<PAGE>
MUNICIPAL PARTNERS FUND II INC.
August 25, 1997
To Our Shareholders:
We are pleased to provide this annual report to the shareholders of Municipal
Partners Fund II Inc. (the "Fund") for the year ended June 30, 1997. The
fixed-income market was volatile during the first half of 1997; the bond market
experienced a downturn during the first quarter but rebounded during the second
quarter. The Fund achieved a 4.28% return in net asset value during the first
half of 1997 (assuming the reinvestment of monthly dividends in additional
shares of the Fund). For the twelve months ended June 30, 1997, the net asset
value return was 12.14% (assuming the reinvestment of monthly dividends in
additional shares of the Fund). On June 30, 1997, the Fund had a closing net
asset value and market price per share of $13.70 and $12.375, respectively. The
Fund continued to pay a monthly common stock dividend of $0.0625 per share.
Heightened inflation concerns were the basis for the price decline in the
fixed-income market during the first quarter of 1997. Federal Reserve Chairman
Greenspan cautioned investors that short-term interest rates may have to be
raised in order to slow the economy and stave off inflation. On March 25, the
Federal Reserve raised short-term interest rates 25 basis points which caused a
negative reaction in both the fixed-income and equity markets. These markets
bottomed in mid-April, yet posted strong positive returns for the second
quarter. The turnaround in the fixed-income market was due to reported benign
inflation statistics and slower economic growth which led to a belief that the
Federal Reserve would not need to raise short-term interest rates in the near
future.
Municipal bonds outperformed Treasuries during the first six months of 1997 due
to favorable technical conditions. This year's municipal bond new issue supply
was similar to the same period in 1996. Demand was strong from property and
casualty insurance companies and, sporadically, from individual investors and
mutual funds. We expect that the positive supply and demand technicals will
persist for at least the near term.
As of June 30, 1997, the Fund's portfolio consisted of 52 issues throughout 24
different states with an average maturity of 11.7 years and an average coupon of
6.20%, excluding short-term investments. Sector weightings emphasize housing,
healthcare and transportation.
Oppenheimer Group, Inc., the ultimate parent company of Advantage Advisers,
Inc., the Fund's investment manager, has entered into an agreement with PIMCO
Advisors, L.P. and its affiliates which, if consummated, would have the effect
of transferring the investment manager's responsibilities under the investment
management and the investment advisory and administration agreements for the
Fund to a new entity under the control of PIMCO Advisors. In that connection,
the Board of Directors of the Fund has approved, subject to the vote of the
Fund's shareholders, new investment management and investment advisory and
administration agreements for the Fund. The agreements are substantially similar
to the existing agreements and would take effect upon shareholder approval and
the closing of the proposed transaction. The closing of the transaction is also
subject to certain additional closing conditions.
Finally, we thank you for your support and confidence. In an effort to provide
more timely information concerning the Fund, shareholders may call
1-800-421-4777 for a recorded periodic update of the developments affecting the
markets in which the Fund invests, as well as the Fund's current net asset
value, portfolio manager comments and other information regarding the Fund's
portfolio holdings and allocations. We also invite you to call with any
questions or comments at 1-800-725-6666 or 1-212-783-1301.
Cordially,
Mark C. Biderman Michael S. Hyland
Chairman of the Board President
<PAGE>
MUNICIPAL PARTNERS FUND II INC.
Statement of Investments
June 30, 1997
<TABLE>
<CAPTION>
Principal
Amount Moody's/S&P Value
(000) Long-Term Investments-- 151.8% Credit Rating (Note 2)
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
California -- 12.2%
California State Housing Finance Agency Home Mortgage Revenue,
$3,000 Series H, 6.15%, 8/01/16....................................... Aa2/AA- $ 3,055,320
California State Public Works Board, Lease Revenue Refunding Bonds
(Department of Corrections), Series A, 6.875%, 11/01/14,
2,175 Pre-Refunded 11/01/04.......................................... Aaa/A 2,534,854
California State Public Works Board, Lease Revenue Refunding Bonds
(Various University of California Projects), 1993 Series A,
2,900 7.00%, 3/01/14, Pre-Refunded 3/01/04........................... Aaa/A 3,367,538
West Covina, California Certificate of Participation
1,000 (Queen of the Valley Hospital), 6.50%, 8/15/14................. A2/A 1,056,220
-----------
10,013,932
-----------
Colorado -- 1.3%
Colorado Health Facilities Authority Hospital Revenue
1,000 (Rocky Mountain Adventist Healthcare Project), Series 1993,
6.625%, 2/01/13................................................ Baa2/BBB 1,035,790
-----------
Georgia -- 0.3%
Fulton County, Georgia Housing Authority Single-Family Mortgage,
205 6.60%, 3/01/28................................................. NR/AAA 211,324
-----------
Hawaii -- 1.3%
Hawaii State Department of Budget & Finance Special
1,000 Purpose Revenue, 6.00%, 7/01/11................................ A/A 1,032,530
-----------
Illinois -- 26.1%
Chicago Heights, Illinois General Obligation, Series A, FGIC,
6,050 5.65%, 12/01/16................................................ Aaa/AAA 6,021,444
Chicago, Illinois Board of Education (Chicago School Reform),
4,255 MBIA, 6.00%, 12/01/16.......................................... Aaa/AAA 4,422,434
Chicago, Illinois O'Hare International Airport Special Facility
3,500 Revenue (International Terminal), MBIA, 6.75%, 1/01/18......... Aaa/AAA 3,765,020
Chicago, Illinois Wastewater Transmission Revenue, FGIC,
1,000 5.125%, 1/01/25................................................ Aaa/AAA 929,780
Illinois Health Facilities Authority Revenue (Highland
1,000 Park Project B), FGIC, 5.55%, 10/01/06......................... Aaa/AAA 1,043,270
- ----------------------------------------------------------------------------------------------------------
See accompanying notes to financial statements.
