APEX MUNICIPAL
FUND, INC.
[FUND LOGO]
STRATEGIC
Performance
Semi-Annual Report
December 31, 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.
Apex Municipal
Fund, Inc.
Box 9011
Princeton, NJ
08543-9011 #10955 -- 12/97
[RECYCLE LOGO]
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
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
<TABLE>
<CAPTION>
PROXY RESULTS
Proxy Results During the six-month period ended December 31, 1997, Apex Municipal Fund, Inc. stockholders voted on the following
proposals. The proposals were approved at the annual stockholders' meeting on October 9, 1997. The description of each proposal and
number of shares voted are as follows:
Shares Voted Shares Withheld
For From Voting
<S> <C> <C> <C>
1. To elect two Class I Directors to the Fund's Board of Directors: Joe Grills 18,580,233 421,484
Walter Mintz 18,582,433 419,284
<CAPTION>
Shares Voted Shares Voted Shares Voted
For Against Abstain
<S> <C> <C> <C>
2. To ratify the selection of Deloitte & Touche LLP as the Fund's
independent auditors. 18,474,268 161,243 366,206
</TABLE>
Apex Municipal Fund, Inc., December 31, 1997
DEAR SHAREHOLDERS
For the six months ended December 31, 1997, Apex Municipal Fund, Inc.
earned $0.322 per share income dividends, which included earned and
unpaid dividends of $0.055. This represents a net annualized yield of
6.00%, based on a month-end per share net asset value of $10.65. Over
the same period, the Fund's total investment return was +7.19%, based
on a change in per share net asset value from $10.25 to $10.65, and
assuming reinvestment of $0.321 per share income dividends.
The Municipal Market Environment
During the six months ended December 31, 1997, long-term fixed-income
bond yields declined to their lowest levels in nearly four years. A
continued positive domestic inflationary environment provided much of
the support for the bond market's improvement through early October
1997. However, during the last two months of 1997, the turmoil in the
world's financial markets, particularly in the Asian equity market,
has produced major declines in bond yields. Since October 31, 1997,
the US Treasury bond market has been the beneficiary of a significant
flight to quality mainly by foreign investors whose own domestic
markets have remained very volatile. Prior to the initial decline in
the Asian equity markets, yields on US Treasury bonds had declines
similar to those experienced in the long-term tax-exempt market.
During this time, yields in both markets fell by 25 basis points -- 35
basis points (0.25% -- 0.35%). For the six months ended December 31,
1997, long-term US Treasury bond yields declined over 85 basis points
to end the year at 5.91%. Tax-exempt revenue bond yields, however,
have exhibited lesser declines. As measured by the Bond Buyer Revenue
Bond Index, long-term municipal bond yields declined almost 40 basis
points to 5.40% for the same period, their lowest level since October
1993.
The increase in new municipal bond issuance over the past six months
has prevented the tax-exempt bond market from more closely mirroring
the yield declines exhibited by its taxable counterpart. During the
last six months, over $120 billion in new long-term municipal bonds
were underwritten, an increase of over 30% compared to the same period
in 1996. As interest rates have continued to decline in recent months,
new tax-exempt bond issuance has remained strong. During December,
over $21 billion in new long-term municipal securities were
underwritten. This represented an increase of 9% over the December
1996 level and was the largest December issuance since 1993.
In our opinion, the recent correction in world equity markets has
enhanced the near-term prospects for continued low, if not declining,
interest rates in the United States. It is likely that the recent
correction will result in slower US domestic growth in the coming
months. This decline is likely to be generated in part by reduced US
export growth. Additionally, some decline in consumer spending can
also be expected in response to reduced consumer confidence. Perhaps
more importantly, it is likely that, barring a dramatic and unexpected
resurgence in domestic growth, the Federal Reserve Board will be
unwilling to raise interest rates until the full impact of the equity
market's corrections can be established.
