APEX MUNICIPAL
FUND, INC.
[GRAPHIC OMITTED]
STRATEGIC
Performance
Annual Report
June 30, 1999
<PAGE>
APEX MUNICIPAL FUND, INC.
Managed Dividend Policy
The Fund's dividend policy is to distribute substantially all of its net
investment income to its shareholders on a monthly basis. However, in order to
provide shareholders with a more consistent yield to the current trading price
of shares of Common Stock of the Fund, the Fund may at times pay out less than
the entire amount of net investment income earned in any particular month and
may at times in any particular month pay out such accumulated but undistributed
income in addition to net investment income earned in that month. As a result,
the dividends paid by the Fund for any particular month may be more or less than
the amount of net investment income earned by the Fund during such month. The
Fund's current accumulated but undistributed net investment income, if any, is
disclosed in the Statement of Assets, Liabilities and Capital, which comprises
part of the financial information included in this report.
Quality Profile
The quality ratings of securities in the Fund as of June 30, 1999 were as
follows:
- --------------------------------------------------------------------------------
Percent of
S&P Rating/Moody's Rating Net Assets
- --------------------------------------------------------------------------------
AAA/Aaa ............................................................. 6.7%
A/A ................................................................. 4.8
BBB/Baa ............................................................. 5.8
BB/Ba ............................................................... 18.0
B/B ................................................................. 12.7
CCC/Caa ............................................................. 0.9
NR (Not Rated) ...................................................... 55.1
Other+ .............................................................. 0.4
- --------------------------------------------------------------------------------
+ Temporary investments in short-term municipal securities.
<PAGE>
Apex Municipal Fund, Inc., June 30, 1999
DEAR SHAREHOLDERS
For the year ended June 30, 1999, Apex Municipal Fund, Inc. earned $0.629 per
share income dividends, which included earned and unpaid dividends of $0.053.
This represents a net annualized yield of 6.07%, based on a month-end per share
net asset value of $10.37. Over the same period, the Fund's total investment
return was +3.90%, based on a change in per share net asset value from $10.60 to
$10.37, and assuming reinvestment of $0.629 per share income dividends.
For the six-month period ended June 30, 1999, the Fund's total investment return
was +0.58%, based on a change in per share net asset value from $10.63 to
$10.37, and assuming reinvestment of $0.315 per share income dividends.
The Municipal Market Environment
Long-term bond yields moved higher during the first six months of 1999. US
Treasury bond yields rose throughout the period as the US economy continued to
exhibit considerable strength. An above-trend inflationary report in May coupled
with the May announcement by the Federal Reserve Board that it was considering
increasing short-term interest rates in order to slow domestic economic growth
also contributed to pushing US Treasury bond yields to an 18-month high of over
6.10%. The Federal Reserve Board's return to a neutral policy after the expected
increase in short-term interest rates of 25 basis points (0.25%) in late June
allowed long-term US Treasury bond yields to decline and close the six-month
period ended June 30, 1999 at 5.96%. During the same period, the yield on
long-term US Treasury securities rose almost 90 basis points.
For much of early 1999, long-term tax-exempt bond yields remained essentially
unchanged. However, in May and June municipal bond yields eventually followed
taxable bond yields higher. As measured by the Bond Buyer Revenue Bond Index,
long-term tax-exempt revenue bond yields rose more than 35 basis points to end
the six-month period at 5.61%, their highest level in 20 months.
The strong technical position that the tax-exempt bond market has enjoyed in
recent quarters has continued. Municipal investors are expected to have received
as much as $40 billion in June and early July from coupon income, bond
maturities and the proceeds from early bond redemptions. The receipt of these
assets has coincided with a significant decline in new bond issuance. Over the
last six months, over $115 billion in new long-term tax-exempt bonds were
issued, a decline of 22% as compared to the first six months of 1998. During the
quarter ended June 30, 1999, less than $60 billion in securities were issued by
US municipalities, a decline of nearly 25% versus the June 30, 1998 quarter.
New-issue volume of $22 billion for the month of June 1999 was 28% lower than
June 1998's issuance and the lowest June production since 1996. The combination
of reduced issuance and seasonally high reinvestment has produced a very
positive supply/demand function for the municipal bond market.
Prior to May 1999, this positive technical position had enabled the tax-exempt
bond market to outperform its taxable counterpart. This resulted in a decline of
the yield ratio between taxable and tax-exempt bonds. At the end of 1998,
long-term uninsured revenue bond yields were in excess of 100% of US Treasury
bond yields, far greater than their recent historic range of 85%-88%. However,
by early May, tax-exempt revenue bond yield ratios had declined to nearly 90%.
