<PAGE> 1
----------------------------------------------------------------------
MUNICIPAL PARTNERS
FUND INC.
ANNUAL REPORT
--------------------------------------
DECEMBER 31, 1995
<PAGE> 2
MUNICIPAL PARTNERS FUND INC.
February 27, 1996
To Our Shareholders:
We are pleased to supply this annual report to the shareholders of Municipal
Partners Fund Inc. (the "Fund") for the year ended December 31, 1995. The fixed
income markets staged a strong rally during the fourth quarter as evidenced by
the Fund's net asset value return of 7.40% (assuming the reinvestment of monthly
dividends in additional shares of the Fund). At December 29, 1995 (the last
business day of the year), the Fund had a closing net asset value and market
price per share of $14.19 and $11.625, respectively. During the quarter, the
Fund continued to pay a monthly common stock dividend of $0.065 per share. For
the year ended December 31, 1995, the Fund's net asset value return was 30.60%
(assuming the reinvestment of monthly dividends in additional shares of the
Fund).
Moderate economic growth and benign inflation were the catalysts for the fixed
income rally during the fourth quarter. Although there was some volatility due
to the budget debate in Washington, the market ended the year on a positive note
as the Federal Reserve lowered its Federal Funds rate by 25 basis points to
5.50%.
Portfolio managers used the heavy new issue supply in the latter part of the
year as an opportunity to restructure their accounts to prepare for a further
decline in interest rates. As the Dow Jones Industrial Average approached the
5,000 level, individual investors shifted more of their assets into municipal
bonds. During the latter part of the year, fears of flat tax legislation abated.
Thus, individual investors gained confidence to extend the maturities of their
municipal bond purchases.
The increased new issue supply in the second half of 1995 brought the total new
issue volume to $156 billion, just 5% below last year's level. The technicals
for 1996 remain favorable from a supply and demand perspective. New issue supply
is not expected to increase substantially while demand could be strong from the
reinvestment of maturities, calls and coupon payments.
As of December 29, 1995, the Fund's portfolio consisted of 42 issues in 23
different states with an average maturity of 11.3 years and an average coupon of
6.48%. Sector weightings emphasize housing, healthcare and industrial
development.
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> 3
MUNICIPAL PARTNERS FUND INC.
- --------------------------------------------------------------------------------
STATEMENT OF INVESTMENTS
December 31, 1995
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT MOODY'S/S&P VALUE
(000) LONG-TERM INVESTMENTS -- 146.6% CREDIT RATING (NOTE 2)
------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C>
ALABAMA -- 8.3%
Courtland, Alabama Industrial Development Board Solid Waste
Disposal Revenue (Champion International Corporation Project),
$ 1,225 Series A, 7.00%, 11/01/22..................................... Baa1/BBB $ 1,309,684
Courtland, Alabama Industrial Development Board Solid Waste
Disposal Revenue (Champion International Corporation Project),
5,395 Series A, 6.375%, 3/01/29..................................... Baa1/BBB 5,459,686
------------
6,769,370
------------
CALIFORNIA -- 3.8%
San Francisco, California Airport Revenue (San Francisco
1,000 International Airport), Series A-9, FGIC, 5.60%, 5/01/14...... Aaa/AAA 1,013,230
West Covina, California Certificate of Participation (Queen of
2,000 the Valley Hospital), 6.50%, 8/15/14.......................... A/A 2,108,120
------------
3,121,350
------------
COLORADO -- 2.5%
Colorado Health Facilities Authority Hospital Revenue (Rocky
2,000 Mountain Adventist Healthcare Project), 6.625%, 2/01/22....... Baa/BBB 2,027,740
------------
GEORGIA -- 4.1%
Savannah, Georgia Hospital Authority Revenue Refunding &
3,250 Improvement (Candler Hospital), 7.00%, 1/01/23................ Baa/BBB+ 3,337,198
------------
ILLINOIS -- 9.7%
Illinois Health Facilities Authority Revenue Refunding
1,500 (Lutheran General Health System), Series C, 7.00%, 4/01/14.... A/A+ 1,753,155
3,000 Illinois State Sales Tax Revenue, Series V, 6.375%, 6/15/20... A1/AAA 3,199,860
Regional Transportation Authority of Illinois, Series A, FGIC,
2,900 5.85%, 6/01/23................................................ Aaa/AAA 2,986,594
------------
7,939,609
------------
</TABLE>
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See accompanying notes to financial statements.
