<PAGE>
MUNICIPAL PARTNERS FUND INC.
August 25, 1997
To Our Shareholders:
We are pleased to provide this semi-annual report to the shareholders of
Municipal Partners Fund Inc. (the "Fund") for the six months ended June 30,
1997. The fixed-income market was volatile during the first half of 1997; the
bond market experienced a downturn during the first quarter but rebounded during
the second quarter. The Fund achieved a 4.08% return in net asset value during
the first half of 1997 (assuming the reinvestment of monthly dividends in
additional shares of the Fund). On June 30, 1997, the Fund had a closing net
asset value and market price per share of $14.15 and $12.75, respectively. The
Fund continued to pay a monthly common stock dividend of $0.0665 per share.
Heightened inflation concerns were the basis for the price decline in the
fixed-income market during the first quarter. Federal Reserve Chairman Greenspan
cautioned investors that short-term interest rates may have to be raised in
order to slow the economy and stave off inflation. On March 25, the Federal
Reserve raised short-term interest rates 25 basis points which caused a negative
reaction in both the fixed-income and equity markets. These markets bottomed in
mid-April, yet posted strong positive returns for the second quarter. The
turnaround in the fixed-income market was due to reported benign inflation
statistics and slower economic growth which led to a belief that the Federal
Reserve would not need to raise short-term interest rates in the near future.
Municipal bonds outperformed Treasuries during the first six months of 1997 due
to favorable technical conditions. This year's municipal bond new issue supply
was similar to the same period in 1996. Demand was strong from property and
casualty insurance companies and, sporadically, from individual investors and
mutual funds. We expect that the positive supply and demand technicals will
persist for at least the near term.
As of June 30, 1997, the Fund's portfolio consisted of 42 issues throughout 26
different states with an average maturity of 11.7 years and an average coupon
of 6.28%, excluding short-term investments. Sector weightings emphasize
housing, healthcare and industrial development.
Oppenheimer Group Inc., the ultimate parent company of Advantage Advisers, Inc.,
the Fund's investment manager, has entered into an agreement with PIMCO
Advisors, L.P. and its affiliates which, if consummated, would have the effect
of transferring the investment manager's responsibilities under the investment
management and the investment advisory and administration agreements for the
Fund to a new entity under the control of PIMCO Advisors. In that connection,
the Board of Directors of the Fund has approved, subject to the vote of the
Fund's shareholders, new investment management and investment advisory and
administration agreements for the Fund. The agreements are substantially similar
to the existing agreements and would take effect upon shareholder approval and
the closing of the proposed transaction. The closing of the transaction is also
subject to certain additional closing conditions.
Finally, we thank you for your support and confidence. In an effort to provide
more timely information concerning the Fund, shareholders may call
1-800-421-4777 for a recorded periodic update of the developments affecting the
markets in which the Fund invests, as well as the Fund's current net asset
value, portfolio manager comments and other information regarding the Fund's
portfolio holdings and allocations. We also invite you to call with any
questions or comments at 1-800-725-6666 or 1-212-783-1301.
Cordially,
Mark C. Biderman Michael S. Hyland
Chairman of the Board President
<PAGE>
MUNICIPAL PARTNERS FUND INC.
