UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT
INVESTMENT COMPANIES
Investment Company Act file number 811-5729
Name of Fund: Apex Municipal Fund, Inc.
Fund Address: P.O. Box 9011
Princeton, NJ 08543-9011
Name and address of agent for service: Terry K. Glenn, President, Apex Municipal
Fund, Inc., 800 Scudders Mill Road, Plainsboro, NJ 08536. Mailing
address: P.O. Box 9011, Princeton, NJ 08543-9011
Registrant's telephone number, including area code: (609) 282-2800
Date of fiscal year end: 06/30/03
Date of reporting period: 07/01/02 - 06/30/03
Item 1 - Attach shareholder report
[LOGO] Merrill Lynch Investment Managers
Annual Report
June 30, 2003
Apex
Municipal Fund,
Inc.
www.mlim.ml.com
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.
Annual Meeting of
Stockholders
The date of the Fund's next Annual Meeting of Stockholders has been changed from
January 2004 to April 2004. Proposals of stockholders intended to be presented
at the Fund's next Annual Meeting of Stockholders must be received by the Fund
by January 15, 2004 for inclusion in the Fund's Proxy Statement and form of
Proxy for that meeting. The Fund's By-laws generally require advance notice be
given to the Fund in the event a stockholder desires to nominate a person for
election to the Board of Directors or to transact any other business from the
floor at an Annual Meeting of Stockholders. Notice of any such nomination or
other business must be in writing and received at the Fund's principal executive
office not later than the close of business on February 13, 2004. Written
proposals should be sent to the Secretary of the Fund, 800 Scudders Mill Road,
Plainsboro, New Jersey 08536.
Quality Profile
(unaudited)
The quality ratings of securities in the Fund as of June 30, 2003 were as
follows:
--------------------------------------------------------------------------------
Percent of
S&P Rating/Moody's Rating Total Investments
--------------------------------------------------------------------------------
A/A ..................................................... 4.2%
BBB/Baa ................................................. 18.8
BB/Ba ................................................... 20.1
B/B ..................................................... 7.5
CCC/Caa ................................................. 2.6
NR (Not Rated) .......................................... 45.9
Other+ .................................................. 0.9
--------------------------------------------------------------------------------
+ Temporary investments in short-term municipal securities.
Apex Municipal Fund, Inc., June 30, 2003
DEAR SHAREHOLDER
For the year ended June 30, 2003, Apex Municipal Fund, Inc. had a net annualized
yield of 6.23%, based on a year-end per share net asset value of $8.99 and $.560
per share income dividends. Over the same period, the total investment return on
the Fund's Common Stock was +4.13%, based on a change in per share net asset
value from $9.24 to $8.99, and assuming reinvestment of $.558 per share ordinary
income dividends.
For the six months ended June 30, 2003, the Fund's Common Stock had a total
investment return of +5.26%, based on a change in per share net asset value from
$8.84 to $8.99, and assuming reinvestment of $.282 per share income dividends.
For a description of the Fund's total investment return based on a change in the
per share market value (as measured by the trading price of the Fund's share on
the New York Stock Exchange), and assuming reinvestment of dividends, please
refer to the Financial Highlights section of the Financial Statements included
in this report. As a closed-end fund, the Fund's shares may trade in the
secondary market at a premium or discount to the Fund's net asset value. As a
result, total investment returns based on changes in the Fund's market value can
vary significantly from total investment return based on changes in the Fund's
net asset value.
The Municipal Market Environment
During the six-month period ended June 30, 2003, amid considerable volatility,
long-term fixed income interest rates generally decreased, with the bulk of the
decline occurring in May and early June. Bond yields initially rose in the
beginning of 2003 as international political tensions moderated somewhat and
U.S. equity markets rallied strongly in reaction to President Bush's proposed
economic stimulus/tax-reduction legislation. By mid-January, U.S. Treasury bond
yields rose to above 5% on expectations of stronger U.S. economic growth later
in the year, while the Standard & Poor's (S&P) 500 Index increased almost 6%.
Reacting to disappointing 2002 holiday sales and corporate managements' attempts
to scale back analysts' expectations of future earnings, equity markets were
unable to maintain their earlier gains. By the end of February 2003, the S&P 500
Index declined by approximately 4.5% from year-end 2002 levels. Fearing an
eventual U.S./Iraq military confrontation, investors again sought the safety of
U.S. Treasury obligations and the prices of fixed income issues rose. By the end
of February 2003, U.S. Treasury bond yields had declined to 4.67%.
Bond yields continued to fall into early March. Once direct U.S. military action
against Iraq began, however, bond yields quickly rose. Prior uncertainty
surrounding the Iraqi situation was obviously removed and early U.S. military
successes fostered the hope that hostilities would be quickly and positively
concluded. Concurrently, the S&P 400 Index rose over 6% as investors, in part,
sold fixed income issues to purchase equities in anticipation of a strong U.S.
economic recovery once the Iraqi conflict was resolved. By mid-March, U.S.
Treasury bond yields again rose to above 5%. However, there was growing
sentiment that hostilities may not be resolved in a matter of weeks, and U.S.
Treasury bond yields again declined to end the month at 4.81%.
Long-term U.S. Treasury bond yields ratcheted back to near 5% by mid-April as
U.S. equity markets continued to improve and the safe-haven premium U.S.
Treasury issues had commanded prior to the beginning of the Iraqi conflict
continued to be withdrawn. However, with the swift positive resolution of the
Iraqi war, investors quickly resumed their focus on the fragile U.S. economic
recovery. Business activity in the United States has remained sluggish,
especially job creation. Investors have also been concerned that the SARS
outbreak would have a material, negative impact on world economic conditions,
especially in China and Japan. First quarter 2003 U.S. gross domestic product
was released in late April initially estimating U.S. economic activity to be
growing at 1.6%, well below many analysts' assessments. These factors, as well
as the possibility that the Federal Reserve Board could again lower short-term
interest rates to encourage more robust U.S. economic growth, pushed bond prices
higher. By April 30, 2003, long-term U.S. Treasury bond yields had declined to
almost 4.75%.
At its early May meeting, the Federal Reserve Board left the short-term interest
rate target unchanged at 1.25%, its lowest level in more than 40 years. In its
accompanying statement, the Federal Reserve Board noted that while the pace of
U.S. economic growth was likely to expand going forward, the "probability of an
unwelcome substantial fall in inflation" was a matter of greater concern. Many
fixed income investors quickly concluded that since the Federal Reserve Board's
focus was now centered on preventing future deflation, additional reduction in
short-term interest rates could be expected. Given already low nominal interest
rates, these investors also believed that the Federal Reserve Board was likely
to purchase longer-term U.S. Treasury issues to push bond yields lower to
further stimulate U.S. economic activity, especially the already-vibrant housing
industry. These factors combined to trigger a major bond rally for the remainder
of the month. At the end of May 2003, long-term U.S. Treasury bond yields fell
to approximately 4.375%, a decline of approximately 40 basis points (.40%)
during the month.
Long-term U.S. Treasury bond yields further declined to approximately 4.2% by
mid-June as U.S. economic growth, particularly employment trends and durable
goods orders, remained sluggish. This led many investors to anticipate that the
Federal Reserve Board would lower short-term interest rates an additional 50
basis points at its late June meeting to accelerate economic activity. However,
the Federal Reserve Board lowered its target for the Federal Funds rate by only
25 basis points to 1%, the lowest level since 1958. In its accompanying
statement, the Federal Reserve Board noted that an additional easing of monetary
policy would "further support...an economy which it expects to improve over
time." The prospect for stronger economic activity, as well as the absence of
any potential purchases of U.S. Treasury issues, pushed bond prices sharply
lower for the remainder of the period. By June 30, 2003, long-term U.S. Treasury
bond yields rose to 4.55%, an increase of almost 20 basis points during the
month. Over the last months, however, long-term U.S. Treasury bond yields have
declined 20 basis points.
During the six-month period ended June 30, 2003, long-term tax-exempt bond
yields also fell. Yield volatility was reduced relative to that seen in U.S.
Treasury issues, as municipal bond prices were much less sensitive to worldwide
geopolitical pressures on a daily and weekly basis. Tax-exempt bond prices
generally followed their taxable counterparts higher, responding to a more
positive U.S. fixed income environment and continued slow economic growth.
Municipal bond yields generally declined through February 2003. At February 28,
2003, long-term tax-exempt revenue bond yields, as measured by the Bond Buyer
Revenue Bond Index, fell to approximately 5.05%. However, similar to U.S.
Treasury bond yields, once military action began in Iraq, municipal bond yields
rose sharply to nearly 5.2% before declining in response to the deflationary
scare to approximately 4.8% by May 31, 2003. Municipal bond prices also fell
during the latter half of June in response to higher economic growth
expectations and disappointment about the recent Federal Reserve Board's
actions. By the end of the month, long-term municipal revenue bond yields, as
measured by the Bond Buyer Revenue Bond Index, rose more than 15 basis points to
almost 5%. Over the past six months, long-term municipal bond yields declined by
approximately 20 basis points.
Throughout the period, the municipal market continued to improve despite a
dramatic increase in new bond issuance. Increased issuance, however, has not
hindered the tax-exempt market's recent solid performance. There was a number of
ongoing factors fostering the strong investor demand that supported the
municipal bond market's improvement. Tax-exempt money market interest rates
remained below 1% for much of 2003, forcing investors to invest in longer
maturities to generate desired levels of coupon income. Investors will also
receive approximately $60 billion in coupon income, bond maturities and the
proceeds from early redemptions in July and August. Much of these proceeds are
likely to be reinvested in the municipal market. Most importantly, as an asset
class, municipal bonds have remained an extremely attractive investment
alternative, especially relative to U.S. Treasury issues. At June 30, 2003,
tax-exempt bond yields were 88% - 98% of comparable U.S. Treasury issues, well
in excess of their historic average of 82% - 88%. Current yield ratios have
2 & 3
Apex Municipal Fund, Inc., June 30, 2003
made municipal securities attractive to retail and institutional investors, as
well as to nontraditional, arbitrage related accounts. As the tax-exempt
market's favorable technical position is expected to remain stable in the near
term, the expected increase in bond issuance during the remainder of 2003 is
unlikely to significantly impact the municipal bond market's performance.
