APEX MUNICIPAL
FUND, INC.
[GRAPHIC OMITTED]
STRATEGIC
Performance
Semi-Annual Report
December 31, 1998
<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 December 31, 1998 were as
follows:
- --------------------------------------------------------------------------------
Percent of
S&P Rating/Moody's Rating Net Assets
- --------------------------------------------------------------------------------
AAA/Aaa ............................................................. 4.6%
A/A ................................................................. 0.3
BBB/Baa ............................................................. 6.3
BB/Ba ............................................................... 16.4
B/B ................................................................. 12.7
CCC/Caa ............................................................. 1.3
NR(Not Rated) ....................................................... 59.2
Other+ .............................................................. 0.8
- --------------------------------------------------------------------------------
+ Temporary investments in short-term municipal securities.
<PAGE>
Apex Municipal Fund, Inc., December 31, 1998
DEAR SHAREHOLDERS
For the six months ended December 31, 1998, Apex Municipal Fund, Inc. earned
$0.313 per share income dividends, which included earned and unpaid dividends of
$0.052. This represents a net annualized yield of 5.84%, based on a month-end
per share net asset value of $10.63. Over the same period, the Fund's total
investment return was +3.30%, based on a change in per share net asset value
from $10.60 to $10.63, and assuming reinvestment of $0.314 per share income
dividends.
The Municipal Market Environment
During the six months ended December 31, 1998, long-term bond yields generally
declined. Modest domestic economic growth, coupled with a continued lack of
inflationary pressures, has allowed bond yields to continue the decline seen for
most of 1998. The US Treasury market has also continued to benefit from its
"safe-haven" status. The earlier turmoil in foreign markets, especially in
Russia and Brazil, remains unresolved. The declines in foreign economies also
have led to reduced demand for US exports. This reduction has forced some US
manufacturers to scale back production and initiate significant contractions in
employment. Concerns that the declines in the US manufacturing sector seen thus
far would intensify and spread to the service sector of the US economy led the
Federal Reserve Board to lower short-term interest rates in September, October
and November. These actions were taken in large part to ensure that US economic
growth would remain at least at its current level of growth. During the six
months ended December 31, 1998, US Treasury bond yields declined over 50 basis
points (0.50%) to end the year at 5.09%. Long-term uninsured municipal revenue
bond yields, as measured by the Bond Buyer Revenue Bond Index, fell 10 basis
points to end the six-month period at 5.26%.
One of the two principal themes characterizing the municipal bond market for
much of the past year has been the significant increase in new municipal bond
issuance. Over $285 billion in new long-term tax-exempt bonds were underwritten
in 1998, an increase of almost 30% relative to 1997 levels. As tax-exempt bond
yields declined in recent years, increasingly lower municipal bond yields were
required to refinance existing debt. Consequently, the rate of increase in
municipal bond issuance has begun to slow in recent quarters. During the last
six months of 1998, nearly $135 billion in new tax-exempt bonds were issued, an
increase of nearly 10% as compared to the same period a year earlier. During the
three months ended December 31, 1998, $68 billion in new municipal bonds were
underwritten, an increase of just over 5% as compared to the quarter ended
December 31, 1997. Unless municipal bond yields decline dramatically in 1999,
new bond issuance in 1999 seems unlikely to match 1998 levels.
The second and perhaps more striking theme during the past year has been the
dramatic underperformance of the municipal bond market. At the end of 1998,
long-term tax-exempt bond yields were at attractive yield ratios relative to US
Treasury securities of comparable maturities (103%), matching their least
expensive level of the year. Municipal bond yield ratios have averaged
approximately 95% for the last six months and 92% for all of 1998. During 1997,
tax-exempt bond yield ratios averaged 84%. It is likely that the combination of
the increase in new-issue volume and the safe-haven status of US Treasury
securities has driven municipal bond yield ratios to their present attractive
levels. Should new-issue volume decline or foreign financial markets regain
stability in 1999, tax-exempt bond yield ratios could be expected to quickly
return to their more historic levels (85%-88%).
Looking ahead, the expected combination of moderate economic growth in the
United States and continued negligible inflation suggest a relatively stable
interest rate environment into early 1999. However, it is likely that foreign
financial markets will again be a critical factor in determining US bond yields.
