<PAGE>
MUNICIPAL ADVANTAGE FUND INC.
June 9, 1995
Dear Shareholder:
The Municipal Advantage Fund performed very well in both the second fiscal
quarter and the six months ended April 30, 1995. The total return on the Fund's
common shares was 6.6% in the quarter and 13.8% in the six months, based on net
asset value (NAV) per share and assuming reinvestment of dividends.
This performance compared with a total return of 4.2% in the quarter and
7.6% in the six months for the Lehman Brothers Municipal Bond Index, a widely
followed benchmark. The Fund's NAV performance was also favorable in comparison
to similar funds. For the second quarter, the Fund's total return on NAV ranked
eighth best among the 65 leveraged closed-end municipal bond funds monitored by
Lipper Analytical Services, Inc. The average total return on NAV of the funds in
this Lipper universe was 5.2%.
In the quarter, however, the market price of the Fund's common shares on
the New York Stock Exchange lagged the increase in the Fund's NAV. As a result,
at market the common shares provided a total return of 2.9%, assuming
reinvestment of dividends. For the six months, the total return at market was
18.3%. During the quarter, the Fund's discount (the amount the market price is
below NAV) widened somewhat to 14.4% as of April 30, 1995. Nearly all closed-end
municipal bond funds continue to trade at discounts to NAV. One simple way for
owners of the Fund's common shares to systematically take advantage of the
discount is by reinvesting dividends.
The Fund paid dividends totaling $.195 per common share in the second
quarter. Based on the $11.125 per share closing price on the New York Stock
Exchange as of April 30, 1995, and on the annualized monthly dividend rate as of
that date, the tax-exempt yield on the Fund's common shares is 7.0%. This yield
is equivalent to 11.6% on a taxable basis for investors in the top federal tax
bracket of 39.6%.
The Fund, as you know, is leveraged by its outstanding issue of auction
rate preferred stock. Our primary purpose in using leverage is to increase the
Fund's yield. In addition, the use of leverage offers common shareholders the
prospect of accelerated capital appreciation in a rising bond market, as was the
case in the six months. Leverage can, however, add to losses in a declining
market.
At the latest auction on May 26, 1995, the Fund sold 28-day auction rate
preferred stock at an annual rate of 4.125%, down from 4.25% on the expiring
issue of 28-day auction rate preferred. Although auction rate preferred
dividends have risen from earlier periods when short-term interest rates were
considerably lower, leverage continues to benefit owners of the Fund's common
shares: the yield on bonds acquired with proceeds from the sale of preferred
stock exceeds the Fund's auction rate preferred dividends.
While leverage adds risk, we seek to temper that risk by investing
conservatively. As of April 30, 1995, virtually all of the Fund's assets were
invested in long-term securities, 87% of which were rated A or better by
Standard & Poor's or Moody's. We also continued the Fund's broad investment
diversification by state and market sector. The five largest portfolio positions
by state as of April 30, 1995 were: Illinois, 15.7%; New York, 12.8%; Texas,
10.2%; Minnesota, 5.3%; and Massachusetts, 5.1%. The five largest sectors
represented in the Fund were: health and hospital, 20.8%; housing, 18.9%;
general obligation, 15.9%; water and sewer, 10.4%; and power and utility, 10.4%.
The average maturity of the Fund's portfolio was 21 years.
The municipal securities market has staged an impressive turnaround during
the past six months, recouping a large portion of the prior year's losses.
Looking ahead, we remain optimistic about investments in quality
<PAGE>
municipal securities. While no one can predict the future with certainty, the
supply/demand balance is favorable and interest rates appear to have leveled.
We wish to remind you that a recorded periodic update that reviews the
municipal bond markets and contains specific information regarding the Fund and
its portfolio is available by calling (800) 421-4777.
We at the Fund, along with the Fund's manager, Advantage Advisers, Inc.,
and its adviser, Quest for Value Advisors, remain dedicated to generating high
current income, exempt from regular federal income taxes, through investments in
quality municipal securities. Thank you for choosing the Municipal Advantage
Fund. We look forward to the future with enthusiasm.
Sincerely,
/s/ Mark C. Biderman
Mark C. Biderman
President
<PAGE>
MUNICIPAL ADVANTAGE FUND INC.