All these factors suggest that over the near term, interest rates,
including tax-exempt bond yields, are unlikely to rise by any
appreciable amount. It is probable, however, that municipal bond
yields will remain under some relative pressure as a result of
continued strong new-issue supply. However, the recent pace of
municipal bond issuance is likely to be unsustainable. Continued
increases in bond issuance will require lower and lower tax-exempt
bond yields to generate the economic savings necessary for additional
municipal bond refunding. Preliminary estimates of 1998 total
municipal bond issuance are presently in the $195 billion -- $220
billion range. These estimates suggest that recent supply pressures
are likely to abate somewhat next year, or at least, exert only
minimal technical pressures during 1998. Additionally, municipal bond
investors are expected to receive approximately $23 billion in January
coupon payments, bond maturities and proceeds from early redemptions.
Such assets should serve to intensify investor demand in the near
future. With tax-exempt bond yields at already attractive yield ratios
relative to US Treasury bonds (approximately 90% at the end of
December), any further pressure on the municipal market may well
represent an attractive investment opportunity.
Portfolio Strategy
During the six months ended December 31, 1997, Apex Municipal Fund,
Inc. benefited from a decline in long-term interest rates as well as a
substantial further narrowing of credit spreads. While volatility
persisted throughout the period, affording several opportunities to
trade the market, we have typically refrained from engaging in such
activities. Instead, we preferred to remain fully invested and seek to
exploit the inefficiencies present within the municipal high-yield
market.
Given the Fund's objective and investment policy, we strive to enhance
total return through careful analysis of both credit and pricing
characteristics of the portfolio securities as well as the market at
large. It is this approach, combined with the aforementioned
contraction in spreads, that accounts for the Fund's competitive
return.
Improving credit fundamentals in conjunction with a generally
favorable economic environment are largely responsible for this
dramatic impact on valuations. Technical factors have also contributed
to the current environment. The increasingly homogenized nature of the
municipal market, given widespread usage of bond insurance, has
contributed to a heightened scarcity of short-term issues. Meanwhile,
demand for higher-yielding securities has accelerated, exacerbating an
already tight technical environment and driving spreads to their
lowest levels in recent years. Clearly, these developments warrant a
considerable degree of caution, for the risk of a correction toward
historical norms is real and credible. However, such an event is
unlikely in the absence of a significant economic decline, which,
despite the turmoil affecting Asian markets, appears remote given the
overall balanced nature of the domestic economic environment.
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 ahead.
Sincerely,
/S/ARTHUR ZEIKEL
Arthur Zeikel
President
/S/VINCENT R. GIORDANO
Vincent R. Giordano
Senior Vice President
/S/THEODORE R. JAECKEL JR.
Theodore R. Jaeckel Jr.
Vice President and Portfolio Manager