At this time, it appears that there is currently little immediate risk of any
significant increase in long-term bond yields.
Portfolio Strategy
Portfolio activity during the six months ended December 31, 1998 continued to
reflect our efforts to reduce the Fund's holdings in securities that possessed
unattractive redemption features as well as those perceived to be vulnerable to
the continuing deterioration in the global economic outlook. We generally
limited high-yield purchases to industry sectors with limited exposure to
international economic and financial disruptions. We found the electric utility
sector attractive for this reason. In addition, we believe that the fundamental
credit outlook for this sector continues to improve.
Municipal credit spreads have widened somewhat over the last few months in
acknowledgment of the historic widening of spreads among taxable securities such
as corporate bonds and mortgage-backed securities. Much of this widening has
occurred with corporate-related tax-exempt debt, reflecting concerns over the
impending slide in earnings growth. Thus far, the impact has been relatively
modest, possibly in response to the high demand for yield in an otherwise
increasingly homogenized municipal market.
We will continue to carefully monitor our existing holdings and the market at
large for opportunities to improve performance. At the end of the calendar year,
supply typically tends to expand as numerous high-yield issuers seek to lock in
long-term financing before the expiration of annual debt caps. This could put
additional pressure on yield spreads and may present opportunities for us to
move forward in our efforts to restructure the portfolio.
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,
/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
/s/ John M. Loffredo
John M. Loffredo
Vice President and Portfolio Manager
January 12, 1999
2 & 3
<PAGE>
Apex Municipal Fund, Inc., December 31, 1998
PROXY RESULTS
During the six-month period ended December 31, 1998, Apex Municipal Fund, Inc.
stockholders voted on the following proposals. The proposals were approved at
the stockholders' meeting on October 8, 1998. The description of each proposal
and number of shares voted are as follows:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
Shares Voted Shares Withheld
For From Voting
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1. To elect two Class III Directors to the
Fund's Board of Directors: Robert S. Salomon Jr. 18,531,525 418,298
Arthur Zeikel 18,525,264 424,559
- ----------------------------------------------------------------------------------------------------------
<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 for the current
fiscal year. 18,686,010 68,653 195,160
- ----------------------------------------------------------------------------------------------------------
</TABLE>
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--1.8% B- NR* $1,000 Brewton, Alabama, IDB, PCR, Refunding (Container Corporation
America Project), 8% due 4/01/2009 $ 1,101
CCC Ca 5,500 Mobile, Alabama, IDB, Solid Waste Disposal, Revenue Refunding
Bonds (Mobile Energy Services Co. Project), 6.95% due 1/01/2020 2,736
==================================================================================================================================
Arizona--3.2% B B2 2,500 Apache County, Arizona, IDA, PCR, Refunding (Tucson Electric
Power Co. Project), Series B, 5.875% due 3/01/2033 2,471
NR* B1 4,000 Phoenix, Arizona, IDA, Airport Facilities Revenue Refunding Bonds
(America West Airlines, Inc.), AMT, 6.30% due 4/01/2023 4,129
==================================================================================================================================
Arkansas--1.8% NR* NR* 385 Alma, Arkansas, Health Facilities Board Revenue Bonds, 10.50% due
12/01/2019 410
NR* NR* 385 Conway, Arkansas, Public Facilities Board, Health Care Revenue
Bonds (Creative Living Project), 10.50% due 12/01/2019 409
NR* NR* 385 Hope, Arkansas, Health Facilities Board Revenue Bonds
(Omega Home), 10.50% due 12/01/2019 409
NR* NR* 770 Little Rock, Arkansas, Health Facilities Board Revenue Bonds
