-----------------------------------
Municipal Partners
Fund II Inc.
Annual Report
JUNE 30, 2000
<PAGE>
M U N I C I P A L P A R T N E R S F U N D I I I N C .
Dear Shareholders:
We are pleased to provide this annual report for the Municipal Partners Fund II
Inc. ("Fund") as of June 30, 2000. Included are market commentary, a schedule of
the Fund's investments as of June 30, 2000 and financial statements for the year
ended June 30, 2000.1 The Fund distributed income dividends to common
shareholders totaling $0.75 per common share during the period. The table below
shows the annualized distribution rate and the twelve-month total return based
on the Fund's June 30, 2000 net asset value ("NAV") per common share and its New
York Stock Exchange ("NYSE") closing price:2
Price Annualized Twelve-Month
Per Share Distribution Rate3 Total Return3
--------- ------------------ -------------
$13.09 (NAV) 5.73% 1.14%
$11.5625 (NYSE) 6.49% 0.26%
MARKET REVIEW
During the past six months in the municipal bond market, we have seen a
precipitous drop in the amount of supply that has come to the market. Overall,
supply is down about 30% as of June 30, 2000. This decline in supply is due
primarily to the drop in refunding activity (refunding refers to replacing
existing bond issues through the sale of new bond issues, usually to lower the
interest rate being paid). With the rise in interest rates over the past year
and a half in the municipal bond sector, it has been increasingly difficult for
issuers to get a present value savings great enough to warrant replacing
existing debt with new debt. In fact, at the end of June, refunding activity was
down 70% year-to-date, while new project funding was virtually unchanged.
We do not expect refunding activity to pick up in the near term as we think
current levels of interest rates would not allow for a rally of refund activity.
In terms of overall supply, we estimate that $175 billion should come to the
market in 2000.
In terms of demand, there are three primary investors in the municipal market:
the retail investor, the institutional investor (mainly property and casualty
insurance companies) and the mutual fund industry. Mutual funds have been
experiencing negative cash flows for quite some time; however, over the past
-----------------
1 The information provided represents the opinion of the manager and is not to
be a forecast of future results. Further, there is no assurance that certain
securities will remain in or out of the portfolio.
2 The NAV is calculated by subtracting total liabilities and outstanding
preferred stock from the closing value of all securities held by the Fund
(plus all other assets) and dividing the result (net assets of common
shareholders) by the total number of common shares outstanding. The NAV
fluctuates with changes in the market prices of securities in which the Fund
has invested. However, the price at which the investor may buy or sell shares
of the Fund is its market price (NYSE) as determined by supply and demand.
3 Total returns are based on changes in NAV or the market price, respectively.
Total returns assume the reinvestment of all dividends and/or capital gains
distributions in additional shares. The annualized distribution rate is the
Fund's current monthly income dividend rate, annualized, and then divided by
the NAV or the market price noted in the report. This annualized distribution
rate assumes a current monthly income dividend rate to common shareholders of
$0.0625 for twelve months. This rate is as of July 31, 2000 and is subject to
change. The important difference between a total return and an annualized
distribution rate is that the total return takes into consideration a number
of factors including the fluctuation of the NAV or the market price during the
period reported. The NAV fluctuation includes the effects of unrealized
appreciation or depreciation in the Fund. Accordingly, since an annualized
distribution rate only reflects the current monthly income dividend rate
annualized, it should not be used as the sole indicator to judge the return
you receive from your fund investment. Past performance is not indicative of
future results.
<PAGE>
M U N I C I P A L P A R T N E R S F U N D I I I N C .
month or so, we have seen those cash outflows moderate to some extent. Property
and casualty insurance companies have begun to reallocate some assets toward
municipal securities after experiencing a challenging past year. We view this
trend as positive for overall demand. Retail investors, noticeably absent during
1998, drove demand in the municipal sector during 1999, and we believe will
continue to do so as long as interest rates remain stable.
INVESTMENT STRATEGY
Our philosophy of focusing on long-term fundamentals, rigorous credit analysis
and sector selection remains the foundation for how we manage the Fund. Our
investment strategy is somewhat neutral based on recent volatility in the
municipal market. During the first quarter of 2000, we saw strong demand for
municipals and resulting lower interest rates. Performance was relatively
strong, outpacing most other fixed income asset classes. Through April and May,
however, the sector experienced some difficulties which began to turn around yet
again in June. We believe these wild fluctuations in interest rates warranted
our neutral stance.
We plan to remain neutral to our benchmark in anticipation of the "July Effect."
January and July correspond to the fiscal year-end in many municipalities,
freeing funds for reinvestment. Typically, this excess cash is derived from
coupon payments, maturities, redemptions, calls, etc. A concern is that these
assets may be reallocated to other sectors, specifically, the equity markets.
However, in our view, this newly available cash will likely be reinvested into
the municipal market as turbulence in the stock market has caused investor
concerns to rise. This effect should bode well for the technical aspect of
municipals. With demand outpacing supply and ample cash sitting on the
sidelines, we expect municipal securities to fare favorably in the coming
months.
We remain invested in higher quality securities due to narrow credit spreads.
With the reduction in municipals supply, credit spreads have narrowed as more
investor dollars chase yield.
As of June 30, 2000, the Fund's long-term holdings consisted of 55 issues
throughout 23 states. Moreover, the credit quality of the portfolio remains high
with an average credit quality of AA according to either Standard & Poor's
Ratings Service ("S&P") or Moody's Investors Service, Inc. ("Moody's") (S&P and
Moody's are two major credit reporting and bond rating agencies.) The Fund had
an average effective maturity of 14.7 years and an average leveraged duration of
13.3 years. The portfolio is well-diversified with the greatest industry sector
weightings in transportation, housing and industrial development.
MARKET OUTLOOK
We expect the domestic economy to pull back from the torrid pace of the first
half of the year; however, our optimism is not without some trepidation. We
remain concerned about inflation levels and rising commodity prices. While we
have seen economic data indicating a moderating economy, we also note that
inflation is not declining as quickly as the economic data shows.
<PAGE>
M U N I C I P A L P A R T N E R S F U N D I I I N C .
