<PAGE> 1
MUNICIPAL PARTNERS FUND II INC.
November 21, 1995
To Our Shareholders:
We are pleased to supply this quarterly report to shareholders of Municipal
Partners Fund II Inc. for the period ending September 30, 1995. Fixed-income
securities achieved favorable returns for the third quarter sparked by a 25
basis point reduction in the federal funds rate by the Federal Reserve at the
beginning of July. While expectations of further cuts by the Fed never
materialized, mixed economic signals kept investor hopes alive and resulted in
higher bond prices for the quarter. Municipal bonds achieved positive returns
during the three-month period, supported by continued buying from property and
casualty insurance companies and the reemergence of the individual investor.
The Fund participated in this year's rally as evidenced by its net asset value
(NAV) return of 3.10% for the third quarter and 22.24% return for the nine
months ended September 30, 1995 (assuming the reinvestment of monthly dividends
in additional shares of the Fund). The Fund had a closing NAV and market price
per share of $12.79 and $10.75, respectively. The Fund paid a regular monthly
common stock dividend of $0.059 per share during the quarter.
The tax-exempt market rally began with an influx of cash from July 1 redemptions
and coupon payments. Investors used those funds to take advantage of the most
attractive municipal yields versus Treasuries in almost a year. The market's
momentum was sustained in August as renewed interest in municipals by individual
investors, previously deterred by the higher returns in the stock market and
concerns over flat tax, propelled the short and intermediate area of the yield
curve. September's strong early gains eroded by month-end due to signs of an
economic rebound. Added weight was placed on the market by political rhetoric
suggesting that the U.S. government would default on its debt unless both the
President and Congress agreed on a balanced budget plan by mid-November. (U.S.
Treasury Secretary Rubin arranged financing so that the government did not
default). These factors led investors and traders to sell municipals and lock in
quarter-end profits.
As we approach year-end, concern about tax reform is likely to keep long
maturity municipal bonds undervalued relative to Treasuries. Municipal bond new
issue supply for the first nine months of 1995 was 18% below the similar period
last year. Although an increase in the new issue supply is expected during the
fourth quarter, we expect demand to keep pace with supply.
At September 30, 1995, the Fund's portfolio consisted of 47 issues in 22
different states with an average maturity of 18.3 years and an average coupon of
6.26%. Sector weightings emphasize housing, healthcare and transportation bonds.
The Fund held its annual meeting of shareholders on October 26, 1995. At the
meeting, shareholders elected the nominee proposed for election to the Fund's
Board of Directors and ratified the selection of Price Waterhouse LLP as the
independent accountants of the Fund. The following table provides information
concerning the matters voted on at the meeting:
<TABLE>
<CAPTION>
1. ELECTION OF DIRECTOR (PREFERRED SHARES VOTING ONLY)
<C> <S> <C> <C>
----------------------------------------------
NOMINEE VOTES FOR VOTES AGAINST
----------------------------------------------------
Allan C. Hamilton 660 0
</TABLE>
<TABLE>
<CAPTION>
RATIFICATION OF PRICE WATERHOUSE LLP AS THE INDEPENDENT
2. ACCOUNTANTS OF THE FUND
<S> <C> <C> <C> <C>
------------------------------------------------------------
VOTES FOR VOTES AGAINST VOTES ABSTAINED UNVOTED
------------------------------------------------------------
4,712,739 118,906 70,486 0
</TABLE>
<PAGE> 2
MUNICIPAL PARTNERS FUND II INC.
You may have read in the press that Bayerische Vereinsbank AG has been having
conversations with Oppenheimer Group, Inc., which could lead to the acquisition
of that entity by this major German financial institution. Oppenheimer Group,
Inc. is the parent of Advantage Advisers, Inc., the Fund's investment manager.
Advantage Advisers believes that, in the event of such an acquisition, Advantage
Advisers, Inc. will only be enhanced by the addition of the global resources
added by this large institution.
Finally, we thank you for your support and confidence. We invite you to call
with any questions or comments at 1-800-725-6666 or (212) 783-1301. In addition,
a recorded periodic update that reviews the municipal debt market and contains
specific information regarding the Fund and its portfolio, including top ten
holdings and portfolio diversification, is available by calling 1-800-421-4777.
Cordially,
/s/ MARK C. BIDERMAN /s/ MICHAEL S. HYLAND
- -------------------- ---------------------
Mark C. Biderman Michael S. Hyland
Chairman of the Board President
<PAGE> 3
MUNICIPAL PARTNERS FUND II INC.
