<PAGE>
MUNICIPAL ADVANTAGE FUND INC.
June 18, 1996
Dear Shareholder:
The Municipal Advantage Fund continued to meet its objective of providing a
high level of income exempt from regular federal income tax. Monthly dividend
payments were 6.5 cents per common share in the first fiscal half ended April
30, 1996, totaling 39 cents per common share for the six months.
The tax-exempt yield on the Fund's common shares was 7.0% as of April 30,
1996, based on the $11.125 per share closing price on the New York Stock
Exchange and the annualized monthly dividend rate. For an investor in the top
federal tax bracket of 39.6%, this yield was equivalent to 11.6% on a taxable
basis.
The Fund uses leverage to help generate income and, in this way, increase
the yield on its common shares. Besides adding to income, the use of leverage
tends to magnify capital appreciation in a rising bond market and magnify
capital losses in a declining market.
MARKET ENVIRONMENT
The first fiscal half was a period of some volatility in the bond market.
Municipal securities generally increased in price in the first quarter, then
gave up those advances in the second quarter due to investor concerns that a
stronger economy could result in higher interest rates. As measured by the
Lehman Brothers Municipal Bond Index, the market's total return (yield plus
price change) was 1.1% in the first fiscal half, including a negative total
return of 2.2% in the second fiscal quarter.
The Fund's total return was 0.1% in the first fiscal half, based on the net
asset value (NAV) per common share and assuming reinvestment of dividends. The
Fund had a negative total return of 5.0% in the second quarter, when bond prices
declined. This quarterly performance compared with an average negative total
return on NAV of 3.8% for the leveraged closed-end municipal bond funds
monitored by Lipper Analytical Services, Inc. The Fund's return on NAV ranked
52nd among the 64 funds in this Lipper universe.
For the 12 months ended April 30, 1996, the Fund provided a positive total
return on NAV of 9.3%, exceeding both the 8.0% return of the Lehman index and
the 8.4% average total return of the 64 funds in the Lipper leveraged closed-end
municipal bond fund category.
Based on the market price of its common shares on the New York Stock
Exchange and assuming reinvestment of dividends, the Fund had a negative total
return of 1.1% in the first fiscal half, including a negative return of 7.6% in
the second quarter. The Fund's discount (the amount the market price is below
NAV) widened to 17.0% as of April 30, 1996.
Nearly all closed-end municipal bond funds trade at significant discounts
to NAV. One way for owners of the Fund's common shares to capitalize on the
discount and acquire quality securities at a price well below NAV is by
reinvesting dividends, as many of our shareholders do.
<PAGE>
PREFERRED STOCK COSTS
The Fund is leveraged by its outstanding issue of auction rate preferred
stock. Dividend costs on the preferred stock averaged 3.52% annually during the
second fiscal quarter. At the latest auction on May 24, 1996, the Fund sold
91-day auction rate preferred stock at an annual rate of 3.689%, down from
3.745% on the previous 28-day issue sold on April 29. Proceeds from the
preferred stock are invested in municipal bonds that yield more than the cost of
the preferred, with the Fund realizing the difference.
PORTFOLIO PROFILE
The Fund invests in a diversified portfolio of quality tax-exempt
securities. As of April 30, 1996, 98.5% of the portfolio was invested in
long-term securities, with the remainder in short-term securities. Of the
long-term securities, 82.6% of these assets were rated A or better by Standard &
Poor's or Moody's.
The five largest market sectors in the portfolio as of April 30, 1996 were:
health and hospital, 20.7%; housing, 17.9%; general obligation, 13.0%; power and
utility, 9.2%; and water and sewer, 9.1%. The five largest portfolio positions
by state were: New York, 16.1%; Illinois, 8.5%; Texas, 6.7%; California, 6.0%;
and Michigan, 6.0%. The average maturity of the portfolio was 21 years.
TOLL-FREE UPDATE
A recorded periodic update, reviewing the municipal bond markets and
containing specific information regarding the Fund and its portfolio, including
largest holdings, asset allocation, NAV, performance and other information, is
available by calling (800) 421-4777.
Thank you for investing with us. We at the Fund, along with the Fund's
manager, Advantage Advisers, Inc., and its adviser, OpCap Advisors, appreciate
the trust you have placed in us and will continue to work hard to merit that
trust.
Sincerely,
Mark C. Biderman
President
<PAGE>
MUNICIPAL ADVANTAGE FUND INC.
