APEX MUNICIPAL
FUND, INC.
FUND LOGO
Annual Report
June 30, 1996
This report, including the financial information herein, is
transmitted to the shareholders of Apex Municipal Fund, Inc. for
their information. It is not a prospectus, circular or
representation intended for use in the purchase of shares of the
Fund or any securities mentioned in the report. Past performance
results shown in this report should not be considered a
representation of future performance. Statements and other
information herein are as dated and are subject to change.
<PAGE>
Apex Municipal
Fund, Inc.
Box 9011
Princeton, NJ
08543-9011
APEX MUNICIPAL FUND, INC.
Officers and
Directors
Arthur Zeikel, President and Director
Joe Grills, Director
Walter Mintz, Director
Robert S. Salomon Jr., Director
Melvin R. Seiden, Director
Stephen B. Swensrud, Director
Terry K. Glenn, Executive Vice President
Donald C. Burke, Vice President
Vincent R. Giordano, Vice President
Kenneth A. Jacob, Vice President
Gerald M. Richard, Treasurer
Mark B. Goldfus, Secretary
Custodian & Transfer Agent
The Bank of New York
90 Washington Street
New York, New York 10286
NYSE Symbol
APX
Important Tax
Information
(unaudited)
All of the net investment income distributions declared monthly by
Apex Municipal Fund, Inc. during its taxable year ended June 30,
1996 qualify as tax-exempt interest dividends for Federal income tax
purposes.
<PAGE>
There were no capital gains distributions declared by the Fund
during its taxable year ended June 30, 1996.
Please retain this information for your records.
DEAR SHAREHOLDERS
For the year ended June 30, 1996, Apex Municipal Fund, Inc. earned
$0.654 per share income dividends, representing a net annualized
yield of 6.52%, based on a month-end net asset value of $10.01 per
share. Over the same period, the Fund's total investment return was
+6.87%, based on a change in per share net asset value from $10.06
to $10.01, and assuming reinvestment of $0.660 per share income
dividends.
For the six months ended June 30, 1996, the Fund's total investment
return was +2.22%, based on a change in per share net asset value
from $10.14 to $10.01, and assuming reinvestment of $0.319 per share
income dividends.
The Municipal Market
Environment
Investor concerns that the economic growth seen in the first half of
1996 would result in the return of significant inflationary
pressures have triggered a dramatic rise in interest rates over the
last six months. While economic growth in 1996 has been much
stronger than that seen in late 1995, few signs of renewed inflation
have asserted themselves. This has led to a volatile, upward
movement in bond yields. As economic indicators supporting strong
economic growth emerged, particularly the robust employment growth
seen in April and June, bond yields rose. A continuing benign
inflationary environment has moderated some of this increase in bond
yields, causing bond yields to fluctuate by as much as 20 basis
points (0.20%) on a weekly basis. As measured by the Bond Buyer
Revenue Bond Index, yields on uninsured, A-rated tax-exempt revenue
bonds increased almost 50 basis points in the last six months to
6.20% by June 30, 1996. US Treasury bond yields demonstrated
similar, albeit greater, volatility over the last six months. During
the first half of 1996, US Treasury bond yields rose over 90 basis
points to 6.88%. During the last six months, the municipal bond
market reversed the trend seen throughout much of 1995 and
significantly outperformed US Treasury securities.
<PAGE>
The municipal bond market's recent outperformance was largely the
result of two principal factors. First, and perhaps the more
important, much of the earlier concern regarding proposed changes in
Federal income tax codes and their effect on the tax treatment of
tax-exempt bond income has dissipated. As the negative revenue
impact of the various proposals, such as the flat tax, became
apparent, the likelihood of immediate reform quickly diminished.
When the Kemp Commission dealing with Federal income tax reform
released its findings early in 1996, the obvious need for reform was
highlighted. However, no specific recommendations of a flat tax,
value-added tax or any other reform were made. Consequently, fears
of losing the favored tax treatment of municipal bond income
declined even further. As a percentage of Treasury bond yields, tax-
exempt bond yield ratios quickly declined from 95% to approximately
90%.
The second major factor leading to the municipal bond market's
recent outperformance was the return of a more favorable technical
environment. Over the past six months, approximately $90 billion in
municipal securities were issued, an increase of over 25% versus the
comparable period a year earlier. However, over the last three
months new tax-exempt bond underwritings totaled approximately $48
billion, an increase of 15% versus the same period in 1995. This
relative decline in bond issuance can be expected to continue as
bond issuance historically declines during the summer months. Also,
bond issuance dedicated toward refinancing higher-couponed debt fell
in response to higher interest rates.
