APEX MUNICIPAL
FUND, INC
FUND LOGO
Semi-Annual Report
December 31, 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
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
Mark B. Goldfus, Secretary
<PAGE>
Custodian & Transfer Agent
The Bank of New York
90 Washington Street
New York, New York 10286
NYSE Symbol
APX
DEAR SHAREHOLDERS
For the six months ended December 31, 1996, Apex Municipal Fund,
Inc. earned $0.338 per share income dividends, which included earned
and unpaid dividends of $0.057. This represents a net annualized
yield of 6.60%, based on a month-end net asset value of $10.17 per
share. Over the same period, the Fund's total investment return was
+5.25%, based on a change in per share net asset value from $10.01
to $10.17, and assuming reinvestment of $0.336 per share income
dividends.
The Municipal Market Environment
Long-term, tax-exempt bond yields moved slightly lower during the
six months ended December 31, 1996. As measured by the Bond Buyer
Revenue Bond Index, yields on A-rated uninsured municipal revenue
bonds declined approximately 25 basis points (0.25%) to end the 1996
calendar year at 5.92%. Tax-exempt bond yields initially had
declined to approximately 5.80% by late November. However, Federal
Reserve Board Chairman Alan Greenspan's comments regarding possible
excesses in the US equity market and an "uncertain" inflation
outlook rekindled investors earlier fears and fixed-income interest
rates rose for the remainder of the six-month period. US Treasury
bond yields exhibited a more significant decline during the December
period, falling approximately 35 basis points to 6.54% at December
31, 1996.
Much of the tax-exempt bond market's strong technical position--one
of the primary reasons for the improvement in municipal bond yields
in late 1996--remained intact. Over the last year, approximately
$180 billion in long-term municipal securities was issued, an
increase of approximately 15% versus the same period a year ago.
Much of this increase was the result of issuers seeking to refinance
their existing higher-couponed debt as interest rates declined in
1995 and early 1996. As interest rates rose, these financings became
increasingly economically impractical and issuance declined. Over
the last six months, approximately $90 billion in long-term tax-
exempt securities was underwritten, essentially unchanged versus the
comparable period a year earlier. During the last three months, $53
billion in tax-exempt securities was issued, also unchanged versus
the September 30, 1995 quarter.
<PAGE>
The municipal bond market's recent underperformance relative to
Treasury issues was the result of a number of other factors. Among
other things, as tax-exempt bond yields declined again below 6%, in
the past some investors temporarily have lost interest in the
municipal bond market. As interest rates, in general, continue to
decline, as they did at the end of 1994 and throughout 1995,
investors adjusted to the new levels. The inherent attractiveness of
the tax-advantaged products quickly outweigh low nominal yields and
investor demand increases.
In addition, the Presidential and Congressional elections this past
November resurrected some investor concerns regarding continued
Federal deficit reduction and potential legislative restrictions
upon the municipal bond market. This situation was similar to that
at the beginning of 1996 when tax-exempt bond yields were negatively
impacted by fears that legislation reducing the tax advantage of
municipal bonds would be introduced to aid further deficit
reductions. Earlier fears that the Democratic party would regain
control of both houses of Congress, as well as maintain the White
House, may have caused some investors to wait until after the
elections before allocating investment funds to the municipal bond
market.
However, the US Treasury bond market's recent relatively strong
performance resulted in municipal bonds becoming a particularly
attractive investment alternative. At current levels, long-term, tax-
exempt revenue bonds yield over 90% of comparable US Treasury bond
yields. Current levels make tax-advantaged products more attractive
than they were at mid-year when yield ratios declined to
approximately 85%. For example, to an investor in the maximum
Federal income tax bracket, current tax-exempt bond yields represent
a taxable equivalent yield of approximately 9.75%.
Looking forward, the supply of new bond issuance for 1997 is
expected to be very similar to that of 1996, with most annual
estimates falling in the $170 billion--$175 billion range. Investor
demand is also expected to remain strong, with 1997 total municipal
redemptions (refundings, maturities and coupon payments) in the $175
billion--$185 billion range. This overall balance suggests that the
positive technical backdrop the municipal bond market enjoyed in
1996 could continue in 1997. However, it is likely that seasonal
factors will temporarily distort this overall balanced technical
scenario. During periods of reduced bond issuance, such as January
and July on a historical basis, the ease and ability to purchase tax-
advantaged products at their current attractive levels may be
greatly restricted.