- --------------------------------------------------------------------------------
STATEMENT OF INVESTMENTS
September 30, 1995 (unaudited)
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT MOODY'S/S&P VALUE
(000) LONG-TERM INVESTMENTS -- 155.9% CREDIT RATING (NOTE 2)
- ---------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C>
ALASKA -- 13.1%
Alaska State Housing Finance Corporation Collateralized Home
$ 3,750 Mortgage Bonds, Subseries A-3, 5.85%, 6/01/25................... Aaa/AAA $ 3,524,213
Alaska State Housing Finance Corporation Insured Mortgage
6,000 Program, 5.90%, 12/01/33........................................ Aa1/A+ 5,662,260
Valdez, Alaska Marine Terminal Revenue Refunding (BP Pipelines
910 Inc. Project), 5.65%, 12/01/28.................................. A1/AA- 844,635
------------
10,031,108
------------
CALIFORNIA -- 18.1%
California Educational Facilities Authority Revenue, Pooled
College & University Financings (Pepperdine University), Series
1,000 A, MBIA, 5.50%, 6/01/19......................................... Aaa/AAA 940,740
California Pollution Control Financing Authority, Pollution
Control Revenue (Southern California Edison Company), Series B,
3,600 6.40%, 12/01/24................................................. A2/A+ 3,651,912
California State Public Works Board, Lease Revenue Refunding
2,175 Bonds (Department of Corrections), Series A, 6.875%, 11/01/14... A/A- 2,304,717
California State Public Works Board, Lease Revenue Refunding
Bonds (Various University of California Projects), 1993 Series
2,900 A, 7.00%, 3/01/14............................................... A/A- 3,096,591
Los Angeles, California Department of Water & Power Electric
1,000 Plant Revenue, Crossover Refunding, 5.25%, 11/15/26............. Aa/AA- 882,030
Los Angeles, California Department of Water & Power Waterworks
2,250 Revenue, Crossover Refunding, 5.25%, 4/15/18.................... Aa/AA 2,032,538
South Gate, California Public Financing Authority Tax Allocation
Revenue (South Gate Redevelopment Project No. 1), AMBAC, 5.875%,
1,000 9/01/24......................................................... Aaa/AAA 996,490
------------
13,905,018
COLORADO -- 1.3% ------------
Colorado Health Facilities Authority Hospital Revenue (Rocky
Mountain Adventist Healthcare Project), Series 1993, 6.625%,
1,000 2/01/13......................................................... Baa/BBB 997,330
------------
</TABLE>
- --------------------------------------------------------------------------------
See accompanying notes to financial statements.
PAGE 1
<PAGE> 4
MUNICIPAL PARTNERS FUND II INC.
- --------------------------------------------------------------------------------
STATEMENT OF INVESTMENTS (continued)
September 30, 1995 (unaudited)
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT MOODY'S/S&P VALUE
(000) LONG-TERM INVESTMENTS (CONTINUED) CREDIT RATING (NOTE 2)
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C>
GEORGIA -- 1.1%
Savannah, Georgia Hospital Authority Revenue Refunding &
$ 800 Improvement (Candler Hospital), 7.00%, 1/01/23.................. Baa/BBB+ $ 808,551
------------
ILLINOIS -- 26.5%
Chicago Heights, Illinois General Obligation, Series A, FGIC,
6,050 5.65%, 12/01/16................................................. Aaa/AAA 5,839,581
Chicago, Illinois O'Hare International Airport Special Facility
3,500 Revenue (International Terminal), MBIA, 6.75%, 1/01/18.......... Aaa/AAA 3,629,325
Illinois Health Facilities Authority Revenue (OSF Healthcare
2,300 System), 6.00%, 11/15/23........................................ A1/A+ 2,177,617
Illinois Health Facilities Authority Revenue (Servantcor
2,000 Project), 6.00%, 8/15/12........................................ Aaa/AAA 2,007,760
Illinois Health Facilities Authority Revenue (South Suburban
1,000 Hospital Project), 7.00%, 2/15/18............................... NR/A 1,039,640
Illinois Housing Development Authority, Series A, 6.00%,
5,800 7/01/18......................................................... A1/A+ 5,686,552
------------
20,380,475
------------
INDIANA -- 3.8%
Indiana Bond Bank Special Program (Sanitary District of the City
2,850 of Gary, Indiana Project), Series B, 6.20%, 2/01/13............. Baa/A 2,896,084
------------
IOWA -- 4.4%
Iowa Finance Authority Hospital Facility Revenue Refunding
3,350 (Trinity Regional Hospital Project), 7.00%, 7/01/12............. NR/BBB+ 3,404,169
------------
LOUISIANA -- 7.1%
Louisiana Public Facilities Authority Hospital Revenue Refunding
6,000 (Touro Infirmary Project), Series B, 6.125%, 8/15/23............ Baa/BBB 5,461,440
------------
MASSACHUSETTS -- 6.0%
Massachusetts State Health & Educational Facilities Authority
Revenue (Dana Farber Cancer Project), Series G-1, 6.25%,
1,000 12/01/22........................................................ A1/A 992,120
Massachusetts State Water Resource Authority General Refunding,
3,800 Series B, 5.50%, 3/01/17........................................ A/A 3,594,230
------------
4,586,350
------------
</TABLE>
- --------------------------------------------------------------------------------
See accompanying notes to financial statements.
