<PAGE>
MUNICIPAL ADVANTAGE FUND INC.
December 11, 1997
Dear Shareholder:
The Municipal Advantage Fund achieved excellent results in the fiscal year
ended October 31, 1997, generating a total return on net asset value (dividends
plus change in net asset value per share, assuming reinvestment of dividends) of
11.0%. This performance surpassed both the 8.5% return of the Lehman Brothers
Municipal Bond Index (Lehman Index) and the 9.7% average total return for the
leveraged closed-end general municipal bond funds monitored by Lipper Analytical
Services, Inc. The Fund's performance ranked 12th among the 64 funds in this
Lipper universe. The Fund provided an even higher total return of 18.4% at
market, again assuming reinvestment of dividends. Return at market is based on
the price change of the Fund's common shares on the New York Stock Exchange.
RESULTS FOR THE FOURTH QUARTER
The Fund invests in a diversified portfolio of quality municipal securities
and uses leverage from its preferred shares to generate additional income. Most
of the Fund's return for the year came in the third fiscal quarter, when prices
of municipal bonds rose sharply.
By contrast, the fourth quarter was a period of only modest total returns
for municipal securities, as bond prices remained unchanged or declined. The
Fund's total return in the fourth quarter was 0.4% at NAV and 1.5% at market,
compared with 0.9% for the Lehman Index and an average total return at NAV of
0.7% for the leveraged closed-end general municipal bond funds monitored by
Lipper. The Fund's fourth-quarter NAV performance was 53rd among the 65 funds in
this Lipper category.
Municipal securities underperformed taxable bonds in the fourth quarter due
primarily to supply imbalances. The recent underperformance of municipal
securities has, in our view, created a buying opportunity. At the end of
October, yields on long-term triple-A municipal securities were equal to about
88% of the yield on long-term U.S. Treasuries, well above the historic norm of
about 80%. This suggests that quality municipals currently offer attractive
yields relative to the after-tax returns of alternative investments.
INVESTMENT ACTIVITIES IN THE FISCAL YEAR
Our strong performance for the year was achieved by being disciplined in our
value approach. In selecting securities, we look for sector, maturity and
quality groups of the municipal bond market that we believe provide the best
relative value--that is, the highest yield at the lowest price with the least
amount of risk.
During the year, we increased the Fund's holdings of higher-quality
securities. Yield 'spreads' (the difference between the yields of higher-rated
and lower-rated issues) narrowed, with the result that many lower-rated issues
do not, in our view, offer a sufficient yield advantage at this time to justify
their additional risk. As of October 31, 1997, of the long-term securities owned
by the Fund, 85.4% of the assets were rated A or better by Standard & Poor's or
Moody's.
To capture additional yield, we increased the Fund's holdings of insured
bonds. These bonds carry the highest rating, triple A, and provide somewhat
higher yields than non-insured triple-A bonds. About 40% of the Fund's portfolio
was invested in insured securities at October 31, 1997.
The Fund's performance during the year benefited also from our strategy of
selling bonds in the Fund's portfolio as their market price reached par (face
value), reinvesting the proceeds in non-callable issues and bonds trading at a
discount to par. In a rising market, non-callable and discount bonds tend to
outperform issues trading at par or higher.
DIVIDENDS AND YIELD
The Fund's objective is to provide a high level of income exempt from
regular federal income tax, consistent with preservation of capital. During the
fiscal year, the Fund paid regular monthly dividends of 6.65 cents per common
share, or a total of 79.8 cents per share for the year.
The yield on the Fund's common shares (based on the $13.1875 per share
closing market price on October 31, 1997 and the annualized current monthly
dividend rate of 6.65 cents per common share) was 6.1% at the end of the fiscal
year. For an investor in the top federal tax bracket of 39.6%, the Fund's yield
was equivalent to 10.0% on a taxable basis.
