[LOGO] Merrill Lynch Investment Managers
Annual Report
June 30, 2002
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.
Proxy Results
During the six-month period ended June 30, 2002, Apex Municipal Fund, Inc.'s
shareholders voted on the following proposal. The proposal was approved at a
shareholders' meeting on April 8, 2002. 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 Board of Directors as follows: Class I:
Terry K. Glenn 17,553,638 507,551
Roberta Cooper Ramo 17,516,061 545,128
Class II:
James H. Bodurtha 17,509,631 551,558
Herbert I. London 17,503,519 557,670
Stephen B. Swensrud 17,501,424 559,765
Class III:
Andre F. Perold 17,505,259 555,930
Melvin R. Seiden 17,499,296 561,893
-------------------------------------------------------------------------------------------------------------
Apex Municipal Fund, Inc., June 30, 2002
DEAR SHAREHOLDER
For the year ended June 30, 2002, Apex Municipal Fund, Inc. earned $0.562 per
share income dividends, which included earned and unpaid dividends of $0.044.
This represents a net annualized yield of 6.08%, based on a year-end net asset
value of $9.24 per share. Over the same period, the Fund's total investment
return was +4.31%, based on a change in per share net asset value from $9.45 to
$9.24 and assuming reinvestment of $0.567 per share income dividends. For the
six-month period ended June 30, 2002, the Fund's total investment return was
+4.56%, based on a change in per share net asset value from $9.13 to $9.24, and
assuming reinvestment of $0.280 per share income dividends.
The Municipal Market Environment
During the six months ended June 30, 2002, the direction of long-term fixed
income interest rates was driven as much by volatile U.S. equity markets and
continued worldwide political tensions as by economic fundamentals. In early
2002, economic indicators were mixed, signaling some strength in consumer
spending and housing-related industries but with continued declines in
manufacturing employment. Interest rates remained in a narrow but volatile range
as weak U.S. equity markets generally supported fixed income products. By the
end of January 2002, the Federal Reserve Board ended its series of short-term
interest rate reductions by maintaining its overnight rate target at 1.75%, a
40-year low. The Federal Reserve Board noted that while U.S. economic activity
was beginning to strengthen, earlier weakness could easily resume should
consumer spending falter. In recent months, however, the index of leading
economic indicators has generally risen, suggesting that economic activity is
likely to expand later this year. In its final revision, fourth quarter U.S.
gross domestic product growth was revised higher to 1.7%, signaling improving
economic conditions relative to earlier in 2001. By the end of February 2002,
long-term U.S. Treasury bond yields stood at 5.42%.
In early March, a number of economic indicators, including surging existing home
sales, solid consumer spending and positive nonfarm payroll growth following
several months of job losses, suggested U.S. economic activity was continuing to
strengthen. Also, in Congressional testimony, Federal Reserve Board Chairman
Alan Greenspan was cautiously optimistic regarding future U.S. economic growth
noting, while any increase in activity was likely to be moderate, "an economic
expansion (was) well underway." These factors combined to push U.S. equity
prices higher and bond prices sharply lower in expectation of a reversal of the
Federal Reserve Board actions taken during the past 15 months. By the end of
March 2002, long-term U.S. Treasury bond yields stood at 5.80%, their highest
level in more than 18 months.
During the past few months, however, bond yields reversed their course to move
sharply lower. First quarter 2002 gross domestic product activity was recently
finalized at 6.1%, considerably above the level of economic growth seen in late
2001. A number of economic indicators, such as housing activity, consumer
spending and recent employment trends have pointed to, at least, a moderate
economic recovery for the remainder of 2002. Steady, dramatic declines in U.S.
equity markets have led the majority of investors to conclude that the Federal
Reserve Board is now unlikely to raise short-term interest rates for the
remainder of 2002. U.S. Treasury issue prices were also boosted by erupting
Middle East and India/Pakistan conflicts that led many international investors
to seek the safe haven of U.S. Treasury securities. By the end of June 2002,
long-term U.S. Treasury bond yields had declined to 5.50%. Over the last six
months, long-term U.S. Treasury bond yields rose approximately 5 basis points
(0.05%).
Municipal bond prices displayed a pattern similar to their taxable counterparts
during the six-month period ended June 30, 2002. In early 2002, tax-exempt bond
yields traded in a relatively narrow range as an increasingly positive technical
position supported existing municipal bond prices. In March, however, increased
economic activity and associated concerns regarding near-term Federal Reserve
Board actions also pushed tax-exempt bond prices lower. By late March, long-term
municipal revenue bond yields, as measured by the Bond Buyer Revenue Bond Index,
rose to 5.67%, their highest level in more than a year. During the last three
months, tax-exempt bond yields generally declined largely in response to the
positive fixed income environment engendered by falling equity valuations. The
municipal bond market's recent price advances also have been bolstered by the
continued improvement in the tax-exempt market's technical position. Despite
sizable advances in the rate of new municipal bond issuance, investor demand has
increased in recent months, allowing tax-exempt bond prices to rise. For the
six-month period ended June 30, 2002, long-term municipal revenue bond yields
stood at 5.41%, a decline of almost 20 basis points.
Solid investment demand during the past six months has allowed the tax-exempt
market to outperform its taxable counterpart in recent months. Reports stated
that thus far in 2002 municipal bond fund net cash flows remained very strong
exceeding $5.9 billion, up more than 40% compared to the same period in 2001.
Additionally, in January and February 2002, investors received almost $50
billion in investment proceeds from coupon income, bond maturities and early
redemptions. Given the recent weakness in U.S. equity markets, much of this
money was likely reinvested in tax-exempt products. Perhaps, more importantly,
short-term municipal interest rates continued to move lower in response to
Federal Reserve Board actions. In reaction to the Federal Reserve Board interest
rate reductions, short-term municipal interest rates declined to the 1% - 1.5%
range. As interest rates declined, investors extended maturities to take
advantage of the steep municipal bond yield curve. Also, analysts forecast that
investors will receive approximately an additional $75 billion during June --
August 2002 from bond maturities, proceeds from early bond redemptions and
coupon income. Given the lack of strong investment alternatives, it is likely
that this money will continue to support the municipal bond market's currently
strong technical environment.