February 3, 1998
<TABLE>
<CAPTION>
Apex Municipal Fund, Inc., December 31, 1997
SCHEDULE OF INVESTMENTS (in Thousands)
S&P Moody's Face Value
State Ratings Ratings Amount Issue (Note 1a)
<S> <C> <C> <C> <C>
Alabama -- 0.5% B+ NR* $1,000 Brewton, Alabama, Industrial Development Board,
PCR, Refunding (Container Corporation America
Project), 8% due 4/01/2009 $1,130
Arizona -- 3.9% NR* NR* 3,915 Fort Mojave Indian Tribe, Arizona, Water and Sewer
Revenue Bonds, 10.25% due 9/01/2019 (b) 1,165
NR* NR* 3,000 Navajo County, Arizona, IDA, IDR (Stone Container
Corp. Project), AMT, 7.40% due 4/01/2026 3,348
B B2 3,500 Pima County, Arizona, IDA, IDR (Tucson Electric
Power Co. Project), Series B, 6% due 9/01/2029 3,579
Arkansas -- 1.8% NR* NR* 390 Alma, Arkansas, Health Facilities Board Revenue
Bonds, 10.50% due 12/01/2019 423
NR* NR* 390 Conway, Arkansas, Public Facilities Board, Health
Care Revenue Bonds (Creative Living Project), 10.50%
due 12/01/2019 423
NR* NR* 390 Hope, Arkansas, Health Facilities Board Revenue Bonds
(Omega Home), 10.50% due 12/01/2019 423
NR* NR* 780 Little Rock, Arkansas, Health Facilities Board Revenue
Bonds (Community Life Services), 10.50% due 12/01/2019 846
NR* NR* 785 Pine Bluff, Arkansas, Health Facilities Board Revenue
Bonds (Jenkins Housing), 10.50% due 12/01/2019 851
NR* NR* 390 Texarkana, Arkansas, Public Facilities Board, Health
Care Revenue Bonds (Housing Opportunities Addition
Project), 10.50% due 12/01/2019 423
NR* NR* 390 West Helena, Arkansas, Health Facilities Board Revenue
Bonds (Delta House), 10.50% due 12/01/2019 423
California -- 1.0% AAA Aaa 5,000 Foothill/Eastern Transportation Corridor Agency,
California, Toll Road Revenue Bonds (Senior Lien),
Series A, 6.50%** due 1/01/2028 (c) 1,045
NR* NR* 2,000 Long Beach, California, Redevelopment Agency, M/F
Housing Revenue Bonds (Pacific Court Apartments),
AMT, Issue B, 6.95% due 9/01/2023 (b) 1,100
Colorado -- 3.9% NR* NR* 1,700 Colorado Postsecondary Educational Facilities
Authority Revenue Bonds (Colorado Ocean Journey Inc.
Project), 8.30% due 12/01/2017 1,916
Denver, Colorado, City and County Airport Revenue
Bonds, AMT, Series B:
BBB Aaa 630 7.25% due 11/15/2002 (d) 724
BBB Baa1 1,870 7.25% due 11/15/2023 2,093
NR* NR* 3,000 Denver, Colorado, Urban Renewal Authority, Tax
Increment Revenue Bonds (Downtown Denver), AMT,
Series A, 7.75% due 9/01/2016 3,325
Florida -- 9.9% NR* NR* 1,000 Arbor Greene, Florida, Community Development
District, Special Assessment Revenue Bonds, 7.60%
due 5/01/2018 1,077
AA- VMIG1+ 500 Dade County, Florida, IDA, Exempt Facilities Revenue
Refunding Bonds (Florida Power and Light Company),
VRDN, 3.95% due 6/01/2021 (a) 500
NR* NR* 9,448 Florida HFA, M/F Housing Revenue Bonds (Palm Aire
Retirement Facilities Project),
AMT, Series S, 10% due 1/01/2020 (b) 7,370
NR* NR* 3,000 Lee County, Florida, IDA, Healthcare Facilities
Revenue Bonds (Cypress Cove Health Park),
Series A, 6.375% due 10/01/2025 3,088
NR* NR* 4,385 Miami Beach, Florida, Redevelopment Agency, Tax
Increment Revenue Bonds, AMT,
9.125% due 12/01/2004 4,820
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 3,777
Georgia -- 4.3% NR* NR* 3,920 Atlanta, Georgia, Urban Residential Finance Authority,
M/F Housing Mortgage Revenue Bonds (Northside Plaza
Apartments Project), 9.75% due 11/01/2020 4,247