Declining U.S. equity markets and escalating geopolitical pressures have
resulted in reduced economic activity and consumer confidence. It is important
to note that, despite all the recent negative factors impeding the growth of
U.S. businesses, the U.S. economy still grew at an approximate 2.5% rate for all
of 2002, twice that of 2001. Similar expansion is expected for early 2003 and
more than 3% for 2004. Lower oil prices, reduced geopolitical uncertainties,
increased federal spending for defense, and a sizeable federal tax cut are
factors which should promote stronger economic growth later this year. However,
it is questionable to expect that business and investor confidence can be so
quickly restored as to trigger dramatic, explosive U.S. economic growth and
engender associated, large-scale interest rate increases. The resumption of
solid economic growth is likely to be a gradual process accompanied by equally
graduated increases in bond yields. Moderate economic growth, especially within
a context of negligible inflationary pressures, should not greatly endanger the
positive fixed income environments tax-exempt products currently enjoy.
Portfolio Strategy
Since our last report to shareholders, the Fund's relative performance benefited
from a resurgent demand for high-yield municipal bonds. As much of this
improvement occurred during the latter portion of the period, it provided some
respite from the turbulent conditions prevalent for much of the year.
Nevertheless, for the 12-month period ended June 30, 2003, performance results
were dominated by the sharp deterioration in the high-yield market brought on by
mounting concerns about geopolitical risk and the weak domestic economy. More
specifically, the portfolio was negatively impacted by exposure to
corporate-related tax-exempt debt. Industrial development bonds (IDB) issued by
corporations comprise a significant component of the high-yield municipal market
and, at almost 40% of portfolio assets, represented the Fund's largest sector
concentration. Although exposure within this category is diversified across
various industries, many of these holdings are sensitive to the economic cycle
and have come under pressure amid the broad-based decline in corporate earnings.
Portfolio activity has largely reflected our goal of increasing diversification
of the portfolio's holdings and generating a more competitive distribution
yield. To that end, additional progress was made through the reduction in
exposure to general unsecured obligations of Host Marriott Corporation,
representing one of the Fund's largest exposures. Concern over heightened
tensions on the Korean peninsula led us to reduce exposure to senior unsecured
debt of Samsung Electronics, a subsidiary of the giant Korean conglomerate. The
Fund continues to maintain an underweighted exposure in the tobacco sector in
recognition of continuing litigation risk. Notwithstanding the significant
victory for the tobacco industry embodied in the recent Engles decision in
Florida, prudence suggests ongoing caution is appropriate both in terms of
litigation and pending supply. Remaining activity has been characterized by
efforts to enhance the Fund's yield through transactions that capitalize on
pockets of demand that occur in an otherwise fairly illiquid high-yield
tax-exempt marketplace. Matching up these opportunistic sales with the
attractive but infrequent investment scenario can be difficult; nevertheless, if
successful, it can enhance the yield presented to shareholders.
In the coming months, our strategy will continue to focus on the general themes
of increased diversification and yield enhancement. Apart from IDBs, the Fund's
largest concentration is in land-secured special tax-backed obligations for
commercial and residential real estate projects across a broad geographical
spectrum. This overweighting reflects an assessment that the strong growth
potential for projects in selected localities involving developers with proven
track records provides a considerable investment opportunity for the Fund. Apart
from airlines, other significant concentrations include positions in senior
living and long-term care projects, non-profit hospitals and investor-owned
utilities. The health care sector has experienced credit stabilization amid an
environment of improving fundamentals and strong demographic trends. Credit
spreads remain attractive and, in our opinion, this sector offers a compelling
source of value and liquidity, while providing the means to enhance the Fund's
yield. In a broader sense, the Fund is poised to gain from an economic recovery
with corporate cyclical exposure across a variety of industries that include
airlines, paper, lodging and chemicals. Valuations for these securities have
recovered significantly in recent weeks reflecting perhaps a higher degree of
risk tolerance as investors grow more optimistic about corporate earnings. To
the extent these expectations are realized, Fund performance is likely to
benefit from these asset allocation decisions.
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/ Kenneth A. Jacob
Kenneth A. Jacob
Senior Vice President
/s/ John M. Loffredo
John M. Loffredo
Senior Vice President
/s/ Theodore R. Jaeckel Jr.
Theodore R. Jaeckel Jr.
Vice President and Portfolio Manager
July 18, 2003
PROXY RESULTS
During the six-month period ended June 30, 2003, Apex Municipal Fund, Inc.'s
shareholders voted on the following proposal. The proposal was approved at the
shareholders' meeting on January 28, 2003. A description of the proposal and
number of shares voted are as follows:
-----------------------------------------------------------------------------------------------------
Shares Voted Shares Withheld
For From Voting
-----------------------------------------------------------------------------------------------------
1. To elect the Fund's Directors: Terry K. Glenn 17,148,378 708,038
Joe Grills 17,156,035 700,381
Roberta Cooper Ramo 17,165,111 691,305
-----------------------------------------------------------------------------------------------------
4 & 5
Apex Municipal Fund, Inc., June 30, 2003
SCHEDULE OF INVESTMENTS (in Thousands)
S&P Moody's Face
STATE Ratings++ Ratings++ Amount Municipal Bonds Value
===================================================================================================================================
Alabama--0.6% B NR* $ 1,000 Brewton, Alabama, IDB, PCR, Refunding (Container Corporation of
America--Jefferson Smurfit Corp. Project), 8% due 4/01/2009 $ 1,033
===================================================================================================================================
Alaska--1.2% NR* NR* 2,000 Alaska Industrial Development and Expert Authority Revenue Bonds
(Williams Lynxs Alaska Cargoport), AMT, 8% due 5/01/2023 2,106
===================================================================================================================================
Arizona--2.8% NR* NR* 1,500 Maricopa County, Arizona, IDA, M/F Housing Revenue Bonds (Sun King
Apartments Project), Sub-Series C, 9.50% due 11/01/2031 1,297
NR* Caa2 4,000 Phoenix, Arizona, IDA, Airport Facility Revenue Refunding Bonds
(America West Airlines Inc. Project), AMT, 6.30% due 4/01/2023 2,120
B+ Ba3 1,585 Pima County, Arizona, IDA, Industrial Revenue Refunding Bonds
(Tucson Electric Power Company Project), Series C, 6% due 9/01/2029 1,489
===================================================================================================================================
Colorado--5.8% NR* Baa2 3,000 Denver, Colorado, Urban Renewal Authority, Tax Increment Revenue
Bonds (Pavilions), AMT, 7.75% due 9/01/2016 3,246
NR* NR* 2,800 Elk Valley, Colorado, Public Improvement Revenue Bonds (Public
Improvement Fee), Series A, 7.30% due 9/01/2022 2,891
NR* NR* 1,640 Lincoln Park, Colorado, Metropolitan District, GO, Refunding, 7.75%
due 12/01/2026 1,711
NR* NR* 1,235 North Range, Colorado, Metropolitan District Number 1, GO, 7.25%
due 12/15/2031 1,252
BB+ Ba1 1,145 Northwest Parkway, Colorado, Public Highway Authority Revenue Bonds,
First Tier, Sub-Series D, 7.125% due 6/15/2041 1,200
===================================================================================================================================
Connecticut--0.7% NR* B1 1,255 New Haven, Connecticut, Facility Revenue Bonds (Hill Health
Corporation Project), 9.25% due 5/01/2017 1,274
===================================================================================================================================
Florida--8.3% NR* NR* 890 Arbor Greene Community Development District, Florida, Special
Assessment Revenue Bonds, 7.60% due 5/01/2018 935
NR* NR* 1,370 Bonnet Creek Resort, Florida, Community Development District, Special
Assessment Revenue Bonds, 7.50% due 5/01/2034 1,438
NR* NR* 800 Capital Projects Finance Authority, Florida, Continuing Care
Retirement Revenue Bonds (Glenridge on Palmer Ranch), Series A, 8%
due 6/01/2032 818
NR* NR* 2,500 Hillsborough County, Florida, IDA, Exempt Facilities Revenue Bonds
(National Gypsum), AMT, Series A, 7.125% due 4/01/2030 2,569
NR* NR* 910 Lakewood Ranch, Florida, Community Development District Number 5,
Special Assessment Revenue Refunding Bonds, Series A, 6.70%
due 5/01/2031 923
NR* NR* 1,650 Orlando, Florida, Urban Community Development District, Capital
Improvement Special Assessment Bonds, Series A, 6.95% due 5/01/2033 1,694
NR* NR* 670 Palm Beach County, Florida, HFA, M/F Housing Revenue Bonds (Lake
Delray Apartment Project), AMT, Series A, 6.40% due 1/01/2031 629
