APEX MUNICIPAL
FUND, INC.
FUND LOGO
Annual Report
June 30, 1997
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
Printed on post-consumer recycled paper
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
Vincent R. Giordano, Senior Vice President
Donald C. Burke, Vice President
Kenneth A. Jacob, Vice President
Theodore R. Jaeckel Jr., Vice President
Gerald M. Richard, Treasurer
Patrick D. Sweeney, Secretary
Custodian & Transfer Agent
The Bank of New York
90 Washington Street
New York, NY 10286
NYSE Symbol
APX
<PAGE>
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, 1997 qualify as tax-exempt interest dividends for Federal
income tax purposes.
There were no capital gains distributions declared by the Fund
during its taxable year ended June 30, 1997.
Please retain this information for your records.
DEAR SHAREHOLDERS
For the year ended June 30, 1997, Apex Municipal Fund, Inc. earned
$0.661 per share income dividends, which included earned and unpaid
dividends of $0.054. This represents a net annualized yield of
6.44%, based on a month-end per share net asset value of $10.25.
Over the same period, the Fund's total investment return was +9.69%,
based on a change in per share net asset value from $10.01 to
$10.25, and assuming reinvestment of $0.661 per share income
dividends.
For the six months ended June 30, 1997, the Fund's total investment
return was +4.22%, based on a change in per share net asset value
from $10.17 to $10.25, and assuming reinvestment of $0.325 per share
income dividends.
The Municipal Market
Environment
The combination of continued low, if not diminishing, inflation and
moderating economic growth allowed tax-exempt bond yields to move
lower during the six months ended June 30, 1997. Interest rates
initially had continued to rise in early 1997 in response to
investor concerns that the Federal Reserve Board would initiate a
series of interest rate increases to ensure that the economic growth
seen at the end of 1997 would slacken before any inflationary
pressures could be triggered. As measured by the Bond Buyer Revenue
Bond Index, tax-exempt revenue bond yields rose approximately 20
basis points (0.20%) by early April 1997. However, as economic
growth continued to slow and concerns of ongoing interest rate
increases by the Federal Reserve Board abated, bond yields fell for
the remainder of the six-month period ended June 30, 1997. By the
end of June, tax-exempt bond yields had fallen to 5.78%, a decline
of almost 15 basis points over the last six months. US Treasury bond
yields exhibited a similar pattern of rising and falling over the
last six months. However, US Treasury bond yields rose nearly 15
basis points over the last six months to 6.78% at the end of June
1997.
<PAGE>
The municipal bond market's performance in recent months has been
even more impressive given that there has been a noticeable
deterioration in the strong technical position that had supported
much of the tax-exempt bond market's performance in recent quarters.
Over the last six months, municipalities issued over $90 billion in
new long-term securities, an increase of approximately 2% compared
to the first six months of 1996. However, during the last three
months, over $55 billion in long-term municipal bonds was
underwritten, an increase of nearly 10% versus the same period a
year ago. The recent decline in municipal bond yields has led many
issuers to accelerate their financing plans to take advantage of
current low interest rates. Over $21 billion in long-term tax-exempt
bonds was issued in June 1997, an increase of over 15% versus the
June 1996 issuance. Additionally, the state of New Jersey issued
$2.8 billion in taxable municipal debt in June. This added to an
already heavy supply position.
Fortunately, investor demand has remained very positive thus far in
1997. Property and casualty insurance companies have continued to be
very active in the 15-year--20-year maturity sector. Also, municipal
investors continue to receive significant cash flows from tax-exempt
bond maturities, coupon income and the proceeds from advanced and
current refundings. In January 1997, investors received over $20
billion in such assets. In the months of June and July, investors
are expected to receive over $50 billion in such payments. It is
likely that, despite the continued allure of the domestic equity
market, much of these assets have been and will be reinvested in tax-
advantaged products suggesting that investor demand will remain
strong going forward.
