UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSRS
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number 811-05227
Name of Fund: BlackRock Apex Municipal Fund, Inc.
Fund Address: P.O. Box 9011
Princeton, NJ 08543-9011
Name and address of agent for service: Robert C. Doll, Jr., Chief Executive
Officer, BlackRock 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: 06/30/07
Date of reporting period: 07/01/06 - 12/31/06
Item 1 - Report to Stockholders
ALTERNATIVES BLACKROCK SOLUTIONS EQUITIES
FIXED INCOME LIQUIDITY REAL ESTATE
BlackRock Apex Municipal Fund, Inc. BLACKROCK
SEMI-ANNUAL REPORT | DECEMBER 31, 2006
NOT FDIC INSURED
MAY LOSE VALUE
NO BANK GUARANTEE
BlackRock Apex Municipal Fund, Inc.
Announcement of Annual Stockholders Meeting
The Fund has determined that its annual stockholders meeting originally
scheduled to be held in April 2007 will be postponed until and will be held in
June 2007. Proposals of stockholders intended to be presented at the meeting
must be received by the Fund by March 15, 2007 for inclusion in the Fund's proxy
statement and form of proxy for that meeting. The persons named as proxies in
the proxy materials for the Fund's 2007 annual meeting of stockholders may
exercise discretionary authority with respect to any stockholder proposal
presented at such meeting if written notice of such proposal has not been
received by the Fund by April 1, 2007. Written proposals and notices should be
sent to the Secretary of the Fund, 800 Scudders Mill Road, Plainsboro, New
Jersey 08536.
Portfolio Information as of December 31, 2006
Percent of
Quality Ratings by Total
S&P/Moody's Investments
--------------------------------------------------------------------------------
AAA/Aaa ............................................................ 6.1%
A/A ................................................................ 3.8
BBB/Baa ............................................................ 24.5
BB/Ba .............................................................. 5.8
B/B ................................................................ 6.1
CCC/Caa ............................................................ 5.8
NR (Not Rated) ..................................................... 46.6
Other* ............................................................. 1.3
--------------------------------------------------------------------------------
* Includes portfolio holdings in short-term investments and variable rate
demand notes.
Availability of Quarterly Schedule of Investments
The Fund files its complete schedule of portfolio holdings with the Securities
and Exchange Commission ("SEC") for the first and third quarters of each fiscal
year on Form N-Q. The Fund's Forms N-Q are available on the SEC's Web site at
http://www.sec.gov. The Fund's Forms N-Q may also be reviewed and copied at the
SEC's Public Reference Room in Washington, DC. Information on the operation of
the Public Reference Room may be obtained by calling 1-800-SEC-0330.
Electronic Delivery
Electronic copies of most financial reports and prospectuses are available on
the Fund's Web site. Shareholders can sign up for e-mail notifications of
quarterly statements, annual and semi-annual reports and prospectuses by
enrolling in the Fund's electronic delivery program.
To enroll:
Shareholders Who Hold Accounts with Investment Advisers, Banks or Brokerages:
Please contact your financial adviser. Please note that not all investment
advisers, banks or brokerages may offer this service.
2 BLACKROCK APEX MUNICIPAL FUND, INC. DECEMBER 31, 2006
A Letter to Shareholders
Dear Shareholder
As 2007 begins, we are able to look back on 2006 as a volatile, but ultimately,
a positive year for most major markets. Returns for the annual and semi-annual
periods ended December 31, 2006 were as follows:
Total Returns as of December 31, 2006 6-month 12-month
===========================================================================================
U.S. equities (Standard & Poor's 500 Index) +12.74% +15.79%
-------------------------------------------------------------------------------------------
Small cap U.S. equities (Russell 2000 Index) + 9.38 +18.37
-------------------------------------------------------------------------------------------
International equities (MSCI Europe, Australasia, Far East Index) +14.69 +26.34
-------------------------------------------------------------------------------------------
Fixed income (Lehman Brothers Aggregate Bond Index) + 5.09 + 4.33
-------------------------------------------------------------------------------------------
Tax-exempt fixed income (Lehman Brothers Municipal Bond Index) + 4.55 + 4.84
-------------------------------------------------------------------------------------------
High yield bonds (Credit Suisse High Yield Index) + 8.14 +11.92
-------------------------------------------------------------------------------------------
After raising the target short-term interest rate 17 times between June 2004 and
June 2006, the Federal Reserve Board (the Fed) finally opted to pause on August
8, 2006. This left the federal funds rate at 5.25%, where it remained through
year-end. In interrupting its two-year interest rate-hiking campaign, the Fed
acknowledged that economic growth is slowing, led by a downturn in the housing
market, but has maintained a cautionary view on inflation.
Overall, it was a good 12 months for U.S. equities, despite a significant
correction in the middle of the year that was largely triggered by rising
interest rates, inflation fears, elevated oil prices and geopolitical
uncertainties. Nevertheless, strong corporate earnings, abundant liquidity and
record merger-and-acquisition activity provided a solid backdrop for stocks.
Many international equity markets (with the notable exception of Japan)
performed even better, outpacing U.S. stocks for the fifth consecutive year.
Strength was especially notable in European equities and select emerging
markets.
Bonds experienced a more modest annual return than stocks. Interest rates and
bond yields moved higher for much of the year as bond prices, which move
opposite of yields, declined. Prices began to improve in the summer as the
economy showed signs of weakening and the Fed paused. Notably, the Treasury
curve remained inverted for much of 2006. The 10-year Treasury yield ended
December at 4.71%, well below the federal funds rate.
As we begin a new year, investors are left with a few key questions: Will the
U.S. economy achieve a soft landing, will the Fed reverse its prior policy and
cut interest rates, and how might these outcomes impact the investment climate.
As you navigate the uncertainties inherent in the financial markets, we
encourage you to start the year by reviewing your investment goals with your
financial professional and making portfolio changes, as needed. For more
reflection on 2006 and our thoughts on the year ahead, please ask your financial
professional for a copy of "What's Ahead in 2007: An Investment Perspective," or
view it online at www.blackrock.com/funds. We thank you for trusting BlackRock
with your investment assets, and we look forward to continuing to serve you in
the new year and beyond.
Sincerely,
/s/ Robert C. Doll, Jr.
Robert C. Doll, Jr.
President and Director
BLACKROCK APEX MUNICIPAL FUND, INC. DECEMBER 31, 2006 3
A Discussion With Your Fund's Portfolio Manager
The Fund benefited from strong performance in three key sectors of the
high yield municipal market -- health care, tax-backed development districts and
airlines.
Describe the recent market environment relative to municipal bonds.
Long-term bond yields generally moved lower during the past six months as their
prices, which move in the opposite direction, increased. The municipal market's
strong technical position allowed municipal bond yields to decline more than
taxable yields.
The strength in bond prices came amid a slowdown in U.S. economic growth and the
Federal Reserve Board's decision at its August 8 meeting to refrain from raising
its target interest rate after 17 consecutive increases since June 2004. Bond
prices found additional support in moderating oil prices. Between June 30 and
November 30, 2006, 30-year Treasury bond yields declined 73 basis points (.73%)
to 4.56%. However, stronger-than-expected economic releases and year-end profit
taking pushed yields higher during December. For the six-month period overall,
30-year U.S. Treasury bond yields fell 38 basis points to 4.81% and 10-year
Treasury note yields declined 44 basis points to 4.71%.
The tax-exempt bond market outperformed the U.S. Treasury market as investor
demand outstripped a resurgent new-issue calendar. For the six-month period
ended December 31, 2006, as reported by Municipal Market Data, yields on
30-year, AAA-rated municipal issues declined 56 basis points to 4.07%. Yields on
10-year, AAA-rated tax-exempt bonds declined 44 basis points to 3.68%.
Investor demand for municipal product remained strong throughout the period. The
latest available statistics from the Investment Company Institute indicate that,
through November, long-term municipal bond funds had net new cash flows of
nearly $14 billion, an increase of more than 120% versus the same 11 months of
2005. As reported by AMG Data, weekly average cash flows exceeded $400 million
throughout the fourth quarter of 2006, representing a solid increase from the
$241 million weekly average seen for the full year. The fourth quarter increase
is especially impressive, as holiday spending often results in reduced cash
flows into mutual funds at year-end.
New-issue municipal volume surged in the fourth quarter as municipalities rushed
to take advantage of low market yields and solid investor demand. More than $121
billion in new long-term tax-exempt bonds was issued over the last three months
of 2006, a 23.4% increase compared to fourth quarter 2005. Issuance in December,
which totaled over $43 billion, was the highest December monthly volume level
since 1985. That year, municipalities scurried to issue bonds in anticipation of
a more stringent underwriting environment resulting from the Tax Reform Act of
1986. The increased issuance in the final quarter of this past year pushed
2006's annual total volume to over $383 billion, just 6% off last year's record
issuance and close to initial annual issuance estimates. The recent increase in
issuance has made the municipal market's outperformance even more impressive.
Looking ahead, the tax-exempt bond market's technical position is expected to
remain supportive of continued strong performance. Attractive yield ratios,
combined with a relatively steep municipal bond yield curve and manageable new
issuance, should help to sustain investor demand for municipal product.
How did the Fund perform during the period?
For the six-month period ended December 31, 2006, the Common Stock of BlackRock
Apex Municipal Fund, Inc. (formerly Apex Municipal Fund, Inc.) had net
annualized yields of 5.75% and 5.47%, based on a period-end per share net asset
value of $10.14 and a per share market price of $10.66, respectively, and $0.294
per share income dividends. Over the same period, the total investment return on
the Fund's Common Stock was +5.44%, based on a change in per share net asset
value from $9.90 to $10.14, and assuming reinvestment of all distributions.
The Fund's total return, based on net asset value, modestly lagged the +5.82%
average return of the Lipper High Yield Municipal Debt Funds category for the
six-month period. (Funds in this Lipper category invest at least 50% of their
assets in lower-rated municipal debt issues.) Notably, the Lipper group includes
high yield municipal bond funds that employ leverage and those that do not, such
as BlackRock Apex Municipal Fund, Inc. When the yield curve is positively
sloped, as the municipal curve has been, leveraged funds are able to borrow at
lower short-term interest rates and invest at higher long-term interest rates,
generating additional income. Leverage creates additional volatility as interest
rates
4 BLACKROCK APEX MUNICIPAL FUND, INC. DECEMBER 31, 2006
fluctuate, enhancing return as rates decline and detracting from return as rates
rise. While leveraged funds have had an advantage, the Fund was a top performer
among its unleveraged peers.
Fund performance reflects ongoing investor demand for high yield municipal
bonds, which drove credit spreads (versus higher-quality issues of comparable
maturity) to historically tight levels. Sectors that we emphasized -- health
care, tax-backed development districts and airlines -- were beneficiaries of
this trend. Health care comprised 29% of the portfolio, with emphasis on
long-term care (13.6%) and not-for-profit hospitals (12.3%). Ample supply in the
health care sector has led to increased appetite for these issues, which have
tended to be oversubscribed with bids higher than the bonds' initial pricing.
From a credit standpoint, hospitals have seen some of their best operating
margins in over a decade, and demographic trends have favored the long-term care
sector's growth as the population ages. All of this has benefited our positions
in health care.
Development districts, both residential and commercial as well as blends of the
two, represented 15.9% of the portfolio. Although the housing market appears to
be experiencing a slowdown, most of our purchases in this sector occurred in the
past when spreads were wider or have been in existing developments that are
nearly complete. As such, our positions have done well. Finally, airline-related
debt accounted for 7.9% of the portfolio. Airlines continue to exhibit better
profitability amid reduced capacity and have benefited from somewhat lower fuel
costs in the past three to six months. An unsolicited bid by USAirways for Delta
Airlines before it emerges from bankruptcy touched off speculation about future
consolidation, which would further reduce capacity and benefit the profitability
of the surviving carriers.
