<PAGE> 1
-------------------------------------------------------------------------
MUNICIPAL PARTNERS
FUND INC.
SEMI-ANNUAL REPORT
-----------------------------------------
JUNE 30, 1995
----------------------------------
SALOMON BROTHERS ASSET MANAGEMENT
-------------------------------
<PAGE> 2
MUNICIPAL PARTNERS FUND INC.
August 18, 1995
To Our Shareholders:
We are pleased to provide this semi-annual report to the shareholders of
Municipal Partners Fund Inc. for the six months ended June 30, 1995. Second
quarter activity saw favorable results for fixed income securities as signs of
economic weakness triggered a rally in the bond markets. As a result, Municipal
Partners Fund Inc. benefited with a 3.8% investment return for the quarter and
17.5% for the first six months of 1995 (the investment return based on net asset
value assumes the reinvestment of monthly dividends in additional shares of the
Fund). At June 30, 1995, the Fund had a closing net asset value and market price
per share of $13.14 and $11.50, respectively. During the quarter, the Fund paid
a regular monthly dividend of $.065 per common share.
Bond prices improved during the quarter as weak economic data led market
participants to believe that the next move by the Federal Reserve would result
in lower interest rates. This in fact did occur on July 6 when the Fed lowered
the Fed funds rate 25 basis points to 5.75%. While municipals achieved positive
returns for the quarter, they failed to keep pace with Treasuries.
Contributing to the municipal bond market's underperformance relative to
Treasuries was a lack of demand from individual investors. Lower nominal yields,
a record setting stock market, and concerns about a flat tax were factors which
diverted money from the municipal bond market. Additionally, Orange County,
California's reluctance to address their debt obligations cast a shadow over the
tax-exempt marketplace. However, the technicals are strong for the municipal
bond market as new issue supply for the first half of the year was 25% lower
than the similar period last year. There continues to be a considerable amount
of money available to enter the market from bond calls, maturities and coupon
payments.
As of June 30, 1995, the Fund's portfolio consisted of 39 issues in 21 different
states with an average maturity of 20.1 years and average coupon of 6.58%.
Sector weightings emphasize healthcare, housing and pollution control.
We encourage you to review the unaudited financial statements that follow for
further details on the Fund.
The Fund held its annual meeting of shareholders on April 5, 1995. At the
meeting, shareholders elected the nominee proposed for election to the Fund's
Board of Directors and
<PAGE> 3
MUNICIPAL PARTNERS FUND INC.
ratified the selection of Price Waterhouse LLP as the independent accountants of
the Fund. The following table provides information concerning the matters voted
on at the meeting:
1. ELECTION OF DIRECTOR (PREFERRED SHARES VOTING ONLY)
<TABLE>
<CAPTION>
NOMINEE VOTES FOR VOTES AGAINST
<S> <C> <C>
--------------------------------------------------
Allan C. Hamilton 604 0
</TABLE>
2. RATIFICATION OF PRICE WATERHOUSE LLP AS THE INDEPENDENT ACCOUNTANTS OF
THE FUND
<TABLE>
<CAPTION>
VOTES FOR VOTES AGAINST VOTES ABSTAINED UNVOTED
<S> <C> <C> <C>
-----------------------------------------------------------
5,065,134 21,074 47,986 1
</TABLE>
Finally, we thank you for your support and confidence. We invite you to call
with any questions or comments at 1-800-725-6666 or (212) 783-1301. In addition,
a recorded periodic update that reviews the municipal debt market and contains
specific information regarding the Fund and its portfolio, including top ten
holdings and portfolio diversification, is available by calling 1-800-421-4777.
Cordially,
/s/ MARK C. BIDERMAN /s/ MICHAEL S. HYLAND
-------------------- ---------------------
Mark C. Biderman Michael S. Hyland
Chairman of the Board President
<PAGE> 4
MUNICIPAL PARTNERS FUND INC.