SCHEDULE OF INVESTMENTS (unaudited)
April 30, 1995
<TABLE>
<CAPTION>
Principal Credit Rating
Amount (Moody's/S&P) Value
--------- ------------- -----
<S> <C> <C> <C>
LONG-TERM INVESTMENTS--98.2%
Alabama--2.7%
Birmingham General Obligation Notes,
$1,175,000 5.625%, 4/1/12................................................ A1/AA $ 1,128,493
1,200,000 5.625%, 4/1/13................................................ A1/AA 1,145,856
2,000,000 DCH Health Care Authority, Health Care Facilities Revenue,
5.70%, 6/1/15................................................. A1/A+ 1,825,960
-----------
4,100,309
-----------
Arizona--4.4%
2,850,000 Phoenix General Obligation Notes,
5.60%, 7/1/11................................................. Aa/AA+ 2,767,151
1,450,000 Tucson Airport Authority Inc. Revenue (MBIA insured),........... Aaa/AAA 1,403,817
5.70%, 6/1/13
2,400,000 Tucson Water Revenue,
5.75%, 7/1/12................................................. A1/A+ 2,353,608
-----------
6,524,576
-----------
California--1.3%
1,000,000 Burbank Redevelopment Agency,
6.00%, 12/1/13................................................ Baa1/A- 939,250
1,000,000 California State Public Works Board, Lease Revenue,
6.30%, 10/1/10................................................ A/A- 997,980
-----------
1,937,230
-----------
Colorado--2.1%
3,085,000 Colorado Health Facilities Authority Revenue (MBIA insured),
5.95%, 5/15/12................................................ Aaa/AAA 3,065,256
-----------
Delaware--0.9%
1,500,000 University of Delaware, Housing & Dining Systems Revenue,
5.50%, 11/1/15................................................ NR/AA+ 1,372,545
-----------
Georgia--1.5%
1,000,000 Savannah Hospital Authority Revenue,
6.125%, 7/1/12................................................ A/NR 967,440
1,260,000 Toombs County Hospital Authority Revenue,
7.00%, 12/1/17............................................... NR/BBB 1,210,280
-----------
2,177,720
-----------
Illinois--15.7%
2,500,000 Arlington Heights General Obligation Notes,
5.65%, 12/1/14................................................ Aa/NR 2,353,200
Chicago General Obligation Notes (FGIC insured),
4,000,000 5.625%, 1/1/23................................................ Aaa/AAA 3,643,120
2,500,000 5.80%, 1/1/13................................................. Aaa/AAA 2,382,925
</TABLE>
3
<PAGE>
MUNICIPAL ADVANTAGE FUND INC.
SCHEDULE OF INVESTMENTS (unaudited) (continued)
April 30, 1995
<TABLE>
<CAPTION>
Principal Credit Rating
Amount (Moody's/S&P) Value
--------- ------------- -----
<S> <C> <C> <C>
LONG-TERM INVESTMENTS (cont'd)
Illinois (cont'd)
$3,500,000 Du Page Water Commission, Water Revenue,
5.25%, 5/1/14................................................... Aa/AA $ 3,153,325
Illinois Health Facilities Authority Revenue,
1,000,000 6.00%, 2/15/19.................................................. A/A 897,530
2,905,000 9.00%, 11/15/15................................................. Baa1/BBB 3,273,470
3,000,000 Illinois Housing Development Authority Revenue,
6.70%, 8/1/25................................................... Aa/AA 3,006,600
1,195,000 Illinois Municipal Electric Agency, Power Supply Systems Revenue
(AMBAC insured),
5.75%, 2/1/21................................................... Aaa/AAA 1,114,505
3,735,000 Metropolitan Fair & Exposition Authority, Dedicated State
Tax Revenue,
6.00%, 6/1/14................................................... A/A+ 3,619,290
-----------
23,443,965
-----------
Indiana--1.8%
2,750,000 Indianapolis Local Public Improvement Bond Bank,
5.90%, 1/10/14.................................................. Aaa/AA+ 2,662,055
-----------
Kentucky--0.7%
1,000,000 Louisville & Jefferson Counties Metropolitan Sewer District
(AMBAC insured),
6.50%, 5/15/24.................................................. Aaa/AAA 1,036,950
-----------
Maine--1.7%
1,700,000 Maine Municipal Bond Bank,
5.80%, 11/1/20.................................................. Aa/A+ 1,576,580
1,000,000 Maine State Housing Authority,
7.55%, 11/15/22................................................. A1/AA- 1,037,700
-----------
2,614,280
-----------
Maryland--1.4%
2,000,000 Maryland State Community Development Administration,
7.60%, 4/1/23................................................... Aa/NR 2,097,860
-----------
Massachusetts 5.1%
4,000,000 Boston General Obligation Notes (FHA insured),
5.75%, 2/15/23.................................................. Aa/AA- 3,673,480
2,250,000 Massachusetts State Health and Education Facilities
Authority Revenue,
6.25%, 12/1/22.................................................. A1/A 2,161,372
</TABLE>
4
<PAGE>
MUNICIPAL ADVANTAGE FUND INC.
