<PAGE>
Municipal Partners
Fund Inc.
Annual Report
DECEMBER 31, 1998
<PAGE>
MUNICIPAL PARTNERS FUND INC.
February 8, 1999
To Our Shareholders:
We are pleased to provide this annual report for the Municipal Partners Fund
Inc. ("Fund") for the year ended December 31, 1998. The Fund distributed income
dividends to common shareholders totaling $0.80 per share during the year. The
table below shows the annualized distribution rate and twelve-month total return
based on the Fund's December 31, 1998 net asset value ("NAV") per share and its
New York Stock Exchange ("NYSE") closing price.
Price Annualized Twelve-Month
Per Share Distribution Rate* Total Return
---------- ------------------ ------------
$14.92 (NAV) 5.35% 6.01%
$14.125 (NYSE) 5.65% 10.89%
In comparison, the Lipper General Muni Leveraged Fund Index posted a total
return based on NAV of 6.00% for the same period.
During 1998, the U.S. stood out as an island of economic prosperity in a world
of political and financial turmoil. Despite downward pressures from overseas,
the growth of the domestic economy was steady throughout the year. Meanwhile,
inflation (as measured by the Core Consumer Price Index) -- the enemy of fixed
income investors -- was surprisingly tame at 1.60% for 1998, the lowest level
since 1965.
Early in the year, concerns over the Asian contagion caused global investors to
flock to U.S. Treasuries as a safe-haven. Treasury yields fell as demand for
these securities increased. Shortly thereafter, market players shifted their
attention to the strong domestic economy. Technical factors (e.g. a tight labor
market and accelerated economic growth) generated uneasiness in the
fixed-income markets for fear of an increase in inflation and interest rate
hikes. As a result of the general sentiment, bonds reversed course and yields
rose. Over the summer, escalating concerns over struggling Asian economies,
developing problems in Latin America and, finally, the near collapse of the
Russian financial markets, sent the capital markets tumbling. A flight to
quality arose sending panicked investors to the safe-haven of U.S. Treasuries
causing government bond yields to fall to historic lows. In the latter part of
1998, the Federal Reserve Board ("Fed") lowered its short-term lending rate by
25 basis points on three separate occasions. The Fed's intervention
successfully restored liquidity and confidence in the market.
The municipal market was not significantly impacted by the heightened
volatility resulting from economic turmoil overseas. In fact, municipal bonds
benefited from low interest rates, benign inflation and stable U.S. economic
growth. Municipal securities performed well throughout the year versus other
fixed income asset classes.
State and local governments issued approximately $284 billion of debt during
1998, which is just shy of 1993's record pace of $292 billion. A notable
difference between 1993 and 1998, was the type of debt issued during the
respective years. Most of the debt issued during 1993 was for refunding
purposes while the majority of debt issued in 1998 was for new project funding.
Strong demand from property and casualty insurance companies, mutual funds and
corporations helped absorb the abundant supply. Additionally, generous
municipal yields versus U.S. Treasuries sparked demand from non-traditional
buyers of municipal bonds.
- --------------------------------------------------------------------------------
* The annualized distribution rate assumes a current monthly income dividend
rate of $0.0665 per share for common shareholders for twelve months.
<PAGE>
MUNICIPAL PARTNERS FUND INC.
Throughout the year, municipal bond issuers benefited from a strong national
economy, which facilitated capital funding. Standard & Poor's, a debt credit
rating agency, reported that the number of improving credits outpaced weakening
issues.
As of December 31, 1998, the Fund's long-term holdings consisted of 26 issues in
26 different states. The portfolio's credit quality remains high with an average
rating of "AA". The industry sector weightings are well-diversified, with the
greatest emphasis in Housing, Industrial Development and Healthcare. For the
year ended December 31, 1998, the Fund outperformed the Lipper General Muni
Leveraged Fund Index by 0.01%. It achieved these results despite the relative
weakness of one holding in the Healthcare sector.
We expect technical factors (supply and demand) to improve in 1999 through a
reduction in new issue volume. The reduction in new issuance may diminish the
municipal yield ratios to U.S. Treasuries. Moreover, a decrease in supply
coupled with steady demand should allow for price appreciation of these
securities; which is a contributing factor of total return performance. In
response to the relatively tight risk premium levels of lower quality bonds, we
will continue to invest in the higher quality spectrum of the municipal market.
Our philosophy of focusing on long-term fundamentals, rigorous credit analysis
and sector selection remains the credo for managing the Fund. We believe the
asset class is attractive for its portfolio diversification benefits, current
yield ratios and low correlation to U.S. Treasuries and other investment
categories.
We appreciate your continued support of the Fund and encourage you to call
888-777-0102 with any questions.
Cordially,
/s/ William D. Cvengros /s/ Heath B. McLendon
WILLIAM D. CVENGROS HEATH B. MCLENDON
Co-Chairman of the Board Co-Chairman of the Board
/s/ Robert E. Amodeo
ROBERT E. AMODEO
Executive Vice President
SPECIAL SHAREHOLDER NOTICE. In September, 1998, Robert E. Amodeo became
portfolio manager of the Fund, primarily responsible for the Fund's day-to-day
investments. Mr. Amodeo is a Director of Salomon Brothers Asset Management Inc,
which he joined in 1992, and has been involved in the portfolio management of
the Fund since its inception.
<PAGE>
MUNICIPAL PARTNERS FUND INC.