Portfolio Strategy
During the six months ended December 31, 1996, Apex Municipal Fund,
Inc. remained fully invested, reflecting both our relatively
constructive market outlook as well as our efforts to maintain a
competitive level of tax-exempt income. Portfolio activity consisted
primarily of some selective high-yield purchases financed by the
sale of holdings that were viewed to either be relatively overvalued
or, in some cases, to have demonstrated signs of credit-related
stress. These new acquisitions totaled almost $10.6 million par
value and bore an average weighted yield of 7.38%. Going forward,
our strategy will continue to focus on finding attractively priced
high-yield opportunities as a means of enhancing total return.
<PAGE>
In addition, we are increasing our emphasis on the gradual
improvement in both the portfolio's liquidity and average call
protection. Typically, a high-yield portfolio remains less sensitive
to interest rate fluctuations than a portfolio consisting primarily
of investment-grade securities. Volatility is derived more from
changes in creditworthiness and, thus total return can be more
closely correlated to credit developments that affect a portfolio's
individual holdings. There is also a tendency for lower turnover
caused by infrequent legitimate opportunities within the high-yield
sector as well as the intensive and time consuming nature of the
requisite credit analysis. As a result of this relative inactivity,
an increasing number of the portfolio's individual holdings will,
over time, progressively approach their first optional redemption
date. When yields decline, fixed-income securities issued in a
higher interest rate environment are perceived as more vulnerable to
early redemption. Therefore, investors price these securities in a
manner that reflects the greater likelihood of an early call causing
them to behave more like a short duration instrument and further
insulating the Fund from interest rate volatility.
In response to these tendencies, we recently initiated a strategy
that is designed to allow Apex Municipal Fund, Inc. to emerge
possessing a greater degree of liquidity as well as a portfolio
structure whose holdings are more insulated from the possibility of
early redemption. This strategy has resulted in a higher rate of
turnover as those holdings possessing the least amount of call
protection are gradually being replaced with more current issues
that are not redeemable until ten years from the date of issuance.
This strategy is expected to result in a portfolio that is somewhat
more responsive to market rallies yet remains somewhat resilient
during periods when interest rates rise.
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
<PAGE>
(Theodore R. Jaeckel Jr.)
Theodore R. Jaeckel Jr.
Vice President and Portfolio Manager
January 30, 1997
Portfolio
Abbreviations
To simplify the listings of Apex Municipal
Fund, Inc.'s portfolio holdings in the
Schedule of Investments, we have abbreviated
the names of many of the securities
according to the list at right.
AMT Alternative Minimum Tax (subject to)
COP Certificates of Participation
DATES Daily Adjustable Tax-Exempt Securities
EDA Economic Development Authority
GO General Obligation Bonds
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
VRDN Variable Rate Demand Notes
<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--0.5% B+ NR* $ 1,000 Brewton, Alabama, Industrial Development Board, PCR,
Refunding (Container Corporation America Project),
8% due 4/01/2009 $ 1,084
<PAGE>
Arizona--2.6% A1+ P1 100 Coconino County, Arizona, Pollution Control Corporation,
Arizona Public Service Revenue Bonds (Navajo Project),
VRDN, AMT, Series A, 4.40% due 10/01/2029 (b) 100
NR* NR* 3,915 Fort Mojave Indian Tribe, Arizona, Water and Sewer Revenue
Bonds, 10.25% due 9/01/2019 (a) 1,958
NR* NR* 3,000 Navajo County, Arizona, IDA, IDR (Stone Container Corp.
