APEX MUNICIPAL
FUND, INC.
[GRAPHIC OMITTED]
STRATEGIC
Performance
Semi-Annual Report
December 31, 1999
<PAGE>
APEX MUNICIPAL FUND, INC.
Managed Dividend Policy
The Fund's dividend policy is to distribute all or a portion of its net
investment income to its shareholders on a monthly basis. 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, 1999 were as
follows:
- --------------------------------------------------------------------------------
Percent of
S&P Rating/Moody's Rating Net Assets
- --------------------------------------------------------------------------------
AAA/Aaa ............................................................ 6.6%
A/A ................................................................ 1.3
BBB/Baa ............................................................ 10.8
BB/Ba .............................................................. 16.2
B/B ................................................................ 7.2
CCC/Caa ............................................................ 0.9
CC/Ca .............................................................. 3.0
NR (Not Rated) ..................................................... 51.9
Other+ ............................................................. 1.4
- --------------------------------------------------------------------------------
+ Temporary investments in short-term municipal securities.
<PAGE>
Apex Municipal Fund, Inc., December 31, 1999
DEAR SHAREHOLDERS
For the six months ended December 31, 1999, Apex Municipal Fund, Inc. earned
$0.346 per share income dividends, which included earned and unpaid dividends of
$0.057. This represents a net annualized yield of 7.13%, based on a month-end
net asset value of $9.61 per share. Over the same period, the Fund's total
investment return was -3.91%, based on a change in per share net asset value
from $10.37 to $9.61, and assuming reinvestment of $0.341 per share income
dividends.
The Municipal Market Environment
The combination of steady strong domestic economic growth, improvement in
foreign economies (most notably in Japan) and increasing investor concerns
regarding potential increases in US inflation put upward pressure on bond yields
throughout the six-month period ended December 31, 1999. Continued strong US
employment growth and consumer spending were among the reasons the Federal
Reserve Board cited for raising short-term interest rates in late June, August
and November. US Treasury bond yields reacted by climbing above 6.375% by late
October and generally rising for the remainder of the year. During the period,
yields on 30-year US Treasury bonds increased over 50 basis points (0.50%).
Long-term tax-exempt bond yields also rose during the six months ended December
31, 1999. For much of the first half of 1999, the municipal bond market was able
to withstand much of the upward pressure on bond yields. However, investor
concerns of additional moves by the Federal Reserve Board to moderate US
economic growth and, more importantly, the loss of the strong technical support
that the tax-exempt market enjoyed in early 1999 helped push municipal bond
yields significantly higher for the remainder of the period. The yields on
long-term tax-exempt revenue bonds rose over 60 basis points to 6.23% by
December 31, 1999, as measured by the Bond Buyer Revenue Bond Index.
In recent months, the significant decline in new tax-exempt bond issuance has
remained a positive factor within the municipal bond market, as it had been for
much of the past year. Over the last year, more than $225 billion in long-term
municipal bonds was issued, a decline of nearly 20% compared to the same period
a year ago. During the past six months, over $100 billion in long-term
tax-exempt bonds was underwritten, representing a decline of nearly 18% compared
to the corresponding period in 1998. Over the past three months, approximately
$55 billion in securities was issued by municipalities nationally. This
quarterly issuance also represented a decline of over 20% when compared to the
same period in 1998. It is likely that many tax-exempt issuers accelerated their
financings in recent months or decided to postpone issuance into early 2000 to
avoid any potential Year 2000 (Y2K)-related disruptions at year-end.
Consequently, December 1999 volume of issuance of approximately $14 billion
declined more than 40% compared to 1998 levels. We expect decreased tax-exempt
bond issuance to continue. Early estimates suggest that annual tax-exempt
issuance in 2000 will be in the $210 billion-$215 billion range.
Although tax-exempt bond yields are at their highest level in over two years and
have attracted significant retail investor interest, institutional demand has
declined sharply. Long-term municipal mutual funds have seen consistent outflows
in recent months as the yields of individual securities have risen faster than
those of larger, more diverse mutual funds. In addition, the demand from
property/casualty insurance companies has weakened as a result of the losses,
and anticipated losses, incurred as a result of the series of damaging storms
across much of the eastern United States. Additionally, many institutional
investors who were attracted to the municipal bond market in recent years by
historically attractive tax-exempt bond yield ratios of over 90% have found
other asset classes even more attractive. Even with a reduced supply position,
tax-exempt issuers have been forced to repeatedly raise municipal bond yields in
the attempt to attract adequate demand.