At the same time investor demand has remained consistently strong.
With nominal new-issue yields above 6%, retail investor interest has
been steady. Additionally, investors were expected to receive over
$50 billion this June and July in assets derived from coupon income,
bond maturities and proceeds from early redemptions. Annual new bond
issuance has declined in recent years and is expected to remain
below levels seen in the early 1990s. Consequently, as the higher-
couponed bonds issued in the early-to-mid 1980s have been redeemed
at their first optional call dates, the total number of outstanding
tax-exempt bonds has declined. This combination of a declining net
supply and significant amounts of new assets has helped maintain
investor demand in recent months.
It is unlikely that the municipal bond market will continue to
significantly outperform US Treasury securities in the near future.
The tax-exempt bond market's recent performance led to the yield
ratio between taxable and tax-exempt securities falling from in
excess of 90% to approxi-mately 85%. Some institutional investors,
particularly short-term traders, have begun to view the tax-exempt
bond markets recent outperformance as an opportunity to sell assets.
However, to the long-term investor such a sale would represent the
loss of an asset which may not be easily replaced given the relative
scarcity of municipal bonds under present supply conditions.
<PAGE>
Looking ahead, no clear consensus for the direction of interest
rates currently exists. Perhaps the primary focus going forward will
be the extent to which the increase in interest rates seen thus far
in 1996 will negatively affect future economic growth. Should growth
slow in the interest-rate sensitive sectors of the economy, like
housing, auto, and consumer spending, as many economists assert is
likely, then bond yields are likely to decline. Under such a
scenario, the municipal bond market's performance is likely to
closely mirror that of US Treasury bond market.
Portfolio Strategy
We maintained Apex Municipal Fund, Inc.'s fully invested position
and continued to emphasize the monitoring of existing holdings for
credit developments and financial performance. We seek to provide
shareholders with a higher yield than that offered in the general
market.
During the six months ended June 30, 1996, we purchased approxi-
mately $42.0 million in high-yield tax-exempt securities bearing
an average yield of 7.20%. Given the Fund's consistently low
cash reserves and in order to finance these acquisitions, it became
necessary to dispose of securities demonstrating symptoms of credit-
related stress. The ensuing restructuring that took place gave the
Fund greater liquidity while extending the average call protection
for the entire portfolio.
Looking ahead, we expect to maintain cash reserves at minimal
levels. Despite heightened volatility over the last six months in
the fixed-income markets, high-yield securities are generally less
influenced by fluctuations in interest rates than by credit-related
developments. As a result, the Fund experienced little of the
volatility shared by the more interest rate-sensitive general market
tax-exempt mutual bond funds. During the current market downturn,
this characteristic benefited shareholders as most of the Fund's
holdings retained their value better than the investment-grade
market as a whole. The recent rise in long-term interest rates
provides us with an opportunity to lock in yields at attractive
levels as well as extend the portfolio's average call protection.
While these efforts may increase the portfolio's sensitivity to
interest rate fluctuations somewhat, there appears to be value at
current levels and so a modestly more aggressive approach seems
prudent should the market continue to weaken.
In Conclusion
We appreciate your ongoing interest in Apex Municipal Fund, Inc.,
and we look forward to serving your investment needs in the months
and years to come.
<PAGE>
Sincerely,
(Arthur Zeikel)
Arthur Zeikel
President
(Vincent R. Giordano)
Vincent R. Giordano
Senior Vice President
(Theodore R. Jaeckel Jr.)
Theodore R. Jaeckel Jr.
Portfolio Manager
July 30, 1996
Portfolio
Abbreviations
To simplify the listings of Apex Municipal
Fund, Inc.'s portfolio holdings in the
Schedule of Investments, we have abbrev-
iated the names of many of the securities
according to the list at right.