-----------------------------------
STATEMENT OF INVESTMENTS
June 30, 1995 (unaudited)
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT MOODY'S/S&P VALUE
000'S LONG-TERM INVESTMENTS -- 149.9% CREDIT RATING (NOTE 2)
-----------------------------------------------------------------------------------------------
<C> <S> <C> <C>
ALABAMA -- 9.9%
Courtland, Alabama Industrial Development Board Solid Waste
Disposal Revenue (Champion International Corporation Project),
$1,225 Series A, 7.00%, 11/01/22..................................... Baa1/BBB $ 1,260,304
Courtland, Alabama Industrial Development Board Solid Waste
Disposal Revenue (Champion International Corporation Project),
6,395 Series A, 6.375%, 3/01/29..................................... Baa1/BBB 6,242,863
------------
7,503,167
------------
ALASKA -- 1.1%
Valdez, Alaska Marine Terminal Revenue Refunding (BP Pipelines
900 Inc. Project), 5.65%, 12/01/28................................ A1/AA- 824,589
------------
COLORADO -- 7.1%
Colorado Health Facilities Authority Hospital Revenue (P/SL
Healthcare System Project), Series A,
3,555 6.875%, 2/15/23............................................... Baa1/BBB+ 3,487,811
Colorado Health Facilities Authority Hospital Revenue (Rocky
Mountain Adventist Healthcare Project),
2,000 6.625%, 2/01/22............................................... Baa/BBB 1,907,560
------------
5,395,371
------------
GEORGIA -- 7.2%
Savannah, Georgia Hospital Authority Revenue Refunding &
Improvement (Candler Hospital),
5,500 7.00%, 1/01/23................................................ Baa/BBB+ 5,453,470
------------
ILLINOIS -- 7.7%
Regional Transportation Authority of
2,900 Illinois, Series A, FGIC, 5.85%, 6/01/23...................... Aaa/AAA 2,791,888
Illinois State Sales Tax Revenue Series V,
3,000 6.375%, 6/15/20............................................... A1/AAA 3,021,090
------------
5,812,978
------------
</TABLE>
--------------------------------------------------------------------------------
See accompanying notes to financial statements.
PAGE 2
<PAGE> 5
MUNICIPAL PARTNERS FUND INC.
-----------------------------------
STATEMENT OF INVESTMENTS (continued)
June 30, 1995 (unaudited)
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT MOODY'S/S&P VALUE
000'S LONG-TERM INVESTMENTS (CONTINUED) CREDIT RATING (NOTE 2)
-----------------------------------------------------------------------------------------------
<C> <S> <C> <C>
MAINE -- 3.5%
Maine State Housing Authority Mortgage Purchase, Series A-4,
$ 525 6.375%, 11/15/12.............................................. A1/AA- $ 527,289
Maine State Housing Authority Mortgage Purchase, Series A-2,
2,110 6.65%, 11/15/25............................................... A1/AA- 2,128,737
------------
2,656,026
------------
MARYLAND -- 6.7%
Northeast Maryland Waste Disposal Authority, Solid Waste
Revenue (Montgomery County Resource Recovery Project), Series
3,750 A, 6.30%, 7/01/16............................................. A/NR 3,706,988
Maryland State Community Development Administration,
Department of Housing and Community Development (Multi-Family
1,300 Housing), Series E, 6.85%, 5/15/25............................ Aa/NR 1,347,268
------------
5,054,256
------------
MINNESOTA -- 9.9%
Minnesota State Housing Finance Agency Single-Family Mortgage,
3,550 Series H, 6.50%, 1/01/26...................................... Aa/AA+ 3,579,926
St. Paul, Minnesota Housing and Redevelopment Authority
Hospital Revenue Crossover Refunding (Healtheast Project),
4,000 Series A, 6.625%, 11/01/17.................................... Baa/BBB- 3,861,840
------------
7,441,766
------------
NEBRASKA -- 7.8%
Nebraska Higher Education Loan Program Inc., Revenue Sub-
6,000 Series A-6, 6.45%, 6/01/18.................................... A/NR 5,935,800
------------
NEVADA -- 10.4%
Clark County, Nevada, Passenger Facility Revenue (Macarran
2,350 International Airport, MBIA, 5.75%, 7/01/23................... Aaa/AAA 2,164,937
Nevada Housing Division, Single-Family Program, Series B-2,
4,410 6.40%, 10/01/25............................................... Aa/NR 4,368,590
Nevada Housing Division, Single-Family Program, Series B-2,
1,300 6.95%, 10/01/26............................................... Aa/NR 1,346,605
------------
7,880,132
------------
</TABLE>
--------------------------------------------------------------------------------
See accompanying notes to financial statements.
PAGE 3
<PAGE> 6
MUNICIPAL PARTNERS FUND INC.
-----------------------------------
STATEMENT OF INVESTMENTS (continued)
June 30, 1995 (unaudited)
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT MOODY'S/S&P VALUE
000'S LONG-TERM INVESTMENTS (CONTINUED) CREDIT RATING (NOTE 2)
-----------------------------------------------------------------------------------------------
<C> <S> <C> <C>
NEW HAMPSHIRE -- 1.0%
New Hampshire State Housing Finance Authority, Single-Family
$ 710 Residential, Series A, 6.80%, 7/01/15......................... Aa/A+ $ 735,297
------------
NEW JERSEY -- 13.4%
New Jersey Economic Development Authority, Pollution Control
Revenue (Public Service Electric and Gas Co. Project), MBIA,
5,150 6.40%, 5/01/32................................................ Aaa/AAA 5,266,545
New Jersey Economic Development Authority, Water Facilities
Revenue (New Jersey American Water Co. Project), FGIC, 6.875%,
4,450 11/01/34...................................................... Aaa/AAA 4,827,493
------------
10,094,038
------------
NEW YORK -- 7.9%
The City of New York, General Obligation Bonds, Series D,
2,000 6.00%, 8/01/11................................................ Baa1/A- 1,906,700
New York State Energy Research & Development Authority
Facilities Revenue (Con Edison Company of New York, Inc.