Overall, we think the U.S. economy should remain stable this year as low
unemployment and strong consumer confidence will likely support demand for
goods. Furthermore, we believe the Federal Reserve Board ("Fed") will engineer a
good balance between strong economic growth and an "acceptable" rate of
inflation.
All of us at Salomon Brothers Asset Management Inc appreciate the confidence you
have demonstrated in the past and hope to continue to serve you in future years.
Cordially,
/s/ William D. Cvengros /s/ Heath B. McLendon
William D. Cvengros Heath B. McLendon
Co-Chairman of the Board Co-Chairman of the Board
/s/ Robert E. Amodeo
Robert E. Amodeo
Executive Vice President
July 10, 2000
<PAGE>
M U N I C I P A L P A R T N E R S F U N D I I I N C .
Schedule of Investments
June 30, 2000
<TABLE>
<CAPTION>
Face
Amount Rating(a) Security Value
------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Long-Term Investments -- 98.9%
California -- 8.7%
$3,000,000 AA- California State Housing Finance Agency Home Mortgage Revenue,
Series H, 6.150% due 8/1/16 ............................................. $ 3,016,860
California State Public Works Board, Lease Revenue Refunding Bonds:
2,175,000 Aaa* Department of Corrections, Series A, 6.875% due 11/1/14,
Pre-Refunded 11/1/04 .................................................. 2,427,191
2,900,000 Aaa* Various University of California Projects, 1993 Series A,
7.000% due 3/1/14, Pre-Refunded 3/1/04 ................................ 3,208,386
2,000,000 AA Sacramento County, CA Sanitation District Financing Authority Revenue,
Series A, 5.875% due 12/1/27 ............................................ 2,006,980
------------
10,659,417
------------
District of Columbia -- 1.6%
2,000,000 AAA District of Columbia Revenue (American University), AMBAC-Insured,
5.625% due 10/1/26 ...................................................... 1,934,600
------------
Georgia -- 0.1%
130,000 AAA Fulton County, GA Housing Authority Single-Family Mortgage,
6.600% due 3/1/28 ....................................................... 134,150
------------
Hawaii -- 0.8%
1,000,000 A Hawaii State Department of Budget & Finance Special Purpose Revenue,
6.000% due 7/1/11 ....................................................... 999,200
------------
Illinois -- 15.2%
6,050,000 AAA Chicago Heights, IL GO, Series A, FGIC-Insured, 5.650% due 12/1/16 ........ 6,082,670
Chicago, IL Board of Education (Chicago School Reform):
1,000,000 AAA AMBAC-Insured, 5.750% due 12/1/27 ....................................... 980,480
4,255,000 AAA MBIA-Insured, 6.000% due 12/1/16 ........................................ 4,385,075
1,750,000 AAA Chicago, IL Midway Airport Revenue, Series B, MBIA-Insured,
5.625% due 1/1/29 ....................................................... 1,649,550
250,000 AAA Cook County, IL Refunding GO, Series A, MBIA-Insured,
5.625% due 11/15/16 ..................................................... 251,338
Illinois Health Facilities Authority Revenue:
1,850,000 AAA Refunding (SSM Health Care), MBIA-Insured, 6.550% due 6/1/13 ............ 2,045,952
2,000,000 AAA Servantcor Project, Series A, FSA-Insured, 6.000%,
Escrowed to Maturity 8/15/12 .......................................... 2,144,600
South Suburban Hospital Project:
395,000 A 7.000% due 2/15/18, Pre-Refunded 2/15/02 .............................. 415,903
605,000 A 7.000% Escrowed to Maturity 2/15/18 ................................... 686,052
------------
18,641,620
------------
</TABLE>
--------------------------------------------------------------------------------
See Notes to Financial Statements.
Page 4
<PAGE>
M U N I C I P A L P A R T N E R S F U N D I I I N C .
Schedule of Investments (continued)
June 30, 2000
<TABLE>
<CAPTION>
Face
Amount Rating(a) Security Value
------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Indiana -- 1.5%
$2,000,000 AA Indiana Transportation Finance Authority Airport Facilities Lease
Revenue, Series A, 5.500% due 11/1/17 ................................... $ 1,895,020
------------
Iowa -- 2.9%
3,350,000 NR Iowa Finance Authority Hospital Facility Revenue Refunding (Trinity
Regional Hospital Project), 7.000% due 7/1/12, Pre-Refunded 7/1/02 ...... 3,544,769
------------
Louisiana -- 4.4%
6,000,000 BBB+ Louisiana Public Facilities Authority Hospital Revenue Refunding
(Touro Infirmary Project), Series B, 6.125% due 8/15/23 ................. 5,427,540
------------
Massachusetts -- 5.4%
1,000,000 A Massachusetts State Health & Educational Facilities Authority Revenue
(Dana Farber Cancer Project), Series G-1, 6.250% due 12/1/22 ............ 971,790
3,500,000 AAA Massachusetts State Turnpike Authority Highway Systems Revenue,
Series A, MBIA-Insured, 5.000% due 1/1/37 ............................... 3,020,745
2,650,000 AA Massachusetts State Water Pollution Abatement, Series A,
5.750% due 8/1/29 ....................................................... 2,616,663
------------
6,609,198
------------
Missouri -- 2.1%
2,500,000 AA Missouri State Environmental Improvement & Energy Research
Authority PCR Refunding (Associated Electric Coop Thomas Hill),
5.500% due 12/1/10 ...................................................... 2,571,100
------------
Nevada -- 4.1%
3,000,000 AAA Clark County, NV IDR Refunding (Nevada Power Project),
AMBAC-Insured, 7.200% due 10/1/22 ....................................... 3,190,020
1,000,000 AAA Clark County, NV Passenger Facility Revenue (McCarran International
Airport), MBIA-Insured, 5.750% due 7/1/23 ............................... 970,240
915,000 AAA Nevada Housing Division, Single-Family Program, Series C,
AMBAC-Insured, 6.350% due 10/1/12 ....................................... 923,876
------------
5,084,136
------------
New Jersey -- 0.9%
1,000,000 AAA New Jersey EDA, Water Facilities Revenue (New Jersey American Water
Co., Inc. Project), Series A, FGIC-Insured, 6.875% due 11/1/34 .......... 1,077,760
------------
</TABLE>
--------------------------------------------------------------------------------
See Notes to Financial Statements.