SCHEDULE OF INVESTMENTS (UNAUDITED)(CONTINUED)
APRIL 30, 1996
<TABLE>
<CAPTION>
Principal Credit Rating
Amount (Moody's/S&P) Value (A)
- - ---------------------------------------------------------------------------------------------
<S> <C> <C> <C>
LONG-TERM INVESTMENTS--97.1%
ALABAMA--2.6%
$1,000,000 Alabama State Docks Department Facility Revenue,
6.15%, 10/1/14.................................. Aaa/AAA $ 994,490
1,200,000 Birmingham General Obligation Bonds,
5.625%, 4/1/13.................................. A1/AA 1,173,696
2,000,000 DCH Health Care Authority, Health Care Facilities
Revenue,
5.70%, 6/1/15................................... A1/A+ 1,851,000
------------
4,019,186
------------
CALIFORNIA--5.3%
1,000,000 Burbank Redevelopment Agency,
6.00%, 12/1/13.................................. Baa1/A- 974,530
2,500,000 California Health Facilities Financing Authority
Revenue,
6.25%, 3/1/21................................... Aa3/AA 2,516,300
1,000,000 California State Public Works Board, Lease
Revenue,
6.30%, 10/1/10.................................. A/A- 1,033,100
1,000,000 Madera County Certificates of Participation (MBIA
insured),
6.125%, 3/15/23................................. Aaa/AAA 1,077,410
1,000,000 San Francisco City & County Certificates of
Participation (CGIC insured),
5.60%, 4/1/16................................... Aaa/AAA 959,420
1,500,000 Student Education Loan Marketing Corporation,
Student Loan Revenue,
7.00%, 7/1/10................................... NR/A 1,525,365
------------
8,016,125
------------
COLORADO--5.2%
3,085,000 Colorado Health Facilities Authority Revenue (MBIA
insured),
5.95%, 5/15/12.................................. Aaa/AAA 3,117,115
Denver City & County Airport Revenue (MBIA
insured),
1,500,000 5.60%, 11/15/25................................. Aaa/AAA 1,392,045
3,500,000 5.75%, 11/15/17................................. Aaa/AAA 3,346,035
------------
7,855,195
------------
DELAWARE--.9%
1,500,000 University of Delaware, Housing & Dining Systems
Revenue,
5.50%, 11/1/15.................................. NR/AA+ 1,432,695
------------
FLORIDA--1.1%
2,000,000 Florida State Board of Education,
5.00%, 6/1/20................................... Aa/AA 1,753,720
------------
</TABLE>
3
<PAGE>
MUNICIPAL ADVANTAGE FUND INC.
SCHEDULE OF INVESTMENTS (UNAUDITED)(CONTINUED)
APRIL 30, 1996
<TABLE>
<CAPTION>
Principal Credit Rating
Amount (Moody's/S&P) Value (A)
- - ---------------------------------------------------------------------------------------------
<S> <C> <C> <C>
LONG-TERM INVESTMENTS (CONT'D)
GEORGIA--1.5%
$1,000,000 Savannah Hospital Authority Revenue,
6.125%, 7/1/12.................................. A/NR $ 1,005,820
1,260,000 Toombs County Hospital Authority Revenue,
7.00%, 12/1/17.................................. NR/BBB 1,255,729
------------
2,261,549
------------
ILLINOIS--8.5%
2,500,000 Arlington Heights General Obligation Bonds,
5.65%, 12/1/14.................................. Aa/NR 2,434,825
3,500,000 Du Page Water Commission, Water Revenue,
5.25%, 5/1/14................................... Aa/AA 3,271,835
Illinois Health Facilities Authority Revenue,
1,000,000 6.00%, 2/15/19.................................. A/A 947,670
2,855,000 9.00%, 11/15/15................................. Baa1/BBB 3,239,511
2,985,000 Illinois Housing Development Authority Revenue,
6.70%, 8/1/25................................... Aa/AA 3,039,954
------------
12,933,795
------------
KENTUCKY--.7%
1,000,000 Louisville & Jefferson Counties Metropolitan Sewer
District (AMBAC insured),
6.50%, 5/15/24.................................. Aaa/AAA 1,054,600
------------
LOUISIANA--1.0%
1,500,000 New Orleans General Obligation Bonds (AMBAC
Insured),
6.125%, 10/1/16................................. Aaa/AAA 1,524,735
------------
MAINE--1.8%
1,700,000 Maine Municipal Bond Bank,
5.80%, 11/1/20.................................. Aa/A+ 1,627,257
1,000,000 Maine State Housing Authority, Mortgage Purchase,
7.55%, 11/15/22................................. A1/AA- 1,049,050
------------
2,676,307
------------
MARYLAND--1.4%
2,000,000 Maryland State Community Development
Administration (FHA insured),
7.60%, 4/1/23................................... Aa/NR 2,090,340
------------
</TABLE>
4
<PAGE>
MUNICIPAL ADVANTAGE FUND INC.
