APEX MUNICIPAL
FUND, INC.
[GRAPHIC OMITTED]
STRATEGIC
Performance
Semi-Annual Report
December 31, 2000
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, 2000 were as
follows:
--------------------------------------------------------------------------------
Percent of
S&P Rating/Moody's Rating Net Assets
--------------------------------------------------------------------------------
AAA/Aaa .............................................................. 7.0%
AA/Aa ................................................................ 0.3
BBB/Baa .............................................................. 10.5
BB/Ba ................................................................ 20.1
B/B .................................................................. 6.4
CCC/Caa .............................................................. 4.2
NR (Not Rated) ....................................................... 48.0
Other+ ............................................................... 1.5
--------------------------------------------------------------------------------
+ Temporary investments in short-term municipal securities.
Apex Municipal Fund, Inc., December 31, 2000
DEAR SHAREHOLDER
For the six months ended December 31, 2000, Apex Municipal Fund, Inc. earned
$0.294 per share income dividends, which included earned and unpaid dividends of
$0.049. This represents a net annualized yield of 6.31%, based on a month-end
net asset value of $9.26 per share. Over the same period, the Fund's total
investment return was +2.78%, based on a change in per share net asset value
from $9.33 to $9.26, and assuming reinvestment of $0.295 per share income
dividends.
The Municipal Market Environment
During the six months ended December 31, 2000, long-term fixed-income securities
performed very strongly. Throughout the period, a number of economic indicators,
particularly employment, consumer spending and confidence, and business
purchasing managers surveys, suggested that US economic growth had significantly
moderated from 1999's and early 2000's robust levels. Third-quarter 2000 US
gross domestic product was revised to 2.2%, well below the first-quarter 2000
rate of 4.8% and the second-quarter 2000 rate of 5.6%. In recent months, the
material decline in US equity indexes, particularly the NASDAQ, is likely to
negatively impact future US economic growth. Investors are expected to curtail
future expenditures in response to the significant declines in the value of
their equity holdings.
Despite higher commodity prices, especially for oil and natural gas related to
unseasonably cold weather throughout the United States, inflationary pressures
remained muted. Recent consumer inflationary indicators were well below 3%
annually. Given a slowing domestic economy and a continued benign inflationary
environment, the Federal Reserve Board indicated at its December 2000 meeting
that no additional short-term interest rate increases were anticipated. However,
just after the close of the period, the Federal Reserve Board lowered interest
rates by 0.50%. A series of such moves may likely be needed, both to stabilize
and return US economic growth to its earlier levels.
Given the potential for, at least, stable short-term interest rates in the
coming months, investor emphasis focused on the continuing US Treasury debt
reduction program and forecasts of sizeable Federal budgetary surpluses going
forward. Many investors concluded that there will be a significant future
shortage of longer-dated maturity US Treasury securities. These factors helped
push US Treasury bond yields lower during December 2000, as US Treasury bond
yields declined 45 basis points (0.45%) to 5.45%, their lowest level in almost
two years.
The six months ended December 31, 2000 was one of the few periods in recent
years in which the tax-exempt bond market outperformed its taxable counterpart,
the US Treasury bond market. While municipal bond yields followed the similar
pattern of US Treasury bond yields, tax-exempt bond price volatility was
significantly reduced. Municipal bond yields traded in a relatively narrow range
during much of December 2000. Overall investor demand for municipal bonds
remained strong, allowing tax-exempt bond yields, as measured by the Bond Buyer
Revenue Bond Index, to decline 50 basis points to end the period at 5.48%.
New long-term tax-exempt issuance has continued to decline, although in recent
months the rate of this decline has slowed. During the past three months, almost
$60 billion in new long-term municipal bonds was issued, a decline of 5.5%
compared to the same three-month period in 1999. During the last 12 months,
municipalities have underwritten approximately $200 billion in securities, an
annual decline of 12%. This reduction in tax-exempt bond issuance helped to
provide a solid technical support for the municipal bond market.
