 .......................................................... FCLT AA 628,922 11,085,000 New York State Energy, RDA, Consolidated Edison Project, AMT, 6.375, 12/01/27 ..... FCLT A1 11,129,783 1,020,000 New York State Energy, RDA, Consolidated Edison Project, AMBAC Insured, 5.25, 8/15/20 ................................................................... FCLT AAA 923,039 280,000 New York State, EFC, State Water Pollution Control, RB, Pooled Loan Issue, 5.20, 6/15/17 ......................................................................... FCLT AAA 262,343 360,000 New York State, EFC, State Water Pollution Control, RB, Pooled Loan Issue, 5.20, 2/15/17 ......................................................................... FCLT AAA 336,596 880,000 New York State, HFA, RB, Multi Family Housing, SONYMA Insured, 6.20, 8/15/16 ...... FCLT AA 877,914 3,140,000 New York State, HFA, RB, Multi Family Housing, SONYMA Insured, 6.25, 8/15/27 ...... FCLT AA 3,118,397 230,000 New York State, Local Government Assistance Corporation, 5.50, 4/01/21 ............ FCLT A 215,246 1,750,000(dd) New York State, MCFFA, RB, 6.50, 11/01/14 ......................................... FCLT BAA1 1,769,495 2,255,000(dd) New York State, MCFFA, Hospital & Nursing Home FHA Insured Mortgage, MBIA Insured, 5.40, 8/15/33 .......................................................... FCLT AAA 2,060,642 1,000,000 New York State, MCFFA, Mercy Medical Center, LOC Natwest Bank, 5.875, 11/01/15 ........................................................................ FCLT AA- 991,920 3,570,000(dd) New York State, MCFFA, Mental Health Services Facilities, FGIC Insured, 5.50, 8/15/21 ......................................................................... FCLT AAA 3,388,301 25,000,000(dd) New York State Thruway Authority, FGIC Insured, IFRN*, 6.020, 1/01/24 ............. LRIB AAA 25,000,000 500,000 New York State, Urban Development Corporation, Correctonal Facilities, RB, 5.25, 1/01/13 ................................................................... FCLT BAA1 453,265 9,805,000(dd)(d) Niagara County, IDA, Falls Street Faire Project, AMT, 10.00, 9/01/06 .............. FCSI NR 3,901,606 4,020,000(dd)(d) Niagara County, IDA, Falls Street Station Project, AMT, 10.00, 9/01/06 ............ FCSI NR 1,599,638 5,870,000(dd)(d) Niagara Falls, URA, Old Falls Street Improvement Project, 11.00, 5/01/99 .......... FCSI NR 2,896,023 3,400,000(dd) Onondaga County, IDA, Series A, Crouse Irving Project, LOC Fleet Bank, 7.90, 1/01/17 ......................................................................... FCLT A- 3,845,638 4,170,000(dd) Onondaga County, IDA, Community General Hospital Project, 6.625, 1/01/18 .......... FCLT BAA 4,210,407 2,545,000(dd) Onondaga County, IDA, Resource Recovery Project, AMT, 7.00, 5/01/15 ............... FCLT A- 2,595,340 500,000 Orange County, IDA, The Orange Mental Retardation Project Inc. LOC Fleet Bank, 6.125, 5/01/16 ............................................................ FCLT A1 494,855 1,220,000(dd) Puerto Rico, ITEMECF Financing Authority, Polytechnic University of Puerto Rico Project, 5.70, 8/01/13 .......................................................... FCLT BBB- 1,133,136
5 FUNDAMENTAL FUNDS, INC. NEW YORK MUNI FUND, INC. SERIES STATEMENT OF INVESTMENTS (continued) June 30, 1996 (Unaudited) - --------------------------------------------------------------------------------
Principal Amount Issue(o)(o)(o) Typeo Ratingoo Value - ----------------------------------------------------------------------------------------------------------------------------------- $ 5,215,000(dd) Puerto Rico, ITEMECF Financing Authority, Polytechnic University of Puerto Rico Project, 5.50, 8/01/24 .......................................................... FCLT BBB- $ 4,539,345 555,000 Puerto Rico, ITEMECF Financing Authority, Dr Pila Hospital Project, FHA Insured, 6.25, 8/01/32 ................................................................... FCLT AAA 561,816 ------------ Total Investments (cost $217,864,286@) .................................... $205,923,886 ============ * 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. ** 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 $217,710,764. (d) 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. (dd) Approximately $191,657,733 market value of securities are segregated in whole or in part as collateral securing a line of credit. Legend oType 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 ooRatings 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 oooIssue AMBAC American Municipal Bond Assurance Corporation AMT Alternative Minimum Tax CAB Capital Appreciation Bond CFR Civic Facility Revenue DAR Dormitory Authority Revenue ECF Educational Construction Fund EFC Environmental Facilities Corp. ETM Escrowed to Maturity FGIC Financial Guaranty Insurance Corporation FSA Financial Security Association GO General Obligation 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 MWFA Municipal Water Finance Authority NHRB Nursing Home Revenue Bond RB Revenue Bond RDA Research and Development Authority SWMA Solid Waste Management Authority SONYMAE State of New York Mortgage Agency URA Urban Renewal Authority
