M U N I C I P A L P A R T N E R S F U N D I N C .
February 21, 1997
To Our Shareholders:
We are pleased to provide this annual report to the shareholders of Municipal
Partners Fund Inc. (the "Fund") for the year ended December 31, 1996. The
fixed-income markets achieved positive returns for the fourth quarter as
evidenced by the 2.99% net asset value return for the Fund (assuming the
reinvestment of monthly dividends in additional shares of the Fund). On December
31, 1996, the Fund had a closing net asset value and market price per share of
$13.99 and $11.75, respectively. During the fourth quarter, the Fund continued
to pay a monthly common stock dividend of $0.0665 per share.
The fourth quarter began on a strong note as fixed-income prices rose in
October. Lack of wage inflation and the Federal Reserve's decision not to raise
short-term interest rates allayed investors' concerns. Signs of a slowdown in
economic activity during November led to further advances in the fixed-income
market. Although tax-exempts performed well, their strides did not keep pace
with those in the taxable market. Individual investors instead were focused on a
soaring equity market and showed little interest in the relatively low nominal
yields offered by municipal bonds. In December, Fed Chairman Greenspan spoke of
an "irrational exuberance" in the stock market which resulted in a temporary
setback for both stocks and bonds. Municipal bonds declined but losses were
temperate compared to those in the taxable markets. Year-end restructuring by
mutual funds along with strong buying from property and casualty insurance
companies allowed tax-exempts to outperform Treasuries for December.
Looking ahead to 1997, municipal new issuance is expected to be in line with the
$183 billion issued in 1996. Tax-exempts are likely to benefit from increased
price volatility in the equity market and nominal bond yields that attract
individual investors to the municipal bond market.
As of December 31, 1996, the Fund's portfolio consisted of 42 issues in 26
different states with an average maturity of 12.4 years and an average coupon of
6.37%, excluding short-term investments. Sector weightings emphasize housing,
healthcare and industrial development.
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. Although the Fund will continue to issue a
semi-annual and annual report to shareholders, a press release will be issued in
lieu of a first and third quarter interim report. This will result in some cost
savings for the Fund while still providing shareholders with current information
about the Fund. We also invite you to call with any questions or comments at
1-800-725-6666 or 1-212-783-1301.
Also note that the annual meeting of shareholders of the Fund will be held on
Wednesday, April 16, 1997 at 10:00 a.m. at Salomon Brothers, Seven World Trade
Center in New York City. We hope those of you who are able to will attend.
Cordially,
Mark C. Biderman Michael S. Hyland
Chairman of the Board President
<PAGE>
M U N I C I P A L P A R T N E R S F U N D I N C .
Statement of Investments
December 31, 1996
<TABLE>
<CAPTION>
Principal
Amount Moody's/S&P Value
(000) Long-Term Investments - 147.3% 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 ............................................. Aa/AA $ 1,919,625
Courtland, Alabama Industrial Development Board Solid Waste Disposal
Revenue (Champion International Corporation Project), Series A,
1,225 7.00%, 11/01/22 .................................................................... Baa1/BBB 1,288,039
------------
3,207,664
------------
California - 3.8%
San Francisco, California Airport Revenue (San Francisco International
1,000 Airport), Series A-9, FGIC, 5.60%, 5/01/14 ......................................... Aaa/AAA 1,002,220
West Covina, California Certificate of Participation (Queen of the Valley
2,000 Hospital), 6.50%, 8/15/14 .......................................................... A/A 2,100,460
------------
3,102,680
------------
Colorado - 3.8%
Colorado Health Facilities Authority Hospital Revenue (Rocky Mountain
3,000 Adventist Healthcare Project), 6.625%, 2/01/22 ..................................... Baa/BBB 3,079,320
------------
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- 957,800
------------
Georgia - 0.4%
Fulton County, Georgia Housing Authority Single-Family Mortgage,
360 6.60%, 3/01/28 ..................................................................... NR/AAA 367,434
------------
Illinois - 9.5%
Chicago, Illinois Wastewater Transmission Revenue, FGIC,
3,000 5.125%, 1/01/25 .................................................................... Aaa/AAA 2,764,020
Illinois Health Facilities Authority Revenue Refunding (Lutheran General
1,500 Health System), Series C, 7.00%, 4/01/14 ........................................... A/A+ 1,721,145
3,000 Illinois State Sales Tax Revenue, Series V, 6.375%, 6/15/20 ........................ A1/AAA 3,160,170
------------
7,645,335
------------
Indiana - 2.5%
Indiana Transportation Finance Authority Airport Facilities Lease Revenue
2,000 Refunding, Series A, AMBAC, 5.00%, 11/01/07 ........................................ Aaa/AAA 1,996,560
------------
- ----------------------------------------------------------------------------------------------------------------------------
See accompanying notes to financial statements.