Given the rapid rise in municipal bond yields in recent weeks, this ratio has
risen again to nearly 95%. The recent period of volatility has created
additional opportunities for long-term investors to purchase tax-exempt bonds at
historically attractive yields relative to US Treasury securities.
While the Federal Reserve Board announced that it has no immediate bias toward
raising short-term interest rates, it is clear that additional US economic
growth will result in further action by the Federal Reserve Board. However,
additional action by the Federal Reserve Board, coupled with the increases in
bond yields seen in recent months, is likely to significantly impact US economic
growth. A slowing in US growth by late summer, especially given the continued
lack of inflationary pressures, could enable the Federal Reserve Board to avoid
additional interest rate adjustments. Without the potential for further Federal
Reserve Board action, we would expect interest rates to stabilize at current
levels or begin a modest decline.
Portfolio Strategy
Credit spreads within the municipal market reverted to their historically narrow
levels during the six months ended June 30, 1999, largely the result of the
stabilization of financial markets. Corporate-related tax-exempt debt benefited
the most as a rebound in commodity prices and robust economic growth contributed
to growing optimism over earnings prospects. The portfolio remains heavily
weighted in this sector in part because of the diversification opportunities
offered by corporate debt. In addition, the ready availability of adequate and
continuous disclosure substantially enhances liquidity within this sector. For
these reasons, we expect the debt of corporations as well as investor-owned
utilities to remain a significant portion of the portfolio for the foreseeable
future. Issuance in the corporate-backed sector remains thin, mirroring the lack
of supply in the overall municipal market and exacerbating an already tight
technical situation.
In contrast to the corporate sector, healthcare-related debt has undergone
appreciable deterioration in credit fundamentals and market liquidity. The
financials of many nonprofit hospitals have weakened in recent quarters as the
hospitals struggled to cope with rising costs, reduced reimbursement rates
resulting from the Balanced Budget Act and increased competition. For some time
now, we have maintained limited exposure in this sector and, while we remain
circumspect given the strained environment, credit spreads have widened to the
point that much of the bad news appears to have been discounted. In light of
these developments, we have begun to establish small positions in credits that
we believe have been unnecessarily punished by the market and therefore we
believe represent good value.
In addition, we expect to liquidate the Fund's holding of Florida Housing
Finance Agency Multi-Family Housing Revenue Bonds in the near future. The
issuance of these bonds financed the Palm Aire project, which has been the
subject of foreclosure and related legal proceedings for several years. The last
legal barriers to the sale of the project have now been resolved, and efforts
are underway to sell the property and to retire the bonds with the net proceeds
of the sale. The actual amount to be recovered by the Fund remains uncertain at
this time.
In Conclusion
We appreciate your ongoing interest in Apex Municipal Fund, Inc., and we look
forward to serving your investment needs and objectives in the months and years
to come.
Sincerely,
/s/ Terry K. Glenn
Terry K. Glenn
President and Director
/s/ Vincent R. Giordano
Vincent R. Giordano
Senior Vice President
/s/ Theodore R. Jaeckel Jr.
Theodore R. Jaeckel Jr.
Vice President and Portfolio Manager
/s/ John M. Loffredo
John M. Loffredo
Vice President and Portfolio Manager
August 9, 1999
================================================================================
After more than 20 years of service, Arthur Zeikel recently retired as Chairman
of Merrill Lynch Asset Management, L.P. (MLAM). Mr. Zeikel served as President
of MLAM from 1977 to 1997 and as Chairman since December 1997. Mr. Zeikel is one
of the country's most respected leaders in asset management and presided over
the growth of Merrill Lynch's asset management business. During his tenure,
client assets under management grew from $300 million to over $500 billion. Mr.
Zeikel will remain on Apex Municipal Fund, Inc.'s Board of Directors. We are
pleased to announce that Terry K. Glenn has been elected President and Director
of the Fund. Mr. Glenn has held the position of Executive Vice President of MLAM
since 1983.
Mr. Zeikel's colleagues at MLAM join the Fund's Board of Directors in wishing
him well in his retirement from Merrill Lynch and are pleased that he will
continue as a member of the Fund's Board of Directors.