The demand for municipal bonds came from a number of nontraditional and
conventional sources. Derivative/arbitrage programs and insurance companies
remained the dominant institutional buyers, while individual retail purchases
also remained strong. Traditional, open-end tax-exempt mutual funds have
continued to see significant disintermediation. It was recently reported that
during the 2000 calendar year, long-term municipal bond mutual funds experienced
net cash outflows of approximately $15 billion. Fortunately, the combination of
reduced new bond issuance and ongoing demand from non-traditional sources has
been able to more than offset the decline in demand from tax-exempt mutual
funds. This favorable balance has fostered a significant decline in municipal
bond yields in recent months.
The outlook for the tax-exempt bond market in 2001 appears quite favorable. The
steeply positive yield curve and relatively high credit quality that the
municipal bond market offers should continue to attract retail and institutional
investors seeking both tax-exempt income and a ready substitute for relatively
scarce US Government securities. Strong state and local governmental financial
conditions also suggest that issuance should remain manageable. Recently,
research analysts suggested that annual issuance in 2001 is likely to remain in
the $200 billion range. Additionally, both Federal tax policy and tax reform are
likely to be unchanged in 2001 as the recent results of the Presidential and
Congressional elections do not favor quick legislation on either of these
issues. These factors suggest that the strong technical position the tax-exempt
market has enjoyed is likely to continue. Given recent market performance, the
strong returns generated by tax-exempt products in 2000 again illustrate the
investment diversification municipal bonds provide to all investors.
Portfolio Strategy
During the six months ended December 31, 2000, the tax-exempt high-yield market
experienced unrelenting pressure as yield spreads continued to widen in an
environment characterized by a lack of investor demand and periods of pronounced
illiquidity. Tax-exempt mutual funds, a traditional source of demand for this
sector, were largely absent, contending with a persistent asset drain as
individual investors continued to withdraw money. Furthermore, various factors
converged, raising questions about creditworthiness across several sectors. A
typical example was the general deterioration in credit quality of
not-for-profit hospitals emerging from sharply lower government reimbursement
rates among heightened competition caused by the expanding role of managed care.
Recently, the convergence of soaring energy prices, the weak euro, and high
interest rates raised concerns about the sustainability of corporate earnings.
As a consequence, corporate yield spreads within both the taxable and the
tax-exempt markets widened considerably in the last six months. Exacerbating
matters, broker-dealer numbers diminished either through consolidation or
outright closures. The resulting loss of liquidity, coupled with a reduced risk
tolerance, weakened the market further.
We sought to maintain the same focus and discipline in pursuing our investment
strategy, although the Fund was affected by these developments. Portfolio
activity during the period continued to reflect our efforts to seek to enhance
both relative performance and the Fund's dividend distribution. Valuations in
the tax-exempt high-yield market negatively affected a broad variety of sectors,
giving investors the opportunity to capitalize on aberrations in pricing,
particularly brand new issuance and more seasoned securities. The utility sector
has been one of the best performers within the high-yield market in noticeable
contrast to the poor performance of much of the healthcare sector.
Investor-owned utilities have long represented a core position of the Fund and,
considering their relative outperformance in recent months, provide a sensible
source of funds for new investments. The bulk of these new investments were
healthcare credits, which we believed represented reasonable value in the
current market environment. We were careful in
2 & 3
Apex Municipal Fund, Inc., December 31, 2000
our selections, preferring the debt of long-term care facilities and human
service providers. We believe these issues stand to benefit from favorable
demographic trends and significant support through government funding.