Project), AMT, 7.40% due 4/01/2026 3,128
Arkansas--1.9% NR* NR* 395 Alma, Arkansas, Health Facilities Board Revenue Bonds,
10.50% due 12/01/2019 428
NR* NR* 395 Conway, Arkansas, Public Facilities Board, Health Care
Revenue Bonds (Creative Living Project), 10.50% due 12/01/2019 428
NR* NR* 395 Hope, Arkansas, Health Facilities Board Revenue Bonds
(Omega Home), 10.50% due 12/01/2019 428
NR* NR* 790 Little Rock, Arkansas, Health Facilities Board Revenue
Bonds (Community Life Services), 10.50% due 12/01/2019 856
NR* NR* 790 Pine Bluff, Arkansas, Health Facilities Board Revenue
Bonds (Jenkins Housing), 10.50% due 12/01/2019 856
NR* NR* 395 Texarkana, Arkansas, Public Facilities Board, Health Care
Revenue Bonds (Housing Opportunities Addition Project),
10.50% due 12/01/2019 428
NR* NR* 395 West Helena, Arkansas, Health Facilities Board Revenue
Bonds (Delta House), 10.50% due 12/01/2019 428
California--2.7% BBB- Baa 5,000 Foothill/Eastern Transportation Corridor Agency, California,
Toll Road Revenue Bonds (Senior Lien), Series A, 6.50%**
due 1/01/2028 720
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 3,378
Colorado--1.4% BBB Baa 2,500 Denver, Colorado, City and County Airport Revenue Bonds,
AMT, Series B, 7.25% due 11/15/2023 2,698
District of B- NR* 3,000 District of Columbia, COP, 7.30% due 1/01/2013 3,142
Columbia--1.6%
<PAGE>
Florida--9.2% NR* NR* 1,000 Arbor Greene, Florida, Community Development District,
Special Assessment Revenue Bonds, 7.60% due 5/01/2018 1,003
AA- VMIG1++ 300 Dade County, Florida, IDA, Exempt Facilities Revenue
Refunding Bonds (Florida Power and Light Co.), VRDN, 4.20%
due 6/01/2021 (b) 300
NR* NR* 9,448 Florida, HFA, M/F Housing Agency Revenue Bonds (Palm Aire
Retirement Facilities Project), Series S, AMT, 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 5,415
A1 VMIG1++ 1,300 Pinellas County, Florida, Health Facilities Authority,
Revenue Refunding Bonds (Pooled Hospital Loan Program),
DATES, 4.05% due 12/01/2015 (b) 1,300
NR* NR* 3,575 Tampa Palms, Florida, Open Space and Transportation
Community Development Revenue Bonds (Capital Improvement--
Richmond Place Project), 7.50% due 5/01/2018 3,574
Georgia--3.5% NR* NR* 3,965 Atlanta, Georgia, Urban Residential Finance Authority, M/F
Mortgage Housing Revenue Bonds (Northside Plaza Apartments
Project), 9.75% due 11/01/2020 4,344
NR* NR* 2,450 Hancock County, Georgia, COP, 8.50% due 4/01/2015 (e) 2,662
Illinois--3.4% 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 5,200
BBB- NR* 1,550 Metropolitan Pier and Exposition Authority, Illinois,
Hospitality Facilities Revenue Bonds (McCormick Place
Convention), 6.25% due 7/01/2017 1,573
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 2,099
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 11,738
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 3,414
NR* A 1,000 Louisiana Public Facilities Authority, Revenue Refunding
Bonds, Student Loan, Sub-Series A-3, AMT, 7% due 9/01/2006 1,052
BB NR* 3,500 Port New Orleans, Louisiana, IDR, Refunding (Continental
Grain Company Project), 7.50% due 7/01/2013 3,758
Maryland--2.7% NR* NR* 5,000 Maryland State Energy Financing Administration, Limited
Obligation Revenue Bonds (Cogeneration-AES Warrior Run),
AMT, 7.40% due 9/01/2019 5,270
<PAGE>
Massachusetts--6.4% NR* NR* 1,655 Boston, Massachusetts, Industrial Development Financing
Authority, Solid Waste Disposal Facilities Revenue Bonds
(Jet-A-Way Project), AMT, 10.50% due 1/01/2011 1,878
NR* NR* 3,400 Massachusetts State Health and Educational Facilities
Authority Revenue Bonds (Farren Care Center), Series A,
10.375% due 6/01/2010 3,854
NR* NR* 2,005 Massachusetts State Industrial Finance Agency, Educational