SCHEDULE OF INVESTMENTS (unaudited) (continued)
April 30, 1995
<TABLE>
<CAPTION>
Principal Credit Rating
Amount (Moody's/S&P) Value
--------- ------------- -----
<S> <C> <C> <C>
LONG-TERM INVESTMENTS (cont'd)
Massachusetts (cont'd)
$2,000,000 Massachusetts State Water Resource Authority,
5.25%, 3/1/13................................................ A/A $ 1,792,460
-------------
7,627,312
-------------
Michigan--4.7%
1,700,000 Dearborn School District,
6.00%, 5/1/14................................................ A1/AA 1,702,312
1,000,000 Grand Rapids Water Supply Systems Revenue (FGIC insured),
6.50%, 1/1/15................................................ Aaa/AAA 1,033,990
Michigan State Hospital Finance Authority Revenue,
2,490,000 5.375%, 10/15/13............................................. A1/NR 2,155,145
2,000,000 8.125%, 10/1/21.............................................. Baa/BBB 2,062,160
-------------
6,953,607
-------------
Minnesota--5.3%
Minnesota State Housing Finance Agency,
1,650,000 6.00%, 2/1/14................................................ NR/A+ 1,608,156
3,950,000 6.10%, 8/1/22................................................ NR/A+ 3,809,894
2,500,000 6.25%, 8/1/22................................................ Aa/A+ 2,459,500
-------------
7,877,550
-------------
Nevada--2.3%
2,000,000 Clark County General Obligation Notes (MBIA insured),
6.00%, 6/1/13................................................ Aaa/AAA 1,978,120
1,580,000 Nevada Housing Division,
5.85%, 10/1/15............................................... Aa/NR 1,491,915
-------------
3,470,035
-------------
New Hampshire--1.3%
New Hampshire State Housing Finance Authority,
1,000,000 6.50%, 7/1/14................................................ Aa/NR 984,810
1,000,000 6.90%, 7/1/19................................................ Aa/NR 1,024,900
-------------
2,009,710
-------------
New York--12.7%
2,000,000 Metropolitan Transportation Authority, Transportation
Facilities Revenue,
6.00%, 7/1/14................................................ Baa/BBB+ 1,920,620
New York City General Obligation Notes,
1,300,000 6.00%, 8/1/09................................................ Baa1/A- 1,229,605
2,000,000 6.00%, 5/15/10............................................... Baa1/A- 1,886,520
1,000,000 6.95%, 8/15/12 (MBIA insured)................................ Aaa/AAA 1,087,500
2,270,000 7.00%, 10/1/09............................................... Baa1/A- 2,332,788
</TABLE>
5
<PAGE>
MUNICIPAL ADVANTAGE FUND INC.