AMT Alternative Minimum Tax (subject to)
COP Certificates of Participation
EDA Economic Development Authority
GO General Obligation Bonds
IDA Industrial Development Authority
IDR Industrial Development Revenue Bonds
M/F Multi-Family
PCR Pollution Control Revenue Bonds
RIB Residual Interest Bonds
UT Unlimited Tax
<PAGE>
<TABLE>
SCHEDULE OF INVESTMENTS (in Thousands)
<CAPTION>
S&P Moody's Face Value
STATE Ratings Ratings Amount Issue (Note 1a)
<S> <S> <S> <C> <S> <C>
Alabama--0.6% B+ NR* $ 1,000 Brewton, Alabama, Industrial Development Board, PCR,
Refunding (Container Corporation America Project),
8% due 4/01/2009 $ 1,064
Arizona--4.1% NR* NR* 3,915 Fort Mojave Indian Tribe, Arizona, Water and Sewer
Revenue Bonds, 10.25% due 9/01/2019 (a) 1,997
NR* NR* 6,000 Navajo County, Arizona, IDA, IDR (Stone Container
Corp. Project), AMT, 7.40% due 4/01/2026 6,046
Arkansas--2.0% NR* NR* 400 Alma, Arkansas, Health Facilities Board Revenue Bonds,
10.50% due 12/01/2019 431
NR* NR* 400 Conway, Arkansas, Public Facilities Board, Health Care
Revenue Bonds (Creative Living Project), 10.50% due 12/01/2019 429
NR* NR* 400 Hope, Arkansas, Health Facilities Board Revenue Bonds
(Omega Home), 10.50% due 12/01/2019 429
NR* NR* 800 Little Rock, Arkansas, Health Facilities Board Revenue Bonds
(Community Life Services), 10.50% due 12/01/2019 863
NR* NR* 800 Pine Bluff, Arkansas, Health Facilities Board Revenue Bonds
(Jenkins Housing), 10.50% due 12/01/2019 867
NR* NR* 400 Texarkana, Arkansas, Public Facilities Board, Health Care
Revenue Bonds (Housing Opportunities Addition Project),
10.50% due 12/01/2019 433
NR* NR* 400 West Helena, Arkansas, Health Facilities Board Revenue
Bonds (Delta House), 10.50% due 12/01/2019 429
California-- BBB- Baa 5,000 Foothill/Eastern Transportation Corridor Agency,
2.6% California, Toll Road Revenue Bonds (Senior Lien),
Series A, 6.50%** due 1/01/2028 606
NR* NR* 2,000 Long Beach, California, Redevelopment Agency, M/F
Housing Revenue Bonds (Pacific Court Apartments),
Issue B, AMT, 6.95% due 9/01/2023 1,586
NR* NR* 12,915 San Joaquin Hills, California, Transportation Corridor
Agency, Toll Road Revenue Bonds Senior Lien,,
6.75%** due 1/01/2019 2,930
Colorado--2.8% Denver, Colorado, City and County Airport Revenue Bonds, AMT:
BBB Baa 2,505 Series A, 8% due 11/15/2025 2,800
BBB Baa 2,500 Series B, 7.25% due 11/15/2023 2,638
<PAGE>
Connecticut BBB- Baa 1,000 Connecticut State Health and Educational Facilities
- --0.5% Authority, Revenue Refunding Bonds(Sacred Heart
University), Series C, 6.625% due 7/01/2026 1,010
District of B- NR* 3,000 District of Columbia, COP, 7.30% due 1/01/2013 3,076
Columbia--1.6%
Florida--6.4% NR* NR* 9,449 Florida Housing Finance Agency, M/F Housing Agency Revenue
Bonds (Palm Aire Retirement Facilities Project), Series S,
AMT, 10% due 1/01/2020 (a) 6,519
NR* NR* 5,220 Miami Beach, Florida, Redevelopment Agency, Tax Increment
Revenue Bonds, AMT, 9.125% due 12/01/2004 5,852
NR* NR* 4,378 North Miami, Florida, Health Facilities Authority Revenue
Bonds (Hallmark Homes Project), Series A, 10.50% due 8/01/2020 (a) 44
Georgia--3.5% NR* NR* 4,000 Atlanta, Georgia, Urban Residential Finance Authority, M/F
Mortgage Revenue Bonds (Northside Plaza Apartments Project),
9.75% due 11/01/2020 4,248
NR* NR* 2,450 Hancock County, Georgia, COP, 8.50% due 4/01/2015 (e) 2,661
Illinois--6.1% Chicago, Illinois, O'Hare International Airport, Special
Facilities Revenue Bonds (United Airlines, Inc.):
BB Baa2 4,575 Series 1984-B, 8.85% due 5/01/2018 5,144
BB Baa2 4,705 Series B, AMT, 8.95% due 5/01/2018 5,279
BBB- NR* 1,550 Metropolitan Pier and Exposition Authority, Illinois, Hospitality
