<PAGE> 1
----------------------------------------------------------------------
MUNICIPAL PARTNERS
FUND II INC.
SEMI-ANNUAL REPORT
----------------------------------------
DECEMBER 31, 1995
<PAGE> 2
MUNICIPAL PARTNERS FUND II INC.
February 27, 1996
To Our Shareholders:
We are pleased to supply this semi-annual report to the shareholders of
Municipal Partners Fund II Inc. (the "Fund") for the six months ended December
31, 1995. The fixed income markets staged a strong rally during the fourth
quarter as evidenced by the Fund's net asset value return of 8.87% (assuming the
reinvestment of monthly dividends in additional shares of the Fund). At December
29, 1995 (the last business day of the period), the Fund had a closing net asset
value and market price per share of $13.74 and $11.375, respectively. During the
quarter, the Fund continued to pay a monthly common stock dividend of $0.059 per
share. For the year ended December 31, 1995, the Fund's net asset value return
was 33.08% (assuming the reinvestment of monthly dividends in additional shares
of the Fund).
Moderate economic growth and benign inflation were the catalysts for the fixed
income rally during the fourth quarter. Although there was some volatility due
to the budget debate in Washington, the market ended the year on a positive note
as the Federal Reserve lowered its Federal Funds rate by 25 basis points to
5.50%.
Portfolio managers used the heavy new issue supply in the latter part of the
year as an opportunity to restructure their accounts to prepare for a further
decline in interest rates. As the Dow Jones Industrial Average approached the
5,000 level, individual investors shifted more of their assets into municipal
bonds. During the latter part of the year, fears of flat tax legislation abated.
Thus, individual investors gained confidence to extend the maturities of their
municipal bond purchases.
The increased new issue supply in the second half of 1995 brought the total new
issue volume to $156 billion, just 5% below last year's level. The technicals
for 1996 remain favorable from a supply and demand perspective. New issue supply
is not expected to increase substantially while demand could be strong from the
reinvestment of maturities, calls and coupon payments.
As of December 29, 1995, the Fund's portfolio consisted of 50 issues in 23
different states with an average maturity of 12.5 years and an average coupon of
6.24%. Sector weightings emphasize housing, healthcare and transportation.
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
December 31, 1995 (unaudited)
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT MOODY'S/S&P VALUE
(000) LONG-TERM INVESTMENTS -- 151.9% CREDIT RATING (NOTE 2)
- -----------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C>
ALASKA -- 7.0%
Alaska State Housing Finance Corporation Collateralized Home
$ 3,750 Mortgage Bonds, Subseries A-3, 5.85%, 6/01/25................... Aaa/AAA $ 3,752,588
Alaska State Housing Finance Corporation Insured Mortgage
2,000 Program, 5.90%, 12/01/33........................................ Aa1/A+ 2,010,320
------------
5,762,908
------------
CALIFORNIA -- 15.9%
California Educational Facilities Authority Revenue, Pooled
College & University Financings (Pepperdine University), Series
1,000 A, MBIA, 5.50%, 6/01/19......................................... Aaa/AAA 996,040
California State Public Works Board, Lease Revenue Refunding
2,175 Bonds (Department of Corrections), Series A, 6.875%, 11/01/14... A/A- 2,451,356
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- 3,273,491
Los Angeles, California Department of Water & Power Waterworks
2,250 Revenue, Crossover Refunding, 5.25%, 4/15/18.................... Aa/AA 2,200,658
San Francisco, California Airport Revenue (San Francisco
2,000 International Airport), Series A-9, FGIC, 5.60%, 5/01/14........ Aaa/AAA 2,026,460
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 1,098,340
West Covina, California Certificate of Participation (Queen of
1,000 the Valley Hospital), 6.50%, 8/15/14............................ A/A 1,054,060
------------
13,100,405
------------
COLORADO -- 1.2%
Colorado Health Facilities Authority Hospital Revenue (Rocky
Mountain Adventist Healthcare Project), Series 1993, 6.625%,
1,000 2/01/13......................................................... Baa/BBB 1,024,240
------------
ILLINOIS -- 28.4%
Chicago Heights, Illinois General Obligation, Series A, FGIC,
6,050 5.65%, 12/01/16................................................. Aaa/AAA 6,160,897
Chicago, Illinois O'Hare International Airport Special Facility
3,500 Revenue (International Terminal), MBIA, 6.75%, 1/01/18.......... Aaa/AAA 3,790,430
</TABLE>
- --------------------------------------------------------------------------------
See accompanying notes to financial statements.