SCHEDULE OF INVESTMENTS (unaudited) (continued)
April 30, 1995
<TABLE>
<CAPTION>
Principal Credit Rating
Amount (Moody's/S&P) Value
--------- ------------- -----
<S> <C> <C> <C>
LONG-TERM INVESTMENTS (cont'd)
New York (cont'd)
$2,000,000 New York City Industrial Development Agency,
Special Facilities Revenue,
6.125%, 1/1/24............................................... A/A $ 1,892,900
165,000 New York City Municipal Water Finance Authority,
Water & Sewer Systems Revenue,
5.70%, 6/15/07............................................... A/A- 163,847
New York State Dormitory Authority Revenues,
1,500,000 6.75%, 7/1/24 (MBIA insured)................................. Aaa/AAA 1,595,505
1,000,000 7.65%, 8/1/30 (FHA insured).................................. NR/AAA 1,099,880
New York State Local Government Assistance Corporation,
1,000,000 5.50%, 4/1/18................................................ A/A 908,070
1,500,000 6.50%, 4/1/20................................................ A/A 1,527,720
1,000,000 New York State Medical Care Facilities,
Finance Agency Revenue,
6.50%, 8/15/24............................................... Baa1/BBB+ 997,270
2,365,000 New York State Urban Development Corporation,
Correctional Capital Facility,
5.625%, 1/1/07............................................... Baa1/BBB 2,258,599
------------
18,900,824
------------
North Carolina--2.4%
3,700,000 North Carolina Municipal Power Agency, No. 1
Catawba Electric Revenue,
5.75%, 1/1/15................................................ Aaa/AAA 3,548,337
------------
Ohio--1.6%
2,500,000 Lucas County Hospital Revenue (MBIA insured),
6.09%, 8/15/14(A)............................................ Aaa/AAA 2,358,750
------------
Pennsylvania--3.7%
5,600,000 Philadelphia Hospital & Higher Education Facilities
Authority, Hospital Revenue,
6.60%, 7/1/10................................................ NR/BBB 5,578,048
------------
Tennessee--2.2%
3,410,000 Tennessee Housing Development Agency, Mortgage
Finance,
5.90%, 7/1/18................................................ A1/A+ 3,272,577
------------
Texas--10.2%
2,750,000 Austin Utilities System Revenue,
5.75%, 11/15/13.............................................. A/A 2,626,250
Dallas Waterworks & Sewer Systems Revenue,
2,555,000 5.80%, 10/1/11............................................... Aa/AA 2,517,646
1,000,000 5.80%, 10/1/12............................................... Aa/AA 980,620
</TABLE>
6
<PAGE>
MUNICIPAL ADVANTAGE FUND INC.
SCHEDULE OF INVESTMENTS (unaudited) (continued)
April 30, 1995
<TABLE>
<CAPTION>
Principal Credit Rating
Amount (Moody's/S&P) Value
--------- ------------- -----
<S> <C> <C> <C>
LONG-TERM INVESTMENTS (cont'd)
Texas (cont'd)
$1,000,000 Harris County Toll Road Subordinated Lien,
6.50%, 8/15/15............................................... Aa/AA+ $ 1,032,960
Houston Water Conveyance System, Contract
Certificates of Participation (AMBAC insured),
1,000,000 6.25%, 12/15/14.............................................. Aaa/AAA 1,028,520
1,400,000 7.50%, 12/15/15.............................................. Aaa/AAA 1,644,622
3,500,000 San Antonio Electric & Gas Revenue,
6.00%, 2/1/14................................................ Aa1/AA 3,433,955
2,000,000 San Antonio General Obligation Notes,
5.75%, 8/1/09................................................ Aa/AA 1,997,860
------------
15,262,433
------------
Utah--1.1%
Utah Housing Finance Agency,
1,175,000 6.35%, 7/1/11................................................ Aa/NR 1,191,767
500,000 6.55%, 7/1/26................................................ Aa/NR 495,995
------------
1,687,762
------------
Vermont--1.2%
1,690,000 Vermont Housing Finance Agency,
7.85%, 12/1/29............................................... A1/NR 1,767,520
------------
Virginia--2.8%
4,200,000 Virginia Housing Development Authority,
6.50%, 1/1/13................................................. Aa/AA+ 4,242,210
------------
Washington--4.6%
1,000,000 King County School District No. 415,
6.45%, 12/1/12................................................ A1/AA- 1,024,320
1,160,000 Seattle Museum Development Authority,
6.30%, 7/1/13................................................ Aa1/AA+ 1,180,880
5,000,000 Washington State Public Power Supply Systems,
Nuclear Project No. 1 Revenue (MBIA insured),
5.60%, 7/1/15................................................ Aaa/AAA 4,597,550
------------
6,802,750
------------
Wisconsin--1.2%
2,000,000 Janesville Pollution Control Revenue,
5.55%, 4/1/09................................................ Baa1/BBB+ 1,815,580
------------
Puerto Rico--1.6%
2,565,000 Puerto Rico Commonwealth Highway & Transportation
Authority, Highway Revenue,
5.75%, 7/1/18................................................ Baa1/A 2,405,816
------------
Total Long-Term Investments (cost - $150,152,342).............. $146,613,567
------------
</TABLE>
7
<PAGE>
MUNICIPAL ADVANTAGE FUND INC.