PAGE 1
<PAGE> 4
MUNICIPAL PARTNERS FUND INC.
- --------------------------------------------------------------------------------
STATEMENT OF INVESTMENTS (continued)
December 31, 1995
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT MOODY'S/S&P VALUE
(000) LONG-TERM INVESTMENTS (CONTINUED) CREDIT RATING (NOTE 2)
------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C>
MAINE -- 3.3%
Maine State Housing Authority Mortgage Purchase, Series A-4,
$ 525 6.375%, 11/15/12.............................................. A1/AA- $ 538,818
Maine State Housing Authority Mortgage Purchase, Series A-2,
2,110 6.65%, 11/15/25............................................... A1/AA- 2,176,064
------------
2,714,882
------------
MARYLAND -- 6.5%
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 1,371,994
Northeast Maryland Waste Disposal Authority, Solid Waste
Revenue (Montgomery County Resource Recovery Project), Series
3,750 A, 6.30%, 7/01/16............................................. A/NR 3,904,988
------------
5,276,982
------------
MICHIGAN -- 2.8%
Michigan Hospital Finance Authority Revenue Refunding
2,500 (Pontiac Osteopathic Project), 6.00%, 2/01/24................. Baa1/BBB 2,309,225
------------
MINNESOTA -- 4.5%
Minnesota State Housing Finance Agency Single-Family Mortgage,
3,550 Series H, 6.50%, 1/01/26...................................... Aa/AA+ 3,644,785
------------
NEBRASKA -- 7.7%
Nebraska Higher Education Loan Program Inc., Revenue,
6,000 Sub-Series A-6, 6.45%, 6/01/18................................ A/NR 6,239,400
------------
NEVADA -- 13.1%
Clark County, Nevada Passenger Facility Revenue (Macarran
4,850 International Airport), MBIA, 5.75%, 7/01/23.................. Aaa/AAA 4,874,299
Nevada Housing Division, Single-Family Program, Series B-2,
4,355 6.40%, 10/01/25............................................... Aa/NR 4,419,846
Nevada Housing Division, Single-Family Program, Series B-2,
1,300 6.95%, 10/01/26............................................... Aa/NR 1,369,979
------------
10,664,124
------------
</TABLE>
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See accompanying notes to financial statements.
PAGE 2
<PAGE> 5
MUNICIPAL PARTNERS FUND INC.
- --------------------------------------------------------------------------------
STATEMENT OF INVESTMENTS (continued)
December 31, 1995
<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
$ 700 Residential, Series A, 6.80%, 7/01/15......................... Aa/A+ $ 734,916
------------
NEW JERSEY -- 12.9%
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 5,566,223
New Jersey Economic Development Authority, Water Facilities
Revenue (New Jersey American Water Co. Project), FGIC,
4,450 6.875%, 11/01/34.............................................. Aaa/AAA 4,975,055
------------
10,541,278
------------
NEW YORK -- 9.4%
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+ 1,524,225
Port Authority of New York & New Jersey Construction,
950 Ninety-Sixth Series, FGIC, 6.60%, 10/01/23.................... Aaa/AAA 1,039,433
The City of New York, General Obligation Bonds, Series D,
3,100 6.00%, 2/15/11................................................ Baa1/BBB+ 3,119,747
The City of New York, General Obligation Bonds, Series D,
2,000 6.00%, 8/01/11................................................ Baa1/BBB+ 1,995,860
------------
7,679,265
------------
OHIO -- 6.7%
Ohio State Water Development Authority Solid Waste Disposal
5,200 Revenue (North Star BHP Steel-Cargill Inc.), 6.30%, 9/01/20... Aa3/AA- 5,494,632
------------
PENNSYLVANIA -- 8.0%
Monroeville Hospital Authority Hospital Revenue (Forbes Health
6,095 System), 7.00%, 10/01/13...................................... Baa1/BBB+ 6,521,772
------------
</TABLE>
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See accompanying notes to financial statements.