PREFERRED STOCK COSTS
The Fund uses leverage from its preferred shares to help generate income. At
the latest auction on November 24, 1997, the Fund sold 91-day auction rate
preferred stock at an annual dividend rate of 3.90%, up from 3.75% on the
previous 91-day issue. Proceeds from the preferred stock are invested in
municipal bonds that yield more than the cost of the preferred, with the Fund's
common shares realizing the difference. 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.
<PAGE>
PORTFOLIO ANALYSIS
We seek to control risk and maximize returns not only by emphasizing
investment quality, but also by diversifying the Fund's portfolio across states
and market sectors. The five largest portfolio positions by state as of October
31, 1997 were: New York, representing 17.8% of the Fund's net assets; Texas,
13.5%; California, 10.8%; Colorado, 5.8%; and Minnesota, 4.1%. Other than
increasing the Fund's holdings of Texas securities from 10.4% on July 31, 1997,
there were no significant changes in state allocation during the fourth quarter.
The five largest market sectors in the portfolio were: general obligation,
18.4% of the Fund's net assets; health and hospital, 16.7%; housing, 16.3%;
water and sewer, 13.4%; and airline and airport, 8.3%. We increased the Fund's
holdings of general obligation bonds in the quarter and the year because we see
value in this sector in light of the current environment of economic growth and
strong state treasuries. At October 31, 1997, the portfolio was fully invested
in long-term securities. The average maturity of the portfolio was 21.8 years.
MARKET DISCOUNT OF COMMON STOCK
The Fund's common shares trade in the market at a discount to NAV, as is
true of most closed-end municipal bond funds. However, because the market price
increased faster than the NAV, the discount narrowed quarter by quarter during
the fiscal year. The discount was 9.9% on October 31, 1997, down from 14.9% a
year earlier. One way for owners of the Fund's common shares to capitalize on
the discount and acquire an interest in quality securities at a price below NAV
is by reinvesting dividends, as many of the Fund's shareholders do.
RECORDED UPDATE
For 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,
please call our toll-free number, (800) 223-2413.
RECENT DEVELOPMENTS
We want to bring you up to date on recent events related to Value Advisors
LLC, the Fund's new investment manager, and OpCap Advisors, which provides
advisory and administrative services to the Fund.
On November 4, 1997, PIMCO Advisors L.P. acquired the one-third managing
general partner interest in Oppenheimer Capital, the parent of OpCap Advisors;
the 1% general partner interest in Oppenheimer Capital, L.P., which owned the
other two-thirds of Oppenheimer Capital; and 100% of the securities of Value
Advisors LLC (these transactions are referred to collectively as the
'Acquisition'). These interests were acquired by PIMCO Advisors L.P. from
Oppenheimer Group, Inc. and its subsidiary, Oppenheimer Financial Corp. On
December 1, 1997 PIMCO Advisors L.P. completed the acquisition of Oppenheimer
Capital by acquiring the two-thirds interest owned by Oppenheimer Capital, L.P.
Prior to the Acquisition, Advantage Advisers, Inc., a subsidiary of
Oppenheimer Group, had served as the Fund's investment manager. On October 14,
1997, shareholders of the Fund approved a management agreement with Value
Advisors LLC, which became effective with the Acquisition. Shareholders also
approved a new advisory and administrative agreement with OpCap Advisors, which
likewise became effective with the Acquisition.
Value Advisors LLC and OpCap Advisors are now part of PIMCO Advisors L.P.,
one of the premier investment firms in the world, with more than $190 billion of
assets under management. These transactions do not affect the Fund's investment
objective or management style, which remains unchanged.
OUTLOOK
Looking to the period immediately ahead, investment markets continue to be
characterized by a favorable environment of low inflation and moderate economic
growth. We believe high-quality tax-exempt municipal securities offer good value
at this time, providing tax-exempt yields well above the rate of inflation.
Thank you for investing with us. We remain dedicated, as always, to serving
your investment needs and meeting the Fund's objective of providing a high level
of income exempt from federal income tax.