3,200 Project), 6.00%, 3/15/28...................................... A1/A+ 3,088,704
Port Authority of New York & New Jersey Construction, Ninety-
950 Sixth Series, FGIC, 6.60%, 10/01/23........................... Aaa/AAA 1,003,029
------------
5,998,433
------------
PENNSYLVANIA -- 15.1%
Monroeville Hospital Authority Hospital Revenue (Forbes Health
6,095 System), 7.00%, 10/01/13...................................... Baa1/BBB+ 6,106,337
Philadelphia, Pennsylvania Hospitals & Higher Education
Facilities Authority Revenue (Graduate Health System Obli-
1,000 gated Group), Series B, 6.25%, 7/01/18........................ Baa1/BBB+ 910,610
Philadelphia, Pennsylvania Hospitals & Higher Education
Facilities Authority Hospital Revenue (Graduate Health System
4,250 Obligated Group), Series A & B, 7.25%, 7/01/18................ Baa1/BBB+ 4,382,940
------------
11,399,887
------------
</TABLE>
--------------------------------------------------------------------------------
See accompanying notes to financial statements.
PAGE 4
<PAGE> 7
MUNICIPAL PARTNERS FUND INC.
-----------------------------------
STATEMENT OF INVESTMENTS (continued)
June 30, 1995 (unaudited)
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT MOODY'S/S&P VALUE
000'S LONG-TERM INVESTMENTS (CONTINUED) CREDIT RATING (NOTE 2)
-----------------------------------------------------------------------------------------------
<C> <S> <C> <C>
RHODE ISLAND -- 6.9%
Rhode Island Housing & Mortgage Finance Corporation,
Homeownership Opportunity, Series 5, 6.40%,
$2,100 4/01/24....................................................... Aa/AA+ $ 2,072,532
Rhode Island Housing & Mortgage Finance Corporation,
3,115 Homeownership Opportunity, Series 7B, 6.80%, 10/01/25......... Aa/AA+ 3,171,755
------------
5,244,287
------------
SOUTH DAKOTA -- 6.7%
South Dakota Housing Development Authority, Homeowner
4,955 Mortgage, Series D, 6.85%, 5/01/26............................ Aa1/AA+ 5,093,443
------------
TENNESSEE -- 4.6%
The Industrial Development Board of Humphreys County,
Tennessee (E.I. duPont de Nemours and Company Project), 6.70%,
3,400 5/01/24....................................................... Aa3/AA- 3,489,114
------------
TEXAS -- 15.6%
Lower Neches Valley Authority, Texas Industrial Development
Corporation (Mobil Oil Refining Corporate Project), 6.40%,
6,000 3/01/30....................................................... Aa2/AA 5,941,440
Richardson, Texas Hospital Authority Hospital Revenue
Refunding and Improvement (Richardson Medical Center), 6.75%,
3,000 12/01/23...................................................... Baa/BBB- 2,799,780
Texas State Veterans Housing Assistance,
365 6.80%, 12/01/23............................................... Aa/AA 375,669
West Side Calhoun County, Texas Navigation District Solid
Waste Disposal Revenue (Union Carbide Chemicals), 6.40%,
2,750 5/01/23....................................................... Baa2/BBB 2,663,018
------------
11,779,907
------------
VIRGINIA -- 1.2%
Virginia State Housing Development Authority, Commonwealth
955 Mortgage, Subseries B-5, 6.30%, 1/01/27....................... Aa1/AA+ 937,036
------------
</TABLE>
--------------------------------------------------------------------------------
See accompanying notes to financial statements.
PAGE 5
<PAGE> 8
MUNICIPAL PARTNERS FUND INC.