Interest rates are likely to remain near current levels as U.S. economic
conditions are expected to remain relatively weak. However, going forward,
business activity is likely to accelerate, perhaps significantly. Federal aid
packages in response to the September 11, 2001 attacks in New York City and
Washington, DC were sizable. Airline assistance packages, involving Federal
grants and loan guarantees, also were substantial and are likely to continue.
The military response to the initial terrorist attacks and ongoing military
presence in the Middle East will continue to require significant increases in
Defense Department spending. Eventually, this increased governmental spending
should result in accelerated U.S. economic activity, especially in the
construction and defense industries. This governmental stimulus, in conjunction
with the monetary actions taken by the Federal Reserve Board, can be expected to
generate significant increases in U.S. gross domestic product growth some time
later in 2002.
As inflationary pressures are expected to remain well contained going forward,
increased economic activity need not result in significant increases in
long-term bond yields. Also, throughout much of 2001, the municipal bond market
exhibited far less volatility than its taxable counterparts. Since the strong
technical position that has supported the tax-exempt bond market's performance
for much of this year can be expected to continue, any potential increases in
municipal bond yields can also be expected to be limited.
Portfolio Strategy
During the 12 months ended June 30, 2002, the high-yield municipal bond market
was characterized by general improvement in relative valuation across a wide
range of disparate credit sectors ranging from health care to various cyclical
industrials. Perhaps the most glaring exception was the airline sector, which
suffered significant price erosion in the aftermath of the terrorist attacks of
September 11, 2001. Widespread losses in the steel industry, along with
revelations concerning fraudulent accounting and energy trading practices in the
investor-owned utility industry have also pressured valuations for related
securities. Nevertheless, the overall picture conveys an impression of recovery
from depressed levels that prevailed throughout 1999 and 2000. To a degree, this
was a reflection of
2 & 3
Apex Municipal Fund, Inc., June 30, 2002
developments in the taxable corporate bond market where credit spreads narrowed
considerably since the Federal Reserve Board embarked on its campaign of
monetary policy accommodation beginning in January 2001. In addition, the
municipal market in particular benefited from improved cash flows as investors
were drawn to the relative stability and predictability of recent bond market
returns.
Despite lower performance during the first six months of the Fund's fiscal year,
the Fund has experienced more favorable results in the last few months as
contributions from a diverse group of current holdings demonstrated the
broad-based nature of the improvement in credit spreads. Specifically, the
Fund's exposure in the airline sector recovered substantially from losses
incurred last fall, providing a welcome lift to relative performance since the
beginning of January 2002.
Our portfolio strategy continued to reflect our efforts to utilize analytical
resources as a means to discover undervalued investment opportunities in the
marketplace. This resulted in sector concentrations that included health care
and transportation, while increasing exposure to infrastructure-related
tax-backed financing for residential communities during the period. Future
activity will likely reflect measures designed to further diversify portfolio
holdings within the context of desired sector concentrations. In the past,
significant exposure to individual credits has occasionally contributed to
heightened levels of volatility in the Fund's total return. By achieving greater
diversification, we believe the Fund's returns should exhibit less volatility,
as individual credit developments are less likely to significantly impact
overall performance.
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
/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
August 7, 2002
SCHEDULE OF INVESTMENTS (in Thousands)
S&P Moody's Face
STATE Ratings Ratings Amount Issue 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 $ 1,011
====================================================================================================================================
Alaska--1.1% NR* NR* 2,000 Alaska Industrial Development and Export Authority Revenue Bonds
(Williams Lynxs Alaska Cargoport), AMT, 8% due 5/01/2023 2,030
====================================================================================================================================
Arizona--2.7% NR* NR* 1,505 Maricopa County, Arizona, IDA, M/F Housing Revenue Bonds (Sun
King Apartments Project), Sub-Series C, 9.50% due 11/01/2031 1,535
NR* Caa2 4,000 Phoenix, Arizona, IDA, Airport Facility Revenue Refunding Bonds
(America West Airlines Inc. Project), AMT, 6.30% due 4/01/2023 1,775
B+ Ba3 1,585 Pima County, Arizona, IDA, Industrial Revenue Refunding Bonds
(Tucson Electric Power Company Project), Series C, 6% due 9/01/2029 1,499
====================================================================================================================================
Colorado--5.5% NR* Baa2 3,000 Denver, Colorado, Urban Renewal Authority, Tax Increment Revenue
Bonds (Pavilions), AMT, 7.75% due 9/01/2016 3,205
NR* NR* 2,800 Elk Valley, Colorado, Public Improvement Revenue Bonds (Public
Improvement Fee), Series A, 7.30% due 9/01/2022 2,725
NR* NR* 1,640 Lincoln Park, Colorado, Metropolitan District, GO, Refunding,
7.75% due 12/01/2026 1,648
NR* NR* 1,235 North Range, Colorado, Metropolitan District Number 1, GO, 7.25%
due 12/15/2031 1,203
BB+ Ba1 1,145 Northwest Parkway, Colorado, Public Highway Authority Revenue Bonds,
First Tier, Sub-Series D, 7.125% due 6/15/2041 1,175
====================================================================================================================================
Connecticut--0.7% NR* B1 1,305 New Haven, Connecticut, Facility Revenue Bonds (Hill Health
Corporation Project), 9.25% due 5/01/2017 1,335
====================================================================================================================================
Florida--12.0% NR* NR* 920 Arbor Greene Community Development District, Florida, Special
Assessment Revenue Bonds, 7.60% due 5/01/2018 973
NR* NR* 1,370 Bonnet Creek Resort, Florida, Community Development District,
Special Assessment Revenue Bonds, 7.50% due 5/01/2034 1,368
NR* NR* 1,175 Capital Projects Finance Authority, Florida, Continuing Care
Retirement Revenue Bonds (Glenridge on Palmer Ranch), Series A,
8% due 6/01/2032 1,159
NR* NR* 2,500 Hillsborough County, Florida, IDA, Exempt Facilities Revenue Bonds
(National Gypsum), AMT, Series A, 7.125% due 4/01/2030 2,257
A1+ VMIG1@ 4,400 Jacksonville, Florida, Electric Authority, Electric System Revenue
Bonds, VRDN, Series C, 1.85% due 10/01/2030 (c) 4,400
Portfolio Abbreviations
To simplify the listings of Apex Municipal Fund, Inc.'s portfolio holdings in
the Schedule of Investments, we have abbreviated the names of many of the
securities according to the list at right.