Page 2
</TABLE>
<PAGE>
MUNICIPAL PARTNERS FUND II INC.
Statement of Investments (continued)
June 30, 1997
<TABLE>
<CAPTION>
Principal
Amount Moody's/S&P Value
(000) Long-Term Investments (continued) Credit Rating (Note 2)
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Illinois -- 26.1% (concluded)
Illinois Health Facilities Authority Revenue
$2,000 (Servantcor Project), Series A, FSA, 6.00%, 8/15/12.......... Aaa/AAA $ 2,073,740
Illinois Health Facilities Authority Revenue (South Suburban
605 Hospital Project), 7.00%, Escrowed to Maturity 2/15/18....... NR/A 700,281
Illinois Health Facilities Authority Revenue (South Suburban
395 Hospital Project), 7.00%, 2/15/18, Pre-Refunded 2/15/02...... NR/A 441,168
Illinois Health Facilities Authority Revenue Refunding
1,850 (SSM Health Care), MBIA, 6.55%, 6/01/13...................... Aaa/AAA 2,090,056
-----------
21,487,193
-----------
Indiana -- 5.4%
Indiana Transportation Finance Authority Airport Facilities
2,000 Lease Revenue, Series A, 5.50%, 11/01/17..................... A2/A 1,968,580
Indianapolis, Indiana Airport Authority Revenue Refunding,
2,500 Series A, FGIC, 5.60%, 7/01/15............................... Aaa/AAA 2,501,225
-----------
4,469,805
-----------
Iowa -- 4.6%
Iowa Finance Authority Hospital Facility Revenue Refunding
(Trinity Regional Hospital Project), 7.00%, 7/01/12,
3,350 Pre-Refunded 7/01/02......................................... NR/NR 3,759,035
-----------
Louisiana -- 7.2%
Louisiana Public Facilities Authority Hospital Revenue Refunding
6,000 (Touro Infirmary Project), Series B, 6.125%, 8/15/23......... Baa2/BBB 5,938,560
-----------
Massachusetts -- 8.8%
Massachusetts State Health & Educational Facilities
Authority Revenue (Dana Farber Cancer Project), Series G-1,
1,000 6.25%, 12/01/22.............................................. A1/A 1,038,730
Massachusetts State General Obligation, Series D,
6,500 5.00%, 11/01/14.............................................. A1/A+ 6,181,110
-----------
7,219,840
-----------
- ---------------------------------------------------------------------------------------------------------
See accompanying notes to financial statements.
Page 3
</TABLE>
<PAGE>
MUNICIPAL PARTNERS FUND II INC.
Statement of Investments (continued)
June 30, 1997
<TABLE>
<CAPTION>
Principal
Amount Moody's/S&P Value
(000) Long-Term Investments (continued) Credit Rating (Note 2)
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Missouri -- 3.1%
Missouri State Environmental Improvement & Energy Research
Authority, Pollution Control Revenue Refunding (Associated Electric
$2,500 Coop Thomas Hill), 5.50%, 12/01/10........................... A1/AA $ 2,550,900
-----------
Nebraska -- 4.0%
Nebraska Higher Education Loan Program, Inc., Senior
3,115 Subordinated Bonds, 1993-2 Series A-5A, 6.65%, 6/01/08....... Aa/NR 3,321,587
-----------
Nevada -- 6.6%
Clark County, Nevada Industrial Development Revenue Refunding
3,000 (Nevada Power Project), AMBAC, 7.20%, 10/01/22............... Aaa/AAA 3,350,520
Clark County, Nevada Passenger Facility Revenue (Macarran
1,000 International Airport), MBIA, 5.75%, 7/01/23................. Aaa/AAA 990,680
Nevada Housing Division, Single-Family Program, Series C,
1,100 AMBAC, 6.35%, 10/01/12....................................... Aaa/AAA 1,127,170
-----------
5,468,370
-----------
New Jersey -- 1.3%
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 1,103,730
-----------
New York -- 19.3%
Albany County, New York Airport Authority Airport Revenue,
1,050 FSA, 5.375%, 12/15/17........................................ Aaa/AAA 1,004,178
Metropolitan Transportation Authority, New York (Transit
2,500 Facilities), Series O, MBIA, 6.375%, 7/01/20................. Aaa/AAA 2,681,525
New York State Dormitory Authority Revenue (Department of
1,000 Health), 5.50%, 7/01/25...................................... Baa1/BBB 957,370
New York State Local Government Assistance Corporation Revenue,
1,500 Series A, 6.00%, 4/01/16..................................... A3/A 1,535,415
Port Authority of New York & New Jersey Construction,
4,400 Ninety-Sixth Series, FGIC, 6.60%, 10/01/23................... Aaa/AAA 4,756,576
The City of New York, General Obligation Bonds, Fiscal 1994
405 Series B, Subseries B-1, 7.00%, 8/15/16, Pre-Refunded 8/15/04 NR/BBB+ 464,523
The City of New York, General Obligation Bonds, Fiscal 1994
2,595 Series B, Subseries B-1, 7.00%, 8/15/16...................... Baa1/BBB+ 2,847,337
Triborough Bridge & Tunnel Authority, New York General Purpose
1,670 Revenue, Series Y, 5.50%, 1/01/17............................ Aa/A+ 1,689,990
-----------
15,936,914
-----------
- ---------------------------------------------------------------------------------------------------------
See accompanying notes to financial statements.