PAGE 2
<PAGE> 5
MUNICIPAL PARTNERS FUND II INC.
- --------------------------------------------------------------------------------
STATEMENT OF INVESTMENTS (continued)
September 30, 1995 (unaudited)
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT MOODY'S/S&P VALUE
(000) LONG-TERM INVESTMENTS (CONTINUED) CREDIT RATING (NOTE 2)
- --------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C>
NEBRASKA -- 4.2%
Nebraska Higher Education Loan Program, Inc., Senior
$ 3,115 Subordinated Bonds, 1993-2 Series A-5A, 6.65%, 6/01/08.......... Aa/NR $ 3,195,118
------------
NEVADA -- 7.0%
Clark County, Nevada Industrial Development Revenue Refunding
3,000 (Nevada Power Project), AMBAC, 7.20%, 10/01/22.................. Aaa/AAA 3,337,920
Clark County, Nevada Passenger Facility Revenue, (Macarran
1,000 International Airport), MBIA, 5.75%, 7/01/23.................... Aaa/AAA 940,630
Nevada Housing Division, Single-Family Program, Series C, AMBAC,
1,100 6.35%, 10/01/12................................................. Aaa/AAA 1,104,444
------------
5,382,994
------------
NEW JERSEY -- 1.4%
New Jersey Economic Development Authority, Water Facilities
Revenue (New Jersey American Water Co., Inc. Project), FGIC,
1,000 6.875%, 11/01/34................................................ Aaa/AAA 1,063,370
NEW YORK -- 16.5% ------------
Battery Park City Authority, New York Housing Revenue, Series A,
2,500 5.75%, 6/01/23.................................................. NR/AAA 2,354,925
Metropolitan Transportation Authority, New York (Transit
2,500 Facilities), Series O, MBIA, 6.375%, 7/01/20.................... Aaa/AAA 2,605,400
Port Authority of New York & New Jersey Construction,
4,400 Ninety-Sixth Series, FGIC, 6.60%, 10/01/23...................... Aaa/AAA 4,626,204
The City of New York, General Obligation Bonds, Fiscal 1994
3,000 Series B, Subseries B-1, 7.00%, 8/15/16......................... Baa1/BBB+ 3,124,860
------------
12,711,389
------------
OHIO -- 8.5%
Ohio State Water Development Authority Solid Waste Disposal
3,300 Revenue (North Star BHP Broken Hill Project), 6.45%, 9/01/20.... A2/A 3,302,442
The Student Loan Funding Corporation, Cincinnati, Ohio, Series
3,250 1993B, 6.20%, 8/01/12........................................... A/NR 3,249,610
------------
6,552,052
------------
</TABLE>
- --------------------------------------------------------------------------------
See accompanying notes to financial statements.
PAGE 3
<PAGE> 6
MUNICIPAL PARTNERS FUND II INC.