(Community Life Services), 10.50% due 12/01/2019 818
NR* NR* 770 Pine Bluff, Arkansas, Health Facilities Board Revenue Bonds
(Jenkins Housing), 10.50% due 12/01/2019 817
NR* NR* 385 Texarkana, Arkansas, Public Facilities Board, Health Care Revenue
Bonds (Housing Opportunities Addition Project), 10.50% due
12/01/2019 409
NR* NR* 385 West Helena, Arkansas, Health Facilities Board Revenue Bonds
(Delta House), 10.50% due 12/01/2019 408
==================================================================================================================================
California--1.1% AAA Aaa 5,000 Foothill/Eastern Transportation Corridor Agency, California,
Toll Road Revenue Bonds (Senior Lien), Series A, 5.775%** due
1/01/2028 (b) 1,135
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 (f) 1,100
==================================================================================================================================
Colorado--2.6% NR* NR* 1,700 Colorado Postsecondary Educational Facilities Authority Revenue
Bonds (Colorado Ocean Journey Inc. Project), 8.30% due 12/01/2017 2,000
NR* NR* 3,000 Denver, Colorado, Urban Renewal Authority, Tax Increment Revenue
Bonds (Downtown Denver), AMT, Series A, 7.75% due 9/01/2016 3,416
==================================================================================================================================
Connecticut--2.4% B+ Ba3 5,000 Connecticut State Development Authority, PCR, Refunding
(Connecticut Light & Power Co.), Series A, 5.85% due 9/01/2028 5,019
==================================================================================================================================
</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
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
UT Unlimited Tax
VRDN Variable Rate Demand Notes
4 & 5
<PAGE>
Apex Municipal Fund, Inc., December 31, 1998
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>
Florida--10.3% NR* NR* $1,000 Arbor Greene, Florida, Community Development District, Special
Assessment Revenue Bonds, 7.60% due 5/01/2018 $ 1,088
NR* NR* 9,102 Florida HFA, M/F Housing Revenue Bonds (Palm Aire Retirement
Facilities Project), AMT, Series S, 10% due 1/01/2020 (f) 8,647
NR* NR* 3,000 Lee County, Florida, IDA, Healthcare Facilities Revenue Bonds
(Cypress Cove Health Park), Series A, 6.375% due 10/01/2025 3,124
AAA Aaa 5,000 Orange County, Florida, Tourist Development Tax Revenue Refunding
Bonds, Series A, 4.75% due 10/01/2024 (c) 4,785
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 3,849
==================================================================================================================================
Georgia--3.2% NR* NR* 3,870 Atlanta, Georgia, Urban Residential Finance Authority, M/F
Housing Mortgage Revenue Bonds (Northside Plaza Apartments
Project), 9.75% due 11/01/2020 4,124
NR* NR* 2,275 Hancock County, Georgia, COP, 8.50% due 4/01/2015 2,619
==================================================================================================================================
Illinois--1.8% NR* NR* 3,190 Illinois Development Finance Authority, Prime Health Care
Centers Facilities, Acquisition Program Revenue Bonds, 7.75% due
12/01/2016 3,560
A1+ VMIG1+ 100 Illinois Health Facilities Authority, Revenue Refunding Bonds
(University of Chicago Hospital), VRDN, 5% due 8/01/2026 (a)(i) 100
==================================================================================================================================
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 13,422
==================================================================================================================================
Louisiana--2.3% NR* A2 650 Louisiana Public Facilities Authority, Student Loan Revenue
Refunding Bonds, AMT, Sub-Series A-3, 7% due 9/01/2006 686
A1+ VMIG1+ 500 Louisiana State Offshore Terminal Authority, Deepwater Port
Revenue Refunding Bonds (Loop Inc.--First Stage), VRDN, Series A,
5.10% due 9/01/2008 (a) 500
B+ NR* 3,500 Port New Orleans, Louisiana, IDR, Refunding (Continental Grain
Company Project), 7.50% due 7/01/2013 3,726
==================================================================================================================================