Page 5
<PAGE>
M U N I C I P A L P A R T N E R S F U N D I I I N C .
Schedule of Investments (continued)
June 30, 2000
<TABLE>
<CAPTION>
Face
Amount Rating(a) Security Value
------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
New York -- 21.2%
The City of New York, NY GO Bonds:
$3,000,000 Aaa* Fiscal 1994 Series B, Subseries B-1, 7.000% due 8/15/16,
Pre-Refunded 8/15/04 .................................................. $ 3,280,560
1,000,000 A- Series A, 6.000% due 5/15/30 ............................................ 1,004,810
New York City, NY Municipal Water Finance Authority, Water &
Sewer System Revenue:
1,600,000 AA Series A, 5.500% due 6/15/23 .......................................... 1,523,888
4,500,000 AAA Series A, FSA-Insured, 5.375% due 6/15/26 ............................. 4,239,135
2,800,000 A New York State Dorm Authority Revenue (State University Educational
Facilities), 5.500% due 5/15/26 ......................................... 2,652,132
1,435,000 AA- New York State Local Government Assistance Corporation Revenue,
Series A, 6.000% due 4/1/16 ............................................. 1,471,621
1,250,000 Aaa* New York State Mortgage Agency Revenue, 24th Series,
6.125% due 10/1/30 ...................................................... 1,245,075
New York State Urban Development Corporation Revenue,
Correctional Facilities:
1,500,000 AAA AMBAC-Insured, 5.375% due 1/1/25 ...................................... 1,411,560
1,300,000 AAA FSA-Insured, 5.375% due 1/1/25 ........................................ 1,223,352
4,400,000 AAA Port Authority of New York and New Jersey Construction,
Ninety-Sixth Series, FGIC-Insured, 6.600% due 10/1/23 ................... 4,672,448
Triborough Bridge & Tunnel Authority, NY General Purpose Revenue,
Series Y:
545,000 Aa3* 5.500% due 1/1/17 ..................................................... 546,041
2,750,000 AAA MBIA-Insured, 5.500% due 1/1/17 ....................................... 2,755,253
------------
26,025,875
------------
Ohio -- 4.7%
2,500,000 AA- Franklin County, OH Hospital Revenue (Holy Cross Health Systems
Corporation), 5.875% due 6/1/21 ......................................... 2,468,750
3,300,000 A- Ohio State Water Development Authority Solid Waste Disposal Revenue
(Broken Hill Proprietary Co., LTD.), 6.450% due 9/1/20 .................. 3,262,248
------------
5,730,998
------------
Pennsylvania -- 3.4%
4,350,000 AAA Delaware Valley, PA Regional Finance Authority Local Government
Revenue, Series A, AMBAC-Insured, 5.500% due 8/1/28 ..................... 4,201,448
------------
</TABLE>
--------------------------------------------------------------------------------
See Notes to Financial Statements.
Page 6
<PAGE>
M U N I C I P A L P A R T N E R S F U N D I I I N C .
Schedule of Investments (continued)
June 30, 2000
<TABLE>
<CAPTION>
Face
Amount Rating(a) Security Value
------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Tennessee -- 3.5%
$1,950,000 AA- The IDB of Humphreys County, TN Solid Waste Disposal Revenue
(E.I. du Pont de Nemours and Co. Project), 6.700% due 5/1/24 ............ $ 2,070,335
1,200,000 AAA Memphis-Shelby County, TN Airport Authority Airport Revenue,
Series D, AMBAC-Insured, 6.000% due 3/1/24 .............................. 1,208,340
1,000,000 AA Tennessee Housing Development Agency (Homeownership Program),
Series 2C, 6.350% due 1/1/31 ............................................ 1,009,940
------------
4,288,615
------------
Texas -- 6.0%
4,500,000 AAA Austin, TX Airport System Revenue, Series A, MBIA-Insured,
6.200% due 11/15/15 ..................................................... 4,662,585
2,665,000 BBB Port Corpus Christi Authority, TX Nueces County PCR (Hoechst
Celanese Corporate Project), 6.875% due 4/1/17 .......................... 2,681,630
------------
7,344,215
------------
Utah -- 2.3%
2,795,000 AAA Utah State Housing Finance Agency Single-Family Mortgage,
Issue H-2, 6.250% due 7/1/22 ............................................ 2,821,608
------------
Virginia -- 4.8%
2,000,000 AA Fairfax County, VA EDA Lease Revenue (Government Center
Properties), 5.500% due 5/15/18 ......................................... 1,961,960
2,915,000 A- Greater Richmond Convention Center Authority, VA Hotel Tax Revenue
(Convention Center Expansion Project), 6.125% due 6/15/20 ............... 2,990,732
1,015,000 AAA Virginia State Housing Development Authority Commonwealth
Mortgage, Subseries A-4, MBIA-Insured, 6.200% due 7/1/12 ................ 1,028,956
------------
5,981,648
------------
Washington -- 0.3%
400,000 AAA Seattle, WA GO, Series B, FSA-Insured, 5.750% due 12/1/28 ................. 394,524
------------
West Virginia -- 1.3%
1,555,000 A- West Virginia State Water Development Authority, Loan Program II,
Series A, 7.000% due 11/1/31, Pre-Refunded 11/1/01 ...................... 1,633,543
------------
Wisconsin -- 2.0%
2,485,000 AA Wisconsin Housing & EDA Revenue Refunding (Home Ownership),
Series G, 6.300% due 9/1/17 ............................................. 2,491,834
------------
Wyoming -- 1.7%
2,000,000 AA Wyoming Community Development Authority Housing Revenue,
Series 1, 6.100% due 12/1/14 ........................................... 2,029,818
------------
Total Long-Term Investments (Cost -- $118,774,272) ........................ 121,522,636
------------
</TABLE>
--------------------------------------------------------------------------------
See Notes to Financial Statements.
Page 7
<PAGE>
M U N I C I P A L P A R T N E R S F U N D I I I N C .