-----------------------------------
STATEMENT OF INVESTMENTS (continued)
June 30, 1995 (unaudited)
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT MOODY'S/S&P VALUE
000'S LONG-TERM INVESTMENTS (CONTINUED) CREDIT RATING (NOTE 2)
-----------------------------------------------------------------------------------------------
<C> <S> <C> <C>
WASHINGTON -- 2.8%
Public Utility District No. 1 of Snohomish County, Washington
$ 650 Generation System Revenue, Series B, 5.80%, 1/01/24........... A1/A+ $ 599,963
Washington State Housing Finance Commission, Single-Family
1,460 Mortgage Revenue Refunding, 6.15%, 1/01/26.................... NR/AAA 1,486,338
------------
2,086,301
------------
WEST VIRGINIA -- 3.4%
West Virginia State Water Development Authority, Loan Program
2,445 II, Series A, 7.00%, 11/01/31................................. NR/BBB+ 2,520,845
------------
TOTAL LONG-TERM INVESTMENTS (cost $113,964,840)............... 113,336,143
------------
SHORT-TERM INVESTMENTS -- 1.0%
-----------------------------------------------------------------------------------------------
CALIFORNIA -- 0.2%
Los Angeles County California Industrial Development
Authority, Industrial Development Revenue (Gregor H. Kloenne &
150 Son), VR, 4.40%, 7/03/95...................................... P1/NR 150,000
------------
LOUISIANA -- 0.1%
Louisiana State Offshore Terminal Authority, Deepwater Port
100 Revenue (1st stage A-Loop Inc.), VR, 4.20%, 7/03/95........... VMIG1/A-1+ 100,000
------------
NEW YORK -- 0.3%
New York City, General Obligation, Subseries E, VR, 4.30%,
200 7/03/95....................................................... VMIG1/A-1+ 200,000
------------
TEXAS -- 0.4%
Gulf Coast Waste Disposal Authority of Texas, Solid Waste
Disposal Revenue Refunding (Amoco Oil Company), VR, 4.10%,
200 7/03/95....................................................... VMIG1/A-1+ 200,000
Gulf Coast Waste Disposal Authority of Texas, Solid Waste
Disposal Revenue Refunding (Amoco Oil Company), VR, 4.35%,
100 7/03/95....................................................... VMIG1/A-1+ 100,000
------------
300,000
------------
TOTAL SHORT-TERM INVESTMENTS (cost $750,000).................. 750,000
------------
TOTAL INVESTMENTS -- 150.9% (cost $114,714,840)............... 114,086,143
------------
</TABLE>
--------------------------------------------------------------------------------
See accompanying notes to financial statements.
PAGE 6
<PAGE> 9
MUNICIPAL PARTNERS FUND INC.
--------------------------------------------------------------------------------
STATEMENT OF INVESTMENTS (concluded)
June 30, 1995 (unaudited)
<TABLE>
<CAPTION>
MARKET
VALUE
----------------------------------------------------------------------------------------------- (NOTE 2)
<S> <C>
OTHER ASSETS IN EXCESS OF LIABILITIES -- 2.0%................. $ 1,535,029
------------
TOTAL NET ASSETS -- 152.9%.................................... 115,621,172
------------
Par value of 800 shares of preferred stock at $50,000 per
share -- (52.9%).............................................. (40,000,000)
------------
NET ASSETS APPLICABLE TO COMMON STOCK -- 100%
(equivalent to $13.14 per share on 5,757,094 common
shares outstanding)........................................... $ 75,621,172
------------
</TABLE>
--------------------------------------------------------------------------------
The following abbreviations are used in portfolio descriptions:
FGIC -- Insured as to principal and interest by the Financial Guaranty
Insurance Company.
MBIA -- Insured as to principal and interest by the Municipal Bond Investors
Assurance Corporation.
NR -- Not rated by Moody's or S&P as indicated.
VMIG -- Variable Moody Investment Grade.
VR -- Variable Rate Demand Note. Maturity date shown is the date of next
interest rate change and coupon rate is the rate in effect on June 30,
1995.
--------------------------------------------------------------------------------
See accompanying notes to financial statements.
PAGE 7
<PAGE> 10
MUNICIPAL PARTNERS FUND INC.
--------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
June 30, 1995 (unaudited)
<TABLE>
<S> <C>
ASSETS
Investments, at value (cost -- $114,714,840)................................................. $114,086,143
Cash......................................................................................... 2,460
Receivable for investments sold.............................................................. 1,816,642
Interest receivable.......................................................................... 2,017,698
Unamortized organization expenses............................................................ 36,533
Prepaid expenses............................................................................. 17,200
------------
Total assets......................................................................... 117,976,676
------------
LIABILITIES
Payable for investments purchased............................................................ 2,184,591
Accrued management fee (Note 3).............................................................. 57,849
Accrued audit and tax return preparation fees................................................ 37,685
Accrued legal fee............................................................................ 30,003
Other accrued expenses....................................................................... 45,376
------------
Total liabilities.................................................................... 2,355,504
------------
NET ASSETS
Preferred Stock (Note 5)..................................................................... 40,000,000
Common Stock ($.001 par value, authorized 100,000,000;
5,757,094 shares outstanding).............................................................. 5,757
Additional paid-in capital................................................................... 79,673,514
Undistributed net investment income.......................................................... 55,807
Accumulated realized loss on investments..................................................... (3,485,209)
Net unrealized depreciation on investments................................................... (628,697)
------------
Net assets........................................................................... $115,621,172
------------
</TABLE>
--------------------------------------------------------------------------------
See accompanying notes to financial statements.
PAGE 8
<PAGE> 11
MUNICIPAL PARTNERS FUND INC.