For a description of the Fund's total investment return based on a change in the
per share market value of the Fund's Common Stock (as measured by the trading
price of the Fund's shares on the New York Stock Exchange), and assuming
reinvestment of dividends, please refer to the Financial Highlights section of
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 market value of the Fund's
Common Stock can vary significantly from total investment returns based on
changes in the Fund's net asset value.
What changes were made to the portfolio during the period?
Portfolio activity was focused largely on the new-issue market, where pricing
and liquidity generally have been better than in the secondary market. For the
most part, in making new purchases, we continued to emphasize our existing
sector concentrations, particularly health care. The purchases were funded with
the sale of positions that had performed well, particularly those positions that
we viewed to have little additional upside potential. In the airline sector, for
example, we reduced one of our larger positions, that being Phoenix, Arizona
bonds issued on behalf of America West (now known as USAirways). These bonds
have recovered from low levels.
Overall, our approach has become increasingly more tactical given the magnitude
of the market's outperformance in the past year. As it becomes more difficult to
uncover value in the high yield municipal market, we are more willing to lock in
profits as the market presents opportunities. The Fund is in a favorable
position to take these gains, as its substantial net capital loss carryforwards
can be used to offset the capital gains without passing through a tax
consequence to our shareholders.
How would you characterize the Fund's position at the close of the period?
We maintained our three key sector concentrations at period-end, although we
recently have refrained from adding exposure to select health care and
tax-backed development districts given a general lack of relative value as well
as concern over the state of the housing industry in select geographic regions.
The credit profile of the portfolio emerged from this period somewhat improved,
primarily due to the advance refunding of some existing holdings. Most recently,
we have seen this type of activity among some of our long-term care holdings.
With credit spreads at historically tight levels, we expect that activity in the
next year will reflect efforts to upgrade the portfolio somewhat relative to our
peers and broader market benchmarks. We intend to remain flexible and cautious
in our approach as we pursue our mission of providing shareholders with a high
degree of tax-exempt income.
Theodore R. Jaeckel Jr., CFA
Vice President and Portfolio Manager
January 12, 2007
BLACKROCK APEX MUNICIPAL FUND, INC. DECEMBER 31, 2006 5
Schedule of Investments as of December 31, 2006 (in Thousands)
Face
Amount Municipal Bonds Value
=================================================================================================
Alabama--1.1%
$ 1,000 Brewton, Alabama, IDB, PCR, Refunding (Container
Corporation of America--Jefferson Smurfit Corp.
Project), 8% due 4/01/2009 $ 1,006
1,255 Tuscaloosa, Alabama, Special Care Facilities Financing
Authority, Residential Care Facility Revenue Bonds
(Capstone Village, Inc. Project), Series A, 5.875%
due 8/01/2036 1,286
=================================================================================================
Alaska--1.1%
2,000 Alaska Industrial Development and Expert Authority
Revenue Bonds (Williams Lynxs Alaska Cargoport),
AMT, 8% due 5/01/2023 2,141
=================================================================================================
Arizona--3.3%
900 Maricopa County, Arizona, IDA, Education Revenue
Bonds (Arizona Charter Schools Project 1), Series A,
6.625% due 7/01/2020 916
Maricopa County, Arizona, IDA, M/F Housing Revenue
Bonds (Sun King Apartments Project), Series A:
55 5.875% due 11/01/2008 55
20 6% due 11/01/2010 20
1,020 6.75% due 5/01/2031 1,053
2,950 Phoenix, Arizona, IDA, Airport Facility, Revenue
Refunding Bonds (America West Airlines Inc. Project),
AMT, 6.30% due 4/01/2023 3,011
1,000 Pima County, Arizona, IDA, Education Revenue Bonds
(Arizona Charter Schools Project), Series E, 7.25%
due 7/01/2031 1,095
500 Yavapai County, Arizona, IDA, Hospital Facility Revenue
Bonds (Yavapai Regional Medical Center), Series A,
6% due 8/01/2033 541
=================================================================================================
California--2.2%
1,800 California State, GO, 5% due 2/01/2033 1,878
1,300 California State, Various Purpose, GO, 5.25%
due 11/01/2025 1,395
1,000 Fontana, California, Special Tax, Refunding
(Community Facilities District Number 22--Sierra),
6% due 9/01/2034 1,065
=================================================================================================
Colorado--5.5%
450 Colorado Health Facilities Authority, Revenue
Refunding Bonds (Christian Living Communities
Project), Series A, 5.75% due 1/01/2026 473
2,575 Denver, Colorado, Urban Renewal Authority, Tax
Increment Revenue Bonds (Pavilions), AMT, 7.75%
due 3/01/2007 (a) 2,617
2,800 Elk Valley, Colorado, Public Improvement Revenue
Bonds (Public Improvement Fee), Series A,
7.30% due 9/01/2022 2,981
1,235 North Range, Colorado, Metropolitan District Number 1,
GO, 7.25% due 12/15/2031 1,331
Plaza Metropolitan District Number 1, Colorado, Tax
Allocation Revenue Bonds (Public Improvement Fees):
2,000 8% due 12/01/2025 2,218
500 8.125% due 12/01/2025 504
830 Southlands, Colorado, Medical District, GO
(Metropolitan District Number 1), 7.125%
due 12/01/2034 920
=================================================================================================
Connecticut--0.3%
490 Connecticut State Development Authority, Airport
Facility Revenue Bonds (Learjet Inc. Project), AMT,
7.95% due 4/01/2026 590
=================================================================================================
Florida--7.9%
800 Capital Projects Finance Authority, Florida, Continuing
Care Retirement Revenue Bonds (Glenridge on
Palmer Ranch), Series A, 8% due 6/01/2012 (a) 956
840 Halifax Hospital Medical Center, Florida, Hospital
Revenue Refunding Bonds, Series A, 5%
due 6/01/2038 858
850 Highlands County, Florida, Health Facilities Authority,
Hospital Revenue Bonds (Adventist Health System),
Series C, 5.25% due 11/15/2036 905
2,500 Hillsborough County, Florida, IDA, Exempt Facilities
Revenue Bonds (National Gypsum Company), AMT,
Series A, 7.125% due 4/01/2030 2,744
765 Lakewood Ranch, Florida, Community Development
District Number 5, Special Assessment Revenue
Refunding Bonds, Series A, 6.70% due 5/01/2031 818
Midtown Miami, Florida, Community Development
District, Special Assessment Revenue Bonds, Series A:
1,500 6% due 5/01/2024 1,616
1,350 6.25% due 5/01/2037 1,468
1,555 Orlando, Florida, Urban Community Development
District, Capital Improvement Special Assessment
Bonds, Series A, 6.95% due 5/01/2033 1,682
2,140 Santa Rosa Bay Bridge Authority, Florida, Revenue
Bonds, 6.25% due 7/01/2028 2,164
2,515 Tampa Palms, Florida, Open Space and Transportation
Community Development District Revenue Bonds,
Capital Improvement (Richmond Place Project),
7.50% due 5/01/2018 2,570
=================================================================================================
Georgia--3.8%
Atlanta, Georgia, Tax Allocation Bonds:
2,000 (Atlantic Station Project), 7.90% due 12/01/2024 2,219
410 (Eastside Project), Series B, 5.40% due 1/01/2020 423
495 (Princeton Lakes Project), 5.50% due 1/01/2031 504
Portfolio Abbreviations
To simplify the listings of BlackRock 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
VRDN Variable Rate Demand Notes
6 BLACKROCK APEX MUNICIPAL FUND, INC. DECEMBER 31, 2006
Schedule of Investments (continued) (in Thousands)
Face
Amount Municipal Bonds Value
=================================================================================================
Georgia (concluded)
Brunswick and Glynn County, Georgia, Development
Authority, First Mortgage Revenue Bonds (Coastal
Community Retirement Corporation Project), Series A:
$ 830 7.125% due 1/01/2025 $ 823
1,185 7.25% due 1/01/2035 1,181
1,580 Fulton County, Georgia, Development Authority, PCR
(General Motors Corporation), Refunding, VRDN,
8% due 4/01/2010 (e) 1,580
830 Savannah, Georgia, EDA, First Mortgage Revenue
Bonds (Marshes of Skidaway), Series A, 7.40%
due 1/01/2034 914
=================================================================================================
Idaho--0.8%
1,470 Idaho Health Facilities Authority, Revenue Refunding
Bonds (Valley Vista Care Corporation), Series A,
7.75% due 11/15/2016 1,545
=================================================================================================
Illinois--7.6%
1,845 Caseyville, Illinois, Senior Tax Increment Revenue Bonds
(Forest Lakes Project), 7% due 12/30/2022 1,944
3,000 Chicago, Illinois, O'Hare International Airport, Special
Facility Revenue Refunding Bonds (American
Airlines Inc. Project), 8.20% due 12/01/2024 3,091
2,605 Illinois Development Finance Authority Revenue Bonds
(Primary Health Care Centers Facilities Acquisition
Program), 7.75% due 12/01/2016 2,682
Illinois State Finance Authority Revenue Bonds:
2,050 (Clare At Water Tower Project), Series A,
6.125% due 5/15/2038 2,151
430 (Landing At Plymouth Place Project), Series A,
6% due 5/15/2037 458
490 (Primary Health Care Centers Program),
6.60% due 7/01/2024 513
755 Lincolnshire, Illinois, Special Service Area Number 1,
Special Tax Bonds (Sedgebrook Project), 6.25%
due 3/01/2034 805
2,400 Lombard, Illinois, Public Facilities Corporation, First Tier
Revenue Bonds (Conference Center and Hotel),
Series A-1, 7.125% due 1/01/2036 2,577
265 Naperville, Illinois, IDR (General Motors Corporation),
Refunding, VRDN, 8% due 12/01/2012 (e) 265
760 Village of Wheeling, Illinois, Revenue Bonds (North
Milwaukee/Lake-Cook Tax Increment Financing (TIF)
Redevelopment Project), 6% due 1/01/2025 774
=================================================================================================
Indiana--0.9%
840 Delaware County, Indiana, Hospital Authority, Hospital
Revenue Bonds (Cardinal Health System Obligated
Group), 5.25% due 8/01/2036 877
820 Vanderburgh County, Indiana, Redevelopment
Commission, Redevelopment District Tax Allocation
Bonds, 5.25% due 2/01/2031 867
=================================================================================================
Iowa--1.7%
2,720 Iowa Finance Authority, Health Care Facilities, Revenue
Refunding Bonds (Care Initiatives Project), 9.25%
due 7/01/2011 (a) 3,348
=================================================================================================
Kansas--0.6%
1,230 Wyandotte County, Kansas, Kansas City Unified
Government Revenue Refunding Bonds (General
Motors Corporation Project), 6% due 6/01/2025 1,241
=================================================================================================
Louisiana--0.7%
$1,300 Louisiana Public Facilities Authority, Hospital Revenue
Bonds (Franciscan Missionaries of Our Lady Health
System, Inc.), Series A, 5.25% due 8/15/2036 $ 1,374
=================================================================================================
Maine--0.4%
840 Maine Finance Authority, Solid Waste Recycling
Facilities Revenue Bonds (Great Northern Paper
Project--Bowater), AMT, 7.75% due 10/01/2022 847
=================================================================================================
Maryland--1.6%
385 Baltimore, Maryland, Convention Center Hotel Revenue
Bonds, Sub-Series B, 5.875% due 9/01/2039 408
1,500 Maryland State Energy Financing Administration,
Limited Obligation Revenue Bonds (Cogeneration --
AES Warrior Run), AMT, 7.40% due 9/01/2019 1,509
Maryland State Health and Higher Educational Facilities
Authority Revenue Bonds:
1,000 (King Farm Presbyterian Community), Series A,
5.25% due 1/01/2027 998
410 (Washington Christian Academy), 5.50%
due 7/01/2038 411
=================================================================================================
Massachusetts--3.5%
1,845 Massachusetts State Development Finance Agency,
First Mortgage Revenue Bonds (Overlook
Communities, Inc.), Series A, 6.25% due 7/01/2034 1,928
1,245 Massachusetts State Development Finance Agency,
Revenue Refunding Bonds (Eastern Nazarene
College), 5.625% due 4/01/2019 1,279
850 Massachusetts State Health and Educational Facilities
Authority Revenue Bonds (Jordan Hospital), Series E,
6.75% due 10/01/2033 939
Massachusetts State Health and Educational Facilities