NR* NR* 3,480 Parkway Center, Florida, Community Development District Special
Assessment Refunding Bonds, Series B, 8% due 5/01/2010 2,672
NR* NR* 2,880 Tampa Palms, Florida, Open Space and Transportation Community
Development District Revenue Bonds, Capital Improvement (Richmond
Place Project), 7.50% due 5/01/2018 3,036
===================================================================================================================================
Georgia--1.7% NR* NR* 2,000 Atlanta, Georgia, Tax Allocation Revenue Bonds (Atlantic Station
Project), 7.90% due 12/01/2024 2,081
NR* Ba3 1,000 Effingham County, Georgia, IDA, PCR, Refunding (Georgia Pacific
Corporation Project), 6.50% due 6/01/2031 878
===================================================================================================================================
Idaho--0.9% NR* NR* 1,470 Idaho Health Facilities Authority, Revenue Refunding Bonds (Valley
Vista Care Corporation), Series A, 7.75% due 11/15/2016 1,503
===================================================================================================================================
Illinois--3.1% CCC Caa2 3,000 Chicago, Illinois, O'Hare International Airport, Special Facility
Revenue Refunding Bonds (American Airlines Inc. Project), 8.20%
due 12/01/2024 1,650
NR* NR* 400 Chicago, Illinois, Special Assessment Bonds (Lake Shore East), 6.75%
due 12/01/2032 402
NR* NR* 3,190 Illinois Development Finance Authority Revenue Bonds (Primary Health
Care Centers Facilities Acquisition Program), 7.75% due 12/01/2016 3,453
===================================================================================================================================
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 2,792
NR* NR* 1,820 Indianapolis, Indiana, M/F Revenue Bonds (Lake Nora Fox Club
Project), Series B, 7.50% due 10/01/2029 1,531
===================================================================================================================================
Iowa--2.7% NR* NR* 3,965 Iowa Finance Authority, Health Care Facilities Revenue Refunding
Bonds (Care Initiatives Project), 9.25% due 7/01/2025 4,686
===================================================================================================================================
Louisiana--3.2% BB- NR* 5,500 Port New Orleans, Louisiana, IDR, Refunding (Continental Grain
Company Project), 7.50% due 7/01/2013 5,580
===================================================================================================================================
Maine--0.5% BB+ Ba1 840 Maine Finance Authority, Solid Waste Recycling Facilities Revenue
Bonds (Great Northern Paper Project--Bowater), AMT, 7.75%
due 10/01/2022 841
===================================================================================================================================
Maryland--2.1% NR* NR* 1,875 Anne Arundel County, Maryland, Special Obligation Revenue Bonds
(Arundel Mills Project), 7.10% due 7/01/2029 2,047
NR* NR* 1,500 Maryland State Energy Financing Administration, Limited Obligation
Revenue Bonds (Cogeneration--AES Warrior Run), AMT, 7.40%
due 9/01/2019 1,536
===================================================================================================================================
Massachusetts--4.3% BBB NR* 825 Massachusetts State Development Finance Agency, Resource Recovery
Revenue Bonds (Ogden Haverhill Associates), AMT, Series A, 6.70%
due 12/01/2014 859
Massachusetts State Development Finance Agency, Revenue Refunding
Bonds:
BB+ NR* 1,245 (Eastern Nazarine College), 5.625% due 4/01/2019 1,028
BB+ NR* 1,220 (Eastern Nazarine College), 5.625% due 4/01/2029 940
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 2,646
NR* NR* 1,500 Massachusetts State Industrial Finance Agency Revenue Bonds, Sewer
Facility (Resource Control Composting), AMT, 9.25% due 6/01/2010 1,512
BBB NR* 500 Massachusetts State Industrial Financial Agency, Resource Recovery
Revenue Refunding Bonds (Ogden Haverhill Project), AMT, Series A,
5.60% due 12/01/2019 460
===================================================================================================================================
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.
AMR Airport and Marina Revenue Bonds
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
VRDN Variable Rate Demand Notes
6 & 7
Apex Municipal Fund, Inc., June 30, 2003
SCHEDULE OF INVESTMENTS (continued) (in Thousands)
S&P Moody's Face
STATE Ratings++ Ratings++ Amount Municipal Bonds Value
===================================================================================================================================
Michigan--1.0% BBB- Baa3 $ 1,000 Flint, Michigan, Hospital Building Authority, Revenue Refunding
Bonds (Hurley Medical Center), 6% due 7/01/2020 $ 943
BBB- Ba3 1,000 Michigan State Hospital Finance Authority, Revenue Refunding Bonds
(Detroit Medical Center Obligation Group), Series A, 6.50%
due 8/15/2018 791
===================================================================================================================================
Minnesota--2.5% NR* NR* 3,140 Anoka, Minnesota, M/F Housing Revenue Bonds (Rainbow Plaza
Apartments Project), 9.375% due 12/01/2024 3,167
NR* NR* 1,230 Saint Paul, Minnesota, Port Authority, Hotel Facility Revenue Bonds
(Radisson Kellogg Project), Series 2, 7.375% due 8/01/2029 1,268
===================================================================================================================================
Missouri--0.7% NR* NR* 1,200 Fenton, Missouri, Tax Increment Revenue Refunding and Improvement
Bonds (Gravois Bluffs), 7% due 10/01/2021 1,308
===================================================================================================================================
New Jersey--13.1% Camden County, New Jersey, Improvement Authority, Lease Revenue
Bonds (Holt Hauling & Warehousing), AMT, Series A (b):
NR* NR* 2,000 9.625% due 1/01/2011 392
NR* NR* 4,500 9.875% due 1/01/2021 882
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 5,732
BBB- NR* 1,400 New Jersey EDA, First Mortgage Revenue Bonds (Fellowship Village),
Series C, 5.50% due 1/01/2028 1,344
NR* Ba3 1,500 New Jersey EDA, IDR, Refunding (Newark Airport Marriott Hotel), 7%
due 10/01/2014 1,487
New Jersey EDA, Retirement Community Revenue Bonds, Series A:
NR* NR* 1,000 (Cedar Crest Village Inc. Facility), 7.25% due 11/15/2031 1,034
NR* NR* 3,700 (Seabrook Village Inc.), 8.125% due 11/15/2023 3,893
B Caa2 3,050 New Jersey EDA, Special Facility Revenue Bonds (Continental Airlines
Inc. Project), AMT, 6.625% due 9/15/2012 2,707
New Jersey Health Care Facilities Financing Authority Revenue Bonds:
BB+ NR* 1,515 (Pascack Valley Hospital Association), 6.625% due 7/01/2036 1,527
NR* Baa1 1,410 (South Jersey Hospital), 6% due 7/01/2026 1,469
A- Baa2 3,025 Tobacco Settlement Financing Corporation of New Jersey Revenue Bonds,
6.75% due 6/01/2039 2,745
===================================================================================================================================
New Mexico--2.9% B+ Ba3 5,000 Farmington, New Mexico, PCR, Refunding (Tucson Electric Power
Co.--San Juan Project), Series A, 6.95% due 10/01/2020 5,139
===================================================================================================================================
New York--3.0% NR* NR* 350 New York City, New York, City IDA, Civic Facility Revenue Bonds,
Series C, 6.80% due 6/01/2028 358
BBB- Ba2 1,730 New York City, New York, City IDA, Special Facility Revenue Bonds
(British Airways PLC Project), AMT, 7.625% due 12/01/2032 1,522
Utica, New York, GO, Public Improvement:
BBB Baa3 700 9.25% due 8/15/2004 750
BBB Baa3 700 9.25% due 8/15/2005 786
BBB Baa3 635 9.25% due 8/15/2006 740
NR* NR* 1,180 Westchester County, New York, IDA, Continuing Care Retirement,
Mortgage Revenue Bonds (Kendal on Hudson Project), Series A,
6.50% due 1/01/2034 1,194
===================================================================================================================================
North Carolina--1.0% NR* NR* 1,600 North Carolina Medical Care Commission, Health Care Facilities,
First Mortgage Revenue Refunding Bonds (Presbyterian Homes Project),
7% due 10/01/2031 1,735
===================================================================================================================================
Ohio--1.1% B- Caa2 3,135 Cleveland, Ohio, Airport Special Revenue Refunding Bonds
(Continental Airlines Inc. Project), AMT, 5.70% due 12/01/2019 1,945
===================================================================================================================================
Oklahoma--0.8% A1+ VMIG1+ 1,000 Oklahoma State Industries Authority, Revenue Refunding Bonds
(Integris Baptist), VRDN, Series B, 1% due 8/15/2029 (a)(c) 1,000
B- Caa2 420 Tulsa, Oklahoma, Municipal Airport Trust Revenue Refunding Bonds,
AMR, AMT, Series A, 5.80% due 6/01/2035 (a) 357
===================================================================================================================================
Oregon--0.7% NR* NR* 1,310 Western Generation Agency, Oregon, Cogeneration Project Revenue
Bonds (Wauna Cogeneration Project), AMT, Series B, 7.40% due 1/01/2016 1,292
===================================================================================================================================
Pennsylvania--6.7% NR* NR* 1,750 Chester County, Pennsylvania, Health and Education Facilities
Authority, Senior Living Revenue Refunding Bonds (Jenners Pond Inc.