Schedule of Investments
December 31, 1998
<TABLE>
<CAPTION>
FACE
AMOUNT RATING(a) Security VALUE
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Long-Term Investments -- 97.7%
ALABAMA -- 1.1%
$1,225,000 BBB Courtland, AL IDB Solid Waste Disposal Revenue
(Champion International Corporation Project), Series A,
7.000% due 11/1/22........................................ $ 1,329,664
------------
CALIFORNIA -- 1.9%
2,000,000 A2* West Covina, CA COP (Queen of the Valley Hospital),
6.500% due 8/15/14, Pre-Refunded 8/15/04.................. 2,302,000
------------
COLORADO -- 2.6%
3,000,000 BBB Colorado Health Facilities Authority Hospital Revenue
(Rocky Mountain Adventist Healthcare Project),
6.625% due 2/1/22......................................... 3,213,120
------------
CONNECTICUT -- 2.4%
1,000,000 BBB- Connecticut State Health & Educational Facilities Authority
Revenue (Windham Community Memorial Hospital),
Series C, 6.000% due 7/1/20............................... 1,040,800
1,860,000 AAA Connecticut State Special Tax Obligation Revenue, Series B,
FSA-Insured, 5.250% due 11/1/15........................... 1,947,104
------------
2,987,904
------------
GEORGIA -- 3.4%
315,000 AAA Fulton County, GA Housing Authority Single-Family Mortgage,
6.600% due 3/1/28......................................... 332,643
1,375,000 AA Fulton County, GA School District Refunding GO,
5.250% due 1/1/14......................................... 1,469,531
2,250,000 AAA Georgia Municipal Electric Authority Power Revenue,
Series Z, FGIC-Insured, 5.500% due 1/1/20................. 2,404,350
------------
4,206,524
------------
ILLINOIS -- 5.2%
1,165,000 AAA Illinois Health Facilities Authority Revenue (Highland
Park Hospital Project), Series A, MBIA-Insured,
5.500% due 10/1/08........................................ 1,257,478
1,500,000 A+ Illinois Health Facilities Authority Revenue Refunding
(Lutheran General Health System), Series C,
7.000% due 4/1/14......................................... 1,849,575
3,000,000 AAA Illinois State Sales Tax Revenue, Series V, 6.375% due 6/15/20 3,369,660
------------
6,476,713
------------
- ----------------------------------------------------------------------------------------------------------
See notes to financial statements.
Page 3
</TABLE>
<PAGE>
MUNICIPAL PARTNERS FUND INC.
Schedule of Investments (continued)
December 31, 1998
<TABLE>
<CAPTION>
FACE
AMOUNT RATING(a) Security VALUE
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
KANSAS -- 0.9%
$1,000,000 AAA Kansas State Development Finance Authority Revenue
(Sisters of Charity, Leavenworth), MBIA-Insured,
5.250% due 12/1/10........................................ $ 1,067,020
------------
MAINE -- 2.2%
Maine State Housing Authority Mortgage Purchase:
2,090,000 AA Series A-2, 6.650% due 11/15/25........................... 2,236,342
525,000 AA Series A-4, 6.375% due 11/15/12........................... 552,741
------------
2,789,083
------------
MARYLAND -- 3.3%
3,750,000 AAA Northeast Maryland Waste Disposal Authority, Solid Waste
Revenue (Montgomery County Resource Recovery,
Ogden Martin Systems Project A), MBIA-Insured,
6.300% due 7/1/16......................................... 4,110,975
------------
MASSACHUSETTS -- 4.8%
2,250,000 AA- Massachusetts State GO, Series C, 5.250% due 8/1/17......... 2,368,935
3,255,000 AA Massachusetts State Special Obligation Revenue,
Series A, 5.500% due 6/1/13............................... 3,570,507
------------
5,939,442
------------
MINNESOTA -- 2.8%
3,320,000 AA+ Minnesota State Housing Finance Agency Single-Family Mortgage,
Series H, 6.500% due 1/1/26............................... 3,508,377
------------
MONTANA -- 1.7%
2,000,000 AA+ Montana State Board Housing Single-Family Program,
Series A-2, 6.050% due 12/1/12............................ 2,127,140
------------
NEVADA -- 6.0%
1,350,000 AAA Clark County, NV Passenger Facility Revenue (Macarran
International Airport), MBIA-Insured, 5.750% due 7/1/23... 1,419,417
Nevada Housing Division, Single-Family Program, Series B-2:
4,355,000 Aa2* 6.400% due 10/1/25........................................ 4,602,277
1,300,000 Aa* 6.950% due 10/1/26........................................ 1,394,497
------------
7,416,191
------------
- ----------------------------------------------------------------------------------------------------------
See notes to financial statements.
Page 4
</TABLE>
<PAGE>
MUNICIPAL PARTNERS FUND INC.