Authority, Revenue Refunding Bonds:
1,350 (Bay Cove Human Services Issue), Series A,
5.90% due 4/01/2028 1,376
500 (Milton Hospital), Series, 5.50% due 7/01/2016 512
1,000 Massachusetts State Industrial Finance Agency
Revenue Bonds, Sewer Facility (Resource Control
Composting), AMT, 9.25% due 6/01/2010 1,016
=================================================================================================
Michigan--1.3%
1,150 Macomb County, Michigan, Hospital Finance Authority,
Hospital Revenue Bonds (Mount Clemens General
Hospital), Series B, 5.875% due 11/15/2034 1,221
1,260 Monroe County, Michigan, Hospital Financing Authority,
Hospital Revenue Refunding Bonds (Mercy Memorial
Hospital Corporation), 5.50% due 6/01/2035 1,331
=================================================================================================
Minnesota--0.7%
1,230 Saint Paul, Minnesota, Port Authority, Hotel Facility,
Revenue Refunding Bonds (Radisson Kellogg Project),
Series 2, 7.375% due 8/01/2008 (a) 1,335
=================================================================================================
Missouri--1.2%
1,155 Fenton, Missouri, Tax Increment Revenue Refunding and
Improvement Bonds (Gravois Bluffs), 7%
due 10/01/2011 (a) 1,327
1,000 Kansas City, Missouri, IDA, First Mortgage Health
Facilities Revenue Bonds (Bishop Spencer Place),
Series A, 6.50% due 1/01/2035 1,061
=================================================================================================
BLACKROCK APEX MUNICIPAL FUND, INC. DECEMBER 31, 2006 7
Schedule of Investments (continued) (in Thousands)
Face
Amount Municipal Bonds Value
=================================================================================================
Nevada--0.2%
$ 430 Clark County, Nevada, Improvement District
Number 142, Special Assessment Bonds, 6.375%
due 8/01/2023 $ 443
=================================================================================================
New Hampshire--0.4%
835 New Hampshire Health and Education Facilities
Authority, Hospital Revenue Bonds (Catholic Medical
Center), 5% due 7/01/2036 859
=================================================================================================
New Jersey--12.9%
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 6,088
2,170 New Jersey EDA, Cigarette Tax Revenue Bonds, 5.50%
due 6/15/2024 2,287
1,500 New Jersey EDA, IDR, Refunding (Newark Airport
Marriott Hotel), 7% due 10/01/2014 1,552
New Jersey EDA, Retirement Community Revenue
Bonds (a):
1,000 (Cedar Crest Village, Inc. Facility), Series A,
7.25% due 11/15/2011 1,147
3,700 (Seabrook Village, Inc.), Series A, 8.125%
due 11/15/2010 4,263
New Jersey EDA, Special Facility Revenue Bonds
(Continental Airlines, Inc. Project), AMT:
3,050 6.625% due 9/15/2012 3,265
1,750 6.25% due 9/15/2029 1,806
1,870 New Jersey Health Care Facilities Financing Authority
Revenue Bonds (Pascack Valley Hospital Association),
6.625% due 7/01/2036 2,049
2,760 New Jersey State Transportation Trust Fund Authority,
Transportation System Revenue Bonds, Series C,
5.05% due 12/15/2035 (b)(f) 771
Tobacco Settlement Financing Corporation of
New Jersey, Asset-Backed Revenue Bonds:
1,245 5.75% due 6/01/2032 1,322
1,075 7% due 6/01/2041 1,247
=================================================================================================
New Mexico--2.6%
5,000 Farmington, New Mexico, PCR, Refunding (Tucson
Electric Power Company--San Juan Project),
Series A, 6.95% due 10/01/2020 5,173
=================================================================================================
New York--6.1%
1,000 Dutchess County, New York, IDA, Civic Facility Revenue
Bonds (Saint Francis Hospital), Series B, 7.50%
due 3/01/2029 1,114
1,890 Erie County, New York, IDA, Revenue Bonds
(Orchard Park CCRC, Inc. Project), Series A,
6% due 11/15/2036 2,022
New York City, New York, City IDA, Civic Facility
Revenue Bonds:
350 Series C, 6.80% due 6/01/2028 385
830 (Special Needs Facility Pooled Program),
Series C-1, 6.50% due 7/01/2024 864
1,730 New York City, New York, City IDA, Special Facility
Revenue Bonds (British Airways Plc Project), AMT,
7.625% due 12/01/2032 1,942
630 New York Liberty Development Corporation Revenue
Bonds (National Sports Museum Project), Series A,
6.125% due 2/15/2019 666
2,080 New York State Dormitory Authority, Non-State
Supported Debt, Revenue Bonds (Mount Sinai--NYU
Medical Center Health System), 5.50% due 7/01/2026 2,123
1,865 New York State Dormitory Authority, Non-State
Supported Debt, Revenue Refunding Bonds (Mount
Sinai--NYU Medical Center Health System),
Series C, 5.50% due 7/01/2026 1,903
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 1,269
=================================================================================================
North Carolina--0.7%
250 North Carolina Medical Care Commission, Health Care
Facilities, First Mortgage Revenue Refunding Bonds
(Salemtowne Project), 5.10% due 10/01/2030 252
1,000 North Carolina Medical Care Commission, Retirement
Facilities, First Mortgage Revenue Bonds (Givens
Estates Project), Series A, 6.50% due 7/01/2032 1,084
=================================================================================================
Pennsylvania--7.1%
250 Allegheny County, Pennsylvania, IDA, Lease Revenue
Refunding Bonds (Residential Resources, Inc. Project),
5.125% due 9/01/2031 258
1,160 Bucks County, Pennsylvania, IDA, Retirement
Community Revenue Bonds (Ann's Choice, Inc.),
Series A, 6.125% due 1/01/2025 1,236
1,750 Chester County, Pennsylvania, Health and Education
Facilities Authority, Senior Living Revenue Refunding
Bonds (Jenners Pond, Inc. Project), 7.625%
due 7/01/2012 (a) 2,102
600 Harrisburg, Pennsylvania, Authority, University Revenue
Bonds (Harrisburg University of Science), Series B,
6% due 9/01/2036 610
1,825 Montgomery County, Pennsylvania, Higher Education
and Health Authority Revenue Bonds (Faulkeways at
Gwynedd Project), 6.75% due 11/15/2009 (a) 1,997
1,700 Montgomery County, Pennsylvania, IDA, Revenue
Bonds (Whitemarsh Continuing Care Project),
6.25% due 2/01/2035 1,818
Philadelphia, Pennsylvania, Authority for IDR:
1,600 (Air Cargo), AMT, Series A, 7.50% due 1/01/2025 1,754
4,460 Commercial Development, 7.75% due 12/01/2017 4,470
=================================================================================================
Rhode Island--1.0%
1,750 Central Falls, Rhode Island, Detention Facility
Corporation, Detention Facility, Revenue Refunding
Bonds, 7.25% due 7/15/2035 1,967
=================================================================================================
South Carolina--4.1%
Connector 2000 Association, Inc., South Carolina,
Toll Road and Capital Appreciation Revenue Bonds,
Senior Series B (f):
1,100 6.50% due 1/01/2009 966
1,075 7.969% due 1/01/2014 623
615 Myrtle Beach, South Carolina, Tax Increment Revenue
Bonds (Myrtle Beach Air Force Base), Series A,
5.30% due 11/01/2035 626
5,715 South Carolina Housing Finance and Development
Authority, Mortgage Revenue Refunding Bonds,
AMT, Series A-2, 5.15% due 7/01/2037 (b) 5,917
=================================================================================================
8 BLACKROCK APEX MUNICIPAL FUND, INC. DECEMBER 31, 2006
Schedule of Investments (concluded) (in Thousands)
Face
Amount Municipal Bonds Value
=================================================================================================
Tennessee--3.1%
$ 5,000 Knox County, Tennessee, Health, Educational and
Housing Facilities Board, Hospital Facilities Revenue
Refunding Bonds (Covenant Health), Series A,
5.03% due 2/01/2037 (f) $ 1,116
Shelby County, Tennessee, Health, Educational and
Housing Facilities Board Revenue Bonds
(Germantown Village):
245 6.25% due 12/01/2034 216
1,800 Series A, 7.25% due 12/01/2034 1,802
2,980 Sullivan County, Tennessee, Health, Educational and
Housing Facilities Board, Hospital Revenue Bonds
(Wellmont Health System Project), Series C, 5.25%
due 9/01/2036 3,130
=================================================================================================
Texas--7.5%
1,000 Austin, Texas, Convention Center Revenue Bonds
(Convention Enterprises, Inc.), First Tier, Series A,
6.70% due 1/01/2011 (a) 1,109
2,530 Brazos River Authority, Texas, PCR, Refunding
(Texas Utility Company), AMT, Series A, 7.70%
due 4/01/2033 2,971
1,220 Brazos River Authority, Texas, Revenue Refunding
Bonds (Reliant Energy, Inc. Project), Series B,
7.75% due 12/01/2018 1,292
2,275 Dallas-Fort Worth, Texas, International Airport Facilities
Improvement Corporation Revenue Bonds (American
Airlines Inc.), AMT, 7.25% due 11/01/2030 2,309
830 Grand Prairie, Texas, Housing Finance Corporation
Revenue Bonds (Independent Senior Living Center),
7.75% due 1/01/2034 823
655 HFDC of Central Texas, Inc., Retirement Facilities
Revenue Bonds, Series A, 5.625% due 11/01/2026 675
1,000 Houston, Texas, Health Facilities Development
Corporation, Retirement Facility Revenue Bonds
(Buckingham Senior Living Community), Series A,
7.125% due 2/15/2034 1,119
875 Kerrville, Texas, Health Facilities Development
Corporation, Hospital Revenue Bonds (Sid Peterson
Memorial Hospital Project), 5.375% due 8/15/2035 916
2,310 Matagorda County, Texas, Navigation District
Number 1, Revenue Refunding Bonds (Reliant
Energy, Inc.), Series C, 8% due 5/01/2029 2,446
1,330 Port Corpus Christi, Texas, Individual Development
Corporation, Environmental Facilities Revenue
Bonds (Citgo Petroleum Corporation Project), AMT,
8.25% due 11/01/2031 1,370
=================================================================================================
Utah--1.2%
2,240 Carbon County, Utah, Solid Waste Disposal, Revenue
Refunding Bonds (Laidlaw Environmental), AMT,
Series A, 7.45% due 7/01/2017 2,314
=================================================================================================
Virginia--1.8%
2,470 Dulles Town Center, Virginia, Community Development
Authority, Special Assessment Tax (Dulles Town
Center Project), 6.25% due 3/01/2026 2,570
310 Farms of New Kent, Virginia, Community Development
Authority, Special Assessment Bonds, Series C,
5.80% due 3/01/2036 312
725 Suffolk, Virginia, IDA, Retirement Facilities, Revenue
Refunding Bonds (Lake Prince Center), 5.15%
due 9/01/2024 738
=================================================================================================
West Virginia--0.6%
1,125 Princeton, West Virginia, Hospital Revenue Refunding
Bonds (Community Hospital Association, Inc. Project),
6.20% due 5/01/2013 1,126
=================================================================================================
Wisconsin--0.7%
1,320 Wisconsin State Health and Educational Facilities
Authority Revenue Bonds (New Castle Place Project),
Series A, 7% due 12/01/2031 1,380
=================================================================================================
Puerto Rico--1.3%
2,500 Puerto Rico Commonwealth Infrastructure Financing
Authority, Special Tax Revenue Bonds, Series B,
5% due 7/01/2041 2,604
=================================================================================================
U.S. Virgin Islands--1.2%
2,100 Virgin Islands Government Refinery Facilities, Revenue
Refunding Bonds (Hovensa Coker Project), AMT,
6.50% due 7/01/2021 2,368
-------------------------------------------------------------------------------------------------
Total Municipal Bonds
(Cost--$183,802)--98.7% 197,477
=================================================================================================
Shares
Held Short-Term Securities
=================================================================================================
907 Merrill Lynch Institutional Tax-Exempt Fund, 5.19% (c)(d) 907
-------------------------------------------------------------------------------------------------
Total Short-Term Securities
(Cost--$907)--0.4% 907
=================================================================================================
Total Investments (Cost--$184,709*)--99.1% 198,384
Other Assets Less Liabilities--0.9% 1,732
-----------
Net Assets--100.0% $ 200,116
===========
* The cost and unrealized appreciation (depreciation) of investments as of
December 31, 2006, as computed for federal income tax purposes, were as
follows:
Aggregate cost .............................................. $ 184,343
==========
Gross unrealized appreciation ............................... $ 14,082
Gross unrealized depreciation ............................... (41)
----------
Net unrealized appreciation ................................. $ 14,041
==========
(a) Prerefunded.