Project), 7.625% due 7/01/2034 1,761
NR* Ba2 2,000 Lehigh County, Pennsylvania, General Purpose Authority, Revenue
Refunding Bonds (Kidspeace Obligation Group), 6% due 11/01/2023 1,894
Montgomery County, Pennsylvania, Higher Education and Health
Authority, Revenue Refunding Bonds (Faulkeways at Gwynedd Project):
BBB+ NR* 900 6.75% due 11/15/2024 964
BBB+ NR* 925 6.75% due 11/15/2030 987
Philadelphia, Pennsylvania, Authority for IDR, AMT:
NR* Ba1 1,600 (Air Cargo), Series A, 7.50% due 1/01/2025 1,640
NR* NR* 4,460 Commercial Development, 7.75% due 12/01/2017 4,563
===================================================================================================================================
South Carolina--0.5% BBB- NR* 790 South Carolina Jobs, EDA Revenue Bonds (Myrtle Beach Convention
Center), Series A, 6.625% due 4/01/2036 803
===================================================================================================================================
Texas--12.4% BBB- Baa3 1,000 Austin, Texas, Convention Center Revenue Bonds (Convention
Enterprises Inc.), First Tier, Series A, 6.70% due 1/01/2028 1,067
A1+ VMIG1+ 600 Bell County, Texas, Health Facilities Development Corporation,
Hospital Revenue Bonds (Scott & White Memorial Hospital), VRDN,
Series B-2, 1% due 8/15/2029 (a)(c) 600
Brazos River Authority, Texas, PCR, Refunding, AMT:
BBB Baa2 2,530 (Texas Utility Company), Series A, 7.70% due 4/01/2033 2,828
BBB Baa2 2,870 (Utilities Electric Company), Series B, 5.05% due 6/01/2030 (a) 2,987
BBB- Ba1 1,220 Brazos River Authority, Texas, Revenue Refunding Bonds (Reliant
Energy Inc. Project), Series B, 7.75% due 12/01/2018 1,319
A A3 2,500 Brazos River, Texas, Harbor Navigation District, Brazoria County
Environmental Revenue Refunding Bonds (Dow Chemical Company
Project), AMT, Series A-7, 6.625% due 5/15/2033 2,663
CCC Caa2 840 Dallas-Fort Worth, Texas, International Airport Facility,
Improvement Corporation, Revenue Refunding Bonds (American
Airlines), AMT, Series A, 5.95% due 5/01/2029 758
BBB Baa2 2,185 Gulf Coast, Texas, Waste Disposal Authority, Revenue Refunding Bonds
(International Paper Company), AMT, Series A, 6.10% due 8/01/2024 2,257
A- A3 1,700 Lower Colorado River Authority, Texas, PCR (Samsung Austin
Semiconductor), AMT, 6.375% due 4/01/2027 1,812
BBB- Ba1 2,310 Matagorda County, Texas, Navigation District Number 1 Revenue
Refunding Bonds (Reliant Energy Inc.), Series C, 8% due 5/01/2029 2,506
BB- Ba3 1,330 Port Corpus Christi, Texas, Individual Development Corporation,
Environmental Facilities Revenue Bonds (Citgo Petroleum Corporation
Project), AMT, 8.25% due 11/01/2031 1,368
NR* Baa3 1,740 Texas State Student Housing Corporation, Student Housing Revenue
Bonds (MidWestern State University Project), 6.50% due 9/01/2022 1,743
===================================================================================================================================
8 & 9
Apex Municipal Fund, Inc., June 30, 2003
SCHEDULE OF INVESTMENTS (concluded) (in Thousands)
S&P Moody's Face
STATE Ratings++ Ratings++ Amount Municipal Bonds Value
===================================================================================================================================
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 $ 2,140
===================================================================================================================================
Virginia--6.3% NR* NR* 2,495 Dulles Town Center, Virginia, Community Development Authority,
Special Assessment Tax (Dulles Town Center Project), 6.25%
due 3/01/2026 2,515
NR* NR* 3,000 Pittsylvania County, Virginia, IDA, Revenue Refunding Bonds, Exempt
Facility, AMT, Series A, 7.50% due 1/01/2014 2,986
Pocahontas Parkway Association, Virginia, Toll Road Revenue Bonds:
NR* Ba1 6,200 First Tier, Sub-Series C, 6.25%** due 8/15/2033 161
NR* Ba1 6,200 First Tier, Sub-Series C, 6.25%** due 8/15/2034 142
BB NR* 32,600 Senior Series B, 5.875%** due 8/15/2025 5,279
===================================================================================================================================
Washington--1.2% NR* NR* 2,600 Port Seattle, Washington, Special Facilities Revenue Bonds
(Northwest Airlines Project), AMT, 7.25% due 4/01/2030 2,142
===================================================================================================================================
Wisconsin--0.8% NR* NR* 1,320 Wisconsin State Health and Educational Facilities Authority Revenue
Bonds (New Castle Place Project), Series A, 7% due 12/01/2031 1,333
===================================================================================================================================
Wyoming--0.9% BB+ Ba3 1,800 Sweetwater County, Wyoming, Solid Waste Disposal Revenue Bonds
(FMC Corporation Project), AMT, Series A, 7% due 6/01/2024 1,672
===================================================================================================================================
Virgin Islands--1.2% BBB- Baa3 2,100 Virgin Islands Government Refinery Facilities Revenue Bonds
(Hovensa Coker Project), AMT, 6.50% due 7/01/2021 2,144
===================================================================================================================================
Total Investments (Cost--$183,735)--98.4% 173,299
Other Assets Less Liabilities--1.6% 2,817
--------
Net Assets--100.0% $176,116
========
===================================================================================================================================
* Not Rated.
** Represents a zero coupon; 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 are unaudited.
(a) 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,
2003.
(b) Non-income producing security.
(c) MBIA Insured.
See Notes to Financial Statements.
STATEMENT OF ASSETS, LIABILITIES AND CAPITAL
As of June 30, 2003
================================================================================================================================
Assets: Investments, at value (identified cost--$183,735,042) ................ $ 173,298,806
Cash ................................................................. 39,368
Receivables:
Interest ........................................................... $ 2,956,743
Securities sold .................................................... 35,000 2,991,743
-------------
Prepaid expenses and other assets .................................... 8,703
-------------
Total assets ......................................................... 176,338,620
-------------
================================================================================================================================
Liabilities: Payables:
Dividends to shareholders .......................................... 90,583
Investment adviser ................................................. 90,518
Other affiliates ................................................... 973 182,074
-------------
Accrued expenses ..................................................... 40,788
-------------
Total liabilities .................................................... 222,862
-------------
================================================================================================================================
Net Assets: Net assets ........................................................... $ 176,115,758
=============
================================================================================================================================
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 ..................................... 207,015,404
Undistributed investment income--net ................................. $ 1,561,994
Accumulated realized capital losses on investments--net .............. (23,985,077)
Unrealized depreciation on investments--net .......................... (10,436,236)
-------------
Total accumulated losses--net ........................................ (32,859,319)
-------------
Total capital--Equivalent to $8.99 net asset value per share of Common
Stock (market price--$8.48) .......................................... $ 176,115,758
=============
================================================================================================================================
See Notes to Financial Statements.
10 & 11
Apex Municipal Fund, Inc., June 30, 2003
STATEMENT OF OPERATIONS
For the Year Ended June 30, 2003
================================================================================================================================
Investment Interest ............................................................. $ 12,961,060
Income: Dividends ............................................................ 13
-------------
Total income ......................................................... 12,961,073
-------------
================================================================================================================================
Expenses: Investment advisory fees ............................................. $ 1,129,390
Professional fees .................................................... 182,829
Accounting services .................................................. 67,518
Transfer agent fees .................................................. 46,501
Printing and shareholder reports ..................................... 39,127
Directors' fees and expenses ......................................... 34,402
Listing fees ......................................................... 28,965
Pricing fees ......................................................... 14,000
Custodian fees ....................................................... 10,833
Other ................................................................ 11,094
-------------
Total expenses before reimbursement .................................. 1,564,659
Reimbursement of expenses ............................................ (2)
-------------
Total expenses after reimbursement ................................... 1,564,657
-------------
Investment income--net ............................................... 11,396,416
-------------
================================================================================================================================
Realized & Realized loss on investments--net .................................... (1,270,071)
Unrealized Loss on Change in unrealized depreciation on investments--net ................ (4,173,234)
Investments--Net: -------------
Total realized and unrealized loss on investments--net ............... (5,443,305)
-------------
Net Increase in Net Assets Resulting from Operations ................. $ 5,953,111
=============
================================================================================================================================
See Notes to Financial Statements.
STATEMENTS OF CHANGES IN NET ASSETS
For the Year
Ended June 30,
------------------------------
Increase (Decrease) in Net Assets: 2003 2002
==============================================================================================================================
Operations: Investment income--net ............................................. $ 11,396,416 $ 11,278,629
Realized loss on investments--net .................................. (1,270,071) (4,092,274)
Change in unrealized depreciation on investments--net .............. (4,173,234) (225,283)
------------- -------------
Net increase in net assets resulting from operations ............... 5,953,111 6,961,072
------------- -------------
==============================================================================================================================
Dividends to Investment income--net ............................................. (10,930,489) (11,114,247)
Shareholders: ------------- -------------
Net decrease in net assets resulting from dividends to shareholders (10,930,489) (11,114,247)
------------- -------------
==============================================================================================================================
Net Assets: Total decrease in net assets ....................................... (4,977,378) (4,153,175)
Beginning of year .................................................. 181,093,136 185,246,311
------------- -------------
End of year* ....................................................... $ 176,115,758 $ 181,093,136
============= =============
==============================================================================================================================
* Undistributed investment income--net ............................... $ 1,561,994 $ 1,157,568
============= =============
==============================================================================================================================
See Notes to Financial Statements.