Additionally, in recent months much of the new bond issuance was
dominated by a number of larger issues. These included $350 million
in New York Municipal Assistance Corp. bonds, $1 billion in New York
City general obligation bonds, $930 million in Port Authority of New
York and New Jersey issues, $565 million in Puerto Rico Building
Authority issues, $600 million in state of California bonds, $256
million in Los Angeles Metropolitan Transportation Authority issues,
$350 million in Orange County, Florida sales tax revenue bonds and
$300 million in state of Florida bonds. These and other bond issues
typically have been underwritten in states with high state income
taxes and consequently generally were issued at yields that were
relatively unattractive to residents in other states. This scenario
has tended to offset the recent increase in supply as general market
investors have ignored much of this specialty-state supply in favor
of higher-yielding issues.
<PAGE>
The present economic situation remains nearly ideal. The domestic
economy continues to grow steadily with little, if any, sign of a
resurgence in inflation. Recent economic growth generated
considerable unexpected tax revenues for the Federal government.
Forecasts for the 1997 Federal fiscal deficit were reduced to under
$100 billion, a level not seen since the early 1980s. Such a reduced
Federal deficit enhances the prospect of a balanced Federal budget.
All these factors support a scenario of steady, or even falling,
interest rates in the coming years. Present annual estimates of
future municipal bond issuance remain centered around $175 billion
for all of 1997, indicating that the recent increase in supply
should return to the levels seen earlier this year. This may ensure
that tax-exempt products remain an attractive investment alternative
throughout 1997.
Portfolio Strategy
During the six-month period ended June 30, 1997, long-term tax-
exempt securities, particularly those in the high-yield sector, held
their value surprisingly well considering the volatility experienced
in the Treasury market. A lack of supply of high-yield municipal
bonds in the new-issue market coupled with heightened demand for
these issues allowed this sector to successfully weather periods of
instability and contributed directly to the Fund's relatively
resilient net asset value. As a consequence, we were able to
maintain a fully invested posture, thereby ensuring a stable
dividend stream throughout the six-month period ended June 30, 1997.
Despite relatively low volume in the tax-exempt high-yield market,
we successfully purchased $21.9 million in bonds bearing an average
weighted yield of 7.60%. An example of one purchase is bonds issued
by Tucson Electric Power Company. This investor-owned utility is
emerging from serious financial straits dating back to the early
1990s and is demonstrating signs of continued improvement in its
credit characteristics. In addition, the purchase reflects a
continuation of our focus on corporate-related debt, a sector in
which we have experienced a high degree of success resulting in an
enhanced degree of performance relative to industry benchmarks.
For some time now, our strategy has been to actively manage the
Fund's call exposure in an effort to seek to lock in price premiums
when available, ensure stability of the dividend stream and redeploy
assets toward new commitments with better performance characteristics.
Portfolio activity during the six months ended June 30, 1997 has
typified this approach as most of our new purchases were financed
by the sale of securities possessing a minimal degree of call
protection and trading well in excess of par. While not
without risk, this strategy affords the potential for the
enhancement of total return while at the same time limiting the
dividend erosion implicit in a portfolio possessing limited average
call protection.
<PAGE>
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.
Sincerely,
(Arthur Zeikel)
Arthur Zeikel
President
(Vincent R. Giordano)
Vincent R. Giordano
Senior Vice President
(Theodore R. Jaeckel Jr.)
Theodore R. Jaeckel Jr.
Vice President and Portfolio Manager
July 16, 1997
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.