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
January 12, 2001
PROXY RESULTS
During the six-month period ended December 31, 2000, Apex Municipal Fund, Inc.'s
shareholders voted on the following proposals. The proposals were approved at
the shareholders' meeting on December 13, 2000. The description of each proposal
and number of shares voted are as follows:
-----------------------------------------------------------------------------------------------------
Shares Voted Shares Voted
For Against
-----------------------------------------------------------------------------------------------------
1. To elect the Fund's Directors: Joe Grills 17,828,347 634,425
Walter Mintz 17,835,959 626,813
-----------------------------------------------------------------------------------------------------
Shares Voted Shares Voted Shares Voted
For Against Abstain
-----------------------------------------------------------------------------------------------------
2. To ratify the selection of Deloitte & Touche LLP as the
Fund's independent auditors for the current fiscal year. 18,078,082 150,087 234,602
-----------------------------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS (in Thousands)
S&P Moody's Face
STATE Ratings Ratings Amount Issue Value
===================================================================================================================================
Alabama--1.3% B NR* $ 1,000 Brewton, Alabama, IDB, PCR, Refunding (Container Corporation of
America--Jefferson Smurfit Corp. Project), 8% due 4/01/2009 $ 1,021
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) 1,295
===================================================================================================================================
Alaska--0.2% A1+ VMIG1+ 350 Valdez, Alaska, Marine Terminal Revenue Refunding Bonds (Exxon Pipeline
Company Project), VRDN, Series C, 4.80% due 12/01/2033 (f) 350
===================================================================================================================================
Arizona--3.4% 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 1,541
NR* B1 4,000 Phoenix, Arizona, IDA, Airport Facility Revenue Refunding Bonds
(America West Airlines Inc. Project), AMT, 6.30% due 4/01/2023 3,367
B+ Ba3 1,500 Pima County, Arizona, IDA, Industrial Revenue Refunding Bonds (Tucson
Electric Power Company Project), Series C, 6% due 9/01/2029 1,332
===================================================================================================================================
California--3.1% AAA NR* 5,500 Los Angeles, California, Department of Water and Power, Electric Plant
Revenue Bonds, RIB, Series 144, 6.48% due 6/15/2029 (b)(e) 5,716
===================================================================================================================================
Colorado--2.8% NR* NR* 1,700 Colorado Post-Secondary Educational Facilities Authority Revenue
Bonds (Colorado Ocean Journey Inc. Project), 8.30% due 12/01/20 171,865
NR* NR* 3,000 Denver, Colorado, Urban Renewal Authority, Tax Increment Revenue
Bonds (Pavilions), AMT, 7.75% due 9/01/2016 3,202
===================================================================================================================================
Connecticut--4.9% BB+ Ba1 8,025 Connecticut State Development Authority, PCR, Refunding (Connecticut
Light and Power Company), Series A, 5.85% due 9/01/2028 7,378
NR* B1 1,380 New Haven, Connecticut, Facility Revenue Bonds (Hill Health
Corporation Project), 9.25% due 5/01/2017 1,427
===================================================================================================================================
Florida--7.2% NR* NR* 960 Arbor Greene Community Development District, Florida, Special
Assessment Revenue Bonds, 7.60% due 5/01/2018 1,023
NR* NR* 2,500 Hillsborough County, Florida, IDA, Exempt Facilities Revenue Bonds
(National Gypsum), AMT, Series A, 7.125% due 4/01/2030 2,015
NR* NR* 3,000 Lee County, Florida, IDA, Health Care Facilities Revenue Bonds
(Cypress Cove Healthpark), Series A, 6.375% due 10/01/2025 2,580
NR* NR* 3,800 Parkway Center, Florida, Community Development District Special
Assessment Refunding Bonds, Series B, 8% due 5/01/2010 3,809
===================================================================================================================================
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
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
Apex Municipal Fund, Inc., December 31, 2000
SCHEDULE OF INVESTMENTS (continued) (in Thousands)
S&P Moody's Face
STATE Ratings Ratings Amount Issue Value
===================================================================================================================================
Florida NR* NR* $ 3,395 Tampa Palms, Florida, Open Space and Transportation Community
(concluded) Development District Revenue Bonds, Capital Improvement (Richmond