Maryland--2.5% NR* NR* 5,000 Maryland State Energy Financing Administration, Limited
Obligation Revenue Bonds (Cogeneration-AES Warrior Run), AMT,
7.40% due 9/01/2019 5,220
==================================================================================================================================
Massachusetts--3.9% NR* NR* 1,455 Boston, Massachusetts, Industrial Development Financing
Authority, Solid Waste Disposal Facilities Revenue Bonds
(Jet-A-Way Project), AMT, 10.50% due 1/01/2011 1,603
NR* NR* 1,920 Massachusetts State Industrial Finance Agency, Educational
Institution Revenue Bonds (Center for Human Development), 9.375%
due 7/01/2015 2,067
NR* NR* 2,100 Massachusetts State Industrial Finance Agency, Sewage Facility
Revenue Bonds (Resource Control Composting, Inc. Project), AMT,
9.25% due 6/01/2010 2,166
NR* NR* 2,000 Massachusetts State Port Authority, Special Project Revenue Bonds
(Harborside Hyatt), AMT, 10% due 3/01/2026 2,200
==================================================================================================================================
Michigan--2.2% NR* P1 1,000 Michigan State Strategic Fund, PCR, Refunding (Consumers Power
Project), VRDN, Series A, 5.10% due 4/15/2018 (a) 1,000
NR* NR* 2,050 Wayne Charter County, Michigan, Special Airport Facilities,
Revenue Refunding Bonds (Northwest Airlines, Inc.), 6.75% due
12/01/2015 2,241
BBB- Baa 1,200 Wayne County, Michigan, Downriver Sewer Disposal System,
Series A, 7% due 11/01/2013 1,302
==================================================================================================================================
Minnesota--1.7% NR* NR* 3,295 Anoka, Minnesota, M/F Housing Revenue Bonds (Rainbow Plaza
Apartments Project), AMT, 9.375% due 12/01/2024 3,443
==================================================================================================================================
Mississippi--0.9% BBB- Ba1 500 Mississippi Business Finance Corporation, PCR, Refunding (System
Energy Resource, Inc. Project), 5.875% due 4/01/2022 500
NR* NR* 1,400 Mississippi Development Bank, Special Obligation Refunding Bonds
(Diamond Lakes Utilities), Series A, 6.25% due 12/01/2017 1,434
==================================================================================================================================
New Jersey--11.5% Camden County, New Jersey, Improvement Authority, Lease
Revenue Bonds (Holt Hauling & Warehousing), Series A:
BB- NR* 2,000 9.625% due 1/01/2011 2,460
BB- NR* 4,500 9.875% due 1/01/2021 5,596
B- B2 6,000 Camden County, New Jersey, Pollution Control Financing Authority,
Solid Waste Resource Recovery Revenue Bonds, AMT, Series A, 7.50%
due 12/01/2010 5,970
NR* NR* 1,500 New Jersey EDA, IDR, Refunding (Newark Airport Marriott Hotel),
7% due 10/01/2014 1,652
New Jersey EDA, Revenue Bonds:
BBB- NR* 1,500 (First Mortgage--Fellowship Village Project), Series C, 5.50%
due 1/01/2028 1,456
NR* NR* 3,000 (Glimcher Properties LP Project), AMT, 6% due 11/01/2028 2,991
NR* NR* 3,750 (Kapkowski Road Landfill), Series A, 6.375% due 4/01/2031 3,854
==================================================================================================================================
New Mexico--4.2% Farmington, New Mexico, PCR:
BB+ Ba1 3,000 Refunding (Public Service Company--San Juan Project), Series B,
6.30% due 12/01/2016 3,207
B B2 5,000 (Tucson Electric Power Co.--San Juan Project), Series A, 6.95%
due 10/01/2020 5,519
==================================================================================================================================
New York--9.3% NR* NR* 7,010 New York City, New York, IDA, Civic Facilities Revenue Bonds
(Amboy Properties Corporation Project), 9.625% due 6/01/2015 7,550
NR* NR* 4,500 Onondaga County, New York, IDA, Solid Waste Disposal Facility,
Revenue Refunding Bonds (Solvay Paperboard LLC Project), AMT, 7%
due 11/01/2030 4,545
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 3,873
Utica, New York, Public Improvement Bonds, UT:
CCC B2 700 9.25% due 8/15/2004 811
CCC B2 700 9.25% due 8/15/2005 826
CCC B2 635 9.25% due 8/15/2006 763