--------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
For the six months ended June 30, 1995 (unaudited)
<TABLE>
<S> <C> <C>
INVESTMENT INCOME
INCOME
Interest (includes net premium amortization of $21,425)................................ $ 3,716,648
OPERATING EXPENSES
Management fee.............................................................. $336,987
Auction agent fee........................................................... 50,272
Audit and tax services...................................................... 37,684
Legal....................................................................... 19,836
Shareholder annual meeting.................................................. 15,372
Printing.................................................................... 13,407
Directors' fees and expenses................................................ 13,388
Custodian................................................................... 13,126
Transfer agent.............................................................. 10,576
Amortization of deferred organization expenses.............................. 8,833
Listing fee................................................................. 8,018
Other....................................................................... 20,033
--------
Total operating expenses....................................................... 547,532
-----------
Net investment income.......................................................................... 3,169,116
-----------
NET REALIZED LOSS ON INVESTMENTS............................................................... (1,021,394)
CHANGE IN NET UNREALIZED DEPRECIATION ON INVESTMENTS........................................... 10,202,661
-----------
Net realized loss and change in net unrealized depreciation on investments..................... 9,181,267
-----------
NET INCREASE IN NET ASSETS FROM OPERATIONS..................................................... $12,350,383
-----------
</TABLE>
--------------------------------------------------------------------------------
See accompanying notes to financial statements.
PAGE 9
<PAGE> 12
MUNICIPAL PARTNERS FUND INC.
--------------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
<S> <C> <C>
FOR THE SIX
MONTHS ENDED FOR THE YEAR
JUNE 30, ENDED
1995 DECEMBER 31,
(UNAUDITED) 1994
------------------------------------------------------------------------------------------------------------
OPERATIONS
Net investment income................................................. $ 3,169,116 $ 6,335,477
Net realized loss on investments...................................... (1,021,394) (1,839,397)
Change in net unrealized appreciation (depreciation) on investments... 10,202,661 (15,695,582)
------------ ------------
Net increase (decrease) in net assets resulting from operations....... 12,350,383 (11,199,502)
DIVIDENDS
To common shareholders from net investment income..................... (2,348,895) (5,106,537)
To preferred shareholders from net investment income.................. (849,625) (1,227,600)
------------ ------------
(3,198,520) (6,334,137)
CAPITAL SHARE TRANSACTIONS
Additional offering expenses (Note 1)................................. -- (6,419)
------------ ------------
-- (6,419)
------------ ------------
Total increase (decrease) in net assets............................... 9,151,863 (17,540,058)
NET ASSETS
Beginning of period................................................... 106,469,309 124,009,367
------------ ------------
End of period (includes undistributed net investment income of $55,807
and $85,211, respectively).......................................... $115,621,172 $106,469,309
------------ ------------
</TABLE>
--------------------------------------------------------------------------------
See accompanying notes to financial statements.
PAGE 10
<PAGE> 13
MUNICIPAL PARTNERS FUND INC.
--------------------------------------------------------------------------------
STATEMENT OF CASH FLOWS
For the six months ended June 30, 1995 (unaudited)
<TABLE>
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Proceeds from sales of portfolio investments............................................. $ 17,882,976
Purchases of portfolio securities........................................................ (17,667,450)
Net purchases of short-term investments.................................................. (350,000)
------------
(134,474)
Net investment income.................................................................... 3,169,116
Amortization of net premium on investments............................................... 21,425
Amortization of organization expenses.................................................... 8,833
Net change in receivables/payables related to operations................................. 117,809
------------
Net cash provided by operating activities............................................ 3,182,709
------------
CASH FLOWS USED BY FINANCING ACTIVITIES:
Common stock dividends paid.............................................................. (2,348,895)
Preferred stock dividends paid........................................................... (849,625)
------------
Net cash used by financing activities................................................ (3,198,520)
------------
Net decrease in cash......................................................................... (15,811)
Cash at beginning of period.................................................................. 18,271
------------
CASH AT END OF PERIOD........................................................................ $ 2,460
------------
</TABLE>
--------------------------------------------------------------------------------
See accompanying notes to financial statements.
PAGE 11
<PAGE> 14
MUNICIPAL PARTNERS FUND INC.
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
(unaudited)
NOTE 1. ORGANIZATION AND COMMON STOCK OFFERING
Municipal Partners Fund Inc. (the "Fund") was incorporated in Maryland on
November 24, 1992 and is registered as a diversified, closed-end, management
investment company under the Investment Company Act of 1940, as amended. The
Board of Directors authorized 100 million shares of $.001 par value common
stock. The Fund may classify or reclassify any unissued shares of common stock
into one or more series of preferred stock (See Note 5).
The Fund had no transactions until January 15, 1993 when it sold 7,094 shares of
its common stock to Oppenheimer & Co., Inc. ("Oppenheimer") and Salomon Brothers
Asset Management Inc (the "Investment Adviser") for an aggregate purchase price
of $100,025. The Fund sold 5,750,000 shares of common stock in its initial
public offering and received proceeds of $80,620,751 after deducting offering
expenditures and underwriting commissions. Offering expenditures amounted to
$454,249 and have been charged to additional paid-in capital. Underwriting
commissions paid to underwriters, including Salomon Brothers Inc and
Oppenheimer, amounted to $5,175,000.