PAGE 1
<PAGE> 4
MUNICIPAL PARTNERS FUND II INC.
- --------------------------------------------------------------------------------
STATEMENT OF INVESTMENTS (continued)
December 31, 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>
ILLINOIS -- 28.4% (CONTINUED)
Illinois Health Facilities Authority Revenue (OSF Healthcare
$ 2,300 System), 6.00%, 11/15/23........................................ A1/A+ $ 2,299,816
Illinois Health Facilities Authority Revenue (Servantcor
2,000 Project), 6.00%, 8/15/12........................................ Aaa/AAA 2,092,640
Illinois Health Facilities Authority Revenue (South Suburban
1,000 Hospital Project), 7.00%, 2/15/18............................... NR/A 1,067,460
Illinois Health Facilities Authority Revenue Refunding (SSM
1,850 Health Care), MBIA, 6.55%, 6/01/13.............................. Aaa/AAA 2,145,445
Illinois Housing Development Authority, Series A, 6.00%,
5,800 7/01/18......................................................... A1/A+ 5,852,084
------------
23,408,772
------------
INDIANA -- 6.0%
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 2,991,246
Indiana Transportation Finance Authority Airport Facilities
2,000 Lease Revenue, Series A, 5.50%, 11/01/17........................ A/A 1,964,920
------------
4,956,166
------------
IOWA -- 4.2%
Iowa Finance Authority Hospital Facility Revenue Refunding
3,350 (Trinity Regional Hospital Project), 7.00%, 7/01/12............. NR/BBB+ 3,504,837
------------
LOUISIANA -- 7.0%
Louisiana Public Facilities Authority Hospital Revenue Refunding
6,000 (Touro Infirmary Project), Series B, 6.125%, 8/15/23............ Baa/BBB 5,764,380
------------
MASSACHUSETTS -- 5.8%
Massachusetts State Health & Educational Facilities Authority
Revenue (Dana Farber Cancer Project), Series G-1, 6.25%,
1,000 12/01/22........................................................ A1/A 1,032,200
Massachusetts State Water Resource Authority General Refunding,
3,800 Series B, 5.50%, 3/01/17........................................ A/A 3,739,010
------------
4,771,210
------------
</TABLE>
- --------------------------------------------------------------------------------
See accompanying notes to financial statements.
PAGE 2
<PAGE> 5
MUNICIPAL PARTNERS FUND II INC.
