APEX MUNICIPAL
FUND, INC.
[GRAPHIC OMITTED]
STRATEGIC
Performance
Annual Report
June 30, 2000
<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 June 30, 2000 were as
follows:
--------------------------------------------------------------------------------
Percent of
S&P Rating/Moody's Rating Net Assets
--------------------------------------------------------------------------------
AAA/Aaa ............................................................. 6.5%
AA/Aa ............................................................... 1.3
BBB/Baa ............................................................. 10.0
BB/Ba ............................................................... 13.4
B/B ................................................................. 5.6
CCC/Caa ............................................................. 4.5
CC/Ca ............................................................... 3.1
NR (Not Rated) ...................................................... 51.9
Other+ .............................................................. 1.3
--------------------------------------------------------------------------------
+ Temporary investments in short-term municipal securities.
<PAGE>
Apex Municipal Fund, Inc., June 30, 2000
DEAR SHAREHOLDERS
For the year ended June 30, 2000, Apex Municipal Fund, Inc. earned $0.662 per
share income dividends, which included earned and unpaid dividends of $0.050.
This represents a net annualized yield of 7.10%, based on a month-end net asset
value of $9.33 per share. Over the same period, the Fund's total investment
return was -3.23%, based on a change in per share net asset value from $10.37
to $9.33, and assuming reinvestment of $0.665 per share income dividends.
The Municipal Market Environment
At the start of the year, fixed-income bond yields were initially pushed higher
as US economic growth remained robust. After growing at a 7.3% rate during the
fourth quarter of 1999 and a 4.2% annual rate for all of 1999, first quarter of
2000 gross domestic product was 5.5%. However, despite these significant growth
rates, few price measures showed any meaningful signs of future price pressures
at the consumer level, despite the lowest unemployment rates since January 1970
and rising energy prices. With few signs of any economic slowdown, the Federal
Reserve Board continued to raise short-term interest rates in February, March
and May 2000. The Federal Reserve Board cited both the continued growth of US
employment and the continued strength of US equity markets as reasons for
attempting to moderate US economic growth before inflationary price increases
occur. By late January 2000, US Treasury bond yields rose more than 25 basis
points (0.25%) to 6.75%. Similarly, as measured by the Bond Buyer Revenue Bond
Index, long-term, tax-exempt bond yields rose approximately 15 basis points to
6.35%.
Since then, however, fixed-income markets have largely ignored strong economic
fundamentals and concentrated upon very positive technical supply factors.
Declining bond issuance -- both current, and more importantly, expected future
issuance -- helped push bond yields lower from late-January to mid-April 2000.
In late January and early February 2000, the US Treasury announced its intention
to reduce the amounts to be auctioned in the quarterly Treasury note and bond
auctions. Furthermore, budgetary surpluses allowed the US Treasury to repurchase
outstanding, higher-couponed Treasury issues, primarily in the 15-year and
longer maturity sector. Both of these actions resulted in a significant
reduction in the outstanding supply of longer-dated maturity US Treasury debt.
Domestic and international investors quickly began to accumulate what was
expected to become a scarce commodity and bond prices quickly rose.
By mid-April 2000, US Treasury bond yields had declined more than 100 basis
points to 5.67%. However, bond yields rose somewhat during the remainder of the
period as economic statistics were released indicating that the economic
strength seen in late 1999 was continuing into early 2000. The domestic decline
in long-term US Treasury yields has resulted in an inverted yield curve as
short-term and intermediate-term interest rates did not fall proportionately to
long-term interest rates as the Federal Reserve Board was expected to continue
to raise short-term interest rates. The current inversion has had much more to
do with debt reduction and Treasury buy-backs than with market expectations of
slower economic growth. Over the last six months, long-term US Treasury bond
yields have fallen almost 60 basis points to end the June period at 5.90%.
Tax-exempt bond yields also have declined in recent months. The decline has
largely been in response to the rally in US Treasury securities, as well as a
continued positive technical supply environment. States such as California and
Maryland have announced that their large current and anticipated future budget
surpluses will permit the cancellation or postponement of expected bond
issuance. Additionally, some issuers have initiated tenders to repurchase
existing debt, reducing the supply of tax-exempt bonds in the secondary market
as well. Since their recent peak in January 2000, long-term municipal bond
yields have declined more than 30 basis points to finish the six-month period
ended June 30, 2000 at 5.90%.
