<PAGE> 1
----------------------------------------------------------------------
MUNICIPAL PARTNERS
FUND INC.
INTERIM REPORT
MARCH 31, 1996
<PAGE> 2
MUNICIPAL PARTNERS FUND INC.
May 17, 1996
To Our Shareholders:
We are pleased to supply this quarterly report to the shareholders of Municipal
Partners Fund Inc. (the "Fund") for the period ending March 31, 1996. Stronger
than expected economic growth reported during the first quarter caused
fixed-income prices to decline. The much higher than expected employment data
reported for February surprised the market. The average monthly number of new
jobs created in the first quarter of 1996 exceeded the rate for the fourth
quarter of 1995. Thus, expectations for additional easing of short-term interest
rates by the Federal Reserve diminished. Reported inflation statistics, however,
do not seem to indicate increased inflationary pressures.
During the quarter, the net asset value return for the Fund was negative 3.16%,
assuming the reinvestment of monthly dividends in additional shares of the Fund.
At March 29, 1996 (the last business day of the period), the Fund had a closing
net asset value per share and market price per share of $13.55 and $11.50,
respectively. The Fund continued to pay a monthly common stock dividend of
$0.065 per share.
Municipal bonds outperformed their taxable counterparts for the quarter as fears
of a flat tax abated and individual investors returned to the marketplace. These
investors found renewed interest in municipals given their lack of concern about
tax reform and the higher level of interest rates. Insurance companies continued
to be large purchasers of municipal bonds due to their profitability. The strong
demand during the quarter was met with substantially increased new issue supply.
For the first three months of 1996, the $39.1 billion of new issuance was 35%
higher than the similar period last year.
As of March 29, 1996, the Fund's portfolio consisted of 41 issues in 24 states
with an average maturity of 15.0 years and an average coupon of 6.38%. Sector
allocation overweights housing, healthcare and industrial development.
The Fund held its annual meeting of shareholders on April 3, 1996. At the
meeting, shareholders elected the nominees proposed for election to the Fund's
Board of Directors and 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:
<TABLE>
<CAPTION>
1. ELECTION OF DIRECTOR (PREFERRED SHARES VOTING ONLY)
---------------------------------------------------------------------
NOMINEE VOTES FOR VOTES WITHHELD UNVOTED
---------------------------------------------------------------------
<S> <C> <C> <C>
Michael S. Hyland 621 0 179
<CAPTION>
ELECTION OF DIRECTOR (COMMON AND PREFERRED SHARES VOTING)
---------------------------------------------------------------------
NOMINEE VOTES FOR VOTES WITHHELD UNVOTED
---------------------------------------------------------------------
<S> <C> <C> <C>
Charles F. Barber 4,824,918 136,734 803,202
</TABLE>
<PAGE> 3
MUNICIPAL PARTNERS FUND INC.
<TABLE>
<CAPTION>
2. RATIFICATION OF PRICE WATERHOUSE LLP AS THE INDEPENDENT
ACCOUNTANTS OF THE FUND (COMMON AND PREFERRED SHARES VOTING)
------------------------------------------------------------
VOTES FOR VOTES AGAINST VOTES ABSTAINED UNVOTED
------------------------------------------------------------
<S> <C> <C> <C>
4,885,470 40,724 35,458 803,202
</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.
<TABLE>
<S> <C>
Cordially,
/s/MARK C. BIDERMAN /s/ MICHAEL S. HYLAND
Mark C. Biderman Michael S. Hyland
Chairman of the Board President
</TABLE>
<PAGE> 4
MUNICIPAL PARTNERS FUND INC.