NR* NR* 2,375 Hancock County, Georgia, COP, 8.50% due 4/01/2015 2,669
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 2,132
Illinois -- 4.2% 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 5,216
NR* NR* 3,190 Illinois Development Finance Authority, Acquisition
Program Revenue Bonds (Prime Health Care Centers
Facilities), 7.75% due 12/01/2016 3,531
Indiana -- 1.1% NR* NR* 2,000 Wabash, Indiana, Solid Waste Disposal Revenue Bonds
(Jefferson Smurfit Corporation Project), AMT, 7.50%
due 6/01/2026 2,206
Iowa -- 6.4% NR* NR* 10,000 Iowa Finance Authority, Health Care Facilities,
Revenue Refunding Bonds (Care Initiatives Project),
9.25% due 7/01/2025 13,277
Louisiana -- 3.9% NR* A3 3,000 Lake Charles, Louisiana, Harbor and Terminal
District, Port Facilities Revenue Refunding Bonds
(Trunkline Long Co. Project), 7.75% due 8/15/2022 3,464
NR* A2 650 Louisiana Public Facilities Authority, Student Loan
Revenue Refunding Bonds, AMT, Series A-3, 7% due
9/01/2006 696
BB NR* 3,500 Port New Orleans, Louisiana, IDR, Refunding
(Continental Grain Company Project), 7.50% due
7/01/2013 3,955
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 5,536
Massachusetts -- 5.9% NR* NR* 1,555 Boston, Massachusetts, Industrial Development
Financing Authority, Solid Waste Disposal Facilities
Revenue Bonds (Jet-A-Way Project), AMT, 10.50% due
1/01/2011 1,756
NR* NR* 3,400 Massachusetts State Health and Educational Facilities
Authority Revenue Bonds (Farren Care Center), Series
A, 10.375% due 6/01/2010 3,789
NR* NR* 1,965 Massachusetts State Industrial Finance Agency,
Educational Institution Revenue Bonds (Center for
Human Development), 9.375% due 7/01/2015 2,166
NR* NR* 2,200 Massachusetts State Industrial Finance Agency, Sewage
Facility Revenue Bonds (Resource Control Composting,
Inc. Project), AMT, 9.25% due 6/01/2010 2,326
NR* NR* 2,000 Massachusetts State Port Authority, Special Project
Revenue Bonds (Harborside Hyatt), AMT, 10% due 3/01/2026 2,262
Michigan -- 1.7% A1+ VMIG1+ 100 Royal Oak, Michigan, Hospital Finance Authority Revenue
Bonds (William Beaumont Hospital), VRDN, Series L, 4.20%
due 1/01/2027 (a) 100
NR* NR* 2,050 Wayne Charter County, Michigan, Special Airport
Facilities, Revenue Refunding Bonds (Northwest Airlines,
Inc.), 6.75% due 12/01/2015 2,255
BBB- Baa 1,200 Wayne County, Michigan, Downriver Sewer Disposal System,
Series A, 7% due 11/01/2013 1,312
Minnesota -- 1.7% NR* NR* 3,325 Anoka, Minnesota, M/F Housing Revenue Bonds (Rainbow
Plaza Apartments Project), AMT, 9.375% due 12/01/2024 3,548
Missouri -- 0.5% BBB- NR* 960 Joplin, Missouri, IDA, Hospital Facilities Revenue
Refunding and Improvement Bonds (Tri-State Osteopathic),
8.25% due 12/15/2014 1,066
New Jersey -- 6.2% Camden County, New Jersey, Improvement Authority, Lease
Revenue Bonds (Holt Hauling & Warehousing), Series A:
NR* NR* 2,000 9.625% due 1/01/2011 2,400
NR* NR* 4,500 9.875% due 1/01/2021 5,469
NR* NR* 1,500 New Jersey EDA, IDR, Refunding (Newark Airport Marriott
Hotel), 7% due 10/01/2014 1,653
NR* NR* 1,000 New Jersey EDA, Revenue Bonds (Leisure Park Project),
Series A, 5.875% due 12/01/2027 1,001
New Jersey Health Care Facilities Financing Authority
Revenue Bonds (d):
NR* NR* 980 (Riverwood Center Issue), Series A, 9.90% due 7/01/2001 1,172
AAA Aaa 1,000 (Saint Elizabeth Hospital), Series B, 8.25% due
7/01/2000 1,117