SCHEDULE OF INVESTMENTS (UNAUDITED)(CONTINUED)
APRIL 30, 1996
<TABLE>
<CAPTION>
Principal Credit Rating
Amount (Moody's/S&P) Value (A)
- - ----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
LONG-TERM INVESTMENTS (CONT'D)
MASSACHUSETTS--2.7%
$2,250,000 Massachusetts State Health & Education Facilities
Authority Revenue,
6.25%, 12/1/22.................................. A1/A $ 2,235,420
2,000,000 Massachusetts State Water Resource Authority,
5.25%, 3/1/13................................... A/A 1,858,240
------------
4,093,660
------------
MICHIGAN--6.0%
1,700,000 Dearborn School District,
6.00%, 5/1/14................................... Aa/AA 1,713,957
1,000,000 Ferndale School District (FGIC insured),
5.375%, 5/1/21.................................. Aaa/AAA 933,040
1,000,000 Grand Rapids Water Supply Systems Revenue (FGIC
insured),
6.50%, 1/1/15................................... Aaa/AAA 1,059,090
Michigan State Hospital Finance Authority Revenue,
2,490,000 5.375%, 10/15/13................................ A1/NR 2,302,677
2,000,000 8.125%, 10/1/21................................. Baa/BBB 2,163,260
1,000,000 Michigan State Pollution Control Revenue,
6.20%, 9/1/20................................... A3/A- 994,670
------------
9,166,694
------------
MINNESOTA--5.3%
Minnesota State Housing Finance Agency,
1,650,000 6.00%, 2/1/14................................... NR/AA 1,639,143
3,950,000 6.10%, 8/1/22................................... NR/AA 3,913,818
2,500,000 6.25%, 8/1/22................................... NR/AA 2,506,325
------------
8,059,286
------------
NEVADA--4.8%
2,000,000 Clark County General Obligation Bonds
(MBIA insured),
6.00%, 6/1/13................................... Aaa/AAA 2,032,060
Clark County Passenger Facility Charge Revenue
(MBIA insured),
1,500,000 5.75%, 7/1/23................................... Aaa/AAA 1,409,835
4,000,000 6.00%, 7/1/17................................... Aaa/AAA 3,896,800
------------
7,338,695
------------
NEW HAMPSHIRE--1.9%
1,000,000 New Hampshire Higher Educational & Health
Facilities Authority Revenue,
6.125%, 10/1/13................................. Baa/NR 937,440
</TABLE>
5
<PAGE>
MUNICIPAL ADVANTAGE FUND INC.
SCHEDULE OF INVESTMENTS (UNAUDITED)(CONTINUED)
APRIL 30, 1996
<TABLE>
<CAPTION>
Principal Credit Rating
Amount (Moody's/S&P) Value (A)
- - ----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
LONG-TERM INVESTMENTS (CONT'D)
NEW HAMPSHIRE (CONT'D)
New Hampshire State Housing Finance Authority,
$1,000,000 6.50%, 7/1/14................................... Aa/NR $ 1,014,950
1,000,000 6.90%, 7/1/19................................... Aa/NR 1,027,810
------------
2,980,200
------------
NEW YORK--16.0%
2,000,000 Metropolitan Transportation Authority,
Transportation Facilities Revenue,
6.00%, 7/1/14................................... Baa/BBB+ 1,948,060
New York City General Obligation Bonds,
300,000 5.75%, 2/1/12................................... Baa1/BBB+ 280,509
1,300,000 6.00%, 8/1/09................................... Baa1/BBB+ 1,258,361
2,000,000 6.00%, 5/15/10.................................. Baa1/BBB+ 1,926,540
1,000,000 6.00%, 2/1/11................................... Baa1/BBB+ 962,980
1,000,000 6.95%, 8/15/12 (MBIA insured)................... Aaa/AAA 1,085,090
2,270,000 7.00%, 10/1/09.................................. Baa1/BBB+ 2,393,987
2,000,000 New York City Industrial Development Agency,
Special Facilities Revenue,
6.125%, 1/1/24.................................. A/A 1,938,960