See Notes to Financial Statements. 6 FUNDAMENTAL FUNDS, INC. NEW YORK MUNI FUND, INC. SERIES NOTES TO FINANCIAL STATEMENTS June 30, 1996 (Unaudited) - -------------------------------------------------------------------------------- 1. Significant Accounting Policies New York Muni Fund, Inc. (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. 7 FUNDAMENTAL FUNDS, INC. NEW YORK MUNI FUND, INC. SERIES NOTES TO FINANCIAL STATEMENTS (continued) June 30, 1996 (Unaudited) - -------------------------------------------------------------------------------- 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 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, 1996. 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 related to expenses 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 $179,200 for the six months ended June 30, 1996. The Fund compensates Fundamental Shareholder Services, Inc., as an affiliate of the manager, for the services it provides under a Transfer Agent and Service Agreement. Transfer agent fees for the period ended June 30, 1996 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 Transaction Inverse Floating Rate Notes (IFRN): The Fund invests in variable rate securities commonly called "inverse floaters". The interest rates on these securities have an inverse relationship to the interest rate of other securities or the value of an index. Changes in interest rate on the other security or index inversely affect the rate paid on the inverse floater, and the inverse floater's price will be more volatile than that of a fixed-rate bond. Certain interest rate movements and other market factors can substantially affect the liquidity of IFRN's. 8 FUNDAMENTAL FUNDS, INC. NEW YORK MUNI FUND, INC. SERIES NOTES TO FINANCIAL STATEMENTS (continued) June 30, 1996 (Unaudited) - -------------------------------------------------------------------------------- Concentration of Credit Risk: The Fund owns 100% of two Niagara Falls Industrial Development Agency bonds ("IDA Bonds") due to mature on September 1, 2006, and 98.3% of a Niagara Falls New York Urban Renewal Agency 11% bond ("URA Bond") due to mature on May 1, 2009 which are in default. The IDA Bonds are secured by commercial retail and office buildings known as the Falls Street Faire and Falls Street Station Projects ("Projects"). The URA Bond is secured by certain rental payments from the Projects. There is uncertainty as to the timing of events and the subsequent ability of the Projects to generate cash flows sufficient to service the IDA and URA Bonds. These bonds are valued under methods determined by the Board of Directors. In the aggregate these bonds are valued at $8,397,267 at June 30, 1996 (42.64% of their face value of $19,695,000). No interest income was accrued on these bonds during the six months ended June 30, 1996. On October 6, 1992 the Fund entered into an agreement to restructure the terms of the IDA bonds whereby the lessors of the Projects agreed to surrender control of the Projects and waive any and all rights and interests of any kind in the Projects. Legal, investment banking, and other restructuring costs charged to realized loss totaled approximately $150,000 for six months ended June 30, 1996 ($1,343,500 cumulatively from October 6, 1992 to six months ended June 30, 1996). The Fund has retained an investment banker to assist them in finding the highest and best use for the Projects. The Fund, through its investment banker, engaged a manager to operate the Projects on its behalf, and the Fund is paying the net operating expenses of the Projects. Net operating expenses related to the Projects for the six months ended June 30, 1996 are disclosed in the statement of operations, and cumulatively from October 6, 1992 to June 30, 1996 totaled approximately $464,955. Other Investment Transactions: During the six months ended June 30, 1996, purchases and sales of investment securities, other than short-term obligations, were $330,275,833 and $376,573,055 respectively. As of June 30, 1996 net unrealized depreciation of portfolio securities on a federal income tax basis amounted to $11,786,878 composed of unrealized appreciation of $3,260,461 and unrealized depreciation of $15,047,339. 5. Capital Stock As of June 30, 1996 there were 500,000,000 shares of $.01 par value capital stock authorized, and capital paid in amounted to $217,375,986. Transactions in capital stock were as follows:
Six Months Ended Year Ended June 30, 1996 December 31, 1995 ---------------------------------- ---------------------------------- Shares Amount Shares Amount ------ ------ ------ ------ Shares sold .................................... 1,718,710,924 $1,582,710,400 3,269,945,429 $3,074,627,178 Shares issued on reinvestment of dividends ..... 3,097,171 2,838,754 6,772,089 6,361,886 Shares redeemed ................................ (1,746,273,043) (1,620,342,668) (3,287,552,791) (3,094,515,295) ------------- -------------- ------------- -------------- Net increase ................................... (24,464,948) $ (34,793,514) (10,835,273) $ (13,526,231) ============= ============== ============= ==============