PAGE 3
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MUNICIPAL PARTNERS FUND INC.
- --------------------------------------------------------------------------------
STATEMENT OF INVESTMENTS (continued)
December 31, 1995
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT MOODY'S/S&P VALUE
(000) LONG-TERM INVESTMENTS (CONTINUED) CREDIT RATING (NOTE 2)
------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C>
RHODE ISLAND -- 6.5%
Rhode Island Housing & Mortgage Finance Corporation,
$ 2,100 Homeownership Opportunity, Series 5, 6.40%, 4/01/24........... Aa/AA+ $ 2,123,100
Rhode Island Housing & Mortgage Finance Corporation,
3,115 Homeownership Opportunity, Series 7B, 6.80%, 10/01/25......... Aa/AA+ 3,225,645
------------
5,348,745
------------
SOUTH DAKOTA -- 6.3%
South Dakota Housing Development Authority, Homeowner
4,955 Mortgage, Series D, 6.85%, 5/01/26............................ Aa1/AA+ 5,176,489
------------
TENNESSEE -- 4.6%
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- 3,717,662
------------
TEXAS -- 15.4%
Lower Neches Valley Authority, Texas Industrial Development
Corporation (Mobil Oil Refining Corporate Project),
6,000 6.40%, 3/01/30................................................ Aa2/AA 6,399,240
Richardson, Texas Hospital Authority Hospital Revenue
Refunding and Improvement (Richardson Medical Center), 6.75%,
3,000 12/01/23...................................................... Baa/BBB- 3,043,050
360 Texas State Veterans Housing Assistance, 6.80%, 12/01/23...... Aa/AA 374,994
West Side Calhoun County, Texas Navigation District Solid
Waste Disposal Revenue (Union Carbide Chemicals), 6.40%,
2,750 5/01/23....................................................... Baa2/BBB 2,792,158
------------
12,609,442
------------
VIRGINIA -- 3.7%
Giles County, Virginia Industrial Development Authority
2,000 Revenue (Hoechst Celanese Project), 5.95%, 12/01/25........... A2/A+ 2,021,000
Virginia State Housing Development Authority, Commonwealth
955 Mortgage, Subseries B-5, 6.30%, 1/01/27....................... Aa1/AA+ 966,947
------------
2,987,947
------------
</TABLE>
- --------------------------------------------------------------------------------
See accompanying notes to financial statements.
PAGE 4
<PAGE> 7
MUNICIPAL PARTNERS FUND INC.
- --------------------------------------------------------------------------------
STATEMENT OF INVESTMENTS (concluded)
December 31, 1995
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT MOODY'S/S&P VALUE
(000) LONG-TERM INVESTMENTS (CONCLUDED) CREDIT RATING (NOTE 2)
------------------------------------------------------------------------------------------------------------
<C> <S> <C>
WASHINGTON -- 2.5%
Public Utility District No. 1 of Snohomish County, Washington
$ 600 Generation System Revenue, Series B, 5.80%, 1/01/24........... A1/A+ $ 604,524
Washington State Housing Finance Commission, Single-Family
1,460 Mortgage Revenue Refunding, 6.15%, 1/01/26.................... NR/AAA 1,452,072
------------
2,056,596
------------
WEST VIRGINIA -- 3.4%
West Virginia State Water Development Authority, Loan Program
2,445 II, Series A, 7.00%, 11/01/31................................. NR/BBB+ 2,804,218
------------
TOTAL LONG-TERM INVESTMENTS (cost $114,715,438)............................... 119,717,627
------------
SHORT-TERM INVESTMENT -- 0.1%
- ------------------------------------------------------------------------------------------------
NEW YORK -- 0.1%
The City of New York, Housing Development Corporation
(Carnegie Park Project), Series A, VR, 5.75%, 1/02/96 (cost
100 $100,000)..................................................... VMIG-2/NR 100,000
------------
TOTAL INVESTMENTS -- 146.7% (cost $114,815,438)............................... 119,817,627
------------
OTHER ASSETS IN EXCESS OF LIABILITIES -- 2.3%................................. 1,879,876
------------
TOTAL NET ASSETS -- 149.0%.................................................... 121,697,503
------------
Par value of 800 shares of preferred stock at $50,000 per share (Note
5) -- (49.0%)................................................................. (40,000,000)
------------
NET ASSETS APPLICABLE TO COMMON STOCK -- 100%
(equivalent to $14.19 per share on 5,757,094 common shares outstanding)....... $ 81,697,503
------------
</TABLE>
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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 date of next interest
rate change and coupon rate is the rate in effect on December 31, 1995.