3,550,000 New York City Municipal Water Finance Authority,
Water & Sewer Systems Revenue,
6.00%, 6/15/25.................................. A/A- 3,482,656
New York State Dormitory Authority Revenues,
1,500,000 5.75%, 5/15/24.................................. Baa1/BBB+ 1,382,775
500,000 6.25%, 7/1/25................................... Baa1/BBB- 492,040
1,500,000 6.75%, 7/1/24 (MBIA insured).................... Aaa/AAA 1,612,935
1,000,000 7.65%, 8/1/30 (FHA insured)..................... NR/AAA 1,099,500
1,500,000 New York State Local Government Assistance
Corporation,
6.50%, 4/1/20................................... A/A 1,537,605
1,000,000 New York State Medical Care Facilities, Finance
Agency Revenue,
6.50%, 8/15/24.................................. Baa1/BBB+ 1,011,840
1,000,000 New York State Thruway Authority, Service Contract
Revenue,
5.875%, 4/1/14.................................. Baa1/BBB 950,560
New York State Urban Development Corporation,
Correctional Capital Facility,
500,000 5.375%, 1/1/25.................................. Baa1/BBB 436,560
565,000 5.625%, 1/1/07.................................. Baa1/BBB 551,033
------------
24,351,991
------------
</TABLE>
6
<PAGE>
MUNICIPAL ADVANTAGE FUND INC.
SCHEDULE OF INVESTMENTS (UNAUDITED)(CONTINUED)
APRIL 30, 1996
<TABLE>
<CAPTION>
Principal Credit Rating
Amount (Moody's/S&P) Value (A)
- - ----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
LONG-TERM INVESTMENTS (CONT'D)
NORTH CAROLINA--2.9%
North Carolina Municipal Power Agency, No. 1
Catawba Electric Revenue (MBIA insured)
$1,000,000 5.00%, 1/1/18................................... Aaa/AAA $ 882,850
3,700,000 5.75%, 1/1/15................................... Aaa/AAA 3,596,622
------------
4,479,472
------------
OHIO--1.5%
2,500,000 Lucas County Hospital Revenue (MBIA insured),
5.50%, 8/15/14 (B).............................. Aaa/AAA 2,362,250
------------
PENNSYLVANIA--3.0%
4,600,000 Philadelphia Hospital & Higher Education
Facilities Authority, Hospital Revenue,
6.60%, 7/1/10................................... NR/BBB 4,516,602
------------
SOUTH CAROLINA--1.5%
1,000,000 Greenville County Public Facilities Corporation
(AMBAC insured),
5.70%, 4/1/17................................... Aaa/AAA 962,160
1,450,000 York County Industrial Revenue,
5.70%, 1/1/24................................... A2/A+ 1,346,934
------------
2,309,094
------------
TENNESSEE--3.5%
2,020,000 Shelby County General Obligation Notes,
5.80%, 4/1/19................................... Aa/AA+ 2,009,759
3,410,000 Tennessee Housing Development Agency, Mortgage
Finance,
5.90%, 7/1/18................................... A1/A+ 3,339,515
------------
5,349,274
------------
TEXAS--6.3%
1,000,000 Austin Hotel Occupancy Tax Revenue (AMBAC
insured),
5.125%, 11/15/19................................ Aaa/AAA 898,520
1,500,000 Brownsville Utility System Revenue (AMBAC
insured),
5.25%, 9/1/15................................... Aaa/AAA 1,396,485
1,000,000 Harris County Toll Road Subordinated Lien,
6.50%, 8/15/15.................................. Aa/AA- 1,046,120
Houston Water Conveyance System, Contract
Certificates of Participation (AMBAC insured),
1,000,000 6.25%, 12/15/14................................. Aaa/AAA 1,072,090
1,400,000 7.50%, 12/15/15................................. Aaa/AAA 1,702,778
3,500,000 San Antonio Electric & Gas Revenue,
6.00%, 2/1/14................................... Aa1/AA 3,513,090
------------
9,629,083
------------
</TABLE>
7
<PAGE>
MUNICIPAL ADVANTAGE FUND INC.