The relative underperformance of the municipal bond market in recent months has
been especially disappointing given the strong technical position the tax-exempt
bond market has enjoyed. The issuance of long-term, tax-exempt securities has
dramatically declined. Over the last year, $199 billion in new long-term
municipal securities was issued, a decline of almost 20% versus the same period
a year earlier. For the six months ended June 30, 2000, approximately $90
billion in new tax-exempt bonds was underwritten, a decline of over 20% compared
to the same period in 1999.
Although investors received more than $30 billion in coupon payments, bond
maturities and the proceeds from early bond redemptions during January and
February, and expect to receive a similar amount on June 1 and July 1, 2000,
along with the highest municipal bond yields in three years, overall investor
demand has diminished. Long-term municipal bond 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. Thus far this
year, tax-exempt mutual funds have had net redemptions of over $12 billion.
Also, the demand from property and casualty insurance companies has weakened as
a result of the losses incurred from a series of damaging storms across much of
the eastern United States. Additionally, many institutional investors who have
in recent years been drawn to the municipal bond market by historically
attractive tax-exempt bond yield ratios of more than 90% have found other asset
classes even more compelling. Even with a favorable supply position, tax-exempt
municipal bond yields have underperformed their taxable counterparts.
Significantly lower municipal bond yields are still likely to require weaker US
employment growth and consumer spending. The actions taken in recent months by
the Federal Reserve Board, as well as the expected action in August 2000, should
eventually slow US economic growth. Recent declines in US new home sales are
perhaps among the first signs that consumer spending is being slowed by higher
interest rates. Until further signs develop, it is likely that the municipal
bond market's current favorable technical position will dampen significant
tax-exempt interest rate volatility and provide a stable environment for
eventual improvement in municipal bond prices.
Portfolio Strategy
During the six-month period ended June 30, 2000, the volatile nature of
fixed-income markets fostered an environment characterized by an above-average
degree of both risk and opportunity. At 1999 year-end, credit spreads were
subjected to a considerable amount of strain, as issuers, pressured by concerns
over the century date change, attempted to float debt at a time when investors
were understandably reluctant to commit capital. Consequently, borrowers were
forced to raise yields in an effort to attract sufficient buying interest. Since
credit spreads have yet to recover, there is presently an opportunity for
investing. The current environment has afforded us the chance to aggressively
pursue an investment strategy that has been in place for some time now. In our
effort to maintain an attractive dividend, we consistently sought to improve the
average degree of protection from early redemption with respect to the Fund's
holdings. In our opinion, it is possible to limit the Fund's exposure to this
type of reinvestment risk and avoid the potential loss of income should issuers
redeem outstanding debt as interest rates fall. Generally speaking, with
lesser-quality, tax-exempt bonds offering some of the most attractive yields in
recent years, the gradual restructuring of the portfolio can be accomplished
without having to forgo income. Given that no such opportunity has existed for
years, the argument for aggressively pursuing this strategy becomes even more
compelling.
However, it is important to understand that an element of risk remains. This
focus has necessitated the purchase of relatively current issues, which
typically possess the most attractive redemption features. Generally, these
issues also tend to be subject to a higher degree of interest rate volatility,
which in turn has had the effect of extending the Fund's overall measure of
duration and thereby increasing the portfolio's own measure of interest rate
sensitivity. In the past we stated that our intention in managing this
2 & 3
<PAGE>
Apex Municipal Fund, Inc., June 30, 2000
Fund was not to forecast the direction of long-term interest rates. However, the
value inherent in the current market environment suggests that a higher
tolerance for interest rate risk may well be appropriate.
Perhaps the most adversely affected industry in the portfolio was healthcare,
since nonprofit hospitals have faced increased competition from managed care,
rising costs and reduced reimbursement rates. We have been extremely cautious
regarding this sector for some time. However, even though it remains a
significant percentage of the Fund's assets, the bulk of our exposure lies with
long-term care facilities and human service providers. These issuers tend not to
be subject to the same degree of competitive pressure and, with respect to the
former, stand to benefit from favorable demographic trends while the latter
receive significant support in the form of state funding.