</TABLE>
Page 2
<PAGE>
M U N I C I P A L P A R T N E R S F U N D I N C .
Statement of Investments (continued)
December 31, 1996
<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 ................................................................... Aa/AA- $ 537,227
Maine State Housing Authority Mortgage Purchase, Series A-2,
2,110 6.65%, 11/15/25 .................................................................... Aa/AA- 2,170,262
------------
2,707,489
------------
Maryland - 6.5%
Maryland State Community Development Administration, Department of
Housing and Community Development (Multi-Family Housing), Series E,
1,300 6.85%, 5/15/25 ..................................................................... Aa/NR 1,364,909
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 3,910,163
------------
5,275,072
------------
Massachusetts - 2.2%
Massachusetts State Water Pollution Abatement Water Pollution Revenue
1,740 (New Bedford Loan Program), Series A, 5.70%, 2/01/14 ............................... Aa/NR 1,760,723
------------
Michigan - 4.1%
Michigan Hospital Finance Authority Revenue Refunding (Pontiac
3.400 Osteopathic Project), 6.00%, 2/01/24 ............................................... Baa1/BBB 3,268,896
------------
Minnesota - 4.5%
Minnesota State Housing Finance Agency Single-Family Mortgage,
3,550 Series H, 6.50%, 1/01/26 ........................................................... Aa/AA+ 3,623,094
------------
Nebraska - 7.7%
Nebraska Higher Education Loan Program Inc., Revenue, Sub-Series A-6,
6,000 6.45%, 6/01/18 ..................................................................... A/NR 6,168,900
------------
Nevada - 12.5%
Clark County, Nevada Passenger Facility Revenue (Macarran International
4,350 Airport), MBIA, 5.75%, 7/01/23 ..................................................... Aaa/AAA 4,314,939
Nevada Housing Division, Single-Family Program, Series B-2,
4,355 6.40%, 10/01/25 .................................................................... Aa/NR 4,430,429
Nevada Housing Division, Single-Family Program, Series B-2,
1,300 6.95%, 10/01/26 .................................................................... Aa/NR 1,355,614
------------
10,100,982
------------
- ----------------------------------------------------------------------------------------------------------------------------
See accompanying notes to financial statements.
Page 3
</TABLE>
<PAGE>
M U N I C I P A L P A R T N E R S F U N D I N C .