The recent relative underperformance of the municipal bond market has resulted
in an opportunity for long-term investors to purchase tax-exempt issues whose
yields are nearly identical with taxable US Treasury securities. At December 31,
1999, long-term uninsured municipal revenue bond yields were more than 96% of
comparable US Treasury securities. In recent months, many taxable asset classes,
such as corporate bonds, mortgage-backed securities and US agency debt, have all
accelerated debt issuance. This acceleration was initiated largely to avoid
issuing securities at year-end and to minimize any associated Y2K problems that
could possibly develop. However, this increased issuance also resulted in higher
yield levels in the various asset classes as lower bond prices became necessary
to attract sufficient investor demand. Going forward, it is believed that the
pace of non-US Government debt issuance is likely to slow significantly. As the
supply of this debt declines, we would expect many institutional investors to
return to the municipal bond market and the attractive yield ratios available.
Looking ahead, it appears to us that long-term tax-exempt bond yields will
remain under pressure, trading in a broad range centered near current levels.
Investors are likely to remain concerned about future action by the Federal
Reserve Board. Any improvement in bond prices will probably be contingent upon
weakening in both US employment growth and consumer spending. The over 100 basis
point rise in US Treasury bond yields seen thus far this year may negatively
impact US economic growth. The US housing market will be among the first sectors
likely to be affected, as some declines have already been evidenced in response
to higher mortgage rates. We believe that it is also unrealistic to expect
double-digit returns in US equity markets to continue indefinitely. Much of the
US consumer's wealth is tied to recent stock market appreciation. Any slowing in
these incredible growth rates is likely to reduce consumer spending. We believe
that these factors suggest that the worst of the recent increase in bond yields
has passed and stable, if not slightly improving, bond prices may be expected.
Portfolio Strategy
The volatility within the municipal market during the past six months stands in
sharp contrast to the relative stability that typified the environment for the
first half of the year. The degree and suddenness of the decline caught many
investors by surprise as few anticipated the extent to which tax-exempt yields
would climb relative to their taxable counterparts. Much emphasis had been
placed on the favorable implications of a sharp reduction in new-issue supply
coupled with vigorous retail investor demand. Instead, institutional selling
proved the market's undoing as both mutual funds and casualty insurers moved
aggressively to liquidate tax-exempt holdings. Consequently, yields on long-term
municipals are once again approaching 100% of Treasury bond yields and therefore
represent one of the more compelling values in the fixed-income marketplace.
Our portfolio strategy remained constant throughout the period, reflecting our
ongoing focus to enhance tax-exempt income and a predilection toward value
investing. We believe that the shareholder's interests can best be served in
this approach rather than attempting to predict the course of interest rates. As
a result, we maintained a fully invested position for most of the six-month
period, and we expect to keep cash reserves at minimal levels for the
foreseeable future.
Transaction activity has for the most part been characterized by the need to
invest proceeds arising from the early redemption of existing holdings. Credit
spreads within the municipal market have been volatile in recent months,
affording the opportunity to lock in attractive yields, particularly as
liquidity dried up toward year-end. While it is likely that the illiquidity was
related to uncertainty over the century date change, credit spreads could well
remain under pressure until such time as tax-exempt bonds regain their allure as
2 & 3
<PAGE>
Apex Municipal Fund, Inc., December 31, 1999
an asset class. In the meantime, we regard the current environment as an
excellent opportunity to pursue our investment strategy and to seek to provide
shareholders with a consistently attractive dividend.
In addition, we continue to attempt to liquidate our holding of Florida Housing
Finance Agency's Multi-Family Housing Revenue for the Palm Aire Project. The
issuance of these bonds financed the Palm Aire Project, which has been the
subject of foreclosure and related legal proceedings for several years. A broker
has been engaged to sell the property and return the net proceeds received from
the sale of the property and the cash held by the trustee to bondholders.