See accompanying notes to financial statements.
PAGE 5
<PAGE> 8
MUNICIPAL PARTNERS FUND INC.
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1995
<TABLE>
<S> <C>
ASSETS
Investments, at value (cost -- $114,815,438)................................................. $119,817,627
Cash......................................................................................... 29,126
Interest receivable.......................................................................... 1,960,928
Unamortized organization expenses (Note 2)................................................... 29,398
Prepaid expenses............................................................................. 15,753
------------
Total assets......................................................................... 121,852,832
------------
LIABILITIES
Accrued management fee (Note 3).............................................................. 61,526
Accrued audit and tax return preparation fees................................................ 51,998
Accrued printing and mailing fees............................................................ 12,900
Accrued legal fee............................................................................ 12,557
Accrued custodian expense.................................................................... 4,893
Other accrued expenses....................................................................... 11,455
------------
Total liabilities.................................................................... 155,329
------------
NET ASSETS
Preferred Stock (Note 5)..................................................................... 40,000,000
Common Stock ($.001 par value, authorized 100,000,000 shares; 5,757,094 shares
outstanding)............................................................................... 5,757
Additional paid-in capital................................................................... 79,673,514
Undistributed net investment income.......................................................... 176,115
Accumulated realized loss on investments..................................................... (3,160,072)
Net unrealized appreciation on investments................................................... 5,002,189
------------
Net assets........................................................................... $121,697,503
------------
</TABLE>
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See accompanying notes to financial statements.
PAGE 6
<PAGE> 9
MUNICIPAL PARTNERS FUND INC.
- --------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
For the Year Ended December 31, 1995
<TABLE>
<S> <C> <C>
INVESTMENT INCOME
INCOME
Interest (includes net premium amortization of $40,719)................................ $ 7,420,470
OPERATING EXPENSES
Management fee (Note 3)..................................................... $692,714
Auction agent fee........................................................... 110,601
Audit and tax services...................................................... 73,457
Legal....................................................................... 40,000
Printing.................................................................... 32,012
Directors' fees and expenses (Note 3)....................................... 26,575
Custodian................................................................... 24,413
Listing fee................................................................. 16,170
Amortization of deferred organization expenses (Note 2)..................... 15,968
Transfer agent.............................................................. 13,387
Shareholder annual meeting.................................................. 10,753
Other....................................................................... 23,022
--------
Total operating expenses....................................................... 1,079,072
-----------
Net investment income...................................................................... 6,341,398
-----------
NET REALIZED AND UNREALIZED GAIN (LOSS)
Net Realized Loss on Investments........................................................... (696,257)
Change in Net Unrealized Appreciation on Investments....................................... 15,833,547
-----------
Net realized loss and change in net unrealized appreciation on investments................. 15,137,290
-----------
NET INCREASE IN NET ASSETS FROM OPERATIONS................................................. $21,478,688
-----------
</TABLE>
- --------------------------------------------------------------------------------
See accompanying notes to financial statements.
PAGE 7
<PAGE> 10
MUNICIPAL PARTNERS FUND INC.
- --------------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
FOR THE YEAR FOR THE YEAR
ENDED ENDED
DECEMBER 31, DECEMBER 31,
1995 1994
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C>
OPERATIONS
Net investment income................................................ $ 6,341,398 $ 6,335,477
Net realized loss on investments..................................... (696,257) (1,839,397)
Change in net unrealized appreciation (depreciation) on investments .. 15,833,547 (15,695,582)
------------ ------------
Net increase (decrease) in net assets from operations................ 21,478,688 (11,199,502)
DIVIDENDS
To common shareholders from net investment income.................... (4,594,161) (5,106,537)
To preferred shareholders from net investment income................. (1,656,333) (1,227,600)
------------ ------------
(6,250,494) (6,334,137)
CAPITAL SHARE TRANSACTIONS
Additional offering expenses (Note 1)................................ -- (6,419)
------------ ------------
-- (6,419)
------------ ------------
Total increase (decrease) in net assets.............................. 15,228,194 (17,540,058)
NET ASSETS
Beginning of year.................................................... 106,469,309 124,009,367
------------ ------------
End of year (includes undistributed net investment income of $176,115
and $85,211, respectively)......................................... $121,697,503 $106,469,309
------------ ------------
</TABLE>
- --------------------------------------------------------------------------------
See accompanying notes to financial statements.