Statement of Investments (continued)
December 31, 1996
<TABLE>
<CAPTION>
Principal
Amount Moody's/S&P Value
(000) Long-Term Investments (continued) Credit Rating (Note 2)
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
New Hampshire - 0.9%
New Hampshire State Housing Finance Authority, Single-Family
$ 680 Residential, Series A, 6.80%, 7/01/15 .............................................. Aa/A+ $ 706,166
------------
New Jersey - 12.9%
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 5,472,751
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 4,919,920
------------
10,392,671
------------
New York - 4.9%
Port Authority of New York & New Jersey Construction, Ninety-Sixth Series,
950 FGIC, 6.60%, 10/01/23 .............................................................. Aaa/AAA 1,040,231
Triborough Bridge & Tunnel Authority, New York General Purpose Revenue,
2,850 Series Y, 5.50%, 1/01/17 ........................................................... Aa/A+ 2,877,645
------------
3,917,876
------------
Ohio - 11.9%
Miami County, Ohio Hospital Facilities Revenue Refunding & Improvement
2,000 (Upper Valley Medical Center), 6.25%, 5/15/13 ...................................... Baa/BBB 2,016,660
Ohio State Water Development Authority Solid Waste Disposal Revenue
7,200 (Cargill Inc.), 6.30%, 9/01/20 ..................................................... Aa3/AA- 7,538,112
------------
9,554,772
------------
Pennsylvania - 8.0%
Monroeville, Pennsylvania Hospital Authority Hospital Revenue (Forbes
6,095 Health System), 7.00%, 10/01/13 .................................................... A/BBB+ 6,416,328
------------
Rhode Island - 4.0%
Rhode Island Housing &Mortgage Finance Corporation, Homeownership
3,115 Opportunity, Series 7B, 6.80%, 10/01/25 ............................................ Aa/AA+ 3,238,229
------------
South Dakota - 6.4%
South Dakota Housing Development Authority, Homeowner Mortgage,
4,955 Series D, 6.85%, 5/01/26 ........................................................... Aa1/AAA 5,132,290
------------
- ----------------------------------------------------------------------------------------------------------------------------
See accompanying notes to financial statements.
</TABLE>
Page 4
<PAGE>
M U N I C I P A L P A R T N E R S F U N D I N C .
Statement of Investments (continued)
December 31, 1996
<TABLE>
<CAPTION>
Principal
Amount Moody's/S&P Value
(000) Long-Term Investments (concluded) 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- $ 3,640,584
------------
Texas - 18.8%
Angelina & Neches River Authority, Texas Solid Waste Disposal Revenue
2,750 (Champion International Corporation Project), 6.30%, 4/01/18 ....................... Baa1/NR 2,760,643
Lower Neches Valley Authority, Texas Industrial Development Corporation
6,000 (Mobil Oil Refining Corporate Project), 6.40%, 3/01/30 ............................. Aa2/AA 6,208,680
Richardson, Texas Hospital Authority Hospital Revenue Refunding and
3,000 Improvement (Richardson Medical Center), 6.75%, 12/01/23 ........................... Baa/BBB- 3,098,460
330 Texas State Veterans Housing Assistance, 6.80%, 12/01/23 ........................... Aa/AA 343,843
West Side Calhoun County, Texas Navigation District Solid Waste Disposal
2,750 Revenue (Union Carbide Chemicals), 6.40%, 5/01/23 .................................. Baa2/BBB 2,768,370
------------
15,179,996
------------
Virginia - 3.7%
Giles County, Virginia Industrial Development Authority Revenue
2,000 (Hoechst Celanese Project), 5.95%, 12/01/25 ........................................ A2/A+ 2,024,700
Virginia State Housing Development Authority, Commonwealth Mortgage,
955 Subseries B-5, 6.30%, 1/01/27 ...................................................... Aa1/AA+ 970,089
------------
2,994,789
------------
Washington - 1.8%
Washington State Housing Finance Commission, Single-Family Mortgage
1,460 Revenue Refunding, 6.15%, 1/01/26 .................................................. NR/AAA 1,476,848
------------
West Virginia - 3.4%
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- 2,736,884
------------
Total Long-Term Investments (cost $114,939,867) ................................................ 118,649,382
------------
- ----------------------------------------------------------------------------------------------------------------------------
See accompanying notes to financial statements.
Page 5
</TABLE>
<PAGE>
M U N I C I P A L P A R T N E R S F U N D I N C .