Statement of Investments
June 30, 1997 (unaudited)
<TABLE>
<CAPTION>
Principal
Amount Moody's/S&P Value
(000) Long-Term Investments - 146.7% Credit Rating (Note 2)
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
ALABAMA - 4.0%
Alabama Special Care Facilities Financing Authority Revenue (Daughters of
$2,145 Charity-St. Vincents), 5.00%, 11/01/25.................................. Aa2/AA $ 1,937,772
Courtland, Alabama Industrial Development Board Solid Waste Disposal
Revenue (Champion International Corporation Project), Series A,
1,225 7.00%, 11/01/22......................................................... Baa1/BBB 1,314,119
------------
3,251,891
------------
CALIFORNIA - 2.6%
West Covina, California Certificate of Participation (Queen of the Valley
2,000 Hospital), 6.50%, 8/15/14............................................... A2/A 2,112,440
------------
COLORADO - 3.8%
Colorado Health Facilities Authority Hospital Revenue (Rocky Mountain
3,000 Adventist Healthcare Project), 6.625%, 2/01/22.......................... Baa2/BBB 3,099,090
------------
CONNECTICUT - 1.2%
Connecticut State Health & Educational Facilities Authority Revenue
1,000 (Windham Community Memorial Hospital), Series C, 6.00%, 7/01/20......... Baa3/BBB- 979,370
------------
GEORGIA - 0.4%
Fulton County, Georgia Housing Authority Single-Family Mortgage,
360 6.60%, 3/01/28.......................................................... NR/AAA 371,106
------------
ILLINOIS - 10.9%
Chicago, Illinois Wastewater Transmission Revenue, FGIC,
3,000 5.125%, 1/01/25......................................................... Aaa/AAA 2,789,340
Illinois Health Facilities Authority Revenue (Highland Park Hospital
1,165 Project), Series A, MBIA, 5.50%, 10/01/08............................... Aaa/AAA 1,174,623
Illinois Health Facilities Authority Revenue Refunding (Lutheran General
1,500 Health System), Series C, 7.00%, 4/01/14................................ A1/A+ 1,745,880
3,000 Illinois State Sales Tax Revenue, Series V, 6.375%, 6/15/20............. Aa3/AAA 3,199,140
------------
8,908,983
------------
INDIANA - 2.5%
Indiana Transportation Finance Authority Airport Facilities Lease Revenue
2,000 Refunding, Series A, AMBAC, 5.00%, 11/01/07............................. Aaa/AAA 2,011,100
------------
- ----------------------------------------------------------------------------------------------------------------
See accompanying notes to financial statements.
Page 2
</TABLE>
<PAGE>
MUNICIPAL PARTNERS FUND INC.
Statement of Investments (continued)
June 30, 1997 (unaudited)
<TABLE>
<CAPTION>
Principal
Amount Moody's/S&P Value
(000) Long-Term Investments (continued) Credit Rating (Note 2)
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
MAINE - 3.4%
Maine State Housing Authority Mortgage Purchase, Series A-4,
$ 525 6.375%, 11/15/12........................................................ Aa2/AA $ 540,283
Maine State Housing Authority Mortgage Purchase, Series A-2,
2,110 6.65%, 11/15/25......................................................... Aa2/AA 2,201,300
------------
2,741,583
------------
MARYLAND - 4.8%
Northeast Maryland Waste Disposal Authority, Solid Waste Revenue
(Montgomery County Resource Recovery, Ogden Martin Systems Project A),
3,750 MBIA, 6.30%, 7/01/16.................................................... Aaa/AAA 3,942,113
------------
MASSACHUSETTS - 4.1%
3,500 Massachusetts State General Obligation, Series D, 5.00%, 11/01/14....... A1/A+ 3,328,290
------------
MINNESOTA - 4.3%
Minnesota State Housing Finance Agency Single-Family Mortgage,
3,405 Series H, 6.50%, 1/01/26................................................ Aa2/AA+ 3,512,870
------------
MONTANA - 2.5%
Montana State Board Housing Single-Family Program, Series A-2,
2,000 6.05%, 12/01/12......................................................... Aa2/AA+ 2,037,880
------------
NEBRASKA - 7.7%
Nebraska Higher Education Loan Program Inc., Revenue, Sub-Series A-6,
6,000 6.45%, 6/01/18.......................................................... A/NR 6,245,940
------------
NEVADA - 8.8%
Clark County, Nevada Passenger Facility Revenue (Macarran International
1,350 Airport), MBIA, 5.75%, 7/01/23.......................................... Aaa/AAA 1,337,418
Nevada Housing Division, Single-Family Program, Series B-2,
4,355 6.40%, 10/01/25......................................................... Aa2/NR 4,471,758
Nevada Housing Division, Single-Family Program, Series B-2,
1,300 6.95%, 10/01/26......................................................... Aa/NR 1,373,021
------------
7,182,197
------------
- ----------------------------------------------------------------------------------------------------------------
See accompanying notes to financial statements.