Schedule of Investments (continued)
December 31, 1998
<TABLE>
<CAPTION>
FACE
AMOUNT RATING(a) Security VALUE
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
NEW HAMPSHIRE -- 0.5%
$ 570,000 A+ New Hampshire State HFA, Single-Family Residential,
Series A, 6.800% due 7/1/15............................... $ 606,645
------------
NEW JERSEY -- 9.5%
5,150,000 AAA New Jersey EDA, PCR (Public Service Electric and Gas
Co. Project), MBIA-Insured, 6.400% due 5/1/32............. 5,695,437
1,000,000 AAA New Jersey EDA, Revenue Refunding (Trenton Office Complex),
FSA-Insured, 5.250% due 6/15/12........................... 1,075,590
4,450,000 AAA New Jersey EDA, Water Facilities Revenue (New Jersey
American Water Co., Inc. Project), FGIC-Insured,
6.875% due 11/1/34........................................ 5,068,283
------------
11,839,310
------------
NEW YORK -- 4.9%
1,500,000 AAA Long Island Power Authority, NY Electric Systems Revenue,
Series A, FSA-Insured, 5.500% due 12/1/12................. 1,645,830
950,000 AAA Port Authority of New York and New Jersey Construction,
Ninety-Sixth Series, FGIC-Insured, 6.600% due 10/1/23..... 1,062,813
3,100,000 A+ Triborough Bridge & Tunnel Authority, NY General Purpose
Revenue, Series Y, 5.500% due 1/1/17...................... 3,359,594
------------
6,068,237
------------
OHIO -- 8.1%
2,000,000 BBB Miami County, OH Hospital Facilities Revenue Refunding
& Improvement (Upper Valley Medical Center),
6.250% due 5/15/13........................................ 2,127,380
7,200,000 AA- Ohio State Water Development Authority Solid Waste Disposal
Revenue (Cargill Inc.), 6.300% due 9/1/20................. 7,914,312
------------
10,041,692
------------
PENNSYLVANIA -- 2.6%
3,000,000 AAA Delaware Valley, PA Regional Finance Authority Local
Government Revenue, Series A, AMBAC-Insured,
5.500% due 8/1/28......................................... 3,266,580
------------
RHODE ISLAND -- 2.7%
3,115,000 AA+ Rhode Island Housing & Mortgage Finance Corporation,
Homeownership Opportunity, Series 7B, 6.800% due 10/1/25.. 3,311,027
------------
- ----------------------------------------------------------------------------------------------------------
See notes to financial statements.
Page 5
</TABLE>
<PAGE>
MUNICIPAL PARTNERS FUND INC.
Schedule of Investments (continued)
December 31, 1998
<TABLE>
<CAPTION>
FACE
AMOUNT RATING(a) Security VALUE
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
SOUTH DAKOTA -- 4.2%
$4,955,000 AAA South Dakota Housing Development Authority, Homeowner
Mortgage, Series D, 6.850% due 5/1/26..................... $ 5,273,607
------------
TENNESSEE -- 3.1%
3,400,000 AA- The IDB of Humphreys County, TN Solid Waste Disposal Revenue
(E.I. du Pont de Nemours and Company Project),
6.700% due 5/1/24......................................... 3,789,606
------------
TEXAS -- 13.1%
3,130,000 AAA Bell County, TX Health Facilities Development Corp.
Revenue Refunding & Improvement (Cook Childrens
Hospital), FSA-Insured, 5.000% due 12/1/17................ 3,100,046
6,000,000 AA Lower Neches Valley Authority, TX Industrial Development Corp.
Sewerage Facilities Revenue (Mobil Oil Refining
Corporate Project), 6.400% due 3/1/30..................... 6,532,380
3,000,000 BBB+ Richardson, TX Hospital Authority Hospital Revenue Refunding
& Improvement (Richardson Medical Center),
6.750% due 12/1/23........................................ 3,369,720
280,000 AA Texas State Veterans Housing Assistance, 6.800% due 12/1/23. 301,652
2,750,000 BBB West Side Calhoun County, TX Navigation District Solid Waste
Disposal Revenue (Union Carbide Chemicals),
6.400% due 5/1/23......................................... 2,898,472
------------
16,202,270
------------
VIRGINIA -- 2.9%
2,000,000 A+ Giles County, VA IDA Revenue (Hoechst Celanese Project),
5.950% due 12/1/25........................................ 2,075,500
500,000 AAA Richmond, VA Metropolitan Authority Expressway Revenue
Refunding, FGIC-Insured, 5.250% due 7/15/12............... 537,965
955,000 AA+ Virginia State Housing Development Authority, Commonwealth
Mortgage, Subseries B-5, 6.300% due 1/1/27................ 995,196
------------
3,608,661
------------
WASHINGTON -- 4.3%
3,500,000 AA+ Washington State GO, Series C, 5.500% due 7/1/16............ 3,798,725
1,420,000 AAA Washington State Housing Finance Commission, Single-Family
Mortgage Revenue Refunding, Series D-1, 6.150% due 1/1/26. 1,569,142
------------
5,367,867
------------
- ----------------------------------------------------------------------------------------------------------
See notes to financial statements.
Page 6
</TABLE>
<PAGE>
MUNICIPAL PARTNERS FUND INC.
Schedule of Investments (continued)
December 31, 1998
<TABLE>
<CAPTION>
FACE
AMOUNT RATING(a) Security VALUE
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
WEST VIRGINIA -- 2.2%
$2,445,000 A- West Virginia State Water Development Authority,
Loan Program II, Series A, 7.000% due 11/1/31,
Pre-Refunded 11/1/01...................................... $ 2,707,544
------------
WISCONSIN -- 1.3%
1,470,000 AA Wisconsin State Refunding GO, Series 1, 5.500% due 11/1/12.. 1,620,381
------------
Total Long-Term Investments (Cost-- $113,414,677)........... 121,177,580
------------
Short-Term Investments -- 2.3%
INDIANA -- 0.7%
800,000 A-1+ Rockport, IN PCR Refunding (AEP Generating Project),
VRDD, AMBAC-Insured 5.150% due 7/1/25..................... 800,000
------------
MISSISSIPPI -- 0.7%
900,000 A-1+ Harrison County, MS PCR (E. I. du Pont de Nemours),
VRDD, 5.150% due 9/1/10................................... 900,000
------------
NEVADA -- 0.2%
300,000 A-1+ Clark County, NV IDR (Nevada Cogeneration I Project),
VRDD, 5.250% due 11/1/20.................................. 300,000
------------
VIRGINIA -- 0.7%
King George County, VA IDA Exempt Facility Revenue
(Birchwood Power Partners Project A):
400,000 A-1+ Series A, VRDD, 5.150% due 10/1/24...................... 400,000
100,000 A-1+ Series B, VRDD, 5.150% due 12/1/24...................... 100,000
300,000 A-1+ Roanoke, VA IDA Hospital Revenue (Carilion Health System),
VRDD, 5.050% due 7/1/27................................... 300,000
------------
800,000
------------
Total Short-Term Investments (Cost -- $2,800,000)........... 2,800,000
------------
Total Investments -- 100% (Cost -- $116,214,677**).......... $123,977,580
============
- ------------
(a) All ratings are by Standard & Poor's Ratings Service, except those which are
identified by an asterisk (*) are rated by Moody's Investors Service, Inc.