<PAGE>
AMT Alternative Minimum Tax (subject to)
COP Certificates of Participation
EDA Economic Development Authority
HFA Housing Finance Agency
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
<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--1.2% AA Aa $ 1,500 Birmingham, Alabama, Special Care Facilities Financing
Authority, Revenue Refunding Bonds (Daughters of Charity--Saint
Vincent's), 5% due 11/01/2025 $ 1,355
B+ NR* 1,000 Brewton, Alabama, Industrial Development Board, PCR,
Refunding (Container Corporation American Project),
8% due 4/01/2009 1,078
Arizona--2.5% NR* NR* 3,915 Fort Mojave Indian Tribe, Arizona, Water and Sewer Revenue
Bonds, 10.25% due 9/01/2019 (a) 1,957
NR* NR* 3,000 Navajo County, Arizona, IDA, IDR (Stone Container Corp.
Project), AMT, 7.40% due 4/01/2026 3,079
Arkansas--1.9% NR* NR* 395 Alma, Arkansas, Health Facilities Board Revenue Bonds,
10.50% due 12/01/2019 426
NR* NR* 395 Conway, Arkansas, Public Facilities Board, Health Care Revenue
Bonds (Creative Living Project), 10.50% due 12/01/2019 426
NR* NR* 395 Hope, Arkansas, Health Facilities Board Revenue Bonds
(Omega Home), 10.50% due 12/01/2019 426
NR* NR* 790 Little Rock, Arkansas, Health Facilities Board Revenue Bonds
(Community Life Services), 10.50% due 12/01/2019 851
NR* NR* 790 Pine Bluff, Arkansas, Health Facilities Board Revenue Bonds
(Jenkins Housing), 10.50% due 12/01/2019 851
NR* NR* 395 Texarkana, Arkansas, Public Facilities Board, Health Care Revenue
Bonds (Housing Opportunities Addition Project), 10.50% due
12/01/2019 426
NR* NR* 395 West Helena, Arkansas, Health Facilities Board Revenue Bonds
(Delta House), 10.50% due 12/01/2019 426
<PAGE>
California--2.8% BBB- Baa 5,000 Foothill/Eastern Transportation Corridor Agency, California,
Toll Road Revenue Bonds (Senior Lien), Series A, 6.50%**
due 1/01/2028 758
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 1,300
NR* NR* 12,915 San Joaquin Hills, California, Transportation Corridor Agency,
Toll Road Revenue Bonds, Senior Lien, 6.75%** due 1/01/2019 3,511
Colorado--3.8% NR* NR* 1,700 Colorado Postsecondary Educational Facilities Authority Revenue
Bonds (Colorado Ocean Journey Inc. Project), 8.30% due 12/01/2017 1,746
BBB Baa1 2,500 Denver, Colorado, City and County Airport Revenue Bonds, AMT,
Series B, 7.25% due 11/15/2023 2,757
NR* NR* 3,000 Denver, Colorado, Urban Renewal Authority, Tax Increment
Revenue Bonds (Downtown Denver), AMT, Series A, 7.75%
due 9/01/2016 3,037
Florida--8.3% NR* NR* 1,000 Arbor Greene, Florida, Community Development District,
Special Assessment Revenue Bonds, 7.60% due 5/01/2018 1,013
NR* NR* 9,449 Florida, HFA, M/F Housing Revenue Bonds (Palm Aire Retirement
Facilities Project), AMT, Series S, 10% due 1/01/2020 (a) 6,614
NR* NR* 4,820 Miami Beach, Florida, Redevelopment Agency, Tax Increment
Revenue Bonds, AMT, 9.125% due 12/01/2004 5,340
NR* NR* 3,575 Tampa Palms, Florida, Open Space and Transportation Community
Development District Revenue Bonds (Capital Improvement--Richmond
Place Project), 7.50% due 5/01/2018 3,617
Georgia--4.5% NR* NR* 3,965 Atlanta, Georgia, Urban Residential Finance Authority, M/F
Housing Mortgage Revenue Bonds (Northside Plaza Apartments
Project), 9.75% due 11/01/2020 4,302
NR* NR* 2,375 Hancock County, Georgia, COP, 8.50% due 4/01/2015 2,594
NR* NR* 1,965 Rockdale County, Georgia, Development Authority, Solid Waste
Disposal Revenue Bonds (Visy Paper Inc. Project), AMT, 7.40%
due 1/01/2016 2,078
Illinois--5.0% BB+ Baa2 4,575 Chicago, Illinois, O'Hare International Airport, Special