Page 3
</TABLE>
<PAGE>
MUNICIPAL PARTNERS FUND INC.
Statement of Investments (continued)
June 30, 1997 (unaudited)
<TABLE>
<CAPTION>
Principal
Amount Moody's/S&P Value
(000) Long-Term Investments (continued) Credit Rating (Note 2)
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
NEW HAMPSHIRE - 0.8%
New Hampshire State Housing Finance Authority, Single-Family
$ 650 Residential, Series A, 6.80%, 7/01/15................................... Aa/A+ $ 676,618
------------
NEW JERSEY - 15.1%
New Jersey Economic Development Authority, Pollution Control Revenue
5,150 (Public Service Electric and Gas Co. Project), MBIA, 6.40%, 5/01/32..... Aaa/AAA 5,489,025
New Jersey Economic Development Authority, Water Facilities Revenue
4,450 (New Jersey American Water Co., Inc. Project), FGIC, 6.875%, 11/01/34... Aaa/AAA 4,911,599
New Jersey Transportation Authority, Transportation System, Series B,
2,000 5.00%, 6/15/17.......................................................... Aa3/A+ 1,888,960
------------
12,289,584
------------
NEW YORK - 5.0%
Port Authority of New York & New Jersey Construction, Ninety-Sixth Series,
950 FGIC, 6.60%, 10/01/23................................................... Aaa/AAA 1,026,987
Triborough Bridge & Tunnel Authority, New York General Purpose Revenue,
3,000 Series Y, 5.50%, 1/01/17................................................ Aa/A+ 3,035,911
------------
4,062,898
------------
OHIO - 11.8%
Miami County, Ohio Hospital Facilities Revenue Refunding & Improvement
2,000 (Upper Valley Medical Center), 6.25%, 5/15/13........................... Baa2/BBB 2,038,220
Ohio State Water Development Authority Solid Waste Disposal Revenue
7,200 (Cargill Inc.), 6.30%, 9/01/20.......................................... Aa3/AA- 7,546,248
------------
9,584,468
------------
PENNSYLVANIA - 8.0%
Monroeville, Pennsylvania Hospital Authority Hospital Revenue (Forbes
6,095 Health System), 7.00%, 10/01/13......................................... A3/BBB+ 6,480,570
------------
RHODE ISLAND - 4.0%
Rhode Island Housing &Mortgage Finance Corporation, Homeownership
3,115 Opportunity, Series 7B, 6.80%, 10/01/25................................. Aa2/AA+ 3,247,542
------------
SOUTH DAKOTA - 6.4%
South Dakota Housing Development Authority, Homeowner Mortgage,
4,955 Series D, 6.85%, 5/01/26................................................ Aa1/AAA 5,186,349
------------
- ----------------------------------------------------------------------------------------------------------------
See accompanying notes to financial statements.
Page 4
</TABLE>
<PAGE>
MUNICIPAL PARTNERS FUND INC.