Facilities Revenue Bonds (McCormick Place Convention),
6.25% due 7/01/2017 1,537
Indiana--1.0% NR* NR* 2,000 Wabash, Indiana, Solid Waste Disposal Revenue Bonds
(Jefferson Smurfit Corp. Project), AMT, 7.50% due 6/01/2026 2,012
Iowa--5.7% NR* NR* 10,000 Iowa Finance Authority, Health Care Facilities, Revenue Refunding
Bonds (Mercy Health Initiatives Project), 9.25% due 7/01/2025 11,230
Louisiana--4.1% NR* Baa2 3,000 Lake Charles, Louisiana, Harbor and Terminal District Port
Facilities, Revenue Refunding Bonds (Trunk Line Co. Project),
7.75% due 8/15/2022 3,341
NR* A 1,000 Louisiana Public Facilities Authority Revenue Bonds, Student
Loan, Sub-Series A-3, AMT, 7% due 9/01/2006 1,064
BB- NR* 3,500 Port New Orleans, Louisiana, IDR, Refunding (Continental Grain
Company Project), 7.50% due 7/01/2013 3,624
Maryland--2.6% NR NR 5,000 Maryland State Energy Financing Administration, Limited Obligation
Revenue Bonds, (Cogeneration-AES Warrior Run), AMT, 7.40% due
9/01/2019 5,154
<PAGE>
Massachusetts-- NR* NR* 1,700 Boston, Massachusetts, Industrial Development Financing Authority,
6.6% Solid Waste Disposal Facilities Revenue Bonds (Jet-A-Way Project),
AMT, 10.50% due 1/01/2011 1,931
NR* NR* 3,400 Massachusetts State Health and Educational Facilities Authority
Revenue Bonds (Farren Care Center), Series A, 10.375% due 6/01/2010 3,867
NR* NR* 2,005 Massachusetts State Industrial Finance Agency, Educational
Institution Revenue Bonds (Center for Human Development), 9.375%
due 7/01/2015 2,203
NR* NR* 2,400 Massachusetts State Industrial Finance Agency, Sewage Facility
Revenue Bonds (Resource Control Composting, Inc. Project), AMT,
9.25% due 6/01/2010 2,568
NR* NR* 2,000 Massachusetts State Port Authority, Special Project Revenue Bonds
(Harborside Hyatt), AMT, 10% due 3/01/2026 2,240
Michigan--1.7% NR* NR* 2,050 Wayne Charter County, Michigan, Special Airport Facilities, Revenue
Refunding Bonds (Northwest Airlines, Inc.), 6.75% due 12/01/2015 2,061
BBB- Baa 1,200 Wayne County, Michigan, Downriver Sewer Disposal System Revenue
Bonds,Series A, 7% due 11/01/2013 1,271
Minnesota--1.8% NR* NR* 3,355 Anoka, Minnesota, M/F Housing Revenue Bonds (Rainbow Plaza
Apartments Project), AMT, 9.375% due 12/01/2024 3,529
New Jersey-- NR* NR* 2,000 Camden County, New Jersey, Improvement Authority, Lease Revenue
2.9% Bonds (Holt Hauling & Warehousing), Series A, 9.875% due 1/01/2021 2,000
NR* NR* 1,500 New Jersey, EDA, IDR, Refunding (Newark Airport Marriott Hotel),
7% due 10/01/2014 1,495
New Jersey Health Care Facilities Financing Authority Revenue Bonds:
NR* NR* 980 (Riverwood Center), Series A, 9.90% due 7/01/2021 1,092
BBB- Baa 1,000 (Saint Elizabeth Hospital), Series B, 8.25% due 7/01/2020 1,091
New Mexico-- BB Ba2 1,750 Farmington, New Mexico, PCR, Refunding (Public Service
0.9% Company--San Juan Project), Series A, 6.40% due 8/15/2023 1,690
New York--9.5% New York City, New York, GO, UT, Series D:
AAA AAA 1,705 7.70% due 2/01/2002 (d) 1,953
BBB+ Baa1 240 7.70% due 2/01/2011 268
NR* NR* 7,150 New York City, New York, IDA, Civic Facilities Revenue Bonds
(Amboy Properties Corporation Project), 9.625% due 6/01/2015 7,643
</TABLE>
<PAGE>
<TABLE>
SCHEDULE OF INVESTMENTS (concluded) (in Thousands)
<CAPTION>
S&P Moody's Face Value
STATE Ratings Ratings Amount Issue (Note 1a)
<S> <S> <S> <C> <S> <C>
New York NR* NR* $ 2,500 New York City, New York, IDA, Revenue Bonds (Visy
(concluded) Paper Inc. Project), AMT, 7.95% due 1/01/2028 $ 2,576
Port Authority of New York and New Jersey, Special Obligation
Revenue Bonds (Special Project--KIAC), AMT, Series 4:
NR* NR* 2,250 Third Installment, 7% due 10/01/2007 2,359
NR* NR* 3,750 Fifth Installment, 6.75% due 10/01/2019 3,731