Statement of Investments (concluded)
December 31, 1996
<TABLE>
<CAPTION>
Principal
Amount Moody's/S&P Value
(000) Short-Term Investment-0.0% Credit Rating (Note 2)
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
New York - 0.0%
Geneva, New York Industrial Development Agency Civic Facilities Revenue
$10 (Colleges of the Seneca), Series A, VR, 3.60%, 1/02/97 (cost $10,000) .............. NR/A-1 $ 10,000
------------
Total Investments - 147.3% (cost $114,949,867) .................................................. 118,659,382
------------
Other Assets in Excess of Liabilities - 2.4% ..................................................... 1,893,538
------------
Total Net Assets - 149.7% ........................................................................ 120,552,920
------------
Par value of 800 shares of preferred stock at $50,000 per share (Note 5)-(49.7%) ................. (40,000,000)
------------
Net Assets Applicable to Common Stock - 100%
(equivalent to $13.99 per share on 5,757,094 common shares outstanding) .......................... $ 80,552,920
------------
<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.
VR - Variable Rate Demand Note. Date shown is date of next interest rate change and coupon rate is the rate in
effect on December 31, 1996.
- ----------------------------------------------------------------------------------------------------------------------------
See accompanying notes to financial statements.
</FN>
</TABLE>
Page 6
<PAGE>
M U N I C I P A L P A R T N E R S F U N D I N C .
Statement of Assets and Liabilities
December 31, 1996
<TABLE>
<S> <C>
Assets
Investments, at value (cost - $114,949,867) .................................................. $118,659,382
Cash ......................................................................................... 70,556
Interest receivable .......................................................................... 1,957,514
Unamortized organization expenses (Note 2) ................................................... 15,204
Prepaid expenses ............................................................................. 14,099
------------
Total assets ............................................................................. 120,716,755
------------
Liabilities
Accrued management fee (Note 3) .............................................................. 61,421
Accrued audit and tax return preparation fees ................................................ 51,710
Accrued legal fee ............................................................................ 21,755
Accrued printing and mailing fees ............................................................ 16,575
Accrued transfer agent expense ............................................................... 2,901
Accrued custodian expense .................................................................... 2,418
Other accrued expenses ....................................................................... 7,055
------------
Total liabilities ........................................................................ 163,835
------------
Net Assets
Preferred Stock (Note 5) ..................................................................... 40,000,000
Common Stock ($.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 .......................................................... 376,222
Accumulated realized loss on investments ..................................................... (3,212,088)
Net unrealized appreciation on investments ................................................... 3,709,515
------------
Net assets ............................................................................... $120,552,920
------------
- ------------------------------------------------------------------------------------------------------------
See accompanying notes to financial statements.
Page 7
</TABLE>
<PAGE>
M U N I C I P A L P A R T N E R S F U N D I N C .
Statement of Operations
For the Year Ended December 31, 1996
<TABLE>
<S> <C> <C>
Investment Income
Income
Interest (reduced by net premium amortization of $33,660)..................... $ 7,318,411
Operating expenses
Management fee (Note 3).............................................$715,126
Auction agent fee................................................... 111,473
Audit and tax services.............................................. 70,212
Printing............................................................ 42,748
Legal............................................................... 42,188
Custodian........................................................... 25,566
Directors' fees and expenses (Note 3)............................... 24,853
Listing fee......................................................... 16,214
Transfer agent...................................................... 15,859
Amortization of deferred organization expenses (Note 2)............. 14,194
Shareholder annual meeting.......................................... 8,611
Other............................................................... 22,315
--------
Total operating expenses.................................................... 1,109,359
-----------
Net investment income ............................................................ 6,209,052
-----------
Net Realized and Unrealized Loss
Net Realized Loss on Investments.................................................. (52,016)
Change in Net Unrealized Appreciation on Investments.............................. (1,292,674)
-----------
Net realized loss and change in net unrealized appreciation on investments........ (1,344,690)
-----------
Net Increase in Net Assets from Operations........................................ $ 4,864,362
-----------
- --------------------------------------------------------------------------------------------------
See accompanying notes to financial statements.