FINANCIAL HIGHLIGHTS
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: 2003 2002 2001 2000 1999
================================================================================================================================
Per Share Net asset value, beginning of year ....... $ 9.24 $ 9.45 $ 9.33 $ 10.37 $ 10.60
Operating --------- --------- --------- --------- ---------
Performance: Investment income--net ................... .58+ .58 .59 .66 .63
Realized and unrealized gain (loss) on
investments--net ......................... (.27) (.22) .13 (1.03) (.23)
--------- --------- --------- --------- ---------
Total from investment operations ......... .31 .36 .72 (.37) .40
--------- --------- --------- --------- ---------
Less dividends from investment income--net (.56) (.57) (.60) (.67) (.63)
--------- --------- --------- --------- ---------
Net asset value, end of year ............. $ 8.99 $ 9.24 $ 9.45 $ 9.33 $ 10.37
========= ========= ========= ========= =========
Market price per share, end of year ...... $ 8.48 $ 8.39 $ 9.10 $ 8.9375 $ 10.25
========= ========= ========= ========= =========
================================================================================================================================
Total Investment Based on market price per share .......... 8.18% (1.64%) 9.05% (6.22%) 3.68%
Return:* ========= ========= ========= ========= =========
Based on net asset value per share ....... 4.13% 4.31% 8.48% (3.23%) 3.90%
========= ========= ========= ========= =========
================================================================================================================================
Ratios to Average Expenses, net of reimbursement ........... .90% .87% .82% .81% .81%
Net Assets: ========= ========= ========= ========= =========
Expenses ................................. .90% .87% .82% .81% .81%
========= ========= ========= ========= =========
Investment income--net ................... 6.56% 6.19% 6.35% 6.71% 5.93%
========= ========= ========= ========= =========
================================================================================================================================
Supplemental Net assets, end of year (in thousands) ... $ 176,116 $ 181,093 $ 185,246 $ 182,879 $ 203,198
Data: ========= ========= ========= ========= =========
Portfolio turnover ....................... 24% 25% 17% 20% 40%
========= ========= ========= ========= =========
================================================================================================================================
* 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.
+ Based on average shares outstanding.
See Notes to Financial Statements.
12 & 13
Apex Municipal Fund, Inc., June 30, 2003
NOTES TO FINANCIAL STATEMENTS
1. Significant Accounting Policies:
Apex Municipal Fund, Inc. (the "Fund") is registered under the Investment
Company Act of 1940, as amended, 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. 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). The value of the agreement
is determined by quoted fair values received daily by the Fund from the
counterparty. 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 both to increase the return of the Fund and to hedge, or
protect, its exposure to interest rate movement and movements in the securities
markets. 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. 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.
o Forward interest rate swaps -- The Fund is authorized to enter into forward
interest rate swaps. In a forward interest rate swap, the Fund and the
counterparty agree to pay or receive interest on a specified notional contract
amount, commencing on a specified future effective date, unless terminated
earlier. When the agreement is closed, the Fund records a realized gain or loss
in an amount equal to the value of the agreement.
(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).
Realized gains and losses on security transactions are determined on the
identified cost basis. Interest income is recognized on the accrual basis. The
Fund amortizes all premiums and discounts on debt securities.
(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.
(f) Reclassification -- Accounting principles generally accepted in the United
States of America require that certain components of net assets be adjusted to
reflect permanent differences between financial and tax reporting. Accordingly,
the current year's permanent book/tax differences of $1,754,099 have been
reclassified between paid-in capital in excess of par and accumulated net
realized capital losses and $61,501 has been reclassified between undistributed
net investment income and accumulated net realized capital losses. These
reclassifications have no effect on net assets or net asset value per share.
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. For the year
ended June 30, 2003, FAM reimbursed the Fund in the amount of $2.
For the year ended June 30, 2003, the Fund reimbursed FAM $3,679 for certain
accounting services.
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, 2003 were $47,423,153 and $41,332,624, respectively.
Net realized losses for the year ended June 30, 2003 and net unrealized losses
as of June 30, 2003 were as follows:
--------------------------------------------------------------------------------
Realized Unrealized
Losses Losses
--------------------------------------------------------------------------------
Long-term investments .............. $ (1,270,071) $(10,436,236)
------------ ------------
Total .............................. $ (1,270,071) $(10,436,236)
============ ============
--------------------------------------------------------------------------------
As of June 30, 2003, net unrealized depreciation for Federal income tax purposes
aggregated $10,271,756, of which $7,130,873 related to appreciated securities
and $17,402,629 related to depreciated securities. The aggregate cost of
investments at June 30, 2003 for Federal income tax purposes was $183,570,562.
4. Common Stock Transactions:
At June 30, 2003, the Fund had one class of shares of Common Stock, par value
$.10 per share, of which 150,000,000
14 & 15
Apex Municipal Fund, Inc., June 30, 2003
NOTES TO FINANCIAL STATEMENTS (concluded)
shares were authorized. Shares issued and outstanding during the years ended
June 30, 2003 and June 30, 2002 remained constant.
5. Distributions to Shareholders:
The Fund paid a tax-exempt income dividend to holders of Common Stock in the
amount of $.047000 per share on July 30, 2003 to shareholders of record on July
17, 2003.
The tax character of distributions paid during the fiscal years ended June 30,
2003 and June 30, 2002 was as follows:
--------------------------------------------------------------------------------
6/30/2003 6/30/2002
--------------------------------------------------------------------------------
Distributions paid from:
Tax-exempt income .................... $10,930,489 $11,114,247
----------- -----------
Total distributions .................... $10,930,489 $11,114,247
=========== ===========
--------------------------------------------------------------------------------
As of June 30, 2003, the components of accumulated losses on a tax basis were as
follows:
-----------------------------------------------------------------------------
Undistributed tax-exempt income--net ..................... $ 1,397,514
Undistributed ordinary income ............................ 54,619
Undistributed long-term capital gains--net ............... --
------------
Total undistributed earnings--net ........................ 1,452,133
Capital loss carryforward ................................ (21,862,751)*
Unrealized losses--net ................................... (12,448,701)**
------------
Total accumulated losses--net ............................ $(32,859,319)
============
-----------------------------------------------------------------------------
* On June 30, 2003, the Fund had a net capital loss carryforward of
$21,862,751, of which $7,056,648 expires in 2004, $1,311,769 expires in
2005, $938,156 expires in 2006, $2,975,000 expires in 2008, $5,341,699
expires in 2009, $2,075,987 expires in 2010 and $2,163,492 expires in
2011. This amount will be available to offset like amounts of any future
taxable gains.
** The difference between book-basis and tax-basis net unrealized losses is
attributable primarily to the difference between book and tax amortization
methods for premiums and discounts on fixed income securities and the
deferral of post-October capital losses for tax purposes.
INDEPENDENT AUDITORS' REPORT
To the Shareholders and Board of Directors of
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, 2003, and the related statement of operations for the year then ended, the
statements of changes in net assets for each of the two years in the period then
ended, and the financial highlights for each of the five years in the period
then ended. These financial statements and financial highlights are the
responsibility of the Fund's management. Our responsibility is to express an
opinion on the financial statements and 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 as of June 30, 2003, 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, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of Apex
Municipal Fund, Inc. as of June 30, 2003, the results of its operations for the
year then ended, the changes in its net assets for each of the two years in the
period then ended, and its financial highlights for each of the five years in
the period then ended, in conformity with accounting principles generally
accepted in the United States of America.
Deloitte & Touche LLP
Princeton, New Jersey
August 8, 2003
16 & 17
Apex Municipal Fund, Inc., June 30, 2003
AUTOMATIC DIVIDEND REINVESTMENT PLAN
The following description of the Fund's Automatic Dividend Reinvestment Plan
(the "Plan") is sent to you annually as required by Federal securities laws.
Pursuant to the Fund's Plan, unless a holder of Common Stock otherwise elects,
all dividend and capital gains distributions will be automatically reinvested by
The Bank of New York (the "Plan Agent"), as agent for shareholders in
administering the Plan, in additional shares of Common Stock of the Fund.
Holders of Common Stock who elect not to participate in the Plan will receive
all distributions in cash paid by check mailed directly to the shareholder of
record (or, if the shares are held in street or other nominee name then to such
nominee) by The Bank of New York, as dividend paying agent. Such participants
may elect not to participate in the Plan and to receive all distributions of
dividends and capital gains in cash by sending written instructions to The Bank
of New York, as dividend paying agent, at the address set forth below.
Participation in the Plan is completely voluntary and may be terminated or
resumed at any time without penalty by written notice if received by the Plan
Agent not less than ten days prior to any dividend record date; otherwise such
termination will be effective with respect to any subsequently declared dividend
or distribution.
Whenever the Fund declares an income dividend or capital gains distribution
(collectively referred to as "dividends") payable either in shares or in cash,
non-participants in the Plan will receive cash and participants in the Plan will
receive the equivalent in shares of Common Stock. The shares will be acquired by
the Plan Agent for the participant's account, depending upon the circumstances
described below, either (i) through receipt of additional unissued but
authorized shares of Common Stock from the Fund ("newly issued shares") or (ii)
by purchase of outstanding shares of Common Stock on the open market
("open-market purchases") on the New York Stock Exchange or elsewhere. If on the
payment date for the dividend, the net asset value per share of the Common Stock
is equal to or less than the market price per share of the Common Stock plus
estimated brokerage commissions (such conditions being referred to herein as
"market premium"), the Plan Agent will invest the dividend amount in newly
issued shares on behalf of the participant. The number of newly issued shares of
Common Stock to be credited to the participant's account will be determined by
dividing the dollar amount of the dividend by the net asset value per share on
the date the shares are issued, provided that the maximum discount from the then
current market price per share on the date of issuance may not exceed 5%. If on
the dividend payment date the net asset value per share is greater than the
market value (such condition being referred to herein as "market discount"), the
Plan Agent will invest the dividend amount in shares acquired on behalf of the
participant in open-market purchases.