Ohio--0.9% NR* NR* 1,740 Cincinnati, Ohio, Student Loan Funding Corporation, Revenue
Refunding Bonds, Sub-Series B, AMT, 6.75% due 1/01/2007 1,723
Oregon--0.5% NR* NR* 1,000 Western Generation Agency, Oregon, Cogeneration Project
Revenue Bonds (Wauna Cogeneration Project), AMT, Series B,
7.40% due 1/01/2016 1,032
Pennsylvania-- NR* NR* 5,000 Lehigh County, Pennsylvania, General Purpose Authority Revenue
17.1% Bonds (Wiley House), 8.75% due 11/01/2014 5,151
NR* NR* 3,150 Montgomery County, Pennsylvania, Higher Education and Health
Authority Revenue Bonds (Retirement Community--GDL Farms),
Series A, 9.50% due 1/01/2000 (d) 3,675
NR* NR* 1,000 Montgomery County, Pennsylvania, IDA, First Mortgage Revenue
Refunding Bonds (Meadowood Corporation Project), Series A,
10.25% due 12/01/2020 1,104
BBB- Baa2 3,000 Pennsylvania Economic Development Financing Authority, Exempt
Facilities Revenue Bonds (MacMillan Limited Partnership Project),
AMT, 7.60% due 12/01/2020 3,290
NR* NR* 1,000 Pennsylvania Economic Development Financing Authority, IDR
(Gehl Co., Inc. Project), Series F, AMT, 9% due 9/01/2010 1,092
NR* NR* 4,000 Pennsylvania Economic Development Financing Authority, Recycling
Revenue Bonds (Ponderosa Fibres Project), Series A, AMT,
9.25% due 1/01/2022 3,867
BBB+ Baa1 1,000 Pennsylvania Economic Development Financing Authority, Wastewater
Treatment Revenue Bonds (Sun Company Inc.--R & M Project), Series A,
AMT, 7.60% due 12/01/2024 1,099
AAA Aaa 2,000 Pennsylvania State Higher Education Assistance Agency, Student
Loan Revenue Bonds, RIB, Series B, AMT, 8.329% due 3/01/2022 (b)(c) 1,957
NR* NR* 5,000 Pennsylvania State Higher Educational Facilities Authority,
College and University Revenue Bonds (Eastern College),
Series B, 8% due 10/15/2025 5,016
NR* NR* 5,500 Philadelphia, Pennsylvania, IDR, Refunding (Commercial
Development Philadelphia Airport), AMT, 7.75% due 12/01/2017 5,720
NR* NR* 1,600 Washington County, Pennsylvania, Hospital Authority, Revenue
Refunding Bonds (Canonsburg General Hospital Project), 7.35%
due 6/01/2013 1,528
<PAGE>
Tennessee--1.1% NR* NR* 2,000 Knox County, Tennessee, Health, Educational and Housing
Facilities Board, Hospital Facilities Revenue Bonds
(Baptist Health System of East Tennessee), 8.60% due 4/15/2016 2,113
Texas--4.1% NR* NR* 1,460 Angelina County, Texas, Jail Facilities Financing Corporation,
Criminal Detention Center Mortgage Revenue Bonds, 9.75%
due 8/01/2009 (a) --
NR* NR* 6,035 Bexar County, Texas, Health Facilities Development Corporation
Revenue Bonds (Heartway Corporation), Series 1989-A-1, 10.25%
due 3/01/2019 3,923
BB+ Baa2 2,000 Dallas-Fort Worth, Texas, International Airport Facilities
Improvement Corporation Revenue Bonds (American Airlines, Inc.),
AMT, 7.50% due 11/01/2025 2,114
NR* Ba2 945 Nolan County, Texas, Industrial Development Corporation, IDR
(US Gypsum Company Project), 7.25% due 12/01/2014 964
BB Ba 1,000 Odessa, Texas, Junior College District, Revenue Refunding Bonds,
Series A, 8.125% due 12/01/2018 1,058
NR* NR* 3,530 Pecos County, Texas, Jail Facilities Financing Corporation,
Criminal Detention Center Mortgage Revenue Bonds, 9.75%
due 8/01/2009 (a) --
Washington-- NR* A 7,500 Washington State Healthcare Facilities Authority Revenue Bonds
4.2% (Kadlec Medical Center--Richland), 9% due 1/01/2011 8,150
West Virginia-- NR* NR* 6,250 Fayette County, West Virginia, Commercial Development Commission,
3.5% Revenue Refunding Bonds(MPC Incorporated Project), 9.75% due
2/01/2011 6,880
Total Investments (Cost--$195,547)--98.4% 192,367
Other Assets Less Liabilities--1.6% 3,198
--------
Net Assets--100.0% $195,565
========
<FN>
(a)Non-income producing security.
