-----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, I9gowpNzhVlhdEctpEXKcJXKzTocbh0uHVuOgB6XeIvMFYHLRqD80uESso/XylZv q/9E8GaeeyVMkTzs2ULv4A== 0000950007-97-000091.txt : 19970318 0000950007-97-000091.hdr.sgml : 19970318 ACCESSION NUMBER: 0000950007-97-000091 CONFORMED SUBMISSION TYPE: N-30D PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19961231 FILED AS OF DATE: 19970317 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: CALIFORNIA MUNI FUND CENTRAL INDEX KEY: 0000715756 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 136828244 STATE OF INCORPORATION: MA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: N-30D SEC ACT: 1940 Act SEC FILE NUMBER: 811-03674 FILM NUMBER: 97557604 BUSINESS ADDRESS: STREET 1: 90 WASHINGTON ST - 19TH FL CITY: NEW YORK STATE: NY ZIP: 10006 BUSINESS PHONE: 2126353000 MAIL ADDRESS: STREET 1: 90 WASHINGTON ST STREET 2: 19TH FLOOR CITY: NEW YORK STATE: NY ZIP: 10006 N-30D 1 ANNUAL REPORT 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 LINE CHART GOES HERE 2 PIE CHART 3 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 THE CALIFORNIA MUNI FUND STATEMENT OF INVESTMENTS December 31, 1996 - --------------------------------------------------------------------------------------------------------------- Principal Amount Issue(degree)(degree)(degree) Type(degree) Rating(degree)(degree) Value ------ ----- ---- ------ ----- $ 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
5 THE CALIFORNIA MUNI FUND STATEMENT OF INVESTMENTS (continued) December 31, 1996 - --------------------------------------------------------------------------------------------------------------------------------- Principal Amount Issue(degree)(degree)(degree) Type(D) Rating(D) Value ------ ----- ---- ------ ----- $ 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 ===========
*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 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 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 THE CALIFORNIA MUNI FUND NOTES TO FINANCIAL STATEMENTS (continued) December 31, 1996 - -------------------------------------------------------------------------------
7. Selected Financial Information Years Ended December 31, -------------------------------------------------------------------------- 1996 1995 1994 1993 1992 ---- ---- --- ---- ---- 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
*These ratios are after expense reimbursement of .50% for each of the years ended December 31, 1993, and 1992. 9 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 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 -----END PRIVACY-ENHANCED MESSAGE-----