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 bank's prime rate. Pursuant to these agreements $80,472,106 was outstanding at June 30, 1996. The maximum month end and the average borrowings outstanding during the six months ended June 30, 1996 were $88,500,000 and $50,181,555, respectively. 9 FUNDAMENTAL FUNDS, INC. NEW YORK MUNI FUND, INC. SERIES NOTES TO FINANCIAL STATEMENTS (continued) June 30, 1996 (Unaudited) - --------------------------------------------------------------------------------
7. Selected Financial Information Six Months Ended June 30, Years Ended December 31, ---------------------------------------- 1996 1995 1994 1993 1992 ----- ----- ----- ----- ----- PER SHARE OPERATING PERFORMANCE (for a share outstanding throughout the period) Net Asset Value, Beginning of Period ........................... $0.98 $0.88 $1.18 $1.21 $1.14 ----- ----- ----- ----- ----- Income from investment operations: Net investment income .......................................... .018 .035 .056 .065 .061 Net realized and unrealized gains (losses) on investments ............................................... (.100) .101 (.290) .082 .070 ----- ----- ----- ----- ----- Total from investment operations ....................... (.082) .136 (.234) .147 .131 ----- ----- ----- ----- ----- Less Distributions: Dividends from net investment income ........................... (.018) (.035) (.056) (.065) (.060) Dividends from net realized gains .............................. - (.001) (.010) (.112) (.001) ----- ----- ----- ----- ----- Total distributions .................................... (.018) (.036) (.066) (.177) (.061) ----- ----- ----- ----- ----- Net Asset Value, End of Period ................................. $0.88 $0.98 $0.88 $1.18 $1.21 ===== ===== ===== ===== ===== Total Return ........................................... (8.53%) 15.67% (20.47%) 12.58% 11.83% RATIOS/SUPPLEMENTAL DATA Net Assets, End of Period (000) ................................ $181,362 $226,692 $212,665 $275,552 $196,516 Ratios to Average Net Assets: Interest expense ............................................. 2.07%* 2.09% 1.59% .61% .19% Operating expenses ........................................... 1.51%* 1.55% 1.62% 1.44% 1.50% ----- ----- ----- ----- ----- Total expenses ......................................... 3.58%* 3.64% 3.21% 2.05% 1.69% ===== ===== ===== ===== ===== Net investment income .................................. 4.08%* 3.81% 5.34% 5.20% 5.16% Portfolio turnover rate ........................................ 164.07% 347.50% 289.64% 404.05% 460.58% BANK LOANS Amount outstanding at end of period (000 omitted) .............. $ 80,472 $ 64,575 $ 20,000 $ 20,873 $ 725 Average amount of bank loans outstanding during the period (000 omitted) ................................................ $ 50,182 $ 49,603 $ 54,479 $ 24,100 $ 5,194 Average number of shares outstanding during the period (000 omitted) 180,085 191,692 206,323 184,664 161,404 Average amount of debt per share during the period ............. $ .279 $ .259 $ .264 $ .131 $ .032 *Annualized
8. Litigation The Fund was named as a defendant in a class action lawsuit: Herzog v. Malanga, New York Muni Fund, Inc., et al, United States District Court, Southern District of New York. Also named as defendants in this action were the Manager. Fundamental Service Corporation, and an officer of the Company. 10 FUNDAMENTAL FUNDS, INC. NEW YORK MUNI FUND, INC. SERIES NOTES TO FINANCIAL STATEMENTS (continued) June 30, 1996 (Unaudited) - -------------------------------------------------------------------------------- The suit was filed in July of 1994 and alleged that the Fund invested in certain financial instruments, primarily "derivatives," that were inconsistent with the Fund's stated objectives as set forth in its prospectus. The suit claimed that defendants are liable under Sections, 11 and/or 12 of the Securities Act of 1933 because there existed material misstatements or omissions in the prospectus that rendered it misleading. This suit also alleged common law fraud and claims that defendants are liable under Section 10(b) of the Securities and Exchange Act of 1934 (and Rule 10b-5 promulgated thereunder) for making material misstatements or omissions in connection with the purchase or sale of securities. By Stipulation of Settlement dated April 5, 1996, a settlement was reached with the plaintiffs. By Final Judgement and Order of Consolidation and Dismissal with Prejudice dated July 17, 1996, the Stipulation of Settlement was approved by the Court. The settlement required a payment of approximately $500,000 or more under certain future circumstances by the Fund's investment adviser to the class members as set forth in the Stipulation of Settlement. Under no cirumstances will the settlement result in any liability or cost to the Fund or its shareholders. The settlement has, however, resulted in the dismissal of the lawsuit and a release from liability issuing in favor of all defendants including the Fund. The Stipulation of Settlement also expressly states that the settlement does not constitute an admission of wrongdoing by the Fund or any of the other defendants. 11 (left column) NEW YORK MUNI FUND, INC.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. (right column) NEW YORK MUNI FUND, INC.r Semi-Annual Report June 30, 1996 (Unaudited) NEW YORK MUNI FUND Triple Tax-Free Investing FUNDAMENTAL Fundamental Family of Funds -----END PRIVACY-ENHANCED MESSAGE-----