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
February 3, 2000
PROXY RESULTS
During the six-month period ended December 31, 1999, Apex Municipal Fund, Inc.'s
stockholders voted on the following proposals. The proposals were approved at
the stockholders' meeting on December 15, 1999. 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 the Fund's Directors: Terry K. Glenn 17,810,810 506,015
Melvin R. Seiden 17,746,816 570,009
Stephen B. Swensrud 17,753,926 562,899
<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. 17,550,914 147,169 618,742
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
SCHEDULE OF INVESTMENTS (in Thousands)
<TABLE>
<CAPTION>
S&P Moody's Face
STATE Ratings Ratings Amount Issue Value
===================================================================================================================================
<S> <C> <C> <C> <C> <C>
Alabama--1.4% B- NR* $ 1,000 Brewton, Alabama, IDB, PCR, Refunding (Container Corporation of
America--Jefferson Smurfit Corp. Project), 8% due 4/01/2009 $ 1,034
CCC Ca 5,285 Mobile, Alabama, IDB, Solid Waste Disposal Revenue Refunding Bonds
(Mobile Energy Services Co. Project), 6.95% due 1/01/2020 1,718
===================================================================================================================================
Arizona--2.6% NR* B1 4,000 Phoenix, Arizona, IDA, Airport Facility Revenue Refunding Bonds
(America West Airlines Inc. Project), AMT, 6.30% due 4/01/2023 3,590
B+ Ba3 1,500 Pima County, Arizona, IDA, Industrial Revenue Refunding Bonds (Tucson
Electric Power Company Project), Series C, 6% due 9/01/2029 1,298
===================================================================================================================================
California--3.7% AAA NR* 5,000 Foothill/Eastern Corridor Agency, California, Toll Road Revenue Bonds,
Series A, 5.775%** due 1/01/2028 (b)(d) 911
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, 5.46% due 6/15/2029 (b)(e) 4,745
===================================================================================================================================
Colorado--2.7% NR* NR* 1,700 Colorado Post-Secondary Educational Facilities Authority Revenue Bonds
(Colorado Ocean Journey Inc. Project), 8.30% due 12/01/2017 1,885
NR* NR* 3,000 Denver, Colorado, Urban Renewal Authority, Tax Increment Revenue Bonds
(Pavilions), AMT, 7.75% due 9/01/2016 3,206
===================================================================================================================================
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 7,296
===================================================================================================================================
Florida--8.8% NR* NR* 980 Arbor Greene Community Development District, Florida, Special Assessment
Revenue Bonds, 7.60% due 5/01/2018 1,012
NR* NR* 9,102 Florida HFA, M/F Housing Revenue Bonds (Palm Aire), AMT, 10% due
1/01/2020 (g) 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 2,651
A1+ VMIG1+ 200 Pinellas County, Florida, Health Facilities Authority, Revenue Refunding
Bonds (Pooled Hospital Loan Program), DATES, 4.25% due 12/01/2015 (a)(f) 200
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 3,612
===================================================================================================================================
</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)
DATES Daily Adjustable Tax-Exempt Securities
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., December 31, 1999
SCHEDULE OF INVESTMENTS (continued) (in Thousands)
<TABLE>
<CAPTION>
S&P Moody's Face
STATE Ratings Ratings Amount Issue Value
===================================================================================================================================
<S> <C> <C> <C> <C> <C>
Georgia--2.1% NR* NR* $ 3,815 Atlanta, Georgia, Urban Residential Finance Authority, M/F Mortgage
Revenue Bonds (Northside Plaza Apartments Project), AMT, 9.75% due
11/01/2020 $ 3,977
===================================================================================================================================
Idaho--0.8% NR* NR* 1,470 Idaho Health Facilities Authority, Revenue Refunding Bonds (Valley Vista
Care Corporation), Series A, 7.75% due 11/15/2016 1,440
===================================================================================================================================
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 3,302
===================================================================================================================================