AMT Alternative Minimum Tax (subject to)
EDA Economic Development Authority
GO General Obligation Bonds
IDA Industrial Development Authority
IDB Industrial Development Board
IDR Industrial Development Revenue Bonds
M/F Multi-Family
PCR Pollution Control Revenue Bonds
RIB Residual Interest Bonds
VRDN Variable Rate Demand Notes
4 & 5
Apex Municipal Fund, Inc., June 30, 2002
SCHEDULE OF INVESTMENTS (continued) (in Thousands)
S&P Moody's Face
STATE Ratings Ratings Amount Issue Value
====================================================================================================================================
Florida NR* NR* $ 925 Lakewood Ranch, Florida, Community Development District Number 5,
(concluded) Special Assessment Revenue Refunding Bonds, Series A, 6.70%
due 5/01/2031 $ 919
NR* NR* 3,100 Lee County, Florida, IDA, Health Care Facilities Revenue Bonds
(Cypress Cove Healthpark), Series A, 6.375% due 10/01/2025 2,803
NR* NR* 1,650 Orlando, Florida, Urban Community Development District, Capital
Improvement Special Assessment Bonds, Series A, 6.95% due 5/01/2033 1,627
NR* NR* 3,580 Parkway Center, Florida, Community Development District Special
Assessment Refunding Bonds, Series B, 8% due 5/01/2010 2,976
NR* NR* 3,125 Tampa Palms, Florida, Open Space and Transportation Community
Development District Revenue Bonds, Capital Improvement (Richmond
Place Project), 7.50% due 5/01/2018 3,290
====================================================================================================================================
Georgia--3.7% NR* NR* 2,000 Atlanta, Georgia, Tax Allocation Revenue Bonds (Atlantic Station
Project), 7.90% due 12/01/2024 2,001
NR* NR* 3,680 Atlanta, Georgia, Urban Residential Finance Authority, M/F Mortgage
Revenue Bonds (Northside Plaza Apartments Project), AMT, 9.75%
due 11/01/2020 3,753
BBB- Ba1 1,000 Effingham County, Georgia, IDA, PCR, Refunding (Georgia Pacific
Corporation Project), 6.50% due 6/01/2031 924
====================================================================================================================================
Idaho--0.8% NR* NR* 1,470 Idaho Health Facilities Authority, Revenue Refunding Bonds (Valley
Vista Care Corporation), Series A, 7.75% due 11/15/2016 1,497
====================================================================================================================================
Illinois--3.8% NR* Caa1 1,000 Chicago, Illinois, O'Hare International Airport, Special Facility
Revenue Bonds (United Airlines Project), AMT, Series A-2, 6.375%
due 11/01/2035 503
BB- B1 3,000 Chicago, Illinois, O'Hare International Airport, Special Facility
Revenue Refunding Bonds (American Airlines Inc. Project), 8.20%
due 12/01/2024 2,946
NR* NR* 3,190 Illinois Development Finance Authority Revenue Bonds (Primary Health
Care Centers Facilities Acquisition Program), 7.75% due 12/01/2016 3,429
====================================================================================================================================
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 2,707
NR* NR* 1,925 Indianapolis, Indiana, M/F Revenue Bonds (Lake Nora Fox Club
Project), Series B, 7.50% due 10/01/2029 1,873
====================================================================================================================================
Iowa--6.6% NR* NR* 10,000 Iowa Finance Authority, Health Care Facilities Revenue Refunding
Bonds (Care Initiatives Project), 9.25% due 7/01/2025 11,858
====================================================================================================================================
Louisiana--3.1% BB- NR* 5,500 Port New Orleans, Louisiana, IDR, Refunding (Continental Grain
Company Project), 7.50% due 7/01/2013 5,634
====================================================================================================================================
Maryland--2.0% NR* NR* 1,875 Anne Arundel County, Maryland, Special Obligation Revenue Bonds
(Arundel Mills Project), 7.10% due 7/01/2029 2,015
NR* NR* 1,500 Maryland State Energy Financing Administration, Limited Obligation
Revenue Bonds (Cogeneration--AES Warrior Run), AMT, 7.40% due
9/01/2019 1,541
====================================================================================================================================
Massachusetts--3.6% BBB NR* 825 Massachusetts State Development Finance Agency, Resource Recovery
Revenue Bonds (Ogden Haverhill Associates), AMT, Series A, 6.70%
due 12/01/2014 751
Massachusetts State Development Finance Agency, Revenue Refunding
Bonds (Eastern Nazarine College):
BBB- NR* 1,220 5.625% due 4/01/2029 916
BBB- NR* 245 5.625% due 4/01/2019 195
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 2,539
NR* NR* 1,700 Massachusetts State Industrial Finance Agency Revenue Bonds, Sewer
Facility (Resource Control Composting), AMT, 9.25% due 6/01/2010 1,715
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 391
====================================================================================================================================
Michigan--0.5% BBB- Baa3 1,000 Michigan State Hospital Finance Authority, Revenue Refunding
Bonds (Detroit Medical Center Obligation Group), Series A,
6.50% due 8/15/2018 983
====================================================================================================================================
Minnesota--1.8% NR* NR* 3,180 Anoka, Minnesota, M/F Housing Revenue Bonds (Rainbow Plaza
Apartments Project), 9.375% due 12/01/2024 3,208
====================================================================================================================================
Missouri--0.8% NR* NR* 1,200 Fenton, Missouri, Tax Increment Revenue Refunding and Improvement
Bonds (Gravois Bluffs), 7% due 10/01/2021 1,224
A1+ VMIG1@ 200 Missouri Development Finance Board, Cultural Facilities Revenue Bonds
(Nelson Gallery Foundation), VRDN, Series B, 1.85% due 12/01/2031 (c) 200
====================================================================================================================================
Nevada--1.2% BBB Baa2 2,500 Henderson, Nevada, Health Care Facility Revenue Bonds (Catholic
Healthcare West--Saint Rose Dominican Hospital), 5.375% due 7/01/2026 2,188
====================================================================================================================================
New Jersey--12.6% Camden County, New Jersey, Improvement Authority, Lease Revenue Bonds
(Holt Hauling & Warehousing), AMT, Series A (d):
NR* NR* 2,000 9.625% due 1/01/2011 1,515
NR* NR* 4,500 9.875% due 1/01/2021 3,409
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 6,000
BBB- NR* 1,500 New Jersey EDA, First Mortgage Revenue Bonds (Fellowship Village),
Series C, 5.50% due 1/01/2028 1,368
NR* Ba3 1,500 New Jersey EDA, IDR, Refunding (Newark Airport Marriott Hotel),
7% due 10/01/2014 1,516
New Jersey EDA, Retirement Community Revenue Bonds, Series A:
NR* NR* 1,000 (Cedar Crest Village Inc. Facility), 7.25% due 11/15/2031 986
NR* NR* 3,700 (Seabrook Village Inc.), 8.125% due 11/15/2023 3,880