Sincerely,
/s/ Stephen Treadway
Stephen Treadway
Chairman
<PAGE>
MUNICIPAL ADVANTAGE FUND INC.
SCHEDULE OF INVESTMENTS (CONTINUED)
OCTOBER 31, 1997
<TABLE>
<CAPTION>
Credit
Principal Rating*
Amount (Moody's/S&P) Value
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
LONG-TERM INVESTMENTS--98.4%
ALABAMA--1.9%
$1,000,000 Alabama State Docks Department Facility Revenue
(MBIA insured), 6.15%, 10/1/14............................ Aaa/AAA $ 1,072,290
2,000,000 DCH Health Care Authority, Health Care Facilities Revenue,
5.70%, 6/1/15............................................. A1/A+ 2,050,320
---------------
3,122,610
---------------
CALIFORNIA--10.8%
1,000,000 Burbank Redevelopment Agency,
6.00%, 12/1/13............................................ Baa1/A- 1,039,490
2,500,000 California Health Facilities Financing Authority Revenue,
6.25%, 3/1/21............................................. Aa3/NR 2,631,525
1,000,000 California State Public Works Board, Lease Revenue,
6.30%, 10/1/10............................................ A/A 1,096,790
1,000,000 Lafayette Elementary School District (FSA insured),
5.90%, 5/15/17............................................ Aaa/AAA 1,059,890
4,000,000 Los Angeles Harbor Department Revenue,
5.375%, 11/1/23........................................... Aa3/AA 3,898,880
1,000,000 Los Angeles Regional Airports Revenue,
6.70%, 1/1/22............................................. NR/A- 1,066,940
1,000,000 Madera County Certificates of Participation (MBIA insured),
6.125%, 3/15/23........................................... Aaa/AAA 1,064,810
1,000,000 Riverside County Asset Leasing Corporation, Leasehold
Revenue, (MBIA insured), 5.00%, 6/1/19.................... Aaa/AAA 955,470
2,000,000 San Diego Public Facilities Financing Authority, Sewer
Revenue (FGIC insured), 5.25%, 5/15/27.................... Aaa/AAA 1,967,500
1,000,000 Southern California Metropolitan Water District, Waterworks
Revenue (MBIA insured), 5.00%, 7/1/27..................... Aaa/AAA 956,750
1,500,000 Student Education Loan Marketing Corporation,
Student Loan Revenue, 7.00%, 7/1/10....................... NR/A 1,630,305
---------------
17,368,350
COLORADO--5.8%
3,085,000 Colorado Health Facilities Authority Revenue (MBIA insured),
5.95%, 5/15/12............................................ Aaa/AAA 3,247,734
Denver City & County Airport Revenue (MBIA insured), 1,506,825
1,500,000 5.60%, 11/15/25........................................... Aaa/AAA
4,500,000 5.75%, 11/15/17........................................... Aaa/AAA 4,613,715
---------------
9,368,274
---------------
---------------
</TABLE>
<PAGE>
MUNICIPAL ADVANTAGE FUND INC.
SCHEDULE OF INVESTMENTS (CONTINUED)
OCTOBER 31, 1997
<TABLE>
<CAPTION>
Credit
Principal Rating*
Amount (Moody's/S&P) Value
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
LONG-TERM INVESTMENTS (CONT'D.)