================================================================================
2 & 3
<PAGE>
Apex Municipal Fund, Inc., June 30, 1999
OFFICERS AND DIRECTORS
Terry K. Glenn, President and Director
Joe Grills, Director
Walter Mintz, Director
Robert S. Salomon Jr., Director
Melvin R. Seiden, Director
Stephen B. Swensrud, Director
Arthur Zeikel, Director
Vincent R. Giordano, Senior Vice President
Theodore R. Jaeckel Jr., Vice President
John M. Loffredo, Vice President
Donald C. Burke, Vice President and Treasurer
Bradley J. Lucido, Secretary
- --------------------------------------------------------------------------------
Gerald M. Richard, Treasurer of Apex Municipal Fund, Inc. has recently retired.
His colleagues at Merrill Lynch Asset Management, L.P. join the Fund's Board of
Directors in wishing Mr. Richard well in his retirement.
- --------------------------------------------------------------------------------
Custodian & Transfer Agent
The Bank of New York
90 Washington Street
New York, NY 10286
NYSE Symbol
APX
SCHEDULE OF INVESTMENTS (in Thousands)
<TABLE>
<CAPTION>
S&P Moody's Face Value
STATE Ratings Ratings Amount Issue (Note 1a)
===================================================================================================================================
<S> <C> <C> <C> <C> <C>
Alabama--1.4% B- NR* $ 1,000 Brewton, Alabama, IDB, PCR, Refunding (Container Corporation of America
Project--Jefferson Smurfit Corp.), 8% due 4/01/2009 $ 1,081
CCC Ca 5,285 Mobile, Alabama, IDB, Solid Waste Disposal, Revenue Refunding Bonds
(Mobile Energy Services Co. Project), 6.95% due 1/01/2020 1,837
===================================================================================================================================
Arizona--3.1% B B2 2,500 Apache County, Arizona, IDA, PCR, Refunding (Tuscon Electric Power Co.
Project), Series B, 5.875% due 3/01/2033 2,395
NR* B1 4,000 Phoenix, Arizona, IDA, Airport Facility Revenue Refunding Bonds (America
West Airlines Inc.), AMT, 6.30% due 4/01/2023 3,966
===================================================================================================================================
Arkansas--1.8% NR* NR* 385 Alma, Arkansas, Health Facilities Board Revenue Bonds (Cedar Ridge
Inc.), 10.50% due 12/01/2019 404
NR* NR* 385 Conway, Arkansas, Public Facilities Board, Health Care Revenue Bonds
(Creative Living Project), 10.50% due 12/01/2019 404
NR* NR* 385 Hope, Arkansas, Health Facilities Board Revenue Bonds, 10.50% due
12/01/2019 404
NR* NR* 770 Little Rock, Arkansas, Health Facilities Board Revenue Bonds, 10.50% due
12/01/2019 807
NR* NR* 770 Pine Bluff, Arkansas, Health Facilities Board Revenue Bonds, 10.50% due
12/01/2019 807
NR* NR* 385 Texarkana, Arkansas, Public Facilities Board, Health Care Revenue Bonds
(Housing Opportunities Addition Project), 10.50% due 12/01/2019 404
NR* NR* 385 West Helena, Arkansas, Health Facilities Board Revenue Bonds, 10.50% due
12/01/2019 404
===================================================================================================================================
California--3.8% AAA NR* 5,000 Foothill/Eastern Corridor Agency, California, Toll Road Revenue Bonds,
Series A, 5.775%** due 1/01/2028 (b) 1,016
NR* NR* 2,000 Long Beach, California, M/F Housing Redevelopment Agency Revenue Bonds
(Pacific Court Apartments), AMT, Issue B, 6.95% due 9/01/2023 (g) 1,240
AAA NR* 5,500 Los Angeles, California, Department of Water and Power, Electric Plant
Revenue Bonds, RIB, Series 144, 5.50% due 6/15/2029 (b)(e) 5,549
===================================================================================================================================
Colorado--2.6% NR* NR* 1,700 Colorado Post-Secondary Educational Facilities Authority Revenue Bonds
(Colorado Ocean Journey Inc. Project), 8.30% due 12/01/2017 1,949
NR* NR* 3,000 Denver, Colorado, Urban Renewal Authority, Tax Increment Revenue Bonds
(Pavilions), AMT, 7.75% due 9/01/2016 3,385
===================================================================================================================================
</TABLE>
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
GO General Obligation Bonds
HFA Housing Finance Agency
IDA Industrial Development Authority
IDB Industrial Development Board
IDR Industrial Development Revenue Bonds
M/F Multi-Family
PCR Pollution Control Revenue Bonds
RIB Residual Interest Bonds
VRDN Variable Rate Demand Notes
4 & 5
<PAGE>
Apex Municipal Fund, Inc., June 30, 1999
SCHEDULE OF INVESTMENTS (continued) (in Thousands)
<TABLE>
<CAPTION>
S&P Moody's Face Value
STATE Ratings Ratings Amount Issue (Note 1a)
===================================================================================================================================