B+ B3 3,050 New Jersey EDA, Special Facility Revenue Bonds (Continental Airlines
Inc. Project), AMT, 6.625% due 9/15/2012 2,821
NR* Baa1 1,410 New Jersey Health Care Facilities Financing Authority Revenue Bonds
(South Jersey Hospital), 6% due 7/01/2026 1,406
====================================================================================================================================
New Mexico--2.8% B+ Ba3 5,000 Farmington, New Mexico, PCR, Refunding (Tucson Electric Power Co.--
San Juan Project), Series A, 6.95% due 10/01/2020 5,092
====================================================================================================================================
New York--2.1% 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 1,679
Utica, New York, GO, Public Improvement:
BB Ba1 700 9.25% due 8/15/2004 750
BB Ba1 700 9.25% due 8/15/2005 770
BB Ba1 635 9.25% due 8/15/2006 715
====================================================================================================================================
6 & 7
Apex Municipal Fund, Inc., June 30, 2002
SCHEDULE OF INVESTMENTS (concluded) (in Thousands)
S&P Moody's Face
STATE Ratings Ratings Amount Issue Value
====================================================================================================================================
North Carolina--0.9% 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 $ 1,669
====================================================================================================================================
Ohio--1.4% B+ B3 3,135 Cleveland, Ohio, Airport Special Revenue Refunding Bonds
(Continental Airlines Inc. Project), AMT, 5.70% due 12/01/2019 2,463
====================================================================================================================================
Oregon--0.6% NR* NR* 1,000 Western Generation Agency, Oregon, Cogeneration Project Revenue Bonds
(Wauna Cogeneration Project), AMT, Series B, 7.40% due 1/01/2016 1,028
====================================================================================================================================
Pennsylvania--8.3% NR* NR* 750 Blair County, Pennsylvania, IDA, Revenue Bonds (Village of
Pennsylvania State Project), Series A, 7% due 1/01/2034 750
NR* Ba2 2,000 Lehigh County, Pennsylvania, General Purpose Authority, Revenue
Refunding Bonds (Kidspeace Obligation Group), 6% due 11/01/2023 1,768
Montgomery County, Pennsylvania, Higher Education and Health
Authority, Revenue Refunding Bonds (Faulkeways at Gwynedd Project):
BBB+ NR* 900 6.75% due 11/15/2024 942
BBB+ NR* 925 6.75% due 11/15/2030 961
AAA Aaa 2,000 Pennsylvania State Higher Education Assistance Agency, Student Loan
Revenue Bonds, AMT, RIB, 6.173% due 3/01/2022 (a)(b) 2,088
Philadelphia, Pennsylvania, Authority for IDR, AMT:
NR* Ba1 1,600 (Air Cargo), Series A, 7.50% due 1/01/2025 1,597
NR* NR* 5,500 Commercial Development, 7.75% due 12/01/2017 5,674
A1+ VMIG1@ 1,200 Philadelphia, Pennsylvania, Hospitals and Higher Education
Facilities Authority, Hospital Revenue Bonds (Children's Hospital
of Philadelphia Project), VRDN, Series A, 1.85% due 3/01/2027 (c) 1,200
====================================================================================================================================
Rhode Island--1.0% BBB Baa2 1,770 Rhode Island State Health and Educational Building Corporation,
Hospital Financing Revenue Bonds (Lifespan Obligation Group), 6.50%
due 8/15/2032 1,726
====================================================================================================================================
South Carolina--1.2% BBB+ Baa2 1,100 Medical University, South Carolina, Hospital Authority, Hospital
Facility Revenue Refunding Bonds, Series A, 6.50% due 8/15/2032 1,091
BBB- NR* 1,000 South Carolina Jobs, EDA, Revenue Bonds (Myrtle Beach Convention
Center), Series A, 6.625% due 4/01/2036 1,006
====================================================================================================================================
Texas--6.3% BBB- Baa3 1,000 Austin, Texas, Convention Center Revenue Bonds (Convention
Enterprises Inc.), First Tier, Series A, 6.70% due 1/01/2028 1,011
Bell County, Texas, Health Facilities Development Corporation,
Hospital Revenue Bonds (Scott & White Memorial Hospital), VRDN (c):
A1+ VMIG1@ 2,030 Series 2001-1, 1.85% due 8/15/2031 2,030
A1+ VMIG1@ 1,300 Series 2001-2, 1.85% due 8/15/2031 1,300
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 2,599
A1+ NR* 1,000 Harris County, Texas, Health Facilities Development Corporation,
Hospital Revenue Refunding Bonds (Methodist Hospital), VRDN, 1.85%
due 12/01/2025 (c) 1,000
BBB+ Baa1 3,500 Lower Colorado River Authority, Texas, PCR (Samsung Austin
Semiconductor), AMT, 6.375% due 4/01/2027 3,526
====================================================================================================================================
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 2,242
====================================================================================================================================
Virginia--5.9% NR* NR* 2,500 Dulles Town Center, Virginia, Community Development Authority, Special
Assessment Tax (Dulles Town Center Project), 6.25% due 3/01/2026 2,507
NR* NR* 3,000 Pittsylvania County, Virginia, IDA, Revenue Refunding Bonds,
Exempt-Facility, AMT, Series A, 7.50% due 1/01/2014 2,945
Pocahontas Parkway Association, Virginia, Toll Road Revenue Bonds:
NR* Ba1 6,200 First Tier, Sub-Series C, 6.25%** due 8/15/2033 276
NR* Ba1 6,200 First Tier, Sub-Series C, 6.25%** due 8/15/2034 250
BBB- Baa3 32,600 Senior Series B, 5.875%** due 8/15/2025 4,732
====================================================================================================================================
Washington--1.3% NR* NR* 2,600 Port Seattle, Washington, Special Facilities Revenue Bonds
(Northwest Airlines Project), AMT, 7.25% due 4/01/2030 2,359
====================================================================================================================================
Total Municipal Bonds (Cost--$184,814)--98.6% 178,551
====================================================================================================================================
Shares
Held
====================================================================================================================================
Common Stocks--1.1% 181,353 Horizon Natural Resources (d)(e) 1,995
====================================================================================================================================
Total Common Stocks (Cost--$1,995)--1.1% 1,995
====================================================================================================================================
Total Investments (Cost--$186,809)--99.7% 180,546
Other Assets Less Liabilities--0.3% 547
--------
Net Assets--100.0% $181,093
========
====================================================================================================================================
(a) AMBAC Insured.