</TABLE>
Page 8
<PAGE>
M U N I C I P A L P A R T N E R S F U N D I N C .
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
For the For the
Year Ended Year Ended
December 31, December 31,
1996 1995
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Operations
Net investment income............................................................ $ 6,209,052 $ 6,341,398
Net realized loss on investments................................................. (52,016) (696,257)
Change in net unrealized appreciation (depreciation) on investments.............. (1,292,674) 15,833,547
------------ ------------
Net increase in net assets from operations....................................... 4,864,362 21,478,688
------------ ------------
Dividends
To common shareholders from net investment income................................ (4,533,712) (4,594,161)
To preferred shareholders from net investment income............................. (1,475,233) (1,656,333)
------------ ------------
(6,008,945) (6,250,494)
------------ ------------
Total increase (decrease) in net assets.......................................... (1,144,583) 15,228,194
Net Assets
Beginning of year................................................................ 121,697,503 106,469,309
------------ ------------
End of year (includes undistributed net investment income of
$376,222 and $176,115, respectively)........................................... $120,552,920 $121,697,503
------------ ------------
</TABLE>
Statement of Cash Flows
For the Year Ended December 31, 1996
<TABLE>
<S> <C>
Cash Flows from Operating Activities:
Proceeds from sales of portfolio securities........................................................ $ 31,009,986
Purchases of portfolio securities.................................................................. (31,320,091)
Net sales of short-term securities................................................................. 90,000
------------
(220,105)
Net investment income.............................................................................. 6,209,052
Amortization of net premium on investments......................................................... 33,660
Amortization of organization expenses.............................................................. 14,194
Net change in receivables/payables related to operations........................................... 13,574
------------
Net cash provided by operating activities...................................................... 6,050,375
------------
Cash Flows used by Financing Activities:
Common stock dividends paid........................................................................ (4,533,712)
Preferred stock dividends paid..................................................................... (1,475,233)
------------
Net cash used by financing activities.......................................................... (6,008,945)
------------
Net increase in cash................................................................................... 41,430
Cash at beginning of year.............................................................................. 29,126
------------
Cash at end of year.................................................................................... $ 70,556
------------
- ---------------------------------------------------------------------------------------------------------------------
See accompanying notes to financial statements.
Page 9
</TABLE>
<PAGE>
M U N I C I P A L P A R T N E R S F U N D I N C .
Notes to Financial Statements
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 10
<PAGE>
M U N I C I P A L P A R T N E R S F U N D I N C .
Notes to Financial Statements (continued)
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 11
<PAGE>
M U N I C I P A L P A R T N E R S F U N D I N C .
Notes to Financial Statements (continued)
At December 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 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, 1996, aggregated $31,320,091 and $31,009,986,
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 December 31, 1996
was substantially the same as the cost basis for financial reporting. Gross
unrealized appreciation and depreciation amounted to $3,912,841 and $203,326,
respectively, resulting in net unrealized appreciation for federal income tax
purposes of $3,709,515.
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 year ended
December 31, 1996 ranged from 3.54% to 3.93%. The weighted average dividend rate
for the year ended December 31, 1996 was 3.628%. The Board of Directors
designated the dividend period commencing October 22, 1996 as a Special Rate
Period. Pursuant to this Special Rate Period, the dividend rate set by the
auction held on October 21, 1996 remained in effect through January 20, 1997.
The dividend rate for this Special Rate Period was 3.59%. The Board of Directors
designated the dividend period commencing January 21, 1997 as a Special Rate
Period. Pursuant to this Special Rate Period, the dividend rate set by the
auction held on January 17, 1997 remains in effect through April 21, 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 3.575%.
Page 12
<PAGE>
M U N I C I P A L P A R T N E R S F U N D I N C .
Notes to Financial Statements (concluded)
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 December 31, 1996
On January 2 and February 3, 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 January 31 and February 28, 1997 to shareholders of record
on January 14 and February 19, 1997, respectively.