SCHEDULE OF INVESTMENTS (unaudited) (continued)
April 30, 1995
<TABLE>
<CAPTION>
Principal Credit Rating
Amount (Moody's/S&P) Value
--------- ------------- -----
<S> <C> <C> <C>
SHORT-TERM INVESTMENTS--0.1%
New York--0.1%
$ 100,000 New York City General Obligation Notes, VRDN*,
4.80%, 5/1/95
(cost - $100,000) ............................... VMIG1/A1+ $ 100,000
------------
Total Investments (B) (cost - $150,252,342)........ 98.3% $146,713,567
Other Assets in Excess of Other Liabilities........ 1.7 2,576,789
----- ------------
Total Net Assets................................... 100.0% $149,290,356
===== ============
</TABLE>
- ----------
(A) Security has embedded interest rate cap which creates a variable coupon.
The coupon rate (which cannot exceed 8.00% nor decline below 5.09%) is
linked to changes in the PSA index.
(B) Aggregate gross unrealized appreciation for securities in which there is an
excess of value over tax cost is $1,021,750, aggregate gross unrealized
depreciation for securities in which there is an excess of tax cost over
value is $4,560,525 and net unrealized depreciation for Federal income tax
purposes is $3,538,775. Federal income tax basis of portfolio securities is
substantially the same as for financial reporting purposes.
* Variable Rate Demand Notes (VRDN) are instruments whose interest rates
change on a specified date (such as a coupon date or interest payment date)
and/or whose interest rates vary with changes in a designated base rate
(such as the prime interest rate). Maturity shown is date of next rate
change.
See accompanying notes to financial statements.
8
<PAGE>
MUNICIPAL ADVANTAGE FUND INC.
STATEMENT OF ASSETS AND LIABILITIES (unaudited)
April 30, 1995
<TABLE>
<S> <C>
Assets
Investments, at value (cost - $150,252,342)......................................................... $146,713,567
Cash................................................................................................ 89,966
Receivable for investments sold..................................................................... 1,025,240
Interest receivable................................................................................. 2,855,187
Deferred organization expenses...................................................................... 52,817
Prepaid expenses.................................................................................... 26,385
------------
Total Assets........................................................................................ 150,763,162
------------
Liabilities
Payable for investments purchased................................................................... 1,005,958
Investment management fee payable................................................................... 74,507
Dividends payable attributable to preferred shares.................................................. 169,950
Dividends payable attributable to common shares..................................................... 139,913
Other payables and accrued expenses................................................................. 82,478
------------
Total Liabilities................................................................................... 1,472,806
------------
Net Assets
Preferred stock ($.001 par value and $50,000 liquidation value per share
applicable to 1,100 shares issued)................................................................ 55,000,000
------------
Common stock:
Par value ($.001 per share, applicable to 7,257,093 shares issued)................................ 7,257
Paid-in-surplus................................................................................... 100,618,353
Undistributed net investment income................................................................. 225,216
Accumulated net realized loss on investments........................................................ (3,021,695)
Net unrealized depreciation on investments.......................................................... (3,538,775)
------------
Net assets applicable to common shareholders...................................................... 94,290,356
------------
Total Net Assets.................................................................................... $149,290,356
============
Net asset value per common share.................................................................... $12.99
============
</TABLE>
See accompanying notes to financial statements.
9
<PAGE>
MUNICIPAL ADVANTAGE FUND INC.
STATEMENT OF OPERATIONS (unaudited)
For the six months ended April 30, 1995
<TABLE>
<CAPTION>
<S> <C>
Investment Income
Interest.............................................................................. $ 4,586,671
-----------
Operating Expenses
Investment management fee (note 2).................................................... 428,514
Auction fees and commissions.......................................................... 74,524
Auditing, consulting and tax return preparation fees.................................. 34,322
Reports and notices to shareholders................................................... 27,295
Legal fees............................................................................ 24,723
Custodian fees........................................................................ 20,081
Transfer and dividend disbursing agent fees........................................... 12,069
Directors' fees and expenses.......................................................... 11,600
Amortization of deferred organization expenses........................................ 8,719
Stock exchange listing fee............................................................ 8,660
Miscellaneous......................................................................... 3,454
-----------
Total operating expenses............................................................ 653,961
-----------
Net investment income............................................................. 3,932,710
-----------
Realized and Unrealized Gain (Loss) on Investments--Net
Net realized loss on investments...................................................... (1,762,238)
Net change in unrealized appreciation (depreciation) on investments................... 10,498,152
-----------
Net realized loss and change in unrealized appreciation (depreciation)
on investments.................................................................... 8,735,914
-----------
Net increase in net assets resulting from operations.................................. $12,668,624
===========
</TABLE>
See accompanying notes to financial statements.