In the event of a market discount on the dividend payment date, the Plan Agent
will have until the last business day before the next date on which the shares
trade on an "ex-dividend" basis or in no event more than 30 days after the
dividend payment date (the "last purchase date") to invest the dividend amount
in shares acquired in open-market purchases. It is contemplated that the Fund
will pay monthly income dividends. Therefore, the period during which
open-market purchases can be made will exist only from the payment date on the
dividend through the date before the next "ex-dividend" date, which typically
will be approximately ten days. If, before the Plan Agent has completed its
open-market purchases, the market price of a share of Common Stock exceeds the
net asset value per share, the average per share purchase price paid by the Plan
Agent may exceed the net asset value of the Fund's shares, resulting in the
acquisitions of fewer shares than if the dividend had been paid in newly issued
shares on the dividend payment date. Because of the foregoing difficulty with
respect to open-market purchases, the Plan provides that if the Plan Agent is
unable to invest the full dividend amount in open-market purchases during the
purchase period or if the market discount shifts to a market premium during the
purchase period, the Plan Agent will cease making open-market purchases and will
invest the uninvested portion of the dividend amount in newly issued shares at
the close of business on the last purchase date determined by dividing the
uninvested portion of the dividend by the net asset value per share.
The Plan Agent maintains all shareholders' accounts in the Plan and furnishes
written confirmation of all transactions in the account, including information
needed by shareholders for tax records. Shares in the account of each Plan
participant will be held by the Plan Agent in non-certificated form in the name
of the participant, and each shareholder's proxy will include those shares
purchased or received pursuant to the Plan. The Plan Agent will forward all
proxy solicitation materials to participants and vote proxies for shares held
pursuant to the Plan in accordance with the instructions of the participants.
In the case of shareholders such as banks, brokers or nominees which hold shares
of others who are the beneficial owners, the Plan Agent will administer the Plan
on the basis of the number of shares certified from time to time by the record
shareholders as representing the total amount registered in the record
shareholder's name and held for the account of beneficial owners who are to
participate in the Plan.
There will be no brokerage charges with respect to shares issued directly by the
Fund as a result of dividends or capital gains distributions payable either in
shares or in cash. However, each participant will pay a pro rata share of
brokerage commissions incurred with respect to the Plan Agent's open-market
purchases in connection with the reinvestment of dividends.
The automatic reinvestment of dividends and distributions will not relieve
participants of any Federal, state or local income tax that may be payable (or
required to be withheld) on such dividends.
Shareholders participating in the Plan may receive benefits not available to
shareholders not participating in the Plan. If the market price plus commissions
of the Fund's shares is above the net asset value, participants in the Plan will
receive shares of the Fund at less than they could otherwise purchase them and
will have shares with a cash value greater than the value of any cash
distribution they would have received on their shares. If the market price plus
commissions is below the net asset value, participants will receive
distributions in shares with a net asset value greater than the value of any
cash distribution they would have received on their shares. However, there may
be insufficient shares available in the market to make distributions in shares
at prices below the net asset value. Also, since the Fund does not redeem
shares, the price on resale may be more or less than the net asset value.
The value of shares acquired pursuant to the Plan will generally be excluded
from gross income to the extent that the cash amount reinvested would be
excluded from gross income. If, when the Fund's shares are trading at a premium
over net asset value, the Fund issues shares pursuant to the Plan that have a
greater fair market value than the amount of cash reinvested, it is possible
that all or a portion of such discount (which may not exceed 5% of the fair
market value of the Fund's shares) could be viewed as a taxable distribution. If
the discount is viewed as a taxable distribution, it is also possible that the
taxable character of this discount would be allocable to all the shareholders,
including shareholders who do not participate in the Plan. Thus, shareholders
who do not participate in the Plan might be required to report as ordinary
income a portion of their distributions equal to their allocable share of the
discount.
Experience under the Plan may indicate that changes are desirable. Accordingly,
the Fund reserves the right to amend or terminate the Plan. There is no direct
service charge to participants in the Plan; however, the Fund reserves the right
to amend the Plan to include a service charge payable by the participants.
All correspondence concerning the Plan should be directed to the Plan Agent at
The Bank of New York, Church Street Station, P.O. Box 11258, New York, NY
10286-1258, Telephone: 800-432-8224.
18 & 19
Apex Municipal Fund, Inc., June 30, 2003
IMPORTANT TAX INFORMATION (unaudited)
All of the net investment income distributions paid monthly by Apex Municipal
Fund, Inc. during its taxable year ended June 30, 2003 qualify as tax-exempt
interest dividends for Federal income tax purposes.
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
Number of Other
Portfolios in Public
Position(s) Length Fund Complex Directorships
Held of Time Overseen by Held by
Name Address & Age with Fund Served Principal Occupation(s) During Past 5 Years Director Director
====================================================================================================================================
Interested Director
====================================================================================================================================
Terry K. P.O. Box 9011 President 1999 to President and Chairman of Merrill Lynch Invest- 114 Funds None
Glenn* Princeton, NJ and present ment Managers, L.P. ("MLIM")/Fund Asset 159 Portfolios
08543-9011 Director and Management, L.P. ("FAM")--Advised Funds since
Age: 62 1989 to 1999; Chairman (Americas Region) of MLIM from
present 2000 to 2002; Executive Vice President of MLIM
and FAM (which terms as used herein include
their corporate predecessors) from 1983 to 2002;
President of FAM Distributors, Inc. ("FAMD") from
1986 to 2002 and Director thereof from 1991 to
2002; Executive Vice President and Director of
Princeton Services, Inc. ("Princeton Services")
from 1993 to 2002; President of Princeton
Administrators, L.P. from 1989 to 2002; Director of
Financial Data Services, Inc. from 1985 to 2002.
========================================================================================================================
* Mr. Glenn is a director, trustee or member of an advisory board of certain other investment companies for which FAM or
MLIM acts as investment adviser. Mr. Glenn is an "interested person," as described in the Investment Company Act, of
the Fund based on his former positions with MLIM, FAM, FAMD, Princeton Services, and Princeton Administrators, L.P.
The Director's term is unlimited. Directors serve until their resignation, removal, or death, or until December 31 of
the year in which they turn 72. As Fund President, Mr. Glenn serves at the pleasure of the Board of Directors.
====================================================================================================================================
20 & 21
Apex Municipal Fund, Inc., June 30, 2003
OFFICERS AND DIRECTORS (concluded)
Number of Other
Portfolios in Public
Position(s) Length Fund Complex Directorships
Held of Time Overseen by Held by
Name Address & Age with Fund Served* Principal Occupation(s) During Past 5 Years Director Director
====================================================================================================================================
Independent Directors
====================================================================================================================================
James H. P.O. Box 9095 Director 2002 to Director and Executive Vice President, The China 40 Funds None
Bodurtha Princeton, NJ present Business Group, Inc. since 1995; Chairman, 59 Portfolios
08543-9095 Berkshire Holding Corporation since 1982.
Age: 59
====================================================================================================================================
Joe Grills P.O. Box 9095 Director 1994 to Member of the Committee of Investment of 40 Funds Kimco
Princeton, NJ present Employee Benefit Assets of the Association of 59 Portfolios Realty
08543-9095 Financial Professionals ("CIEBA") since 1986 and Corporation
Age: 68 its Chairman from 1991 to 1992; Member of the
Investment Advisory Committees of the State of
New York Common Retirement Fund since 1989;
Member of the Investment Advisory Committee of
the Howard Hughes Medical Institute from 1997 to
2000; Director, Duke Management Company since
1992 and Vice Chairman thereof since 1998;
Director, LaSalle Street Fund from 1995 to 2001;
Director, Kimco Realty Corporation since 1997;
Member of the Investment Advisory Committee of
the Virginia Retirement System since 1998 and Vice
Chairman thereof since 2002; Director, Montpelier
Foundation since 1998 and Vice Chairman thereof
since 2000; Member of the Investment Committee
of the Woodberry Forest School since 2000; Member
of the Investment Committee of the National Trust
for Historic Preservation since 2000.
====================================================================================================================================
Herbert I. P.O. Box 9095 Director 2002 to John M. Olin Professor of Humanities, New York 40 Funds None
London Princeton, NJ present University since 1993 and Professor thereof since 59 Portfolios
08543-9095 1980; President of Hudson Institute since 1997 and
Age: 64 Trustee thereof since 1980.
====================================================================================================================================
Andre F. P.O. Box 9095 Director 2002 to George Gund Professor of Finance and Banking, 40 Funds None
Perold Princeton, NJ present Harvard Business School since 2000 and a member 59 Portfolios
08543-9095 of the faculty since 1979; Director and Chairman
Age: 51 of the Board, UNX, Inc. since 2003; Director,
Stockback.com from 2002 to 2002; Director, Sanlam
Limited and Sanlam Life since 2001; Director,
Genbel Securities and Gensec Bank since 1999;
Director, Bulldogresearch.com from 2000 to 2001;
Director, Sanlam Investment Management from
1999 to 2001; Director, Quantec Limited from 1991
to 1999.
====================================================================================================================================
Roberta P.O. Box 9095 Director 2002 to Shareholder, Modrall, Sperling, Roehl, Harris & 40 Funds None
Cooper Ramo Princeton, NJ present Sisk, P.A. since 1993; Director of Cooper's, Inc. 59 Portfolios
08543-9095 since 1999 and Chairman of the Board since 2000;
Age: 60 Director of ECMC, Inc. since 2001.
====================================================================================================================================
Robert S. P.O. Box 9095 Director 1996 to Principal of STI Management since 1994; Trustee 40 Funds None
Salomon, Jr. Princeton, NJ present of Commonfund from 1980 to 2001; Director of Rye 59 Portfolios
08543-9095 Country Day School since 2001.
Age: 66
====================================================================================================================================
Stephen B. P.O. Box 9095 Director 1989 to Chairman, Fernwood Advisors (investment adviser) 40 Funds None
Swensrud Princeton, NJ present since 1996; Principal of Fernwood Associates 59 Portfolios
08543-9095 (financial consultant) since 1975; Chairman of RPP
Age: 70 Corporation since 1978; Director, International
Mobile Communications, Inc. since 1998.
========================================================================================================================
* The Director's term is unlimited. Directors serve until their resignation, removal or death, or until December 31 of
the year in which they turn 72.