Facilities Revenue Bonds United Airlines, Inc.), Series
1984-B, 8.85% due 5/01/2018 5,175
NR* NR* 3,190 Illinois Development Finance Authority, Prime Health Care
Centers Facilities, Acquisition Program Revenue Bonds,
7.75% due 12/01/2016 3,251
BBB- NR* 1,550 Metropolitan Pier and Exposition Authority, Illinois,
Hospitality Facilities Revenue Bonds (McCormick Place
Convention), 6.25% due 7/01/2017 1,580
Indiana--1.1% NR* NR* 2,000 Wabash, Indiana, Solid Waste Disposal Revenue Bonds
(Jefferson Smurfit Corp. Project), AMT, 7.50% due 6/01/2026 2,117
Iowa--5.9% NR* NR* 10,000 Iowa Finance Authority, Health Care Facilities, Revenue
Refunding Bonds (Care Initiatives Project), 9.25% due 7/01/2025 11,836
<PAGE>
Louisiana--4.1% NR* Baa2 3,000 Lake Charles, Louisiana, Harbor and Terminal District,
Port Facilities Revenue Refunding Bonds (Trunkline Co.
Project), 7.75% due 8/15/2022 3,410
NR* A 1,000 Louisiana Public Facilities Authority, Student Loan Revenue
Refunding Bonds, AMT, Series A-3, 7% due 9/01/2006 1,060
BB NR* 3,500 Port New Orleans, Louisiana, IDR, Refunding (Continental
Grain Company Project), 7.50% due 7/01/2013 3,775
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 5,311
Massachusetts NR* NR* 1,655 Boston, Massachusetts, Industrial Development Financing
- --6.3% Authority, Solid Waste Disposal Facilities Revenue Bonds
(Jet-A-Way Project), AMT, 10.50% due 1/01/2011 1,866
NR* NR* 3,400 Massachusetts State Health and Educational Facilities Authority
Revenue Bonds (Farren Care Center), Series A, 10.375% due 6/01/2010 3,820
NR* NR* 1,965 Massachusetts State Industrial Finance Agency, Educational
Institution Revenue Bonds (Center for Human Development),
9.375% due 7/01/2015 2,169
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 2,546
NR* NR* 2,000 Massachusetts State Port Authority, Special Project Revenue
Bonds (Harborside Hyatt), AMT, 10% due 3/01/2026 2,228
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 2,175
BBB- Baa 1,200 Wayne County, Michigan, Downriver Sewer Disposal System
Revenue Bonds, Series A, 7% due 11/01/2013 1,292
Minnesota--1.8% NR* NR* 3,335 Anoka, Minnesota, M/F Housing Revenue Bonds (Rainbow Plaza
Apartments Project), AMT, 9.375% due 12/01/2024 3,545
Missouri--0.5% BBB- NR 980 Joplin, Missouri, IDA, Hospital Facilities Revenue Refunding
and Improvement Bonds (Tri-State Osteopathic), 8.25% due 12/15/2014 1,071
New Jersey Camden County, New Jersey, Improvement Authority, Lease
- --6.4% Revenue Bonds (Holt Hauling & Warehousing), Series A:
NR* NR* 2,000 9.625% due 1/01/2011 2,211
NR* NR* 4,500 9.875% due 1/01/2021 5,028
NR* NR* 1,500 New Jersey, EDA, IDR, Refunding (Newark Airport Marriott Hotel),
7% due 10/01/2014 1,574
NR* Aaa 6,000 New Jersey, EDA, Revenue Bonds (Saint Barnabas Project), 5.60%**
due 7/01/2019 (b) 1,780
New Jersey Health Care Facilities Financing Authority Revenue
Bonds (d):
NR* NR* 980 (Riverwood Center), Series A, 9.90% due 7/01/2001 1,185
AAA Aaa 1,000 (Saint Elizabeth Hospital), Series B, 8.25% due 7/01/2000 1,118
</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 Mexico--4.1% Farmington, New Mexico, PCR (Tucson Electric
Power Co.--San Juan Project):
BB+ Ba1 $ 3,000 Refunding, Series B, 6.30% due 12/01/2016 $ 3,068
B- B2 5,000 Series A, 6.95% due 10/01/2020 5,189
New York--8.2% NR* NR* 7,150 New York City, New York, IDA, Civic Facilities Revenue
Bonds (Amboy Properties Corporation Project), 9.625%
due 6/01/2015 7,692
NR* NR* 1,500 New York City, New York, IDA, Revenue Bonds (Visy Paer Inc.