Page 4
</TABLE>
<PAGE>
MUNICIPAL PARTNERS FUND II INC.
Statement of Investments (continued)
June 30, 1997
<TABLE>
<CAPTION>
Principal
Amount Moody's/S&P Value
(000) Long-Term Investments (continued) Credit Rating (Note 2)
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Ohio -- 11.3%
Franklin County, Ohio Hospital Revenue (Holy Cross Health
$2,500 Systems Corporation), 5.875%, 6/01/21......................... Aa3/AA $ 2,531,000
Ohio State Water Development Authority Solid Waste Disposal
3,300 Revenue (Broken Hill Proprietary Co., LTD.), 6.45%, 9/01/20... A2/A 3,489,486
The Student Loan Funding Corporation, Cincinnati, Ohio,
3,250 Series 1993B, 6.20%, 8/01/12.................................. A/NR 3,259,555
-----------
9,280,041
-----------
Pennsylvania -- 3.2%
Monroeville, Pennsylvania Hospital Authority Hospital Revenue
2,490 Forbes Health System), 7.00%, 10/01/13........................ A3/BBB+ 2,647,517
-----------
South Carolina -- 3.1%
Greenville, South Carolina Hospital Systems Hospital Facilities
2,500 Revenue, Series B, 5.70%, 5/01/12.............................. Aa3/AA- 2,534,075
-----------
Tennessee -- 2.5%
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- 2,105,435
-----------
Texas -- 9.2%
Austin, Texas Airport System Revenue, Series A, MBIA, 6.20%,
4,500 11/15/15....................................................... Aaa/AAA 4,709,925
Port Corpus Christi Authority Texas Nueces County Pollution
Control Revenue (Hoechst Celanese Corporate Project),
2,665 6.875%, 4/01/17................................................ A2/A+ 2,857,893
-----------
7,567,818
-----------
Utah -- 5.9%
Utah State Housing Finance Agency Single-Family Mortgage,
4,760 Issue H-2, 6.25%, 7/01/22...................................... Aaa/AAA 4,870,337
-----------
- ---------------------------------------------------------------------------------------------------------
See accompanying notes to financial statements.
Page 5
</TABLE>
<PAGE>
MUNICIPAL PARTNERS FUND II INC.
Statement of Investments (continued)
June 30, 1997
<TABLE>
<CAPTION>
Principal
Amount Moody's/S&P Value
(000) Long-Term Investments (concluded) Credit Rating (Note 2)
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Virginia -- 7.4%
Chesapeake Bay Bridge & Tunnel Commission, Virginia District
$1,850 General Resolution Revenue Refunding, MBIA, 5.00%, 7/01/22....... Aaa/AAA $ 1,708,605
Fairfax County, Virginia Economic Development Authority Lease
2,000 Revenue (Government Center Properties), 5.50%, 5/15/18........... Aa2/AA 1,968,160
Virginia State Housing Development Authority, Commonwealth
1,015 Mortgage, Subseries A-4, MBIA, 6.20%, 7/01/12.................... Aaa/AAA 1,049,022
Virginia State Housing Development Authority, Commonwealth
1,300 Mortgage, Subseries I-1, 6.55%, 7/01/17.......................... Aa1/AA+ 1,342,691
-----------
6,068,478
-----------
West Virginia -- 2.1%
West Virginia State Water Development Authority, Loan Program II,
1,555 Series A, 7.00%, 11/01/31, Pre-Refunded 11/01/01................. NR/A- 1,736,033
-----------
Wisconsin -- 3.1%
Wisconsin Housing & Economic Development Authority Revenue
2,485 Refunding (Home Ownership), Series G, 6.30%, 9/01/17............. Aa2/AA 2,540,888
-----------
Wyoming -- 2.5%
Wyoming Community Development Authority Housing Revenue,
2,000 Series 1, 6.10%, 12/01/14........................................ Aa2/AA 2,044,660
-----------
Total Long-Term Investments (cost $118,898,271).............................. 124,944,792
-----------
Short-Term Investments - 0.3%
- ---------------------------------------------------------------------------------------------------------
Florida -- 0.2%
Putnam County, Florida Development Authority Pollution Control
Revenue (Florida Power & Light Company Project), VR, 3.90%,
180 7/01/97.......................................................... VMIG-1/A-1+ 180,000
-----------
- ---------------------------------------------------------------------------------------------------------
See accompanying notes to financial statements.