New Mexico -- 5.0% Farmington, New Mexico, PCR:
BB+ Ba1 1,500 Refunding (Public Service Co. Project), Series B, 5.80%
due 4/01/2022 1,537
BB+ Ba1 3,000 Refunding (Public Service Co. -- San Juan Project),
Series B, 6.30% due 12/01/2016 3,231
B B2 5,000 (Tucson Electric Power Co. -- San Juan Project), Series
A, 6.95% due 10/01/2020 5,649
New York -- 7.3% NR* NR* 7,150 New York City, New York, IDA, Civic Facilities Revenue
Bonds (Amboy Properties Corporation Project), 9.625% due
6/01/2015 7,801
NR* NR* 3,500 Port Authority of New York and New Jersey, Special
Obligation Revenue Bonds
(Special Project -- KIAC), AMT, Series 4, 5th
Installment, 6.75% due 10/01/2019 3,875
Utica, New York, Public Improvement Bonds, UT:
CCC B2 700 9.25% due 8/15/2004 810
CCC B2 700 9.25% due 8/15/2005 823
CCC B2 635 9.25% due 8/15/2006 758
CCC B2 475 8.50% due 8/15/2013 544
CCC B2 475 8.50% due 8/15/2014 544
North Carolina -- 0.1% NR* VMIG1+ 200 North Carolina Medical Care Commission Revenue Bonds
(Carol Woods Project), VRDN, 4.25% due 4/01/2021 (a) 200
Oregon -- 1.5% NR* Baa2 2,000 Oregon State, Economic Development Revenue Refunding
Bonds (Georgia Pacific Corp. Project), Series 183, 5.70%
due 12/01/2025 2,051
NR* NR* 1,000 Western Generation Agency, Oregon, Cogeneration Project
Revenue Bonds (Wauna Cogeneration Project), AMT, Series
B, 7.40% due 1/01/2016 1,100
Pennsylvania -- 15.2% NR* NR* 5,000 Lehigh County, Pennsylvania, General Purpose Authority
Revenue Bonds (Wiley House -- Kid's Peace), 8.75% due
11/01/2014 5,248
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) 3,529
Montgomery County, Pennsylvania, IDA, First Mortgage
Revenue Refunding Bonds (Meadowood Corporation Project),
Series A:
NR* NR* 1,000 10.25% due 12/01/2000 (d) 1,181
NR* NR* 1,250 6.25% due 12/01/2017 1,273
BBB- Baa2 3,000 Pennsylvania Economic Development Financing Authority,
Exempt Facilities Revenue Bonds (MacMillan Limited
Partnership Project), AMT, 7.60% due 12/01/2020 3,547
NR* NR* 4,000 Pennsylvania Economic Development Financing Authority,
Recycling Revenue Bonds (Ponderosa Fibres Project), AMT,
Series A, 9.25% due 1/01/2022 2,700
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 1,172
AAA Aaa 2,000 Pennsylvania State Higher Education Assistance Agency,
Student Loan Revenue Bonds, RIB, AMT, Series B, 7.986%
due 3/01/2022 (e)(f) 2,205
NR* NR* 4,000 Pennsylvania State Higher Educational Facilities
Authority, College and University Revenue Bonds (Eastern
College), Series B, 8% due 10/15/2025 4,625
NR* NR* 5,500 Philadelphia, Pennsylvania, IDR, Refunding (Commercial
Development Philadelphia Airport), AMT, 7.75% due
12/01/2017 6,211
South Carolina -- 0.5% NR* NR* 1,000 Charleston County, South Carolina, Health Facilities
Revenue Bonds (Episcopal Church Project), Series A, 6.25%
due 4/01/2019 1,018
Texas -- 5.8% NR* NR* 1,460 Angelina County, Texas, Jail Facilities Financing
Corporation, Criminal Detention Center, Mortgage Revenue
Bonds, 9.75% due 8/01/2009 (b) --
Bell County, Texas, Health Facilities Development
Corporation Revenue Bonds (Heartway Corporation Project):
NR* NR* 4,750 Series A, 9.50% due 3/01/2019 5,231
NR* NR* 805 Series B, 10% due 3/01/2019 (g) 541
A1+ NR* 800 Harris County, Texas, Health Facilities Development
Corporation, Hospital Revenue Bonds (Methodist Hospital),
VRDN, 4.25% due 12/01/2025 (a) 800