Project), AMT, 7.95% due 1/01/2028 1,657
NR* NR* 3,500 Port Authority of New York and New Jersey, Special Obligation
Revenue Bonds (Special Project--KIAC), AMT, Series 4, Fifth
Installment, 6.75% due 10/01/2019 3,717
Utica, New York, Public Improvement Bonds, UT:
CCC B 700 9.25% due 8/15/2004 778
CCC B 700 9.25% due 8/15/2005 783
CCC B 635 9.25% due 8/15/2006 715
CCC B 475 8.50% due 8/15/2013 513
CCC B 475 8.50% due 8/15/2014 513
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 1,057
Pennsylvania NR* NR* 5,000 Lehigh County, Pennsylvania, General Purpose Authority
- --15.4% Revenue Bonds (Wiley House--Kid's Peace), 8.75% due 11/01/2014 5,208
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) 3,578
NR* NR* 1,000 Montgomery County, Pennsylvania, IDA, First Mortgage Revenue
Refunding Bonds (Meadowood Corporation Project), Series A,
10.25% due 12/01/2020 1,099
BBB- Baa2 3,000 Pennsylvania Economic Development Financing Authority, Exempt
Facilities Revenue Bonds (MacMillan Limited Partnership Project),
AMT, 7.60% due 12/01/2020 3,411
NR* NR* 1,000 Pennsylvania Economic Development Financing Authority, IDR
(Gehl Co., Inc. Project), AMT, Series F, 9% due 9/01/2010 1,090
NR* NR* 4,000 Pennsylvania Economic Development Financing Authority,
Recycling Revenue Bonds (Ponderosa Fibres Project), AMT,
Series A, 9.25% due 1/01/2022 2,912
<PAGE> BBB Baa3 1,000 Pennsylvania Economic Development Financing Authority,
Wastewater Treatment Revenue Bonds (Sun Company Inc.--R & M
Project), AMT, Series A, 7.60% due 12/01/2024 1,133
AAA Aaa 2,000 Pennsylvania State Higher Education Assistance Agency,
Student Loan Revenue Bonds, RIB, AMT, Series B, 7.955% due
3/01/2022 (c)(e) 2,077
NR* NR* 4,000 Pennsylvania State Higher Educational Facilities Authority,
College and University Revenue Bonds (Eastern College),
Series B, 8% due 10/15/2025 4,278
NR* NR* 5,500 Philadelphia, Pennsylvania, IDR, Refunding (Commercial
Development Philadelphia Airport), AMT, 7.75% due
12/01/2017 5,983
Texas--4.8% 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 (a) 5,130
B+ Ba2 2,500 Houston, Texas, Airport System, Special Facilities Revenue
Bonds (Continental Airlines Terminal Improvement), AMT,
Series B, 6.125% due 7/15/2027 2,482
NR* Ba2 945 Nolan County, Texas, Industrial Development Corporation,
IDR (US Gypsum Company Project), 7.25% due 12/01/2014 1,013
BB Ba 1,000 Odessa, Texas, Junior College District, Revenue Refunding
Bonds, Series A, 8.125% due 12/01/2018 1,086
NR* NR* 3,530 Pecos County, Texas, Jail Facilities Financing Corporation,
Criminal Detention Center, Mortgage Revenue Bonds, 9.75% due
8/01/2009 (a) --
Virginia--0.9% AAA Aaa 2,000 Upper Occoquan, Virginia, Regional Sewer Authority Revenue
Bonds, Series A, 4.75% due 7/01/2029 (b) 1,743
West Virginia NR* NR* 6,050 Fayette County, West Virginia, Commercial Development
- --3.3% Commission, Revenue Refunding Bonds (MPC Incorporated
Project), 9.75% due 2/01/2011 6,594
Total Investments (Cost--$192,625)--97.6% 195,590
Other Assets Less Liabilities--2.4% 4,782
--------
Net Assets--100.0% $200,372
========
<FN>
(a)Non-income producing security.