====================================================================================================================================
Position(s) Length
Held of Time
Name Address & Age with Fund Served* Principal Occupation(s) During Past 5 Years
====================================================================================================================================
Fund Officers
====================================================================================================================================
Donald C. P.O. Box 9011 Vice 1993 to First Vice President of FAM and MLIM since 1997 and Treasurer thereof since
Burke Princeton, NJ President present 1999; Senior Vice President and Treasurer of Princeton Services since 1999;
08543-9011 and and Vice President of FAMD since 1999; Director of MLIM Taxation since 1990.
Age: 43 Treasurer 1999 to
present
====================================================================================================================================
Kenneth A. P.O. Box 9011 Senior 2002 to Managing Director of MLIM since 2000 and Director (Municipal Tax-Exempt
Jacob Princeton, NJ Vice present Fund Management) of MLIM from 1997 to 2000.
08543-9011 President
Age: 52
====================================================================================================================================
John M. P.O. Box 9011 Senior 2002 to Managing Director of MLIM since 2000 and Director (Municipal Tax-Exempt
Loffredo Princeton, NJ Vice present Fund Management) of MLIM from 1998 to 2000.
08543-9011 President
Age: 39
====================================================================================================================================
Theodore R. P.O. Box 9011 Vice 1997 to Director (Municipal Tax-Exempt Fund Management) of MLIM since 2000;
Jaeckel Jr. Princeton, NJ President present Vice President of MLIM from 1994 to 2000.
08543-9011
Age: 43
====================================================================================================================================
Brian D. P.O. Box 9011 Secretary 2003 to Vice President of MLIM since 2002; Attorney with Reed Smith from 2001 to
Stewart Princeton, NJ present 2002; Attorney with Saul Ewing from 1999 to 2001.
08543-9011
Age: 34
========================================================================================================================
* Officers of the Fund serve at the pleasure of the Board of Directors.
====================================================================================================================================
Custodian
The Bank of New York
100 Church Street
New York, NY 10286
Transfer Agent
The Bank of New York
101 Barclay Street
New York, NY 10286
NYSE Symbol
APX
22 & 23
[LOGO] Merrill Lynch Investment Managers
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.
A description of the policies and procedures that the Fund uses to determine how
to vote proxies relating to portfolio securities is available (1) without
charge, upon request, by calling toll-free 1-800-MER-FUND (1-800-637-3863); (2)
on www.mutualfunds.ml.com; and (3) on the Securities and Exchange Commission's
website at http://www.sec.gov.
Apex Municipal Fund, Inc.
Box 9011
Princeton, NJ
08543-9011
[RECYCLED LOGO] Printed on post-consumer recycled paper #10955--6/03
Item 2 - Did registrant adopt a code of ethics, as of the end of the period
covered by this report, that applies to the registrant's principal
executive officer, principal financial officer, principal accounting
officer or controller, or persons performing similar functions,
regardless of whether these individuals are employed by the registrant
or a third party? If not, why not? Briefly describe any amendments or
waivers that occurred during the period. State here if code of
ethics/amendments/waivers are on website and give website address-.
State here if fund will send code of ethics to shareholders without
charge upon request-- N/A (annual requirement only and not required to
be answered until the registrant's fiscal year-end on or after July 15,
2003)
Item 3 - Did the registrant's board of directors determine that the registrant
either: (i) has at least one audit committee financial expert serving
on its audit committee; or (ii) does not have an audit committee
financial expert serving on its audit committee? If yes, disclose name
of financial expert and whether he/she is "independent," (fund may, but
is not required, to disclose name/independence of more than one
financial expert) If no, explain why not. -N/A (annual requirement only
and not required to be answered until the registrant's fiscal year-end
on or after July 15, 2003)
Item 4 - Disclose annually only (not answered until December 15, 2003)
(a) Audit Fees - Disclose aggregate fees billed for each of the last
two fiscal years for professional services rendered by
the principal accountant for the audit of the
registrant's annual financial statements or services
that are normally provided by the accountant in
connection with statutory and regulatory filings or
engagements for those fiscal years. N/A.
(b) Audit-Related Fees - Disclose aggregate fees billed in each of the
last two fiscal years for assurance and
related services by the principal accountant
that are reasonably related to the performance
of the audit of the registrant's financial
statements and are not reported under
paragraph (a) of this Item. Registrants shall
describe the nature of the services comprising
the fees disclosed under this category. N/A.
(c) Tax Fees - Disclose aggregate fees billed in each of the last two
fiscal years for professional services rendered by the
principal accountant for tax compliance, tax advice, and
tax planning. Registrants shall describe the nature of
the services comprising the fees disclosed under this
category. N/A.
(d) All Other Fees - Disclose aggregate fees billed in each of the last
two fiscal years for products and services
provided by the principal accountant, other than
the services reported in paragraphs (a) through
(c) of this Item. Registrants shall describe the
nature of the services comprising the fees
disclosed under this category. N/A.
(e)(1) Disclose the audit committee's pre-approval policies and
procedures described in paragraph (c)(7) of Rule 2-01 of
Regulation S-X. N/A.
(e)(2) Disclose the percentage of services described in each of
paragraphs (b) through (d) of this Item that were approved by
the audit committee pursuant to paragraph (c)(7)(i)(C) of Rule
2-01 of Regulation S-X. N/A.
(f) If greater than 50%, disclose the percentage of hours expended on
the principal accountant's engagement to audit the registrant's
financial statements for the most recent fiscal year that were
attributed to work performed by persons other than the principal
accountant's full-time, permanent employees. N/A.
(g) Disclose the aggregate non-audit fees billed by the registrant's
accountant for services rendered to the registrant, and rendered to
the registrant's investment adviser (not including any sub-adviser
whose role is primarily portfolio management and is subcontracted
with or overseen by another investment adviser), and any entity
controlling, controlled by, or under common control with the
adviser that provides ongoing services to the registrant for each
of the last two fiscal years of the registrant. N/A.
(h) Disclose whether the registrant's audit committee has considered
whether the provision of non-audit services that were rendered to
the registrant's investment adviser (not including any subadviser
whose role is primarily portfolio management and is subcontracted
with or overseen by another investment adviser), and any entity
controlling, controlled by, or under common control with the
investment adviser that provides ongoing services to the registrant
that were not pre-approved pursuant to paragraph (c)(7)(ii) of Rule
2-01 of Regulation S-X is compatible with maintaining the principal
accountant's independence. N/A.
Item 5 - If the registrant is a listed issuer as defined in Rule 10A-3 under the
Exchange Act, state whether or not the registrant has a
separately-designated standing audit committee established in
accordance with Section 3(a)(58)(A) of the Exchange Act. If the
registrant has such a committee, however designated, identify each
committee member. If the entire board of directors is acting as the
registrant's audit committee in Section 3(a)(58)(B) of the Exchange
Act, so state.
If applicable, provide the disclosure required by Rule 10A-3(d) under
the Exchange Act regarding an exemption from the listing standards for
audit committees. N/A
(Listed issuers must be in compliance with the new listing rules by the
earlier of their first annual shareholders meeting after January 2004,
or October 31, 2004 (annual requirement))
Item 6 - Reserved
Item 7 - For closed-end funds that contain voting securities in their portfolio,
describe the policies and procedures that it uses to determine how to
vote proxies relating to those portfolio securities.
Proxy Voting Policies and Procedures
Each Fund's Board of Directors/Trustees has delegated to Merrill Lynch
Investment Managers, L.P. and/or Fund Asset Management, L.P. (the
"Investment Adviser") authority to vote all proxies relating to the
Fund's portfolio securities. The Investment Adviser has adopted
policies and procedures ("Proxy Voting Procedures") with respect to the
voting of proxies related to the portfolio securities held in the
account of one or more of its clients, including a Fund. Pursuant to
these Proxy Voting Procedures, the Investment Adviser's primary
objective when voting proxies is to make proxy voting decisions solely
in the best interests of each Fund and its shareholders, and to act in
a manner that the Investment Adviser believes is most likely to enhance
the economic value of the securities held by the Fund. The Proxy Voting
Procedures are designed to ensure that that the Investment Adviser
considers the interests of its clients, including the Funds, and not
the interests of the Investment Adviser, when voting proxies and that
real (or perceived) material conflicts that may arise between the
Investment Adviser's interest and those of the Investment Adviser's
clients are properly addressed and resolved.
In order to implement the Proxy Voting Procedures, the Investment
Adviser has formed a Proxy Voting Committee (the "Committee"). The
Committee is comprised of the Investment Adviser's Chief Investment
Officer (the "CIO"), one or more other senior investment professionals
appointed by the CIO, portfolio managers and investment analysts
appointed by the CIO and any other personnel the CIO deems appropriate.
The Committee will also include two non-voting representatives from the
Investment Adviser's Legal department appointed by the Investment
Adviser's General Counsel. The Committee's membership shall be limited
to full-time employees of the Investment Adviser. No person with any
investment banking, trading, retail brokerage or research
responsibilities for the Investment Adviser's affiliates may serve as a
member of the Committee or participate in its decision making (except
to the extent such person is asked by the Committee to present
information to the Committee, on the same basis as other interested
knowledgeable parties not affiliated with the Investment Adviser might
be asked to do so). The Committee determines how to vote the proxies of
all clients, including a Fund, that have delegated proxy voting
authority to the Investment Adviser and seeks to ensure that all votes
are consistent with the best interests of those clients and are free
from unwarranted and inappropriate influences. The Committee
establishes general proxy voting policies for the Investment Adviser
and is responsible for determining how those policies are applied to
specific proxy votes, in light of each issuer's unique structure,
management, strategic options and, in certain circumstances, probable
economic and other anticipated consequences of alternate actions. In so
doing, the Committee may determine to vote a particular proxy in a
manner contrary to its generally stated policies. In addition, the
Committee will be responsible for ensuring that all reporting and
recordkeeping requirements related to proxy voting are fulfilled.