Institution Revenue Bonds (Center for Human Development),
9.375% due 7/01/2015 2,205
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 2,562
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 2,099
BBB- Baa 1,200 Wayne County, Michigan, Downriver Sewer Disposal System
Revenue Bonds, Series A, 7% due 11/01/2013 1,286
Minnesota--1.8% NR* NR* 3,345 Anoka, Minnesota, M/F Housing Revenue Bonds (Rainbow Plaza
Apartments Project), AMT, 9.375% due 12/01/2024 3,578
New Jersey--2.9% NR* NR* 2,000 Camden County, New Jersey, Improvement Authority, Lease
Revenue Bonds (Holt Hauling & Warehousing), Series A,
9.875% due 1/01/2021 2,032
NR* NR* 1,500 New Jersey, EDA, IDR, Refunding (Newark Airport Marriott
Hotel), 7% due 10/01/2014 1,551
New Jersey Health Care Facilities Financing Authority
Revenue Bonds:
NR* NR* 980 (Riverwood Center), Series A, 9.90% due 7/01/2021 1,094
NR* Baa2 1,000 (Saint Elizabeth Hospital), Series B, 8.25% due 7/01/2020 1,108
New Mexico--1.5% BB+ Ba1 3,000 Farmington, New Mexico, PCR, Refunding (Public Service
Company--San Juan Project), Series B, 6.30% due 12/01/2016 3,005
New York--11.9% AAA AAA 1,705 New York City, New York, GO, UT, Series D, 7.70% due
2/01/2002 (d) 1,975
NR* NR* 7,150 New York City, New York, IDA, Civic Facilities Revenue
Bonds (Amboy Properties Corporation Project), 9.625%
due 6/01/2015 7,672
NR* NR* 2,500 New York City, New York, IDA, Revenue Bonds (Visy Paper
Inc. Project), AMT, 7.95% due 1/01/2028 2,661
BB+ Baa2 2,000 New York City, New York, IDA, Special Facilities Revenue
Bonds (American Airlines Inc. Project), AMT, 6.90% due 2,156
8/01/2024 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 2,409
NR* NR* 3,500 Fifth Installment, 6.75% due 10/01/2019 3,580
</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 Utica, New York, Public Improvement Bonds, UT:
(concluded) CCC B $ 700 9.25% due 8/15/2004 $ 759
CCC B 700 9.25% due 8/15/2005 762
CCC B 635 9.25% due 8/15/2006 696
CCC B 475 8.50% due 8/15/2013 492
CCC B 475 8.50% due 8/15/2014 492
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 1,050
Pennsylvania--16.4% NR* NR* 5,000 Lehigh County, Pennsylvania, General Purpose Authority
Revenue Bonds (Wiley House--Kid's Peace), 8.75% due 11/01/2014 5,209
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) 3,645
NR* NR* 1,000 Montgomery County, Pennsylvania, IDA, First Mortgage Revenue
Refunding Bonds (Meadowood Corporation Project), Series A,
10.25% due 12/01/2020 1,105
BBB- Baa2 3,000 Pennsylvania Economic Development Financing Authority,
Exempt Facilities Revenue Bonds (MacMillan Limited Partnership
Project), AMT, 7.60% due 12/01/2020 3,350
NR* NR* 1,000 Pennsylvania Economic Development Financing Authority, IDR
(Gehl Co., Inc. Project), Series F, AMT, 9% due 9/01/2010 1,094
NR* NR* 4,000 Pennsylvania Economic Development Financing Authority,
Recycling Revenue Bonds (Ponderosa Fibres Project), Series A,
AMT, 9.25% due 1/01/2022 3,716
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 1,116
AAA Aaa 2,000 Pennsylvania State Higher Education Assistance Agency,
Student Loan Revenue Bonds, RIB, Series B, AMT, 8.209%
due 3/01/2022 (c) (f) 2,063
NR* NR* 5,000 Pennsylvania State Higher Educational Facilities Authority,
College and University Revenue Bonds (Eastern College),
Series B, 8% due 10/15/2025 5,311
NR* NR* 5,500 Philadelphia, Pennsylvania, IDR, Refunding (Commercial
Development Philadelphia Airport), AMT, 7.75% due 12/01/2017 5,906
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 4/15/1999 (d) 2,219
<PAGE>
Texas--4.2% 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) 4,224
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 2,142