<S> <C> <C> <C> <C> <C>
Connecticut--3.9% BB- Ba1 $ 8,225 Connecticut State Development Authority, PCR, Refunding (Connecticut
Light & Power Company), Series A, 5.85% due 9/01/2028 $ 8,011
===================================================================================================================================
Florida--8.4% NR* NR* 980 Arbor Greene Community Development District, Florida, Special Assessment
Revenue Bonds, 7.60% due 5/01/2018 1,045
NR* NR* 9,102 Florida HFA, M/F Housing Revenue Bonds (Palm Aire), AMT, 10% due
1/01/2020 9,102
NR* NR* 3,000 Lee County, Florida, IDA, Health Care Facilities Revenue Bonds (Cypress
Cove Healthpark), Series A, 6.375% due 10/01/2025 3,087
NR* NR* 3,485 Tampa Palms, Florida, Open Space and Transportation Community
Development District Revenue Bonds, Capital Improvement (Richmond Place
Project), 7.50% due 5/01/2018 3,742
===================================================================================================================================
Georgia--3.2% NR* NR* 3,870 Atlanta, Georgia, Urban Residential Finance Authority, M/F Mortgage
Revenue Bonds (Northside Plaza Apartments Project), AMT, 9.75% due
11/01/2020 4,114
NR* NR* 2,100 Hancock County, Georgia, COP, 8.50% due 4/01/2015 2,364
===================================================================================================================================
Illinois--1.7% NR* NR* 3,190 Illinois Development Finance Authority, Primary Health Care Centers
Facilities, Acquisition Program Revenue Bonds, 7.75% due 12/01/2016 3,469
===================================================================================================================================
Iowa--6.4% NR* NR* 10,000 Iowa Finance Authority, Health Care Facilities Revenue Bonds (Care
Initiatives Project), 9.25% due 7/01/2025 12,910
===================================================================================================================================
Louisiana--1.8% B- NR* 3,500 Port New Orleans, Louisiana, IDR, Refunding (Continental Grain Company
Project), 7.50% due 7/01/2013 3,608
===================================================================================================================================
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 5,352
===================================================================================================================================
Massachusetts--6.2% NR* NR* 1,455 Boston, Massachusetts, Industrial Development Financing Authority, Solid
Waste Disposal Facility Revenue Bonds (Jet-A-Way Project), AMT, 10.50%
due 1/01/2011 1,601
A NR* 4,500 Massachusetts State Health and Educational Facilities Authority Revenue
Bonds (Schepens Eye Research Project), Series A, 6.50% due 7/01/2028 4,795
Massachusetts State Industrial Finance Agency Revenue Bonds:
NR* NR* 1,870 Educational Institute (Center For Human Development), 9.375% due
7/01/2000 (c) 2,027
NR* NR* 2,000 Sewer Facility (Resource Control Composting), AMT, 9.25% due 6/01/2010 2,060
NR* NR* 2,000 Massachusetts State Port Authority, Special Project Revenue Bonds
(Harborside Hyatt Project), AMT, 10% due 3/01/2026 2,163
===================================================================================================================================
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 2,184
BBB- Baa 1,200 Wayne County, Michigan, Downriver System Sewer Disposal, GO, Series A,
7% due 11/01/2013 1,270
===================================================================================================================================
Minnesota--1.7% NR* NR* 3,280 Anoka, Minnesota, M/F Housing Revenue Bonds (Rainbow Plaza Apartments
Project), 9.375% due 12/01/2024 3,389
===================================================================================================================================
Mississippi--0.7% NR* NR* 1,400 Mississippi Development Bank, Special Obligation Revenue Refunding Bonds
(Diamond Lakes Utilities), Series A, 6.25% due 12/01/2017 1,432
===================================================================================================================================
Nevada--1.1% BBB+ A2 2,500 Henderson, Nevada, Health Care Facility Revenue Bonds, Catholic
Healthcare West (Saint Rose Dominican Hospital), 5.125% due 7/01/2028 2,170
===================================================================================================================================
New Jersey--9.7% Camden County, New Jersey, Improvement Authority, Lease Revenue Bonds
(Holt Hauling & Warehousing), AMT, Series A:
BB- NR* 2,000 9.625% due 1/01/2011 2,386
BB- NR* 4,500 9.875% due 1/01/2021 5,424
B- B2 6,000 Camden County, New Jersey, Pollution Control Financing Authority, Solid