- --------------------------------------------------------------------------------
STATEMENT OF INVESTMENTS (continued)
September 30, 1995 (unaudited)
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT MOODY'S/S&P VALUE
(000) LONG-TERM INVESTMENTS (CONTINUED) CREDIT RATING (NOTE 2)
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C>
PENNSYLVANIA -- 6.3%
Monroeville Hospital Authority Hospital Revenue (Forbes Health
$ 2,490 System), 7.00%, 10/01/13........................................ Baa1/BBB+ $ 2,523,067
Philadelphia, Pennsylvania Hospitals & Higher Education
Facilities Authority Revenue (Graduate Health System), Series A,
2,425 6.25%, 7/01/13.................................................. Baa1/BBB+ 2,319,610
------------
4,842,677
RHODE ISLAND -- 4.7% ------------
Rhode Island Convention Center Authority Revenue, 1993 Series A,
3,800 AMBAC, 5.75%, 5/15/27........................................... Aaa/AAA 3,644,998
------------
TENNESSEE -- 6.4%
Memphis-Shelby County Airport Authority, Airport Revenue
3,000 Refunding, Series 1993B, MBIA, 5.50%, 2/15/12................... Aaa/AAA 2,880,930
The Industrial Development Board of Humphreys County, Tennessee
1,950 (E.I. du Pont de Nemours and Company Project), 6.70%, 5/01/24... Aa3/AA- 2,023,183
------------
4,904,113
TEXAS -- 10.4% ------------
Austin, Texas Airport System Revenue, Series A, MBIA, 6.20%,
1,500 11/15/15........................................................ Aaa/AAA 1,504,920
Matagorda County Navigation District No. 1 (Texas) Pollution
Control Revenue Refunding (Central Power & Light Company
3,800 Project), 6.00%, 7/01/28........................................ A3/A- 3,745,964
Port Corpus Christi Authority Texas Nueces County Pollution
Control Revenue (Hoechst Celanese Corporate Project), 6.875%,
2,665 4/01/17......................................................... A2/A+ 2,784,259
------------
8,035,143
VIRGINIA -- 4.2% ------------
Fairfax County, Virginia Economic Development Authority Lease
2,000 Revenue (Government Center Properties), 5.50%, 5/15/18.......... Aa/AA 1,895,840
Virginia State Housing Development Authority, Commonwealth
1,300 Mortgage, Subseries I-1, 6.55%, 7/01/17......................... Aa1/AA+ 1,310,426
------------
3,206,266
------------
</TABLE>
- --------------------------------------------------------------------------------
See accompanying notes to financial statements.
PAGE 4
<PAGE> 7
MUNICIPAL PARTNERS FUND II INC.
- --------------------------------------------------------------------------------
STATEMENT OF INVESTMENTS (concluded)
September 30, 1995 (unaudited)
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT MOODY'S/S&P VALUE
(000) LONG-TERM INVESTMENTS (CONCLUDED) CREDIT RATING (NOTE 2)
------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C>
WASHINGTON -- 0.2%
Public Utility District No. 1 of Snohomish County, Washington
$ 200 Generation System Revenue, Series B, 5.80%, 1/01/24............. A1/A+ $ 189,118
------------
WEST VIRGINIA -- 2.1%
West Virginia State Water Development Authority, Loan Program
1,555 II, Series A, 7.00%, 11/01/31................................... NR/BBB+ 1,618,040
------------
WYOMING -- 2.6%
Wyoming Community Development Authority Housing Revenue, Series
2,000 1, 6.10%, 12/01/14.............................................. Aa/AA 1,984,140
------------
TOTAL LONG-TERM INVESTMENTS (cost $119,777,145)................. 119,799,943
------------
OTHER ASSETS IN EXCESS OF LIABILITIES -- 2.7%................... 2,044,201
------------
TOTAL NET ASSETS -- 158.6%...................................... 121,844,144
------------
Par value of 900 shares of preferred stock at $50,000 per share
(Note 5) -- (58.6%)............................................. (45,000,000)
------------
NET ASSETS APPLICABLE TO COMMON STOCK -- 100%
(equivalent to $12.79 per share on 6,007,094 common shares
outstanding).................................................... $ 76,844,144
------------
</TABLE>
- --------------------------------------------------------------------------------
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.
See accompanying notes to financial statements.
PAGE 5
<PAGE> 8
MUNICIPAL PARTNERS FUND II INC.
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
September 30, 1995 (unaudited)
<TABLE>
<S> <C>
ASSETS
Investments, at value (cost -- $119,777,145).................................................. $119,799,943
Cash.......................................................................................... 4,044
Interest receivable........................................................................... 2,139,031
Unamortized organization expenses (Note 2).................................................... 48,124
Prepaid expenses.............................................................................. 28,640
------------
Total assets.......................................................................... 122,019,782
------------
LIABILITIES
Accrued management fee (Note 3)............................................................... 60,098
Accrued legal fee............................................................................. 34,419
Accrued shareholder annual meeting expense.................................................... 27,024
Accrued printing and mailing fees............................................................. 25,179
Accrued audit and tax return preparation fees................................................. 19,935
Other accrued expenses........................................................................ 8,983
------------
Total liabilities..................................................................... 175,638
------------
NET ASSETS
Preferred Stock (Note 5)...................................................................... 45,000,000
Common Stock ($.001 par value, authorized 100,000,000; 6,007,094 shares outstanding).......... 6,007
Additional paid-in capital.................................................................... 83,244,145
Undistributed net investment income........................................................... 154,679
Accumulated realized loss on investments...................................................... (6,583,485)
Net unrealized appreciation on investments.................................................... 22,798
------------
Net assets............................................................................ $121,844,144
------------
</TABLE>
- --------------------------------------------------------------------------------
See accompanying notes to financial statements.