Schedule of Investments (continued)
June 30, 2000
<TABLE>
<CAPTION>
Face
Amount Rating(a) Security Value
------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Short-Term Investment - 1.1%
Colorado -- 1.1%
$1,300,000 A-1+ Moffat County, CO PCR Refunding (Pacificorp Projects), VRDD,
4.550% due 5/1/13 (Cost -- $1,300,000) ................................. $ 1,300,000
------------
Total Investments -- 100% (Cost -- $120,074,272**) ....................... $122,822,636
============
<FN>
-----------------
(a) All ratings are by Standard & Poor's Ratings Service, except those which
are identified by an asterisk (*) are rated by Moody's Investors Service,
Inc.
** Aggregate cost for Federal income tax purposes is substantially the same.
See pages 9 and 10 for definition of bond ratings and certain security
descriptions.
</FN>
</TABLE>
-------------------------------------------------------------------------------
See Notes to Financial Statements.
Page 8
<PAGE>
M U N I C I P A L P A R T N E R S F U N D I I I N C .
Long-Term Securities Ratings (unaudited)
Standard & Poor's Ratings Service ("Standard & Poor's") -- Ratings from "AA" to
"BB" may be modified by the addition of a plus (+) or minus (-) sign to show
relative standings within the major rating categories.
AAA -- Bonds rated "AAA" have the highest rating assigned by Standard
&Poor's. Capacity to pay interest and repay principal is extremely
strong.
AA -- Bonds rated "AA" have a very strong capacity to pay interest and
repay principal and differs from the highest rated issue only in a
small degree.
A -- Bonds rated "A" have a strong capacity to pay interest and repay
principal although it is somewhat more susceptible to the adverse
effects of changes in circumstances and economic conditions than debt
in higher rated categories.
BBB -- Bonds rated "BBB" are regarded as having an adequate capacity to pay
interest and repay principal. Whereas they normally exhibit adequate
protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to pay
interest and repay principal for bonds in this category than in higher
rated categories.
BB -- Bonds rated "BB" have less near-term vulnerability to default than
other speculative issues. However, they face major ongoing
uncertainties or exposure to adverse business, financial, or economic
conditions which could lead to inadequate capacity to meet timely
interest and principal payments.
Moody's Investors Service, Inc. ("Moody's") -- Numerical modifiers 1, 2 and 3
may be applied to each generic rating from "Aa" to "Baa," where 1 is the highest
and 3 the lowest ranking within its generic category.
Aaa -- Bonds rated "Aaa" are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as
"gilt edge." Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be
visualized are most unlikely to impair the fundamentally strong
position of such issues.
Aa -- Bonds rated "Aa" are judged to be of high quality by all standards.
Together with the "Aaa" group they comprise what are generally known as
high grade bonds. They are rated lower than the best bonds because
margins of protection may not be as large as in "Aaa" securities or
fluctuation of protective elements may be of greater amplitude or there
may be other elements present which make the long-term risks appear
somewhat larger than in "Aaa" securities.
A -- Bonds rated "A" possess many favorable investment attributes and are
to be considered as upper medium grade obligations. Factors giving
security to principal and interest are considered adequate but elements
may be present which suggest a susceptibility to impairment some time
in the future.
Baa -- Bonds rated "Baa" are considered as medium grade obligations, i.e.,
they are neither highly protected nor poorly secured. Interest payments
and principal security appear adequate for the present but certain
protective elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds lack outstanding
investment characteristics and in fact have speculative characteristics
as well.
NR -- Indicates that the bond is not rated by Moody's or Standard &
Poor's.
Page 9
<PAGE>
M U N I C I P A L P A R T N E R S F U N D I I I N C .
Short-Term Securities Ratings (unaudited)
SP-1 -- Standard &Poor's highest rating indicating very strong or strong
capacity to pay principal and interest; those issues determined to
possess overwhelming safety characteristics are denoted with a plus (+)
sign.
A-1 -- Standard &Poor's highest commercial paper and variable-rate demand
obligation ("VRDO") rating indicating that the degree of safety
regarding timely payment is either overwhelming or very strong; those
issues determined to possess overwhelming safety characteristics are
denoted with a plus (+) sign.
VMIG 1-- Moody's highest rating for issues having a demand feature -- VRDO.
P-1 -- Moody's highest rating for commercial paper and for VRDO prior to
the advent of the VMIG 1 rating.
Security Descriptions (unaudited)
ABAG - Association of Bay Area Governors
AIG - American International Guaranty
AMBAC - American Municipal Bond Assurance
Corporation
BAN - Bond Anticipation Notes
BIG - Bond Investors Guaranty
CGIC - Capital Guaranty Insurance Company
CHFCLI - California Health Facility
Construction Loan Insurance
CONNIE
LEE - College Construction Loan Association
COP - Certificate of Participation
EDA - Economic Development Authority
EDR - Economic Development Revenue
FGIC - Financial Guaranty Insurance Company
FHA - Federal Housing Administration
FHLMC - Federal Home Loan Mortgage
Corporation
FLAIRS - Floating Adjustable Interest Rate
Securities
FNMA - Federal National Mortgage Association
FRTC - Floating Rate Trust Certificates
FSA - Financial Security Assurance
GIC - Guaranteed Investment Contract
GNMA - Government National Mortgage
Association
GO - General Obligation Bonds
HDC - Housing Development Corporation
HFA - Housing Finance Authority
IDA - Industrial Development Authority
IDB - Industrial Development Board
IDR - Industrial Development Revenue
INFLOS - Inverse Floaters
ISD - Independent School District
LEVRRS - Leveraged Reverse Rate Securities
LOC - Letter of Credit
MBIA - Municipal Bond Investors Assurance
Corporation
MVRICS - Municipal Variable Rate Inverse
Coupon Security
PCR - Pollution Control Revenue
PSFG - Permanent School Fund Guaranty
RAN - Revenue Anticipation Notes
RIBS - Residual Interest Bonds
RITES - Residual Interest Tax-Exempt Securities
SYCC - Structured Yield Curve Certificate
TAN - Tax Anticipation Notes
TECP - Tax Exempt Commercial Paper
TOB - Tender Option Bonds
TRAN - Tax and Revenue Anticipation Notes
VA - Veterans Administration
VRDD - Variable Rate Daily Demand
VRWE - Variable Rate Wednesday Demand
Page 10
<PAGE>
M U N I C I P A L P A R T N E R S F U N D I I I N C .