SCHEDULE OF INVESTMENTS (UNAUDITED)(CONTINUED)
APRIL 30, 1996
<TABLE>
<CAPTION>
Principal Credit Rating
Amount (Moody's/S&P) Value (A)
- - ----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
LONG-TERM INVESTMENTS (CONT'D)
UTAH--3.1%
$3,500,000 Intermountain Power Agency, Power Supply Revenue,
5.00%, 7/1/21................................... Aa/AA- $ 3,022,110
Utah Housing Finance Agency (FHA insured),
1,145,000 6.35%, 7/1/11..................................... Aa/NR 1,160,274
480,000 6.55%, 7/1/26..................................... Aa/NR 489,216
------------
4,671,600
------------
VERMONT--1.2%
1,690,000 Vermont Housing Finance Agency (FHA insured),
7.85%, 12/1/29.................................... A1/A- 1,769,075
------------
VIRGINIA--2.8%
4,200,000 Virginia Housing Development Authority,
6.50%, 1/1/13..................................... Aa1/AA+ 4,264,050
------------
WASHINGTON--1.5%
1,000,000 King County School District No. 415,
6.45%, 12/1/12.................................... A1/AA- 1,060,050
1,160,000 Seattle Museum Development Authority,
6.30%, 7/1/13..................................... Aa1/AA+ 1,201,018
------------
2,261,068
------------
WISCONSIN--1.3%
2,000,000 Janesville Pollution Control Revenue,
5.55%, 4/1/09..................................... A3/A- 1,926,380
------------
PUERTO RICO--1.8%
1,565,000 Puerto Rico Commonwealth Highway & Transportation
Authority, Highway Revenue,
5.75%, 7/1/18..................................... Baa1/A 1,482,399
1,250,000 Puerto Rico Electric Power Authority, Power
Revenue,
6.00%, 7/1/15..................................... Baa1/A- 1,240,038
------------
2,722,437
------------
Total Long-Term Investments (cost -
$148,061,638)................................... $147,869,158
------------
</TABLE>
8
<PAGE>
MUNICIPAL ADVANTAGE FUND INC.
SCHEDULE OF INVESTMENTS (UNAUDITED)(CONTINUED)
APRIL 30, 1996
<TABLE>
<CAPTION>
Principal Credit Rating
Amount (Moody's/S&P) Value (A)
- - --------------------------------------------------------------------------------
<S> <C> <C> <C>
SHORT-TERM INVESTMENTS--1.4%
CALIFORNIA--.7%
$300,000 Irvine Ranch Water District,
Certificates of Participation, VRDN*,
3.60%, 5/1/96........................ VMIG1/NR $ 300,000
900,000 Regional Airports Improvement
Corporation,
Los Angeles International Airport,
VRDN*,
4.15%, 5/1/96........................ NR/A-1+ 900,000
------------
1,200,000
------------
DELAWARE--.2%
$300,000 Delaware State Economic Development
Authority Revenue, VRDN*,
4.30%, 5/1/96.......................... VMIG1/A-1 300,000
------------
NEW YORK--.1%
100,000 Babylon Industrial Development Agency,
Resource Recovery Revenue, VRDN*,
4.10%, 5/1/96........................ NR/A-1+ 100,000
------------
TEXAS--.4%
600,000 Grapevine Industrial Development
Corporation
Revenue, VRDN*,
4.05%, 5/1/96.......................... Aa1/NR 600,000
------------
Total Short-Term Investments (cost -
$2,200,000).......................... $ 2,200,000
------------
Total Investments (cost -
$150,261,638)........................ 98.5% $150,069,158
Other Assets in Excess of Other
Liabilities.......................... 1.5 2,280,387
----- ------------
Total Net Assets....................... 100.0% $152,349,545
----- ------------
----- ------------
</TABLE>
- - --------------------------------------------------------------------------------
(A) Investment debt securities are valued each week by an independent pricing
service approved by the Board of Directors.
(B) Security has an 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 (Public Securities Association) index.
* 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 date shown is date of next rate change.
See accompanying notes to financial statements.
9
<PAGE>
MUNICIPAL ADVANTAGE FUND INC.