10
<PAGE>
MUNICIPAL ADVANTAGE FUND INC.
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
Six months ended Year ended
April 30, 1995 (1) October 31, 1994
------------------ ----------------
<S> <C> <C>
Operations
Net investment income.................................................................. $ 3,932,710 $ 7,657,130
Net realized loss on investments....................................................... (1,762,238) (1,259,457)
Net change in unrealized appreciation (depreciation) on investments.................... 10,498,152 (19,774,914)
------------ ------------
Net increase (decrease) in net assets resulting from operations........................ 12,668,624 (13,377,241)
------------ ------------
Dividends and Distributions to Shareholders
Dividends to preferred shareholders from net investment income......................... (1,098,749) (1,562,237)
Dividends to common shareholders from net investment income............................ (2,830,268) (6,241,095)
Distributions to preferred shareholders from net realized gains........................ -- (58,300)
Distributions to common shareholders from net realized gains........................... -- (267,787)
------------ ------------
Total dividends and distributions to shareholders...................................... (3,929,017) (8,129,419)
------------ ------------
Total increase (decrease) in net assets................................................ 8,739,607 (21,506,660)
Net Assets
Beginning of period.................................................................... 140,550,749 162,057,409
------------ ------------
End of period (including undistributed net investment income of $225,216 and
$221,523, respectively).............................................................. $149,290,356 $140,550,749
============ ============
</TABLE>
- ----------
(1) Unaudited.
See accompanying notes to financial statements.
11
<PAGE>
MUNICIPAL ADVANTAGE FUND INC.
NOTES TO FINANCIAL STATEMENTS (unaudited)
April 30, 1995
1. Organization and Significant Accounting Policies
Municipal Advantage Fund Inc. (the "Fund") was incorporated in Maryland on
February 23, 1993 and is registered as a diversified, closed-end management
investment company under the Investment Company Act of 1940.
The Fund has entered into a management agreement with Advantage Advisers,
Inc. (the "Investment Manager"), a subsidiary of Oppenheimer & Co., Inc.,
pursuant to which the Investment Manager will, among other things, supervise the
Fund's investment program and monitor the performance of the Fund's service
providers.
The Investment Manager entered into an advisory contract with Quest for
Value Advisors (the "Investment Adviser"), 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 objective and policies, for making
decisions to buy, sell, or hold particular securities and is responsible for the
day-to-day administration of the Fund.
The following is a summary of significant accounting policies followed by
the Fund in the preparation of its financial statements:
(a) Valuation of Investments
Investment debt securities (other than short-term obligations) are valued
each week by an independent pricing service approved by the Board of Directors.
Short-term debt securities having a remaining maturity of sixty days or less are
valued at amortized cost or amortized value, which approximates market value.
Any security or other asset for which market quotations are not readily
available is valued at its fair value as determined in good faith by or under
procedures established by the Board of Directors.
(b) Federal Income Taxes
It is the Fund's policy to comply with the requirements of the Internal
Revenue Code applicable to regulated investment companies and to distribute
substantially all of its taxable and non-taxable income to its shareholders;
accordingly, no Federal income tax provision is required.
(c) Organization and Offering Costs
Costs incurred by the Fund in connection with its organization and offering
of its common shares were $87,909 and $433,917, respectively; offering costs
were charged to capital. Organization costs have been deferred and are being
amortized to expense on a straight line basis over sixty months from
commencement of operations. Offering costs and underwriting discounts in
connection with the preferred share issuance were $303,393 and $962,500,
respectively and were charged to capital attributable to common shares at the
time of issuance of such shares.
(d) Security Transactions and Other Income
Security transactions are accounted for on the trade date. In determining
the gain or loss from the sale of securities, the cost of securities sold is
determined on the basis of identified cost. Interest income is accrued daily.