- --------------------------------------------------------------------------------
STATEMENT OF INVESTMENTS
March 31, 1996 (unaudited)
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT MOODY'S/S&P VALUE
(000) LONG-TERM INVESTMENTS -- 148.4% CREDIT RATING (NOTE 2)
------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C>
ALABAMA -- 7.2%
Alabama Special Care Facilities Financing Authority Revenue
$ 2,145 (Daughters of Charity-St. Vincents), 5.00%, 11/01/25........ Aa/AA $ 1,860,165
Courtland, Alabama Industrial Development Board Solid Waste
Disposal Revenue (Champion International Corporation
1,225 Project), Series A, 7.00%, 11/01/22......................... Baa1/BBB 1,286,091
Courtland, Alabama Industrial Development Board Solid Waste
Disposal Revenue (Champion International Corporation
2,500 Project), Series A, 6.50%, 9/01/25.......................... Baa1/BBB 2,495,925
------------
5,642,181
------------
CALIFORNIA -- 3.9%
San Francisco, California Airport Revenue (San Francisco
1,000 International Airport), Series A-9, FGIC, 5.60%, 5/01/14.... Aaa/AAA 965,560
West Covina, California Certificate of Participation (Queen
2,000 of the Valley Hospital), 6.50%, 8/15/14..................... A/A 2,049,860
------------
3,015,420
------------
COLORADO -- 3.8%
Colorado Health Facilities Authority Hospital Revenue (Rocky
3,000 Mountain Adventist Healthcare Project), 6.625%, 2/01/22..... Baa/BBB 3,000,630
------------
GEORGIA -- 2.5%
Fulton County, Georgia Housing Authority Single-Family
2,000 Mortgage, 6.60%, 3/01/28.................................... NR/AAA 2,002,019
------------
ILLINOIS -- 9.6%
Chicago, Illinois Wastewater Transmission Revenue, FGIC,
3,000 5.125%, 1/01/25............................................. Aaa/AAA 2,683,470
Illinois Health Facilities Authority Revenue Refunding
(Lutheran General Health System), Series C, 7.00%,
1,500 4/01/14..................................................... A/A+ 1,692,255
Illinois State Sales Tax Revenue, Series V, 6.375%,
3,000 6/15/20..................................................... A1/AAA 3,132,870
------------
7,508,595
------------
</TABLE>
- --------------------------------------------------------------------------------
See accompanying notes to financial statements.
PAGE 1
<PAGE> 5
MUNICIPAL PARTNERS FUND INC.
- --------------------------------------------------------------------------------
STATEMENT OF INVESTMENTS (continued)
March 31, 1996 (unaudited)
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT MOODY'S/S&P VALUE
(000) LONG-TERM INVESTMENTS (CONTINUED) CREDIT RATING (NOTE 2)
------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C>
MAINE -- 3.4%
Maine State Housing Authority Mortgage Purchase, Series A-4,
$ 525 6.375%, 11/15/12............................................ A1/AA- $ 528,192
Maine State Housing Authority Mortgage Purchase, Series A-2,
2,110 6.65%, 11/15/25............................................. A1/AA- 2,131,248
------------
2,659,440
------------
MARYLAND -- 6.6%
Maryland State Community Development Administration,
Department of Housing and Community Development
1,300 (Multi-Family Housing), Series E, 6.85%, 5/15/25............ Aa/NR 1,345,916
Northeast Maryland Waste Disposal Authority, Solid Waste
Revenue (Montgomery County Resource Recovery Project),
3,750 Series A, 6.30%, 7/01/16.................................... A/NR 3,765,188
------------
5,111,104
------------
MICHIGAN -- 2.9%
Michigan Hospital Finance Authority Revenue Refunding
2,500 (Pontiac Osteopathic Project), 6.00%, 2/01/24............... Baa1/BBB 2,234,250
------------
MINNESOTA -- 4.6%
Minnesota State Housing Finance Agency Single-Family
3,550 Mortgage, Series H, 6.50%, 1/01/26.......................... Aa/AA+ 3,594,411
------------
NEBRASKA -- 7.4%
Nebraska Higher Education Loan Program Inc., Revenue,
6,000 Sub-Series A-6, 6.45%, 6/01/18.............................. A/NR 5,767,200
------------
NEVADA -- 13.3%
Clark County, Nevada Passenger Facility Revenue (Macarran
4,850 International Airport), MBIA, 5.75%, 7/01/23................ Aaa/AAA 4,606,821
Nevada Housing Division, Single-Family Program, Series B-2,
4,355 6.40%, 10/01/25............................................. Aa/NR 4,386,923
Nevada Housing Division, Single-Family Program, Series B-2,
1,300 6.95%, 10/01/26............................................. Aa/NR 1,344,473
------------
10,338,217
------------
</TABLE>
- --------------------------------------------------------------------------------
See accompanying notes to financial statements.