(b) AMBAC Insured.
(c) Investments in companies considered to be an affiliate of the Fund, for
purposes of Section 2(a)(3) of the Investment Company Act of 1940, were as
follows:
--------------------------------------------------------------------------
Net Dividend
Affiliate Activity Income
--------------------------------------------------------------------------
Merrill Lynch Institutional Tax-Exempt Fund (194) $ 41
--------------------------------------------------------------------------
(d) Represents the current yield as of December 31, 2006.
(e) Security may have a maturity of more than one year at the time of
issuance, but has variable rate and demand features that qualify it as a
short-term security. The rate disclosed is that currently in effect. This
rate changes periodically based upon prevailing market rates.
(f) Represents a zero coupon bond; the interest rate shown reflects the
effective yield at the time of purchase.
See Notes to Financial Statements.
BLACKROCK APEX MUNICIPAL FUND, INC. DECEMBER 31, 2006 9
Statement of Assets, Liabilities and Capital
As of December 31, 2006
===================================================================================================================================
Assets
-----------------------------------------------------------------------------------------------------------------------------------
Investments in unaffiliated securities, at value (identified cost--$183,802,491) ... $ 197,476,725
Investments in affiliated securities, at value (identified cost--$906,897) ......... 906,897
Cash ............................................................................... 68,748
Interest receivable ................................................................ 3,406,638
Prepaid expenses ................................................................... 1,477
-------------
Total assets ....................................................................... 201,860,485
-------------
===================================================================================================================================
Liabilities
-----------------------------------------------------------------------------------------------------------------------------------
Payables:
Securities purchased ............................................................ $ 1,600,000
Investment adviser .............................................................. 113,800
Other affiliates ................................................................ 1,904 1,715,704
-------------
Accrued expenses ................................................................... 29,251
-------------
Total liabilities .................................................................. 1,744,955
-------------
===================================================================================================================================
Net Assets
-----------------------------------------------------------------------------------------------------------------------------------
Net Assets ......................................................................... $ 200,115,530
=============
===================================================================================================================================
Capital
-----------------------------------------------------------------------------------------------------------------------------------
Common Stock, $.10 par value, 150,000,000 shares authorized; 19,726,039
shares issued and outstanding ..................................................... $ 1,972,604
Paid-in capital in excess of par ................................................... 199,921,987
Undistributed investment income--net ............................................... $ 2,239,395
Accumulated realized capital losses--net ........................................... (17,692,690)
Unrealized appreciation--net ....................................................... 13,674,234
-------------
Total accumulated losses--net ...................................................... (1,779,061)
-------------
Total capital--Equivalent to $10.14 net asset value per share of Common Stock
(market price--$10.66) ............................................................ $ 200,115,530
=============
See Notes to Financial Statements.
10 BLACKROCK APEX MUNICIPAL FUND, INC. DECEMBER 31, 2006
Statement of Operations
For the Six Months Ended December 31, 2006
===================================================================================================================================
Investment Income
-----------------------------------------------------------------------------------------------------------------------------------
Interest ........................................................................... $ 6,675,581
Dividends from affiliates .......................................................... 41,019
-------------
Total income ....................................................................... 6,716,600
-------------
===================================================================================================================================
Expenses
-----------------------------------------------------------------------------------------------------------------------------------
Investment advisory fees ........................................................... $ 645,436
Accounting services ................................................................ 39,053
Professional fees .................................................................. 25,851
Printing and shareholder reports ................................................... 21,638
Transfer agent fees ................................................................ 20,585
Pricing fees ....................................................................... 8,877
Listing fees ....................................................................... 8,279
Directors' fees and expenses ....................................................... 8,152
Custodian fees ..................................................................... 6,646
Other .............................................................................. 15,121
-------------
Total expenses before reimbursement ................................................ 799,638
Reimbursement of expenses .......................................................... (2,400)
-------------
Total expenses ..................................................................... 797,238
-------------
Investment income--net ............................................................. 5,919,362
-------------
===================================================================================================================================
Realized & Unrealized Gain (Loss)--Net
-----------------------------------------------------------------------------------------------------------------------------------
Realized loss on investments ....................................................... (3,874,578)
Change in unrealized appreciation on investments ................................... 8,646,421
-------------
Total realized and unrealized gain--net ............................................ 4,771,843
-------------
Net Increase in Net Assets Resulting from Operations ............................... $ 10,691,205
=============
See Notes to Financial Statements.
BLACKROCK APEX MUNICIPAL FUND, INC. DECEMBER 31, 2006 11
Statements of Changes in Net Assets
For the Six For the
Months Ended Year Ended
December 31, June 30,
Increase (Decrease) in Net Assets: 2006 2006
===================================================================================================================================
Operations
-----------------------------------------------------------------------------------------------------------------------------------
Investment income--net ............................................................. $ 5,919,362 $ 11,291,925
Realized gain (loss)--net .......................................................... (3,874,578) 1,746,648
Change in unrealized appreciation--net ............................................. 8,646,421 (166,492)
-------------------------------
Net increase in net assets resulting from operations ............................... 10,691,205 12,872,081
-------------------------------
===================================================================================================================================
Dividends to Shareholders
-----------------------------------------------------------------------------------------------------------------------------------
Investment income--net ............................................................. (5,789,469) (11,421,420)
-------------------------------
Net decrease in net assets resulting from dividends to shareholders ................ (5,789,469) (11,421,420)
-------------------------------
===================================================================================================================================
Common Stock Transactions
-----------------------------------------------------------------------------------------------------------------------------------
Net increase in net assets derived from Common Stock issued to shareholders in
reinvestment of dividends ......................................................... 567,389 720,540
-------------------------------
===================================================================================================================================
Net Assets
-----------------------------------------------------------------------------------------------------------------------------------
Total increase in net assets ....................................................... 5,469,125 2,171,201
Beginning of period ................................................................ 194,646,405 192,475,204
-------------------------------
End of period* ..................................................................... $ 200,115,530 $ 194,646,405
===============================
* Undistributed investment income--net .......................................... $ 2,239,395 $ 2,109,502
===============================
See Notes to Financial Statements.
12 BLACKROCK APEX MUNICIPAL FUND, INC. DECEMBER 31, 2006
Financial Highlights
For the Six
The following per share data and ratios Months Ended For the Year Ended June 30,
have been derived from information December 31, ---------------------------------------------------------------
provided in the financial statements. 2006 2006 2005 2004 2003 2002
===================================================================================================================================
Per Share Operating Performance
-----------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period ........ $ 9.90 $ 9.82 $ 9.13 $ 8.99 $ 9.24 $ 9.45
-----------------------------------------------------------------------------
Investment income--net ...................... .30+ .58+ .58+ .60+ .58+ .58
Realized and unrealized gain (loss)--net .... .23 .08 .69 .11 (.27) (.22)
-----------------------------------------------------------------------------
Total from investment operations ............ .53 .66 1.27 .71 .31 .36
-----------------------------------------------------------------------------
Less dividends and distributions to Common
Stock shareholders:
Investment income--net ................... (.29) (.58) (.58) (.57) (.56) (.57)
Realized gain--net ....................... -- -- -- --*** -- --
-----------------------------------------------------------------------------
Total dividends and distributions to Common
Stock shareholders (.29) (.58) (.58) (.57) (.56) (.57)
-----------------------------------------------------------------------------
Net asset value, end of period .............. $ 10.14 $ 9.90 $ 9.82 $ 9.13 $ 8.99 $ 9.24
=============================================================================
Market price per share, end of period ....... $ 10.66 $ 10.25 $ 9.48 $ 8.26 $ 8.48 $ 8.39
=============================================================================
===================================================================================================================================
Total Investment Return**
-----------------------------------------------------------------------------------------------------------------------------------
Based on net asset value per share .......... 5.44%++ 7.00% 14.67% 8.64% 4.13% 4.31%
=============================================================================
Based on market price per share ............. 7.06%++ 14.76% 22.36% 4.20% 8.18% (1.64%)
=============================================================================
===================================================================================================================================
Ratios to Average Net Assets
-----------------------------------------------------------------------------------------------------------------------------------
Expenses, net of reimbursement .............. .80%* .80% .80% .79% .90% .87%
=============================================================================
Expenses .................................... .81%* .81% .80% .79% .90% .87%
=============================================================================
Investment income--net ...................... 5.96%* 5.83% 6.11% 6.52% 6.56% 6.19%
=============================================================================
===================================================================================================================================
Supplemental Data
-----------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (in thousands) .... $200,116 $194,646 $192,475 $178,983 $176,116 $181,093
=============================================================================
Portfolio turnover .......................... 8% 19% 22% 19% 24% 25%
=============================================================================
* Annualized.
** Total investment returns based on market value, which can be significantly
greater or lesser than the net asset value, may result in substantially
different returns. Total investment returns exclude the effects of sales
charges.
*** Amount is less than $(.01) per share.
+ Based on average shares outstanding.
++ Aggregate total investment return.
See Notes to Financial Statements.