(b) The interest rate is subject to change periodically and inversely based
upon prevailing market rates. The interest rate shown is the rate in
effect at June 30, 2002.
(c) 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,
2002.
(d) Non-income producing security.
(e) Represents entitlement received from a bankruptcy exchange for Peninsula
Ports, 6.90% due 5/22/2022.
* Not Rated.
** Represents a zero coupon bond; the interest rate shown reflects the
effective yield at the time of purchase by the Fund.
@ Highest short-term rating by Moody's Investors Service, Inc.
Ratings of issues shown have not been audited by Deloitte & Touche LLP.
See Notes to Financial Statements.
Quality Profile (unaudited)
The quality ratings of securities in the Fund as of June 30, 2002 were as
follows:
---------------------------------------------------------
Percent of
S&P Rating/Moody's Rating Net Assets
---------------------------------------------------------
AAA/Aaa ......................................... 1.2%
A/A ............................................. 1.4
BBB/Baa ......................................... 16.0
BB/Ba ........................................... 14.6
B/B ............................................. 7.5
CCC/Caa ......................................... 1.3
NR(Not Rated) ................................... 51.0
Other+ .......................................... 5.6
---------------------------------------------------------
+ Temporary investments in short-term municipal securities.
8 & 9
Apex Municipal Fund, Inc., June 30, 2002
STATEMENT OF ASSETS, LIABILITIES AND CAPITAL
As of June 30, 2002
====================================================================================================================================
Assets: Investments, at value (identified cost--$186,809,125) .................... $ 180,546,123
Cash ..................................................................... 57,861
Receivables:
Interest ............................................................... $ 2,802,176
Securities sold ........................................................ 1,208,188 4,010,364
-------------
Prepaid expenses and other assets ........................................ 87,758
-------------
Total assets ............................................................. 184,702,106
-------------
====================================================================================================================================
Liabilities: Payables:
Securities purchased ................................................... 3,397,207
Investment adviser ..................................................... 90,113
Dividends to shareholders .............................................. 87,566 3,574,886
-------------
Accrued expenses ......................................................... 34,084
-------------
Total liabilities ........................................................ 3,608,970
-------------
====================================================================================================================================
Net Assets: Net assets ............................................................... $ 181,093,136
=============
====================================================================================================================================
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 ......................................... 208,769,503
Undistributed investment income--net ..................................... $ 1,157,568
Accumulated realized capital losses on investments--net .................. (24,530,606)
Unrealized depreciation on investments--net .............................. (6,263,002)
-------------
Total accumulated losses--net ............................................ (29,636,040)
-------------
Total capital--Equivalent to $9.24 net asset value per share of
Common Stock (market price--$8.39) ....................................... $ 181,093,136
=============
====================================================================================================================================
See Notes to Financial Statements.
STATEMENT OF OPERATIONS
For the Year Ended June 30, 2002
====================================================================================================================================
Investment Interest ................................................................. $ 12,871,186
Income:
====================================================================================================================================
Expenses: Investment advisory fees ................................................. $ 1,183,183
Professional fees ........................................................ 110,384
Accounting services ...................................................... 76,069
Transfer agent fees ...................................................... 67,103
Printing and shareholder reports ......................................... 40,377
Directors' fees and expenses ............................................. 38,998
Listing fees ............................................................. 28,293
Custodian fees ........................................................... 13,605
Pricing fees ............................................................. 12,721
Other .................................................................... 21,824
------------
Total expenses ........................................................... 1,592,557
------------
Investment income--net ................................................... 11,278,629
------------
====================================================================================================================================
Realized & Realized loss on investments--net ........................................ (4,092,274)
Unrealized Loss on Change in unrealized depreciation on investments--net .................... (225,283)
Investments--Net: ------------
Total realized and unrealized loss on investments--net ................... (4,317,557)
------------
Net Increase in Net Assets Resulting from Operations ..................... $ 6,961,072
============
====================================================================================================================================
See Notes to Financial Statements.