Place Project), 7.50% due 5/01/2018 $ 3,568
===================================================================================================================================
Georgia--2.1% NR* NR* 3,760 Atlanta, Georgia, Urban Residential Finance Authority, M/F Mortgage
Revenue Bonds (Northside Plaza Apartments Project), AMT, 9.75%
due 11/01/2020 3,872
===================================================================================================================================
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 1,436
===================================================================================================================================
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 3,457
===================================================================================================================================
Indiana--2.5% NR* NR* 2,600 Indiana State Educational Facilities Authority, Revenue Refunding
Bonds (Saint Joseph's College Project), 7% due 10/01/2029 2,705
NR* NR* 1,925 Indianapolis, Indiana, M/F Revenue Bonds (Lake Nora Fox Club Project),
Series B, 7.50% due 10/01/2029 1,913
===================================================================================================================================
Iowa--6.6% NR* NR* 10,000 Iowa Finance Authority, Health Care Facilities Revenue Refunding Bonds
(Care Initiatives Project), 9.25% due 7/01/2025 11,971
===================================================================================================================================
Louisiana--3.1% BB- NR* 5,500 Port New Orleans, Louisiana, IDR, Refunding (Continental Grain Company
Project), 7.50% due 7/01/2013 5,566
===================================================================================================================================
Maryland--3.9% NR* NR* 1,875 Anne Arundel County, Maryland, Special Obligation Revenue Bonds (Arundel
Mills Project), 7.10% due 7/01/2029 1,941
NR* NR* 5,000 Maryland State Energy Financing Administration, Limited Obligation
Revenue Bonds (Cogeneration-AES Warrior Run), AMT, 7.40%
due 9/01/2019 5,058
===================================================================================================================================
Massachusetts--5.5% NR* NR* 1,255 Boston, Massachusetts, Industrial Development Financing Authority,
Solid Waste Disposal Facility Revenue Bonds (Jet-A-Way
Project), AMT, 10.50% due 1/01/2011 1,315
NR* VMIG1+ 2,200 Massachusetts State Health and Educational Facilities Authority
Revenue Bonds (Capital Asset Program), VRDN, Series E, 4.80%
due 1/01/2035 (f) 2,200
NR* Ba2 3,000 Massachusetts State Health and Educational Facilities Authority,
Revenue Refunding Bonds (Bay Cove Human Services Issue),
Series A, 5.90% due 4/01/2028 2,469
NR* NR* 1,900 Massachusetts State Industrial Finance Agency Revenue Bonds,
Sewer Facility (Resource Control Composting), AMT, 9.25% due 6/01/2010 1,916
NR* NR* 2,000 Massachusetts State Port Authority, Special Project Revenue Bonds
(Harborside Hyatt Project), AMT, 10% due 3/01/2026 2,051
===================================================================================================================================
Minnesota--1.9% NR* NR* 3,235 Anoka, Minnesota, M/F Housing Revenue Bonds (Rainbow Plaza Apartments
Project), 9.375% due 12/01/2024 3,286
A1+ NR* 100 Beltrami County, Minnesota, Environmental Control Revenue Bonds
(Northwood Panelboard Co. Project), VRDN, AMT, 4.90% due 7/01/2025 (f) 100
A1+ NR* 100 Beltrami County, Minnesota, Environmental Control Revenue Refunding
Bonds (Northwood Panelboard Co. Project), VRDN, 4.80%
due 12/01/2021 (f) 100
===================================================================================================================================
Nevada--1.1% BBB Baa2 2,500 Henderson, Nevada, Health Care Facility Revenue Bonds (Catholic
Healthcare West--Saint Rose Dominican Hospital), 5.375%
due 7/01/2026 1,995
===================================================================================================================================
New Jersey--12.7% 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 1,957
CCC+ NR* 4,500 9.875% due 1/01/2021 4,394
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 5,780
NR* NR* 3,000 New Jersey EDA, Economic Development Revenue Bonds (Glimcher
Properties LP Project), AMT, 6% due 11/01/2028 2,595
BBB- NR* 1,500 New Jersey EDA, First Mortgage Revenue Bonds (Fellowship Village),
Series C, 5.50% due 1/01/2028 1,173
NR* NR* 1,500 New Jersey EDA, IDR, Refunding (Newark Airport Marriott Hotel),
7% due 10/01/2014 1,513
NR* NR* 3,700 New Jersey EDA, Retirement Community Revenue Bonds (Seabrook
Village Inc.), Series A, 8.125% due 11/15/2023 3,582
BBB- Baa3 2,000 New Jersey Health Care Facilities Financing Authority, Revenue
Refunding Bonds (Trinitas Hospital Obligation Group), 7.375%
due 7/01/2015 2,032