Indiana--3.2% NR* NR* 2,600 Indiana State Educational Facilities Authority, Revenue Refunding Bonds
(Saint Joseph's College Project), 7% due 10/01/2029 2,549
NR* NR* 1,925 Indianapolis, Indiana, M/F Revenue Bonds (Lake Nora Fox Club Project),
Series B, 7.50% due 10/01/2029 1,865
A1 VMIG1+ 1,700 Jasper County, Indiana, PCR, Refunding (Northern Indiana Public
Service), VRDN, Series C, 4.55% due 4/01/2019 (f) 1,700
===================================================================================================================================
Iowa--6.4% NR* NR* 10,000 Iowa Finance Authority, Health Care Facilities Revenue Bonds (Care
Initiatives Project), 9.25% due 7/01/2025 12,095
===================================================================================================================================
Louisiana--3.0% CC NR* 5,500 Port New Orleans, Louisiana, IDR, Refunding (Continental Grain Company
Project), 7.50% due 7/01/2013 5,582
===================================================================================================================================
Maryland--3.7% NR* NR* 1,875 Anne Arundel County, Maryland, Special Obligation Revenue Bonds (Arundel
Mills Project), 7.10% due 7/01/2029 1,853
NR* NR* 5,000 Maryland State Energy Financing Administration, Limited Obligation
Revenue Bonds (Cogeneration-AES Warrior Run), AMT, 7.40% due 9/01/2019 5,116
===================================================================================================================================
Massachusetts--3.0% 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 1,558
NR* NR* 2,000 Massachusetts State Industrial Finance Agency Revenue Bonds, Sewer
Facility (Resource Control Composting), AMT, 9.25% due 6/01/2010 2,037
NR* NR* 2,000 Massachusetts State Port Authority, Special Project Revenue Bonds
(Harborside Hyatt Project), AMT, 10% due 3/01/2026 2,112
===================================================================================================================================
Michigan--1.1% NR* NR* 2,045 Wayne Charter County, Michigan, Special Airport Facilities, Revenue
Refunding Bonds (Northwest Airlines Inc.), 6.75% due 12/01/2015 2,020
===================================================================================================================================
Minnesota--1.8% NR* NR* 3,265 Anoka, Minnesota, M/F Housing Revenue Bonds (Rainbow Plaza Apartments
Project), 9.375% due 12/01/2024 3,349
===================================================================================================================================
Mississippi--0.6% NR* NR* 1,300 Mississippi Development Bank, Special Obligation Revenue Refunding Bonds
(Diamond Lakes Utilities), Series A, 6.25% due 12/01/2017 1,232
===================================================================================================================================
Nevada--1.0% BBB+ Baa1 2,500 Henderson, Nevada, Health Care Facility Revenue Bonds (Catholic
Healthcare West--Saint Rose Dominican Hospital), 5.125% due 7/01/2028 1,867
===================================================================================================================================
New Jersey--10.9% 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 2,263
BB- NR* 4,500 9.875% due 1/01/2021 5,142
CCC 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 5,680
NR* NR* 3,000 New Jersey EDA, Economic Development Revenue Bonds (Glimcher Properties
LP Project), AMT, 6% due 11/01/2028 2,681
NR* NR* 1,500 New Jersey EDA, IDR, Refunding (Newark Airport Marriott Hotel), 7% due
10/01/2014 1,524
BBB- NR* 1,500 New Jersey EDA, Revenue Bonds, First Mortgage (Fellowship Village
Project), Series C, 5.50% due 1/01/2028 1,215
BBB- Baa3 2,000 New Jersey Health Care Facilities Financing Authority, Revenue Refunding
Bonds (Trinitas Hospital Obligation Group), 7.375% due 7/01/2015 1,979
===================================================================================================================================
New Mexico--3.1% Farmington, New Mexico, PCR, Refunding:
BBB- Baa3 1,000 (Public Service Company--San Juan Project), Series B, 6.30% due
12/01/2016 966
B+ Ba3 5,000 (Tucson Electric Power Co.--San Juan Project), Series A, 6.95% due
10/01/2020 4,964
===================================================================================================================================
New York--1.8% Utica, New York, GO, Public Improvement:
CCC B2 700 9.25% due 8/15/2004 770
CCC B2 700 9.25% due 8/15/2005 782
CCC B2 635 9.25% due 8/15/2006 720