- --------------------------------------------------------------------------------
STATEMENT OF INVESTMENTS (continued)
December 31, 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 -- 3.9%
Nebraska Higher Education Loan Program, Inc., Senior
$ 3,115 Subordinated Bonds, 1993-2 Series A-5A, 6.65%, 6/01/08.......... Aa/NR $ 3,250,097
------------
NEVADA -- 6.7%
Clark County, Nevada Industrial Development Revenue Refunding
3,000 (Nevada Power Project), AMBAC, 7.20%, 10/01/22.................. Aaa/AAA 3,430,140
Clark County, Nevada Passenger Facility Revenue, (Macarran
1,000 International Airport), MBIA, 5.75%, 7/01/23.................... Aaa/AAA 1,005,010
Nevada Housing Division, Single-Family Program, Series C, AMBAC,
1,100 6.35%, 10/01/12................................................. Aaa/AAA 1,128,336
------------
5,563,486
------------
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 1,117,990
------------
NEW YORK -- 19.8%
Battery Park City Authority, New York Housing Revenue, Series A,
2,000 5.75%, 6/01/23.................................................. NR/AAA 1,986,240
Metropolitan Transportation Authority, New York (Transit
2,500 Facilities), Series O, MBIA, 6.375%, 7/01/20.................... Aaa/AAA 2,716,875
New York State Local Government Assistance Corporation Revenue
2,110 Refunding, Series C, 5.50%, 4/01/18............................. A/A 2,083,140
Port Authority of New York & New Jersey Construction,
4,400 Ninety-Sixth Series, FGIC, 6.60%, 10/01/23...................... Aaa/AAA 4,814,216
The City of New York, General Obligation Bonds, Fiscal 1994
3,000 Series B, Subseries B-1, 7.00%, 8/15/16......................... Baa1/BBB+ 3,289,680
The City of New York, General Obligation Bonds, Series D, 6.00%,
1,500 2/15/20......................................................... Baa1/BBB+ 1,486,665
------------
16,376,816
------------
</TABLE>
- --------------------------------------------------------------------------------
See accompanying notes to financial statements.
PAGE 3
<PAGE> 6
MUNICIPAL PARTNERS FUND II INC.
- --------------------------------------------------------------------------------
STATEMENT OF INVESTMENTS (continued)
December 31, 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>
OHIO -- 8.2%
Ohio State Water Development Authority Solid Waste Disposal
$ 3,300 Revenue (North Star BHP Broken Hill Project), 6.45%, 9/01/20.... A2/A $ 3,476,880
The Student Loan Funding Corporation, Cincinnati, Ohio, Series
3,250 1993B, 6.20%, 8/01/12........................................... A/NR 3,324,685
------------
6,801,565
------------
PENNSYLVANIA -- 3.2%
Monroeville Hospital Authority Hospital Revenue (Forbes Health
2,490 System), 7.00%, 10/01/13........................................ Baa1/BBB+ 2,664,350
------------
RHODE ISLAND -- 4.7%
Rhode Island Convention Center Authority Revenue, 1993 Series A,
3,800 AMBAC, 5.75%, 5/15/27........................................... Aaa/AAA 3,865,815
------------
TENNESSEE -- 6.3%
Memphis-Shelby County Airport Authority, Airport Revenue
3,000 Refunding, Series 1993B, MBIA, 5.50%, 2/15/12................... Aaa/AAA 3,042,780
The Industrial Development Board of Humphreys County, Tennessee
1,950 (E.I. duPont de Nemours and Company Project), 6.70%, 5/01/24.... Aa3/AA- 2,132,189
------------
5,174,969
------------
TEXAS -- 10.1%
Austin, Texas Airport System Revenue, Series A, MBIA, 6.20%,
1,500 11/15/15........................................................ Aaa/AAA 1,595,970
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- 3,868,818
Port Corpus Christi Authority Texas Nueces County Pollution
Control Revenue (Hoechst Celanese Corporate Project), 6.875%,
2,665 4/01/17......................................................... A2/A+ 2,870,871
------------
8,335,659
------------
</TABLE>
- --------------------------------------------------------------------------------
See accompanying notes to financial statements.
PAGE 4
<PAGE> 7
MUNICIPAL PARTNERS FUND II INC.