BLACKROCK APEX MUNICIPAL FUND, INC. DECEMBER 31, 2006 13
Notes to Financial Statements
1. Significant Accounting Policies:
On September 29, 2006, Apex Municipal Fund, Inc. was renamed BlackRock Apex
Municipal Fund, Inc. (the "Fund"). 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 U.S. generally accepted accounting principles, which may require the use of
management accruals and estimates. Actual results may differ from these
estimates. These unaudited financial statements reflect all adjustments which
are, in the opinion of management, necessary to present a fair statement of the
results for the interim period. All such adjustments are of a normal, recurring
nature. The Fund determines and makes available for publication the net asset
value of its Common Stock on a daily basis. The Fund's Common Stock shares are
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 ("OTC") markets and are valued at the last available bid price
in the OTC market or on the basis of values as obtained by a pricing service.
Pricing services use valuation matrixes that incorporate both dealer-supplied
valuations and valuation models. The procedures of the pricing service and its
valuations are reviewed by the officers of the Fund under the general direction
of the Board of Directors. Such valuations and procedures are reviewed
periodically by the Board of Directors of the Fund. 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. Options
traded in the OTC market are valued at the last asked price (options written) or
the last bid price (options purchased). Swap agreements are valued by quoted
fair values received daily by the Fund's pricing service. Short-term investments
with a remaining maturity of 60 days or less are valued at amortized cost, which
approximates market value, under which method the investment is valued at cost
and any premium or discount is amortized on a straight line basis to maturity.
Investments in open-end investment companies are valued at their net asset value
each business day. Securities and other 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.
(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 movements 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 financial futures contracts.
Financial 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 may 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 may enter into forward interest
rate swaps. In a forward interest rate swap, the Fund and the counterparty
agree to make periodic net payments 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.
14 BLACKROCK APEX MUNICIPAL FUND, INC. DECEMBER 31, 2006
Notes to Financial Statements (continued)
o Swaps -- The Fund may enter into swap agreements, which are OTC contracts
in which the Fund and a counterparty agree to make periodic net payments
on a specified notional amount. The net payments can be made for a set
period of time or may be triggered by a pre-determined credit event. The
net periodic payments may be based on a fixed or variable interest rate;
the change in market value of a specified security, basket of securities,
or index; or the return generated by a security. These periodic payments
received or made by the Fund are recorded in the accompanying Statement of
Operations as realized gains or losses, respectively. Gains or losses are
also realized upon termination of the swap agreements. Swaps are
marked-to-market daily and changes in value are recorded as unrealized
appreciation (depreciation). Risks include changes in the returns of the
underlying instruments, failure of the counterparties to perform under the
contracts' terms and the possible lack of liquidity with respect to the
swap agreements.
(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) Recent accounting pronouncements -- In July 2006, the Financial Accounting
Standards Board ("FASB") issued Interpretation No. 48 ("FIN 48"), "Accounting
for Uncertainty in Income Taxes -- an interpretation of FASB Statement No. 109."
FIN 48 prescribes the minimum recognition threshold a tax position must meet in
connection with accounting for uncertainties in income tax positions taken or
expected to be taken by an entity including mutual funds before being measured
and recognized in the financial statements. Adoption of FIN 48 is required for
the last net asset value calculation in the first required financial statement
reporting period for fiscal years beginning after December 15, 2006. The impact
on the Fund's financial statements, if any, is currently being assessed.
In addition, in September 2006, Statement of Financial Accounting Standards No.
157, "Fair Value Measurements" ("FAS 157"), was issued and is effective for
fiscal years beginning after November 15, 2007. FAS 157 defines fair value,
establishes a framework for measuring fair value and expands disclosures about
fair value measurements. Management is currently evaluating the implications of
FAS 157. At this time, its impact on the Fund's financial statements has not
been determined.
2. Investment Advisory Agreement and Transactions with Affiliates:
On September 29, 2006, BlackRock, Inc. and Merrill Lynch & Co., Inc. ("Merrill
Lynch") combined Merrill Lynch's investment management business, Merrill Lynch
Investment Managers, L.P., and its affiliates, including Fund Asset Management,
L.P. ("FAM"), with BlackRock, Inc. to create a new independent company. Merrill
Lynch has a 49.8% economic interest and a 45% voting interest in the combined
company and The PNC Financial Services Group, Inc., has approximately a 34%
economic and voting interest. The new company operates under the BlackRock name
and is governed by a board of directors with a majority of independent members.
On August 15, 2006, shareholders of the Fund approved a new Investment Advisory
Agreement with BlackRock Advisors, Inc. (the "Manager"), an indirect, wholly
owned subsidiary of BlackRock, Inc. BlackRock Advisors, Inc. was recently
reorganized into a limited liability company and renamed BlackRock Advisors,
LLC. The new Investment Advisory Agreement between the Fund and the Manager
became effective on September 29, 2006. Prior to September 29, 2006, FAM was the
Fund's Manager. The general partner of FAM is Princeton Services, Inc. ("PSI"),
an indirect, wholly owned subsidiary of Merrill Lynch, which is the limited
partner.
The Manager 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 daily net
assets. In addition, the Manager has entered into a sub-advisory agreement with
BlackRock Investment Management, LLC, an affiliate of the Manager, under which
the Manager pays the Sub-Adviser for services it provides a fee that is a
percentage of the management fee paid by the Fund to the Manager. The Manager
(and previously FAM) has agreed to reimburse its management fee by the amount of
management fees the Fund pays to the Manager (and previously FAM) indirectly
through its investment in Merrill Lynch
BLACKROCK APEX MUNICIPAL FUND, INC. DECEMBER 31, 2006 15
Notes to Financial Statements (concluded)
Institutional Tax-Exempt Fund. For the period July 1, 2006 to September 29,
2006, FAM reimbursed the Fund $1,381 and for the period September 30, 2006 to
December 31, 2006 the Manager reimbursed the Fund $1,019.
For the six months ended December 31, 2006, the Fund reimbursed FAM and the
Manager $998 and $998, respectively, for certain accounting services.
Prior to September 29, 2006, certain officers and/or directors of the Fund were
officers and/or directors of FAM, PSI, and/or Merrill Lynch.
Commencing September 29, 2006, certain officers and/or directors of the Fund are
officers and/or directors of BlackRock, Inc. or its affiliates.
3. Investments:
Purchases and sales of investments, excluding short-term securities, for the six
months ended December 31, 2006 were $27,057,264 and $14,677,796, respectively.
4. Common Stock Transactions:
At December 31, 2006, 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 for the six months ended December 31, 2006
increased by 56,128 as a result of dividend reinvestment. Shares issued and
outstanding for the year ended June 30, 2006 increased by 73,179 as a result of
dividend reinvestment.
5. Capital Loss Carryforward:
On June 30, 2006, the Fund had a net capital loss carryforward of $13,818,112,
of which $2,542,361 expires in 2008, $5,341,699 expires in 2009, $2,075,987
expires in 2010, $2,163,492 expires in 2011, $1,659,281 expires in 2012 and
$35,292 expires in 2013. This amount will be available to offset like amounts of
any future taxable gains.
6. Subsequent Event:
The Fund paid a tax-exempt dividend to holders of Common Stock in the amount of
$.049000 per share on February 1, 2007 to shareholders of record on January 16,
2007.
Disclosure of Investment Advisory Agreement
BlackRock Investment Advisory Agreement -- Matters Considered by the Board
The following disclosure appeared in the June 30, 2006 Annual Report of the Fund
and is the discussion referred to in "New BlackRock Sub-Advisory Agreement --
Matters Considered by the Board" below. The term "Investment Adviser" as used
herein refers to Fund Asset Management, L.P.
In connection with the Transaction between Merrill Lynch and BlackRock, the
Fund's Board of Directors considered a new investment advisory agreement (the
"New Investment Advisory Agreement") between the Fund and BlackRock Advisors,
Inc. or its successor ("BlackRock Advisors"). If the New Investment Advisory
Agreement is approved by the Fund's shareholders, it will become effective upon
the closing of the Transaction, which is expected in the third quarter of 2006.
The Board discussed the New Investment Advisory Agreement at telephonic and
in-person meetings held during April and May 2006. The Board, including the
independent directors, approved the New Investment Advisory Agreement at a
meeting held on May 9, 2006.
To assist the Board in its consideration of the New Investment Advisory
Agreement, BlackRock provided materials and information about BlackRock,
including its financial condition and asset management capabilities and
organization, and Merrill Lynch provided materials and information about the
Transaction. The independent directors, through their independent legal counsel,
also requested and received additional information from Merrill Lynch and
BlackRock in connection with their consideration of the New Investment Advisory
Agreement. The additional information was provided in advance of the May 9, 2006
meeting. In addition, the independent directors consulted with their counsel and
Fund counsel on numerous occasions, discussing, among other things, the legal
standards and certain other considerations relevant to the directors'
deliberations.
At the Board meetings, the directors discussed with Merrill Lynch management and
certain BlackRock representatives the Transaction, its strategic rationale and
BlackRock's general
16 BLACKROCK APEX MUNICIPAL FUND, INC. DECEMBER 31, 2006
Disclosure of Investment Advisory Agreement (continued)
plans and intentions regarding the Fund. At these Board meetings,
representatives of Merrill Lynch and BlackRock made presentations to and
responded to questions from the Board. The directors also inquired about the
plans for and anticipated roles and responsibilities of certain employees and
officers of the Investment Adviser and certain affiliates being transferred to
BlackRock in connection with the Transaction. The independent directors of the
Board also conferred separately and with their counsel about the Transaction and
other matters related to the Transaction on a number of occasions, including in
connection with the April and May 2006 meetings. After the presentations and
after reviewing the written materials provided, the independent directors met in
executive sessions with their counsel to consider the New Investment Advisory
Agreement.
In connection with the Board's review of the New Investment Advisory Agreement,
Merrill Lynch and/or BlackRock advised the directors about a variety of matters.
The advice included the following, among other matters:
o that there is not expected to be any diminution in the nature, quality and
extent of services provided to the Fund and its shareholders by BlackRock
Advisors, including compliance services;
o that operation of New BlackRock as an independent investment management
firm will enhance its ability to attract and retain talented
professionals;
o that the Fund should benefit from having access to BlackRock's state of
the art technology and risk management analytic tools, including
investment tools, provided under the BlackRock Solutions(R) brand name;
o that BlackRock has no present intention to alter any applicable expense
waivers or reimbursements currently in effect and, while it reserves the
right to do so in the future, it would seek the approval of the Board
before making any changes;
o that in connection with the Transaction, Merrill Lynch and BlackRock have
agreed to conduct, and use reasonable best efforts to cause their
respective affiliates to conduct, their respective businesses in
compliance with the conditions of Section 15(f) of the Investment Company
Act of 1940 (the "1940 Act") in relation to any public funds advised by
BlackRock or the Investment Adviser (or its affiliates), respectively; and
o that Merrill Lynch and BlackRock would derive benefits from the
Transaction and that, as a result, they have a different financial
interest in the matters that were being considered than do Fund
shareholders.