STATEMENTS OF CHANGES IN NET ASSETS
For the Year
Ended June 30,
-------------------------------
Increase (Decrease) in Net Assets: 2002 2001
====================================================================================================================================
Operations: Investment income--net ................................................... $ 11,278,629 $ 11,596,874
Realized loss on investments--net ........................................ (4,092,274) (1,269,704)
Change in unrealized depreciation on investments--net .................... (225,283) 3,734,670
------------- -------------
Net increase in net assets resulting from operations ..................... 6,961,072 14,061,840
------------- -------------
====================================================================================================================================
Dividends to Investment income--net ................................................... (11,114,247) (11,694,527)
Shareholders: ------------- -------------
Net decrease in net assets resulting from dividends to shareholders ...... (11,114,247) (11,694,527)
------------- -------------
====================================================================================================================================
Net Assets: Total increase (decrease) in net assets .................................. (4,153,175) 2,367,313
Beginning of year ........................................................ 185,246,311 182,878,998
------------- -------------
End of year* ............................................................. $ 181,093,136 $ 185,246,311
============= =============
====================================================================================================================================
* Undistributed investment income--net ................................... $ 1,157,568 $ 953,493
============= =============
====================================================================================================================================
See Notes to Financial Statements.
10 & 11
Apex Municipal Fund, Inc., June 30, 2002
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: 2002 2001 2000 1999 1998
====================================================================================================================================
Per Share Net asset value, beginning of year ............... $ 9.45 $ 9.33 $ 10.37 $ 10.60 $ 10.25
Operating -------- -------- -------- -------- --------
Performance: Investment income--net ........................... .58 .59 .66 .63 .64
Realized and unrealized gain (loss)
on investments--net .............................. (.22) .13 (1.03) (.23) .35
-------- -------- -------- -------- --------
Total from investment operations ................. .36 .72 (.37) .40 .99
-------- -------- -------- -------- --------
Less dividends from investment income--net ....... (.57) (.60) (.67) (.63) (.64)
-------- -------- -------- -------- --------
Net asset value, end of year ..................... $ 9.24 $ 9.45 $ 9.33 $ 10.37 $ 10.60
======== ======== ======== ======== ========
Market price per share, end of year .............. $ 8.39 $ 9.10 $ 8.9375 $ 10.25 $ 10.50
======== ======== ======== ======== ========
====================================================================================================================================
Total Investment Based on market price per share .................. (1.64%) 9.05% (6.22%) 3.68% 12.42%
Return:* ======== ======== ======== ======== ========
Based on net asset value per share ............... 4.31% 8.48% (3.23%) 3.90% 10.03%
======== ======== ======== ======== ========
====================================================================================================================================
Ratios to Average Expenses ......................................... .87% .82% .81% .81% .86%
Net Assets: ======== ======== ======== ======== ========
Investment income--net ........................... 6.19% 6.35% 6.71% 5.93% 6.08%
======== ======== ======== ======== ========
====================================================================================================================================
Supplemental Net assets, end of year (in thousands) ........... $181,093 $185,246 $182,879 $203,198 $207,460
Data: ======== ======== ======== ======== ========
Portfolio turnover ............................... 25% 17% 20% 40% 34%
======== ======== ======== ======== ========
====================================================================================================================================
* Total investment returns based on market value, which can
be significantly greater or lesser than the net asset
value, may result in substantially different returns. Total
investment returns exclude the effects of sales charges.
See Notes to Financial Statements.
NOTES TO FINANCIAL STATEMENTS
1. Significant Accounting Policies:
Apex Municipal Fund, Inc. (the "Fund") is registered under the Investment
Company Act of 1940 as a non-diversified, closed-end management investment
company. The Fund's financial statements are prepared in conformity with
accounting principles generally accepted in the United States of America, which
may require the use of management accruals and estimates. The Fund determines
and makes available for publication the net asset value of its Common Stock on a
weekly basis. The Fund's Common Stock is listed on the New York Stock Exchange
under the symbol APX. The following is a summary of significant accounting
policies followed by the Fund.
(a) Valuation of investments--Municipal bonds are traded primarily in the
over-the-counter markets and are valued at the most recent bid price or yield
equivalent as obtained by the Fund's pricing service from dealers that make
markets in such securities. Financial futures contracts and options thereon,
which are traded on exchanges, are valued at their closing prices as of the
close of such exchanges. Options written or purchased are valued at the last
sale price in the case of exchange-traded options. In the case of options traded
in the over-the-counter market, valuation is the last asked price (options
written) or the last bid price (options purchased). Securities with remaining
maturities of sixty days or less are valued at amortized cost, which
approximates market value. Securities and assets for which market quotations are
not readily available are valued at fair value as determined in good faith by or
under the direction of the Board of Directors of the Fund, including valuations
furnished by a pricing service retained by the Fund, which may utilize a matrix
system for valuations. The procedures of the pricing service and its valuations
are reviewed by the officers of the Fund under the general supervision of the
Board of Directors.
(b) Derivative financial instruments--The Fund may engage in various portfolio
investment strategies to increase or decrease the level of risk to which the
Fund is exposed more quickly and efficiently than transactions in other types of
instruments. Losses may arise due to changes in the value of the contract or if
the counterparty does not perform under the contract.
o Financial futures contracts--The Fund may purchase or sell financial futures
contracts and options on such futures contracts for the purpose of hedging the
market risk on existing securities or the intended purchase of securities.
Futures contracts are contracts for delayed delivery of securities at a specific
future date and at a specific price or yield. Upon entering into a contract, the
Fund deposits and maintains as collateral such initial margin as required by the
exchange on which the transaction is effected. Pursuant to the contract, the
Fund agrees to receive from or pay to the broker an amount of cash equal to the
daily fluctuation in value of the contract. Such receipts or payments are known
as variation margin and are recorded by the Fund as unrealized gains or losses.
When the contract is closed, the Fund records a realized gain or loss equal to
the difference between the value of the contract at the time it was opened and
the value at the time it was closed.
o Options--The Fund is authorized to write covered call options and purchase put
options. When the Fund writes an option, an amount equal to the premium received
by the Fund is reflected as an asset and an equivalent liability. The amount of
the liability is subsequently marked to market to reflect the current market
value of the option written.
When a security is purchased or sold through an exercise of an option, the
related premium paid (or received) is added to (or deducted from) the basis of
the security acquired or deducted from (or added to) the proceeds of the
security sold. When an option expires (or the Fund enters into a closing
transaction), the Fund realizes a gain or loss on the option to the extent of
the premiums received or paid (or gain or loss to the extent the cost of the
closing transaction exceeds the premium paid or received).
Written and purchased options are non-income producing investments.