Page 6
</TABLE>
<PAGE>
MUNICIPAL PARTNERS FUND II INC.
Statement of Investments (concluded)
June 30, 1997
<TABLE>
<CAPTION>
Principal
Amount Moody's/S&P Value
(000) Short-Term Investments (concluded) Credit Rating (Note 2)
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Texas -- 0.1%
Gulf Coast, Texas Waste Disposal Authority Revenue Refunding
$ 100 (Amoco Oil Company Project), VR, 4.30%, 7/01/97............... VMIG-1/A-1+ $ 100,000
------------
Total Short-Term Investments (cost $280,000).................................. 280,000
------------
Total Investments - 152.1% (cost $119,178,271)................................ 125,224,792
------------
Other Assets in Excess of Liabilities - 2.6%................................... 2,092,297
------------
Total Net Assets - 154.7%...................................................... 127,317,089
------------
Par value of 900 shares of preferred stock at $50,000 per share
(Note 5) - (54.7%)............................................................. (45,000,000)
------------
Net Assets Applicable to Common Stock - 100%
(equivalent to $13.70 per share on 6,007,094 common shares outstanding)........ $ 82,317,089
------------
- ---------------------------------------------------------------------------------------------------------
<FN>
The following abbreviations are used in portfolio descriptions:
AMBAC - Insured as to principal and interest by the AMBAC Indemnity Corporation.
FGIC - Insured as to principal and interest by the Financial Guaranty Insurance
Company.
FSA - Insured as to principal and interest by the Financial Security
Assurance Corporation.
MBIA - Insured as to principal and interest by the Municipal Bond Investors
Assurance Corporation.
NR - Not rated by Moody's or S&P as indicated.
VMIG - Variable Moody Investment Grade.
VR - Variable Rate Demand Note. Date shown is date of next interest rate
change and coupon rate is the rate in effect on June 30, 1997.
- ---------------------------------------------------------------------------------------------------------
See accompanying notes to financial statements.
Page 7
</TABLE>
<PAGE>
MUNICIPAL PARTNERS FUND II INC.
Statement of Assets and Liabilities
June 30, 1997
<TABLE>
<S> <C>
Assets
Investments, at value (cost - $119,178,271)............................................. $125,224,792
Cash.................................................................................... 83,255
Interest receivable..................................................................... 2,114,154
Unamortized organization expenses (Note 2).............................................. 20,244
Prepaid expenses........................................................................ 36,860
------------
Total assets................................................................ 127,479,305
------------
Liabilities
Accrued management fee (Note 3)......................................................... 62,804
Accrued audit and tax return preparation fees........................................... 55,029
Accrued legal fee....................................................................... 20,000
Accrued printing and mailing fees....................................................... 9,000
Accrued custodian expense............................................................... 5,218
Accrued shareholder annual meeting expense.............................................. 3,216
Accrued transfer agent expense.......................................................... 3,100
Other accrued expenses.................................................................. 3,849
------------
Total liabilities........................................................... 162,216
------------
Net Assets
Preferred Stock (Note 5)................................................................ 45,000,000
------------
Common Stock ($.001 par value, 100,000,000 shares authorized; 6,007,094 shares outstanding) 6,007
Additional paid-in capital.............................................................. 83,244,145
Undistributed net investment income..................................................... 643,745
Accumulated realized loss on investments................................................ (7,623,329)
Net unrealized appreciation on investments.............................................. 6,046,521
------------
Net assets applicable to common stock....................................... 82,317,089
------------
Total net assets............................................................ $127,317,089
------------
Net asset value per share of common stock
($82,317,089 / 6,007,094 shares)...................................................... $13.70
------
- ---------------------------------------------------------------------------------------------------------
See accompanying notes to financial statements.
Page 8
</TABLE>
<PAGE>
MUNICIPAL PARTNERS FUND II INC.
Statement of Operations
For the Year Ended June 30, 1997
<TABLE>
Investment Income
<S> <C> <C>
Income
Interest (reduced by net premium amortization of $5,067)................................. $ 7,471,040
Operating Expenses
Management fee (Note 3)................................................... $750,006
Auction agent fee......................................................... 122,574
Audit and tax services.................................................... 72,500
Legal..................................................................... 42,143
Printing.................................................................. 30,729
Directors' fees and expenses (Note 3)..................................... 25,868
Custodian................................................................. 25,127
Amortization of deferred organization expenses (Note 2)................... 18,753
Listing fee............................................................... 16,169
Transfer agent............................................................ 15,920
Other..................................................................... 18,795
--------
Total operating expenses.......................................................... 1,138,584
-----------
Net investment income................................................................... 6,332,456
-----------
Net Realized and Unrealized Gain
Net realized gain on investments........................................................ 61,017
Change in net unrealized appreciation on investments.................................... 4,445,059
-----------
Net realized gain and change in net unrealized appreciation on investments.............. 4,506,076
-----------
Net Increase in Net Assets from Operations.............................................. $10,838,532
-----------
- ----------------------------------------------------------------------------------------------------------------
See accompanying notes to financial statements.