Waste Resource Recovery, Revenue Refunding Bonds, AMT, Series A, 7.50%
due 12/01/2010 5,937
NR* NR* 3,000 New Jersey EDA, Economic Development Revenue Bonds (Glimcher Properties
LP Project), AMT, 6% due 11/01/2028 2,971
NR* NR* 1,500 New Jersey EDA, IDR, Refunding (Newark Airport Marriott Hotel), 7% due
10/01/2014 1,617
BBB- NR* 1,500 New Jersey EDA, Revenue Bonds, First Mortgage (Fellowship Village
Project), Series C, 5.50% due 1/01/2028 1,400
===================================================================================================================================
New Mexico--4.1% Farmington, New Mexico, PCR, Refunding:
BB+ Ba1 3,000 (Public Service Company--San Juan Project), Series B, 6.30% due
12/01/2016 3,104
B B2 5,000 (Tucson Electric Power Co.--San Juan Project), Series A, 6.95% due
10/01/2020 5,326
===================================================================================================================================
New York--5.3% NR* NR* 6,835 New York City, New York, City IDA, Civic Facility Revenue Bonds (Amboy
Properties Corporation Project), 9.625% due 6/01/2000 (c) 7,231
Utica, New York, GO, Public Improvement:
CCC B2 700 9.25% due 8/15/2004 795
CCC B2 700 9.25% due 8/15/2005 810
CCC B2 635 9.25% due 8/15/2006 748
CCC B2 475 8.50% due 8/15/2013 544
CCC B2 475 8.50% due 8/15/2014 544
===================================================================================================================================
North Carolina--1.4% A- A3 3,000 Cumberland County, North Carolina, Hospital Facilities, Revenue Refunding
Bonds (Cumberland County Hospital Systems Inc.), 5.25% due 10/01/2024 2,790
===================================================================================================================================
Ohio--4.4% BB Ba2 6,800 Cleveland, Ohio, Airport Special Revenue Refunding Bonds (Continental
Airlines Inc. Project), AMT, 5.70% due 12/01/2019 (h) 6,549
BBB- Baa2 2,500 Ohio State Environmental Improvement, Revenue Refunding Bonds (USX
Corporation Project), 5.625% due 5/01/2029 2,416
===================================================================================================================================
Oregon--1.6% NR* NR* 2,160 Klamath Falls, Oregon, Electric Revenue Refunding Bonds (Klamath
Cogeneration Project), Senior Lien, 6% due 1/01/2025 2,123
NR* NR* 1,000 Western Generation Agency, Oregon, Cogeneration Project Revenue Bonds
(Wauna Cogeneration Project), AMT, Series B, 7.40% due 1/01/2016 1,072
===================================================================================================================================
Pennsylvania--9.6% NR* NR* 2,000 Lehigh County, Pennsylvania, General Purpose Authority, Revenue
Refunding Bonds (Kidspeace Obligation Group), 6% due 11/01/2023 1,931
Pennsylvania Economic Development Financing Authority, AMT, Series A:
NR* NR* 3,120 Exempt Facilities Revenue Bonds (National Gypsum Company), 6.25% due
11/01/2027 3,118
NR* NR* 4,000 Recycling Revenue Bonds (Ponderosa Fibres Project), 9.25% due
1/01/2022 (g) 1,400
AAA Aaa 2,000 Pennsylvania State Higher Education Assistance Agency, Student Loan
Revenue Bonds, AMT, RIB, 8.462% due 3/01/2022 (a)(e) 2,257
AAA NR* 4,000 Pennsylvania State Higher Educational Facilities Authority, College and
University Revenue Bonds (Eastern College), Series B, 8% due
10/15/2006 (c) 4,861
NR* NR* 5,500 Philadelphia, Pennsylvania, Authority for IDR, Commercial Development,
AMT, 7.75% due 12/01/2017 6,035
===================================================================================================================================
</TABLE>
6 & 7
<PAGE>
Apex Municipal Fund, Inc., June 30, 1999
SCHEDULE OF INVESTMENTS (concluded) (in Thousands)
<TABLE>
<CAPTION>
S&P Moody's Face Value
STATE Ratings Ratings Amount Issue (Note 1a)
===================================================================================================================================
<S> <C> <C> <C> <C> <C>
South Carolina--1.0% NR* NR* $ 2,000 South Carolina Jobs Economic Development Authority, Health Facilities
Revenue Bonds, First Mortgage (Lutheran Homes Project), 6.625% due
5/01/2028 $ 1,968
===================================================================================================================================
Texas--8.0% Bell County, Texas, Health Facilities Development Corporation Revenue
Bonds (Heartway Corporation II Project):
NR* NR* 4,750 Senior Series A, 9.50% due 3/01/2019 4,940
NR* NR* 805 Sub-Series B, 10% due 9/01/1999 (d) 523
A1+ NR* 900 Harris County, Texas, Health Facilities Development Corporation,
Hospital Revenue Refunding Bonds (Methodist Hospital), VRDN, 4% due
12/01/2025 (f) 900