PAGE 2
<PAGE> 6
MUNICIPAL PARTNERS FUND INC.
- --------------------------------------------------------------------------------
STATEMENT OF INVESTMENTS (continued)
March 31, 1996 (unaudited)
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT MOODY'S/S&P VALUE
(000) LONG-TERM INVESTMENTS (CONTINUED) CREDIT RATING (NOTE 2)
------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C>
NEW HAMPSHIRE -- 0.9%
New Hampshire State Housing Finance Authority, Single-Family
$ 690 Residential, Series A, 6.80%, 7/01/15....................... Aa/A+ $ 711,763
------------
NEW JERSEY -- 13.0%
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 5,323,555
New Jersey Economic Development Authority, Water Facilities
Revenue (New Jersey American Water Co., Inc. Project), FGIC,
4,450 6.875%, 11/01/34............................................ Aaa/AAA 4,852,681
------------
10,176,236
------------
NEW YORK -- 9.2%
New York State Energy Research & Development Authority
Facilities Revenue (Con Edison Company of New York, Inc.
1,500 Project), 6.00%, 3/15/28.................................... A1/A+ 1,460,475
Port Authority of New York & New Jersey Construction,
950 Ninety- Sixth Series, FGIC, 6.60%, 10/01/23................. Aaa/AAA 1,011,560
The City of New York, General Obligation Bonds, Series D,
2,000 6.00%, 8/01/11.............................................. Baa1/BBB+ 1,922,360
Triborough Bridge & Tunnel Authority, New York General
2,850 Purpose Revenue, Series Y, 5.50%, 1/01/17................... Aa/A+ 2,770,742
------------
7,165,137
------------
OHIO -- 9.6%
Ohio State Water Development Authority Solid Waste Disposal
Revenue (North Star BHP Steel-Cargill Inc.), 6.30%,
7,200 9/01/20..................................................... Aa3/AA- 7,475,904
------------
PENNSYLVANIA -- 8.1%
Monroeville, Pennsylvania Hospital Authority Hospital
6,095 Revenue (Forbes Health System), 7.00%, 10/01/13............. Baa1/BBB+ 6,303,755
------------
RHODE ISLAND -- 4.1%
Rhode Island Housing & Mortgage Finance Corporation,
3,115 Homeownership Opportunity, Series 7B, 6.80%, 10/01/25....... Aa/AA+ 3,204,120
------------
</TABLE>
- --------------------------------------------------------------------------------
See accompanying notes to financial statements.
PAGE 3
<PAGE> 7
MUNICIPAL PARTNERS FUND INC.
- --------------------------------------------------------------------------------
STATEMENT OF INVESTMENTS (continued)
March 31, 1996 (unaudited)
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT MOODY'S/S&P VALUE
(000) LONG-TERM INVESTMENTS (CONTINUED) CREDIT RATING (NOTE 2)
------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C>
SOUTH DAKOTA -- 6.5%
South Dakota Housing Development Authority, Homeowner
$ 4,955 Mortgage, Series D, 6.85%, 5/01/26.......................... Aa1/AAA $ 5,085,910
------------
TENNESSEE -- 4.7%
The Industrial Development Board of Humphreys County,
Tennessee (E.I. duPont de Nemours and Company Project),
3,400 6.70%, 5/01/24.............................................. Aa3/AA- 3,626,983
------------
TEXAS -- 15.7%
Lower Neches Valley Authority, Texas Industrial Development
Corporation (Mobil Oil Refining Corporate Project), 6.40%,
6,000 3/01/30..................................................... Aa2/AA 6,226,440
Richardson, Texas Hospital Authority Hospital Revenue
Refunding and Improvement (Richardson Medical Center),
3,000 6.75%, 12/01/23............................................. Baa/BBB- 2,955,300
360 Texas State Veterans Housing Assistance, 6.80%, 12/01/23.... Aa/AA 368,921
West Side Calhoun County, Texas Navigation District Solid
Waste Disposal Revenue (Union Carbide Chemicals), 6.40%,
2,750 5/01/23..................................................... Baa2/BBB 2,709,795
------------
12,260,456
------------
UTAH -- 2.3%
Intermountain Power Agency, Utah Power Supply Revenue
2,000 Refunding, Series D, 5.00%, 7/01/21......................... Aa/AA- 1,760,700
------------
VIRGINIA -- 3.7%
Giles County, Virginia Industrial Development Authority
2,000 Revenue (Hoechst Celanese Project), 5.95%, 12/01/25......... A2/A+ 1,958,880
Virginia State Housing Development Authority, Commonwealth
955 Mortgage, Subseries B-5, 6.30%, 1/01/27..................... Aa1/AA+ 957,789
------------
2,916,669
------------
WASHINGTON -- 1.9%
Washington State Housing Finance Commission, Single-Family
1,460 Mortgage Revenue Refunding, 6.15%, 1/01/26.................. NR/AAA 1,446,056
------------
</TABLE>
- --------------------------------------------------------------------------------
See accompanying notes to financial statements.