Page 9
</TABLE>
<PAGE>
MUNICIPAL PARTNERS FUND II INC.
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
For the For the
Year Ended Year Ended
June 30, June 30,
1997 1996
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Operations
Net investment income ............................................... $ 6,332,456 $ 6,341,298
Net realized gain (loss) on investments.............................. 61,017 (1,711,549)
Change in net unrealized appreciation (depreciation) on investments.. 4,445,059 3,438,632
------------ ------------
Net increase in net assets from operations........................... 10,838,532 8,068,381
------------ ------------
Dividends
To common shareholders from net investment income.................... (4,484,296) (4,253,022)
To preferred shareholders from net investment income................. (1,665,445) (1,728,252)
------------ ------------
(6,149,741) (5,981,274)
------------ ------------
Total increase in net assets......................................... 4,688,791 2,087,107
Net Assets
Beginning of year.................................................... 122,628,298 120,541,191
------------ ------------
End of year (includes undistributed net investment income of $643,745
and $461,030, respectively)..................................... $127,317,089 $122,628,298
------------ ------------
- -------------------------------------------------------------------------------------------------------------
See accompanying notes to financial statements.
Page 10
</TABLE>
<PAGE>
MUNICIPAL PARTNERS FUND II INC.
Statement of Cash Flows
For the Year Ended June 30, 1997
<TABLE>
<S> <C>
Cash Flows from Operating Activities:
Proceeds from sales of portfolio securities............................................. $ 9,091,580
Purchases of portfolio securities....................................................... (15,698,004)
Net sales of short-term securities...................................................... 6,570,000
------------
(36,424)
Net investment income .................................................................. 6,332,456
Amortization of net premium on investments.............................................. 5,067
Amortization of organization expenses................................................... 18,753
Net change in receivables/payables related to operations................................ (167,674)
------------
Net cash provided by operating activities........................................... 6,152,178
------------
Cash Flows used by Financing Activities:
Common stock dividends paid............................................................. (4,484,296)
Preferred stock dividends paid.......................................................... (1,665,445)
------------
Net cash used by financing activities............................................... (6,149,741)
------------
Net increase in cash......................................................................... 2,437
Cash at beginning of year.................................................................... 80,818
------------
Cash at end of year.......................................................................... $ 83,255
------------
- ---------------------------------------------------------------------------------------------------------------------
See accompanying notes to financial statements.
Page 11
</TABLE>
<PAGE>
MUNICIPAL PARTNERS FUND II INC.
Notes to Financial Statements
Note 1. Organization
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 commenced
operations on July 30, 1993. The Fund's primary investment objective is to seek
a high level of current income which is exempt from regular federal income
taxes, consistent with the preservation of capital. As a secondary investment
objective, the Fund intends to enhance portfolio value by purchasing tax exempt
securities that, in the opinion of Salomon Brothers Asset Management Inc (the
"Investment Adviser"), may appreciate in value relative to other similar
obligations in the marketplace.
Note 2. Significant Accounting Policies
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. The
policies are in conformity with generally accepted accounting principles
("GAAP"). The preparation of financial statements in accordance with GAAP
requires management to make estimates and assumptions that 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. Securities
for which reliable quotations are not readily available are valued at fair value
as determined in good faith by, or under procedures established by, the Board of
Directors.
SECURITIES TRANSACTIONS AND INVESTMENT INCOME. Securities transactions are
recorded on the trade date. Realized gains and losses on sales of securities are
calculated on the identified cost basis. Interest income is accrued on a daily
basis. The Fund amortizes premiums and accretes discounts on securities
purchased using the effective interest method.
FEDERAL INCOME TAXES. The Fund has complied and intends to continue to comply
with the requirements of the Internal Revenue Code of 1986, as amended,
applicable to regulated investment companies, and to distribute all of its
income and capital gains, if any, to its shareholders. Therefore, no federal
income tax or excise tax provision is required.
Page 12
<PAGE>
MUNICIPAL PARTNERS FUND II INC.
Notes to Financial Statements (continued)
DIVIDENDS AND DISTRIBUTIONS. The Fund declares and pays dividends and
distributions to common shareholders monthly from net investment income, net
realized short-term capital gains and other sources, if necessary. Long-term
capital gains, if any, in excess of loss carryovers (See Note 4) are expected to
be distributed annually. Dividends and distributions to common shareholders are
recorded on the ex-dividend date. Dividends and distributions to preferred
shareholders are accrued on a weekly basis and are determined as described in
Note 5. The amounts 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 & Co., Inc. ("Oppenheimer"),
pursuant to which the Investment Manager, among other things, supervises the
Fund's investment and monitors the performance of the Fund's service providers.
The Investment Manager and the Fund entered into an investment advisory and
administration agreement with the Investment Adviser, an affiliate of Salomon
Brothers Inc, pursuant to which the Investment Adviser provides investment
advisory and administrative services to the Fund. The Investment Adviser is
responsible for the management of the Fund's portfolio in accordance with the
Fund's investment objectives and policies and for making decisions to buy, sell,
or hold particular securities and is responsible for day-to-day administration
of the Fund.