Page 13
<PAGE>
M U N I C I P A L P A R T N E R S F U N D I N C .
Financial Highlights
Data for a share of common stock outstanding throughout each period:
<TABLE>
<CAPTION>
For the For the For the For the
Year Ended Year Ended Year Ended Period Ended
December 31, December 31, December 31, December 31,
1996 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........................................ 1.08 1.10 1.10 .87
Net realized gain (loss) and change in net
unrealized appreciation (depreciation) on investments ..... (.24) 2.63 (3.04) .73
------- ------- ------- -------
Total from investment operations............................. .84 3.73 (1.94) 1.60
------- ------- ------- -------
Less distributions
Dividends to common shareholders from net
investment income........................................ (.79) (.80) (.89) (.71)
Dividends to preferred shareholders from net
investment income........................................ (.25) (.29) (.21) (.14)
------- ------- ------- -------
Total distributions.......................................... (1.04) (1.09) (1.10) (.85)
------- ------- ------- -------
Offering costs on issuance of common and
preferred shares........................................... -- -- -- (.26)
------- ------- ------- -------
Net asset value, end of period............................... $ 13.99 $ 14.19 $ 11.55 $ 14.59
------- ------- ------- -------
Per share market value, end of period........................ $ 11.75 $11.625 $ 9.875 $ 13.75
Total investment return based on market
price per share (c)........................................ 7.99% 26.18% (22.57%) 2.31%(b)
Ratios to average net assets of common shareholders (d):
Operating expenses......................................... 1.40% 1.43% 1.49% 1.30%(e)
Net investment income before preferred
stock dividends.......................................... 7.84% 8.41% 8.67% 6.57%(e)
Preferred stock dividends.................................. 1.86% 2.20% 1.68% 1.31%(e)
Net investment income available to
common shareholders...................................... 5.98% 6.21% 6.99% 5.26%(e)
Net assets of common shareholders,
end of period (000)...................................... $80,553 $81,698 $66,469 $84,009
Preferred stock outstanding,
end of period (000)...................................... $40,000 $40,000 $40,000 $40,000
Portfolio turnover rate.................................... 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.
(d) Ratios calculated on the basis of income, expenses and preferred stock dividends relative to the average net assets of
common shares.
(e) Annualized.
</FN>
See accompanying notes to financial statements.
</TABLE>
Page 14
<PAGE>
M U N I C I P A L P A R T N E R S F U N D I N C .
Report of Independent Accountants
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, 1996, 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 that our audits, which included confirmation of securities at
December 31, 1996 by correspondence with the custodian, provide a reasonable
basis for the opinion expressed above.
PRICE WATERHOUSE LLP
New York, New York
February 14, 1997
Page 15
<PAGE>
M U N I C I P A L P A R T N E R S F U N D I N C .
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, 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)
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
- ----------------------------------------------------------------------------------------------------------
<FN>
*Totals expressed in thousands of dollars except per share amounts.
</FN>
See accompanying notes to financial statements.
</TABLE>
Page 16
<PAGE>
M U N I C I P A L P A R T N E R S F U N D I N C .
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 the
Plan Agent 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 who 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.
In the case of holders of Common Stock, such as banks, broker-dealers or other
nominees, who 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.
Page 17
<PAGE>
M U N I C I P A L P A R T N E R S F U N D I N C .
Other Information (concluded)
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.
1996 Federal Tax Notice
During the year ended December 31, 1996, the Fund paid to shareholders
$6,008,945 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 adviser as
to the state and local tax treatment of the dividends you received.
Page 18
<PAGE>
M U N I C I P A L P A R T N E R S F U N D I N C .
(left column)
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
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
JENNIFER G. MUZZEY
Secretary
NOEL B. DAUGHERTY
Assistant Secretary
ROBERT I. KLEINBERG
Assistant Secretary
(right column)
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>
(left column)
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
---------------------
(right column)
Municipal Partners
Fund Inc.
Annual Report
DECEMBER 31, 1996