CCC B2 475 8.50% due 8/15/2013 525
CCC B2 475 8.50% due 8/15/2014 524
===================================================================================================================================
North Carolina--1.3% A- A3 3,000 Cumberland County, North Carolina, Hospital Facilities Revenue Refunding
Bonds (Cumberland County Hospital Systems Inc.), 5.25% due 10/01/2024 2,456
===================================================================================================================================
Ohio--3.8% NR* Ba2 6,800 Cleveland, Ohio, Airport Special Revenue Refunding Bonds (Continental
Airlines Inc. Project), AMT, 5.70% due 12/01/2019 5,877
BBB- Baa2 1,500 Ohio State Environmental Improvement, Revenue Refunding Bonds (USX
Corporation Project), 5.625% due 5/01/2029 1,279
===================================================================================================================================
Oregon--1.5% NR* NR* 2,160 Klamath Falls, Oregon, Electric Revenue Refunding Bonds (Klamath
Cogeneration Project), Senior Lien, 6% due 1/01/2025 1,916
NR* NR* 1,000 Western Generation Agency, Oregon, Cogeneration Project Revenue Bonds
(Wauna Cogeneration Project), AMT, Series B, 7.40% due 1/01/2016 1,034
===================================================================================================================================
Pennsylvania--10.3% NR* NR* 2,000 Lehigh County, Pennsylvania, General Purpose Authority, Revenue
Refunding Bonds (Kidspeace Obligation Group), 6% due 11/01/2023 1,724
Montgomery County, Pennsylvania, Higher Education and Health Authority,
Revenue Refunding Bonds (Faulkeways at Gwynedd Project):
BBB+ NR* 900 6.75% due 11/15/2024 861
BBB+ NR* 925 6.75% due 11/15/2030 878
4 Northhampton Pulp LLC (d)(g)(h) 538
NR* NR* 3,120 Pennsylvania Economic Development Financing Authority, Exempt Facilities
Revenue Bonds (National Gypsum Company), AMT, Series A, 6.25% due
11/01/2027 2,835
AAA Aaa 2,000 Pennsylvania State Higher Education Assistance Agency, Student Loan
Revenue Bonds, RIB, AMT, 7.703% due 3/01/2022 (a)(e) 1,943
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) 4,738
NR* NR* 5,500 Philadelphia, Pennsylvania, Authority for IDR, Commercial Development,
AMT, 7.75% due 12/01/2017 5,801
===================================================================================================================================
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 1,812
===================================================================================================================================
</TABLE>
6 & 7
<PAGE>
Apex Municipal Fund, Inc., December 31, 1999
SCHEDULE OF INVESTMENTS (continued) (in Thousands)
<TABLE>
<CAPTION>
S&P Moody's Face
STATE Ratings Ratings Amount Issue Value
===================================================================================================================================
<S> <C> <C> <C> <C> <C>
Texas--7.7% NR* NR* $ 4,750 Bell County, Texas, Health Facilities Development Corporation Revenue
Bonds (Heartway Corporation II Project), Senior Series A, 7% due
3/01/2019 $ 4,750
A1+ NR* 800 Harris County, Texas, Health Facilities Development Corporation,
Hospital Revenue Refunding Bonds (Methodist Hospital), VRDN, 4.65% due
12/01/2025 (f) 800
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 2,764
BB Baa3 6,500 Lower Colorado River Authority, Texas, PCR (Samsung Austin
Semiconductor), AMT, 6.375% due 4/01/2027 6,142
===================================================================================================================================
Virginia--6.4% NR* NR* 2,500 Dulles Town Center Community Development Authority, Virginia, Special
Assessment Tax (Dulles Town Center Project), 6.25% due 3/01/2026 2,324
NR* NR* 4,215 Peninsula Ports Authority, Virginia, Revenue Refunding Bonds (Port
Facility--Zeigler Coal), 6.90% due 5/02/2022 3,509
Pocahontas Parkway Association, Virginia, Toll Road Revenue Bonds:
NR* Ba1 6,200 First Tier, Sub-Series C, 6.25%** due 8/15/2033 497
NR* Ba1 6,200 First Tier, Sub-Series C, 6.25%** due 8/15/2034 461
BBB- Baa3 32,600 Senior Series B, 5.875%** due 8/15/2025 5,193
===================================================================================================================================
Total Investments (Cost--$196,830)--99.3% 187,021
Liabilities in Excess of Other Assets--0.7% 1,247
--------
Net Assets--100.0% $188,268
========
===================================================================================================================================
</TABLE>
(a) AMBAC Insured.