The Fund pays the Investment Manager a monthly fee at an annual rate of .60% of
the Fund's average weekly net assets for its services, and the Investment
Manager pays the Investment Adviser a monthly fee at an annual rate of .36% of
the Fund's average weekly net assets for its services. For purposes of
calculating the fees, the liquidation value of any outstanding preferred stock
of the Fund is not deducted in determining the Fund's average weekly net assets.
Certain officers and/or directors of the Fund are also officers and/or directors
of the Investment Manager or the Investment Adviser.
Page 13
<PAGE>
MUNICIPAL PARTNERS FUND II INC.
Notes to Financial Statements (continued)
At June 30, 1997, Oppenheimer and the Investment Adviser owned 3,547 and 4,161
shares of the Fund, respectively.
The Fund pays each Director not affiliated with the Investment Manager or the
Investment Adviser a fee of $5,000 per year, $700 for attendance at each board
and audit committee meeting and reimbursement for travel and out-of-pocket
expenses for each board and committee meeting attended.
Oppenheimer Group, Inc., the ultimate parent company of the Investment Manager,
has entered into an agreement with PIMCO Advisors, L.P. and its affiliates
which, if consummated, would have the effect of transferring the Investment
Manager's responsibilities under the investment management and the investment
advisory and administration agreements for the Fund to a new entity under the
control of PIMCO Advisors. In that connection, the Board of Directors of the
Fund has approved, subject to the vote of the Fund's shareholders, new
investment management and investment advisory and administration agreements for
the Fund. The agreements are substantially similar to the existing agreements
and would take effect upon shareholder approval and the closing of the proposed
transaction. The closing of the transaction is also subject to certain
additional closing conditions.
Note 4. Portfolio Activity
Purchases and sales of investment securities, other than short-term investments
for the year ended June 30, 1997, aggregated $9,040,937 and $9,091,580,
respectively. At June 30, 1997, the Fund had a net capital loss carryover of
approximately $7,623,000, of which $29,000 will be available through June 30,
2002, $3,703,000 will be available through June 30, 2003, $3,081,000 will be
available through June 30, 2004 and $810,000 will be available through June 30,
2005 to offset future capital gains to the extent provided by federal income tax
regulations.
The federal income tax cost basis of the Fund's investments at June 30, 1997 was
substantially the same as the cost basis for financial reporting. Gross
unrealized appreciation and depreciation amounted to $6,093,181 and $46,660,
respectively, resulting in net unrealized appreciation for federal income tax
purposes of $6,046,521.
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. 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 14
<PAGE>
MUNICIPAL PARTNERS FUND II INC.
Notes to Financial Statements (concluded)
Dividend rates generally reset every 28 days and are determined by auction
procedures. The dividend rates on the Preferred Shares during the year ended
June 30, 1997 ranged from 3.589% to 3.85%. The weighted average dividend rate
for the year ended June 30, 1997 was 3.65%. The Board of Directors designated
the dividend period commencing June 10, 1997 as a Special Rate Period. Pursuant
to this Special Rate Period, the dividend rate set by the auction held on June
9, 1997 remains in effect through September 8, 1997 when the regular auction
procedure resumes, subject to the Fund's ability to designate any subsequent
dividend period as a Special Rate Period. The dividend rate for this Special
Rate Period is 3.85%.
The Fund is subject to certain restrictions relating to the Preferred Shares.
The Fund may not declare dividends or make other distributions on shares of
common stock or purchase any such shares if, at the time of the declaration,
distribution or purchase, asset coverage with respect to the outstanding
Preferred Shares would be less than 200%. The Preferred Shares are also subject
to mandatory redemption at $50,000 per share plus any accumulated or unpaid
dividends, whether or not declared, if certain requirements relating to the
composition of the assets and liabilities of the Fund as set forth in its
Articles Supplementary are not satisfied.
The Preferred Shares, which are entitled to one vote per share, generally vote
with the common shares but vote separately as a class to elect two directors
and on certain matters affecting the rights of the Preferred Shares.
Note 6. Concentration of Credit Risk
Since the Fund invests a portion of its assets in issuers located in a single
state, it may be affected by economic and political developments in a specific
state or region. Certain debt obligations held by the Fund are entitled to the
benefit of insurance, standby letters of credit or other guarantees of banks or
other financial institutions.
Note 7. Common Stock Dividends Subsequent to June 30, 1997
On July 1 and August 1, 1997, the Board of Directors of the Fund declared a
common share dividend from net investment income, each in the amount of $.0625
per share, payable on July 31 and August 29, 1997 to shareholders of record on
July 15 and August 12, 1997, respectively.
Page 15
<PAGE>
MUNICIPAL PARTNERS FUND II INC.