FLORIDA--1.2%
$2,000,000 Florida State Board of Education,
5.00%, 6/1/20............................................. Aa2/AA+ $1,918,900
----------
GEORGIA--1.5%
1,000,000 Savannah Hospital Authority Revenue,
6.125%, 7/1/12............................................ A2/NR 1,065,590
1,260,000 Toombs County Hospital Authority Revenue,
7.00%, 12/1/17............................................ NR/BBB 1,358,381
----------
2,423,971
----------
HAWAII--1.0%
1,500,000 Hawaii General Obligation Bonds,
5.125%, 2/1/09............................................ Aa3/A+ 1,551,120
----------
ILLINOIS--3.8%
2,740,000 Illinois Health Facilities Authority Revenue,
9.00%, 11/15/15........................................... Baa1/NR 3,214,513
2,750,000 Illinois Housing Development Authority Revenue,
6.70%, 8/1/25............................................. Aa3/AA 2,909,912
----------
6,124,425
----------
KENTUCKY--.7%
1,000,000 Louisville & Jefferson Counties Metropolitan Sewer District
(AMBAC insured),
6.50%, 5/15/24............................................ Aaa/AAA 1,140,640
----------
LOUISIANA--1.0%
1,500,000 New Orleans General Obligation Bonds (AMBAC insured),
6.125%, 10/1/16........................................... Aaa/AAA 1,610,100
----------
MAINE--.6%
1,000,000 Maine State Housing Authority, Mortgage Purchase,
7.55%, 11/15/22........................................... Aa2/AA 1,055,450
----------
MARYLAND--1.0%
1,505,000 Maryland State Community Development Administration
(FHA insured),
7.60%, 4/1/23............................................. Aa/NR 1,578,595
----------
MASSACHUSETTS--3.5%
2,000,000 Massachusetts Bay Transportation Authority Revenue
(FGIC insured),
5.00%, 3/1/27............................................. Aaa/AAA 1,908,200
2,250,000 Massachusetts State Health & Education Facilities Authority
Revenue,
6.25%, 12/1/22............................................ A1/A 2,395,283
1,175,000 Massachusetts State Water Pollution Abatement Trust,
6.375%, 2/1/15............................................ Aa3/AA+ 1,277,953
----------
5,581,436
----------
</TABLE>
<PAGE>
MUNICIPAL ADVANTAGE FUND INC.
SCHEDULE OF INVESTMENTS (CONTINUED)
OCTOBER 31, 1997
<TABLE>
<CAPTION>
Credit
Principal Rating*
Amount (Moody's/S&P) Value
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
LONG-TERM INVESTMENTS (CONT'D.)
MICHIGAN--3.9%
$1,700,000 Dearborn School District,
6.00%, 5/1/14............................................. Aa2/AA $1,798,889
1,000,000 Grand Rapids Water Supply Systems Revenue (FGIC insured),
6.50%, 1/1/15............................................. Aaa/AAA 1,076,020
2,000,000 Michigan State Hospital Finance Authority Revenue,
8.125%, 10/1/21........................................... Baa2/BBB 2,366,300
1,000,000 Michigan State Pollution Control Revenue,
6.20%, 9/1/20............................................. A3/A- 1,056,420
----------
6,297,629
----------
MINNESOTA--4.1%
Minnesota State Housing Finance Agency,
1,620,000 6.00%, 2/1/14............................................... Aa2/AA 1,670,398
2,905,000 6.10%, 8/1/22............................................... Aa2/AA 2,980,327
1,955,000 6.25%, 8/1/22............................................... Aa2/AA 1,978,089
----------
6,628,814
----------
NEVADA--3.9%
2,000,000 Clark County General Obligation Bonds (MBIA insured),
6.00%, 6/1/13............................................. Aaa/AAA 2,118,380
2,000,000 Clark County Passenger Facility Charge Revenue
(MBIA insured),
5.75%, 7/1/23............................................. Aaa/AAA 2,036,940
Nevada Housing Division Revenue (FHA insured),
1,055,000 6.20%, 4/1/17............................................... Aaa/NR 1,100,998
1,000,000 6.20%, 10/1/28.............................................. Aaa/NR 1,037,690
----------
6,294,008
----------
NEW HAMPSHIRE--1.9%
1,000,000 New Hampshire Higher Educational & Health Facilities
Authority Revenue,
6.125%, 10/1/13........................................... Baa2/NR 1,031,210
New Hampshire State Housing Finance Authority,
975,000 6.50%, 7/1/14............................................... Aa3/NR 1,025,602
1,000,000 6.90%, 7/1/19............................................... Aa/NR 1,057,950
----------
3,114,762
----------
NEW JERSEY--2.3%
1,000,000 New Jersey Economic Development Authority,
Heating & Cooling Revenue,
6.20%, 12/1/07............................................ NR/BBB- 1,047,320
2,670,000 North Hudson Sewer Authority Revenue (FGIC insured),
5.125%, 8/1/22............................................ Aaa/AAA 2,623,836
----------
3,671,156
----------
</TABLE>
<PAGE>
MUNICIPAL ADVANTAGE FUND INC.