(b)MBIA Insured.
(c)AMBAC Insured.
(d)Prerefunded.
(e)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, 1997.
*Not Rated.
**Represents a zero coupon 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, 1997
<S> <S> <C> <C>
Assets: Investments, at value (identified cost--$192,624,759) (Note 1a) $195,590,444
Cash 72,444
Receivables:
Interest $ 3,785,943
Securities sold 1,186,140 4,972,083
------------
Prepaid expenses and other assets 53,142
------------
Total assets 200,688,113
------------
Liabilities: Payables:
Dividends to shareholders (Note 1e) 155,818
Investment adviser (Note 2) 103,708 259,526
------------
Accrued expenses and other liabilities 56,262
------------
Total liabilities 315,788
------------
Net Assets: Net assets $200,372,325
============
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 1,197,502
Accumulated realized capital losses on investments--net (Note 5) (20,975,714)
Unrealized appreciation on investments--net 2,965,685
------------
Total capital--Equivalent to $10.25 net asset value per share of
Common Stock (market price--$9.9375) $200,372,325
============
See Notes to Financial Statements.
</TABLE>
<PAGE>
<TABLE>
STATEMENT OF OPERATIONS
<CAPTION>
For the Year Ended June 30, 1997
<S> <S> <C> <C>
Investment Interest and amortization of premium and discount earned $ 14,197,382
Income (Note 1d):
Expenses: Investment advisory fees (Note 2) $ 1,294,588
Transfer agent fees 60,541
Accounting services (Note 2) 45,978
Directors' fees and expenses 39,962
Professional fees 38,596
Printing and shareholder reports 25,213
Listing fees 24,510
Custodian fees 17,093
Pricing fees 9,309
Other 16,306
------------
Total expenses 1,572,096
------------
Investment income--net 12,625,286
------------
Realized & Realized loss on investments--net (1,036,737)
Unrealized Gain Change in unrealized appreciation/depreciation on investments--net 6,145,613
(Loss) on ------------
Investments--Net Net Increase in Net Assets Resulting from Operations $ 17,734,162
(Notes 1b, 1d & 3): ============
See Notes to Financial Statements.
</TABLE>
<TABLE>
STATEMENTS OF CHANGES IN NET ASSETS
<CAPTION>
For the Year
Ended June 30,
Increase (Decrease) in Net Assets: 1997 1996
<S> <S> <C> <C>
Operations: Investment income--net $ 12,625,286 $ 13,076,906
Realized loss on investments--net (1,036,737) (1,143,352)
Change in unrealized appreciation/depreciation on
investments--net 6,145,613 (121,191)
------------ ------------
Net increase in net assets resulting from operations 17,734,162 11,812,363
------------ ------------
<PAGE>
Dividends to Investment income--net (12,927,160) (12,893,934)
Shareholders ------------ ------------
(Note 1e): Net decrease in net assets resulting from dividends to
shareholders (12,927,160) (12,893,934)
------------ ------------
Net Assets: Total increase (decrease) in net assets 4,807,002 (1,081,571)
Beginning of year 195,565,323 196,646,894
------------ ------------
End of year* $200,372,325 $195,565,323
============ ============
<FN>
*Undistributed investment income--net $ 1,197,502 $ 1,499,376
============ ============
See Notes to Financial Statements.