Financial Highlights
Data for a share of common stock outstanding throughout each period:
<TABLE>
<CAPTION>
For the For the For the For the
Year Ended Year Ended Year Ended Period Ended
June 30, June 30, June 30, June 30,
1997 1996 1995 1994(a)
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value, beginning of period......... $ 12.92 $ 12.58 $ 12.02 $ 14.10
------- ------- ------- -------
Net investment income........................ 1.05 1.05 1.07 .89
Net realized gain (loss) and change in net
unrealized appreciation (depreciation) on
investments............................... .75 .29 .57 (1.87)
------- ------- ------- -------
Total from investment operations............. 1.80 1.34 1.64 (.98)
------- ------- ------- -------
Less distributions
Dividends to common shareholders from net
investment income....................... (.74) (.71) (.79) (.69)
Dividends to preferred shareholders from net
investment income....................... (.28) (.29) (.29) (.17)
------- ------- ------- -------
Total distributions.......................... (1.02) (1.00) (1.08) (.86)
------- ------- ------- -------
Offering costs on issuance of common and
preferred shares.......................... -- -- -- (.24)
------- ------- ------- -------
Net asset value, end of period............... $ 13.70 $ 12.92 $ 12.58 $ 12.02
------- ------- ------- -------
Per share market value, end of period........ $12.375 $ 10.75 $ 10.75 $ 11.25
Total investment return based on market price
per share(c).............................. 22.80% 6.62% 2.97% (15.92%)(b)
Ratios to average net assets of common
shareholders(d):
Operating expenses........................ 1.42% 1.44% 1.50% 1.45%(e)
Net investment income before preferred stock
dividends............................... 7.90% 8.09% 8.99% 7.22%(e)
Preferred stock dividends................. 2.08% 2.20% 2.48% 1.67%(e)
Net investment income available to common
shareholders............................ 5.82% 5.89% 6.51% 5.55%(e)
Net assets of common shareholders, end of
period (000)............................ $82,317 $77,628 $75,541 $72,222
Preferred stock outstanding, end of
period (000)............................ $45,000 $45,000 $45,000 $45,000
Portfolio turnover rate................... 7% 55% 24% 50%
<FN>
- -----------------------------------------------------------------------------------------------------------
(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. This calculation is not annualized.
(c) For purposes of this calculation, dividends on common shares are assumed
to be reinvested at prices obtained under the Fund's dividend reinvestment
plan and the broker commission paid to purchase or sell a share is excluded.
(d) Ratios calculated on the basis of income, expenses and preferred stock
dividends relative to the average net assets of common shares.
(e) Annualized.
- -----------------------------------------------------------------------------------------------------------
See accompanying notes to financial statements.
Page 16
</TABLE>
<PAGE>
MUNICIPAL PARTNERS FUND II INC.
Report of Independent Accountants
To the Board of Directors and Shareholders of
Municipal Partners Fund II Inc.
In our opinion, the accompanying statement of assets and liabilities, including
the statement of investments, and the related statements of operations, of
changes in net assets and of cash flows and the financial highlights present
fairly, in all material respects, the financial position of Municipal Partners
Fund II Inc. (the "Fund") at June 30, 1997, 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 three years in the period then ended and for the period July 30, 1993
(commencement of investment operations) through June 30, 1994, 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 June 30, 1997 by
correspondence with the custodian, provide a reasonable basis for the opinion
expressed above.
PRICE WATERHOUSE LLP
New York, New York
August 8, 1997
Page 17
<PAGE>
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>
September 30, 1995........................................... $1,578 $.26 $1,249 $.21
December 31, 1995............................................ 1,610 .27 5,586 .93
March 31, 1996............................................... 1,586 .26 (4,519) (.76)
June 30, 1996................................................ 1,567 .26 (589) (.09)
September 30, 1996........................................... 1,577 .26 1,810 .30
December 31, 1996............................................ 1,575 .26 1,649 .28
March 31, 1997............................................... 1,591 .27 (1,971) (.33)
June 30, 1997................................................ 1,589 .26 3,018 .50
<FN>
- -----------------------------------------------------------------------------------------------------------
*Totals expressed in thousands of dollars except per share amounts.
See accompanying notes to financial statements.
Page 18
</TABLE>
<PAGE>
MUNICIPAL PARTNERS FUND II INC.
Other Information
Pursuant to certain rules of the Securities and Exchange Commission, the
following additional disclosure is provided.
Pursuant to the Fund's Dividend Reinvestment Plan (the "Plan"), holders of
Common Stock whose shares of Common Stock are registered in their own names will
be deemed to have elected to have all distributions automatically reinvested by
State Street Bank and Trust Company (the "Plan Agent") in Fund shares pursuant
to the Plan, unless they elect to receive distributions in cash. Holders of
Common Stock who elect to receive distributions in cash will receive all
distributions in cash by check in dollars mailed directly to the holder by the
Plan Agent as dividend-paying agent. Holders of Common Stock who do not wish to
have distributions automatically reinvested should notify the Plan Agent at the
address below. Distributions with respect to Common Stock registered in the name
of a bank, broker-dealer or other nominee (i.e., in "street name") will be
reinvested under the Plan unless the service is not provided by the bank,
broker-dealer or other nominee or the holder elects to receive dividends and
distributions in cash. Investors who own shares registered in the name of a
bank, broker-dealer or other nominee should consult with such nominee as to
participation in the Plan through such nominee, and may be required to have
their shares registered in their own names in order to participate in the Plan.