- --------------------------------------------------------------------------------
STATEMENT OF INVESTMENTS (continued)
December 31, 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>
VIRGINIA -- 4.1%
Fairfax County, Virginia Economic Development Authority Lease
$ 2,000 Revenue (Government Center Properties), 5.50%, 5/15/18.......... Aa/AA $ 2,014,020
Virginia State Housing Development Authority, Commonwealth
1,300 Mortgage, Subseries I-1, 6.55%, 7/01/17......................... Aa1/AA+ 1,333,540
------------
3,347,560
------------
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+ 201,508
------------
WEST VIRGINIA -- 2.2%
West Virginia State Water Development Authority, Loan Program
1,555 II, Series A, 7.00%, 11/01/31................................... NR/BBB+ 1,783,460
------------
WISCONSIN -- 3.1%
Wisconsin Housing & Economic Development Authority Revenue
2,485 Refunding (Home Ownership), Series G, 6.30%, 9/01/17............ Aa/AA 2,540,391
------------
WYOMING -- 2.5%
Wyoming Community Development Authority Housing Revenue, Series
2,000 1, 6.10%, 12/01/14.............................................. Aa/AA 2,032,779
------------
TOTAL LONG-TERM INVESTMENTS (cost $119,399,601)................................... 125,349,363
------------
</TABLE>
<TABLE>
<CAPTION>
SHORT-TERM INVESTMENT -- 0.1%
------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C>
GEORGIA -- 0.1%
Georgia Hospital Finance Authority Revenue (Georgia Pooled Loan
100 Program), VR, 5.95%, 1/02/96 (cost $100,000).................... VMIG-1/A-1 100,000
------------
TOTAL INVESTMENTS -- 152.0% (cost $119,499,601)................................... 125,449,363
------------
</TABLE>
- --------------------------------------------------------------------------------
See accompanying notes to financial statements.
PAGE 5
<PAGE> 8
MUNICIPAL PARTNERS FUND II INC.
- --------------------------------------------------------------------------------
STATEMENT OF INVESTMENTS (concluded)
December 31, 1995 (unaudited)
<TABLE>
<CAPTION>
MARKET
VALUE
(NOTE 2)
------------------------------------------------------------------------------------------------------------
<C> <S> <C>
OTHER ASSETS IN EXCESS OF LIABILITIES -- 2.5%..................................... $ 2,087,005
------------
TOTAL NET ASSETS -- 154.5%........................................................ 127,536,368
------------
Par value of 900 shares of preferred stock at $50,000 per share (Note
5) -- (54.5%)..................................................................... (45,000,000)
------------
NET ASSETS APPLICABLE TO COMMON STOCK -- 100%
(equivalent to $13.74 per share on 6,007,094 common shares outstanding)........... $ 82,536,368
------------
</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.
VMIG -- Variable Moody Investment Grade.
VR -- Variable Rate Demand Note. Maturity date shown is date of next
interest rate change and coupon rate is the rate in effect on December
31, 1995.
See accompanying notes to financial statements.
PAGE 6
<PAGE> 9
MUNICIPAL PARTNERS FUND II INC.
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1995 (unaudited)
<TABLE>
<S> <C>
ASSETS
Investments, at value (cost -- $119,499,601)................................................. $125,449,363
Cash......................................................................................... 46,877
Interest receivable.......................................................................... 2,106,273
Unamortized organization expenses (Note 2)................................................... 48,349
Prepaid expenses............................................................................. 39,036
------------
Total assets......................................................................... 127,689,898
------------
LIABILITIES
Accrued management fee (Note 3).............................................................. 64,442
Accrued audit and tax return preparation fees................................................ 30,831
Accrued legal fee............................................................................ 18,220
Accrued printing and mailing fees............................................................ 12,800
Accrued shareholder annual meeting expense................................................... 10,000
Accrued custodian expense.................................................................... 5,157
Other accrued expenses....................................................................... 12,080
------------
Total liabilities.................................................................... 153,530
------------
NET ASSETS
Preferred Stock (Note 5)..................................................................... 45,000,000
Common Stock ($.001 par value, authorized 100,000,000 shares; 6,007,094 shares
outstanding)............................................................................... 6,007
Additional paid-in capital................................................................... 83,244,145
Undistributed net investment income.......................................................... 261,099
Accumulated realized loss on investments..................................................... (6,924,645)
Net unrealized appreciation on investments................................................... 5,949,762
------------
Net assets........................................................................... $127,536,368
------------
</TABLE>
- --------------------------------------------------------------------------------
See accompanying notes to financial statements.