NR* Ba2 945 Nolan County, Texas, Industrial Development Corporation,
IDR (US Gypsum Company Project), 7.25% due 12/01/2014 983
BB Ba 1,000 Odessa, Texas, Junior College District, Revenue Refunding
Bonds, Series A, 8.125% due 12/01/2018 1,078
NR* NR* 3,530 Pecos County, Texas, Jail Facilities Financing Corporation,
Criminal Detention Center Mortgage Revenue Bonds, 9.75% due
8/01/2009 (a) --
Utah--0.4% NR* P1 800 Salt Lake County, Utah, PCR, Refunding (Service Station
Holdings Project), VRDN, 4.25% due 2/01/2008 (b) 800
Washington--4.1% NR* A 7,500 Washington State Healthcare Facilities Authority Revenue
Bonds (Kadlec Medical Center--Richland), 9% due 1/01/1999 (d) 8,203
West Virginia--3.5% NR* NR* 6,250 Fayette County, West Virginia, Commercial Development
Commission, Revenue Refunding Bonds (MPC Incorporated
Project), 9.75% due 2/01/2011 6,864
Wyoming--1.2% A1 VMIG1++ 2,300 Sweetwater County, Wyoming, PCR, Refunding (Idaho Power
Company Project), Series B, VRDN, 4.30% due 7/15/2026 (b) 2,300
Total Investments (Cost--$192,007)--98.2% 195,200
Other Assets Less Liabilities--1.8% 3,550
--------
Net Assets--100.0% $198,750
========
<FN>
(a)Non-income producing security.
(b)The interest rate is subject to change periodically based upon
prevailing market rates. The interest rate shown is the rate in
effect at December 31, 1996.
(c)AMBAC Insured.
(d)Prerefunded.
(e)Bank qualified.
(f)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 December 31, 1996.
*Not Rated.
**Represents a zero coupon or step bond; the interest rate shownis
the effective yield at the time of purchase by the Fund.
++Highest short-term ratings by Moody's Investors Service, Inc.
See Notes to Financial Statements.
</TABLE>
<PAGE>
STATEMENT OF ASSETS, LIABILITIES AND CAPITAL
<TABLE>
As of December 31, 1996
<S> <S> <C> <C>
Assets: Investments, at value (identified cost--$192,006,864) (Note 1a) $195,200,341
Cash 28,758
Receivables:
Interest $ 3,793,346
Securities sold 45,000 3,838,346
------------
Prepaid expenses and other assets 59,192
------------
Total assets 199,126,637
------------
Liabilities: Payables:
Dividends to shareholders (Note 1e) 158,558
Investment adviser (Note 2) 109,790 268,348
------------
Accrued expenses and other liabilities 108,157
------------
Total liabilities 376,505
------------
Net Assets: Net assets $198,750,132
============
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 1,309,262
Accumulated realized capital losses on investments--net (Note 5) (22,937,459)
Unrealized appreciation on investments--net 3,193,477
------------
Total capital--Equivalent to $10.17 net asset value per share of
Common Stock (market price--$9.125) $198,750,132
============
See Notes to Financial Statements.
</TABLE>
<PAGE>
STATEMENT OF OPERATIONS
<TABLE>
For the Six Months Ended December 31, 1996
<S> <S> <C> <C>
Investment Interest and amortization of premium and discount earned $ 7,203,814
Income (Note 1d):
Expenses: Investment advisory fees (Note 2) $ 657,202
Transfer agent fees 36,285
Accounting services (Note 2) 25,174
Directors' fees and expenses 23,657
Professional fees 21,990
Printing and shareholder reports 21,301
Listing fees 14,436
Custodian fees 10,457
Pricing fees 5,344
Other 9,596
------------
Total expenses 825,442
------------
Investment income--net 6,378,372
------------
Realized & Realized loss on investments--net (2,998,482)
Unrealized Change in unrealized appreciation/depreciation on
Gain (Loss) investments--net 6,373,405
on Investments ------------
- --Net (Notes 1b, Net Increase in Net Assets Resulting from Operations $ 9,753,295
1d & 3): ============
See Notes to Financial Statements.