PAGE 4
<PAGE> 8
MUNICIPAL PARTNERS FUND INC.
- --------------------------------------------------------------------------------
STATEMENT OF INVESTMENTS (concluded)
March 31, 1996 (unaudited)
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT MOODY'S/S&P VALUE
(000) LONG-TERM INVESTMENTS (CONCLUDED) CREDIT RATING (NOTE 2)
------------------------------------------------------------------------------------------------------------
<C> <S> <C>
WEST VIRGINIA -- 3.5%
West Virginia State Water Development Authority, Loan
Program II, Series A, 7.00%, 11/01/31, Pre-Refunded
$ 2,445 11/01/01.................................................... NR/BBB+ $ 2,754,878
------------
TOTAL LONG-TERM INVESTMENTS (cost $114,577,620)............................. 115,762,034
------------
OTHER ASSETS IN EXCESS OF LIABILITIES -- 2.9%............................... 2,225,237
------------
TOTAL NET ASSETS -- 151.3%.................................................. 117,987,271
------------
Par value of 800 shares of preferred stock at $50,000 per share (Note
5) -- (51.3%)............................................................... (40,000,000)
------------
NET ASSETS APPLICABLE TO COMMON STOCK -- 100%
(equivalent to $13.55 per share on 5,757,094 common shares outstanding)..... $ 77,987,271
------------
</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.
See accompanying notes to financial statements.
PAGE 5
<PAGE> 9
MUNICIPAL PARTNERS FUND INC.
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
March 31, 1996 (unaudited)
<TABLE>
<S> <C>
ASSETS
Investments, at value (cost -- $114,577,620)................................................. $115,762,034
Cash......................................................................................... 65,068
Interest receivable.......................................................................... 2,269,317
Unamortized organization expenses (Note 2)................................................... 25,869
Prepaid expenses............................................................................. 20,050
------------
Total assets......................................................................... 118,142,338
------------
LIABILITIES
Accrued management fee (Note 3).............................................................. 60,288
Accrued audit and tax return preparation fees................................................ 35,168
Accrued legal fee............................................................................ 21,717
Accrued printing and mailing fees............................................................ 19,593
Accrued custodian expense.................................................................... 4,650
Accrued transfer agent expense............................................................... 3,368
Accrued shareholder annual meeting expense................................................... 2,306
Accrued directors' fees and expenses (Note 3)................................................ 399
Other accrued expenses....................................................................... 7,578
------------
Total liabilities.................................................................... 155,067
------------
NET ASSETS
Preferred Stock (Note 5)..................................................................... 40,000,000
Common Stock ($.001 par value, 100,000,000 shares authorized; 5,757,094 shares
outstanding)............................................................................... 5,757
Additional paid-in capital................................................................... 79,673,514
Undistributed net investment income.......................................................... 246,877
Accumulated realized loss on investments..................................................... (3,123,291)
Net unrealized appreciation on investments................................................... 1,184,414
------------
Net assets........................................................................... $117,987,271
------------
</TABLE>
- --------------------------------------------------------------------------------
See accompanying notes to financial statements.
PAGE 6
<PAGE> 10
MUNICIPAL PARTNERS FUND INC.