PAGE 7
<PAGE> 10
MUNICIPAL PARTNERS FUND II INC.
- --------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
For the Six Months Ended December 31, 1995 (unaudited)
<TABLE>
<S> <C> <C>
INVESTMENT INCOME
INCOME
Interest (includes net premium amortization of $11,395)................................ $ 3,743,787
OPERATING EXPENSES
Management fee (Note 3)..................................................... $371,244
Auction agent fee........................................................... 61,538
Audit and tax services...................................................... 35,792
Legal....................................................................... 20,206
Directors' fees and expenses (Note 3)....................................... 14,900
Printing.................................................................... 11,829
Custodian................................................................... 10,325
Listing fee................................................................. 8,151
Transfer agent.............................................................. 7,646
Amortization of deferred organization expenses (Note 2)..................... 5,083
Other....................................................................... 9,124
--------
Total operating expenses........................................................... 555,838
-----------
Net investment income...................................................................... 3,187,949
-----------
NET REALIZED AND UNREALIZED GAIN (LOSS)
Net Realized Loss on Investments........................................................... (951,848)
Change in Net Unrealized Appreciation on Investments....................................... 7,786,932
-----------
Net realized loss and change in net unrealized appreciation on investments................. 6,835,084
-----------
NET INCREASE IN NET ASSETS FROM OPERATIONS................................................. $10,023,033
-----------
</TABLE>
- --------------------------------------------------------------------------------
See accompanying notes to financial statements.
PAGE 8
<PAGE> 11
MUNICIPAL PARTNERS FUND II INC.
- --------------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
FOR THE SIX
MONTHS ENDED FOR THE YEAR
DECEMBER 31, 1995 ENDED JUNE
(UNAUDITED) 30, 1995
------------------------------------------------------------------------------------------------------------
<S> <C> <C>
OPERATIONS
Net investment income............................................... $ 3,187,949 $ 6,418,938
Net realized loss on investments.................................... (951,848) (3,960,676)
Change in net unrealized appreciation (depreciation) on
investments....................................................... 7,786,932 7,374,853
------------ ------------
Net increase in net assets from operations.......................... 10,023,033 9,833,115
DIVIDENDS
To common shareholders from net investment income................... (2,126,511) (4,739,597)
To preferred shareholders from net investment income................ (901,345) (1,774,225)
------------ ------------
(3,027,856) (6,513,822)
------------ ------------
Total increase in net assets........................................ 6,995,177 3,319,293
------------ ------------
NET ASSETS
Beginning of period................................................. 120,541,191 117,221,898
------------ ------------
End of period (includes undistributed net investment income of
$261,099 and $101,006, respectively).............................. $127,536,368 $120,541,191
------------ ------------
</TABLE>
- --------------------------------------------------------------------------------
See accompanying notes to financial statements.
PAGE 9
<PAGE> 12
MUNICIPAL PARTNERS FUND II INC.
- --------------------------------------------------------------------------------
STATEMENT OF CASH FLOWS
For the Six Months Ended December 31, 1995 (unaudited)
<TABLE>
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Proceeds from sales of portfolio investments............................................. $ 24,259,896
Purchases of portfolio securities........................................................ (24,921,046)
Net sales of short-term investments...................................................... 500,000
------------
(161,150)
Net investment income.................................................................... 3,187,949
Amortization of net premium on investments............................................... 11,395
Amortization of organization expenses.................................................... 5,083
Net change in receivables/payables related to operations................................. 1,943
------------
Net cash provided by operating activities............................................ 3,045,220
------------
CASH FLOWS USED BY FINANCING ACTIVITIES:
Common stock dividends paid.............................................................. (2,126,511)
Preferred stock dividends paid........................................................... (901,345)
------------
Net cash used by financing activities................................................ (3,027,856)
------------
Net increase in cash......................................................................... 17,364
Cash at beginning of period.................................................................. 29,513
------------
CASH AT END OF PERIOD........................................................................ $ 46,877
------------
</TABLE>
- --------------------------------------------------------------------------------
See accompanying notes to financial statements.