(b) FSA Insured.
(c) Prerefunded.
(d) Escrowed to maturity.
(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, 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 December 31, 1999.
(g) Non-income producing security.
(h) Represents an equity interest in the reorganization of Ponderosa
Fibres PA. The security may be offered and sold to "qualified
institutional buyers" under Rule 144A of the Securities Act of 1933.
* Not Rated.
** Represents a zero coupon bond; the interest rate shown reflects 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, 1999
===============================================================================================================================
<S> <C> <C> <C>
Assets: Investments, at value (identified cost--$196,830,396) ........................... $187,020,920
Cash ............................................................................ 67,925
Receivables:
Interest ...................................................................... $3,871,638
Securities sold ............................................................... 394,780 4,266,418
----------
Prepaid expenses and other assets ............................................... 719,695
------------
Total assets .................................................................... 192,074,958
------------
===============================================================================================================================
Liabilities: Payables:
Securities purchased .......................................................... 3,441,674
Dividends to shareholders ..................................................... 148,438
Investment adviser ............................................................ 118,511 3,708,623
----------
Accrued expenses and other liabilities .......................................... 98,398
------------
Total liabilities ............................................................... 3,807,021
------------
===============================================================================================================================
Net Assets: Net assets ...................................................................... $188,267,937
============
===============================================================================================================================
Capital: Common Stock, $.10 par value, 150,000,000 shares authorized; 19,596,732 shares
issued and outstanding .......................................................... $ 1,959,673
Paid-in capital in excess of par ................................................ 215,506,215
Undistributed investment income--net ............................................ 1,389,864
Accumulated realized capital losses on investments--net ......................... (20,778,339)
Unrealized depreciation on investments--net ..................................... (9,809,476)
------------
Total capital--Equivalent to $9.61 net asset value per share of Common Stock
(market price--$8.6875) ......................................................... $188,267,937
============
===============================================================================================================================
</TABLE>
See Notes to Financial Statements.
8 & 9
<PAGE>
Apex Municipal Fund, Inc., December 31, 1999
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
For the Six Months Ended December 31, 1999
=============================================================================================================================
<S> <C> <C> <C>
Investment Interest and amortization of premium and discount earned ...................... $ 7,719,152
Income:
=============================================================================================================================
Expenses: Investment advisory fees ...................................................... $ 649,018
Professional fees ............................................................. 32,830
Accounting services ........................................................... 29,782
Transfer agent fees ........................................................... 26,339
Directors' fees and expenses .................................................. 20,028
Printing and shareholder reports .............................................. 15,660
Listing fees .................................................................. 11,969
Custodian fees ................................................................ 8,522
Pricing fees .................................................................. 5,606
Other ......................................................................... 7,794
------------
Total expenses ................................................................ 807,548
------------
Investment income--net ........................................................ 6,911,604
------------
=============================================================================================================================
Realized & Realized loss on investments--net ............................................. (3,062,439)
Unrealized Change in unrealized appreciation/depreciation on investments--net ............ (12,087,337)
Loss on ------------
Investments--Net: Net Decrease in Net Assets Resulting from Operations .......................... $ (8,238,172)
============
=============================================================================================================================
</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: 1999 1999
=============================================================================================================================
<S> <C> <C> <C>
Operations: Investment income--net ........................................................ $ 6,911,604 $ 12,310,663
Realized gain (loss) on investments--net ...................................... (3,062,439) 3,207,168
Change in unrealized appreciation/depreciation on investments--net ............ (12,087,337) (7,749,281)
------------ ------------
Net increase (decrease) in net assets resulting from operations ............... (8,238,172) 7,768,550
------------ ------------
=============================================================================================================================
Dividends to Investment income--net ........................................................ (6,691,676) (12,319,499)
Shareholders: ------------ ------------
Net decrease in net assets resulting from dividends to shareholders ........... (6,691,676) (12,319,499)
------------ ------------
=============================================================================================================================
Common Stock Net increase in net assets derived from capital stock issued to shareholders
Transactions: in reinvestment of dividends .................................................. -- 288,800
------------ ------------
=============================================================================================================================
Net Assets: Total decrease in net assets .................................................. (14,929,848) (4,262,149)
Beginning of period ........................................................... 203,197,785 207,459,934
------------ ------------
End of period* ................................................................ $188,267,937 $203,197,785
============ ============
=============================================================================================================================
* Undistributed investment income--net .......................................... $ 1,389,864 $ 1,169,936
============ ============
=============================================================================================================================
</TABLE>
See Notes to Financial Statements.