The directors considered the information provided by Merrill Lynch and BlackRock
above, and, among other factors, the following:
o the potential benefits to Fund shareholders from being part of a combined
fund family with BlackRock-sponsored funds, including possible economies
of scale and access to investment opportunities;
o the reputation, financial strength and resources of BlackRock and its
investment advisory subsidiaries and the anticipated financial strength
and resources of New BlackRock;
o the compliance policies and procedures of BlackRock Advisors;
o the terms and conditions of the New Investment Advisory Agreement,
including the fact that the schedule of the Fund's total advisory fees
will not increase by virtue of the New Investment Advisory Agreement, but
will remain the same;
o that in November 2005, the Board performed a full annual review of the
investment advisory agreement currently in effect for the Fund (the
"Current Investment Advisory Agreement") as required by the 1940 Act and
has determined that the Investment Adviser has the capabilities, resources
and personnel necessary to provide the advisory and administrative
services currently provided to the Fund; and that the advisory and/or
management fees paid by the Fund, taking into account any applicable
agreed-upon fee waivers and breakpoints, represent reasonable compensation
to the Investment Adviser in light of the services provided, the costs to
the Investment Adviser of providing those services, economies of scale,
the fees and other expenses paid by similar funds (including information
provided by Lipper Inc. ["Lipper"]), and such other matters as the
directors have considered relevant in the exercise of their reasonable
judgment; and
o that Merrill Lynch agreed to pay all expenses of the Fund in connection
with the Board's consideration of the New Investment Advisory Agreement
and related agreements and all costs of shareholder approval of the New
Investment Advisory Agreement and as a result the Fund would bear no costs
in obtaining shareholder approval of the New Investment Advisory
Agreement.
BLACKROCK APEX MUNICIPAL FUND, INC. DECEMBER 31, 2006 17
Disclosure of Investment Advisory Agreement (continued)
Certain of these considerations are discussed in more detail below.
In its review of the New Investment Advisory Agreement, the Board assessed the
nature, scope and quality of the services to be provided to the Fund by the
personnel of BlackRock Advisors and its affiliates, including administrative
services, shareholder services, oversight of fund accounting and assistance in
meeting legal and regulatory requirements. In its review of the New Investment
Advisory Agreement, the Board also considered a range of information in
connection with its oversight of the services to be provided by BlackRock
Advisors and its affiliates. Among the matters considered were: (a) fees (in
addition to management fees) to be paid to BlackRock Advisors and its affiliates
by the Fund; (b) Fund operating expenses paid to third parties; (c) the
resources devoted to and compliance reports relating to the Fund's investment
objective, policies and restrictions, and its compliance with its Code of Ethics
and BlackRock Advisors' compliance policies and procedures; and (d) the nature,
cost and character of non-investment management services to be provided by
BlackRock Advisors and its affiliates.
In the period prior to the Board meetings to consider renewal of the Current
Investment Advisory Agreement, the Board had requested and received materials
specifically relating to the Current Investment Advisory Agreement. These
materials included (a) information compiled by Lipper on the fees and expenses
and the investment performance of the Fund as compared to a comparable group of
funds as classified by Lipper; (b) information comparing the Fund's market price
with its net asset value per share; (c) a discussion by the Fund's portfolio
management team on investment strategies used by the Fund during its most recent
fiscal year; (d) information on the profitability to the Investment Adviser of
the Current Investment Advisory Agreement and other payments received by the
Investment Adviser and its affiliates from the Fund; and (e) information
provided by the Investment Adviser concerning services related to the valuation
and pricing of Fund portfolio holdings, the Fund's portfolio turnover
statistics, and direct and indirect benefits to the Investment Adviser and its
affiliates from their relationship with the Fund.
In their deliberations, the directors considered information received in
connection with their most recent continuation of the Current Investment
Advisory Agreement, in addition to information provided by BlackRock and
BlackRock Advisors in connection with their evaluation of the terms and
conditions of the New Investment Advisory Agreement. The directors did not
identify any particular information that was all-important or controlling. The
directors, including a majority of the independent directors, concluded that the
terms of the New Investment Advisory Agreement are appropriate, that the fees to
be paid are reasonable in light of the services to be provided to the Fund, and
that the New Investment Advisory Agreement should be approved and recommended to
Fund shareholders.
Nature, Quality and Extent of Services Provided -- The Board reviewed the
nature, extent and quality of services provided by the Investment Adviser,
including the investment advisory services and the resulting performance of the
Fund, as well as the nature, quality and extent of services expected to be
provided by BlackRock Advisors. The Board focused primarily on the Investment
Adviser's advisory services and the Fund's investment performance, but also
considered certain areas in which both the Investment Adviser and the Fund
receive services as part of the Merrill Lynch complex. The Board compared the
Fund's performance -- both including and excluding the effects of fees and
expenses -- to the performance of a comparable group of funds, and the
performance of a relevant index or combination of indexes. While the Board
reviews performance data at least quarterly, consistent with the Investment
Adviser's investment goals, the Board attaches more importance to performance
over relatively long periods of time, typically three to five years.
In evaluating the nature, quality and extent of the services to be provided by
BlackRock Advisors under the New Investment Advisory Agreement, the directors
considered, among other things, the expected impact of the Transaction on the
operations, facilities, organization and personnel of New BlackRock and how it
would affect the Fund; the ability of BlackRock Advisors to perform its duties
after the Transaction; and any anticipated changes to the current investment and
other practices of the Fund.
The directors were given information with respect to the potential benefits to
the Fund and its shareholders from having access to BlackRock's state of the art
technology and risk management analytic tools, including the investment tools
provided under the BlackRock Solutions brand name.
The directors were advised that, as a result of Merrill Lynch's equity interest
in BlackRock after the Transaction, the Fund will continue to be subject to
restrictions concerning certain transactions involving Merrill Lynch affiliates
(for example, transactions with a Merrill Lynch broker-dealer acting as
principal) absent revised or new regulatory relief. The directors were advised
that a revision of existing regulatory relief with respect to these restrictions
was being sought from the Securities and Exchange Commission and were advised of
18 BLACKROCK APEX MUNICIPAL FUND, INC. DECEMBER 31, 2006
the possibility of receipt of such revised regulatory relief. There can be no
assurance that such relief will be obtained.
Based on their review of the materials provided and the assurances they had
received from the management of Merrill Lynch and of BlackRock, the directors
determined that the nature and quality of services to be provided to the Fund
under the New Investment Advisory Agreement were expected to be as good or
better than that provided under the Current Investment Advisory Agreement. It
was noted, however, that it is expected that there will be changes in personnel
following the Transaction and the combination of the operations of the
Investment Adviser and its affiliates with those of BlackRock. The directors
noted that if current portfolio managers or other personnel cease to be
available, the Board would consider all available options, which could include
seeking the investment advisory or other services of BlackRock affiliates.
Accordingly, the directors concluded that, overall, they were satisfied at the
present time with assurances from BlackRock and BlackRock Advisors as to the
expected nature, extent and quality of the services to be provided to the Fund
under the New Investment Advisory Agreement.
Costs of Services Provided and Profitability -- It was noted that, in
conjunction with the recent review of the Current Investment Advisory Agreement,
the directors had received, among other things, a report from Lipper comparing
the Fund's fees, expenses and performance to those of a peer group selected by
Lipper, and information as to the fees charged by the Investment Adviser or its
affiliates to other registered investment company clients for investment
management services. The Board reviewed the Fund's contractual management fee
rate and actual management fee rate as a percentage of total assets at common
asset levels -- the actual rate includes advisory fees and the effects of any
fee waivers -- compared to the other funds in its Lipper category. They also
compared the Fund's total expenses to those of other comparable funds. The
information showed that the Fund had fees and expenses within the range of fees
and expenses of comparable funds. The Board concluded that the Fund's management
fee and fee rate and overall expense ratio are reasonable compared to those of
other comparable funds.
In evaluating the costs of the services to be provided by BlackRock Advisors
under the New Investment Advisory Agreement, the directors considered, among
other things, whether advisory fees or other expenses would change as a result
of the Transaction. Based on their review of the materials provided and the fact
that the New Investment Advisory Agreement is substantially similar to the
Current Investment Advisory Agreement in all material respects, including the
rate of compensation, the directors determined that the Transaction should not
increase the total fees payable, including any fee waivers or after any expense
caps or expense reimbursements, for advisory and administrative services. The
directors noted that it was not possible to predict how the Transaction would
affect BlackRock Advisors' profitability from its relationship with the Fund.
The directors discussed with BlackRock Advisors its general methodology to be
used in determining its profitability with respect to its relationship with the
Fund and noted that they expect to receive profitability information from
BlackRock Advisors on at least an annual basis.
Fees and Economies of Scale -- The Board considered the extent to which
economies of scale might be realized as the assets of the Fund increase and
whether there should be changes in the management fee rate or structure in order
to enable the Fund to participate in these economies of scale. The Board
considered economies of scale to the extent applicable to the Fund's closed-end
structure and determined that the Fund currently appropriately benefits from any
economies of scale and no changes were currently necessary.
In reviewing the Transaction, the directors considered, among other things,
whether advisory fees or other expenses would change as a result of the
Transaction. Based on the fact that the New Investment Advisory Agreement is
substantially similar to the Current Investment Advisory Agreement in all
material respects, including the rate of compensation, the directors determined
that as a result of the Transaction, the Fund's total advisory fees would be no
higher than the fees under its Current Investment Advisory Agreement. The
directors concluded that, because the rates for advisory fees for the Fund would
be no higher than its current fee rates, the proposed management fee structure,
including any fee waivers, was reasonable and that no additional changes were
currently necessary.
Fall-Out Benefits -- The directors considered whether the Fund would generate
any fall-out benefits to BlackRock Advisors. Fall-out benefits are indirect
profits from other activities that accrue to the adviser or its affiliates
solely because of the existence of the Fund. In evaluating the fall-out benefits
to be received by BlackRock Advisors under the New Investment Advisory
Agreement, the directors considered whether the Transaction would have an impact
on the fall-out benefits received by the Investment Adviser by virtue of the
Current Investment Advisory Agreement. Based on their review of the materials
provided, including materials received in connec-
BLACKROCK APEX MUNICIPAL FUND, INC. DECEMBER 31, 2006 19
Disclosure of New Investment Advisory Agreement (concluded)
tion with their most recent approval or continuance of the Current Investment
Advisory Agreement, and their discussions with management of the Investment
Adviser and BlackRock, the directors determined that those benefits could
include increased ability for BlackRock to distribute shares of its funds and
other investment products. The directors noted that any such benefits were
difficult to quantify with certainty at this time, and indicated that they would
continue to evaluate them going forward.
Investment Performance -- The directors considered investment performance for
the Fund. The directors compared the Fund's performance -- both including and
excluding the effects of fees and expenses -- to the performance of a comparable
group of funds, and the performance of a relevant index or combination of
indexes. The comparative information received from Lipper showed Fund
performance at various levels within the range of performance of comparable
funds over different time periods. The directors believed the Fund's performance
was satisfactory. The Board noted BlackRock's considerable investment management
experience and capabilities, but was unable to predict what effect, if any,
consummation of the Transaction would have on the future performance of the
Fund.
Conclusion -- After the independent directors of the Fund deliberated in
executive session, the entire Board, including the independent directors,
approved the New Investment Advisory Agreement, concluding that the advisory fee
rate was reasonable in relation to the services provided and that the New
Investment Advisory Agreement was in the best interests of the shareholders. In
approving the New Investment Advisory Agreement, the Board noted that it
anticipated reviewing the continuance of the agreement in advance of the
expiration of the initial two-year period.