Corporate-related credits, which have long been a dominant component of our
holdings, also suffered from the general deterioration in liquidity despite
favorable ratings actions affecting about 5% of the Fund's net assets. One
ongoing focus was issuance on behalf of investor owned utilities. In addition,
during the past year, two separate issuers (representing 7.5% of our holdings)
were the beneficiaries of ratings upgrades. The prospect of ongoing
consolidation within this industry suggests that additional upside from a credit
standpoint remains likely.
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/ 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
July 31, 2000
SCHEDULE OF INVESTMENTS (in Thousands)
<TABLE>
<CAPTION>
S&P Moody's Face
STATE Ratings Ratings Amount Issue Value
====================================================================================================================================
<C> <C> <C> <C> <S> <C>
Alabama--1.5% B NR* $1,000 Brewton, Alabama, IDB, PCR, Refunding (Container Corporation of
America--Jefferson Smurfit Corp. Project), 8% due 4/01/2009 $ 1,031
CCC Ca 5,285 Mobile, Alabama, IDB, Solid Waste Disposal Revenue Refunding Bonds
(Mobile Energy Services Co. Project), 6.95% due 1/01/2020 (g) 1,712
====================================================================================================================================
Arizona--3.5% NR* NR* 1,505 Maricopa County, Arizona, IDA, M/F Housing Revenue Bonds (Sun King
Apartments Project), Sub-Series C, 9.50% due 11/01/2031 1,521
NR* B1 4,000 Phoenix, Arizona, IDA, Airport Facility Revenue Refunding Bonds
(America West Airlines Inc. Project), AMT, 6.30% due 4/01/2023 3,535
B+ Ba3 1,500 Pima County, Arizona, IDA, Industrial Revenue Refunding Bonds
(Tucson Electric Power Company Project), Series C, 6% due 9/01/2029 1,290
====================================================================================================================================
California--3.5% 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, 6.35% due 6/15/2029 (b)(e) 5,190
====================================================================================================================================
Colorado--3.0% NR* NR* 1,700 Colorado Post-Secondary Educational Facilities Authority Revenue
Bonds (Colorado Ocean Journey Inc. Project), 8.30% due 12/01/2017 1,850
NR* NR* 3,000 Denver, Colorado, Urban Renewal Authority, Tax Increment Revenue
Bonds (Pavilions), AMT, 7.75% due 9/01/2016 3,174
A1+ VMIG1+ 500 Moffat County, Colorado, PCR, Refunding (Pacificorp Projects),
VRDN, 4.50% due 5/01/2013 (a)(f) 500
====================================================================================================================================
Connecticut--4.0% BB+ Ba1 8,225 Connecticut State Development Authority, PCR, Refunding
(Connecticut Light and Power Company), Series A, 5.85% due 9/01/2028 7,287
====================================================================================================================================
</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)
EDA Economic Development Authority
GO General Obligation Bonds
HFA Housing Finance Agency
IDA Industrial Development Authority
IDB Industrial Development Board
IDR Industrial Development Revenue Bonds
M/F Multi-Family
PCR Pollution Control Revenue Bonds
RIB Residual Interest Bonds
VRDN Variable Rate Demand Notes
4 & 5
<PAGE>
Apex Municipal Fund, Inc., June 30, 2000
SCHEDULE OF INVESTMENTS (continued) (in Thousands)
<TABLE>
<CAPTION>
S&P Moody's Face
STATE Ratings Ratings Amount Issue Value
====================================================================================================================================
<C> <C> <C> <C> <S> <C>
Florida--10.6% NR* NR* $ 960 Arbor Greene Community Development District, Florida, Special
Assessment Revenue Bonds, 7.60% due 5/01/2018 $ 1,003
NR* NR* 8,562 Florida HFA, M/F Housing Revenue Bonds (Palm Aire), AMT, 10% due
1/01/2020 (g) 8,560
NR* NR* 3,000 Lee County, Florida, IDA, Health Care Facilities Revenue Bonds
(Cypress Cove Healthpark), Series A, 6.375% due 10/01/2025 2,603
NR* NR* 3,800 Parkway Center, Florida, Community Development District Special
Assessment Refunding Bonds, Series B, 8% due 5/01/2010 3,739
NR* NR* 3,395 Tampa Palms, Florida, Open Space and Transportation Community
Development District Revenue Bonds, Capital Improvement
(Richmond Place Project), 7.50% due 5/01/2018 3,498
====================================================================================================================================
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 3,925