Statement of Investments (continued)
June 30, 1997 (unaudited)
<TABLE>
<CAPTION>
Principal
Amount Moody's/S&P Value
(000) Long-Term Investments (continued) Credit Rating (Note 2)
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
TENNESSEE - 4.5%
The Industrial Development Board of Humphreys County, Tennessee
$3,400 (E.I. duPont de Nemours and Company Project), 6.70%, 5/01/24............ Aa3/AA- $ 3,671,014
------------
TEXAS - 21.3%
Lower Neches Valley Authority, Texas Industrial Development Corporation
6,000 (Mobil Oil Refining Corporate Project), 6.40%, 3/01/30.................. Aa2/AA 6,285,600
Richardson, Texas Hospital Authority Hospital Revenue Refunding and
3,000 Improvement (Richardson Medical Center), 6.75%, 12/01/23................ Baa3/BBB- 3,119,910
330 Texas State Veterans Housing Assistance, 6.80%, 12/01/23................ Aa2/AA 345,453
Texas Water Development Board Revenue, Texas State Revolving Fund
5,000 Senior Lien B, 5.125%, 7/15/18.......................................... Aa1/AAA 4,773,800
West Side Calhoun County, Texas Navigation District Solid Waste Disposal
2,750 Revenue (Union Carbide Chemicals), 6.40%, 5/01/23....................... Baa2/BBB 2,791,773
------------
17,316,536
------------
VIRGINIA - 3.7%
Giles County, Virginia Industrial Development Authority Revenue
2,000 (Hoechst Celanese Project), 5.95%, 12/01/25............................. A2/A+ 2,025,440
Virginia State Housing Development Authority, Commonwealth Mortgage,
955 Subseries B-5, 6.30%, 1/01/27........................................... Aa1/AA+ 971,262
------------
2,996,702
------------
WASHINGTON - 1.8%
Washington State Housing Finance Commission, Single-Family Mortgage
1,460 Revenue Refunding, 6.15%, 1/01/26....................................... NR/AAA 1,489,725
------------
WEST VIRGINIA - 3.3%
West Virginia State Water Development Authority, Loan Program II,
2,445 Series A, 7.00%, 11/01/31, Pre-Refunded 11/01/01........................ NR/A- 2,729,647
------------
Total Long-Term Investments (cost $115,341,117)..................................... 119,456,506
------------
- ----------------------------------------------------------------------------------------------------------------
See accompanying notes to financial statements.
Page 5
</TABLE>
<PAGE>
MUNICIPAL PARTNERS FUND INC.
Statement of Investments (concluded)
June 30, 1997 (unaudited)
<TABLE>
<CAPTION>
Principal
Amount Moody's/S&P Value
(000) Short-Term Investments - 0.2% Credit Rating (Note 2)
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
LOUISIANA - 0.1%
Ascension Parish, Louisiana Pollution Control Revenue (Shell Oil Company),
$100 VR, 4.05%, 7/02/97...................................................... VMIG-1/A-1+ $ 100,000
------------
NEW YORK - 0.1%
New York State Local Government Assistance Corporation, Series A, VR,
100 4.00%, 7/02/97.......................................................... VMIG-1/A-1+ 100,000
------------
Total Short-Term Investments (cost $200,000)............................................ 200,000
------------
Total Investments - 146.9% (cost $115,541,117)......................................... 119,656,506
------------
Other Assets in Excess of Liabilities - 2.2%............................................ 1,795,327
------------
Total Net Assets - 149.1%............................................................... 121,451,833
------------
Par value of 800 shares of preferred stock at $50,000 per share (Note 5)-(49.1%)........ (40,000,000)
------------
Net Assets Applicable to Common Stock - 100%
(equivalent to $14.15 per share on 5,757,094 common shares outstanding)................. $ 81,451,833
------------
<FN>
- ------------------------------------------------------------------------------------------------------------------
The following abbreviations are used in portfolio descriptions:
AMBAC - Insured as to principal and interest by the AMBAC Indemnity
Corporation.
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. Date shown is date of next interest
rate change and coupon rate is the rate in effect on June 30,
1997.
- ----------------------------------------------------------------------------------------------------------------
See accompanying notes to financial statements.
Page 6
</TABLE>
<PAGE>
MUNICIPAL PARTNERS FUND INC.