(b)The interest rate is subject to change periodically and inversely
based upon prevailing market rates. The interest rate shown is the
rate in effect at June 30, 1996.
(c)AMBAC Insured.
(d)Prerefunded.
(e)Bank qualified.
*Not Rated.
**Represents a zero coupon or step bond; the interest rate shown is
the effective yield at the time of purchase by the Fund.
Ratings of issues shown have not been audited by Deloitte & Touche LLP.
See Notes to Financial Statements.
</TABLE>
<PAGE>
<TABLE>
STATEMENT OF ASSETS, LIABILITIES AND CAPITAL
<CAPTION>
As of June 30, 1996
<S> <S> <S> <C>
Assets: Investments, at value (identified cost--$195,547,116) (Note 1a) $192,367,188
Cash 16,904
Receivables:
Interest $ 3,402,733
Securities sold 40,000 3,442,733
------------
Prepaid expenses and other assets 127,140
------------
Total assets 195,953,965
------------
Liabilities: Payables:
Dividends to shareholders (Note 1e) 162,167
Investment adviser (Note 2) 96,541 258,708
------------
Accrued expenses and other liabilities 129,934
------------
Total liabilities 388,642
------------
Net Assets: Net assets $195,565,323
============
Capital: Common Stock, $.10 par value, 150,000,000 shares authorized;
19,544,644 shares issued and outstanding (Note 4) $ 1,954,464
Paid-in capital in excess of par 215,230,388
Undistributed investment income--net 1,499,376
Accumulated realized capital losses on investments--net (Note 5) (19,938,977)
Unrealized depreciation on investments--net (3,179,928)
------------
Total capital--Equivalent to $10.01 net asset value per share of
Common Stock (market price--$9.125) $195,565,323
============
See Notes to Financial Statements.
</TABLE>
<PAGE>
<TABLE>
STATEMENT OF OPERATIONS
<CAPTION>
For the Year Ended June 30, 1996
<S> <S> <S> <C>
Investment Interest and amortization of premium and discount earned $ 14,836,361
Income (Note 1d):
Expenses: Investment advisory fees (Note 2) $ 1,273,171
Professional fees 200,170
Transfer agent fees 61,855
Accounting services (Note 2) 53,510
Directors' fees and expenses 48,568
Printing and shareholder reports 41,166
Listing fees 36,962
Custodian fees 17,312
Pricing fees 9,811
Other 16,930
------------
Total expenses 1,759,455
------------
Investment income--net 13,076,906
------------
Realized & Realized loss on investments--net (1,143,352)
Unrealized Loss on Change in unrealized depreciation on investments--net (121,191)
Investments--Net ------------
(Notes 1b, 1d & 3): Net Increase in Net Assets Resulting from Operations $ 11,812,363
============
See Notes to Financial Statements.
</TABLE>
<PAGE>
<TABLE>
STATEMENTS OF CHANGES IN NET ASSETS
<CAPTION>
For the Year Ended June 30,
Increase (Decrease) in Net Assets: 1996 1995
<S> <S> <S> <C>
Operations: Investment income--net $ 13,076,906 $ 13,847,145
Realized loss on investments--net (1,143,352) (7,795,055)
Change in unrealized appreciation/depreciation on
investments--net (121,191) 7,065,353
------------ ------------
Net increase in net assets resulting from operations 11,812,363 13,117,443
------------ ------------
Dividends to Investment income--net (12,893,934) (13,936,289)
Shareholders ------------ ------------
(Note 1e): Net decrease in net assets resulting from dividends to
shareholders (12,893,934) (13,936,289)
------------ ------------
Net Assets: Total decrease in net assets (1,081,571) (818,846)
Beginning of year 196,646,894 197,465,740
------------ ------------
End of year* $195,565,323 $196,646,894
============ ============
<FN>
*Undistributed investment income--net $ 1,499,376 $ 1,316,404
============ ============
See Notes to Financial Statements.
</TABLE>
<PAGE>
<TABLE>
FINANCIAL HIGHLIGHTS
<CAPTION>
The following per share data and ratios have been derived
from information provided in the financial statements.