STATEMENT OF ASSETS AND LIABILITIES (UNAUDITED)
APRIL 30, 1996
<TABLE>
<S> <C>
ASSETS
Investments, at value (cost--$150,261,638)...... $ 150,069,158
Cash............................................ 65,719
Interest receivable............................. 2,807,971
Deferred organization expenses.................. 35,212
Prepaid expenses................................ 26,149
---------------
Total Assets................................. 153,004,209
---------------
LIABILITIES
Investment management fee payable............... 75,209
Dividends payable attributable to common
shares....................................... 471,711
Dividends payable attributable to preferred
shares....................................... 5,726
Other payables and accrued expenses............. 102,018
---------------
Total Liabilities............................ 654,664
---------------
NET ASSETS
Preferred stock ($.001 par value and $50,000 net
asset and liquidation value per share
applicable to 1,100 shares issued)........... 55,000,000
---------------
Common stock:
Par value ($.001 per share, applicable to
7,257,093 shares issued).................... 7,257
Paid-in-surplus.............................. 100,618,353
Undistributed net investment income............. 279,903
Accumulated net realized loss on investments.... (3,363,488)
Net unrealized depreciation on investments...... (192,480)
---------------
Net assets applicable to common
shareholders................................ 97,349,545
---------------
Total Net Assets........................... $ 152,349,545
---------------
---------------
Net asset value per common share........... $13.41
------
------
</TABLE>
See accompanying notes to financial statements.
10
<PAGE>
MUNICIPAL ADVANTAGE FUND INC.
STATEMENT OF OPERATIONS (UNAUDITED)
FOR THE SIX MONTHS ENDED APRIL 30, 1996
<TABLE>
<S> <C>
INVESTMENT INCOME
Interest........................................ $ 4,624,672
---------------
OPERATING EXPENSES
Investment management fee (note 2).............. 466,290
Auction fees and commissions.................... 75,002
Auditing, consulting and tax return preparation
fees......................................... 35,168
Reports and notices to shareholders............. 21,851
Custodian fees (note 2)......................... 21,626
Legal fees...................................... 19,891
Directors' fees and expenses.................... 13,476
Transfer and dividend disbursing agent fees..... 12,175
Amortization of deferred organization
expenses..................................... 8,743
Stock exchange listing fee...................... 8,374
Miscellaneous................................... 12,712
---------------
Total operating expenses..................... 695,308
Less: Expense offset arrangement (note 2).. (2,320)
---------------
Net operating expenses..................... 692,988
---------------
Net investment income................... 3,931,684
---------------
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS--NET
Net realized loss on investments................ (62,205)
Net change in unrealized appreciation
(depreciation) on investments................ (2,572,511)
---------------
Net realized loss and change in unrealized
appreciation (depreciation) on
investments................................. (2,634,716)
---------------
Net increase in net assets resulting from
operations................................... $ 1,296,968
---------------
---------------
</TABLE>
See accompanying notes to financial statements.
11
<PAGE>
MUNICIPAL ADVANTAGE FUND INC.
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
APRIL 30, OCTOBER 31,
1996 (1) 1995
---------------- ------------
<S> <C> <C>
OPERATIONS
Net investment income................. $ 3,931,684 $ 7,866,577
Net realized loss on investments...... (62,205) (2,041,826)
Net change in unrealized appreciation
(depreciation) on investments...... (2,572,511) 16,416,958
---------------- ------------
Net increase in net assets
resulting from operations......... 1,296,968 22,241,709
---------------- ------------
DIVIDENDS AND DISTRIBUTIONS TO
SHAREHOLDERS
Dividends to preferred shareholders
from net investment income......... (1,025,541) (2,223,538)
Dividends to common shareholders from
net investment income.............. (2,830,267) (5,660,535)
---------------- ------------
Total dividends to shareholders.... (3,855,808) (7,884,073)
---------------- ------------
Total increase (decrease) in net
assets.......................... (2,558,840) 14,357,636
NET ASSETS
Beginning of period................... 154,908,385 140,550,749
---------------- ------------
End of period (including undistributed
net investment income of $279,903
and $204,027, respectively)........ $152,349,545 $154,908,385
---------------- ------------
---------------- ------------
</TABLE>
- - ------------------
(1) Unaudited.
See accompanying notes to financial statements.
12
<PAGE>
MUNICIPAL ADVANTAGE FUND INC.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
APRIL 30, 1996
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 OpCap
Advisors (formerly called 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
objectives 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 preparation of the financial statements in accordance with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts and disclosures in the financial
statements. The following is a summary of significant accounting policies
consistently followed by the Fund:
(A) VALUATION OF INVESTMENTS
Investment debt securities are valued each week by an independent pricing
service approved by the Board of Directors. Any security or other asset for
which market quotations are not readily available is valued at its fair value as
determined in good faith under procedures established by the Board of Directors.
The Fund invests substantially all of its assets in a diversified portfolio of
debt obligations issued by states, territories and possessions of the United
States and by the District of Columbia and their political subdivisions. The
issuers' abilities to meet their obligations may be affected by economic and
political developments in a specific state or region.