===================================================================================================================================
New Mexico--2.7% B+ Ba3 5,000 Farmington, New Mexico, PCR, Refunding (Tucson Electric Power
Co.--San Juan Project), Series A, 6.95% due 10/01/2020 4,973
===================================================================================================================================
New York--1.8% Utica, New York, GO, Public Improvement:
BB Ba3 700 9.25% due 8/15/2004 767
BB Ba3 700 9.25% due 8/15/2005 780
BB Ba3 635 9.25% due 8/15/2006 721
BB Ba3 475 8.50% due 8/15/2013 528
BB Ba3 475 8.50% due 8/15/2014 528
===================================================================================================================================
North Carolina--0.3% AA NR* 550 Cumberland County, North Carolina, Hospital Facilities Revenue
Refunding Bonds (Cumberland County Hospital System), 5.25%
due 10/01/2024 531
===================================================================================================================================
Ohio--3.3% NR* Ba2 7,185 Cleveland, Ohio, Airport Special Revenue Refunding Bonds
(Continental Airlines Inc. Project), AMT, 5.70% due 12/01/2019 6,074
===================================================================================================================================
Oregon--1.7% NR* NR* 2,160 Klamath Falls, Oregon, Electric Revenue Refunding Bonds (Klamath
Cogeneration Project), Senior Lien, 6% due 1/01/2025 1,970
NR* NR* 1,000 Western Generation Agency, Oregon, Cogeneration Project Revenue
Bonds (Wauna Cogeneration Project), AMT, Series B, 7.40% due
1/01/2016 1,026
===================================================================================================================================
Pennsylvania--9.2% NR* Ba2 2,000 Lehigh County, Pennsylvania, General Purpose Authority, Revenue
Refunding Bonds (Kidspeace Obligation Group), 6% due 11/01/2023 1,663
Montgomery County, Pennsylvania, Higher Education and Health
Authority, Revenue Refunding Bonds (Faulkeways at Gwynedd Project):
BBB+ NR* 900 6.75% due 11/15/2024 884
BBB+ NR* 925 6.75% due 11/15/2030 901
4 Northampton Pulp LLC (d)(g) 532
AAA Aaa 2,000 Pennsylvania State Higher Education Assistance Agency, Student Loan
Revenue Bonds, AMT, RIB, 6.173% due 3/01/2022 (a)(e) 2,148
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) 4,833
NR* NR* 5,500 Philadelphia, Pennsylvania, Authority for IDR, Commercial
Development, AMT, 7.75% due 12/01/2017 5,789
===================================================================================================================================
6 & 7
Apex Municipal Fund, Inc., December 31, 2000
SCHEDULE OF INVESTMENTS (concluded) (in Thousands)
S&P Moody's Face
STATE Ratings Ratings Amount Issue Value
===================================================================================================================================
South Carolina--0.8% NR* NR* $ 1,500 South Carolina Jobs Economic Development Authority, Health Facilities
Revenue Bonds, First Mortgage (Lutheran Homes Project), 6.625%
due 5/01/2028 $ 1,371
===================================================================================================================================
Texas--4.9% 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 2,688
BBB- Baa3 6,500 Lower Colorado River Authority, Texas, PCR (Samsung Austin
Semiconductor), AMT, 6.375% due 4/01/2027 6,282
===================================================================================================================================
Utah--1.2% NR* NR* 2,240 Carbon County, Utah, Solid Waste Disposal Revenue Refunding
Bonds (Laidlaw Environmental), AMT, Series A, 7.45% due 7/01/2017 2,177
===================================================================================================================================
Virginia--7.1% NR* NR* 2,500 Dulles Town Center, Virginia, Community Development Authority,
Special Assessment Tax (Dulles Town Center Project), 6.25%
due 3/01/2026 2,399
NR* NR* 4,215 Peninsula Ports Authority, Virginia, Revenue Refunding Bonds (Port
Facility--Zeigler Coal), 6.90% due 5/02/2022 622
NR* NR* 3,000 Pittsylvania County, Virginia, IDA, Revenue Refunding Bonds,
Exempt-Facility, AMT, Series A, 7.50% due 1/01/2014 3,043
Pocahontas Parkway Association, Virginia, Toll Road Revenue Bonds:
NR* Ba1 6,200 First Tier, Sub-Series C, 6.25%** due 8/15/2033 530
NR* Ba1 6,200 First Tier, Sub-Series C, 6.25%** due 8/15/2034 492
BBB- Baa3 32,600 Senior Series B, 5.875% due 8/15/2025 5,724
===================================================================================================================================
Total Investments (Cost--$187,683)--98.0% 177,842
Other Assets Less Liabilities--2.0% 3,649
--------
Net Assets--100.0% $181,491
========
===================================================================================================================================
(a) AMBAC Insured.