(c) Income taxes--It is the Fund's policy to comply with the requirements of the
Internal Revenue Code applicable to
12 & 13
Apex Municipal Fund, Inc., June 30, 2002
NOTES TO FINANCIAL STATEMENTS (concluded)
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.
As required, effective July 1, 2001, the Fund has adopted the provisions of the
AICPA Audit and Accounting Guide for Investment Companies and began amortizing
all premiums and discounts on debt securities. The cumulative effect of this
accounting change had no impact on total net assets of the Fund, but resulted in
a $34,920 increase in cost of securities (which, in turn, results in a
corresponding $34,920 increase in net unrealized depreciation and a
corresponding $34,920 increase in undistributed net investment income), based on
securities held by the Fund as of June 30, 2001.
The effect of this change for the year ended June 30, 2002 was to increase net
investment income by $61,069, increase net unrealized depreciation by $87,598
and increase net realized capital losses by $8,391. The statement of changes in
net assets and financial highlights for prior periods have not been restated to
reflect this change in presentation.
(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 $2,776,491 have been
reclassified between paid-in capital in excess of par and accumulated net
realized capital losses, $80,487 has been reclassified between paid-in capital
in excess of par and undistributed net investment income and $75,714 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, 2002, the Fund reimbursed FAM $10,143 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, 2002 were $45,049,177 and $52,053,383, respectively.
Net realized losses for the year ended June 30, 2002 and net unrealized losses
as of June 30, 2002 were as follows:
--------------------------------------------------------------------------------
Realized Unrealized
Losses Losses
--------------------------------------------------------------------------------
Long-term investments .......................... $(4,092,274) $(6,263,002)
----------- -----------
Total .......................................... $(4,092,274) $(6,263,002)
=========== ===========
--------------------------------------------------------------------------------
As of June 30, 2002, net unrealized depreciation for Federal income tax purposes
aggregated $6,175,404, of which $5,026,474 related to appreciated securities and
$11,201,878 related to depreciated securities. The aggregate cost of investments
at June 30, 2002 for Federal income tax purposes was $186,721,527.
4. Common Stock Transactions:
At June 30, 2002, the Fund had one class of shares of Common Stock, par value
$.10 per share, of which 150,000,000 shares were authorized. Shares issued and
outstanding during the years ended June 30, 2002 and June 30, 2001 remained
constant.
5. Distributions to Shareholders:
On July 9, 2002, an ordinary income dividend of $.044277 was declared. The
dividend was paid on July 30, 2002, to shareholders of record on June 18, 2002.
The tax character of distributions paid during the fiscal years ended June 30,
2002 and June 30, 2001 was as follows:
--------------------------------------------------------------------------------
6/30/2002 6/30/2001
--------------------------------------------------------------------------------
Distributions paid from:
Tax-exempt income ............................ $11,114,247 $11,694,527
----------- -----------
Total distributions ............................ $11,114,247 $11,694,527
=========== ===========
--------------------------------------------------------------------------------
As of June 30, 2002, the components of accumulated losses on a tax basis were as
follows:
--------------------------------------------------------------------------------
Undistributed tax-exempt income--net ........................ $ 1,736,391
Undistributed long-term capital gains--net .................. --
------------
Total undistributed earnings--net ........................... 1,736,391
Capital loss carryforward ................................... (21,453,358)*
Unrealized losses--net ...................................... (9,919,073)**
------------
Total accumulated losses--net ............................... $(29,636,040)
============
--------------------------------------------------------------------------------
* On June 30, 2002, the Fund had a net capital loss carryforward of
$21,453,358, of which $1,754,099 expires in 2003, $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 and $2,075,987 expires in
2010. This amount will be available to offset like amounts of any future
taxable gains.
** The difference between book-basis and tax-basis net unrealized gains
(losses) is attributable primarily to the difference between book and tax
amortization methods for premiums and discounts on fixed income
securities, the interest accrued on securities in default, the amortized
premium on securities in default and the deferral of post-October capital
losses for tax purposes.
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders,
Apex Municipal Fund, Inc.:
We have audited the accompanying statement of assets, liabilities and capital,
including the schedule of investments, of Apex Municipal Fund, Inc. as of June
30, 2002, the related statements of operations for the year then ended and
changes in net assets for each of the years in the two-year period then ended,
and the financial highlights for each of the years presented. These financial
statements and the financial highlights are the responsibility of the Fund's
management. Our responsibility is to express an opinion on the financial
statements and the financial highlights based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements and financial highlights are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. Our procedures included confirmation of
securities owned at June 30, 2002 by correspondence with the custodian and
brokers; when replies were not received from brokers, we performed other
auditing procedures. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such financial statements and the financial highlights present
fairly, in all material respects, the financial position of Apex Municipal Fund,
Inc. as of June 30, 2002, the results of its operations, the changes in its net
assets, and the financial highlights for the respective stated periods in
conformity with accounting principles generally accepted in the United States of
America.
Deloitte & Touche LLP
New York, New York
August 9, 2002
14 & 15
Apex Municipal Fund, Inc., June 30, 2002
IMPORTANT TAX INFORMATION (unaudited)
All of the net investment income distributions declared monthly by Apex
Municipal Fund, Inc. during its taxable year ended June 30, 2002 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
Portfolios in Other
Position(s) Length Fund Complex Directorships
Held of Time Principal Occupation(s) Overseen by Held by
Name Address & Age with Fund Served During Past 5 Years Director Director
====================================================================================================================================
Interested Director
====================================================================================================================================
Terry K. Glenn* P.O. Box 9011 President 1999 to Chairman, Americas 117 Funds None
Princeton, NJ 08543-9011 and present Region since 2001, and 169 Portfolios
Age: 61 Director and Executive Vice
1989 to President since 1983
present of Fund Asset
Management, L.P.
("FAM") and Merrill
Lynch Investment
Managers, L.P.
("MLIM"); President of
Merrill Lynch Mutual
Funds since 1999;
President of FAM
Distributors, Inc.
("FAMD") since 1986
and Director thereof
since 1991; Executive
Vice President and
Director of Princeton
Services, Inc.