</TABLE>
<TABLE>
STATEMENTS OF CHANGES IN NET ASSETS
<CAPTION>
For the Six For the
Months Ended Year Ended
December 31, June 30,
Increase (Decrease) in Net Assets: 1996 1996
<S> <S> <C> <C>
Operations: Investment income--net $ 6,378,372 $ 13,076,906
Realized loss on investments--net (2,998,482) (1,143,352)
Change in unrealized appreciation/depreciation on
investments--net 6,373,405 (121,191)
------------ ------------
Net increase in net assets resulting from operations 9,753,295 11,812,363
------------ ------------
<PAGE>
Dividends to Investment income--net (6,568,486) (12,893,934)
Shareholders ------------ ------------
(Note 1e): Net decrease in net assets resulting from dividends to
shareholders (6,568,486) (12,893,934)
------------ ------------
Net Assets: Total increase (decrease) in net assets 3,184,809 (1,081,571)
Beginning of period 195,565,323 196,646,894
------------ ------------
End of period* $198,750,132 $195,565,323
============ ============
<FN>
*Undistributed investment income--net $ 1,309,262 $ 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 For the Six
in the financial statements. Months Ended
December 31, For the Year Ended June 30,
Increase (Decrease) in Net Asset Value: 1996 1996 1995 1994 1993
<S> <S> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of period $ 10.01 $ 10.06 $ 10.10 $ 10.40 $ 10.31
Operating -------- -------- -------- -------- --------
Performance: Investment income--net .33 .67 .71 .75 .84
Realized and unrealized gain (loss) on
investments--net .17 (.06) (.04) (.30) .09
-------- -------- -------- -------- --------
Total from investment operations .50 .61 .67 .45 .93
-------- -------- -------- -------- --------
Less dividends from investment income--net (.34) (.66) (.71) (.75) (.84)
-------- -------- -------- -------- --------
Net asset value, end of period $ 10.17 $ 10.01 $ 10.06 $ 10.10 $ 10.40
======== ======== ======== ======== ========
Market price per share, end of period $ 9.125 $ 9.125 $ 9.375 $ 9.875 $ 10.875
======== ======== ======== ======== ========
Total Investment Based on market price per share 3.59%+++ 4.54% 2.57% (2.26%) 7.34%
Return:** ======== ======== ======== ======== ========
Based on net asset value per share 5.25%+++ 6.87% 7.61% 4.53% 9.52%
======== ======== ======== ======== ========
<PAGE>
Ratios to Average Expenses, net of reimbursement .82%* .90% .91% .88% .60%
Net Assets: ======== ======== ======== ======== ========
Expenses .82%* .90% .91% .88% .81%
======== ======== ======== ======== ========
Investment income--net 6.31%* 6.66% 7.14% 7.24% 8.18%
======== ======== ======== ======== ========
Supplemental Net assets, end of period (in thousands) $198,750 $195,565 $196,647 $197,466 $201,760
Data: ======== ======== ======== ======== ========
Portfolio turnover 43% 56% 20% 12% 11%
======== ======== ======== ======== ========
<FN>
*Annualized.
**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.
+++Aggregate total investment return.
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. These unaudited financial statements
reflect all adjustments which are, in the opinion of management,
necessary to a fair statement of the results for the interim period
presented. All such adjustments are of a normal recurring nature.
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.
<PAGE>
(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.
* 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).
<PAGE>
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.
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 six months ended December 31, 1996 were $81,695,192 and
$87,127,919, respectively.
Net realized and unrealized gains (losses) as of December 31, 1996
were as follows:
Realized Unrealized
Losses Gains
<PAGE>
Long-term investments $(2,998,482) $ 3,193,477
----------- -----------
Total $(2,998,482) $ 3,193,477
=========== ===========
As of December 31, 1996, net unrealized appreciation for Federal
income tax purposes aggregated $3,193,477, of which $12,570,403
related to appreciated securities and $9,376,926 related to
depreciated securities. The aggregate cost of investments at
December 31, 1996 for Federal income tax purposes was $192,006,864.
4. Common Stock Transactions:
At December 31, 1996, 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 six months ended December 31, 1996, shares
issued and outstanding remained constant at 19,544,644. At December
31, 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 January 9, 1997, the Fund's Board of Directors declared an
ordinary income dividend to Common Stock shareholders in the amount
of $.057007 per share, payable on January 30, 1997 to shareholders
of record as of January 22, 1997.