</TABLE>
<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: 1997 1996 1995 1994 1993
<S> <S> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of year $ 10.01 $ 10.06 $ 10.10 $ 10.40 $ 10.31
Operating -------- -------- -------- -------- --------
Performance: Investment income--net .64 .67 .71 .75 .84
Realized and unrealized gain (loss) on
investments--net .26 (.06) (.04) (.30) .09
-------- -------- -------- -------- --------
Total from investment operations .90 .61 .67 .45 .93
-------- -------- -------- -------- --------
Less dividends from investment income--net (.66) (.66) (.71) (.75) (.84)
-------- -------- -------- -------- --------
Net asset value, end of year $ 10.25 $ 10.01 $ 10.06 $ 10.10 $ 10.40
======== ======== ======== ======== ========
Market price per share, end of year $ 9.9375 $ 9.125 $ 9.375 $ 9.875 $ 10.875
======== ======== ======== ======== ========
Total Investment Based on market price per share 16.66% 4.54% 2.57% (2.26%) 7.34%
Return:* ======== ======== ======== ======== ========
Based on net asset value per share 9.69% 6.87% 7.61% 4.53% 9.52%
======== ======== ======== ======== ========
<PAGE>
Ratios to Average Expenses, net of reimbursement .79% .90% .91% .88% .60%
Net Assets: ======== ======== ======== ======== ========
Expenses .79% .90% .91% .88% .81%
======== ======== ======== ======== ========
Investment income--net 6.34% 6.66% 7.14% 7.24% 8.18%
======== ======== ======== ======== ========
Supplemental Net assets, end of year (in thousands) $200,372 $195,565 $196,647 $197,466 $201,760
Data: ======== ======== ======== ======== ========
Portfolio turnover 79% 56% 20% 12% 11%
======== ======== ======== ======== ========
<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>
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.
<PAGE>
(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.
* 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.
<PAGE>
(e) Dividends and distributions--Dividends from net investment
income are declared 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.
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, 1997 were $151,860,041 and $153,887,777,
respectively.
Net realized and unrealized gains (losses) as of June 30, 1997 were
as follows:
Realized Unrealized
Losses Gains
Long-term investments $(1,036,737) $ 2,965,685
----------- -----------
Total $(1,036,737) $ 2,965,685
=========== ===========
As of June 30, 1997, net unrealized appreciation for Federal income
tax purposes aggregated $2,965,685, of which $12,340,082 related to
appreciated securities and $9,374,397 related to depreciated
securities. The aggregate cost of investments at June 30, 1997 for
Federal income tax purposes was $192,624,759.
<PAGE>
4. Common Stock Transactions:
At June 30, 1997, the Fund had one class of shares of Common Stock,
par value $.10 per share, of which 150,000,000 shares were
authorized. During the year ended June 30, 1997, shares issued and
outstanding remained constant at 19,544,644. At June 30, 1997, total
paid-in capital amounted to $217,184,852.
5. Capital Loss Carryforward:
At June 30, 1997, the Fund had a net capital loss carryforward of
approximately $19,575,000, 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, $7,057,000 expires in
2004 and $1,312,000 expires in 2005. This amount will be available
to offset like amounts of any future taxable gains.
6. Subsequent Event:
On July 9, 1997, the Fund's Board of Directors declared an ordinary
income dividend to Common Stock shareholders in the amount of
$.053860 per share, payable on July 30, 1997 to shareholders of
record as of July 21, 1997.
<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, 1997, 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, 1997 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.
<PAGE>
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, 1997, 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, 1997
</AUDIT-REPORT>