Statement of Assets and Liabilities
June 30, 1997 (unaudited)
<TABLE>
<S> <C>
Assets
Investments, at value (cost - $115,541,117)................................................ $119,656,506
Cash....................................................................................... 1,961
Interest receivable........................................................................ 1,896,449
Unamortized organization expenses (Note 2)................................................. 8,185
Prepaid expenses........................................................................... 28,161
------------
Total assets................................................................... 121,591,262
------------
Liabilities
Accrued management fee (Note 3)............................................................ 59,934
Accrued audit and tax return preparation fees.............................................. 30,702
Accrued legal fee.......................................................................... 19,346
Accrued printing and mailing fees.......................................................... 9,000
Accrued transfer agent expense............................................................. 4,965
Accrued shareholder annual meeting expense................................................. 4,860
Accrued custodian expense.................................................................. 4,515
Other accrued expenses..................................................................... 6,107
------------
Total liabilities.............................................................. 139,429
------------
Net Assets
Preferred Stock (Note 5)................................................................... 40,000,000
------------
Common Stock ($.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........................................................ 419,764
Accumulated realized loss on investments................................................... (2,762,591)
Net unrealized appreciation on investments................................................. 4,115,389
------------
Net assets applicable to common stock.......................................... 81,451,833
------------
Total net assets............................................................... $121,451,833
------------
Net asset value per share of common stock
($81,451,833 / 5,757,094 shares)......................................................... $14.15
------
- ---------------------------------------------------------------------------------------------------------
See accompanying notes to financial statements.
Page 7
</TABLE>
<PAGE>
MUNICIPAL PARTNERS FUND INC.
Statement of Operations
For the Six Months Ended June 30, 1997 (unaudited)
<TABLE>
<S> <C> <C>
INVESTMENT INCOME
INCOME
Interest (reduced by net premium amortization of $6,940)............................. $3,625,966
OPERATING EXPENSES
Management fee (Note 3).............................................$357,264
Auction agent fee................................................... 55,127
Audit and tax services.............................................. 36,140
Legal............................................................... 19,836
Directors' fees and expenses (Note 3)............................... 15,139
Custodian........................................................... 12,961
Printing............................................................ 10,781
Transfer agent...................................................... 8,283
Listing fee......................................................... 8,018
Amortization of deferred organization expenses (Note 2)............. 7,019
Shareholder annual meeting.......................................... 4,959
Other............................................................... 11,068
--------
Total operating expenses............................................................ 546,595
----------
Net investment income.................................................................... 3,079,371
----------
NET REALIZED AND UNREALIZED GAIN
Net realized gain on investments......................................................... 449,497
Change in net unrealized appreciation on investments..................................... 405,874
----------
Net realized gain and change in net unrealized appreciation on investments............... 855,371
----------
Net Increase in Net Assets from Operations............................................... $3,934,742
----------
- ---------------------------------------------------------------------------------------------------------
See accompanying notes to financial statements.
Page 8
</TABLE>
<PAGE>
MUNICIPAL PARTNERS FUND INC.
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
For the
Six Months
Ended For the
June 30, Year Ended
1997 December 31,
(unaudited) 1996
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C>
OPERATIONS
Net investment income................................................ $ 3,079,371 $ 6,209,052
Net realized gain (loss) on investments.............................. 449,497 (52,016)
Change in net unrealized appreciation on investments................. 405,874 (1,292,674)
------------ ------------
Net increase in net assets from operations........................... 3,934,742 4,864,362
------------ ------------
DIVIDENDS
To common shareholders from net investment income.................... (2,297,080) (4,533,712)
To preferred shareholders from net investment income................. (738,749) (1,475,233)
------------ ------------
(3,035,829) (6,008,945)
------------ ------------
Total increase (decrease) in net assets.............................. 898,913 (1,144,583)
NET ASSETS
Beginning of period.................................................. 120,552,920 121,697,503
------------ ------------
End of period (includes undistributed net investment income of
$419,764 and $376,222, respectively)............................ $121,451,833 $120,552,920
------------ ------------
- ----------------------------------------------------------------------------------------------------------
See accompanying notes to financial statements.
Page 9
</TABLE>
<PAGE>
MUNICIPAL PARTNERS FUND INC.