====================================================================================================================================
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 1,419
====================================================================================================================================
Illinois--1.9% NR* NR* 3,190 Illinois Development Finance Authority, Primary Health Care
Centers Facilities, Acquisition Program Revenue Bonds,
7.75% due 12/01/2016 3,427
====================================================================================================================================
Indiana--2.4% NR* NR* 2,600 Indiana State Educational Facilities Authority, Revenue Refunding
Bonds (Saint Joseph's College Project), 7% due 10/01/2029 2,604
NR* NR* 1,925 Indianapolis, Indiana, M/F Revenue Bonds (Lake Nora Fox Club
Project), Series B, 7.50% due 10/01/2029 1,863
====================================================================================================================================
Iowa--6.5% NR* NR* 10,000 Iowa Finance Authority, Health Care Facilities Revenue Refunding
Bonds (Care Initiatives Project), 9.25% due 7/01/2025 11,916
====================================================================================================================================
Louisiana--3.1% CC NR* 5,500 Port New Orleans, Louisiana, IDR, Refunding (Continental Grain
Company Project), 7.50% due 7/01/2013 5,582
====================================================================================================================================
Maryland--3.8% NR* NR* 1,875 Anne Arundel County, Maryland, Special Obligation Revenue Bonds
(Arundel Mills Project), 7.10% due 7/01/2029 1,856
NR* NR* 5,000 Maryland State Energy Financing Administration, Limited Obligation
Revenue Bonds (Cogeneration--AES Warrior Run), AMT,
7.40% due 9/01/2019 5,060
====================================================================================================================================
Massachusetts--3.0% NR* NR* 1,355 Boston, Massachusetts, Industrial Development Financing Authority,
Solid Waste Disposal Facility Revenue Bonds (Jet-A-Way Project),
AMT, 10.50% due 1/01/2011 1,423
NR* NR* 1,900 Massachusetts State Industrial Finance Agency Revenue Bonds, Sewer
Facility (Resource Control Composting), AMT, 9.25% due 6/01/2010 1,934
NR* NR* 2,000 Massachusetts State Port Authority, Special Project Revenue Bonds
(Harborside Hyatt Project), AMT, 10% due 3/01/2026 2,081
====================================================================================================================================
Minnesota--1.8% NR* NR* 3,250 Anoka, Minnesota, M/F Housing Revenue Bonds (Rainbow Plaza
Apartments Project), 9.375% due 12/01/2024 3,302
====================================================================================================================================
Mississippi--0.7% NR* NR* 1,300 Mississippi Development Bank, Special Obligation Revenue Refunding
Bonds (Diamond Lakes Utilities), Series A, 6.25% due 12/01/2017 1,219
====================================================================================================================================
Nevada--1.1% BBB+ Baa1 2,500 Henderson, Nevada, Health Care Facility Revenue Bonds (Catholic
Healthcare West--Saint Rose Dominican Hospital), 5.375% due 7/01/2026 1,951
====================================================================================================================================
New Jersey--10.7% Camden County, New Jersey, Improvement Authority, Lease Revenue Bonds
(Holt Hauling & Warehousing), AMT, Series A:
CCC+ NR* 2,000 9.625% due 1/01/2011 1,983
CCC+ NR* 4,500 9.875% due 1/01/2021 4,455
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 5,739
NR* NR* 3,000 New Jersey EDA, Economic Development Revenue Bonds (Glimcher
Properties LP Project), AMT, 6% due 11/01/2028 2,686
BBB- NR* 1,500 New Jersey EDA, First Mortgage Revenue Bonds (Fellowship Village),
Series C, 5.50% due 1/01/2028 1,157
NR* NR* 1,500 New Jersey EDA, IDR, Refunding (Newark Airport Marriott Hotel),
7% due 10/01/2014 1,514
BBB- Baa3 2,000 New Jersey Health Care Facilities Financing Authority Revenue
Refunding Bonds (Trinitas Hospital Obligation Group),
7.375% due 7/01/2015 2,015
====================================================================================================================================
New Mexico--2.6% B+ Ba3 5,000 Farmington, New Mexico, PCR, Refunding (Tucson Electric Power Co.--
San Juan Project), Series A, 6.95% due 10/01/2020 4,795