BB Ba1 3,100 Houston, Texas, Airport System, Special Facilities Revenue Bonds
(Continental Airlines Terminal Improvement), AMT, Series B, 6.125% due
7/15/2027 3,115
BB- Ba1 6,500 Lower Colorado River Authority, Texas, PCR (Samsung Austin
Semiconductor), AMT, 6.375% due 4/01/2027 6,689
===================================================================================================================================
Virginia--7.2% NR* NR* 2,500 Dulles Town Center Community Development Authority, Virginia, Special
Assessment Tax (Dulles Town Center Project), 6.25% due 3/01/2026 2,513
NR* NR* 4,215 Peninsula Ports Authority, Virginia, Revenue Refunding Bonds (Port
Facility--Zeigler Coal), 6.90% due 5/02/2022 4,223
Pocahontas Parkway Association, Virginia, Toll Road Revenue Bonds:
NR* Ba1 6,200 First Tier, Sub-Series C, 6.25%** due 8/15/2033 682
NR* Ba1 6,200 First Tier, Sub-Series C, 6.25%** due 8/15/2034 640
BBB- Baa3 32,600 Senior Series B, 5.875%** due 8/15/2025 6,678
===================================================================================================================================
Total Investments (Cost--$209,929)--104.4% 212,207
Liabilities in Excess of Other Assets--(4.4%) (9,009)
--------
Net Assets--100.0% $203,198
========
===================================================================================================================================
</TABLE>
(a) AMBAC Insured.
(b) FSA Insured.
(c) Prerefunded.
(d) This issue will begin to accrue interest on September 1, 1999.
(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, 1999.
(f) The interest rate is subject to change periodically based upon
prevailing market rates. The interest rate shown is the rate in
effect at June 30, 1999.
(g) Non-income producing security.
(h) This issue will begin to accrue interest on September 2, 1999.
* Not Rated.
** Represents a zero coupon bond; the interest rate shown reflects 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.
STATEMENT OF ASSETS, LIABILITIES AND CAPITAL
<TABLE>
<CAPTION>
As of June 30, 1999
=============================================================================================================================
<S> <C> <C> <C>
Assets: Investments, at value (identified cost--$209,929,352) (Note 1a) ................... $212,207,213
Cash .............................................................................. 124,516
Receivables:
Securities sold ................................................................. $ 3,898,828
Interest ........................................................................ 3,509,960 7,408,788
------------
Prepaid expenses and other assets ................................................. 37,140
------------
Total assets ...................................................................... 219,777,657
------------
=============================================================================================================================
Liabilities: Payables:
Securities purchased ............................................................ 16,239,684
Dividends to shareholders (Note 1e) ............................................. 143,779
Investment adviser (Note 2) ..................................................... 109,581 16,493,044
------------
Accrued expenses and other liabilities ............................................ 86,828
------------
Total liabilities ................................................................. 16,579,872
------------
=============================================================================================================================
Net Assets: Net assets ........................................................................ $203,197,785
============
=============================================================================================================================
Capital: Common Stock, $.10 par value, 150,000,000 shares authorized; 19,596,732 shares
issued and outstanding (Note 4) ................................................... $ 1,959,673
Paid-in capital in excess of par .................................................. 215,506,215
Undistributed investment income--net .............................................. 1,169,936
Accumulated realized capital losses on investments--net (Note 5) .................. (17,715,900)
Unrealized appreciation on investments--net ....................................... 2,277,861
------------
Total capital--Equivalent to $10.37 net asset value per share of Common Stock
(market price--$10.25) ............................................................ $203,197,785
============
=============================================================================================================================
</TABLE>
See Notes to Financial Statements.