PAGE 10
<PAGE> 13
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. 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 were 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.
NOTE 2. SIGNIFICANT ACCOUNTING POLICIES
The Fund's primary investment objective is to seek a high level of current
income which is exempt from regular federal income taxes, consistent with the
preservation of capital. As a secondary investment objective, the Fund intends
to enhance portfolio value by purchasing tax exempt securities that, in the
opinion of the Investment Adviser, may appreciate in value relative to other
similar obligations in the marketplace.
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. The
policies are in conformity with generally accepted accounting principles
("GAAP"). The preparation of financial statements in accordance with GAAP
requires management to make estimates and assumptions that affect the reported
amounts and disclosures in the financial statements. Actual amounts could differ
from those estimates.
SECURITIES VALUATION. Tax-exempt securities are valued by independent pricing
services which use prices provided by market-makers or estimates of market
values obtained from yield data relating to instruments or securities with
similar characteristics. Short-term investments having a maturity of 60 days or
less are valued at amortized cost which approximates market value.
PAGE 11
<PAGE> 14
MUNICIPAL PARTNERS FUND II INC.
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (continued)
(unaudited)
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 investment companies, and to distribute all of its
income and capital gains, if any, to its shareholders. Therefore, no federal
income tax or excise tax provision is required.
DIVIDENDS AND DISTRIBUTIONS. The Fund declares and pays dividends and
distributions to common shareholders monthly from net investment income, net
realized short-term capital gains and other sources, if necessary. Long-term
capital gains, if any, in excess of loss carryovers (See Note 4) are expected to
be distributed annually. Dividends and distributions to common shareholders are
recorded on the ex-dividend date. Dividends and distributions to preferred
shareholders are accrued on a weekly basis and are determined as described in
Note 5. The amount of dividends and distributions from net investment income and
net realized gains are determined in accordance with federal income tax
regulations, which may differ from GAAP.
UNAMORTIZED ORGANIZATION EXPENSES. Organization expenses amounting to $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.
PAGE 12
<PAGE> 15
MUNICIPAL PARTNERS FUND II INC.
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (continued)
(unaudited)
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 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 six months ended December 31, 1995, aggregated $23,991,433 and
$24,259,896, respectively. At June 30, 1995, the Fund had a net capital loss
carryover of approximately $3,732,000, of which $29,000 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 December 31, 1995
was substantially the same as the cost basis for financial reporting. Gross
unrealized appreciation and depreciation amounted to $6,128,684 and $178,922,
respectively, resulting in net unrealized appreciation for federal income tax
purposes of $5,949,762.
PAGE 13
<PAGE> 16
MUNICIPAL PARTNERS FUND II INC.
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (concluded)
(unaudited)
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.
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 six months
ended December 31, 1995 ranged from 3.799% to 4.05%. The weighted average
dividend rate for the six months ended December 31, 1995 was 3.919%. The Board
of Directors designated the dividend period commencing December 12, 1995 as a
Special Rate Period. Pursuant to this Special Rate Period, the dividend rate set
by the auction held on December 11, 1995 remains in effect through March 11,
1996 when the regular auction procedure resumes, subject to the Fund's ability
to designate any subsequent dividend period as a Special Rate Period. The
dividend rate for this Special Rate Period is 3.799%.
The Fund is subject to certain restrictions relating to the Preferred Shares.
The Fund may not declare dividends or make other distributions on shares of
common stock or purchase any such shares if, at the time of the declaration,
distribution or purchase, asset coverage with respect to the outstanding
Preferred Shares would be less than 200%. The Preferred Shares are also subject
to mandatory redemption at $50,000 per share plus any accumulated or unpaid
dividends, whether or not declared, if certain requirements relating to the
composition of the assets and liabilities of the Fund as set forth in its
Articles Supplementary are not satisfied.