(b) FSA Insured.
(c) Prerefunded.
(d) These shares represent 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 December 31, 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 December
31, 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.
See Notes to Financial Statements.
STATEMENT OF ASSETS, LIABILITIES AND CAPITAL
As of December 31, 2000
=============================================================================================================
Assets: Investments, at value (identified cost--$187,683,154) ........ $ 177,841,750
Cash ......................................................... 60,436
Receivables:
Interest ................................................... $ 3,513,471
Securities sold ............................................ 347,685 3,861,156
-------------
Prepaid expenses and other assets ............................ 36,828
-------------
Total assets ................................................. 181,800,170
-------------
=============================================================================================================
Liabilities: Payables:
Dividends to shareholders .................................. 101,689
Investment adviser ......................................... 93,567 195,256
-------------
Accrued expenses and other liabilities ....................... 113,538
-------------
Total liabilities ............................................ 308,794
-------------
=============================================================================================================
Net Assets: Net assets ................................................... $ 181,491,376
=============
=============================================================================================================
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 ......................... 860,705
Accumulated realized capital losses on investments--net ...... (26,993,813)
Unrealized depreciation on investments--net .................. (9,841,404)
-------------
Total capital--Equivalent to $9.26 net asset value per share
of Common Stock (market price--$8.00) ........................ $ 181,491,376
=============
=============================================================================================================
See Notes to Financial Statements.
8 & 9
Apex Municipal Fund, Inc., December 31, 2000
STATEMENT OF OPERATIONS
For the Six Months Ended December 31, 2000
===================================================================================================================
Investment Interest and amortization of premium and discount earned .......... $ 6,312,553
Income:
===================================================================================================================
Expenses: Investment advisory fees .......................................... $ 596,594
Accounting services ............................................... 26,710
Directors' fees and expenses ...................................... 19,336
Transfer agent fees ............................................... 17,588
Listing fees ...................................................... 17,440
Printing and shareholder reports .................................. 13,274
Custodian fees .................................................... 7,275
Professional fees ................................................. 5,821
Pricing fees ...................................................... 5,078
Other ............................................................. 7,551
-----------
Total expenses .................................................... 716,667
-----------
Investment income--net ............................................ 5,595,886
-----------
===================================================================================================================
Realized & Realized loss on investments--net ................................. (1,093,246)
Unrealized Change in unrealized appreciation/depreciation on investments--net (103,935)
Loss on -----------
Investments--Net: Net Increase in Net Assets Resulting from Operations .............. $ 4,398,705
===========
===================================================================================================================
See Notes to Financial Statements.
STATEMENTS OF CHANGES IN NET ASSETS
For the Six For the
Months Ended Year Ended
December 31, June 30,
Increase (Decrease) in Net Assets: 2000 2000
=========================================================================================================================
Operations: Investment income--net ............................................ $ 5,595,886 $ 12,922,384
Realized loss on investments--net ................................. (1,093,246) (8,184,667)
Change in unrealized appreciation/depreciation on investments--net (103,935) (12,015,330)
------------- -------------
Net increase (decrease) in net assets resulting from operations ... 4,398,705 (7,277,613)
------------- -------------
=========================================================================================================================
Dividends to Investment income--net ............................................ (5,786,327) (13,041,174)
Shareholders: ------------- -------------
Net decrease in net assets resulting from dividends to shareholders (5,786,327) (13,041,174)
------------- -------------
=========================================================================================================================
Net Assets: Total decrease in net assets ...................................... (1,387,622) (20,318,787)
Beginning of period ............................................... 182,878,998 203,197,785
------------- -------------
End of period* .................................................... $ 181,491,376 $ 182,878,998
============= =============
=========================================================================================================================
* Undistributed investment income--net .............................. $ 860,705 $ 1,051,146
============= =============
=========================================================================================================================
See Notes to Financial Statements.