8 & 9
<PAGE>
Apex Municipal Fund, Inc., June 30, 1999
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
For the Year Ended June 30, 1999
===================================================================================================================================
<S> <C> <C> <C>
Investment Interest and amortization of premium and discount earned ....................... $ 13,994,267
Income (Note 1d):
===================================================================================================================================
Expenses: Investment advisory fees (Note 2) .............................................. $ 1,349,140
Professional fees .............................................................. 115,248
Accounting services (Note 2) ................................................... 49,645
Transfer agent fees ............................................................ 47,762
Directors' fees and expenses ................................................... 40,115
Printing and shareholder reports ............................................... 24,633
Custodian fees ................................................................. 17,886
Listing fees ................................................................... 12,312
Pricing fees ................................................................... 11,682
Other .......................................................................... 15,181
------------
Total expenses ................................................................. 1,683,604
------------
Investment income--net ......................................................... 12,310,663
------------
===================================================================================================================================
Realized & Unrealized Realized gain on investments--net .............................................. 3,207,168
Gain (Loss) on Change in unrealized appreciation on investments--net .......................... (7,749,281)
(Notes 1b, 1d & 3): ------------
Net Increase in Net Assets Resulting from Operations ........................... $ 7,768,550
============
===================================================================================================================================
</TABLE>
See Notes to Financial Statements.
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
For the Year
Ended June 30,
---------------------------
Increase (Decrease) in Net Assets: 1999 1998
===================================================================================================================================
<S> <C> <C> <C>
Operations: Investment income--net ......................................................... $ 12,310,663 $ 12,561,006
Realized gain (loss) on investments--net ....................................... 3,207,168 (220,913)
Change in unrealized appreciation/depreciation on investments--net ............. (7,749,281) 7,061,457
------------ ------------
Net increase in net assets resulting from operations ........................... 7,768,550 19,401,550
------------ ------------
===================================================================================================================================
Dividends to Investment income--net ......................................................... (12,319,499) (12,579,736)
Shareholders ------------ ------------
(Note 1e): Net decrease in net assets resulting from dividends to shareholders ............ (12,319,499) (12,579,736)
------------ ------------
===================================================================================================================================
Common Stock Net increase in net assets derived from capital stock issued to shareholders
Transactions in reinvestment of dividends ................................................... 288,800 265,795
(Note 4): ------------ ------------
===================================================================================================================================
Net Assets: Total increase (decrease) in net assets ........................................ (4,262,149) 7,087,609
Beginning of year .............................................................. 207,459,934 200,372,325
------------ ------------
End of year* ................................................................... $203,197,785 $207,459,934
============ ============
===================================================================================================================================
* Undistributed investment income--net ........................................... $ 1,169,936 $ 1,178,772
============ ============
===================================================================================================================================
</TABLE>
See Notes to Financial Statements.
FINANCIAL HIGHLIGHTS
<TABLE>
<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: 1999 1998 1997 1996 1995
==================================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of year ................... $ 10.60 $ 10.25 $ 10.01 $ 10.06 $ 10.10
Operating -------- -------- -------- -------- --------
Performance: Investment income--net ............................... .63 .64 .64 .67 .71
Realized and unrealized gain (loss) on investments--
net .................................................. (.23) .35 .26 (.06) (.04)
-------- -------- -------- -------- --------
Total from investment operations ..................... .40 .99 .90 .61 .67
-------- -------- -------- -------- --------
Less dividends from investment income--net ........... (.63) (.64) (.66) (.66) (.71)
-------- -------- -------- -------- --------
Net asset value, end of year ......................... $ 10.37 $ 10.60 $ 10.25 $ 10.01 $ 10.06
======== ======== ======== ======== ========
Market price per share, end of year .................. $ 10.25 $ 10.50 $ 9.9375 $ 9.125 $ 9.375
======== ======== ======== ======== ========
==================================================================================================================================
Total Investment Based on market price per share ...................... 3.68% 12.42% 16.66% 4.54% 2.57%
Return:* ======== ======== ======== ======== ========
Based on net asset value per share ................... 3.90% 10.03% 9.69% 6.87% 7.61%
======== ======== ======== ======== ========
==================================================================================================================================
Ratios to Average Expenses ............................................. .81% .86% .79% .90% .91%
Net Assets: ======== ======== ======== ======== ========
Investment income--net ............................... 5.93% 6.08% 6.34% 6.66% 7.14%
======== ======== ======== ======== ========
==================================================================================================================================
Supplemental Net assets, end of year (in thousands) ............... $203,198 $207,460 $200,372 $195,565 $196,647
Data: ======== ======== ======== ======== ========
Portfolio turnover ................................... 40% 34% 79% 56% 20%
======== ======== ======== ======== ========
==================================================================================================================================
</TABLE>
* 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.