PAGE 8
<PAGE> 11
MUNICIPAL PARTNERS FUND INC.
- --------------------------------------------------------------------------------
STATEMENT OF CASH FLOWS
For the Year Ended December 31, 1995
<TABLE>
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Proceeds from sales of portfolio investments............................................. $ 38,947,949
Purchases of portfolio securities........................................................ (39,545,126)
Net sales of short-term investments...................................................... 300,000
------------
(297,177)
Net investment income.................................................................... 6,341,398
Amortization of net premium on investments............................................... 40,719
Amortization of organization expenses.................................................... 15,968
Net change in receivables/payables related to operations................................. 160,441
------------
Net cash provided by operating activities............................................ 6,261,349
------------
CASH FLOWS USED BY FINANCING ACTIVITIES:
Common stock dividends paid.............................................................. (4,594,161)
Preferred stock dividends paid........................................................... (1,656,333)
------------
Net cash used by financing activities................................................ (6,250,494)
------------
Net increase in cash......................................................................... 10,855
Cash at beginning of year.................................................................... 18,271
------------
CASH AT END OF YEAR.......................................................................... $ 29,126
------------
</TABLE>
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See accompanying notes to financial statements.
PAGE 9
<PAGE> 12
MUNICIPAL PARTNERS FUND INC.
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NOTES TO FINANCIAL STATEMENTS
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 were charged to additional paid-in capital. Underwriting
commissions paid to underwriters, including Salomon Brothers Inc ("SBI") and
Oppenheimer, amounted to $5,175,000.
NOTE 2. SIGNIFICANT ACCOUNTING POLICIES
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 the Investment Adviser, may appreciate in value relative to other
similar obligations in the marketplace.
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
PAGE 10
<PAGE> 13
MUNICIPAL PARTNERS FUND INC.
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (continued)
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 and capital gains, if any, to its shareholders. Therefore, no federal
income tax or excise tax provision is required.
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, 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 SBI,
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.
PAGE 11
<PAGE> 14
MUNICIPAL PARTNERS FUND INC.
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (continued)
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, a fee of $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 year ended December 31, 1995, aggregated $39,545,126 and $38,947,949,
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 December 31, 1995
was substantially the same as the cost basis for financial reporting. Gross
unrealized appreciation and depreciation amounted to $5,025,229 and $23,040,
respectively, resulting in net unrealized appreciation for federal income tax
purposes of $5,002,189.
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. 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 12
<PAGE> 15
MUNICIPAL PARTNERS FUND INC.
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (concluded)
Dividend rates generally reset every 28 days and are determined by auction
procedures. The dividend rates on the Preferred Shares during the year ended
December 31, 1995 ranged from 3.749% to 4.399%. The weighted average dividend
rate for the year ended December 31, 1995 was 4.084%. The Board of Directors
designated the dividend period commencing October 24, 1995 as a Special Rate
Period. Pursuant to this Special Rate Period, the dividend rate set by the
auction held on October 23, 1995 remained in effect through January 22, 1996.
The dividend rate for this Special Rate Period was 3.93%. 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 remains in effect through April 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 3.54%.
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 DECEMBER 31, 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 January 31
and February 29, 1996 to shareholders of record on January 12 and February 12,
1996, respectively.
PAGE 13
<PAGE> 16
MUNICIPAL PARTNERS FUND INC.