SCHEDULE OF INVESTMENTS (CONTINUED)
OCTOBER 31, 1997
<TABLE>
<CAPTION>
Credit
Principal Rating*
Amount (Moody's/S&P) Value
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
LONG-TERM INVESTMENTS (CONT'D.)
NEW YORK--17.8%
$1,750,000 Metropolitan Transportation Authority, Transportation
Facilities Revenue,
6.00%, 7/1/14............................................. Baa1/BBB+ $1,826,212
1,000,000 Municipal Assistance Corporation, City of Troy (MBIA
insured),
5.00%, 1/15/16............................................ Aaa/AAA 974,270
New York City General Obligation Bonds,
2,000,000 5.75%, 2/1/17............................................... Baa1/BBB+ 2,032,320
1,500,000 5.75%, 2/1/19............................................... Baa1/BBB+ 1,516,050
1,000,000 5.875%, 3/15/18............................................. Baa1/BBB+ 1,023,710
1,000,000 6.00%, 8/1/14............................................... Baa1/BBB+ 1,047,770
1,000,000 6.00%, 8/1/16............................................... Baa1/BBB+ 1,038,430
985,000 6.95%, 8/15/12 (MBIA insured)............................... Baa1/BBB+ 1,122,723
15,000 6.95%, 8/15/12 (MBIA insured) (Pre-refunded 8/15/01) (A).... Aaa/AAA 17,391
2,270,000 7.00%, 10/1/09.............................................. Baa1/BBB+ 2,506,965
3,000,000 New York City Industrial Development Agency,
Special Facilities Revenue,
6.125%, 1/1/24............................................ A/A 3,137,820
New York City Municipal Water Finance Authority,
Water & Sewer Systems Revenue,
1,000,000 5.125%, 6/15/22 (AMBAC insured)............................. Aaa/AAA 977,370
3,550,000 6.00%, 6/15/25.............................................. A2/A- 3,711,845
New York State Dormitory Authority Revenue,
1,500,000 5.75%, 5/15/24.............................................. A3/A- 1,511,325
1,250,000 6.75%, 7/1/24 (MBIA insured) (Pre-refunded 7/1/04) (A)...... Aaa/AAA 1,441,450
1,000,000 7.65%, 8/1/30 (FHA insured)................................. NR/AAA 1,110,060
1,500,000 New York State Local Government Assistance Corporation,
6.50%, 4/1/20............................................. A3/A+ 1,613,295
1,000,000 New York State Medical Care Facilities,
Finance Agency Revenue,
6.50%, 8/15/24............................................ Baa1/A- 1,084,580
1,080,000 New York State Urban Development Corporation,
Correctional Capital Facility,
5.375%, 1/1/25............................................ Baa1/BBB+ 1,047,665
----------
28,741,251
----------
NORTH CAROLINA--3.0%
5,000,000 North Carolina Municipal Power Agency, No. 1 Catawba
Electric Revenue (MBIA insured),
5.00%, 1/1/18............................................. Aaa/AAA 4,803,200
----------
<PAGE>
</TABLE>
MUNICIPAL ADVANTAGE FUND INC.
SCHEDULE OF INVESTMENTS (CONTINUED)
OCTOBER 31, 1997
<TABLE>
<CAPTION>
Credit
Principal Rating*
Amount (Moody's/S&P) Value
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
LONG-TERM INVESTMENTS (CONT'D.)