** Aggregate cost for Federal income tax purposes is substantially the same.
See pages 8 and 9 for definition of ratings and certain security descriptions.
- ----------------------------------------------------------------------------------------------------------
See notes to financial statements.
Page 7
</TABLE>
<PAGE>
MUNICIPAL PARTNERS FUND INC.
Long-Term Securities Ratings (unaudited)
Standard & Poor's Ratings Service ("Standard & Poor's") -- Ratings from "AA" to
"BB" may be modified by the addition of a plus (+) or minus (-) sign to show
relative standings within the major rating categories.
AAA - Bonds rated "AAA" have the highest rating assigned by Standard & Poor's.
Capacity to pay interest and repay principal is extremely strong.
AA - Bonds rated "AA" have a very strong capacity to pay interest and repay
principal and differs from the highest rated issue only in a small degree.
A - Bonds rated "A" have a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
BBB - Bonds rated "BBB" are regarded as having an adequate capacity to pay
interest and repay principal. Whereas they normally exhibit adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
bonds in this category than in higher rated categories.
BB - Bonds rated "BB" have less near-term vulnerability to default than other
speculative issues. However, they face major ongoing uncertainties or exposure
to adverse business, financial, or economic conditions which could lead to
inadequate capacity to meet timely interest and principal payments.
Moody's Investors Service, Inc. ("Moody's") -- Numerical modifiers 1, 2 and 3
may be applied to each generic rating from "Aa" to "Baa," where 1 is the highest
and 3 the lowest ranking within its generic category.
Aaa - Bonds rated "Aaa" are judged to be of the best quality. They carry the
smallest degree of investment risk and are generally referred to as "gilt edge."
Interest payments are protected by a large or by an exceptionally stable margin
and principal is secure. While the various protective elements are likely to
change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
Aa - Bonds rated "Aa" are judged to be of high quality by all standards.
Together with the "Aaa" group they comprise what are generally known as high
grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in "Aaa" securities or fluctuation of
protective elements may be of greater amplitude or there may be other elements
present which make the long-term risks appear somewhat larger than in "Aaa"
securities.
A - Bonds rated "A" possess many favorable investment attributes and are to be
considered as upper medium grade obligations. Factors giving security to
principal and interest are considered adequate but elements may be present which
suggest a susceptibility to impairment some time in the future.
Baa - Bonds rated "Baa" are considered as medium grade obligations, i.e., they
are neither highly protected nor poorly secured. Interest payments and principal
security appear adequate for the present but certain protective elements may be
lacking or may be characteristically unreliable over any great length of time.
Such bonds lack outstanding investment characteristics and in fact have
speculative characteristics as well.
NR - Indicates that the bond is not rated by Moody's or Standard & Poor's.
Page 8
<PAGE>
MUNICIPAL PARTNERS FUND INC.
Short-Term Securities Ratings (unaudited)
SP-1 - Standard & Poor's highest rating indicating very strong or strong
capacity to pay principal and interest; those issues determined to possess
overwhelming safety characteristics are denoted with a plus (+) sign.
A-1 - Standard & Poor's highest commercial paper and variable-rate demand
obligation (VRDO) rating indicating that the degree of safety regarding timely
payment is either overwhelming or very strong; those issues determined to
possess overwhelming safety characteristics are denoted with a plus (+) sign.
VMIG 1 - Moody's highest rating for issues having a demand feature - VRDO.
P-1 - Moody's highest rating for commercial paper and for VRDO prior to the
advent of the VMIG 1 rating.
Security Descriptions (unaudited)
<TABLE>
<S> <C> <C> <C>
ABAG - Association of Bay Area Governors GO - General Obligation Bonds
AIG - American International Guaranty HDC - Housing Development Corporation
AMBAC - American Municipal Bond Assurance HFA - Housing Finance Authority
Corporation IDA - Industrial Development Authority
BAN - Bond Anticipation Notes IDB - Industrial Development Board
BIG - Bond Investors Guaranty IDR - Industrial Development Revenue
CGIC - Capital Guaranty Insurance Company INFLOS - Inverse Floaters
CHFCLI - California Health Facility ISD - Independent School District
Construction Loan Insurance LEVRRS - Leveraged Reverse Rate Securities
CONNIE LOC - Letter of Credit
LEE - College Construction Loan Association MBIA - Municipal Bond Investors Assurance
COP - Certificate of Participation Corporation
EDA - Economic Development Authority MVRICS - Municipal Variable Rate Inverse
EDR - Economic Development Revenue Coupon Security
ETM - Escrowed To Maturity PCR - Pollution Control Revenue
FGIC - Financial Guaranty Insurance Company PSFG - Permanent School Fund Guaranty
FHA - Federal Housing Administration RAN - Revenue Anticipation Notes
FHLMC - Federal Home Loan Mortgage RIBS - Residual Interest Bonds
Corporation RITES - Residual Interest Tax-Exempt Securities
FLAIRS - Floating Adjustable Interest Rate SYCC - Structured Yield Curve Certificate
Securities TAN - Tax Anticipation Notes
FNMA - Federal National Mortgage Association TECP - Tax Exempt Commercial Paper
FRTC - Floating Rate Trust Certificates TOB - Tender Option Bonds
FSA - Financial Security Assurance TRAN - Tax and Revenue Anticipation Notes
GIC - Guaranteed Investment Contract VA - Veterans Administration
GNMA - Government National Mortgage VRDD - Variable Rate Daily Demand
Association VRWE - Variable Rate Wednesday Demand
Page 9
</TABLE>
<PAGE>
MUNICIPAL PARTNERS FUND INC.