- -----------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
DATA FOR A SHARE OF COMMON STOCK OUTSTANDING THROUGHOUT EACH PERIOD:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED PERIOD ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1995 1994 1993(a)
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net investment income..................................... $ 1.10 $ 1.10 $ .87
Net realized loss and change in net unrealized
appreciation (depreciation)............................. 2.63 (3.04) .73
------------ ------------ ------------
Total from investment operations...................... 3.73 (1.94) 1.60
Dividends to common shareholders from net investment
income.................................................. (.80) (.89) (.71)
Dividends to preferred shareholders from net investment
income.................................................. (.29) (.21) (.14)
Offering costs on issuance of common and preferred
shares.................................................. -- -- (.26)
------------ ------------ ------------
Net increase (decrease) in net asset value............ 2.64 (3.04) .49
Net asset value, beginning of period...................... 11.55 14.59 14.10
------------ ------------ ------------
Net asset value, end of period............................ $14.19 $11.55 $14.59
------------ ------------ ------------
Per share market value, end of period..................... $11.625 $9.875 $13.75
Total investment return based on market price per
share(c)................................................ 26.18% (22.57%) 2.31%(b)
Ratios to average net assets of common shareholders(d):
Operating expenses.................................... 1.43% 1.49% 1.30%(e)
Net investment income before preferred stock
dividends........................................... 8.41% 8.67% 6.57%(e)
Preferred stock dividends............................. 2.20% 1.68% 1.31%(e)
Net investment income available to common
shareholders........................................ 6.21% 6.99% 5.26%(e)
Net assets of common shareholders, end of period
(000)............................................... $ 81,698 $ 66,469 $ 84,009
Preferred stock outstanding, end of period (000)...... $ 40,000 $ 40,000 $ 40,000
Portfolio turnover rate............................... 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.
(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> 17
- ---------------------------------------------------------------------
MUNICIPAL PARTNERS FUND INC.
To the Board of Directors and Shareholders of
Municipal Partners Fund Inc.
In our opinion, the accompanying statement of assets and liabilities, including
the statement of investments, and the related statements of operations, of
changes in net assets and of cash flows and the financial highlights present
fairly, in all material respects, the financial position of Municipal Partners
Fund Inc. (the "Fund") at December 31, 1995, the results of its operations, and
cash flows for the year then ended, the changes in its net assets for each of
the two years in the period then ended and the financial highlights for the
periods indicated, in conformity with generally accepted accounting principles.
These financial statements and financial highlights (hereafter referred to as
"financial statements") are the responsibility of the Fund's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these financial statements in accordance
with generally accepted auditing standards which require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe our audits, which included confirmation of securities at December 31,
1995 by correspondence with the custodian, provide a reasonable basis for the
opinion expressed above.
PRICE WATERHOUSE LLP
New York, N.Y.
February 15, 1996
PAGE 15
<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
</TABLE>
- --------------------------------------------------------------------------------
* Totals expressed in thousands of dollars except per share amounts.
See accompanying notes to financial statements.
PAGE 16
<PAGE> 19
MUNICIPAL PARTNERS FUND INC.
- ---------------------------------------------------------------------------
OTHER INFORMATION
Pursuant to certain rules of the Securities and Exchange Commission the
following additional disclosure is provided.
Pursuant to the Fund's Dividend Reinvestment Plan (the "Plan"), holders of
Common Stock whose shares of Common Stock are registered in their own names will
be deemed to have elected to have all distributions automatically reinvested by
State Street Bank and Trust Company (the "Plan Agent") in Fund shares pursuant
to the Plan, unless they elect to receive distributions in cash. Holders of
Common Stock who elect to receive distributions in cash will receive all
distributions in cash by check in dollars mailed directly to the holder by State
Street Bank and Trust Company as dividend-paying agent. Holders of Common Stock
who do not wish to have distributions automatically reinvested should notify the
Plan Agent at the address below. Distributions with respect to Common Stock
registered in the name of a bank, broker-dealer or other nominee (i.e., in
"street name") will be reinvested under the Plan unless the service is not
provided by the bank, broker-dealer or other nominee or the holder elects to
receive dividends and distributions in cash. Investors that own shares
registered in the name of a bank, broker-dealer or other nominee should consult
with such nominee as to participation in the Plan through such nominee, and may
be required to have their shares registered in their own names in order to
participate in the Plan.