Discounts or premiums on debt securities purchased are accreted or amortized to
interest income over the lives of the respective securities.
12
<PAGE>
MUNICIPAL ADVANTAGE FUND INC.
NOTES TO FINANCIAL STATEMENTS (unaudited) (continued)
April 30, 1995
1. Organization and Significant Accounting Policies (cont'd)
(e) Dividends and Distributions--common stock
The Fund intends to declare dividends from net investment income monthly to
holders of common stock. Distributions of net capital gains, if any, will be
paid at least annually. The Fund records dividends and distributions to common
shareholders on the ex-dividend date.
2. Investment Management Fee and Other Transactions with Affiliates
The investment management fee is payable monthly to the Investment Manager,
and is computed as a percentage of the Fund's average weekly net assets at the
annual rate of .60%. 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. Investment management fees earned for the six months ended
April 30, 1995 were $428,514.
3. Purchases and Sales of Securities
For the six months ended April 30, 1995, purchases and sales of investment
securities other than short-term securities, aggregated $22,371,062 and
$22,497,045, respectively.
4. Capital
There are 100 million shares of $.001 par value common stock authorized.
The Fund's charter provides that the Board of Directors may classify or
reclassify any unissued shares of capital stock into one or more additional
classes or series, with rights determined by the Board of Directors. The Fund's
Board of Directors has authorized the reclassification of 1,100 shares of common
stock to Auction Rate Preferred Stock ("Preferred Stock").
5. Preferred Stock
The Fund has issued 1,100 shares of Preferred Stock with a liquidation
value of $50,000 per share plus any accumulated but unpaid dividends.
Dividends are cumulative at a rate set through auction procedures and are
typically reset and are paid every twenty-eight days. The dividend rate ranged
from 3.399% to 4.26% during the six months ended April 30, 1995 and was 4.12% at
April 30, 1995. Distributions of ordinary income and/or capital gains, if any,
will be paid at least annually.
The Fund is subject to certain restrictions relating to the Preferred
Stock. Failure to comply with these restrictions could preclude the Fund from
declaring any distributions to common shareholders or repurchasing common shares
and/or could trigger the mandatory redemption of Preferred Stock at liquidation
value.
The Preferred Stock, which is entitled to one vote per share, generally
votes with the common stock but votes separately as a class to elect two
Directors and on any matters affecting the rights of the Preferred Stock.
13
<PAGE>
MUNICIPAL ADVANTAGE FUND INC.
NOTES TO FINANCIAL STATEMENTS (unaudited) (continued)
April 30, 1995
6. Quarterly Data
<TABLE>
<CAPTION>
Realized and Unrealized
Net Gain (Loss) on
Investment Income Investment Income Investments-Net
----------------- ----------------- -----------------------
Per Per Per
Common Common Common
Quarter Ended Total Share Total Share Total Share
- ------------- ---------- ------- ---------- ------ ------------ -------
<S> <C> <C> <C> <C> <C> <C>
January 31, 1995.............. $2,283,921 $0.31 $1,967,434 $0.27 $ 4,208,926 $ 0.58
April 30, 1995................ 2,302,750 0.32 1,965,276 0.27 4,526,988 0.62
---------- ----- ---------- ----- ------------ ------
$4,586,671 $0.63 $3,932,710 $0.54 $ 8,735,914 $ 1.20
========== ===== ========== ===== ============ ======
January 31, 1994.............. $2,254,819 $0.31 $1,905,740 $0.26 $ 1,113,638 $ 0.15
April 30, 1994................ 2,242,578 0.31 1,899,573 0.26 (14,609,755) (2.01)
July 31, 1994................. 2,242,693 0.31 1,905,095 0.26 2,066,196 0.29
October 31, 1994.............. 2,272,030 0.31 1,946,722 0.27 (9,604,450) (1.32)
---------- ----- ---------- ----- ------------ ------
$9,012,120 $1.24 $7,657,130 $1.05 $(21,034,371) $(2.89)
========== ===== ========== ===== ============ ======
</TABLE>
7. Subsequent Events
On May 1, 1995, a dividend of $.065 per share was declared to common
shareholders payable May 31, 1995 to shareholders of record on May 15, 1995.