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
The following per share data and ratios have been derived For the Six
from information provided in the financial statements. Months Ended For the Year Ended June 30,
December 31, ---------------------------------------
Increase (Decrease) in Net Asset Value: 1999 1999 1998 1997 1996
===================================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of period ....................... $ 10.37 $ 10.60 $ 10.25 $ 10.01 $ 10.06
Operating -------- -------- -------- -------- --------
Performance: Investment income--net ..................................... .35 .63 .64 .64 .67
Realized and unrealized gain (loss) on investments--net .... (.77) (.23) .35 .26 (.06)
-------- -------- -------- -------- --------
Total from investment operations ........................... (.42) .40 .99 .90 .61
-------- -------- -------- -------- --------
Less dividends from investment income--net ................. (.34) (.63) (.64) (.66) (.66)
-------- -------- -------- -------- --------
Net asset value, end of period ............................. $ 9.61 $ 10.37 $ 10.60 $ 10.25 $ 10.01
======== ======== ======== ======== ========
Market price per share, end of period ...................... $ 8.6875 $ 10.25 $ 10.50 $ 9.9375 $ 9.125
======== ======== ======== ======== ========
===================================================================================================================================
Total Investment Based on market price per share ............................ (12.12%)+ 3.68% 12.42% 16.66% 4.54%
Return:** ======== ======== ======== ======== ========
Based on net asset value per share ......................... (3.91%)+ 3.90% 10.03% 9.69% 6.87%
======== ======== ======== ======== ========
===================================================================================================================================
Ratios to Average Expenses ................................................... .80%* .81% .86% .79% .90%
Net Assets: ======== ======== ======== ======== ========
Investment income--net ..................................... 6.88%* 5.93% 6.08% 6.34% 6.66%
======== ======== ======== ======== ========
===================================================================================================================================
Supplemental Net assets, end of period (in thousands) ................... $188,268 $203,198 $207,460 $200,372 $195,565
Data: ======== ======== ======== ======== ========
Portfolio turnover ......................................... 13% 40% 34% 79% 56%
======== ======== ======== ======== ========
===================================================================================================================================
</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 charges.
+ Aggregate total investment return.
See Notes to Financial Statements.
10 & 11
<PAGE>
Apex Municipal Fund, Inc., December 31, 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. 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 the 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 .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, 1999 were $24,595,252 and $36,703,331, respectively.
Net realized losses for the six months ended December 31, 1999 and net
unrealized losses as of December 31, 1999 were as follows:
- --------------------------------------------------------------------------------
Realized Unrealized
Losses Losses
- --------------------------------------------------------------------------------
Long-term investments ........................... $(3,062,439) $(9,809,476)
----------- -----------
Total ........................................... $(3,062,439) $(9,809,476)
=========== ===========
- --------------------------------------------------------------------------------
As of December 31, 1999, net unrealized depreciation for Federal income tax
purposes aggregated $9,809,476, of which $4,540,959 related to appreciated
securities and $14,350,435 related to depreciated securities. The aggregate cost
of investments at December 31, 1999 for Federal income tax purposes was
$196,830,396.
4. Common Stock Transactions:
At December 31, 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 six months ended December 31, 1999 remained constant
and for the year ended June 30, 1999 increased by 27,181, 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 January 6, 2000, the Fund's Board of Directors declared an ordinary income
dividend to Common Stock shareholders in the amount of $.057429 per share,
payable on January 28, 2000 to shareholders of record as of January 18, 2000.
12 & 13
<PAGE>
Apex Municipal Fund, Inc., December 31, 1999
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
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
Custodian & Transfer Agent
The Bank of New York
100 Church 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--12/99
[RECYCLE LOGO] Printed on post-consumer recycled paper