CCC B2 475 8.50% due 8/15/2013 553
CCC B2 475 8.50% due 8/15/2014 553
==================================================================================================================================
Ohio--5.1% BB Ba2 6,800 Cleveland, Ohio, Airport Special Revenue Refunding Bonds
(Continental Airlines, Inc.), AMT, 5.70% due 12/01/2019 (h) 6,605
BBB Ba1 1,000 Ohio State, Solid Waste Disposal Revenue Bonds (USG Corporation
Project), AMT, 5.65% due 3/01/2033 994
NR* NR* 3,000 Ohio State Water Development Authority, Solid Waste Disposal
Revenue Bonds (Bay Shore Power Project), AMT, Series A, 5.875%
due 9/01/2020 3,007
==================================================================================================================================
Oregon--1.4% NR* Baa2 1,750 Oregon State, Economic Development Revenue Refunding Bonds
(Georgia-Pacific Corporation Project), Series 183, 5.70% due
12/01/2025 1,778
NR* NR* 1,000 Western Generation Agency, Oregon, Cogeneration Project Revenue
Bonds (Wauna Cogeneration Project), AMT, Series B, 7.40% due
1/01/2016 1,092
==================================================================================================================================
</TABLE>
6 & 7
<PAGE>
Apex Municipal Fund, Inc., December 31, 1998
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>
Pennsylvania--8.6% NR* NR* $ 2,000 Lehigh County, Pennsylvania, General Purpose Authority, Revenue
Refunding Bonds (Kidspeace Obligation Group), 6% due 11/01/2023 $ 1,988
NR* NR* 4,000 Pennsylvania Economic Development Financing Authority, Recycling
Revenue Bonds (Ponderosa Fibres Project), AMT, Series A, 9.25%
due 1/01/2022 (f) 2,500
AAA Aaa 2,000 Pennsylvania State Higher Education Assistance Agency, Student
Loan Revenue Bonds, RIB, AMT, Series B, 8.209% due 3/01/2022
(c)(e) 2,278
NR* NR* 4,000 Pennsylvania State Higher Educational Facilities Authority,
College and University Revenue Bonds (Eastern College), Series B,
8% due 10/15/2025 4,780
A1+ NR* 100 Pennsylvania State Higher Educational Facilities Authority,
Revenue Refunding Bonds (Carnegie Mellon University), VRDN,
Series C, 5% due 11/01/2029 (a) 100
NR* NR* 5,500 Philadelphia, Pennsylvania, Authority for IDR, Refunding
(Commercial Development--Philadelphia Airport), AMT, 7.75%
due 12/01/2017 6,163
==================================================================================================================================
Texas--8.1% Bell County, Texas, Health Facilities Development Corporation
Revenue Bonds (Heartway Corporation Project):
NR* NR* 4,750 Senior Series A, 9.50% due 3/01/2019 5,173
NR* NR* 805 Sub-Series B, 10%** due 3/01/2019 (g) 535
BB Ba2 3,100 Houston, Texas, Airport System, Special Facilities Revenue Bonds
(Continental Airline Terminal Improvement), AMT, Series B, 6.125%
due 7/15/2027 3,173
BB- Ba1 6,500 Lower Colorado River Authority, Texas, PCR (Samsung Austin
Semiconductor), AMT, 6.375% due 4/01/2027 6,724
AAA Aaa 1,000 Odessa, Texas, Junior College District, Revenue Refunding Bonds,
Series A, 8.125% due 6/01/2005 (d) 1,233
==================================================================================================================================
Virginia--5.3% NR* NR* 2,500 Dulles Town Center Community Development Authority, Virginia,
Special Assessment Tax Bonds (Dulles Town Center Project), 6.25%
due 3/01/2026 2,551
Pocahontas Parkway Association, Virginia, Connector Toll Road
Revenue Bonds (Route 895):
NR* B1 6,200 1st Tier, Sub-Series C, 6.25%** due 8/15/2033 734
NR* B1 6,200 1st Tier, Sub-Series C, 6.25%** due 8/15/2034 690
BBB- Baa3 32,600 Senior Series B, 5.875%** due 8/15/2025 7,014
==================================================================================================================================
Total Investments (Cost--$203,084)--101.6% 211,484
Liabilities in Excess of Other Assets--(1.6%) (3,231)
--------
Net Assets--100.0% $208,253
========
==================================================================================================================================
</TABLE>
(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, 1998.
(b) FSA Insured.
(c) AMBAC Insured.
(d) Prerefunded.