FINANCIAL HIGHLIGHTS
The following per share data and ratios
have been derived from information For the Six
provided in the financial statements. Months Ended For the Year Ended June 30,
December 31, -------------------------------------------------
Increase (Decrease) in Net Asset Value: 2000 2000 1999 1998 1997
==================================================================================================================================
Per Share Net asset value, beginning of period ...... $ 9.33 $ 10.37 $ 10.60 $ 10.25 $ 10.01
Operating -------- -------- -------- -------- --------
Performance: Investment income--net .................... .29 .66 .63 .64 .64
Realized and unrealized gain (loss) on
investments--net (.06) (1.03) (.23) .35 .26
-------- -------- -------- -------- --------
Total from investment operations .......... .23 (.37) .40 .99 .90
-------- -------- -------- -------- --------
Less dividends from investment income--net (.30) (.67) (.63) (.64) (.66)
-------- -------- -------- -------- --------
Net asset value, end of period ............ $ 9.26 $ 9.33 $ 10.37 $ 10.60 $ 10.25
======== ======== ======== ======== ========
Market price per share, end of period ..... $ 8.00 $ 8.9375 $ 10.25 $ 10.50 $ 9.9375
======== ======== ======== ======== ========
==================================================================================================================================
Total Investment Based on market price per share ........... (7.31%)+ (6.22%) 3.68% 12.42% 16.66%
Return:** ======== ======== ======== ======== ========
Based on net asset value per share ........ 2.78%+ (3.23%) 3.90% 10.03% 9.69%
======== ======== ======== ======== ========
==================================================================================================================================
Ratios to Average Expenses .................................. .78%* .81% .81% .86% .79%
Net Assets: ======== ======== ======== ======== ========
Investment income--net .................... 6.10%* 6.71% 5.93% 6.08% 6.34%
======== ======== ======== ======== ========
==================================================================================================================================
Supplemental Net assets, end of period (in thousands) .. $181,491 $182,879 $203,198 $207,460 $200,372
Data: ======== ======== ======== ======== ========
Portfolio turnover ........................ 8% 20% 40% 34% 79%
======== ======== ======== ======== ========
==================================================================================================================================
* 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
Apex Municipal Fund, Inc., December 31, 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 conformity with
accounting principles generally accepted in the United States of America, 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
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 counterparty 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 were provided to the Fund by FAM.
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, 2000 were $13,595,691 and $13,621,251, respectively.
Net realized losses for the six months ended December 31, 2000 and net
unrealized losses as of December 31, 2000 were as follows:
--------------------------------------------------------------------------------
Realized Unrealized
Losses Losses
--------------------------------------------------------------------------------
Long-term investments .............................. $(1,093,246) $(9,841,404)
----------- -----------
Total .............................................. $(1,093,246) $(9,841,404)
=========== ===========
--------------------------------------------------------------------------------
As of December 31, 2000, net unrealized depreciation for Federal income tax
purposes aggregated $9,841,404, of which $5,005,299 related to appreciated
securities and $14,846,703 related to depreciated securities. The aggregate cost
of investments at December 31, 2000 for Federal income tax purposes was
$187,683,154.
4. Common Stock Transactions:
At December 31, 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 six months ended December 31, 2000 and for the year
ended June 30, 2000 remained constant.
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 January 4, 2001, the Fund's Board of Directors declared an ordinary income
dividend to Common Stock shareholders in the amount of $.049407 per share,
payable on January 30, 2001 to shareholders of record as of January 16, 2001.
12 & 13
Apex Municipal Fund, Inc., December 31, 2000
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
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
Arthur Zeikel, Director of Apex Municipal Fund, Inc. has recently retired. The
Fund's Board of Directors wishes Mr. Zeikel well in his retirement.
14 & 15
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--12/00
[Recycle LOGO]Printed on post-consumer recycled paper