PENNSYLVANIA--2.1%
$1,500,000 Philadelphia Water and Wastewater Revenue (MBIA insured),
5.25%, 6/15/23............................................ Aaa/AAA $1,458,735
2,000,000 Upper Saint Clair Township School District,
5.20%, 7/15/27............................................ Aa3/AA 1,978,940
----------
3,437,675
----------
SOUTH CAROLINA--1.8%
1,500,000 Spartanburg County Health Services Revenue (MBIA insured),
5.125%, 4/15/17........................................... Aaa/AAA 1,464,780
1,450,000 York County Industrial Revenue,
5.70%, 1/1/24............................................. A2/A+ 1,460,599
----------
2,925,379
----------
SOUTH DAKOTA--.7%
1,000,000 Heartland Consumers Power District Revenue,
7.00%, 1/1/16............................................. Aaa/AAA 1,182,360
----------
TENNESSEE--1.3%
2,000,000 Tennessee Housing Development Agency,
6.375%, 7/1/22............................................ Aa2/AA 2,091,940
----------
TEXAS--13.5%
1,000,000 Alliance Airport Authority Revenue,
6.375%, 4/1/21............................................ Baa2/BBB 1,062,920
1,695,000 Arlington General Obligation Bonds,
5.00%, 8/15/16............................................ Aa3/AA 1,642,675
1,000,000 Austin Hotel Occupancy Tax Revenue (AMBAC insured),
5.125%, 11/15/19.......................................... Aaa/AAA 968,540
2,300,000 Carrollton Independent School District (PSFG insured),
5.00%, 2/15/17............................................ Aaa/AAA 2,230,609
1,000,000 Denton County General Obligation Bonds (AMBAC insured),
5.00%, 7/15/16............................................ Aaa/AAA 969,210
1,500,000 Harris County Port Authority General Obligation Bonds,
5.75%, 10/1/17............................................ Aa2/AA 1,533,495
Harris County Toll Road Subordinated Lien,
115,000 6.50%, 8/15/15 (Pre-refunded 8/15/02) (A)................... Aa2/AA 127,659
785,000 6.50%, 8/15/15.............................................. Aa2/AA 861,012
Houston Water Conveyance System, Certificates of
Participation
(AMBAC insured),
1,000,000 6.25%, 12/15/14............................................. Aaa/AAA 1,131,450
1,400,000 7.50%, 12/15/15............................................. Aaa/AAA 1,786,442
2,500,000 Houston Water and Sewer Systems Revenue (FGIC insured),
5.00%, 12/1/25............................................ Aaa/AAA 2,387,425
1,000,000 San Antonio Electric & Gas Revenue,
6.00%, 2/1/14............................................. Aa1/AA 1,029,300
</TABLE>
<PAGE>
MUNICIPAL ADVANTAGE FUND INC.
SCHEDULE OF INVESTMENTS (CONTINUED)
OCTOBER 31, 1997
<TABLE>
<CAPTION>
Credit
Principal Rating*
Amount (Moody's/S&P) Value
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
LONG-TERM INVESTMENTS (CONT'D.)
TEXAS (CONT'D.)