- --------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
For the Three Months Ended March 31, 1996 (unaudited)
<TABLE>
<S> <C> <C>
INVESTMENT INCOME
INCOME
Interest (includes net premium amortization of $8,641)................................. $ 1,836,794
OPERATING EXPENSES
Management fee (Note 3)..................................................... $179,874
Auction agent fee........................................................... 27,716
Audit and tax services...................................................... 18,170
Legal....................................................................... 9,973
Printing.................................................................... 6,987
Directors' fees and expenses (Note 3)....................................... 6,962
Custodian................................................................... 6,310
Transfer agent.............................................................. 4,078
Listing fee................................................................. 4,031
Amortization of deferred organization expenses (Note 2)..................... 3,529
Shareholder annual meeting.................................................. 2,735
Other....................................................................... 5,563
--------
Total operating expenses....................................................... 275,928
-----------
Net investment income...................................................................... 1,560,866
-----------
NET REALIZED AND UNREALIZED GAIN (LOSS)
Net Realized Gain on Investments........................................................... 36,781
Change in Net Unrealized Appreciation on Investments....................................... (3,817,775)
-----------
Net realized gain and change in net unrealized appreciation on investments................. (3,780,994)
-----------
NET DECREASE IN NET ASSETS FROM OPERATIONS................................................. $(2,220,128)
-----------
</TABLE>
- --------------------------------------------------------------------------------
See accompanying notes to financial statements.
PAGE 7
<PAGE> 11
MUNICIPAL PARTNERS FUND INC.
- --------------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
FOR THE
THREE MONTHS FOR THE
ENDED MARCH 31, YEAR ENDED
1996 DECEMBER 31,
(UNAUDITED) 1995
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C>
OPERATIONS
Net investment income............................................. $ 1,560,866 $ 6,341,398
Net realized gain (loss) on investments........................... 36,781 (696,257)
Change in net unrealized appreciation (depreciation) on investments .. (3,817,775) 15,833,547
------------ ------------
Net increase (decrease) in net assets from operations............. (2,220,128) 21,478,688
------------ ------------
DIVIDENDS
To common shareholders from net investment income................. (1,122,633) (4,594,161)
To preferred shareholders from net investment income.............. (367,471) (1,656,333)
------------ ------------
(1,490,104) (6,250,494)
------------ ------------
Total increase (decrease) in net assets........................... (3,710,232) 15,228,194
NET ASSETS
Beginning of period............................................... 121,697,503 106,469,309
------------ ------------
End of period (includes undistributed net investment income of
$246,877 and $176,115, respectively)............................ $ 117,987,271 $121,697,503
------------ ------------
</TABLE>
- --------------------------------------------------------------------------------
See accompanying notes to financial statements.
PAGE 8
<PAGE> 12
MUNICIPAL PARTNERS FUND INC.
- --------------------------------------------------------------------------------
STATEMENT OF CASH FLOWS
For the Three Months Ended March 31, 1996 (unaudited)
<TABLE>
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Proceeds from sales of portfolio investments............................................. $ 17,459,190
Purchases of portfolio securities........................................................ (17,293,232)
Net sales of short-term investments...................................................... 100,000
------------
265,958
Net investment income.................................................................... 1,560,866
Amortization of net premium on investments............................................... 8,641
Amortization of organization expenses.................................................... 3,529
Net change in receivables/payables related to operations................................. (312,948)
------------
Net cash provided by operating activities............................................ 1,526,046
------------
CASH FLOWS USED BY FINANCING ACTIVITIES:
Common stock dividends paid.............................................................. (1,122,633)
Preferred stock dividends paid........................................................... (367,471)
------------
Net cash used by financing activities................................................ (1,490,104)
------------
Net increase in cash......................................................................... 35,942
Cash at beginning of period.................................................................. 29,126
------------
CASH AT END OF PERIOD........................................................................ $ 65,068
------------
</TABLE>
- --------------------------------------------------------------------------------
See accompanying notes to financial statements.
PAGE 9
<PAGE> 13
MUNICIPAL PARTNERS FUND INC.