PAGE 6
<PAGE> 9
MUNICIPAL PARTNERS FUND II INC.
- --------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
For the Three Months Ended September 30, 1995 (unaudited)
<TABLE>
<S> <C> <C>
INVESTMENT INCOME
INCOME
Interest (includes net premium amortization of $6,906)................................... $1,868,762
OPERATING EXPENSES
Management fee (Note 3)....................................................... $182,797
Auction agent fee............................................................. 28,753
Audit and tax services........................................................ 17,896
Legal......................................................................... 12,603
Custodian..................................................................... 7,447
Printing...................................................................... 7,435
Directors' fees and expenses (Note 3)......................................... 6,553
Amortization of deferred organization expenses (Note 2)....................... 5,308
Shareholder annual meeting.................................................... 5,060
Transfer agent................................................................ 4,436
Listing fee................................................................... 4,076
Other......................................................................... 8,700
--------
Total operating expenses............................................................. 291,064
----------
Net investment income........................................................................ 1,577,698
----------
NET REALIZED AND UNREALIZED GAIN (LOSS)
Net Realized Loss on Investments............................................................. (610,688)
Change in Net Unrealized Appreciation (Depreciation) on Investments.......................... 1,859,968
----------
Net realized loss and change in net unrealized appreciation (depreciation) on investments.... 1,249,280
----------
NET INCREASE IN NET ASSETS FROM OPERATIONS................................................... $2,826,978
----------
</TABLE>
- --------------------------------------------------------------------------------
See accompanying notes to financial statements.
PAGE 7
<PAGE> 10
MUNICIPAL PARTNERS FUND II INC.
- --------------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
FOR THE THREE
MONTHS ENDED
SEPTEMBER 30, 1995 FOR THE YEAR ENDED
(UNAUDITED) JUNE 30, 1995
------------------------------------------------------------------------------------------------------------
<S> <C> <C>
OPERATIONS
Net investment income............................................... $ 1,577,698 $ 6,418,938
Net realized loss on investments.................................... (610,688) (3,960,676)
Change in net unrealized appreciation (depreciation) on
investments....................................................... 1,859,968 7,374,853
------------ ------------
Net increase in net assets from operations.......................... 2,826,978 9,833,115
DIVIDENDS
To common shareholders from net investment income................... (1,063,255) (4,739,597)
To preferred shareholders from net investment income................ (460,770) (1,774,225)
------------ ------------
(1,524,025) (6,513,822)
------------ ------------
Total increase in net assets........................................ 1,302,953 3,319,293
------------ ------------
NET ASSETS
Beginning of period................................................. 120,541,191 117,221,898
------------ ------------
End of period (includes undistributed net investment income of
$154,679 and $101,006, respectively).............................. $121,844,144 $ 120,541,191
------------ ------------
</TABLE>
- --------------------------------------------------------------------------------
See accompanying notes to financial statements.
PAGE 8
<PAGE> 11
MUNICIPAL PARTNERS FUND II INC.
- --------------------------------------------------------------------------------
STATEMENT OF CASH FLOWS
For the Three Months Ended September 30, 1995 (unaudited)
<TABLE>
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Proceeds from sales of portfolio investments.............................................. $ 11,336,233
Purchases of portfolio securities......................................................... (12,029,278)
Net sales of short-term investments....................................................... 600,000
------------
(93,045)
Net investment income..................................................................... 1,577,698
Amortization of net premium on investments................................................ 6,906
Amortization of organization expenses..................................................... 5,308
Net change in receivables/payables related to operations.................................. 1,689
------------
Net cash provided by operating activities............................................. 1,498,556
------------
CASH FLOWS USED BY FINANCING ACTIVITIES:
Common stock dividends paid............................................................... (1,063,255)
Preferred stock dividends paid............................................................ (460,770)
------------
Net cash used by financing activities................................................. (1,524,025)
------------
Net decrease in cash.......................................................................... (25,469)
Cash at beginning of period................................................................... 29,513
------------
CASH AT END OF PERIOD......................................................................... $ 4,044
------------
</TABLE>
- --------------------------------------------------------------------------------
See accompanying notes to financial statements.
PAGE 9
<PAGE> 12
MUNICIPAL PARTNERS FUND II INC.
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
(unaudited)
NOTE 1. ORGANIZATION AND COMMON STOCK OFFERING
Municipal Partners Fund II Inc. (the "Fund") was incorporated in Maryland on
June 21, 1993 and is registered as a diversified, closed-end, management
investment company under the Investment Company Act of 1940, as amended. The
Board of Directors authorized 100 million shares of $.001 par value common
stock. The Fund may classify or reclassify any unissued shares of common stock
into one or more series of preferred stock (see Note 5).