NOTE 2. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements.
SECURITIES VALUATION. Tax-exempt securities are valued by independent pricing
services which use prices provided by market-makers or estimates of market
values obtained from yield data relating to instruments or securities with
similar characteristics. Short-term investments having a maturity of 60 days or
less are valued at amortized cost which approximates market value. Securities
for which reliable quotations are not readily available are valued at fair value
as determined in good faith by, or under procedures established by, the Board of
Directors.
SECURITIES TRANSACTIONS AND INVESTMENT INCOME. Securities transactions are
recorded on the trade date. Realized gains and losses on sales of securities are
calculated on the identified cost basis. Interest income is recorded on the
accrual basis. The Fund amortizes premiums and accretes discounts on securities
purchased using the effective interest method.
FEDERAL INCOME TAXES. The Fund has complied and intends to continue to comply
with the requirements of the Internal Revenue Code of 1986, as amended,
applicable to regulated investment companies, and to distribute all of its
income to its shareholders. Therefore, no federal income tax or excise tax
provision is required.
PAGE 12
<PAGE> 15
MUNICIPAL PARTNERS FUND INC.
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (continued)
(unaudited)
DIVIDENDS AND DISTRIBUTIONS. The Fund declares and pays dividends and
distributions to common shareholders monthly from net investment income, net
realized short-term capital gains and other sources, if necessary. Long-term
capital gains, if any, in excess of loss carryovers are expected to be
distributed annually. Dividends and distributions to common shareholders are
recorded on the ex-dividend date. Dividends and distributions to preferred
shareholders are accrued on a weekly basis and are determined as described in
Note 5. The amount of dividends and distributions from net investment income and
net realized gains are determined in accordance with federal income tax
regulations, which may differ from generally accepted accounting principles.
UNAMORTIZED ORGANIZATION EXPENSES. Organization expenses amounting to $89,271
were incurred in connection with the organization of the Fund. These costs have
been deferred and are being amortized ratably over a period of sixty months from
the date the Fund commenced investment operations.
FUTURES CONTRACTS. The Fund's investment program includes the use of futures
contracts for hedging purposes. On futures contracts, the Fund may receive or
pay variation margin, which will be recorded as unrealized gain or loss until
the contract is closed. At such time, realized gain or loss may be recognized.
Such contracts involve elements of market risk in excess of amounts reported in
the financial statements. There were no open futures contracts as of June 30,
1995.
CASH FLOW INFORMATION. The Fund invests in securities and distributes
dividends from net investment income and net realized gains from investment
transactions. These activities are reported in the Statement of Changes in Net
Assets. Additional information on cash receipts and cash payments is presented
in the Statement of Cash Flows. Accounting practices that do not affect
reporting activities on a cash basis include carrying investments at value and
amortizing discount or premium on debt obligations.
NOTE 3. MANAGEMENT AND ADVISORY FEES AND OTHER TRANSACTIONS
The Fund entered into a management agreement with Advantage Advisers, Inc. (the
"Investment Manager"), a subsidiary of Oppenheimer, pursuant to which the
Investment Manager, among other things, supervises the Fund's investment program
and monitors the performance of the Fund's service providers.
The Investment Manager entered into an investment advisory and administration
agreement with the Investment Adviser, an affiliate of Salomon Brothers Inc
("SBI"), pursuant to which the Investment Adviser provides investment advisory
and administrative services to the Fund. The Investment Adviser is responsible
on a day-to-day basis for the management of the Fund's
PAGE 13
<PAGE> 16
MUNICIPAL PARTNERS FUND INC.
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (continued)
(unaudited)
portfolio in accordance with the Fund's investment objectives and policies and
for making decisions to buy, sell, or hold particular securities and is
responsible for day-to-day administration of the Fund.
The Fund pays the Investment Manager a monthly fee at an annual rate of .60% of
the Fund's average weekly net assets for its services, and the Investment
Manager pays the Investment Adviser a monthly fee at an annual rate of .36% of
the Fund's average weekly net assets for its services. For purposes of
calculating the fees, the liquidation value of any outstanding preferred stock
of the Fund is not deducted in determining the Fund's average weekly net assets.
Certain officers and/or directors of the Fund are also officers and/or directors
of the Investment Manager or the Investment Adviser.
The Fund pays each Director not affiliated with the Investment Manager or the
Investment Adviser a fee of $5,000 per year, plus a fee of $700 and
reimbursement for travel and out-of-pocket expenses for each board meeting
attended.