BB Ba2 3,100 Houston, Texas, Airport System, Special Facilities
Revenue Bonds (Continental Airlines Terminal Improvement),
AMT, Series B, 6.125% due 7/15/2027 3,240
NR* Ba1 945 Nolan County, Texas, Industrial Development Corporation,
IDR (US Gypsum Company Project), 7.25% due 12/01/2014 1,062
BB Ba2 1,000 Odessa, Texas, Junior College District, Revenue
Refunding Bonds, Series A, 8.125% due 12/01/2018 1,143
NR* NR* 3,530 Pecos County, Texas, Jail Facilities Financing
Corporation, Criminal Detention Center Mortgage Revenue
Bonds, 9.75% due 8/01/2009 (b) --
West Virginia -- 3.2% NR* NR* 6,050 Fayette County, West Virginia, Commercial Development
Commission, Revenue Refunding Bonds (MPC Incorporated
Project), 9.75% due 2/01/2011 6,599
---------
Total Investments (Cost -- $194,080) -- 98.2% 204,438
Other Assets Less Liabilities -- 1.8% 3,666
---------
Net Assets -- 100.0% $208,104
=========
(a) 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, 1997.
(b) Non-income producing security.
(c) FSA 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 December 31, 1997.
(f) AMBAC Insured.
(g) This issue will begin to accrue interest on September 1, 1999.
* Not Rated.
** Represents a zero coupon bond; the interest rate shown is 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.
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
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
VRDN Variable Rate Demand Notes
</TABLE>
<TABLE>
<CAPTION>
STATEMENT OF ASSETS, LIABILITIES AND CAPITAL
<S> <C> <C> <C>
As of December 31, 1997
Assets: Investments, at value (identified cost -- $194,079,686) (Note 1a) $204,437,628
Cash 12,509
Receivables:
Interest $3,837,507
Securities sold 100,000 3,937,507
------------
Prepaid expenses and other assets 28,145
------------
Total assets 208,415,789
------------
Liabilities: Payables:
Dividends to shareholders (Note 1e) 148,472
Investment adviser (Note 2) 118,200 266,672
------------
Accrued expenses and other liabilities 44,799
------------
Total liabilities 311,471
------------
Net Assets: Net assets $208,104,318
============
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 1,258,963
Accumulated realized capital losses on investments -- net (Note 5) (20,697,439)
Unrealized appreciation on investments -- net 10,357,942
------------
Total capital -- Equivalent to $10.65 net asset value per share of
Common Stock (market price -- $10.375) $208,104,318
============
See Notes to Financial Statements.
</TABLE>
<TABLE>
<CAPTION>
STATEMENT OF OPERATIONS
For the Six Months Ended December 31, 1997
<S> <C> <C> <C>
Investment Interest and amortization of premium and discount earned $7,223,953
Income (Note 1d):
Expenses: Investment advisory fees (Note 2) $675,061
Professional fees 98,363
Accounting services (Note 2) 27,561
Transfer agent fees 24,607
Directors' fees and expenses 18,776
Printing and shareholder reports 13,441
Listing fees 11,289
Custodian fees 8,468
Pricing fees 4,496
Other 9,394
------------
Total expenses 891,456
------------
Investment income -- net 6,332,497
------------
Realized & Realized gain on investments -- net 278,275
Unrealized Gain on Change in unrealized appreciation on investments -- net 7,392,257
Investments -- Net ------------
(Notes 1b, 1d & 3): Net Increase in Net Assets Resulting from Operations $14,003,029
============
See Notes to Financial Statements.