The Fund had no transactions until July 19, 1993 when it sold 7,094 shares of
its common stock to Oppenheimer & Co., Inc. ("Oppenheimer") and Salomon Brothers
Asset Management Inc (the "Investment Adviser") for an aggregate purchase price
of $100,025. On July 30, 1993, the Fund sold 5,500,000 shares of common stock in
its initial public offering and received proceeds of $77,116,577 after deducting
offering expenditures and underwriting commissions. Offering expenditures
amounted to $433,423 and have been charged to additional paid-in capital.
Underwriting commissions paid to underwriters, including Salomon Brothers Inc
("SBI") and Oppenheimer, amounted to $4,950,000. On September 9, 1993 an
additional 500,000 common shares were issued by the underwriters pursuant to
their over-allotment option at the original offering price of $15.00 per share.
This resulted in a $7,050,000 increase in the Fund's net assets after deducting
the underwriters' discount paid to underwriters, including SBI and Oppenheimer,
of $450,000. Total underwriting commissions paid to SBI and Oppenheimer amounted
to $114,748 and $2,523,878, respectively.
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.
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 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 recorded on the
accrual basis. The Fund amortizes premiums and accretes discounts on securities
purchased using the effective interest method.
FEDERAL INCOME TAXES. The Fund has complied and intends to continue to comply
with the requirements of the Internal Revenue Code of 1986, as amended,
applicable to regulated
PAGE 10
<PAGE> 13
MUNICIPAL PARTNERS FUND II INC.
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (continued)
(unaudited)
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 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 generally accepted accounting principles.
UNAMORTIZED ORGANIZATION EXPENSES. Organization expenses amounting to $93,817
were incurred in connection with the organization of the Fund. These costs have
been deferred and are being amortized ratably over a five-year period from
commencement of operations.
CASH FLOW INFORMATION. The Fund invests in securities and distributes
dividends from net investment income and net realized gains from investment
transactions. These activities are reported in the Statement of Changes in Net
Assets. Additional information on cash receipts and cash payments is presented
in the Statement of Cash Flows. Accounting practices that do not affect
reporting activities on a cash basis include carrying investments at value and
amortizing premium or accreting discount on debt obligations.
NOTE 3. MANAGEMENT AND ADVISORY FEES AND OTHER TRANSACTIONS
The Fund entered into a management agreement with Advantage Advisers, Inc. (the
"Investment Manager"), a subsidiary of Oppenheimer, pursuant to which the
Investment Manager, among other things, supervises the Fund's investment program
and monitors the performance of the Fund's service providers.
The Investment Manager and the fund entered into an investment advisory and
administration agreement with the Investment Adviser, an affiliate of SBI,
pursuant to which the Investment Adviser provides investment advisory and
administrative services to the Fund. The Investment Adviser is responsible for
the management of the Fund's portfolio in accordance with the Fund's investment
objectives and policies and for making decisions to buy, sell, or hold
particular securities and is responsible for day-to-day administration of the
Fund.
The Fund pays the Investment Manager a monthly fee at an annual rate of .60% of
the Fund's average weekly net assets for its services, and the Investment
Manager pays the Investment Adviser a monthly fee at an annual rate of .36% of
the Fund's average weekly net assets for its services. For purposes of
calculating the fees, the liquidation value of any outstanding
PAGE 11
<PAGE> 14
MUNICIPAL PARTNERS FUND II INC.
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (continued)
(unaudited)
preferred stock of the Fund is not deducted in determining the Fund's average
weekly net assets.
Certain officers and/or directors of the Fund are also officers and/or directors
of the Investment Manager or the Investment Adviser.
The Fund pays each Director not affiliated with the Investment Manager or the
Investment Adviser a fee of $5,000 per year, a fee of $700 for attendance at
each board and audit committee meeting, $700 for participation in each
telephonic meeting and reimbursement for travel and out-of-pocket expenses for
each board and committee meeting attended.
NOTE 4. PORTFOLIO ACTIVITY
Purchases and sales of investment securities, other than short-term investments
for the three months ended September 30, 1995, aggregated $11,099,665 and
$11,336,233, respectively. At June 30, 1995, the Fund had a net capital loss
carryover of approximately $3,732,000, of which $29,216 will be available
through June 30, 2002, and approximately $3,703,000 will be available through
June 30, 2003 to offset future capital gains to the extent provided by federal
income tax regulations.
For federal income tax purposes, realized losses incurred after October 31,
1994, but within the fiscal year ended June 30, 1995, are deemed to arise on the
first business day of the following fiscal year. The fund incurred and elected
to defer such losses of approximately $2,241,000.