The Preferred Shares, which are entitled to one vote per share, generally vote
with the common shares but vote separately as a class to elect two directors and
on certain matters affecting the rights of the Preferred Shares.
NOTE 6. COMMON STOCK DIVIDENDS SUBSEQUENT TO DECEMBER 31, 1995
The Board of Directors of the Fund declared a common share dividend from net
investment income, each in the amount of $.059 per share, payable on January 31
and February 29, 1996 to shareholders of record on January 12 and February 12,
1996, respectively.
PAGE 14
<PAGE> 17
MUNICIPAL PARTNERS FUND II INC.
- -----------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
DATA FOR A SHARE OF COMMON STOCK OUTSTANDING THROUGHOUT EACH PERIOD:
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
DECEMBER 31, YEAR ENDED PERIOD ENDED
1995 JUNE 30, JUNE 30,
(UNAUDITED) 1995 1994(a)
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net investment income...................................... $.53 $1.07 $.89
Net realized loss and change in net unrealized appreciation
(depreciation)........................................... 1.14 .57 (1.87)
------------- ---------- ------------
Total from investment operations....................... 1.67 1.64 (.98)
Dividends to common shareholders from net investment
income................................................... (.36) (.79) (.69)
Dividends to preferred shareholders from net investment
income................................................... (.15) (.29) (.17)
Offering costs on issuance of common and preferred
shares................................................... -- -- (.24)
------------- ---------- ------------
Net increase (decrease) in net asset value............. 1.16 .56 (2.08)
Net asset value, beginning of period....................... 12.58 12.02 14.10
------------- ---------- ------------
Net asset value, end of period............................. $13.74 $12.58 $12.02
------------- ---------- ------------
Per share market value, end of period...................... $11.375 $10.75 $11.25
Total investment return based on market price per
share(c)................................................. 9.28% 2.97% (15.92%)(b)
Ratios to average net assets of common shareholders(d):
Operating expenses..................................... 1.41%(e) 1.50% 1.45%(e)
Net investment income before preferred stock
dividends............................................ 8.09%(e) 8.99% 7.22%(e)
Preferred stock dividends.............................. 2.29%(e) 2.48% 1.67%(e)
Net investment income available to common
shareholders......................................... 5.80%(e) 6.51% 5.55%(e)
Net assets of common shareholders, end of period
(000)................................................ $82,536 $ 75,541 $ 72,222
Preferred stock outstanding, end of period (000)....... $45,000 $ 45,000 $ 45,000
Portfolio turnover rate................................ 20% 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) For purposes of this calculation, dividends on common shares are assumed to
be reinvested at prices obtained under the Fund's dividend reinvestment plan
and the broker commission paid to purchase or sell a share is excluded. This
calculation is not annualized.
(d) Ratios calculated on the basis of income, expenses and preferred stock
dividends relative to the average net assets of common shares.
(e) Annualized.
See accompanying notes to financial statements.
PAGE 15
<PAGE> 18
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)
------------------- ----------------------
QUARTER ENDED* TOTAL PER SHARE TOTAL PER SHARE
------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
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
December 31, 1995................................................. 1,610 .27 5,586 .93
</TABLE>
- --------------------------------------------------------------------------------
* Totals expressed in thousands of dollars except per share amounts.
See accompanying notes to financial statements.
PAGE 16
<PAGE> 19
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
LAWRENCE H. KAPLAN
Executive Vice President
ALAN M. MANDEL
Treasurer
LAURIE A. PITTI
Assistant Treasurer
TANA E. TSELEPIS
Secretary
ROBERT I. KLEINBERG
Assistant Secretary
- -------------------------------------------
MUNICIPAL PARTNERS FUND 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
NEW YORK STOCK EXCHANGE SYMBOL
MPT
- --------------------------------------------------------------------------------
<PAGE> 20
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
---------------------