Contingent BlackRock Sub-Advisory Agreement -- Matters Considered by the Board
At the telephonic and in-person meetings held during April and May 2006 at which
the Board of Directors discussed and approved the New Investment Advisory
Agreement, the Board, including the independent directors, also discussed and
approved a contingent sub-advisory agreement (the "Contingent Sub-Advisory
Agreement") between the Investment Adviser and BlackRock Advisors (the
"BlackRock Sub-Adviser"). The Contingent Sub-Advisory Agreement is intended to
ensure that the Fund operate with efficient portfolio management services until
the closing of the Transaction, in the event that the Board deems it necessary
and in the best interests of the Fund and its shareholders that the BlackRock
Sub-Adviser assist in managing the operations of the Fund during the interim
period until the closing of the Transaction. If shareholders approve the
Contingent Sub-Advisory Agreement, it will take effect only upon recommendation
from the Investment Adviser and upon subsequent approval of the Board in the
period up to the closing of the Transaction. The effectiveness of the Contingent
Sub-Advisory Agreement, therefore, would be contingent on further Board approval
after shareholders approve it. Pursuant to the Contingent Sub-Advisory
Agreement, the BlackRock Sub-Adviser would receive a monthly fee from the
Investment Adviser equal to 50% of the advisory fee received by the Investment
Adviser. The Investment Adviser would pay the BlackRock Sub-Adviser out of its
own resources. There would be no increase in Fund expenses as a result of the
Contingent Sub-Advisory Agreement.
In making its approval at the May in-person meeting, the Board considered the
Contingent Sub-Advisory Agreement in conjunction with the New Investment
Advisory Agreement and reviewed the same information and factors discussed
above, and came to the same conclusions. The Board also considered in
conjunction with the Contingent Sub-Advisory Agreement the necessity of ensuring
that the Fund operate with effective management services until the closing of
the Transaction. In reviewing the sub-advisory fee rate provided in the
Contingent Sub-Advisory Agreement, the Board took note of the fact that both the
Investment Adviser and the BlackRock Sub-Adviser would have significant
responsibilities under their respective advisory agreements. The Investment
Adviser would remain responsible for oversight of the Fund's operations and
administration and the BlackRock Sub-Adviser would provide advisory services to
the Fund under the Contingent Sub-Advisory Agreement. The Board also took into
account the expected short duration of the term of any Contingent Sub-Advisory
Agreement and the fact that total advisory fees paid by the Fund would not
increase as a result of the Contingent Sub-Advisory Agreement. Under all of the
circumstances, the Board concluded that it was a reasonable allocation of fees
for the BlackRock Sub-Adviser to receive 50% of the advisory fee paid by the
Fund to the Investment Adviser.
After the independent directors deliberated in executive session, the entire
Board, including the independent directors, approved the Contingent Sub-Advisory
Agreement, concluding that the advisory fee was reasonable in relation to the
services provided and that the Contingent Sub-Advisory Agreement was in the best
interests of shareholders.
20 BLACKROCK APEX MUNICIPAL FUND, INC. DECEMBER 31, 2006
Disclosure of Sub-Advisory Agreement
New BlackRock Sub-Advisory Agreement -- Matters Considered by the Board
At an in-person meeting held on August 22-23, 2006, the Board of Directors,
including the independent directors, discussed and approved the sub-advisory
agreement with respect to the Fund between BlackRock Advisors, LLC (previously
organized as BlackRock Advisors, Inc.) ("BlackRock Advisors") and its affiliate,
BlackRock Investment Management, LLC (the "Sub-Adviser") (the "BlackRock
Sub-Advisory Agreement"). The BlackRock Sub-Advisory Agreement became effective
on September 29, 2006, at the same time the New Investment Advisory Agreement
with BlackRock Advisors (which had been approved by the Fund's shareholders)
became effective.
Pursuant to the BlackRock Sub-Advisory Agreement, the Sub-Adviser receives a
monthly fee from BlackRock Advisors at an annual rate equal to 59% of the
advisory fee received by BlackRock Advisors from the Fund. BlackRock Advisors
pays the Sub-Adviser out of its own resources, and there is no increase in Fund
expenses as a result of the BlackRock Sub-Advisory Agreement.
In approving the BlackRock Sub-Advisory Agreement at the August in-person
meeting, the Board reviewed its considerations in connection with its approval
of the New Investment Advisory Agreement in May 2006. The Board relied on the
same information and considered the same factors as those discussed above in
connection with the approval of the New Investment Advisory Agreement, and came
to the same conclusions. In reviewing the sub-advisory fee rate provided for in
the BlackRock Sub-Advisory Agreement, the Board noted the fact that both
BlackRock Advisors and the Sub-Adviser have significant responsibilities under
their respective advisory agreements. Under the New Investment Advisory
Agreement, BlackRock Advisors remains responsible for the overall management of
the Fund and for oversight of the Fund's operations and administration. Under
the BlackRock Sub-Advisory Agreement, the Sub-Adviser provides advisory services
to the Fund and is responsible for the day-to-day management of the Fund's
portfolio. The Board also took into account the fact that there is no increase
in total advisory fees paid by the Fund as a result of the BlackRock
Sub-Advisory Agreement. Based on its considerations, the Board concluded that it
was a reasonable allocation of fees for the Sub-Adviser to receive a fee at an
annual rate equal to 59% of the advisory fee paid by the Fund to BlackRock
Advisors.
After the independent directors deliberated in executive session, the entire
Board, including the independent directors, approved the BlackRock Sub-Advisory
Agreement, concluding that the sub-advisory fee was reasonable in relation to
the services provided and that the BlackRock Sub-Advisory Agreement was in the
best interests of the Fund's shareholders.
BLACKROCK APEX MUNICIPAL FUND, INC. DECEMBER 31, 2006 21
Proxy Results
During the six-month period ended December 31, 2006, BlackRock Apex Municipal
Fund, Inc. s shareholders voted on the following proposals, which were approved
at a special shareholders' meeting on August 15, 2006. A description of the
proposals and number of shares voted are as follows:
------------------------------------------------------------------------------------------------
Shares Voted Shares Voted Shares Voted
For Against Abstain
------------------------------------------------------------------------------------------------
To approve a new investment advisory agreement
with BlackRock Advisors, Inc. 10,327,585 373,261 537,898
------------------------------------------------------------------------------------------------
To approve a contingent subadvisory agreement
with BlackRock Advisors, Inc. 10,304,098 391,621 543,025
------------------------------------------------------------------------------------------------
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 stable level of dividend distributions, 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.
Officers and Directors
Robert C. Doll, Jr., President and Director
James H. Bodurtha, Director
Kenneth A. Froot, Director
Joe Grills, Director
Herbert I. London, Director
Roberta Cooper Ramo, Director
Robert S. Salomon, Jr., Director
Donald C. Burke, Vice President and Treasurer
John M. Loffredo, Senior Vice President
Theodore R. Jaeckel Jr., Vice President
Jeffrey Hiller, Fund Chief Compliance Officer
Alice A. Pellegrino, Secretary
Custodian
The Bank of New York
100 Church Street
New York, NY 10286
Transfer Agent
The Bank of New York
101 Barclay Street -- 11 East
New York, NY 10286
NYSE Symbol
APX
22 BLACKROCK APEX MUNICIPAL FUND, INC. DECEMBER 31, 2006
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 floaters, 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. Certain inverse floaters may be presented for
financial reporting purposes as secured borrowings by the Fund. As of December
31, 2006, none of the Fund's total net assets were invested in inverse floaters.
BlackRock Privacy Principles
BlackRock is committed to maintaining the privacy of its current and former fund
investors and individual clients (collectively, "Clients") and to safeguarding
their nonpublic personal information. The following information is provided to
help you understand what personal information BlackRock collects, how we protect
that information and why in certain cases we share such information with select
parties.
If you are located in a jurisdiction where specific laws, rules or regulations
require BlackRock to provide you with additional or different privacy-related
rights beyond what is set forth below, then BlackRock will comply with those
specific laws, rules or regulations.
BlackRock obtains or verifies personal nonpublic information from and about you
from different sources, including the following: (i) information we receive from
you or, if applicable, your financial intermediary, on applications, forms or
other documents; (ii) information about your transactions with us, our
affiliates, or others; (iii) information we receive from a consumer reporting
agency; and (iv) from visits to our Web sites.
BlackRock does not sell or disclose to nonaffiliated third parties any nonpublic
personal information about its Clients, except as permitted by law or as is
necessary to service Client accounts. These nonaffiliated third parties are
required to protect the confidentiality and security of this information and to
use it only for its intended purpose.
We may share information with our affiliates to service your account or to
provide you with information about other BlackRock products or services that may
be of interest to you. In addition, BlackRock restricts access to nonpublic
personal information about its Clients to those BlackRock employees with a
legitimate business need for the information. BlackRock maintains physical,
electronic and procedural safeguards that are designed to protect the nonpublic
personal information of its Clients, including procedures relating to the proper
storage and disposal of such information.
BLACKROCK APEX MUNICIPAL FUND, INC. DECEMBER 31, 2006 23
BlackRock 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 BlackRock 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 1-800-441-7762; (2) at
www.blackrock.com; and (3) on the Securities and Exchange Commission's Web site
at http://www.sec.gov. Information about how the Fund voted proxies relating to
securities held in the Fund's portfolio during the most recent 12-month period
ended June 30 is available (1) at www.blackrock.com and (2) on the Securities
and Exchange Commission's Web site at http://www.sec.gov.
BlackRock Apex Municipal Fund, Inc.
P.O. Box 9011
Princeton, NJ 08543-9011
BLACKROCK
#10955-12/06
Item 2 - Code of Ethics - Not Applicable to this semi-annual report
Item 3 - Audit Committee Financial Expert - Not Applicable to this semi-annual
report
Item 4 - Principal Accountant Fees and Services - Not Applicable to this
semi-annual report
Item 5 - Audit Committee of Listed Registrants - Not Applicable to this
semi-annual report
Item 6 - Schedule of Investments - Not Applicable
Item 7 - Disclosure of Proxy Voting Policies and Procedures for Closed-End
Management Investment Companies - Not Applicable to this semi-annual
report
Item 8 - Portfolio Managers of Closed-End Management Investment Companies - as
of December 31, 2006
(a)(1) BlackRock Apex Fund, Inc. is managed by a team of investment
professionals comprised of Theodore R. Jaeckel, Jr., CFA, Managing
Director at BlackRock, and Walter O'Connor, Managing Director at
BlackRock. Each is a member of BlackRock's municipal tax-exempt
management group. Mr. Jaeckel and Mr. O'Connor are responsible for
setting the Fund's overall investment strategy and overseeing the
management of the Fund. Mr. Jaeckel is also the Fund's lead portfolio
manager and is responsible for the day-to-day management of the Fund's
portfolio and the selection of its investments. Mr. O'Connor has been a
member of the Fund's management team since 2006 and Mr. Jaeckel has
been the Fund's portfolio manager since 1997.
Mr. Jaeckel joined BlackRock in 2006. Prior to joining BlackRock, he
was a Managing Director (Municipal Tax-Exempt Fund Management) of
Merrill Lynch Investment Managers, L.P. ("MLIM") from 2005 to 2006 and
a Director of MLIM from 1997 to 2005. He has been a portfolio manager
with BlackRock or MLIM since 1991.
Mr. O'Connor joined BlackRock in 2006. Prior to joining BlackRock, he
was a Managing Director (Municipal Tax-Exempt Fund Management) of MLIM
from 2003 to 2006 and was a Director of MLIM from 1997 to 2002. He has
been a portfolio manager with BlackRock or MLIM since 1991.
(a)(2)As of December 31, 2006:
(iii) Number of Other Accounts and
(ii) Number of Other Accounts Managed Assets for Which Advisory Fee is
and Assets by Account Type Performance-Based
Other Other
(i) Name of Registered Other Pooled Registered Other Pooled
Portfolio Investment Investment Other Investment Investment Other
Manager Companies Vehicles Accounts Companies Vehicles Accounts
--------- ---------
Theodore R.