(e) The interest rate is subject to change periodically and inversely
based upon prevailing market rates. The interest rate shown is the
rate in effect at December 31, 1998.
(f) Non-income producing security.
(g) This issue will begin to accrue interest on September 1, 1999.
(h) This issue will begin to accrue interest on September 2, 1999.
(i) MBIA Insured.
* 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 rating by Moody's Investors Service, Inc.
See Notes to Financial Statements.
STATEMENT OF ASSETS, LIABILITIES AND CAPITAL
<TABLE>
<CAPTION>
As of December 31, 1998
=======================================================================================================================
<S> <C> <C> <C>
Assets: Investments, at value (identified cost--$203,084,229) (Note 1a) ... $211,483,570
Cash .............................................................. 167,215
Receivables:
Interest ........................................................ $ 3,488,323
Securities sold ................................................. 100,000 3,588,323
------------
Prepaid expenses and other assets ................................. 26,936
------------
Total assets ...................................................... 215,266,044
------------
=======================================================================================================================
Liabilities: Payables:
Securities purchased ............................................ 6,681,436
Dividends to shareholders (Note 1e) ............................. 135,254
Investment adviser (Note 2) ..................................... 126,190 6,942,880
------------
Accrued expenses and other liabilities ............................ 70,280
------------
Total liabilities ................................................. 7,013,160
------------
=======================================================================================================================
Net Assets: Net assets ........................................................ $208,252,884
============
=======================================================================================================================
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 .................................. 215,506,216
Undistributed investment income--net .............................. 1,255,855
Accumulated realized capital losses on investments--net (Note 5) .. (18,868,201)
Unrealized appreciation on investments--net ....................... 8,399,341
------------
Total capital--Equivalent to $10.63 net asset value per share
of Common Stock (market price--$10.375) ........................... $208,252,884
============
=======================================================================================================================
</TABLE>
See Notes to Financial Statements.
8 & 9
<PAGE>
Apex Municipal Fund, Inc., December 31, 1998
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
For the Six Months Ended December 31, 1998
===============================================================================================================
<S> <C> <C> <C>
Investment Interest and amortization of premium and discount earned .. $ 7,106,932
Income (Note 1d):
===============================================================================================================
Expenses: Investment advisory fees (Note 2) ......................... $ 693,855
Professional fees ......................................... 52,513
Accounting services (Note 2) .............................. 34,501
Directors' fees and expenses .............................. 20,439
Transfer agent fees ....................................... 19,983
Printing and shareholder reports .......................... 12,874
Listing fees .............................................. 12,320
Custodian fees ............................................ 9,222
Pricing fees .............................................. 7,105
Other ..................................................... 13,983
------------
Total expenses ............................................ 876,795
------------
Investment income--net .................................... 6,230,137
------------
===============================================================================================================
Realized & Realized gain on investments--net ......................... 2,054,867
Unrealized Change in unrealized appreciation on investments--net ..... (1,627,801)
Gain (Loss) on ------------
Investments--Net Net Increase in Net Assets Resulting from Operations ...... $ 6,657,203
(Notes 1b, 1d & 3): ============
===============================================================================================================
</TABLE>
See Notes to Financial Statements.