NOTE 4. PORTFOLIO ACTIVITY
Purchases and sales of investment securities, other than short-term investments,
for the six months ended June 30, 1995, aggregated $19,852,041 and $19,699,618,
respectively. At June 30, 1995, the Fund had a net capital loss carryover of
approximately $2,456,137 of which $525,751 will be available through December
31, 2001 and $1,930,386 will be available through December 31, 2002 to offset
future capital gains to the extent provided by federal income tax regulations.
NOTE 5. PREFERRED STOCK
On April 2, 1993, the Fund closed its public offering of 800 shares of $.001 par
value Auction Rate Preferred Stock ("Preferred Shares") at an offering price of
$50,000 per share. This resulted in a $38,958,495 increase in the Fund's net
assets after deducting offering costs and underwriting commissions. Offering
costs amounted to $341,505 and underwriting commissions paid to SBI and
Oppenheimer amounted to $700,000. The offering costs and underwriting
commissions incurred in connection with the Preferred Shares offering have been
charged to additional paid-in capital.
The Preferred Shares have a liquidation preference of $50,000 per share plus an
amount equal to accumulated but unpaid dividends (whether or not earned or
declared) and, subject to certain restrictions, are redeemable in whole or in
part.
PAGE 14
<PAGE> 17
MUNICIPAL PARTNERS FUND INC.
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (continued)
(unaudited)
Dividend rates generally reset every 28 days and are determined by auction
procedures. The dividend rates on the Preferred Shares during the six months
ended June 30, 1995 ranged from 3.749% to 4.399%. The weighted average dividend
rate for the six months ended June 30, 1995 was 4.222%. The Board of Directors
designated the dividend period commencing April 25, 1995 as a Special Rate
Period. Pursuant to this Special Rate Period, the dividend rate set by the
auction held on April 24, 1995 remained in effect through July 24, 1995. The
dividend rate for this Special Rate Period was 4.26%. The Board of Directors
designated the dividend period commencing July 25, 1995 as a Special Rate
Period. Pursuant to this Special Rate Period, the dividend rate set by the
auction held on July 24, 1995 remains in effect through October 23, 1995 when
the regular auction procedure resumes, subject to the Fund's ability to
designate any subsequent dividend period as a Special Rate Period. The dividend
rate for this Special Rate Period is 3.875%.
The Fund is subject to certain restrictions relating to the Preferred Shares.
The Fund may not declare dividends or make other distributions on shares of
common stock or purchase any such shares if, at the time of the declaration,
distribution or purchase, asset coverage with respect to the outstanding
Preferred Shares would be less than 200%. The Preferred Shares are also subject
to mandatory redemption at $50,000 per share plus any accumulated or unpaid
dividends, whether or not declared, if certain requirements relating to the
composition of the assets and liabilities of the Fund as set forth in its
Articles Supplementary are not satisfied.
The Preferred Shares, which are entitled to one vote per share, generally vote
with the common shares but vote separately as a class to elect two directors and
on certain matters affecting the rights of the Preferred Shares.
NOTE 6. COMMON STOCK DIVIDENDS SUBSEQUENT TO JUNE 30, 1995
On July 3 and August 1, 1995, the Board of Directors of the Fund declared a
common share dividend from net investment income, each in the amount of $.065
per share, payable on July 31 and August 31, 1995 to shareholders of record on
July 13 and August 11, 1995, respectively.
PAGE 15
<PAGE> 18
MUNICIPAL PARTNERS FUND INC.
-----------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
DATA FOR A SHARE OF COMMON STOCK OUTSTANDING THROUGHOUT THE PERIOD:
<TABLE>
<CAPTION>
SIX MONTHS PERIOD
ENDED YEAR ENDED ENDED
JUNE 30, DECEMBER DECEMBER
1995 31, 31,
(UNAUDITED) 1994 1993(a)
------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net investment income.................................. $ .55 $ 1.10 $ .87
Net realized gain (loss) on securities and change in
net unrealized appreciation (depreciation)........... 1.60 (3.04) .73
----------- ----------- -----------
Total from investment operations....................... 2.15 (1.94) 1.60
Dividends to common shareholders from net investment
income............................................... (.41) (.89) (.71)
Dividends to preferred shareholders from net investment
income............................................... (.15) (.21) (.14)
Offering costs on issuance of common and
preferred shares..................................... -- -- (.26)
----------- ----------- -----------
Net increase/(decrease) in net asset value............. 1.59 (3.04) .49
Net asset value, beginning of period................... 11.55 14.59 14.10
----------- ----------- -----------
Net asset value, end of period......................... $13.14 $11.55 $14.59
----------- ----------- -----------
Per share market value, end of period.................. $11.50 $9.875 $13.75
Total investment return based on market price per
share(c)............................................. 20.68% (22.57%) 2.31%(b)
Ratios to average net assets of common shareholders(d):
Operating expenses..................................... 1.49%(e) 1.49% 1.30%(e)
Net investment income before preferred
stock dividends...................................... 8.64%(e) 8.67% 6.57%(e)
Preferred stock dividends.............................. 2.32%(e) 1.68% 1.31%(e)
Net investment income available to common
shareholders......................................... 6.32%(e) 6.99% 5.26%(e)
Net assets of common shareholders, end of period....... $75,621,172 $66,469,309 $84,009,367
Preferred stock outstanding, end of period............. $40,000,000 $40,000,000 $40,000,000
Portfolio turnover rate................................ 18% 17% 100%
</TABLE>
--------------------------------------------------------------------------------
(a) For the period from commencement of investment operations on January 29,
1993 through December 31, 1993.