Jaeckel, Jr. 80 0 0 0 1 0
$29,473,952,253 $ 0 $ 0 $ 0 $ 24,560,023 $ 0
Walter O'Connor 80 0 0 0 0 0
$29,473,952,253 $ 0 $ 0 $ 0 $ 0 $ 0
(iv) Potential Material Conflicts of Interest
BlackRock has built a professional working environment, firm-wide
compliance culture and compliance procedures and systems designed to
protect against potential incentives that may favor one account over
another. BlackRock has adopted policies and procedures that address the
allocation of investment opportunities, execution of portfolio
transactions, personal trading by employees and other potential
conflicts of interest that are designed to ensure that all client
accounts are treated equitably over time. Nevertheless, BlackRock
furnishes investment management and advisory services to numerous
clients in addition to the Fund, and BlackRock may, consistent with
applicable law, make investment recommendations to other clients or
accounts (including accounts which are hedge funds or have performance
or higher fees paid to BlackRock, or in which portfolio managers have a
personal interest in the receipt of such fees), which may be the same
as or different from those made to the Fund. In addition, BlackRock,
its affiliates and any officer, director, stockholder or employee may
or may not have an interest in the securities whose purchase and sale
BlackRock recommends to the Fund. BlackRock, or any of its affiliates,
or any officer, director, stockholder, employee or any member of their
families may take different actions than those recommended to the Fund
by BlackRock with respect to the same securities. Moreover, BlackRock
may refrain from rendering any advice or services concerning securities
of companies of which any of BlackRock's (or its affiliates') officers,
directors or employees are directors or officers, or companies as to
which BlackRock or any of its affiliates or the officers, directors and
employees of any of them has any substantial economic interest or
possesses material non-public information. Each portfolio manager also
may manage accounts whose investment strategies may at times be opposed
to the strategy utilized for the Fund. In this connection, it should be
noted that certain portfolio managers currently manage certain accounts
that are subject to performance fees. In addition, certain portfolio
managers assist in managing certain hedge funds and may be entitled to
receive a portion of any incentive fees earned on such funds and a
portion of such incentive fees may be voluntarily or involuntarily
deferred. Additional portfolio managers may in the future manage other
such accounts or funds and may be entitled to receive incentive fees.
As a fiduciary, BlackRock owes a duty of loyalty to its clients and
must treat each client fairly. When BlackRock purchases or sells
securities for more than one account, the trades must be allocated in a
manner consistent with its fiduciary duties. BlackRock attempts to
allocate investments in a fair and equitable manner among client
accounts, with no account receiving preferential treatment. To this
end, BlackRock has adopted a policy that is intended to ensure that
investment opportunities are allocated fairly and equitably among
client accounts over time. This policy also seeks to achieve reasonable
efficiency in client transactions and provide BlackRock with sufficient
flexibility to allocate investments in a manner that is consistent with
the particular investment discipline and client base.
(a)(3) As of December 31, 2006:
Portfolio Manager Compensation
Compensation Program
The elements of total compensation for portfolio managers on
BlackRock's municipal team include a fixed base salary, annual
performance-based cash and stock compensation (cash and stock bonus)
and other benefits. BlackRock has balanced these components of pay to
provide these portfolio managers with a powerful incentive to achieve
consistently superior investment performance. By design, compensation
levels for these portfolio managers fluctuate--both up and down--with
the relative investment performance of the portfolios that they manage.
Base compensation
Like that of many asset management firms, base salaries represent
a relatively small portion of a portfolio manager's total compensation.
This approach serves to enhance the motivational value of the
performance-based (and therefore variable) compensation elements of the
compensation program.
Performance-Based Compensation
BlackRock believes that the best interests of investors are
served by recruiting and retaining exceptional asset management talent
and managing their compensation within a consistent and disciplined
framework that emphasizes pay for performance in the context of an
intensely competitive market for talent. To that end, BlackRock and its
affiliates portfolio manager incentive compensation is based on a
formulaic compensation program. BlackRock's formulaic portfolio manager
compensation program includes: investment performance relative to a
subset of general closed-end, high yield, municipal debt funds over 1-,
3- and 5-year performance periods and a measure of operational
efficiency. Portfolio managers are compensated based on the pre-tax
performance of the products they manage. If a portfolio manager's
tenure is less than 5 years, performance periods will reflect time in
position. Portfolio managers are compensated based on products they
manage. A discretionary element of portfolio manager compensation may
include consideration of: financial results, expense control, profit
margins, strategic planning and implementation, quality of client
service, market share, corporate reputation, capital allocation,
compliance and risk control, leadership, workforce diversity,
supervision, technology and innovation. All factors are considered
collectively by BlackRock management.
Long-Term Retention and Incentive Plan (LTIP)
The LTIP is a long-term incentive plan that seeks to reward
certain key employees. The plan provides for the grant of awards that
are expressed as an amount of cash that, if properly vested and subject
to the attainment of certain performance goals, will be settled in cash
and/or in BlackRock, Inc. common stock.
Cash Bonus
Performance-based compensation is distributed to portfolio
managers in a combination of cash and stock. Typically, the cash bonus,
when combined with base salary, represents more than 60% of total
compensation for portfolio managers.
Stock Bonus
A portion of the dollar value of the total annual
performance-based bonus is paid in restricted shares of BlackRock
stock. Paying a portion of annual bonuses in stock puts compensation
earned by a portfolio manager for a given year "at risk" based on the
company's ability to sustain and improve its performance over future
periods. The ultimate value of stock bonuses is dependent on future
BlackRock stock price performance. As such, the stock bonus aligns each
portfolio manager's financial interests with those of the BlackRock
shareholders and encourages a balance between short-term goals and
long-term strategic objectives. Management strongly believes that
providing a significant portion of competitive performance-based
compensation in stock is in the best interests of investors and
shareholders. This approach ensures that portfolio managers participate
as shareholders in both the "downside risk" and "upside opportunity" of
the company's performance. Portfolio managers therefore have a direct
incentive to protect BlackRock's reputation for integrity.
Other Compensation Programs
Portfolio managers who meet relative investment performance and
financial management objectives during a performance year are eligible
to participate in a deferred cash program. Awards under this program
are in the form of deferred cash that may be benchmarked to a menu of
BlackRock mutual funds (including their own fund) during a five-year
vesting period. The deferred cash program aligns the interests of
participating portfolio managers with the investment results of
BlackRock products and promotes continuity of successful portfolio
management teams.
Other Benefits
Portfolio managers are also eligible to participate in
broad-based plans offered generally to employees of BlackRock and its
affiliates, including broad-based retirement, 401(k), health, and other
employee benefit plans.
(a)(4) Beneficial Ownership of Securities. As of December 31, 2006, Messrs.
Jaeckel and O'Connor do not beneficially own any stock issued by the
Fund.
Item 9 - Purchases of Equity Securities by Closed-End Management Investment
Company and Affiliated Purchasers - Not Applicable
Item 10 - Submission of Matters to a Vote of Security Holders - Not Applicable
Item 11 - Controls and Procedures
11(a) - The Registrant's principal executive and principal financial officers
have evaluated the Registrant's disclosure controls and procedures,
including internal control over financial reporting, within 90 days of
this filing. Such principal officers have concluded that as of February,
2007 the Registrant's disclosure controls and procedures were effective
in design and operation to reasonably ensure that information required
to be disclosed by the Registrant in this Form N-CSR was recorded,
processed, summarized, and reported within the required time periods,
and were sufficient to form the basis of the certifications required by
Rule 30a-2 of the Investment Company Act of 1940, as amended. Prior to
reaching that conclusion, such principal officers had become aware of
matters relating to the Registrant's participation in certain inverse
floater structures that necessitated adjustments to financial
information included in Item 1 of this filing. As a result, management
of the Registrant had reevaluated certain disclosure controls and
procedures determined not to be effective, as discussed more fully
below.
Management of the Registrant is responsible for establishing and
maintaining effective internal control over financial reporting. In
fulfilling this responsibility, estimates and judgments by management
are required to assess the expected benefits and related costs of
controls. The Registrant's internal control over financial reporting is
a process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with U.S. generally
accepted accounting principles. Such internal control includes policies
and procedures that provide reasonable assurance regarding prevention or
timely detection of unauthorized acquisition, use or disposition of a
registrant's assets that could have a material effect on the financial
statements.
Because of its inherent limitations, internal control over financial
reporting may not prevent or detect misstatements. Also, projections of
any evaluation of effectiveness to future periods are subject to the
risk that controls may become inadequate because of changes in
conditions, or that the degree of compliance with the policies or
procedures may deteriorate.
A control deficiency exists when the design or operation of a control
does not allow management or employees, in the normal course of
performing their assigned functions, to prevent or detect misstatements
on a timely basis. A significant deficiency is a control deficiency, or
combination of control deficiencies, that adversely affects the
Registrant's ability to initiate, authorize, record, process or report
financial data reliably in accordance with generally accepted accounting
principles such that there is more than a remote likelihood that a
misstatement of the Registrant's annual or interim financial statements
that is more than inconsequential will not be prevented or detected. A
material weakness is a significant deficiency, or combination of
significant deficiencies, that results in more than a remote likelihood
that a material misstatement of the annual or interim financial
statements will not be prevented or detected.
Prior to the filing of the Registrant's Form N-CSR, the Registrant
identified the following control deficiency, that was determined to be a
material weakness, as defined above, in the Registrant's internal
control over financial reporting at December 31, 2006. The Registrant's
controls related to the review and analysis of relevant terms and
conditions of transfers of certain assets pertaining to inverse floater
structures were not operating effectively to appropriately determine
whether the transfers of assets qualified for sale accounting under the
provisions of Statement of Financial Accounting Standards No. 140,
"Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities" ("SFAS 140"). As a result, these
controls did not detect that certain transfers were not appropriately
recorded as borrowings. Accordingly, the Registrant's financial
statements as of and for the period ended December 31, 2006, including
prior periods where applicable, were adjusted prior to being issued to
appropriately reflect transfers of such securities as secured borrowings
and to report the related income and expense. These adjustments had no
impact on net assets, net asset value per share or total return.
Prior to the evaluation of the design and operation of the Registrant's
disclosure controls and procedures at February, 2007, the Registrant's
disclosure controls and procedures were modified to enhance the review
and analysis of the relevant terms and conditions of transfers of
securities in connection with inverse floater structures in light of
SFAS 140.
11(b) - There have been no changes in the Registrant's internal control over
financial reporting (as defined in Rule 30a-3(d) under the Investment
Company Act of 1940, as amended) that occurred during the second half of
the Registrant's fiscal year that have materially affected, or are
reasonably likely to materially affect, the Registrant's internal
control over financial reporting. However, as discussed above, as of
February 2007, the Registrant has enhanced controls related to the
application of SFAS 140.
Item 12 - Exhibits attached hereto
12(a)(1) - Code of Ethics - Not Applicable to this semi-annual report
12(a)(2) - Certifications - Attached hereto
12(a)(3) - Not Applicable
12(b) - Certifications - 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.
BlackRock Apex Municipal Fund, Inc.
By: /s/ Robert C. Doll, Jr.
-----------------------------------
Robert C. Doll, Jr.,
Chief Executive Officer of
BlackRock Apex Municipal Fund, Inc.
Date: February 20, 2007
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/ Robert C. Doll, Jr.
-----------------------------------
Robert C. Doll, Jr.,
Chief Executive Officer of
BlackRock Apex Municipal Fund, Inc.
Date: February 20, 2007
By: /s/ Donald C. Burke
-----------------------------------
Donald C. Burke,
Chief Financial Officer of
BlackRock Apex Municipal Fund, Inc.
Date: February 20, 2007