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
For the Six For the
Months Ended Year Ended
December 31, June 30,
Increase (Decrease) in Net Assets: 1998 1998
===============================================================================================================
<S> <C> <C> <C>
Operations: Investment income--net .................................... $ 6,230,137 $ 12,561,006
Realized gain (loss) on investments--net .................. 2,054,867 (220,913)
Change in unrealized appreciation/depreciation on
investments--net .......................................... (1,627,801) 7,061,457
------------ ------------
Net increase in net assets resulting from operations ...... 6,657,203 19,401,550
------------ ------------
===============================================================================================================
Dividends to Investment income--net .................................... (6,153,054) (12,579,736)
Shareholders ------------ ------------
(Note 1e): Net decrease in net assets resulting from dividends to
shareholders .............................................. (6,153,054) (12,579,736)
------------ ------------
===============================================================================================================
Common Stock Net increase in net assets derived from capital stock
Transactions issued to shareholders in reinvestment of dividends ....... 288,801 265,795
(Note 4): ------------ ------------
===============================================================================================================
Net Assets: Total increase in net assets .............................. 792,950 7,087,609
Beginning of period ....................................... 207,459,934 200,372,325
------------ ------------
End of period* ............................................ $208,252,884 $207,459,934
============ ============
===============================================================================================================
*Undistributed investment income--net ...................... $ 1,255,855 $ 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 For the Six
financial statements. Months Ended For the Year Ended June 30,
December 31, --------------------------------------------
Increase (Decrease) in Net Asset Value: 1998 1998 1997 1996 1995
=================================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of period ........... $ 10.60 $ 10.25 $ 10.01 $ 10.06 $ 10.10
Operating -------- -------- -------- -------- --------
Performance: Investment income--net ......................... .31 .64 .64 .67 .71
Realized and unrealized gain (loss) on
investments--net ............................... .03 .35 .26 (.06) (.04)
-------- -------- -------- -------- --------
Total from investment operations ............... .34 .99 .90 .61 .67
-------- -------- -------- -------- --------
Less dividends from investment income--net ..... (.31) (.64) (.66) (.66) (.71)
-------- -------- -------- -------- --------
Net asset value, end of period ................. $ 10.63 $ 10.60 $ 10.25 $ 10.01 $ 10.06
======== ======== ======== ======== ========
Market price per share, end of period .......... $ 10.375 $ 10.50 $ 9.9375 $ 9.125 $ 9.375
======== ======== ======== ======== ========
=================================================================================================================================
Total Investment Based on market price per share ................ 1.78%++ 12.42% 16.66% 4.54% 2.57%
Return:** ======== ======== ======== ======== ========
Based on net asset value per share ............. 3.30%++ 10.03% 9.69% 6.87% 7.61%
======== ======== ======== ======== ========
=================================================================================================================================
Ratios to Average Expenses ....................................... .82%* .86% .79% .90% .91%
Net Assets: ======== ======== ======== ======== ========
Investment income--net ......................... 5.84%* 6.08% 6.34% 6.66% 7.14%
======== ======== ======== ======== ========
=================================================================================================================================
Supplemental Net assets, end of period (in thousands) ....... $208,253 $207,460 $200,372 $195,565 $196,647
Data: ======== ======== ======== ======== ========
Portfolio turnover ............................. 22% 34% 79% 56% 20%
======== ======== ======== ======== ========
=================================================================================================================================
</TABLE>
* 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.
10 & 11
<PAGE>
Apex Municipal Fund, Inc., December 31, 1998
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. 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 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 six
months ended December 31, 1998 were $45,029,251 and $46,564,859, respectively.
Net realized gains for the six months ended December 31, 1998 and net unrealized
gains as of December 31, 1998 were as follows:
- --------------------------------------------------------------------------------
Realized Unrealized
Gains Gains
- --------------------------------------------------------------------------------
Long-term investments ........................ $2,054,867 $8,399,341
---------- ----------
Total ........................................ $2,054,867 $8,399,341
========== ==========
- --------------------------------------------------------------------------------
As of December 31, 1998, net unrealized appreciation for Federal income tax
purposes aggregated $8,399,341, of which $13,450,720 related to appreciated
securities and $5,051,379 related to depreciated securities. The aggregate cost
of investments at December 31, 1998 for Federal income tax purposes was
$203,084,229.
4. Common Stock Transactions:
At December 31, 1998, 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, 1998 and the year ended
June 30, 1998 increased by 27,181 and 24,907, respectively, as a result of
dividend reinvestment.
5. Capital Loss Carryforward:
At June 30, 1998, the Fund had a net capital loss carryforward of approximately
$20,239,000, of which $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, $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. Expired capital
loss carryforward in the amount of $273,559 has been reclassified to paid-in
capital in excess of par.
6. Subsequent Event:
On January 7, 1999, the Fund's Board of Directors declared an ordinary income
dividend to Common Stock shareholders in the amount of $.051695 per share,
payable on January 28, 1999 to shareholders of record as of January 22, 1999.
12 & 13
<PAGE>
Apex Municipal Fund, Inc., December 31, 1998
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.
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
John M. Loffredo, 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
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--12/98
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