Statement of Assets and Liabilities
June 30, 2000
<TABLE>
<S> <C>
Assets:
Investments, at value (Cost -- $120,074,272) ........................................ $122,822,636
Cash ................................................................................ 73,097
Interest receivable ................................................................. 1,909,073
Receivable for securities sold ...................................................... 230,000
Prepaid expenses .................................................................... 22,642
Other assets ........................................................................ 11,388
------------
Total Assets ........................................................................ 125,068,836
------------
Liabilities:
Payable for securities purchased .................................................... 1,258,932
Management fee payable .............................................................. 60,253
Accrued expenses .................................................................... 132,992
------------
Total Liabilities ................................................................... 1,452,177
------------
Total Net Assets ......................................................................... $123,616,659
============
Net Assets:
Preferred Stock (Note 4) ............................................................ $ 45,000,000
------------
Common Stock ($0.001 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 ................................................. 661,565
Accumulated net realized loss on investments ........................................ (8,043,422)
Net unrealized appreciation on investments .......................................... 2,748,364
------------
Net Assets Applicable to Common Stock ............................................... 78,616,659
------------
Total Net Assets ......................................................................... $123,616,659
============
Net Asset Value Per Share of Common Stock ($78,616,659 / 6,007,094 shares outstanding) ... $13.09
=======
</TABLE>
--------------------------------------------------------------------------------
See Notes to Financial Statements.
Page 11
<PAGE>
M U N I C I P A L P A R T N E R S F U N D I I I N C .
Statement of Operations
For the Year Ended June 30, 2000
<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest............................................................................. $ 7,349,833
-----------
EXPENSES:
Management fee (Note 2) ............................................................. 739,465
Auction agent fee.................................................................... 122,387
Audit and tax services .............................................................. 70,001
Shareholder communications........................................................... 50,685
Directors' fees and expenses ........................................................ 25,067
Transfer agent ...................................................................... 20,073
Legal ............................................................................... 19,357
Listing fee.......................................................................... 16,214
Custodian............................................................................ 6,017
Other................................................................................ 24,194
-----------
Total Expenses....................................................................... 1,093,460
-----------
Net Investment Income..................................................................... 6,256,373
-----------
REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS (NOTE 3):
Net Realized Loss From Security Transactions
(excluding short-term securities):
Proceeds from sales............................................................... 47,736,509
Cost of securities sold........................................................... 48,295,532
-----------
Net Realized Loss.................................................................... (559,023)
-----------
Change in Net Unrealized Appreciation on Investments:
Beginning of year................................................................. 5,858,791
End of year....................................................................... 2,748,364
-----------
Decrease in Net Unrealized Appreciation.............................................. (3,110,427)
-----------
Net Loss on Investments................................................................... (3,669,450)
-----------
Increase in Net Assets From Operations.................................................... $ 2,586,923
===========
</TABLE>
--------------------------------------------------------------------------------
See Notes to Financial Statements.
Page 12
<PAGE>
M U N I C I P A L P A R T N E R S F U N D I I I N C .
Statements of Changes in Net Assets
For the Years Ended June 30,
<TABLE>
<CAPTION>
2000 1999
---------------------------------------------------------------------------------------------------------------
<S> <C> <C>
OPERATIONS:
Net investment income ............................................... $ 6,256,373 $ 6,255,197
Net realized loss.................................................... (559,023) (216,350)
Decrease in net unrealized appreciation.............................. (3,110,427) (4,139,763)
------------ ------------
Increase in Net Assets From Operations .............................. 2,586,923 1,899,084
------------ ------------
DIVIDENDS PAID FROM
NET INVESTMENT INCOME TO:
Common shareholders.................................................. (4,505,304) (4,505,322)
Preferred shareholders............................................... (1,830,327) (1,628,268)
------------ ------------
Decrease in Net Assets From Dividends ............................... (6,335,631) (6,133,590)
------------ ------------
Decrease in Net Assets ................................................... (3,748,708) (4,234,506)
NET ASSETS:
Beginning of year.................................................... 127,365,367 131,599,873
------------ ------------
End of year*......................................................... $123,616,659 $127,365,367
============ ============
*Includes undistributed net investment income of:......................... $661,565 $740,823
======== ========
</TABLE>
Statement of Cash Flows
For the Year Ended June 30, 2000
<TABLE>
<S> <C>
CASH FLOWS PROVIDED BY OPERATING ACTIVITIES:
Proceeds from sales of portfolio securities............................................ $ 47,946,509
Purchases of portfolio securities...................................................... (48,216,404)
Net sales of short-term securities..................................................... 250,000
------------
(19,895)
Net investment income ................................................................. 6,256,373
Accretion of net discount on investments............................................... (46,745)
Net change in receivables/payables related to operations............................... 200,363
------------
Net Cash Provided by Operating Activities.............................................. 6,390,096
------------
CASH FLOWS USED BY FINANCING ACTIVITIES:
Common stock dividends paid............................................................ (4,505,304)
Preferred stock dividends paid......................................................... (1,841,715)
------------
Net Cash Used by Financing Activities.................................................. (6,347,019)
------------
Net Increase in Cash........................................................................ 43,077
Cash, Beginning of year..................................................................... 30,020
------------
Cash, End of year........................................................................... $ 73,097
============
</TABLE>
--------------------------------------------------------------------------------
See Notes to Financial Statements.
Page 13
<PAGE>
M U N I C I P A L P A R T N E R S F U N D I I I N C .
Notes to Financial Statements
Note 1. Organization and Significant Accounting Policies
Municipal Partners Fund II Inc. ("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 $0.001 par value common stock. The
Fund's primary investment objective is to seek a high level of current income
which is exempt from regular federal income taxes, consistent with the
preservation of capital. As a secondary investment objective, the Fund intends
to enhance portfolio value by purchasing tax exempt securities that, in the
opinion of Salomon Brothers Asset Management Inc ("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. Securities
for which reliable quotations are not readily available are valued at fair value
as determined in good faith by, or under procedures established by, the Board of
Directors.
SECURITIES TRANSACTIONS AND INVESTMENT INCOME. Securities transactions are
recorded on the trade date. Realized gains and losses on sales of securities are
calculated on the identified cost basis. Interest income is accrued on a daily
basis. The Fund amortizes premiums and accretes discounts on securities
purchased using the effective interest method.