====================================================================================================================================
New York--1.8% Utica, New York, GO, Public Improvement:
CCC Ba3 700 9.25% due 8/15/2004 770
CCC Ba3 700 9.25% due 8/15/2005 782
CCC Ba3 635 9.25% due 8/15/2006 721
CCC Ba3 475 8.50% due 8/15/2013 527
CCC Ba3 475 8.50% due 8/15/2014 526
====================================================================================================================================
North Carolina--1.3% AA NR* 2,750 Cumberland County, North Carolina, Hospital Facilities Revenue
Refunding Bonds (Cumberland County Hospital System),
5.25% due 10/01/2024 2,453
====================================================================================================================================
Ohio--2.3% NR* Ba2 5,000 Cleveland, Ohio, Airport Special Revenue Refunding Bonds
(Continental Airlines Inc. Project), AMT, 5.70% due 12/01/2019 4,210
====================================================================================================================================
Oregon--1.6% NR* NR* 2,160 Klamath Falls, Oregon, Electric Revenue Refunding Bonds (Klamath
Cogeneration Project), Senior Lien, 6% due 1/01/2025 1,899
NR* NR* 1,000 Western Generation Agency, Oregon, Cogeneration Project Revenue
Bonds (Wauna Cogeneration Project), AMT, Series B,
7.40% due 1/01/2016 1,027
====================================================================================================================================
Pennsylvania--9.2% NR* NR* 2,000 Lehigh County, Pennsylvania, General Purpose Authority, Revenue
Refunding Bonds (Kidspeace Obligation Group), 6% due 11/01/2023 1,667
Montgomery County, Pennsylvania, Higher Education and Health
Authority, Revenue Refunding Bonds (Faulkeways at Gwynedd Project):
BBB+ NR* 900 6.75% due 11/15/2024 873
BBB+ NR* 925 6.75% due 11/15/2030 888
4 Northhampton Pulp LLC (d)(g) 537
AAA Aaa 2,000 Pennsylvania State Higher Education Assistance Agency, Student
Loan Revenue Bonds, RIB, AMT, 7.601% due 3/01/2022 (a)(e) 2,040
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) 4,733
A1+ NR* 300 Pennsylvania State Higher Educational Facilities Authority,
Revenue Refunding Bonds (Carnegie Mellon University), VRDN,
Series D, 4.55% due 11/01/2030 (f) 300
NR* NR* 5,500 Philadelphia, Pennsylvania, Authority for IDR, Commercial
Development, AMT, 7.75% due 12/01/2017 5,757
====================================================================================================================================
</TABLE>
6 & 7
<PAGE>
Apex Municipal Fund, Inc., June 30, 2000
SCHEDULE OF INVESTMENTS (concluded) (in Thousands)
<TABLE>
<CAPTION>
S&P Moody's Face
STATE Ratings Ratings Amount Issue Value
====================================================================================================================================
<C> <C> <C> <C> <S> <C>
South Carolina--1.0% NR* NR* $ 2,000 South Carolina Jobs Economic Development Authority, Health
Facilities Revenue Bonds, First Mortgage (Lutheran Homes Project),
6.625% due 5/01/2028 $ 1,848
====================================================================================================================================
Texas--5.6% A1+ NR* 1,600 Harris County, Texas, Health Facilities Development Corporation,
Hospital Revenue Refunding Bonds (Methodist Hospital), VRDN,
4.60% due 12/01/2025 (f) 1,600
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 2,666
BBB- Baa3 6,500 Lower Colorado River Authority, Texas, PCR (Samsung Austin
Semiconductor), AMT, 6.375% due 4/01/2027 6,040
====================================================================================================================================
Virginia--8.2% NR* NR* 2,500 Dulles Town Center, Virginia, Community Development Authority,
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 3,369
NR* NR* 3,000 Pittsylvania County, Virginia, IDA, Revenue Refunding Bonds,
Exempt-Facility, AMT, Series A, 7.50% due 1/01/2014 3,062
Pocahontas Parkway Association, Virginia, Toll Road Revenue Bonds:
NR* Ba1 6,200 First Tier, Sub-Series C, 6.25%** due 8/15/2033 485
NR* Ba1 6,200 First Tier, Sub-Series C, 6.25%** due 8/15/2034 449
BBB- Baa3 32,600 Senior Series B, 5.875%** due 8/15/2025 5,290
====================================================================================================================================
Total Investments (Cost--$188,220)--97.6% 178,482
Other Assets Less Liabilities--2.4% 4,397
--------
Net Assets--100.0% $182,879
========
====================================================================================================================================
</TABLE>
(a) AMBAC Insured.