(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.
13
<PAGE>
MUNICIPAL ADVANTAGE FUND INC.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)(CONTINUED)
APRIL 30, 1996
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
Discounts or premiums on debt securities purchased are accreted or amortized to
interest income over the lives of the respective securities.
(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
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, 1996 were $466,290.
The Fund also benefits from an expense arrangement with the custodian bank
where uninvested cash balances earn credits that reduce monthly fees. Had these
cash balances been invested in an income producing asset, they would have
generated income for the Fund.
3. PURCHASES AND SALES OF SECURITIES
For the six months ended April 30, 1996, purchases and sales of investment
securities other than short-term securities, aggregated $18,630,493 and
$20,445,225, 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. AUCTION RATE 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 paid every twenty-eight days. The dividend rate ranged from
3.48% to 3.899% during the six months ended April 30, 1996 and was 3.748% at
April 30, 1996. Distributions of 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.
14
<PAGE>
MUNICIPAL ADVANTAGE FUND INC.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)(CONTINUED)
APRIL 30, 1996
6. QUARTERLY RESULTS OF OPERATIONS
<TABLE>
<CAPTION>
NET
INVESTMENT INCOME INVESTMENT INCOME REALIZED AND UNREALIZED
------------------- ------------------- GAIN (LOSS) ON
PER PER INVESTMENT NET
COMMON COMMON -------------------------------------------------
QUARTER ENDED TOTAL SHARE TOTAL SHARE TOTAL PER COMMON SHARE
- - ------------------------------- ---------- ------ ---------- ------ ----------------------- -----------------------
<S> <C> <C> <C> <C> <C> <C>
January 31, 1996............... $2,317,542 $0.32 $1,965,199 $0.27 $ 4,006,198 $ 0.55
April 30, 1996................. 2,307,130 0.32 1,966,485 0.27 (6,640,914) (0.92)
---------- ------ ---------- ------ ------------ ------
$4,624,672 $0.64 $3,931,684 $0.54 ($2,634,716) ($ 0.37)
---------- ------ ---------- ------ ------------ ------
---------- ------ ---------- ------ ------------ ------
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
July 31, 1995.................. 2,297,040 0.32 1,953,419 0.27 1,803,701 0.25
October 31, 1995............... 2,325,120 0.32 1,980,448 0.27 3,835,517 0.53
---------- ------ ---------- ------ ------------ ------
$9,208,831 $1.27 $7,866,577 $1.08 $14,375,132 $ 1.98
---------- ------ ---------- ------ ------------ ------
---------- ------ ---------- ------ ------------ ------
<CAPTION>
NET INCREASE
(DECREASE)
IN NET ASSETS
RESULTING FROM
OPERATIONS
--------------------
PER
COMMON
QUARTER ENDED TOTAL SHARE
- - ------------------------------- ----------- ------
<S> <C> <C>
January 31, 1996............... $ 5,971,397 $0.82
April 30, 1996................. (4,674,429) (0.65)
----------- -----
$ 1,296,968 $0.17
----------- -----
----------- -----
January 31, 1995............... $ 6,176,360 $0.85
April 30, 1995................. 6,492,264 0.89
July 31, 1995.................. 3,757,120 0.52
October 31, 1995............... 5,815,965 0.80
----------- -----
$22,241,709 $3.06
----------- -----
----------- -----
</TABLE>
7. SUBSEQUENT EVENTS
On May 1, 1996, a dividend of $.065 per share was declared to common
shareholders payable June 4, 1996 to shareholders of record on May 21, 1996.
On June 3, 1996, a dividend of $.065 per share was declared to common
shareholders payable July 2, 1996 to shareholders of record on June 19, 1996.
15
<PAGE>
MUNICIPAL ADVANTAGE FUND INC.