The Plan Agent serves as agent for the holders of Common Stock in administering
the Plan. After the Fund declares a dividend on the Common Stock or determines
to make a capital gain distribution, the Plan Agent will, as agent for the
participants, receive the cash payment and use it to buy the Fund's Common Stock
in the open market, on the New York Stock Exchange or elsewhere, for the
participants' accounts. The Fund will not issue any new shares of Common Stock
in connection with the Plan.
Participants have the option of making additional cash payments to the Plan
Agent, monthly, in a minimum amount of $250, for investment in the Fund's Common
Stock. The Plan Agent will use all such funds received from participants to
purchase shares of Common Stock in the open market on or about the first
business day of each month. To avoid unnecessary cash accumulations, and also to
allow ample time for receipt and processing by the Plan Agent, it is suggested
that participants send in voluntary cash payments to be received by the Plan
Agent approximately ten days before an applicable purchase date specified above.
A participant may withdraw a voluntary cash payment by written notice, if the
notice is received by the Plan Agent not less than 48 hours before such payment
is to be invested.
The Plan Agent maintains all shareholder accounts in the Plan and furnishes
written confirmations of all transactions in an account, including information
needed by shareholders for personal and tax records. Shares of Common Stock in
the account of each Plan participant will be held by the Plan Agent in the name
of the participant, and each shareholder's proxy will include those shares
purchased pursuant to the Plan.
PAGE 17
<PAGE> 20
MUNICIPAL PARTNERS FUND INC.
- ---------------------------------------------------------------------------
OTHER INFORMATION (concluded)
In the case of holders of Common Stock, such as banks, broker-dealers or other
nominees, that hold shares for others who are beneficial owners, the Plan Agent
will administer the Plan on the basis of the number of shares of Common Stock
certified from time to time by the holders as representing the total amount
registered in such holders' names and held for the account of beneficial owners
that have not elected to receive distributions in cash.
There is no charge to participants for reinvesting dividends or capital gains
distributions or voluntary cash payments. The Plan Agent's fees for the
reinvestment of dividends and capital gains distributions and voluntary cash
payments will be paid by the Fund. However, each participant will pay a pro rata
share of brokerage commissions incurred with respect to the Plan Agent's open
market purchases in connection with the reinvestment of dividends and
distributions and voluntary cash payments made by the participant. The receipt
of dividends and distributions under the Plan will not relieve participants of
any income tax which may be payable on such dividends or distributions.
Participants may terminate their accounts under the Plan by notifying the Plan
Agent in writing. Such termination will be effective immediately if notice in
writing is received by the Plan Agent not less than ten days prior to any
dividend or distribution record date. Upon termination, the Plan Agent will send
the participant a certificate for the full shares held in the account and a cash
adjustment for any fractional shares or, upon written instruction from the
participant, the Plan Agent will sell part or all of the participant's shares
and remit the proceeds to the participant, less a $2.50 fee plus brokerage
commission for the transaction.
Experience under the Plan may indicate that changes in the Plan are desirable.
Accordingly, the Fund and the Plan Agent reserve the right to terminate the Plan
as applied to any voluntary cash payments made and any dividend or distribution
paid subsequent to notice of the termination sent to all participants in the
Plan at least 30 days before the record date for the dividend or distribution.
The Plan also may be amended by the Fund or the Plan Agent upon at least 30
days' written notice to participants in the Plan. All correspondence concerning
the Plan should be directed to the Plan Agent, P.O. Box 8209, Boston,
Massachusetts 02266-8209.
1995 FEDERAL TAX NOTICE
During the year ended December 31, 1995, the Fund paid to shareholders
$6,250,494 from net investment income. All of the Fund's dividends from net
investment income were exempt interest dividends, excludable from gross income
for regular Federal income tax purposes. You should consult your tax advisor as
to the state and local taxes status of the dividends you received.
PAGE 18
<PAGE> 21
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
INDEPENDENT ACCOUNTANTS
Price Waterhouse LLP
1177 Avenue of the Americas
New York, New York 10036
LEGAL COUNSEL
Simpson Thacher & Bartlett
425 Lexington Avenue
New York, New York 10017
NEW YORK STOCK EXCHANGE SYMBOL
MNP
- --------------------------------------------------------------------------------
<PAGE> 22
<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>