(b) Return calculated based on beginning of period price of $14.10 (initial
offering price of $15.00 less underwriting discount of $.90) and end of
period market value of $13.75 per share.
(c) Dividends are assumed, for purposes of this calculation, to be reinvested at
prices obtained under the Fund's dividend reinvestment plan. This
calculation is not annualized.
(d) Ratios calculated on the basis of income, expenses and preferred stock
dividends applicable to both common and preferred stock relative to the
average net assets of common shares.
(e) Annualized
PAGE 16
<PAGE> 19
MUNICIPAL PARTNERS FUND INC.
--------------------------------------------------------------------------------
SELECTED QUARTERLY FINANCIAL INFORMATION
SUMMARY OF QUARTERLY RESULTS OF OPERATIONS (UNAUDITED):
<TABLE>
<CAPTION>
NET REALIZED GAIN
(LOSS) & CHANGE IN
NET UNREALIZED
NET INVESTMENT APPRECIATION
INCOME (DEPRECIATION)
---------------- -------------------
PER PER
QUARTER ENDED* TOTAL SHARE TOTAL SHARE
-----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
March 31, 1993**............................................... $ 319 $.06 $ (582) $ (.10)
June 30, 1993.................................................. 1,509 .26 3,231 .56
September 30, 1993............................................. 1,595 .28 2,624 .46
December 31, 1993.............................................. 1,570 .27 (1,033) (.19)
March 31, 1994................................................. 1,580 .27 (10,193) (1.77)
June 30, 1994.................................................. 1,566 .27 (1,138) (.19)
September 30, 1994............................................. 1,599 .28 (1,985) (.35)
December 31, 1994.............................................. 1,590 .28 (4,219) (.73)
March 31, 1995................................................. 1,585 .27 7,580 1.32
June 30, 1995.................................................. 1,584 .28 1,601 .28
</TABLE>
--------------------------------------------------------------------------------
* Totals expressed in thousands of dollars except per share amounts.
** For the period from commencement of investment operations on January 29, 1993
through March 31, 1993.
See accompanying notes to financial statements.
PAGE 17
<PAGE> 20
MUNICIPAL PARTNERS FUND INC.
-----------
DIRECTORS
CHARLES F. BARBER
Consultant; formerly Chairman,
ASARCO Incorporated
MARK C. BIDERMAN
Chairman of the Board; Managing Director,
Oppenheimer & Co., Inc.
Executive Vice President,
Advantage Advisers, Inc.
ALLAN C. HAMILTON
Consultant, formerly
Vice President and
Treasurer, Exxon Corp.
MICHAEL S. HYLAND
President; Managing Director,
Salomon Brothers Inc
President, Salomon Brothers
Asset Management Inc
ROBERT L. ROSEN
General Partner
R.L.R. Partners
---------
OFFICERS
MICHAEL S. HYLAND
President
MARYBETH WHYTE
Executive Vice President
ALAN M. MANDEL
Treasurer
TANA E. TSELEPIS
Secretary
ROBERT I. KLEINBERG
Assistant Secretary
LAURIE A. PITTI
Assistant Treasurer
---------------------------------------
MUNICIPAL PARTNERS FUND INC.
7 World Trade Center
New York, New York 10048
Telephone 1-800-725-6666
INVESTMENT ADVISER
Salomon Brothers Asset Management Inc
7 World Trade Center
New York, New York 10048
INVESTMENT MANAGER
Advantage Advisers, Inc.
Oppenheimer Tower
World Financial Center
New York, New York 10281
AUCTION AGENT
Bankers Trust Company
4 Albany Street
New York, New York 10006
CUSTODIAN
State Street Bank and Trust Company
225 Franklin Street
Boston, Massachusetts 02110
DIVIDEND DISBURSING AND TRANSFER AGENT
State Street Bank and Trust Company
225 Franklin Street
Boston, Massachusetts 02110
LEGAL COUNSEL
Simpson Thacher & Bartlett
425 Lexington Avenue
New York, New York 10017
--------------------------------------------------------------------------------
<PAGE> 21
STATE STREET BANK AND TRUST COMPANY
P.O. BOX 8200
BOSTON, MASSACHUSETTS 02266-8200
------------------
BULK RATE
U.S. POSTAGE
PAID
S. HACKENSACK, NJ
PERMIT NO.
750
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