Statement of Assets and Liabilities
December 31, 1998
Assets:
Investments, at value (Cost-- $116,214,677)................. $123,977,580
Cash........................................................ 87,783
Interest receivable......................................... 1,927,733
Receivable for investments sold............................. 50,018
Prepaid expenses............................................ 20,153
------------
TOTAL ASSETS................................................ 126,063,267
------------
Liabilities:
Management fee payable (Note 2)............................. 64,196
Accrued expenses............................................ 94,026
------------
TOTAL LIABILITIES........................................... 158,222
------------
TOTAL NET ASSETS................................................. $125,905,045
============
Net Assets:
Preferred Stock (Note 5).................................... $ 40,000,000
------------
Common Stock ($0.001 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......................... 268,992
Accumulated net realized loss on security transactions...... (1,806,121)
Net unrealized appreciation on investments.................. 7,762,903
------------
Net Assets Applicable to Common Stock....................... 85,905,045
------------
TOTAL NET ASSETS................................................. $125,905,045
============
Net Asset Value, Per Share of Common Stock ($85,905,045 /
5,757,094 shares outstanding).................................. $14.92
======
- ------------------------------------------------------------------------------
See notes to financial statements.
Page 10
<PAGE>
MUNICIPAL PARTNERS FUND INC.
Statement of Operations
For the Year Ended December 31, 1998
INVESTMENT INCOME:
Interest................................................... $ 7,080,630
-----------
EXPENSES:
Management fee (Note 2).................................... 753,309
Auction agent fee.......................................... 109,470
Audit and tax services..................................... 72,880
Shareholder communication fees............................. 35,649
Legal...................................................... 30,813
Directors' fees and expenses (Note 2)...................... 25,876
Transfer agent............................................. 17,274
Listing fee................................................ 16,128
Shareholder annual meeting................................. 13,351
Custodian.................................................. 13,130
Amortization of deferred organization costs (Note 1)....... 1,050
Other...................................................... 9,605
-----------
TOTAL EXPENSES............................................. 1,098,535
-----------
NET INVESTMENT INCOME........................................... 5,982,095
-----------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS (NOTE 3):
Realized Gain From Security Transactions
(excluding short-term securities):
Proceeds from sales..................................... 41,723,311
Cost of securities sold................................. 41,228,550
-----------
Net Realized Gain.......................................... 494,761
-----------
Change in Net Unrealized Appreciation on Investments:
Beginning of year....................................... 7,713,456
End of year............................................. 7,762,903
-----------
Increase in Net Unrealized Appreciation.................... 49,447
-----------
Net Gain on Investments......................................... 544,208
-----------
Increase in Net Assets From Operations.......................... $ 6,526,303
===========
- ----------------------------------------------------------------------------
See notes to financial statements.
Page 11
<PAGE>
MUNICIPAL PARTNERS FUND INC.
Statements of Changes in Net Assets
For the Years Ended December 31,
1998 1997
- --------------------------------------------------------------------------------
OPERATIONS:
Net investment income.......................... $ 5,982,095 $ 6,128,607
Net realized gain.............................. 494,761 911,206
Increase in net unrealized appreciation........ 49,447 4,003,941
------------ ------------
INCREASE IN NET ASSETS FROM OPERATIONS......... 6,526,303 11,043,754
------------ ------------
DIVIDENDS PAID FROM NET INVESTMENT INCOME TO:
Common shareholders............................ (4,594,162) (4,594,161)
Preferred shareholders......................... (1,512,967) (1,516,642)
------------ ------------
DECREASE IN NET ASSETS FROM DIVIDENDS.......... (6,107,129) (6,110,803)
------------ ------------
INCREASE IN NET ASSETS.............................. 419,174 4,932,951
NET ASSETS:
Beginning of year.............................. 125,485,871 120,552,920
------------ ------------
END OF YEAR*................................... $125,905,045 $125,485,871
============ ============
* Includes undistributed net investment
income of:................................... $268,992 $394,026
======== ========
Statement of Cash Flows
For the Year Ended December 31, 1998
CASH FLOWS PROVIDED BY OPERATING ACTIVITIES:
Proceeds from sales of portfolio securities................ $41,673,293
Purchases of portfolio securities.......................... (39,710,932)
Net purchases of short-term securities..................... (1,800,000)
-----------
162,361
Net investment income...................................... 5,982,095
Amortization of net premium on investments................. 93,356
Amortization of organization costs (Note 1)................ 1,050
Net change in receivables/payables related to operations... (80,847)
-----------
NET CASH PROVIDED BY OPERATING ACTIVITIES.................. 6,158,015
-----------
CASH FLOWS USED BY FINANCING ACTIVITIES:
Common stock dividends paid................................ (4,594,162)
Preferred stock dividends paid............................. (1,512,967)
-----------
NET CASH USED BY FINANCING ACTIVITIES...................... (6,107,129)
-----------
Net Increase in Cash............................................ 50,886
Cash, Beginning of Year......................................... 36,897
-----------
Cash, End of Year............................................... $ 87,783
===========
- ------------------------------------------------------------------------------
See notes to financial statements.