For the Year Ended June 30,
Increase (Decrease) in Net Asset Value: 1996 1995 1994 1993 1992
<S> <S> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of year $ 10.06 $ 10.10 $ 10.40 $ 10.31 $ 10.92
Operating -------- -------- -------- -------- --------
Performance: Investment income--net .67 .71 .75 .84 .91
Realized and unrealized gain (loss)
on investments--net (.06) (.04) (.30) .09 (.61)
-------- -------- -------- -------- --------
Total from investment operations .61 .67 .45 .93 .30
-------- -------- -------- -------- --------
Less dividends from investment income--net (.66) (.71) (.75) (.84) (.91)
-------- -------- -------- -------- --------
Net asset value, end of year $ 10.01 $ 10.06 $ 10.10 $ 10.40 $ 10.31
======== ======== ======== ======== ========
Market price per share, end of year $ 9.125 $ 9.375 $ 9.875 $ 10.875 $ 11.00
======== ======== ======== ======== ========
Total Investment Based on market price per share 4.54% 2.57% (2.26%) 7.34% 3.93%
Return:* ======== ======== ======== ======== ========
Based on net asset value per share 6.87% 7.61% 4.53% 9.52% 2.59%
======== ======== ======== ======== ========
Ratios to Average Expenses, net of reimbursement .90% .91% .88% .60% .83%
Net Assets: ======== ======== ======== ======== ========
Expenses .90% .91% .88% .81% .83%
======== ======== ======== ======== ========
Investment income--net 6.66% 7.14% 7.24% 8.18% 8.45%
======== ======== ======== ======== ========
Supplemental Net assets, end of year (in thousands) $195,565 $196,647 $197,466 $201,760 $197,996
Data: ======== ======== ======== ======== ========
Portfolio turnover 56% 20% 12% 11% 3%
======== ======== ======== ======== ========
<FN>
*Total investment returns based on market value, which can be
significantly greater or lesser than the net asset value, may result
in substantially different returns. Total investment returns exclude
the effect of sales loads.
See Notes to Financial Statements.
</TABLE>
<PAGE>
NOTES TO FINANCIAL STATEMENTS
1. Significant Accounting Policies:
Apex Municipal Fund, Inc. (the "Fund") is registered under the
Investment Company Act of 1940 as a non-diversified, closed-end
management investment company. The Fund determines and makes
available for publication the net asset value of its Common Stock on
a weekly basis. The Fund's Common Stock is listed on the New York
Stock Exchange under the symbol APX. The following is a summary of
significant accounting policies followed by the Fund.
(a) Valuation of investments--Municipal bonds are traded primarily
in the over-the-counter markets and are valued at the most recent
bid price or yield equivalent as obtained by the Fund's pricing
service from dealers that make markets in such securities. Financial
futures contracts and options thereon, which are traded on
exchanges, are valued at their closing prices as of the close of
such exchanges. Options, which are traded on exchanges, are valued
at their last sale price as of the close of such exchanges or,
lacking any sales, at the last available bid price. Securities with
remaining maturities of sixty days or less are valued at amortized
cost, which approximates market value. Securities and assets for
which market quotations are not readily available are valued at fair
value as determined in good faith by or under the direction of the
Board of Directors of the Fund, including valuations furnished by a
pricing service retained by the Fund, which may utilize a matrix
system for valuations. The procedures of the pricing service and its
valuations are reviewed by the officers of the Fund under the
general supervision of the Board of Directors.
(b) Derivative financial instruments--The Fund may engage in various
portfolio strategies to seek to increase its return by hedging its
portfolio against adverse movements in the debt markets. Losses may
arise due to changes in the value of the contract or if the counter
party does not perform under the contract.
* Financial futures contracts--The Fund may purchase or sell interest
rate futures contracts and options on such futures contracts for the
purpose of hedging the market risk on existing securities or the
intended purchase of securities. Futures contracts are contracts for
delayed delivery of securities at a specific future date and at a
specific price or yield. Upon entering into a contract, the Fund
deposits and maintains as collateral such initial margin as required
by the exchange on which the transaction is effected. Pursuant to
the contract, the Fund agrees to receive from or pay to the broker
an amount of cash equal to the daily fluctuation in value of the
contract. Such receipts or payments are known as variation margin
and are recorded by the Fund as unrealized gains or losses. When the
contract is closed, the Fund records a realized gain or loss equal
to the difference between the value of the contract at the time it
was opened and the value at the time it was closed.
<PAGE>
* Options--The Fund is authorized to write covered call options and
purchase put options. When the Fund writes an option, an amount
equal to the premium received by the Fund is reflected as an asset
and an equivalent liability. The amount of the liability is
subsequently marked to market to reflect the current market value of
the option written.