The federal income tax cost basis of the fund's investments at September 30,
1995 was substantially the same as the cost basis for financial reporting. Gross
unrealized appreciation and depreciation amounted to $2,095,582 and $2,072,784,
respectively, resulting in net unrealized appreciation of $22,798.
NOTE 5. PREFERRED STOCK
On October 1, 1993, the Fund closed its public offering of 900 shares of $.001
par value Auction Rate Preferred Stock ("Preferred Shares") at an offering price
of $50,000 per share. This resulted in a $43,983,550 increase in the Fund's net
assets after deducting offering costs and underwriting commissions. Offering
costs amounted to $228,950 and underwriting commissions paid to SBI and
Oppenheimer amounted to $787,500. Offering costs and underwriting commissions
incurred in connection with the Preferred Shares offering have been charged to
additional paid-in capital.
PAGE 12
<PAGE> 15
MUNICIPAL PARTNERS FUND II INC.
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (continued)
(unaudited)
The Preferred Shares have a liquidation preference of $50,000 per share plus an
amount equal to accumulated but unpaid dividends (whether or not earned or
declared) and, subject to certain restrictions, are redeemable in whole or in
part.
Dividend rates generally reset every 28 days and are determined by auction
procedures. The dividend rates on the Preferred Shares during the three months
ended September 30, 1995 ranged from 3.84% to 4.05%. The weighted average
dividend rate for the three months ended September 30, 1995 was 4.007%. The
Board of Directors designated the dividend period commencing September 12, 1995
as a Special Rate Period. Pursuant to this Special Rate Period, the dividend
rate set by the auction held on September 11, 1995 remains in effect through
December 11, 1995 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 3.84%.
The Fund is subject to certain restrictions relating to the Preferred Shares.
The Fund may not declare dividends or make other distributions on shares of
common stock or purchase any such shares if, at the time of the declaration,
distribution or purchase, asset coverage with respect to the outstanding
Preferred Shares would be less than 200%. The Preferred Shares are also subject
to mandatory redemption at $50,000 per share plus any accumulated or unpaid
dividends, whether or not declared, if certain requirements relating to the
composition of the assets and liabilities of the Fund as set forth in its
Articles Supplementary are not satisfied.
The Preferred Shares, which are entitled to one vote per share, generally vote
with the common shares but vote separately as a class to elect two directors and
on certain matters affecting the rights of the Preferred Shares.
NOTE 6. COMMON STOCK DIVIDENDS SUBSEQUENT TO SEPTEMBER 30, 1995
On October 2 and November 1, 1995, the Board of Directors of the Fund declared a
common share dividend from net investment income, each in the amount of $0.059
per share, payable on October 31 and November 30, 1995 to shareholders of record
on October 12 and November 13, 1995, respectively.
PAGE 13
<PAGE> 16
MUNICIPAL PARTNERS FUND II INC.
- -----------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
DATA FOR A SHARE OF COMMON STOCK OUTSTANDING THROUGHOUT THE PERIOD:
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
SEPTEMBER 30, PERIOD ENDED
1995 YEAR ENDED JUNE 30,
(UNAUDITED) JUNE 30, 1995 1994(a)
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net investment income........................................ $.26 $1.07 $.89
Net realized loss and change in net unrealized appreciation
(depreciation)............................................. .21 .57 (1.87)
------------- ------------- -------------
Total from investment operations......................... .47 1.64 (.98)
Dividends to common shareholders from net investment
income..................................................... (.18) (.79) (.69)
Dividends to preferred shareholders from net investment
income..................................................... (.08) (.29) (.17)
Offering costs on issuance of common and preferred shares.... -- -- (.24)
------------- ------------- -------------
Net increase (decrease) in net asset value............... .21 .56 (2.08)
Net asset value, beginning of period......................... 12.58 12.02 14.10
------------- ------------- -------------
Net asset value, end of period............................... $12.79 $12.58 $12.02
------------- ------------- -------------
Per share market value, end of period........................ $10.75 $10.75 $11.25
Total investment return based on market price per share(c)... 1.67% 2.97% (15.92%)(b)
Ratios to average net assets of common shareholders(d):
Operating expenses....................................... 1.52%(e) 1.50% 1.45%(e)
Net investment income before preferred stock dividends... 8.22%(e) 8.99% 7.22%(e)
Preferred stock dividends................................ 2.40%(e) 2.48% 1.67%(e)
Net investment income available to common shareholders... 5.82%(e) 6.51% 5.55%(e)
Net assets of common shareholders, end of period......... $76,844,144 $ 75,541,191 $ 72,221,898
Preferred stock outstanding, end of period............... $45,000,000 $ 45,000,000 $ 45,000,000
Portfolio turnover rate.................................. 9% 24% 50%
</TABLE>
- --------------------------------------------------------------------------------
(a) For the period July 30, 1993 (commencement of investment operations) through
June 30, 1994.