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
(unaudited)
NOTE 1. ORGANIZATION
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 commenced
operations on January 29, 1993. The Fund's primary investment objective is to
seek a high level of current income which is exempt from regular federal income
taxes, consistent with the preservation of capital. As a secondary investment
objective, the Fund intends to enhance portfolio value by purchasing tax exempt
securities that, in the opinion of Salomon Brothers Asset Management Inc (the
"Investment Adviser"), may appreciate in value relative to other similar
obligations in the marketplace.
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. The
policies are in conformity with generally accepted accounting principles
("GAAP"). The preparation of financial statements in accordance with GAAP
requires management to make estimates and assumptions that affect the reported
amounts and disclosures in the financial statements. Actual amounts could differ
from those estimates.
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 accrued on a daily
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 and capital gains, if any, to its shareholders. Therefore, no federal
income tax or excise tax provision is required.
PAGE 10
<PAGE> 14
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 (See Note 4) 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 GAAP.
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 five-year period from
commencement of operations.
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 premium or accreting discount 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 & Co., Inc. ("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 and the fund entered into an investment advisory and
administration agreement with the Investment Adviser, an affiliate of Salomon
Brothers Inc, pursuant to which the Investment Adviser provides investment
advisory and administrative services to the Fund. The Investment Adviser is
responsible for the management of the Fund's 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
PAGE 11
<PAGE> 15
MUNICIPAL PARTNERS FUND INC.
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (continued)
(unaudited)
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.
At March 31, 1996, Oppenheimer and the Investment Adviser owned 3,547 and 4,275
shares of the Fund, respectively.
The Fund pays each Director not affiliated with the Investment Manager or the
Investment Adviser a fee of $5,000 per year, $700 for attendance at each board
and audit committee meeting, $700 for participation in each telephonic meeting
and reimbursement for travel and out-of-pocket expenses for each board and
committee meeting attended.
NOTE 4. PORTFOLIO ACTIVITY
Purchases and sales of investment securities, other than short-term investments,
for the three months ended March 31, 1996, aggregated $17,293,232 and
$17,459,190, respectively. At December 31, 1995, the Fund had a net capital loss
carryover of approximately $3,160,000 of which $526,000 will be available
through December 31, 2001, $1,930,000 will be available through December 31,
2002 and $704,000 will be available through December 31, 2003 to offset future
capital gains to the extent provided by federal income tax regulations.
The federal income tax cost basis of the Fund's investments at March 31, 1996
was substantially the same as the cost basis for financial reporting. Gross
unrealized appreciation and depreciation amounted to $2,250,634 and $1,066,220,
respectively, resulting in net unrealized appreciation for federal income tax
purposes of $1,184,414.
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. 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.
Dividend rates generally reset every 28 days and are determined by auction
procedures. The dividend rates on the Preferred Shares during the three months
ended March 31, 1996 ranged from 3.54% to 3.93%. The weighted average dividend
rate for the three months ended March 31, 1996 was 3.634%. The Board of
Directors designated the dividend period commencing January 23, 1996 as a
Special Rate Period. Pursuant to this Special Rate Period, the dividend rate set
by the auction held on January 22, 1996 remained in effect through
PAGE 12
<PAGE> 16
MUNICIPAL PARTNERS FUND INC.
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (concluded)
(unaudited)
April 22, 1996. The dividend rate for this Special Rate Period was 3.54%. The
Board of Directors designated the dividend period commencing April 23, 1996 as a
Special Rate Period. Pursuant to this Special Rate Period, the dividend rate set
by the auction held on April 22, 1996 remains in effect through July 22, 1996
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 3.649%.
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 MARCH 31, 1996
On April 1 and May 1, 1996, 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 April 30 and May 31, 1996 to shareholders of record on April
16 and May 14, 1996, respectively.
PAGE 13
<PAGE> 17
MUNICIPAL PARTNERS FUND INC.