(b) FSA Insured.
(c) Prerefunded.
(d) 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.
(e) The interest rate is subject to change periodically and inversely based
upon prevailing market rates. The interest rate shown is the rate in
effect at June 30, 2000.
(f) The interest rate is subject to change periodically based upon prevailing
market rates. The interest rate shown is the rate in effect at June 30,
2000.
(g) Non-income producing security.
* 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.
Ratings of issues shown have not been audited by Deloitte & Touche LLP.
See Notes to Financial Statements.
STATEMENT OF ASSETS, LIABILITIES AND CAPITAL
<TABLE>
<CAPTION>
As of June 30, 2000
====================================================================================================================================
<C> <S> <C> <C>
Assets: Investments, at value (identified cost--$188,219,598) ............................... $178,482,129
Cash ................................................................................ 67,103
Interest receivable ................................................................. 4,342,814
Prepaid expenses and other assets ................................................... 319,075
------------
Total assets ........................................................................ 183,211,121
------------
====================================================================================================================================
Liabilities: Payables:
Dividends to shareholders ........................................................ $ 122,744
Investment adviser ............................................................... 90,634 213,378
------------
Accrued expenses and other liabilities .............................................. 118,745
------------
Total liabilities ................................................................... 332,123
------------
====================================================================================================================================
Net Assets: Net assets .......................................................................... $182,878,998
============
====================================================================================================================================
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 ................................................ 1,051,146
Accumulated realized capital losses on investments--net ............................. (25,900,567)
Unrealized depreciation on investments--net ......................................... (9,737,469)
------------
Total capital--Equivalent to $9.33 net asset value per share of Common Stock
(market price--$8.9375) ............................................................. $182,878,998
============
====================================================================================================================================
</TABLE>
See Notes to Financial Statements.
8 & 9
<PAGE>
Apex Municipal Fund, Inc., June 30, 2000
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
For the Year Ended June 30, 2000
====================================================================================================================================
<C> <S> <C> <C>
Investment Interest and amortization of premium and discount earned ............. $ 14,478,020
Income:
====================================================================================================================================
Expenses: Investment advisory fees ............................................. $ 1,244,851
Professional fees .................................................... 82,935
Accounting services .................................................. 65,832
Directors' fees and expenses ......................................... 40,714
Transfer agent fees .................................................. 29,056
Printing and shareholder reports ..................................... 28,078
Listing fees ......................................................... 24,260
Custodian fees ....................................................... 16,371
Pricing fees ......................................................... 8,404
Other ................................................................ 15,135
------------
Total expenses ....................................................... 1,555,636
------------
Investment income--net ............................................... 12,922,384
------------
====================================================================================================================================
Realized & Realized loss on investments--net .................................... (8,184,667)
Unrealized Loss on Change in unrealized appreciation/depreciation on investments--net ... (12,015,330)
Investments--Net: ------------
Net Decrease in Net Assets Resulting from Operations ................. $ (7,277,613)
============
====================================================================================================================================
</TABLE>
See Notes to Financial Statements.