Page 12
<PAGE>
MUNICIPAL PARTNERS FUND INC.
Notes to Financial Statements
Note 1. Significant Accounting Policies
Municipal Partners Fund Inc. ("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 $0.001 par value common stock. 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, may appreciate in value
relative to other similar obligations in the marketplace.
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. The
preparation of financial statements in accordance with Generally Accepted
Accounting Principles ("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.
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 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.
Page 13
<PAGE>
MUNICIPAL PARTNERS FUND INC.
Notes to Financial Statements (continued)
DEFERRED ORGANIZATION COSTS. Organization costs amounting to $89,271 were
incurred in connection with the organization of the Fund. These costs have been
deferred and amortized ratably over a five-year period from commencement of
operations. As of December 31, 1998, the amortization of the deferred
organization costs had been completed.
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 Statements 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 2. Management and Advisory Fees and Other Transactions
The Fund has entered into a management agreement with Value Advisors LLC
("Investment Manager"), a subsidiary of PIMCO Advisors L.P. ("PIMCO"), 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 agreement with the Investment Manager was approved by shareholders at a
special meeting held on October 14, 1997, and has been in effect since the
closing of the sale of the Investment Manager by Oppenheimer Group Inc. to
PIMCO, which occurred on November 4, 1997. The Investment Manager was the
transferee of the investment management responsibilities for the Fund which were
previously provided by Advantage Advisers, Inc.
The Investment Manager and the Fund entered into an investment advisory and
administration agreement with Salomon Brothers Asset Management Inc
("Investment Adviser"), a wholly owned subsidiary of Salomon Brothers Holding
Company Inc., which in turn is wholly owned by Salomon Smith Barney Holdings
Inc. ("SSBH"), pursuant to which the Investment Adviser provides investment
advisory and administrative services to the Fund. The Investment Adviser is
responsible on a day-to-day basis for the management of the Fund's 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 Investment Adviser has delegated certain administrative services to Mutual
Management Corp. ("MMC"), an affiliate of the Investment Adviser, pursuant to a
Sub-Administration Agreement between the Investment Adviser and MMC. The
investment advisory and administration agreement with the Investment Adviser
was most recently approved by shareholders at a special meeting held on January
15, 1998. Approval of such agreement was necessary due to the merger of Salomon
Inc, which had been the ultimate parent company of the Investment Adviser, with
and into SSBH, a subsidiary of Citigroup, which occurred on November 28, 1997.
Page 14
<PAGE>
MUNICIPAL PARTNERS FUND INC.
Notes to Financial Statements (continued)
The Fund pays the Investment Manager a monthly fee at an annual rate of 0.60% 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 0.36% 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.
At December 31, 1998, the Investment Adviser owned 4,275 shares of the Fund.
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 3. Investments
Purchases and sales of investment securities, other than short-term investments
for the year ended December 31, 1998, aggregated $39,710,932 and $41,723,311,
respectively.
The Federal income tax cost basis of the Fund's investments at December 31,
1998 was substantially the same as the cost basis for financial reporting.
Gross unrealized appreciation amounted to $7,762,903 for Federal income tax
purposes.
Note 4. Capital Loss Carryforwards
At December 31, 1998, the Fund had a net capital loss carryover of approximately
$1,805,000 of which $1,049,000 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.
Note 5. Preferred Stock
On April 2, 1993, the Fund closed its public offering of 800 shares of $0.001
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 15
<PAGE>
MUNICIPAL PARTNERS FUND INC.
Notes to Financial Statements (continued)
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, 1998 ranged from 3.67% to 3.85%. The weighted average dividend
rate for the year ended December 31, 1998 was 3.731%. The Board of Directors
designated the dividend period commencing October 20, 1998 as a Special Rate
Period. Pursuant to this Special Rate Period, the dividend rate set by the
auction held on October 19, 1998 remained in effect through January 18, 1999.
The dividend rate for this Special Rate Period was 3.72%.
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. Events Subsequent to December 31, 1998
COMMON STOCK DIVIDENDS. On January 4 and February 1, 1999, the Board of
Directors of the Fund declared a common share dividend from net investment
income, each in the amount of $0.0665 per share, payable on January 29 and
February 26, 1999 to shareholders of record on January 12 and February 17, 1999,
respectively.
PREFERRED STOCK DIVIDENDS. The Board of Directors designated the dividend period
commencing January 19, 1999 as a Special Rate Period. Pursuant to this Special
Rate Period, the dividend rate set by the auction held on January 15, 1999
remains in effect through April 19, 1999 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 3.35%.
Page 16
<PAGE>
MUNICIPAL PARTNERS FUND INC.