See Notes to Financial Statements.
10 & 11
<PAGE>
Apex Municipal Fund, Inc., June 30, 1999
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's financial statements are prepared in accordance with
generally accepted accounting principles, which may require the use of
management accruals and estimates. 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 written or purchased are valued at the last
sale price in the case of exchange-traded options. In the case of options traded
in the over-the-counter market, valuation is the last asked price (options
written) or the last bid price (options purchased). 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.
o Financial futures contracts--The Fund may purchase or sell financial 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.
o 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 Incorporated, and/or ML & Co.
3. Investments:
Purchases and sales of investments, excluding short-term securities, for the
year ended June 30, 1999 were $88,263,456 and $83,864,455, respectively.
Net realized gains for the year ended June 30, 1999 and net unrealized gains as
of June 30, 1999 were as follows:
- --------------------------------------------------------------------------------
Realized Unrealized
Gains Gains
- --------------------------------------------------------------------------------
Long-term investments .............................. $3,207,168 $2,277,861
---------- ----------
Total .............................................. $3,207,168 $2,277,861
========== ==========
- --------------------------------------------------------------------------------
As of June 30, 1999, net unrealized appreciation for Federal income tax purposes
aggregated $2,277,861, of which $10,033,304 related to appreciated securities
and $7,755,443 related to depreciated securities. The aggregate cost of
investments at June 30, 1999 for Federal income tax purposes was $209,929,352.
4. Common Stock Transactions:
At June 30, 1999, 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 years ended June 30, 1999 and June 30, 1998 increased by
27,181 and 24,907, respectively, as a result of dividend reinvestment.
5. Capital Loss Carryforward:
At June 30, 1999, the Fund had a net capital loss carryforward of approximately
$17,716,000, of which $3,880,000 expires in 2001, $2,775,000 expires in 2002,
$1,754,000 expires in 2003, $7,057,000 expires in 2004, $1,312,000 expires in
2005 and $938,000 expires in 2006. This amount will be available to offset like
amounts of any future taxable gains.
6. Subsequent Event:
On July 8, 1999, the Fund's Board of Directors declared an ordinary income
dividend to Common Stock shareholders in the amount of $.053336 per share,
payable on July 29, 1999 to shareholders of record as of July 23, 1999.
12 & 13
<PAGE>
Apex Municipal Fund, Inc., June 30, 1999
INDEPENDENT AUDITORS' REPORT
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, 1999, 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,
1999 by correspondence with the custodian and brokers. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, 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, 1999, 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
August 12, 1999
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, 1999 qualify as
tax-exempt interest dividends for Federal income tax purposes.
Additionally, there were no capital gains distributions declared by the Fund
during its taxable year ended June 30, 1999.
Please retain this information for your records.
YEAR 2000 ISSUES
Many computer systems were designed using only two digits to designate years.
These systems may not be able to distinguish the Year 2000 from the Year 1900
(commonly known as the "Year 2000 Problem"). The Fund could be adversely
affected if the computer systems used by the Fund's management or other Fund
service providers do not properly address this problem before January 1, 2000.
The Fund's management expects to have addressed this problem before then, and
does not anticipate that the services it provides will be adversely affected.
The Fund's other service providers have told the Fund's management that they
also expect to resolve the Year 2000 Problem, and the Fund's management will
continue to monitor the situation as the Year 2000 approaches. However, if the
problem has not been fully addressed, the Fund could be negatively affected. The
Year 2000 Problem could also have a negative impact on the securities in which
the Fund invests and this could hurt the Fund's investment returns.
ABOUT INVERSE FLOATERS
As a part of its investment strategy, the Fund may invest in certain securities
whose potential income return is inversely related to changes in a floating
interest rate ("inverse floaters"). In general, income on inverse floaters will
decrease when short-term interest rates increase and increase when short-term
interest rates decrease. Investments in inverse floaters may be characterized as
derivative securities and may subject the Fund to the risks of reduced or
eliminated interest payments and losses of invested principal. In addition,
inverse floaters have the effect of providing investment leverage and, as a
result, the market value of such securities will generally be more volatile than
that of fixed rate, tax-exempt securities. To the extent the Fund invests in
inverse securities, the market value of the Fund's portfolio and the net asset
value of the Fund's shares may also be more volatile than if the Fund did not
invest in these securities.
14 & 15
<PAGE>
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--6/99
[RECYCLE LOGO] Printed on post-consumer recycled paper