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
For the Year
Ended June 30,
-----------------------------
Increase (Decrease) in Net Assets: 2000 1999
====================================================================================================================================
<C> <S> <C> <C>
Operations: Investment income--net ............................................................ $ 12,922,384 $ 12,310,663
Realized gain (loss) on investments--net .......................................... (8,184,667) 3,207,168
Change in unrealized appreciation/depreciation on investments--net ................ (12,015,330) (7,749,281)
------------ ------------
Net increase (decrease) in net assets resulting from operations ................... (7,277,613) 7,768,550
------------ ------------
====================================================================================================================================
Dividends to Investment income--net ............................................................ (13,041,174) (12,319,499)
Shareholders: ------------ ------------
Net decrease in net assets resulting from dividends to shareholders ............... (13,041,174) (12,319,499)
------------ ------------
====================================================================================================================================
Common Stock Net increase in net assets derived from capital stock issued to
Transactions: shareholders in reinvestment of dividends ......................................... -- 288,800
------------ ------------
====================================================================================================================================
Net Assets: Total decrease in net assets ...................................................... (20,318,787) (4,262,149)
Beginning of year ................................................................. 203,197,785 207,459,934
------------ ------------
End of year* ...................................................................... $182,878,998 $203,197,785
============ ============
====================================================================================================================================
*Undistributed investment income--net .............................................. $ 1,051,146 $ 1,169,936
============ ============
====================================================================================================================================
</TABLE>
See Notes to Financial Statements.
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
The following per share data and ratios have
been derived from information provided in the
financial statements. For the Year Ended June 30,
-----------------------------------------------------
Increase (Decrease) in Net Asset Value: 2000 1999 1998 1997 1996
====================================================================================================================================
<C> <S> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of year ....................... $ 10.37 $ 10.60 $ 10.25 $ 10.01 $ 10.06
Operating -------- -------- -------- -------- --------
Performance: Investment income--net ................................... .66 .63 .64 .64 .67
Realized and unrealized gain (loss) on investments--net .. (1.03) (.23) .35 .26 (.06)
-------- -------- -------- -------- --------
Total from investment operations ......................... (.37) .40 .99 .90 .61
-------- -------- -------- -------- --------
Less dividends from investment income--net ............... (.67) (.63) (.64) (.66) (.66)
-------- -------- -------- -------- --------
Net asset value, end of year ............................. $ 9.33 $ 10.37 $ 10.60 $ 10.25 $ 10.01
======== ======== ======== ======== ========
Market price per share, end of year ...................... $ 8.9375 $ 10.25 $ 10.50 $ 9.9375 $ 9.125
======== ======== ======== ======== ========
====================================================================================================================================
Total Investment Based on market price per share .......................... (6.22%) 3.68% 12.42% 16.66% 4.54%
Return:* ======== ======== ======== ======== ========
Based on net asset value per share ....................... (3.23%) 3.90% 10.03% 9.69% 6.87%
======== ======== ======== ======== ========
====================================================================================================================================
Ratios to Average Expenses ................................................. .81% .81% .86% .79% .90%
Net Assets: ======== ======== ======== ======== ========
Investment income--net ................................... 6.71% 5.93% 6.08% 6.34% 6.66%
======== ======== ======== ======== ========
====================================================================================================================================
Supplemental Net assets, end of year (in thousands) ................... $182,879 $203,198 $207,460 $200,372 $195,565
Data: ======== ======== ======== ======== ========
Portfolio turnover ....................................... 20% 40% 34% 79% 56%
======== ======== ======== ======== ========
====================================================================================================================================
</TABLE>
* Total investment returns based on market value, which can be significantly
greater or lesser than the net asset value, may result in substantially
different returns. Total investment returns exclude the effects of sales
charges.
See Notes to Financial Statements.
10 & 11
<PAGE>
Apex Municipal Fund, Inc., June 30, 2000
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
accounting principles generally accepted in the United States of America, which
may require the use of management accruals and estimates. The Fund determines
and makes available for publication the net asset value of its Common Stock on a
weekly basis. The Fund's Common Stock is listed on the New York Stock Exchange
under the symbol APX. The following is a summary of significant accounting
policies followed by the Fund.