Notes to Financial Statements (continued)
Note 8. Bylaw Amendment
The Board of Directors of the Fund recently reviewed and approved various
amendments to the Fund's bylaws. For example, the bylaws provisions relating to
timely notice for proposals to be brought before an annual meeting of
stockholders (other than a proposal under Rule 14a-8 of the Securities Exchange
Act of 1934 to be included in the Fund's proxy statement) have been amended. As
amended, a stockholder's notice must be delivered to the Fund not less than 60
days nor more than 90 days prior to the first anniversary of the preceding
year's annual meeting. An exception applies in the event the date of the annual
meeting is substantially advanced or delayed from the anniversary date. The
Board believes that the amended timely notice provisions will provide greater
certainty to stockholders because previously, timely notice keyed off the date
of the current year's meeting or the date public disclosure of the current
year's meeting is made. In addition, the provisions provide that any business to
be brought before a special meeting of stockholders must be specified in the
notice of meeting or otherwise properly brought before the meeting by or at the
direction of the Board of Directors. Finally, upon recommendation of the Fund's
Maryland counsel, other changes to certain bylaw provisions were made to conform
to the bylaw provisions of more recently organized Maryland companies.
Page 17
<PAGE>
MUNICIPAL PARTNERS FUND INC.
Financial Highlights
Data for a share of common stock outstanding throughout each year ended December
31:
<TABLE>
<CAPTION>
1998 1997 1996 1995 1994
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR............... $ 14.85 $ 13.99 $ 14.19 $ 11.55 $ 14.59
------- ------- ------- ------- -------
INCOME (LOSS) FROM OPERATIONS:
Net investment income......................... 1.04 1.06 1.08 1.10 1.10
Net realized and unrealized gain (loss)....... 0.09 0.86 (0.24) 2.63 (3.04)
------- ------- ------- ------- -------
Total Income (Loss) From Operations.............. 1.13 1.92 0.84 3.73 (1.94)
------- ------- ------- ------- -------
LESS DIVIDENDS PAID FROM
NET INVESTMENT INCOME TO:
Common shareholders........................... (0.80) (0.80) (0.79) (0.80) (0.89)
Preferred shareholders........................ (0.26) (0.26) (0.25) (0.29) (0.21)
-------- ------- ------- ------- -------
Total Dividends From Net Investment Income....... (1.06) (1.06) (1.04) (1.09) (1.10)
-------- ------- ------- ------- -------
NET ASSET VALUE, END OF YEAR..................... $ 14.92 $ 14.85 $ 13.99 $ 14.19 $ 11.55
======= ======= ======= ======= =======
PER SHARE MARKET VALUE, END OF YEAR.............. $14.125 $ 13.50 $ 11.75 $11.625 $ 9.875
======= ======= ======= ======= =======
TOTAL RETURN, BASED ON MARKET PRICE (1).......... 10.89% 22.31% 7.99% 26.18% (22.57)%
RATIOS TO AVERAGE NET ASSETS OF
COMMON SHAREHOLDERS (2):
Operating expenses............................ 1.28% 1.34% 1.40% 1.43% 1.49%
Net investment income......................... 6.99% 7.47% 7.84% 8.41% 8.67%
NET ASSETS OF COMMON SHAREHOLDERS,
END OF YEAR (000S)............................ $85,905 $85,486 $80,553 $81,698 $66,469
PREFERRED STOCK OUTSTANDING,
END OF YEAR (000S)............................ $40,000 $40,000 $40,000 $40,000 $40,000
PORTFOLIO TURNOVER RATE.......................... 32% 27% 27% 35% 17%
- -------------------------------------------------------------------------------
(1) 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.
(2) Ratios calculated on the basis of income and expenses relative to the average net
assets of common shares, and excludes the effect of dividend payments to preferred shareholders.
Page 18
</TABLE>
<PAGE>
MUNICIPAL PARTNERS FUND INC.
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 schedule 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. ("Fund") at December 31, 1998, 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 each of the five
years in the period then ended, 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, 1998 by correspondence with the
custodian, provide a reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
New York, New York
February 22, 1999
Page 19
<PAGE>
MUNICIPAL PARTNERS FUND INC.
Selected Quarterly Financial Information (unaudited)
Summary of quarterly results of operations:
<TABLE>
<CAPTION>
NET REALIZED
NET INVESTMENT & UNREALIZED
INCOME GAIN (LOSS)
----------------- --------------------
QUARTER ENDED* TOTAL PER SHARE TOTAL PER SHARE
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
March 31, 1997............................................... $1,544 $0.27 $(1,587) $(0.27)
June 30, 1997................................................ 1,535 0.27 2,442 0.42
September 30, 1997........................................... 1,531 0.26 2,071 0.36
December 31, 1997............................................ 1,519 0.26 1,989 0.35
March 31, 1998............................................... 1,515 0.26 (198) (0.03)
June 30, 1998................................................ 1,463 0.26 302 0.05
September 30, 1998........................................... 1,513 0.26 1,494 0.26
December 31, 1998............................................ 1,491 0.26 (1,054) (0.19)
- ----------------------------------------------------------------------------------------------------------
* Totals expressed in thousands of dollars except per share amounts.
</TABLE>
1998 Federal Tax Notice (unaudited)
During the year ended December 31, 1998, the Fund paid to shareholders
$6,107,129 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 20
<PAGE>
MUNICIPAL PARTNERS FUND INC.