FEDERAL INCOME TAXES. The Fund has complied and intends to continue to comply
with the requirements of the Internal Revenue Code of 1986, as amended,
applicable to regulated investment companies, and to distribute all of its
income and capital gains, if any, to its shareholders. Therefore, no federal
income tax or excise tax provision is required.
DIVIDENDS AND DISTRIBUTIONS. The Fund declares and pays dividends and
distributions to common shareholders monthly from net investment income, net
realized short-term capital gains and other sources, if necessary. Long-term
capital gains, if any, in excess of loss carryovers (See Note 7) 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
Page 14
<PAGE>
M U N I C I P A L P A R T N E R S F U N D I I I N C .
Notes to Financial Statements (continued)
Note 4. 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.
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 2. Management and Advisory Fees and Other Transactions
The Fund has entered into a management agreement with PIMCO Advisors L.P.
("Investment Manager"), pursuant to which the Investment Manager, among other
things, supervises the Fund's investment program and monitors the performance of
the Fund's service providers. The management agreement was transferred to the
Investment Manager from its subsidiary, Value Advisors LLC on November 2, 1999.
The Investment Manager and the Fund entered into an investment advisory and
administration agreement with the Investment Adviser, a wholly owned subsidiary
of Salomon Smith Barney Holdings Inc. ("SSBH"), which, in turn, is a subsidiary
of Citigroup Inc., pursuant to which the Investment Adviser provides investment
advisory and administrative services to the Fund. The Investment Adviser is
responsible on a day-to-day basis for the management of the Fund's portfolio in
accordance with the Fund's investment objectives and policies and for making
decisions to buy, sell, or hold particular securities and is responsible for
day-to-day administration of the Fund. The Investment Adviser has delegated
certain administrative services to SSB Citi Fund Management LLC("SSBC"), an
affiliate of the Investment Adviser, pursuant to a Sub-Administration Agreement
between the Investment Adviser and SSBC.
The Fund pays the Investment Manager a monthly fee at an annual rate of 0.60% of
the Fund's average weekly net assets for its services, and the Investment
Manager pays the Investment Adviser a monthly fee at an annual rate of 0.36% of
the Fund's average weekly net assets for its services. For purposes of
calculating the fees, the liquidation value of any outstanding preferred stock
of the Fund is not deducted in determining the Fund's average weekly net assets.
Certain officers and/or directors of the Fund are also officers and/or directors
of the Investment Manager, or the Investment Adviser.
At June 30, 2000, the Investment Adviser owned 4,161 shares of the Fund.
Page 15
<PAGE>
M U N I C I P A L P A R T N E R S F U N D I I I N C .
Notes to Financial Statements (continued)
Note 3. Investments
For the year ended June 30, 2000, the aggregate cost of purchases and proceeds
from sales of investments (including maturities, but excluding short-term
securities) were as follows:
Purchases .................................................. $49,475,336
===========
Sales ...................................................... $47,736,509
===========
At June 30, 2000, the aggregate gross unrealized appreciation and depreciation
of investments for Federal income tax purposes were substantially as follows:
Gross unrealized appreciation .............................. $ 3,776,933
Gross unrealized depreciation .............................. (1,028,569)
-----------
Net unrealized appreciation ................................ $ 2,748,364
===========
Note 4. Preferred Stock
On October 1, 1993, the Fund closed its public offering of 900 shares of $0.001
par value Auction Rate Preferred Stock ("Preferred Shares") at an offering price
of $50,000 per share. The Preferred Shares have a liquidation preference of
$50,000 per share plus an amount equal to accumulated but unpaid dividends
(whether or not earned or declared) and, subject to certain restrictions, are
redeemable in whole or in part.
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, 2000 ranged from 3.340% to 4.550%. The weighted average dividend rate
for the year ended June 30, 2000 was 4.001%. The Board of Directors designated
the dividend period commencing June 6, 2000 as a Special Rate Period. Pursuant
to this Special Rate Period, the dividend rate set by the auction held on June
5, 2000 remains in effect through September 4, 2000 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 4.550%.
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.
Page 16
<PAGE>
M U N I C I P A L P A R T N E R S F U N D I I I N C .
Notes to Financial Statements (continued)
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 5. Concentration of 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 6. Common Stock Dividends Subsequent to June 30, 2000
On July 3 and August 1, 2000, the Board of Directors of the Fund declared a
common share dividend from net investment income, each in the amount of $0.0625
per share, payable on July 28 and August 25, 2000 to shareholders of record on
July 18 and August 15, 2000, respectively.
Note 7. Capital Loss Carryforward
At June 30, 2000, the Fund had, for Federal income tax purposes, approximately
$7,962,000 of loss carryforwards available to offset future capital gains. To
the extent that these carryforward losses are used to offset capital gains, it
is probable that the gains so offset will not be distributed. The amount and
expiration of the carryforwards are indicated below. Expiration occurs on the
last day in June of the year indicated:
<TABLE>
<CAPTION>
2003 2004 2005 2007 2008
----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Carryforward Amounts $3,377,000 $3,081,000 $810,000 $141,000 $553,000
----------------------------------------------------------------------------------------------
</TABLE>
Page 17
<PAGE>
M U N I C I P A L P A R T N E R S F U N D I I I N C .