(a) Valuation of investments -- Municipal bonds are traded primarily in the
over-the-counter markets and are valued at the most recent bid price or yield
equivalent as obtained by the Fund's pricing service from dealers that make
markets in such securities. Financial futures contracts and options thereon,
which are traded on exchanges, are valued at their closing prices as of the
close of such exchanges. Options written or purchased are valued at the last
sale price in the case of exchange-traded options. In the case of options traded
in the over-the-counter market, valuation is the last asked price (options
written) or the last bid price (options purchased). Securities with remaining
maturities of sixty days or less are valued at amortized cost, which
approximates market value. Securities and assets for which market quotations are
not readily available are valued at fair value as determined in good faith by or
under the direction of the Board of Directors of the Fund, including valuations
furnished by a pricing service retained by the Fund, which may utilize a matrix
system for valuations. The procedures of the pricing service and its valuations
are reviewed by the officers of the Fund under the general supervision of the
Board of Directors.
(b) Derivative financial instruments -- The Fund may engage in various portfolio
investment strategies to increase or decrease the level of risk to which the
Fund is exposed more quickly and efficiently than transactions in other types of
instruments. 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
year ended June 30, 2000 were $37,080,779 and $52,612,853, respectively.
Net realized losses for the year ended June 30, 2000 and net unrealized losses
as of June 30, 2000 were as follows:
--------------------------------------------------------------------------------
Realized Unrealized
Losses Losses
--------------------------------------------------------------------------------
Long-term investments ................ $(8,184,667) $(9,737,469)
----------- -----------
Total ................................ $(8,184,667) $(9,737,469)
=========== ===========
--------------------------------------------------------------------------------
As of June 30, 2000, net unrealized depreciation for Federal income tax purposes
aggregated $9,737,469, of which $3,923,305 related to appreciated securities and
$13,660,774 related to depreciated securities. The aggregate cost of investments
at June 30, 2000 for Federal income tax purposes was $188,219,598.
4. Common Stock Transactions:
At June 30, 2000, 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 year ended June 30, 2000 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, 2000, the Fund had a net capital loss carryforward of approximately
$20,691,000, 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, $938,000 expires in 2006 and $2,975,000 expires in 2008. This amount will
be available to offset like amounts of any future taxable gains.
6. Subsequent Event:
On July 6, 2000, the Fund's Board of Directors declared an ordinary income
dividend to Common Stock shareholders in the amount of $.050309 per share,
payable on July 28, 2000 to shareholders of record as of July 17, 2000.
12 & 13
<PAGE>
Apex Municipal Fund, Inc., June 30, 2000
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders,
Apex Municipal Fund, Inc.:
We have audited the accompanying statement of assets, liabilities and capital,
including the schedule of investments, of Apex Municipal Fund, Inc., as of June
30, 2000, the related statements of operations for the year then ended and
changes in net assets for each of the years in the two-year period then ended,
and the financial highlights for each of the years in the five-year period then
ended. These financial statements and the financial highlights are the
responsibility of the Fund's management. Our responsibility is to express an
opinion on the financial statements and the financial highlights based on our
audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements and financial highlights are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. Our procedures included confirmation of
securities owned at June 30, 2000 by correspondence with the custodian. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, such financial statements and the financial highlights present
fairly, in all material respects, the financial position of Apex Municipal Fund,
Inc. as of June 30, 2000, the results of its operations, the changes in its net
assets, and the financial highlights for the respective stated periods in
accordance with accounting principles generally accepted in the United States of
America.
Deloitte & Touche LLP
Princeton, New Jersey
August 7, 2000
IMPORTANT TAX INFORMATION (unaudited)
All of the net investment income distributions declared monthly by Apex
Municipal Fund, Inc. during its taxable year ended June 30, 2000 qualify as
tax-exempt interest dividends for Federal income tax purposes.
Additionally, there were no capital gains distributions declared by the Fund
during its taxable year ended June 30, 2000.
Please retain this information for your records.
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>
Apex Municipal Fund, Inc. seeks to provide shareholders with high current income
exempt from Federal income taxes by investing primarily in a portfolio of medium
to lower grade or unrated municipal obligations the interest on which is exempt
from Federal income taxes in the opinion of bond counsel to the issuer.
This report, including the financial information herein, is transmitted to
shareholders of Apex Municipal Fund, Inc. for their information. It is not a
prospectus. Past performance results shown in this report should not be
considered a representation of future performance. Statements and other
information herein are as dated and are subject to change.
Apex Municipal
Fund, Inc.
Box 9011
Princeton, NJ
08543-9011 #10955--6/00
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