The Plan Agent serves as agent for the holders of Common Stock in administering
the Plan. After the Fund declares a dividend on the Common Stock or determines
to make a capital gain distribution, the Plan Agent will, as agent for the
participants, receive the cash payment and use it to buy the Fund's Common Stock
in the open market, on the New York Stock Exchange or elsewhere, for the
participants' accounts. The Fund will not issue any new shares of Common Stock
in connection with the Plan.
Participants have the option of making additional cash payments to the Plan
Agent, monthly, in a minimum amount of $250, for investment in the Fund's
Common Stock. The Plan Agent will use all such funds received from participants
to purchase shares of Common Stock in the open market on or about the first
business day of each month. To avoid unnecessary cash accumulations, and also
to allow ample time for receipt and processing by the Plan Agent, it is
suggested that participants send in voluntary cash payments to be received by
the Plan Agent approximately ten days before an applicable purchase date
specified above. A participant may withdraw a voluntary cash payment by written
notice, if the notice is received by the Plan Agent not less than 48 hours
before such payment is to be invested.
The Plan Agent maintains all shareholder accounts in the Plan and furnishes
written confirmations of all transactions in an account, including information
needed by shareholders for personal and tax records. Shares of Common Stock in
the account of each Plan participant will be held by the Plan Agent in the name
of the participant, and each shareholder's proxy will include those shares
purchased pursuant to the Plan.
In the case of holders of Common Stock, such as banks, broker-dealers or other
nominees, who hold shares for others who are beneficial owners, the Plan Agent
will administer the Plan on the basis of the number of shares of Common Stock
certified from time to time by the holders as representing the total amount
registered in such holders' names and held for the account of beneficial owners
that have not elected to receive distributions in cash.
Page 19
<PAGE>
MUNICIPAL PARTNERS FUND II INC.
Other Information (concluded)
There is no charge to participants for reinvesting dividends or capital gains
distributions or voluntary cash payments. The Plan Agent's fees for the
reinvestment of dividends and capital gains distributions and voluntary cash
payments will be paid by the Fund. However, each participant will pay a pro
rata share of brokerage commissions incurred with respect to the Plan Agent's
open market purchases in connection with the reinvestment of dividends and
distributions and voluntary cash payments made by the participant. The receipt
of dividends and distributions under the Plan will not relieve participants of
any income tax which may be payable on such dividends or distributions.
Participants may terminate their accounts under the Plan by notifying the Plan
Agent in writing. Such termination will be effective immediately if notice in
writing is received by the Plan Agent not less than ten days prior to any
dividend or distribution record date. Upon termination, the Plan Agent will send
the participant a certificate for the full shares held in the account and a cash
adjustment for any fractional shares or, upon written instruction from the
participant, the Plan Agent will sell part or all of the participant's shares
and remit the proceeds to the participant, less a $2.50 fee plus brokerage
commission for the transaction.
Experience under the Plan may indicate that changes in the Plan are desirable.
Accordingly, the Fund and the Plan Agent reserve the right to terminate the Plan
as applied to any voluntary cash payments made and any dividend or distribution
paid subsequent to notice of the termination sent to all participants in the
Plan at least 30 days before the record date for the dividend or distribution.
The Plan also may be amended by the Fund or the Plan Agent upon at least 30
days' written notice to participants in the Plan.
All correspondence concerning the Plan should be directed to the Plan Agent,
P.O. Box 8209, Boston, Massachusetts 02266-8209.
1997 Federal Tax Notice
During the year ended June 30, 1997, the Fund paid to shareholders $6,149,741
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 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.
RIORDAN ROETT
Professor and Director, Latin American
Studies Program, Paul H. Nitze
School of Advanced International Studies,
Johns Hopkins University
MICHAEL S. HYLAND
President;
Managing Director,
Salomon Brothers Inc
President, Salomon Brothers
Asset Management Inc
ROBERT L. ROSEN
General Partner,
R.L.R. Partners
Officers
MARK C. BIDERMAN
Chairman of the Board
MICHAEL S. HYLAND
President
MARYBETH WHYTE
Executive Vice President
LAWRENCE H. KAPLAN
Executive Vice President
and General Counsel
ALAN M. MANDEL
Treasurer
LAURIE A. PITTI
Assistant Treasurer
NOEL B. DAUGHERTY
Secretary
JENNIFER G. MUZZEY
Assistant Secretary
ROBERT I. KLEINBERG
Assistant Secretary
Municipal Partners Fund 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
INDEPENDENT ACCOUNTANTS
Price Waterhouse LLP
1177 Avenue of the Americas
New York, New York 10036
LEGAL COUNSEL
Simpson Thacher & Bartlett
425 Lexington Avenue
New York, New York 10017
NEW YORK STOCK EXCHANGE SYMBOL
MPT
<PAGE>
State Street Bank and Trust Company
P.O. Box 8200
Boston, Massachusetts 02266-8200
Municipal Partners
Fund II Inc.
Annual Report
JUNE 30, 1997
BULK RATE
U.S. POSTAGE
PAID
S. HACKENSACK, NJ
PERMIT No. 750