When a security is purchased or sold through an exercise of an
option, the related premium paid (or received) is added to (or
deducted from) the basis of the security acquired or deducted from
(or added to) the proceeds of the security sold. When an option
expires (or the Fund enters into a closing transaction), the Fund
realizes a gain or loss on the option to the extent of the premiums
received or paid (or gain or loss to the extent the cost of the
closing transaction exceeds the premium paid or received).
Written and purchased options are non-income producing investments.
(c) 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 substantially all of its
taxable income to its shareholders. Therefore, no Federal income tax
provision is required.
(d) Security transactions and investment income--Security
transactions are recorded on the dates the transactions are entered
into (the trade dates). Interest income is recognized on the accrual
basis. Discounts and market premiums are amortized into interest
income. Realized gains and losses on security transactions are
determined on the identified cost basis.
(e) Dividends and distributions--Dividends from net investment
income are declared daily and paid monthly. Distributions of capital
gains are recorded on the ex-dividend dates.
2. Investment Advisory Agreement and Transactions
with Affiliates:
The Fund has entered into an Investment Advisory Agreement with Fund
Asset Management, L.P. ("FAM"). The general partner of FAM is
Princeton Services, Inc. ("PSI"), an indirect wholly-owned
subsidiary of Merrill Lynch & Co., Inc. ("ML & Co."), which is a
limited partner.
FAM is responsible for the management of the Fund's portfolio and
provides the necessary personnel, facilities, equipment and certain
other services necessary to the operations of the Fund. For such
services, the Fund pays a monthly fee at an annual rate of 0.65% of
the Fund's average weekly net assets.
<PAGE>
Accounting services are provided to the Fund by FAM at cost.
Certain officers and/or directors of the Fund are officers and/or
directors of FAM, PSI, Merrill Lynch, Pierce, Fenner & Smith Inc.
("MLPF&S"), and/or ML & Co.
3. Investments:
Purchases and sales of investments, excluding short-term securities,
for the year ended June 30, 1996 were $113,258,315 and $107,278,171,
respectively.
Net realized and unrealized losses as of June 30, 1996 were as
follows:
Realized Unrealized
Losses Losses
Long-term investments $(1,143,352) $(3,179,928)
----------- -----------
Total $(1,143,352) $(3,179,928)
=========== ===========
As of June 30, 1996, net unrealized depreciation for Federal income
tax purposes aggregated $3,179,928 of which $10,208,602 related to
appreciated securities and $13,388,530 related to depreciated
securities. The aggregate cost of investments at June 30, 1996 for
Federal income tax purposes was $195,547,116.
4. Common Stock Transactions:
At June 30, 1996, the Fund had one class of shares of Common Stock,
par value $0.10 per share, of which 150,000,000 shares were
authorized. During the year ended June 30, 1996, shares issued and
outstanding remained constant at 19,544,644. At June 30, 1996, total
paid-in capital amounted to $217,184,852.
5. Capital Loss Carryforward:
At June 30, 1996, the Fund had a net capital loss carryforward of
approximately $18,263,000, of which $274,000 expires in 1998,
$1,527,000 expires in 1999, $4,876,000 expires in 2001, $2,775,000
expires in 2002, $1,754,000 expires in 2003 and $7,057,000 expires
in 2004. This amount will be available to offset like amounts of any
future taxable gains.
6. Subsequent Event:
On July 11, 1996, the Fund's Board of Directors declared an ordinary
income dividend to Common Stock shareholders in the amount of
$0.054667 per share, payable on July 30, 1996 to shareholders of
record as of July 22, 1996.
<PAGE>
<AUDIT-REPORT>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholders,
Apex Municipal Fund, Inc.:
We have audited the accompanying statement of assets, liabilities,
and capital, including the schedule of investments, of Apex
Municipal Fund, Inc., as of June 30, 1996, the related statements of
operations for the year then ended and changes in net assets for
each of the years in the two-year period then ended, and the
financial highlights for each of the years in the five-year period
then ended. These financial statements and the financial highlights
are the responsibility of the Fund's management. Our responsibility
is to express an opinion on the financial statements and the
financial highlights 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 financial highlights 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 at June 30,
1996 by correspondence with the custodian. An audit also includes
assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such financial statements and the financial
highlights present fairly, in all material respects, the financial
position of Apex Municipal Fund, Inc. as of June 30, 1996, the
results of its operations, the changes in its net assets, and the
financial highlights for the respective stated periods in conformity
with generally accepted accounting principles.
Deloitte & Touche LLP
Princeton, New Jersey
July 30, 1996
</AUDIT-REPORT>