$6,325,000 Texas Turnpike Authority, Dallas North Thruway Revenue
(FGIC insured),
5.00%, 1/1/25............................................. Aaa/AAA $6,044,233
----------
21,774,970
----------
UTAH--1.0%
Utah Housing Finance Agency (FHA insured),
1,105,000 6.35%, 7/1/11............................................... Aa/NR 1,158,869
395,000 6.55%, 7/1/26............................................... Aa/NR 416,567
----------
1,575,436
----------
VERMONT--1.1%
1,690,000 Vermont Housing Finance Agency (FHA insured),
7.85%, 12/1/29............................................ A1/A- 1,778,776
----------
VIRGINIA--2.8%
4,200,000 Virginia Housing Development Authority,
6.50%, 1/1/13............................................. Aa1/AA+ 4,470,816
----------
WASHINGTON--1.3%
1,000,000 Seattle Museum Development Authority,
6.30%, 7/1/13............................................. Aa1/AA+ 1,067,600
1,000,000 Washington State General Obligation Bonds (FGIC insured),
5.00%, 1/1/22............................................. Aaa/AAA 959,310
----------
2,026,910
----------
WEST VIRGINIA--.6%
1,000,000 Braxton County Solid Waste Disposal Revenue,
6.125%, 4/1/26............................................ A2/A 1,049,180
----------
WISCONSIN--2.5%
2,000,000 Janesville Pollution Control Revenue,
5.55%, 4/1/09............................................. A3/A- 2,077,780
2,000,000 Wisconsin Health & Educational Facilities Authority Revenue
(MBIA insured),
5.25%, 8/15/27............................................ Aaa/AAA 1,926,980
----------
4,004,760
----------
Total Long-Term Investments (cost--$150,648,353)............ $158,712,893
----------
Total Investments (cost--$150,648,353)**.................... 98.4% $158,712,893
Other Assets in Excess of Liabilities....................... 1.6 2,505,627
------------- ----------
Total Net Assets............................................ 100.0% $161,218,520
------------- ----------
------------- ----------
</TABLE>
- --------------------------------------------------------------------------------
* Unaudited.
** Aggregate unrealized appreciation for securities in which there is an excess
of value over tax cost is $8,086,545, aggregate gross unrealized
depreciation for securities in which there is an excess of tax cost over
value is $22,005 and net unrealized appreciation for Federal income tax
purposes is $8,064,540. The cost basis of portfolio securities for Federal
income tax purposes is $150,648,353.
(A) Bonds which are pre-refunded are collateralized by U.S. Government or other
eligible types of securities which are held in escrow and are used to pay
principal and interest and to retire the bonds in full at the earliest
refunding date.
See accompanying notes to financial statements.
<PAGE>
MUNICIPAL ADVANTAGE FUND INC.
STATEMENT OF ASSETS AND LIABILITIES
OCTOBER 31, 1997
<TABLE>
<S> <C>
ASSETS
Investments, at value (cost--$150,648,353)................ $ 158,712,893
Cash...................................................... 28,592
Interest receivable....................................... 2,752,872
Receivable for investments called......................... 105,000
Deferred organization expenses............................ 8,791
Prepaid expenses.......................................... 18,325
---------------
Total Assets........................................... 161,626,473
---------------
LIABILITIES
Dividends payable attributable to preferred shares........ 177,604
Investment management fee payable......................... 81,626
Dividends payable attributable to common shares........... 73,505
Other payables and accrued expenses....................... 75,218
---------------
Total Liabilities...................................... 407,953
---------------
Total Net Assets..................................... $ 161,218,520
---------------
---------------
COMPOSITION OF NET ASSETS
Preferred stock ($.001 par value and $50,000 net asset and
liquidation value per share applicable to 1,100 shares
issued and outstanding)................................ $ 55,000,000
---------------
Common stock:
Par value ($.001 per share, applicable to 7,257,093
shares issued and outstanding)........................ 7,257
Paid-in-capital in excess of par....................... 100,618,353
Undistributed net investment income....................... 318,579
Accumulated net realized loss on investments and futures
transactions........................................... (2,790,209)
Net unrealized appreciation on investments................ 8,064,540
---------------
Net assets applicable to common shareholders........... 106,218,520
---------------
Total Net Assets..................................... $ 161,218,520
---------------
---------------
Net asset value per common share..................... $14.64
---------------
---------------
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
<PAGE>
MUNICIPAL ADVANTAGE FUND INC.