FINANCIAL HIGHLIGHTS
FOR A COMMON SHARE OUTSTANDING THROUGHOUT EACH PERIOD:
<TABLE>
<CAPTION>
APRIL 30,
1993(1)
SIX MONTHS ENDED YEAR ENDED YEAR ENDED TO
APRIL 30, 1996 OCTOBER 31, 1995 OCTOBER 31, 1994 OCTOBER 31, 1993
---------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C>
Net asset value, beginning of period....... $ 13.77 $ 11.79 $ 14.75 $ 14.10
Income from investment operations:
Net investment income...................... 0.54 1.08 1.05 0.43
Net realized and unrealized gain (loss) on
investments.............................. (0.37) 1.98 (2.89) 0.84
------------ ------------ ------------ ------------
Total from investment operations....... 0.17 3.06 (1.84) 1.27
------------ ------------ ------------ ------------
Dividends and distributions to
shareholders:
Dividends to preferred shareholders from
net investment income.................... (0.14) (0.30) (0.21) (0.07)
Dividends to common shareholders from net
investment income........................ (0.39) (0.78) (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......................... (0.53) (1.08) (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............. $ 13.41 $ 13.77 $ 11.79 $ 14.75
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
Market value, end of period................ $ 11.125 $ 11.625 $ 9.75 $ 14.125
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
Total investment return(2)................. (1.1%) 27.9% (25.7%) 2.4% (3)
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
Net assets, end of period(4)............... $152,349,545 $154,908,385 $140,550,749 $162,057,409
------------ ------------ ------------ ------------
Ratio of operating expenses to average net
assets(6)................................ 1.38%(5,7) 1.44% 1.39% 1.17% (5)
------------ ------------ ------------ ------------
Ratio of net investment income to average
net assets(6)............................ 7.81% (5) 8.44% 7.85% 6.07% (5)
------------ ------------ ------------ ------------
Portfolio turnover......................... 12% 36% 22% 9%
------------ ------------ ------------ ------------
</TABLE>
- - --------------------------------------------------------------------------------
(1) Commencement of operations.
(2) Change in market price assuming reinvestment of dividends and distributions
on payable date (at market).
(3) Return does not reflect underwriters' discount.
(4) 1940 Act Preferred Shares asset coverage were 277%, 281%, 255% and 295%,
respectively.
(5) Annualized.
(6) 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 $101,284,122, $93,172,629, $97,502,978 and $102,609,821, respectively.
(7) Gross of expense offsets (see note 2 in Notes to Financial Statements).
16
<PAGE>
ANNUAL SHAREHOLDERS MEETING
The Fund held its annual shareholders meeting on February 23, 1996. At the
meeting, preferred shareholders voted separately as a single class on the
election of the nominee proposed for election. Common and preferred shareholders
voted together on the election of the nominee proposed for election and ratified
the selection of Price Waterhouse LLP as the independent accountants of the
Fund. The following table provides information concerning the matters voted on
at the meeting:
1. ELECTION OF DIRECTOR (PREFERRED SHARES VOTING ONLY)
<TABLE>
<CAPTION>
NOMINEE VOTES FOR VOTES AGAINST WITHHELD AUTHORITY
- - ---------------------------------------- --------- -------------- -------------------
<S> <C> <C> <C>
Mark C. Biderman 585 0 0
</TABLE>
2. ELECTION OF DIRECTOR (COMMON/PREFERRED SHARES VOTING)
<TABLE>
<CAPTION>
NOMINEE VOTES FOR VOTES AGAINST WITHHELD AUTHORITY
- - ---------------------------------------- --------- -------------- -------------------
<S> <C> <C> <C>
Raymond D. Horton 6,399,195 2,832 125,865
</TABLE>
3. RATIFICATION OF PRICE WATERHOUSE LLP AS THE INDEPENDENT ACCOUNTANTS OF THE
FUND
<TABLE>
<CAPTION>
VOTES FOR VOTES AGAINST WITHHELD AUTHORITY
- - ---------------------------------------- -------------- -------------------
<S> <C> <C>
6,394,186 76,284 57,993
</TABLE>
The following table provides information concerning the Directors of the Fund:
<TABLE>
<CAPTION>
DIRECTOR TERM EXPIRATION
- - ------------------------------ -------------------
<S> <C>
Robert I. Kleinberg 1997 Annual Meeting
Jeswald W. Salacuse 1997 Annual Meeting
Robert L. Rosen* 1998 Annual Meeting
Mark C. Biderman* 1999 Annual Meeting
Raymond D. Horton 1999 Annual Meeting
</TABLE>
* Preferred stock director
17
<PAGE>
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<PAGE>
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<PAGE>
MUNICIPAL ADVANTAGE FUND INC.
SEMI-ANNUAL REPORT
April 30, 1996
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
OpCap Advisors
One World Financial Center
New York, NY 10281
TRANSFER AGENT, DIVIDEND PAYING AGENT AND REGISTRAR
BostonEquiServe L.P.
Post Office Box 8200
Boston, MA 02266
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 use in the purchase of shares of
the Fund or any securities mentioned in this report.
MUNICIPAL ADVANTAGE FUND INC.