Statement of Cash Flows
For the Six Months Ended June 30, 1997 (unaudited)
<TABLE>
<S> <C>
Cash Flows from Operating Activities:
Proceeds from sales of portfolio securities........................................ $ 13,211,074
Purchases of portfolio securities.................................................. (13,169,768)
Net purchases of short-term securities............................................. (190,000)
------------
(148,694)
Net investment income.............................................................. 3,079,371
Amortization of net premium on investments......................................... 6,940
Amortization of organization expenses.............................................. 7,019
Net change in receivables/payables related to operations........................... 22,598
------------
Net cash provided by operating activities...................................... 2,967,234
------------
Cash Flows used by Financing Activities:
Common stock dividends paid........................................................ (2,297,080)
Preferred stock dividends paid..................................................... (738,749)
------------
Net cash used by financing activities.......................................... (3,035,829)
------------
Net decrease in cash.................................................................... (68,595)
Cash at beginning of period............................................................. 70,556
------------
Cash at end of period................................................................... $ 1,961
------------
- -----------------------------------------------------------------------------------------------------------------
See accompanying notes to financial statements.
Page 10
</TABLE>
<PAGE>
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 effect 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 11
<PAGE>
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 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.
Page 12
<PAGE>
MUNICIPAL PARTNERS FUND INC.
Notes to Financial Statements (continued)
(unaudited)
At June 30, 1997, 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 and reimbursement for travel and out-of-pocket
expenses for each board and committee meeting attended.
Oppenheimer Group, Inc., the ultimate parent company of the Investment Manager,
has entered into an agreement with PIMCO Advisors, L.P. and its affiliates
which, if consummated, would have the effect of transferring the Investment
Manager's responsibilities under the investment management and the investment
advisory and administration agreements for the Fund to a new entity under the
control of PIMCO Advisors. In that connection, the Board of Directors of the
Fund has approved, subject to the vote of the Fund's shareholders, new
investment management and investment advisory and administration agreements for
the Fund. The agreements are substantially similar to the existing agreements
and would take effect upon shareholder approval and the closing of the proposed
transaction. The closing of the transaction is also subject to certain
additional closing conditions.
Note 4. Portfolio Activity
Purchases and sales of investment securities, other than short-term investments
for the six months ended June 30, 1997, aggregated $13,169,768 and $13,211,074,
respectively. At December 31, 1996, the Fund had a net capital loss carryover of
approximately $3,212,000 of which $526,000 will be available through December
31, 2001, $1,930,000 will be available through December 31, 2002, $704,000 will
be available through December 31, 2003 and $52,000 will be available through
December 31, 2004 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 June 30, 1997 was
substantially the same as the cost basis for financial reporting. Gross
unrealized appreciation and depreciation amounted to $4,239,412 and $124,023,
respectively, resulting in net unrealized appreciation for federal income tax
purposes of $4,115,389.
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.
Page 13
<PAGE>
MUNICIPAL PARTNERS FUND INC.
Notes to Financial Statements (concluded)
(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, 1997 ranged from 3.575% to 3.825%. The weighted average dividend
rate for the six months ended June 30, 1997 was 3.673%. The Board of Directors
designated the dividend period commencing April 22, 1997 as a Special Rate
Period. Pursuant to this Special Rate Period, the dividend rate set by the
auction held on April 21, 1997 remained in effect through July 21, 1997. The
dividend rate for this Special Rate Period was 3.825%. The Board of Directors
designated the dividend period commencing July 22, 1997 as a Special Rate
Period. Pursuant to this Special Rate Period, the dividend rate set by the
auction held on July 21, 1997 remains in effect through October 20, 1997 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 3.82%.
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. Concentration of Credit Risk
Since the Fund invests a portion of its assets in issuers located in a single
state, it may be affected by economic and political developments in a specific
state or region. Certain debt obligations held by the Fund are entitled to the
benefit of insurance, standby letters of credit or other guarantees of banks or
other financial institutions.
Note 7. Common Stock Dividends Subsequent to June 30, 1997
On July 1 and August 1, 1997, the Board of Directors of the Fund declared a
common share dividend from net investment income, each in the amount of $.0665
per share, payable on July 31 and August 29, 1997 to shareholders of record on
July 15 and August 12, 1997, respectively.