Additional Shareholder Information (unaudited)
On January 15, 1998, a Special Meeting of the Fund's stockholders was held for
the purpose of voting on the following matters:
1. The approval of a new investment advisory and administration agreement
among Value Advisors LLC, Salomon Brothers Asset Management Inc and the Fund;
2. The election of William D. Cvengros as a Director of the Fund.
The results of the vote on Proposal 1 were as follows:
<TABLE>
<CAPTION>
% OF SHARES % OF SHARES VOTES % OF SHARES
VOTES FOR VOTED VOTES AGAINST VOTED ABSTAINED ABSTAINED
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
4,949,621.196 97.3% 36,533.347 0.7% 99,281.649 2.0%
- ------------------------------------------------------------------------------------------------------------
</TABLE>
The results of the vote on Proposal 2 were as follows:
<TABLE>
<CAPTION>
% OF SHARES VOTES % OF SHARES
NAME OF DIRECTOR VOTES FOR VOTED AGAINST VOTED
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
William D. Cvengros 4,991,733.369 98.2% 93,702.823 1.8%
- ------------------------------------------------------------------------------------------------------------
</TABLE>
----------------
On April 7, 1998, the Annual Meeting of the Fund's Stockholders was held for the
purpose of voting on the following matters:
1. The election of Heath B. McLendon and Dr. Riordan Roett as Directors of
the Fund; and
2. The ratification of the selection of PricewaterhouseCoopers LLP as the
Fund's independent accountants for the fiscal year ended December 31,
1998.
The results of the vote on Proposal 1 were as follows:
<TABLE>
<CAPTION>
PREFERRED
PREFERRED % OF SHARES VOTES % OF SHARES
NAME OF DIRECTORS VOTES FOR VOTED AGAINST VOTED
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Heath B. McLendon 708 100.0% 0 0.0%
Dr. Riordan Roett 708 100.0% 0 0.0%
- ------------------------------------------------------------------------------------------------------------
</TABLE>
The results of the vote on Proposal 2 were as follows:
<TABLE>
<CAPTION>
% OF SHARES % OF SHARES VOTES % OF SHARES
VOTES FOR VOTED VOTES AGAINST VOTED ABSTAINED ABSTAINED
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
4,906,402.552 98.9% 13,260.782 0.3% 40,939.285 0.8%
- ------------------------------------------------------------------------------------------------------------
Page 21
</TABLE>
<PAGE>
MUNICIPAL PARTNERS FUND INC.
Other Information (unaudited)
Year 2000. The investment management services provided to the Fund by the
Investment Adviser depend in large part on the smooth functioning of its
computer systems. Many computer software systems in use today cannot recognize
the year 2000, but revert to 1900 or some other date, due to the manner in which
the dates were encoded or calculated. The capability of these systems to
recognize the year 2000 could have a negative impact on the Investment Adviser's
provision of investment advisory services, including handling of securities
trades, pricing and account services. The Investment Adviser has advised the
Fund that it has been reviewing all of their computer systems and actively
working on necessary changes to its systems to prepare for the year 2000 and
expects that given the extensive testing which it is undertaking, its systems
will be year 2000 compliant before such date. In addition, the Investment
Adviser has been advised by certain of the Fund's service providers that they
are also in the process of modifying their systems with the same goal. There
can, however, be no assurance that the Investment Adviser or any other service
provider will be successful in achieving year 2000 compliance, or that
interaction with other non-complying computer systems will not impair services
to the Fund at that time.
Page 22
<PAGE>
MUNICIPAL PARTNERS FUND INC.
Dividend Reinvestment Plan (unaudited)
Pursuant to certain rules of the Securities and Exchange Commission, the
following additional disclosure is provided.
Pursuant to the Fund's Dividend Reinvestment Plan ("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 ("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.
Page 23
<PAGE>
MUNICIPAL PARTNERS FUND INC.
Dividend Reinvestment Plan (unaudited) (continued)
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.
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 State Street Bank
and Trust Company, P.O. Box 8209, Boston, Massachusetts 02266-8209.
Page 24
<PAGE>
MUNICIPAL PARTNERS FUND INC.
Directors
CHARLES F. BARBER
Consultant; formerly Chairman,
ASARCO Incorporated
WILLIAM D. CVENGROS
Co-Chairman of the Board;
Chief Executive Officer and
President of Value Advisors LLC and
Chief Executive Officer and
President of PIMCO Advisors L.P.
HEATH B. MCLENDON
Co-Chairman of the Board;
Managing Director, Salomon Smith Barney Inc.
President and Director, Mutual
Management Corp. and Travelers
Investment Adviser, Inc.,
Chairman, Smith Barney Strategy
Advisors Inc.
RIORDAN ROETT
Professor and Director, Latin American
Studies Program, Paul H. Nitze
School of Advanced International Studies,
Johns Hopkins University
ROBERT L. ROSEN
General Partner,
R.L.R. Partners
Officers
WILLIAM D. CVENGROS
Co-Chairman of the Board
HEATH B. MCLENDON
Co-Chairman of the Board
STEPHEN J. TREADWAY
President
LEWIS E. DAIDONE
Executive Vice President and Treasurer
ROBERT E. AMODEO
Executive Vice President
NEWTON B. SCHOTT
Executive Vice President
ANTHONY PACE
Assistant Controller
CHRISTINA T. SYDOR
Secretary
Municipal Partners Fund Inc.
7 World Trade Center
New York, New York 10048
Telephone 1-888-777-0102
INVESTMENT ADVISER
Salomon Brothers Asset Management Inc
7 World Trade Center
New York, New York 10048
INVESTMENT MANAGER
Value Advisors LLC
800 Newport Center Drive
Suite 100
Newport Beach, California 92660
AUCTION AGENT
Bankers Trust Company
4 Albany Street
New York, New York 10006
CUSTODIAN
PNC Bank N.A.
200 Stevens Drive
Lester, PA 19113
DIVIDEND DISBURSING AND TRANSFER AGENT
State Street Bank and Trust Company
225 Franklin Street
Boston, Massachusetts 02110
INDEPENDENT ACCOUNTANTS
PricewaterhouseCoopers 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>
[This Page Intentionally Left Blank]
<PAGE>
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