Financial Highlights
Data for a share of common stock outstanding throughout each year ended June 30:
<TABLE>
<CAPTION>
2000 1999 1998 1997 1996
-----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Year........... $ 13.71 $ 14.42 $13.70 $ 12.92 $ 12.58
-------- -------- ------ ------- --------
Income (Loss) From Operations:
Net investment income..................... 1.04 1.04 1.03 1.05 1.05
Net realized and unrealized gain (loss)... (0.60) (0.73) 0.72 0.75 0.29
-------- -------- ------ ------- --------
Total Income From Operations................. 0.44 0.31 1.75 1.80 1.34
-------- -------- ------ ------- --------
Dividends Paid From
Net Investment Income To:
Common shareholders....................... (0.75) (0.75) (0.75) (0.74) (0.71)
Preferred shareholders.................... (0.31) (0.27) (0.28) (0.28) (0.29)
-------- -------- ------ ------- --------
Total Dividends.............................. (1.06) (1.02) (1.03) (1.02) (1.00)
-------- -------- ------ ------- --------
Net Asset Value, End of Year................. $ 13.09 $ 13.71 $14.42 $ 13.70 $ 12.92
======== ======== ====== ======= ========
Per Share Market Value, End of Year.......... $11.5625 $12.3125 $12.75 $12.375 $ 10.75
======== ======== ====== ======= ========
Total Return, Based on
Market Price(1)............................ 0.26% 2.27% 9.20% 22.80% 6.62%
Ratios to Average Net Assets of
Common Shareholders(2):
Operating expenses........................ 1.39% 1.30% 1.36% 1.42% 1.44%
Net investment income.................... 7.95 7.23 7.27 7.90 8.09
Net Assets of Common Shareholders,
End of Year (000)......................... $78,617 $82,365 $86,600 $82,317 $77,628
Preferred Stock Outstanding,
End of Year (000)......................... $45,000 $45,000 $45,000 $45,000 $45,000
Portfolio Turnover Rate...................... 40% 19% 20% 7% 55%
<FN>
--------------------------------------------------------------------------------
(1) For purposes of this calculation, dividends on common shares are assumed to
be reinvested at prices obtained under the Fund's dividend reinvestment plan
and the broker commission paid to purchase or sell a share is excluded.
(2) Ratios calculated on the basis of income and expenses relative to the
average net assets of common shares and excludes the effect of dividend
payments to preferred shareholders.
</FN>
</TABLE>
Page 18
<PAGE>
M U N I C I P A L P A R T N E R S F U N D I I I N C .
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 schedule of investments, and the related statements of operations, of
changes in net assets and of cash flows and the financial highlights present
fairly, in all material respects, the financial position of Municipal Partners
Fund II Inc. (the "Fund") at June 30, 2000, the results of its operations and
cash flows for the year then ended, the changes in its net assets for each of
the two years in the period then ended and the financial highlights for each of
the five years in the period then ended, in conformity with accounting
principles generally accepted in the United States. 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 auditing standards
generally accepted in the United States, 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,
2000 by correspondence with the custodian and brokers, provide a reasonable
basis for the opinion expressed above.
PricewaterhouseCoopers LLP
New York, New York
August 11, 2000
Page 19
<PAGE>
M U N I C I P A L P A R T N E R S F U N D I I I N C .
Selected Quarterly Financial Information (unaudited)
Summary of quarterly results of operations:
<TABLE>
<CAPTION>
Net Realized
Net Investment and Unrealized
Income Gain (Loss)
----------------- -------------------
Quarter Ended* Total Per Share Total Per Share
----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
September 30, 1998........................................... $1,571 $0.26 $ 1,972 $ 0.33
December 31, 1998............................................ 1,601 0.27 (1,640) (0.28)
March 31, 1999............................................... 1,533 0.25 (895) (0.15)
June 30, 1999................................................ 1,550 0.26 (3,793) (0.63)
September 30, 1999........................................... 1,552 0.26 (2,591) (0.43)
December 31, 1999............................................ 1,558 0.26 (2,943) (0.49)
March 31, 2000............................................... 1,562 0.26 1,649 0.28
June 30, 2000................................................ 1,584 0.26 216 0.04
----------------------------------------------------------------------------------------------------------------
<FN>
*Totals expressed in thousands of dollars except per share amounts.
</FN>
</TABLE>
Tax Information (unaudited)
For Federal tax purposes the Fund hereby designates for the fiscal year ended
June 30, 2000:
* 100% of the dividends paid by the fund from net investment income as tax
exempt for regular Federal income tax purposes.
Page 20
<PAGE>
M U N I C I P A L P A R T N E R S F U N D I I I N C .
Additional Shareholder Information (unaudited)
On October 14, 1999, the Annual Meeting of the Fund's Stockholders was held for
the purpose of voting on the following matters:
1. The election of Heath B. McLendon and Charles F. Barber as Directors of
the Fund; and
2. The ratification of the selection of PricewaterhouseCoopers LLP as the
Fund's independent accountants for the fiscal year ending June 30, 2000.
The results of the vote on Proposal 1 were as follows:
<TABLE>
<CAPTION>
Preferred
Preferred % of Shares Votes % of Shares Votes % of Shares
Name of Directors Votes For Voted Against Voted Abstained Abstained
----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Heath B. McLendon 839 99.8% 0 0.0% 2 0.2%
Charles F. Barber 839 99.8% 0 0.0% 2 0.2%
----------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Common
Common % of Shares Votes % of Shares Votes % of Shares
Name of Directors Votes For Voted Against Voted Abstained Abstained
----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Charles F. Barber 5,493,676 98.1% 0 0.0% 109,153 1.9%
----------------------------------------------------------------------------------------------------------
</TABLE>
The results of the vote on Proposal 2 were as follows:
<TABLE>
<CAPTION>
% of Shares % of Shares Votes % of Shares
Votes For Voted Votes Against Voted Abstained Abstained
----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
5,475,383 99.5% 30,040 0.5% 0 0.0%
----------------------------------------------------------------------------------------------------------
</TABLE>
Page 21
<PAGE>
M U N I C I P A L P A R T N E R S F U N D I I I N C .
Additional Shareholder Information (unaudited) (continued)
On February 24, 2000, a Special Meeting of the Fund's stockholders was held for
the purposes of voting on the following matters:
1. Approval of a new management agreement between PIMCO Advisors L.P. and
the Fund; and
2. Approval of a new investment advisory agreement and administration
agreement among PIMCO Advisors L.P., Salomon Brothers Asset Management Inc
and the Fund.