Page 14
<PAGE>
MUNICIPAL PARTNERS FUND INC.
Financial Highlights
Data for a share of common stock outstanding throughout each period:
<TABLE>
<CAPTION>
For the
Six Months For the For the For the For the
Ended June 30, Year Ended Year Ended Year Ended Period Ended
1997 December 31, December 31, December 31, December 31,
(unaudited) 1996 1995 1994 1993(a)
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period... $ 13.99 $ 14.19 $ 11.55 $ 14.59 $ 14.10
------- ------- ------- ------- -------
Net investment income.................. .54 1.08 1.10 1.10 .87
Net realized gain (loss) and change in net
unrealized appreciation (depreciation) on
investments......................... .15 (.24) 2.63 (3.04) .73
------- ------- ------- ------- -------
Total from investment operations....... .69 .84 3.73 (1.94) 1.60
------- ------- ------- ------- -------
Less distributions
Dividends to common shareholders from
net investment income............. (.40) (.79) (.80) (.89) (.71)
Dividends to preferred shareholders from
net investment income............. (.13) (.25) (.29) (.21) (.14)
------- ------- ------- ------- -------
Total distributions.................... (.53) (1.04) (1.09) (1.10) (.85)
------- ------- ------- ------- -------
Offering costs on issuance of common and
preferred shares.................... -- -- -- -- (.26)
------- ------- ------- ------- -------
Net asset value, end of period......... $ 14.15 $ 13.99 $ 14.19 $ 11.55 $ 14.59
------- ------- ------- ------- -------
Per share market value, end of period.. $ 12.75 $ 11.75 $11.625 $ 9.875 $ 13.75
Total investment return based on market
price per share (c)................. 12.09% 7.99% 26.18% (22.57%) 2.31%(b)
Ratios to average net assets of common
shareholders (d):
Operating expenses.................. 1.37%(e) 1.40% 1.43% 1.49% 1.30%(e)
Net investment income before preferred
stock dividends................. 7.74%(e) 7.84% 8.41% 8.67% 6.57%(e)
Preferred stock dividends........... 1.86%(e) 1.86% 2.20% 1.68% 1.31%(e)
Net investment income available to
common shareholders............. 5.88%(e) 5.98% 6.21% 6.99% 5.26%(e)
Net assets of common shareholders,
end of period (000)............. $81,452 $80,553 $81,698 $66,469 $84,009
Preferred stock outstanding,
end of period (000)............. $40,000 $40,000 $40,000 $40,000 $40,000
Portfolio turnover rate............. 11% 27% 35% 17% 100%
<FN>
- ------------------------------------------------------------------------------------------------------------
(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 15
</TABLE>
<PAGE>
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>
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)
June 30, 1996................................................ 1,551 .27 (424) (.08)
September 30, 1996........................................... 1,546 .27 1,656 .29
December 31, 1996............................................ 1,551 .27 1,204 .20
March 31, 1997............................................... 1,544 .27 (1,587) (.27)
June 30, 1997................................................ 1,535 .27 2,442 .42
- ----------------------------------------------------------------------------------------------------------
*Totals expressed in thousands of dollars except per share amounts.
See accompanying notes to financial statements.
Page 16
</TABLE>
<PAGE>
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.
RIORDAN ROETT
Professor and Director, Latin American
Studies Program, Paul H. Nitze
School of Advanced International Studies,
Johns Hopkins University
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
MARK C. BIDERMAN
Chairman of the Board
MICHAEL S. HYLAND
President
MARYBETH WHYTE
Executive Vice President
LAWRENCE H. KAPLAN
Executive Vice President
and General Counsel
ALAN M. MANDEL
Treasurer
LAURIE A. PITTI
Assistant Treasurer
NOEL B. DAUGHERTY
Secretary
JENNIFER G. MUZZEY
Assistant 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>
Municipal Partners
Fund Inc.
Semi-Annual Report
JUNE 30, 1997
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