("Princeton Services")
since 1993; President
of Princeton
Administrators, L.P.
since 1988; Director
of Financial Data
Services, Inc. since
1985.
===========================================================================================================
* 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 positions as Chairman (Americas Region) and Executive
Vice President of FAM and MLIM; President of FAMD; Executive Vice President of Princeton Services; and
President of 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.
====================================================================================================================================
Number of
Portfolios in Other
Position(s) Length Fund Complex Directorships
Held of Time Principal Occupation(s) Overseen by Held by
Name Address & Age with Fund Served* During Past 5 Years Director Director
====================================================================================================================================
Independent Directors
====================================================================================================================================
James H. Bodurtha P.O. Box 9011 Director 2002 to Director and Executive 39 Funds Berkshire
Princeton, NJ 08543-9011 present Vice President, The 59 Portfolio Holding
Age: 58 China Business Group, Corporation
Inc. since 1996.
====================================================================================================================================
Joe Grills P.O. Box 9011 Director 1994 to Member of Committee on 42 Funds Duke Man-
Princeton, NJ 08543-9011 present Investment of Employee 62 Portfolios agement
Age: 67 Benefit Assets of the Company;
Association for Kimco
Financial Professional Realty;
since 1986. Montpelier
Foundation
====================================================================================================================================
16 & 17
Apex Municipal Fund, Inc., June 30, 2002
OFFICERS AND DIRECTORS (concluded)
Number of
Portfolios in Other
Position(s) Length Fund Complex Directorships
Held of Time Principal Occupation(s) Overseen by Held by
Name Address & Age with Fund Served* During Past 5 Years Director Director
====================================================================================================================================
Independent Directors (concluded)
====================================================================================================================================
Herbert I. London P.O. Box 9011 Director 2002 to John M. Olin Professor 39 Funds None
Princeton, NJ 08543-9011 present of Humanities, New 59 Portfolios
Age: 62 York University since
1993.
====================================================================================================================================
Andre F. Perold P.O. Box 9011 Director 2002 to George Gund Professor 39 Funds None
Princeton, NJ 08543-9011 present of Finance and 59 Portfolios
Age: 49 Banking, Harvard
Business School since
2000; Finance Area chair
since 1996.
====================================================================================================================================
Roberta Cooper Ramo P.O. Box 9011 Director 2002 to Shareholder, Modrall, 39 Funds None
Princeton, NJ 08543-9011 present Sperling, Roehl, 59 Portfolios
Age: 59 Harris & Sisk, P.A.
since 1993.
====================================================================================================================================
Robert S. Salomon, Jr. P.O. Box 9011 Director 1996 to Principal of STI 42 Funds None
Princeton, NJ 08543-9011 present Management since 1994. 62 Portfolios
Age: 65
====================================================================================================================================
Melvin R. Seiden P.O. Box 9011 Director 1989 to Director, Silbanc 42 Funds None
Princeton, NJ 08543-9011 present Properties, Ltd. (real 62 Portfolios
Age: 71 estate, investment, and
consulting) since 1987;
Chairman and President
of Seiden & de Cuevas,
Inc. (private investment
firm) from 1964 to 1987.
====================================================================================================================================
Stephen B. Swensrud P.O. Box 9011 Director 1989 to Chairman, Fernwood 42 Funds Interna-
Princeton, NJ 08543-9011 present Advisors since 1996. 62 Portfolios tional
Age: 69 Mobile
Communi-
cations, Inc.
===========================================================================================================
* 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. Burke P.O. Box 9011 Vice 1993 to First Vice President of FAM and MLIM since 1997 and
Princeton, NJ 08543-9011 President present Treasurer thereof since 1999; Senior Vice President
Age: 42 and and and Treasurer of Princeton Services since 1999; Vice
Treasurer 1999 to President of FAMD since 1999; Vice President of FAM
present and MLIM from 1990 to 1997; Director of Taxation of
MLIM since 1990.
====================================================================================================================================
Kenneth A. Jacob P.O. Box 9011 Senior 2001 to First Vice President of MLIM since 1997 and Vice
Princeton, NJ 08543-9011 Vice present President thereof from 1984 to 1997; Vice President of
Age: 50 President FAM since 1984.
====================================================================================================================================
John M. Loffredo P.O. Box 9011 Senior 2002 to Managing Director of MLIM since 2000; First Vice
Princeton, NJ 08543-9011 Vice present President of MLIM from 1997 to 2000; Vice President of
Age: 38 President MLIM from 1991 to 1997; Portfolio Manager of FAM and
MLIM since 1997.
====================================================================================================================================
Theodore R. Jaeckel Jr. P.O. Box 9011 Vice 1997 to Director (Municipal Tax-Exempt Fund Management) of
Princeton, NJ 08543-9011 President present MLIM since 1997; Vice President of MLIM from 1991 to
Age: 42 and 1997.
Portfolio
Manager
====================================================================================================================================
Stephen M. Benham P.O. Box 9011 Secretary 2002 to Vice President of FAM and certain of its affiliates
Princeton, NJ 08543-9011 present since 2000; Associate, Kirkpatrick & Lockhart LLP from
Age: 42 1997 to 2000.
===========================================================================================================
* Officers of the Fund serve at the pleasure of the Board of Directors.
Custodian & Transfer Agent NYSE Symbol
The Bank of New York APX
100 Church Street
New York, NY 10286
18 & 19
[LOGO] Merrill Lynch Investment Managers
[GRAPHIC OMITTED]
Apex Municipal Fund, Inc. seeks to provide shareholders with high current income
exempt from Federal income taxes by investing primarily in a portfolio of
medium-to-lower grade or unrated municipal obligations, the interest on which is
exempt from Federal income taxes in the opinion of bond counsel to the issuer.
This report, including the financial information herein, is transmitted to
shareholders of Apex Municipal Fund, Inc. for their information. It is not a
prospectus. Past performance results shown in this report should not be
considered a representation of future performance. Statements and other
information herein are as dated and are subject to change.
Apex Municipal Fund, Inc.
Box 9011
Princeton, NJ
08543-9011
--------------------------------------------------------------------------------
[RECYCLE LOGO] Printed on post-consumer recycled paper #10955--6/02