- -----------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
DATA FOR A SHARE OF COMMON STOCK OUTSTANDING THROUGHOUT EACH PERIOD:
<TABLE>
<CAPTION>
FOR THE
THREE MONTHS FOR THE FOR THE FOR THE
ENDED MARCH 31, YEAR ENDED YEAR ENDED PERIOD ENDED
1996 DECEMBER 31, DECEMBER 31, DECEMBER 31,
(UNAUDITED) 1995 1994 1993(A)
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value, beginning of period.... $ 14.19 $ 11.55 $ 14.59 $ 14.10
------- -------- -------- --------
Net investment income................... .27 1.10 1.10 .87
Net realized gain (loss) and change in
net unrealized appreciation
(depreciation)........................ (.65) 2.63 (3.04) .73
------- -------- -------- --------
Total from investment operations........ (.38) 3.73 (1.94) 1.60
------- -------- -------- --------
Less distributions
Dividends to common shareholders
from net investment income........ (.20) (.80) (.89) (.71)
Dividends to preferred shareholders
from net investment income........ (.06) (.29) (.21) (.14)
------- -------- -------- --------
Total distributions..................... (.26) (1.09) (1.10) (.85)
------- -------- -------- --------
Offering costs on issuance of common and
preferred shares...................... -- -- -- (.26)
------- -------- -------- --------
Net asset value, end of period.......... $ 13.55 $ 14.19 $ 11.55 $ 14.59
------- -------- -------- --------
Per share market value, end of period... $ 11.50 $ 11.625 $ 9.875 $ 13.75
Total investment return based on market
price per share(c).................... .54% 26.18% (22.57%) 2.31%(b)
Ratios to average net assets of common
shareholders(d):
Operating expenses.................. 1.38%(e) 1.43% 1.49% 1.30%(e)
Net investment income before
preferred stock dividends......... 7.79%(e) 8.41% 8.67% 6.57%(e)
Preferred stock dividends........... 1.83%(e) 2.20% 1.68% 1.31%(e)
Net investment income available to
common shareholders............... 5.96%(e) 6.21% 6.99% 5.26%(e)
Net assets of common shareholders,
end of period (000)............... $77,987 $ 81,698 $ 66,469 $ 84,009
Preferred stock outstanding, end of
period (000)...................... $40,000 $ 40,000 $ 40,000 $ 40,000
Portfolio turnover rate............. 15% 35% 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. This calculation is not annualized.
(c) For purposes of this calculation, dividends on common shares are assumed to
be reinvested at prices obtained under the Fund's dividend reinvestment plan
and the broker commission paid to purchase or sell a share is excluded. This
calculation is not annualized.
(d) Ratios calculated on the basis of income, expenses and preferred stock
dividends relative to the average net assets of common shares.
(e) Annualized.
See accompanying notes to financial statements.
PAGE 14
<PAGE> 18
MUNICIPAL PARTNERS FUND INC.
- --------------------------------------------------------------------------------
SELECTED QUARTERLY FINANCIAL INFORMATION (unaudited)
SUMMARY OF QUARTERLY RESULTS OF OPERATIONS:
<TABLE>
<CAPTION>
NET REALIZED GAIN
(LOSS) & CHANGE IN
NET UNREALIZED
NET INVESTMENT APPRECIATION
INCOME (DEPRECIATION)
-------------------- ---------------------
QUARTER ENDED* TOTAL PER SHARE TOTAL PER SHARE
------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
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
September 30, 1995.......................................... 1,572 .27 1,478 .25
December 31, 1995........................................... 1,600 .28 4,478 .78
March 31, 1996.............................................. 1,561 .27 (3,781) (.65)
</TABLE>
- --------------------------------------------------------------------------------
* Totals expressed in thousands of dollars except per share amounts.
See accompanying notes to financial statements.
PAGE 15
<PAGE> 19
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
LAWRENCE H. KAPLAN
Executive Vice President
ALAN M. MANDEL
Treasurer
LAURIE A. PITTI
Assistant Treasurer
TANA E. TSELEPIS
Secretary
ROBERT I. KLEINBERG
Assistant Secretary
- ---------------------------------------
MUNICIPAL PARTNERS FUND INC.
7 World Trade Center
New York, New York 10048
Telephone 1-800-SALOMON
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
NEW YORK STOCK EXCHANGE SYMBOL
MNP
- --------------------------------------------------------------------------------
<PAGE> 20
<TABLE>
<S> <C>
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
------------------
</TABLE>