The Committee may determine that the subject matter of a recurring proxy
issue is not suitable for general voting policies and requires a
case-by-case determination. In such cases, the Committee may elect not
to adopt a specific voting policy applicable to that issue. The
Investment Adviser believes that certain proxy voting issues require
investment analysis - such as approval of mergers and other significant
corporate transactions - akin to investment decisions, and are,
therefore, not suitable for general guidelines. The Committee may elect
to adopt a common position for the Investment Adviser on certain proxy
votes that are akin to investment decisions, or determine to permit the
portfolio manager to make individual decisions on how best to maximize
economic value for a Fund (similar to normal buy/sell investment
decisions made by such portfolio managers). While it is expected that
the Investment Adviser will generally seek to vote proxies over which
the Investment Adviser exercises voting authority in a uniform manner
for all the Investment Adviser's clients, the Committee, in conjunction
with a Fund's portfolio manager, may determine that the Fund's specific
circumstances require that its proxies be voted differently.
To assist the Investment Adviser in voting proxies, the Committee has
retained Institutional Shareholder Services ("ISS"). ISS is an
independent adviser that specializes in providing a variety of
fiduciary-level proxy-related services to institutional investment
managers, plan sponsors, custodians, consultants, and other
institutional investors. The services provided to the Investment Adviser
by ISS include in-depth research, voting recommendations (although the
Investment Adviser is not obligated to follow such recommendations),
vote execution, and recordkeeping. ISS will also assist the Fund in
fulfilling its reporting and recordkeeping obligations under the
Investment Company Act.
The Investment Adviser's Proxy Voting Procedures also address special
circumstances that can arise in connection with proxy voting. For
instance, under the Proxy Voting Procedures, the Investment Adviser
generally will not seek to vote proxies related to portfolio securities
that are on loan, although it may do so under certain circumstances. In
addition, the Investment Adviser will vote proxies related to securities
of foreign issuers only on a best efforts basis and may elect not to
vote at all in certain countries where the Committee determines that the
costs associated with voting generally outweigh the benefits. The
Committee may at any time override these general policies if it
determines that such action is in the best interests of a Fund.
From time to time, the Investment Adviser may be required to vote
proxies in respect of an issuer where an affiliate of the Investment
Adviser (each, an "Affiliate"), or a money management or other client of
the Investment Adviser (each, a "Client") is involved. The Proxy Voting
Procedures and the Investment Adviser's adherence to those procedures
are designed to address such conflicts of interest. The Committee
intends to strictly adhere to the Proxy Voting Procedures in all proxy
matters, including matters involving Affiliates and Clients. If,
however, an issue representing a non-routine matter that is material to
an Affiliate or a widely known Client is involved such that the
Committee does not reasonably believe it is able to follow its
guidelines (or if the particular proxy matter is not addressed by the
guidelines) and vote impartially, the Committee may, in its discretion
for the purposes of ensuring that an independent determination is
reached, retain an independent fiduciary to advise the Committee on how
to vote or to cast votes on behalf of the Investment Adviser's clients.
In the event that the Committee determines not to retain an independent
fiduciary, or it does not follow the advice of such an independent
fiduciary, the powers of the Committee shall pass to a subcommittee,
appointed by the CIO (with advice from the Secretary of the Committee),
consisting solely of Committee members selected by the CIO. The CIO
shall appoint to the subcommittee, where appropriate, only persons whose
job responsibilities do not include contact with the Client and whose
job evaluations would not be affected by the Investment Adviser's
relationship with the Client (or failure to retain such relationship).
The subcommittee shall determine whether and how to vote all proxies on
behalf of the Investment Adviser's clients or, if the proxy matter is,
in their judgment, akin to an investment decision, to defer to the
applicable portfolio managers, provided that, if the subcommittee
determines to alter the Investment Adviser's normal voting guidelines
or, on matters where the Investment Adviser's policy is case-by-case,
does not follow the voting recommendation of any proxy voting service or
other independent fiduciary that may be retained to provide research or
advice to the Investment Adviser on that matter, no proxies relating to
the Client may be voted unless the Secretary, or in the Secretary's
absence, the Assistant Secretary of the Committee concurs that the
subcommittee's determination is consistent with the Investment Adviser's
fiduciary duties.
In addition to the general principles outlined above, the Investment
Adviser has adopted voting guidelines with respect to certain recurring
proxy issues that are not expected to involve unusual circumstances.
These policies are guidelines only, and the Investment Adviser may elect
to vote differently from the recommendation set forth in a voting
guideline if the Committee determines that it is in a Fund's best
interest to do so. In addition, the guidelines may be reviewed at any
time upon the request of a Committee member and may be amended or
deleted upon the vote of a majority of Committee members present at a
Committee meeting at which there is a quorum.
The Investment Adviser has adopted specific voting guidelines with
respect to the following proxy issues:
o Proposals related to the composition of the Board of Directors of issuers
other than investment companies. As a general matter, the Committee
believes that a company's Board of Directors (rather than shareholders) is
most likely to have access to important, nonpublic information regarding a
company's business and prospects, and is therefore best-positioned to set
corporate policy and oversee management. The Committee, therefore,
believes that the foundation of good corporate governance is the election
of qualified, independent corporate directors who are likely to diligently
represent the interests of shareholders and oversee management of the
corporation in a manner that will seek to maximize shareholder value over
time. In individual cases, the Committee may look at a nominee's history
of representing shareholder interests as a director of other companies or
other factors, to the extent the Committee deems relevant.
o Proposals related to the selection of an issuer's independent auditors. As
a general matter, the Committee believes that corporate auditors have a
responsibility to represent the interests of shareholders and provide an
independent view on the propriety of financial reporting decisions of
corporate management. While the Committee will generally defer to a
corporation's choice of auditor, in individual cases, the Committee may
look at an auditors' history of representing shareholder interests as
auditor of other companies, to the extent the Committee deems relevant.
o Proposals related to management compensation and employee benefits. As a
general matter, the Committee favors disclosure of an issuer's
compensation and benefit policies and opposes excessive compensation, but
believes that compensation matters are normally best determined by an
issuer's board of directors, rather than shareholders. Proposals to
"micro-manage" an issuer's compensation practices or to set arbitrary
restrictions on compensation or benefits will, therefore, generally not be
supported.
o Proposals related to requests, principally from management, for approval
of amendments that would alter an issuer's capital structure. As a general
matter, the Committee will support requests that enhance the rights of
common shareholders and oppose requests that appear to be unreasonably
dilutive.
o Proposals related to requests for approval of amendments to an issuer's
charter or by-laws. As a general matter, the Committee opposes poison pill
provisions.
o Routine proposals related to requests regarding the formalities of
corporate meetings.
o Proposals related to proxy issues associated solely with holdings of
investment company shares. As with other types of companies, the Committee
believes that a fund's Board of Directors (rather than its shareholders)
is best-positioned to set fund policy and oversee management. However, the
Committee opposes granting Boards of Directors authority over certain
matters, such as changes to a fund's investment objective, that the
Investment Company Act envisions will be approved directly by
shareholders.
o Proposals related to limiting corporate conduct in some manner that
relates to the shareholder's environmental or social concerns. The
Committee generally believes that annual shareholder meetings are
inappropriate forums for discussion of larger social issues, and opposes
shareholder resolutions "micromanaging" corporate conduct or requesting
release of information that would not help a shareholder evaluate an
investment in the corporation as an economic matter. While the Committee
is generally supportive of proposals to require corporate disclosure of
matters that seem relevant and material to the economic interests of
shareholders, the Committee is generally not supportive of proposals to
require disclosure of corporate matters for other purposes.
Item 8 -- Reserved
Item 9(a) - The registrant's certifying officers have reasonably designed such
disclosure controls and procedures to ensure material information
relating to the registrant is made known to us by others
particularly during the period in which this report is being
prepared. The registrant's certifying officers have determined that
the registrant's disclosure controls and procedures are effective
based on our evaluation of these controls and procedures as of a
date within 90 days prior to the filing date of this report.
Item 9(b) -- There were no significant changes in the registrant's internal
controls or in other factors that could significantly affect these
controls subsequent to the date of their evaluation, including any
corrective actions with regard to significant deficiencies and
material weaknesses.
Item 10 - Exhibits
10(a) - Attach code of ethics or amendments/waivers, unless code of ethics or
amendments/waivers is on website or offered to shareholders upon request
without charge. N/A.
10(b) - Attach certifications pursuant to Section 302 of the Sarbanes-Oxley Act.
Attached hereto.
Pursuant to the requirements of the Securities Exchange Act of 1934 and
the Investment Company Act of 1940, the registrant has duly caused this
report to be signed on its behalf by the undersigned, thereunto duly
authorized.
Apex Municipal Fund, Inc.
By: /s/ Terry K. Glenn
-------------------------
Terry K. Glenn,
President of
Apex Municipal Fund, Inc.
Date: August 21, 2003
Pursuant to the requirements of the Securities Exchange Act of 1934 and
the Investment Company Act of 1940, this report has been signed below by
the following persons on behalf of the registrant and in the capacities
and on the dates indicated.
By: /s/ Terry K. Glenn
-------------------------
Terry K. Glenn,
President of
Apex Municipal Fund, Inc.
Date: August 21, 2003
By: /s/ Donald C. Burke
-------------------------
Donald C. Burke,
Chief Financial Officer of
Apex Municipal Fund, Inc.
Date: August 21, 2003
Attached hereto as a furnished exhibit are the certifications pursuant
to Section 906 of the Sarbanes-Oxley Act.