The results of the vote on Proposal 1 were as follows:
<TABLE>
<CAPTION>
Common % of Shares Common % of Shares Common Votes % of Shares
Votes For Voted Votes Against Voted Abstained Voted
----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
5,323,718 96.5% 70,633 1.3% 122,132 2.2%
----------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Preferred % of Shares Preferred % of Shares Preferred Votes % of Shares
Votes For Voted Votes Against Voted Abstained Voted
----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
700 85.4% 120 14.6% 0 0.0%
----------------------------------------------------------------------------------------------------------
</TABLE>
The results of the vote on Proposal 2 were as follows:
<TABLE>
<CAPTION>
Common % of Shares Common % of Shares Common Votes % of Shares
Votes For Voted Votes Against Voted Abstained Voted
----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
5,320,290 96.4% 71,743 1.3% 124,850 2.3%
----------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Preferred % of Shares Preferred % of Shares Preferred Votes % of Shares
Votes For Voted Votes Against Voted Abstained Voted
----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
700 85.4% 120 14.6% 0 0.0%
----------------------------------------------------------------------------------------------------------
</TABLE>
Page 22
<PAGE>
M U N I C I P A L P A R T N E R S F U N D I I I N C .
Dividend Reinvestment Plan (unaudited)
Pursuant to certain rules of the Securities and Exchange Commission, the
following additional disclosure is provided.
Pursuant to the Fund's Dividend Reinvestment Plan ("Plan"), holders of Common
Stock whose shares of Common Stock are registered in their own names will be
deemed to have elected to have all distributions automatically reinvested by
State Street Bank and Trust Company ("Plan Agent") in Fund shares pursuant to
the Plan, unless they elect to receive distributions in cash. Holders of Common
Stock who elect to receive distributions in cash will receive all distributions
in cash by check in dollars mailed directly to the holder by the Plan Agent as
dividend-paying agent. Holders of Common Stock who do not wish to have
distributions automatically reinvested should notify the Plan Agent at the
address below. Distributions with respect to Common Stock registered in the name
of a bank, broker-dealer or other nominee (i.e., in "street name") will be
reinvested under the Plan unless the service is not provided by the bank,
broker-dealer or other nominee or the holder elects to receive dividends and
distributions in cash. Investors who own shares registered in the name of a
bank, broker-dealer or other nominee should consult with such nominee as to
participation in the Plan through such nominee, and may be required to have
their shares registered in their own names in order to participate in the Plan.
The Plan Agent serves as agent for the holders of Common Stock in administering
the Plan. After the Fund declares a dividend on the Common Stock or determines
to make a capital gain distribution, the Plan Agent will, as agent for the
participants, receive the cash payment and use it to buy the Fund's Common Stock
in the open market, on the New York Stock Exchange or elsewhere, for the
participants' accounts. The Fund will not issue any new shares of Common Stock
in connection with the Plan.
Participants have the option of making additional cash payments to the Plan
Agent, monthly, in a minimum amount of $250, for investment in the Fund's Common
Stock. The Plan Agent will use all such funds received from participants to
purchase shares of Common Stock in the open market on or about the first
business day of each month. To avoid unnecessary cash accumulations, and also to
allow ample time for receipt and processing by the Plan Agent, it is suggested
that participants send in voluntary cash payments to be received by the Plan
Agent approximately ten days before an applicable purchase date specified above.
A participant may withdraw a voluntary cash payment by written notice, if the
notice is received by the Plan Agent not less than 48 hours before such payment
is to be invested.
The Plan Agent maintains all shareholder accounts in the Plan and furnishes
written confirmations of all transactions in an account, including information
needed by shareholders for personal and tax records. Shares of Common Stock in
the account of each Plan participant will be held by the Plan Agent in the name
of the participant, and each shareholder's proxy will include those shares
purchased pursuant to the Plan.
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 23
<PAGE>
M U N I C I P A L P A R T N E R S F U N D I I I N C .
Dividend Reinvestment Plan (unaudited) (continued)
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.
Page 24
<PAGE>
M U N I C I P A L P A R T N E R S F U N D I I I N C .
Directors
CHARLES F. BARBER
Consultant; formerly Chairman,
ASARCO Incorporated
WILLIAM D. CVENGROS
Co-Chairman of the Board;
Chief Executive Officer,
PocketVideo Corporation, formerly
Chief Executive Officer, and
President of Value Advisors LLC and
Chief Executive Officer and
President of PIMCO Advisors L.P.
HEATH B. MCLENDON
Co-Chairman of the Board;
Managing Director, Salomon Smith Barney Inc.
President and Director,
SSB Citi Fund Management LLC
and Travelers Investment Advisers, Inc.
RIORDAN ROETT
Professor and Director, Latin American
Studies Program, Paul H. Nitze
School of Advanced International Studies,
Johns Hopkins University
ROBERT L. ROSEN
Chief Executive Officer,
R.L.R. Partners, LLC
Chairman, National Financial Partners
Officers
WILLIAM D. CVENGROS
Co-Chairman of the Board
HEATH B. MCLENDON
Co-Chairman of the Board
STEPHEN J. TREADWAY
President
ROBERT E. AMODEO
Executive Vice President
LEWIS E. DAIDONE
Executive Vice President and Treasurer
NEWTON B. SCHOTT
Executive Vice President
ANTHONY PACE
Controller
CHRISTINA T. SYDOR
Secretary
Municipal Partners Fund II Inc.
7 World Trade Center
New York, New York 10048
Telephone 1-888-777-0102
INVESTMENT ADVISER
Salomon Brothers Asset Management Inc
7 World Trade Center
New York, New York 10048
INVESTMENT MANAGER
PIMCO Advisors L.P.
800 Newport Center Drive
Suite 100
Newport Beach, California 92660
AUCTION AGENT
Bankers Trust Company
4 Albany Street
New York, New York 10006
CUSTODIAN
PFPC Trust Company
8800 Tinicum Blvd.
Third Floor Suite 200
Philadelphia, PA 19153
DIVIDEND DISBURSING AND TRANSFER AGENT
State Street Bank and Trust Company
225 Franklin Street
Boston, Massachusetts 02110
INDEPENDENT ACCOUNTANTS
PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, New York 10036
LEGAL COUNSEL
Simpson Thacher & Bartlett
425 Lexington Avenue
New York, New York 10017
NEW YORK STOCK EXCHANGE SYMBOL
MPT
<PAGE>
(This page intentionally left blank.)
<PAGE>
State Street Bank and Trust Company
P.O. Box 8200
Boston, Massachusetts 02266-8200
------------------
BULK RATE
U.S. POSTAGE
PAID
S. HACKENSACK, NJ
PERMIT No. 750
------------------
MPTANN 6/00