On June 1, 1995, a dividend of $.065 per share was declared to common
shareholders payable June 30, 1995 to shareholders of record on June 12, 1995.
14
<PAGE>
MUNICIPAL ADVANTAGE FUND INC.
FINANCIAL HIGHLIGHTS
For a common share outstanding throughout each period:
<TABLE>
<CAPTION>
Six months ended Year ended April 30, 1993 (2)
April 30, 1995 (1) October 31, 1994 to October 31, 1993
------------------ ---------------- -------------------
<S> <C> <C> <C>
Net asset value, beginning of period......................... $ 11.79 $ 14.75 $ 14.10
Income from investment operations:
Net investment income........................................ 0.54 1.05 0.43
Net realized and unrealized gain (loss)
on investments............................................. 1.20 (2.89) 0.84
----------- ----------- ------------
Total from investment operations......................... 1.74 (1.84) 1.27
----------- ----------- ------------
Dividends and distributions to shareholders:
Dividends to preferred shareholders
from net investment income................................. (0.15) (0.21) (0.07)
Dividends to common shareholders
from net investment income................................. (0.39) (0.86) (0.31)
Distributions to preferred shareholders
from net realized gains.................................... -- (0.01) --
Distributions to common shareholders
from net realized gains.................................... -- (0.04) --
----------- ----------- ------------
Total dividends and distributions
to shareholders........................................ (0.54) (1.12) (0.38)
----------- ----------- ------------
Capital charge in respect of issuance of
preferred shares........................................... -- -- (0.18)
Capital charge in respect of issuance of
common shares.............................................. -- -- (0.06)
----------- ----------- ------------
Total capital charges.................................... -- -- (0.24)
----------- ----------- ------------
Net asset value, end of period............................... $ 12.99 $ 11.79 $ 14.75
=========== =========== ============
Market value, end of period.................................. $ 11.125 $ 9.75 $ 14.125
=========== =========== ============
Total investment return (3).................................. 18.3% (25.7%) 2.4%(4)
=========== =========== ============
Net assets, end of period (5)................................ $149,290,356 $140,550,749 $162,057,409
------------ ------------ ------------
Ratio of operating expenses to
average net assets (7)..................................... 1.48%(6) 1.39% 1.17%(6)
------------ ------------ ------------
Ratio of net investment income to
average net assets (7)..................................... 8.91%(6) 7.85% 6.07%(6)
------------ ------------ ------------
Portfolio turnover........................................... 16% 22% 9%
------------ ------------ ------------
</TABLE>
- ----------
(1) Unaudited.
(2) Commencement of operations.
(3) Change in market price assuming reinvestment of dividends on payable date
(at market).
(4) Return does not reflect underwriters discount.
(5) 1940 Act Preferred Shares asset coverage were 271%, 255% and 295%,
respectively.
(6) Annualized.
(7) Ratios calculated on the basis of income and expenses applicable to both
the common and preferred shares relative to the average net assets of
common shareholders. Average net assets of common shareholders for each
period were $89,021,635, $97,502,978 and $102,609,821, respectively.
15
<PAGE>
MUNICIPAL ADVANTAGE FUND INC.
DIRECTORS AND PRINCIPAL OFFICERS
Mark C. Biderman
Director, Chairman of the Board and President
Raymond D. Horton
Director
Robert L. Rosen
Director
Jeswald W. Salacuse
Director
Robert I. Kleinberg
Director and Secretary
Robert A. Blum
Assistant Secretary
INVESTMENT MANAGER
Advantage Advisers, Inc.
One World Financial Center
New York, NY 10281
INVESTMENT ADVISER
Quest for Value Advisors
One World Financial Center
New York, NY 10281
CUSTODIAN, TRANSFER AGENT, DIVIDEND PAGING AGENT AND REGISTRAR
State Street Bank and Trust Company
P.O. Box 1713
Boston, MA 02105
INDEPENDENT ACCOUNTANTS
Price Waterhouse LLP
1177 Avenue of the Americas
New York, NY 10036
This report, including the financial information herein, is transmitted
to the shareholders of Municipal Advantage Fund Inc. for their
information. It is not a prospectus, circular or representation
intended for the use in the purchase of shares of the Fund or any
securities mentioned in this report.
SEMI-ANNUAL REPORT
APRIL 30, 1995
MUNICIPAL ADVANTAGE FUND INC.