(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 $11.25 per share.
(c) Dividends are assumed, for purposes of this calculation, to be reinvested at
prices obtained under the Fund's dividend reinvestment plan. This
calculation is not annualized.
(d) Ratios calculated on the basis of income, expenses and preferred stock
dividends applicable to both common and preferred stock relative to the
average net assets of common shares.
(e) Annualized.
PAGE 14
<PAGE> 17
MUNICIPAL PARTNERS FUND II INC.
- --------------------------------------------------------------------------------
SELECTED QUARTERLY FINANCIAL INFORMATION (unaudited)
SUMMARY OF QUARTERLY RESULTS OF OPERATIONS:
<TABLE>
<CAPTION>
NET REALIZED GAIN
(LOSS) & CHANGE IN
NET UNREALIZED
NET INVESTMENT APPRECIATION
INCOME (DEPRECIATION)
---------------- --------------------
PER PER
QUARTER ENDED* TOTAL SHARE TOTAL SHARE
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
September 30, 1993**.......................................... $ 632 $.10 $ 2,669 $ .44
December 31, 1993............................................. 1,566 .26 (704) (.11)
March 31, 1994................................................ 1,587 .27 (11,652) (1.94)
June 30, 1994................................................. 1,546 .26 (1,537) (.26)
September 30, 1994............................................ 1,635 .27 (2,062) (.34)
December 31, 1994............................................. 1,582 .27 (4,312) (.72)
March 31, 1995................................................ 1,590 .26 8,355 1.39
June 30, 1995................................................. 1,612 .27 1,433 .24
September 30, 1995............................................ 1,578 .26 1,249 .21
</TABLE>
- --------------------------------------------------------------------------------
* Totals expressed in thousands of dollars except per share amounts.
** For the period July 30, 1993 (commencement of investment operations) through
September 30, 1993.
See accompanying notes to financial statements.
PAGE 15
<PAGE> 18
MUNICIPAL PARTNERS FUND II INC.
- -----------
DIRECTORS
CHARLES F. BARBER
Consultant; formerly Chairman,
ASARCO Incorporated
MARK C. BIDERMAN
Chairman of the Board; Managing Director, Oppenheimer & Co., Inc.
Executive Vice President,
Advantage Advisers, Inc.
ALLAN C. HAMILTON
Consultant, formerly
Vice President and
Treasurer, Exxon Corp.
MICHAEL S. HYLAND
President; Managing Director,
Salomon Brothers Inc
President, Salomon Brothers
Asset Management Inc
ROBERT L. ROSEN
General Partner
R.L.R. Partners
- ---------
OFFICERS
MICHAEL S. HYLAND
President
MARYBETH WHYTE
Executive Vice President
ALAN M. MANDEL
Treasurer
LAURIE A. PITTI
Assistant Treasurer
TANA E. TSELEPIS
Secretary
ROBERT I. KLEINBERG
Assistant Secretary
- -------------------------------------------
MUNICIPAL PARTNERS FUND II INC.
7 World Trade Center
New York, New York 10048
Telephone 1-800-SALOMON
INVESTMENT ADVISER
Salomon Brothers Asset Management Inc
7 World Trade Center
New York, New York 10048
INVESTMENT MANAGER
Advantage Advisers, Inc.
Oppenheimer Tower
World Financial Center
New York, New York 10281
AUCTION AGENT
Bankers Trust Company
4 Albany Street
New York, New York 10006
CUSTODIAN
State Street Bank and Trust Company
225 Franklin Street
Boston, Massachusetts 02110
DIVIDEND DISBURSING AND TRANSFER AGENT
State Street Bank and Trust Company
225 Franklin Street
Boston, Massachusetts 02110
LEGAL COUNSEL
Simpson Thacher & Bartlett
425 Lexington Avenue
New York, New York 10017
<PAGE> 19
<TABLE>
<S> <C>
STATE STREET BANK AND TRUST COMPANY ------------------
P.O. BOX 8200 BULK RATE
BOSTON, MASSACHUSETTS 02266-8200 U.S. POSTAGE
PAID
S. HACKENSACK, NJ
PERMIT NO.
750
------------------
</TABLE>
<PAGE> 20
----------------------------------------------------------------------
MUNICIPAL PARTNERS
FUND II INC.
INTERIM REPORT
SEPTEMBER 30, 1995