</TABLE>
<TABLE>
<CAPTION>
STATEMENTS OF CHANGES IN NET ASSETS
For the Six For the
Months Ended Year Ended
December 31, June 30,
Increase (Decrease) in Net Assets: 1997 1997
<S> <C> <C> <C>
Operations: Investment income -- net $6,332,497 $12,625,286
Realized gain (loss) on investments -- net 278,275 (1,036,737)
Change in unrealized appreciation/depreciation on investments -- net 7,392,257 6,145,613
------------ ------------
Net increase in net assets resulting from operations 14,003,029 17,734,162
------------ ------------
Dividends to Investment income -- net (6,271,036) (12,927,160)
Shareholders ------------ ------------
(Note 1e): Net decrease in net assets resulting from dividends to shareholders (6,271,036) (12,927,160)
------------ ------------
Net Assets: Total increase in net assets 7,731,993 4,807,002
Beginning of period 200,372,325 195,565,323
------------ ------------
End of period* $208,104,318 $200,372,325
============ ============
* Undistributed investment income -- net $1,258,963 $1,197,502
============ ============
See Notes to Financial Statements.
</TABLE>
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
For the Six
The following per share data and ratios have Months Ended
been derived from information provided in December 31, For the Year Ended June 30,
the financial statements. 1997 1997 1996 1995 1994
Increase (Decrease) in Net Asset Value:
<S> <C> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of period $10.25 $10.01 $10.06 $10.10 $10.40
Operating --------- --------- --------- --------- ---------
Performance: Investment income -- net .32 .64 .67 .71 .75
Realized and unrealized gain (loss) on
investments -- net .40 .26 (.06) (.04) (.30)
--------- --------- --------- --------- ---------
Total from investment operations .72 .90 .61 .67 .45
--------- --------- --------- --------- ---------
Less dividends from investment income -- net (.32) (.66) (.66) (.71) (.75)
--------- --------- --------- --------- ---------
Net asset value, end of period $10.65 $10.25 $10.01 $10.06 $10.10
========= ========= ========= ========= =========
Market price per share, end of period $10.375 $9.9375 $9.125 $9.375 $9.875
========= ========= ========= ========= =========
Total Investment Based on market price per share 7.70%++++ 16.66% 4.54% 2.57% (2.26%)
Return:** ========= ========= ========= ========= =========
Based on net asset value per share 7.19%++++ 9.69% 6.87% 7.61% 4.53%
========= ========= ========= ========= =========
Ratios to Average Expenses .86%* .79% .90% .91% .88%
Net Assets: ========= ========= ========= ========= =========
Investment income -- net 6.11%* 6.34% 6.66% 7.14% 7.24%
========= ========= ========= ========= =========
Supplemental Net assets, end of period (in thousands) $208,104 $200,372 $195,565 $196,647 $197,466
Data: ========= ========= ========= ========= =========
Portfolio turnover 20% 79% 56% 20% 12%
========= ========= ========= ========= =========
* 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 effects
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.
(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.
[bullet] 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.
[bullet] 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.
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.,
and/or ML & Co.
3. Investments:
Purchases and sales of investments, excluding short-term securities,
for the six months ended December 31, 1997 were $39,547,702 and
$40,048,073, respectively.
Net realized and unrealized gains (losses) as of December 31, 1997
were as follows:
Realized Unrealized
Losses Gains
Long-term investments $(278,275) $10,357,942
----------- -----------
Total $(278,275) $10,357,942
=========== ===========
As of December 31, 1997, net unrealized appreciation for Federal
income tax purposes aggregated $10,357,942, of which $18,895,522
related to appreciated securities and $8,537,580 related to
depreciated securities. The aggregate cost of investments at December
31, 1997 for Federal income tax purposes was $194,079,686.
4. Common Stock Transactions:
At December 31, 1997, the Fund had one class of shares of Common
Stock, par value $.10 per share, of which 150,000,000 shares were
authorized. Shares issued and outstanding during the six months ended
December 31, 1997 and the year ended June 30, 1997 remained constant.
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 January 8, 1998, the Fund's Board of Directors declared an ordinary
income dividend to Common Stock shareholders in the amount of $.055222
per share, payable on January 29, 1998 to shareholders of record as of
January 22, 1998.