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED OCTOBER 31, 1997
<TABLE>
<CAPTION>
INVESTMENT INCOME
<S> <C>
Interest.................................................. $ 9,261,410
---------------
OPERATING EXPENSES
Investment management fee (note 2)........................ 945,727
Auction fees and commissions.............................. 148,812
Auditing and tax return preparation fees.................. 69,200
Legal fees................................................ 62,392
Reports and notices to shareholders....................... 50,220
Custodian fees (note 1g).................................. 45,952
Directors' fees and expenses.............................. 26,950
Transfer and dividend disbursing agent fees............... 23,295
Amortization of deferred organization expenses............ 17,581
Stock exchange listing fee................................ 16,163
Miscellaneous............................................. 17,947
---------------
Total operating expenses............................... 1,424,239
Less: Expenses offset (note 1g)...................... (1,758)
---------------
Net operating expenses............................... 1,422,481
---------------
Net investment income............................. 7,838,929
---------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS--NET
Net realized gain on investments.......................... 1,035,717
Net realized loss on futures transactions (note 1f)....... (371,591)
---------------
Net realized gain on investments and futures
transactions.......................................... 664,126
Net change in unrealized appreciation (depreciation) on
investments............................................ 4,273,177
---------------
Net realized gain and change in unrealized appreciation
(depreciation) on investments......................... 4,937,303
---------------
Net increase in net assets resulting from operations........ $ 12,776,232
---------------
---------------
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
<PAGE>
MUNICIPAL ADVANTAGE FUND INC.
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
----------------------------
1997 1996
------------ ------------
<S> <C> <C>
OPERATIONS
Net investment income......................... $ 7,838,929 $ 7,878,233
Net realized gain (loss) on investments and
futures transactions....................... 664,126 (153,052)
Net change in unrealized appreciation
(depreciation) on investments.............. 4,273,177 1,411,332
------------ ------------
Net increase in net assets resulting from
operations................................ 12,776,232 9,136,513
------------ ------------
DIVIDENDS TO SHAREHOLDERS
Dividends to preferred shareholders from net
investment income.......................... (2,063,850) (2,076,179)
Dividends to common shareholders from net
investment income.......................... (5,791,161) (5,671,420)
------------ ------------
Total dividends to shareholders............ (7,855,011) (7,747,599)
------------ ------------
Total increase in net assets............. 4,921,221 1,388,914
NET ASSETS
Beginning of year............................. 156,297,299 154,908,385
------------ ------------
End of year (including undistributed net
investment income of $318,579 and $334,661,
respectively).............................. $161,218,520 $156,297,299
------------ ------------
------------ ------------
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
<PAGE>
MUNICIPAL ADVANTAGE FUND INC.
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 1997
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.
Throughout the year ended October 31, 1997, the Fund operated under a
management agreement with Advantage Advisers, Inc. (the 'Investment Manager'), a
subsidiary of Oppenheimer & Co., Inc., pursuant to which the Investment Manager
supervised the Fund's investment program and monitored the performance of the
Fund's service providers. The Investment Manager also contracted OpCap Advisors
(the 'Investment Adviser'), pursuant to which the Investment Adviser provided
investment advisory and administrative services to the Fund. The Investment
Adviser was responsible for 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 was responsible for the day-to-day
administration of the Fund.
On October 14, 1997, the shareholders of the Fund approved a new management
agreement with Value Advisors LLC, an affiliate of the Investment Manager, and a
new investment advisory and administration agreement with OpCap Advisors. These
agreements were substantially similiar to the existing agreements and became
effective on November 5, 1997 after the Investment Manager transferred its
management and investment advisory agreements to Value Advisors LLC. On November
4, 1997, PIMCO Advisors L.P., acquired all of the securities of Value Advisors
LLC and acquired the one-third managing general partner interest in Oppenheimer
Capital, whose subsidiary, OpCap Advisors, serves as the Investment Adviser to
the Fund. On December 1, 1997, PIMCO Advisors L.P. completed the acquisition of
Oppenheimer Capital by acquiring the two-thirds interest owned by Oppenheimer
Capital, L.P.
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. Actual results could differ from those estimates. 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. Futures contracts are valued at the
last sale price on the market where the futures contracts are principally
traded. Any security or other asset for which market quotations are not readily
available is valued at 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.
<PAGE>
MUNICIPAL ADVANTAGE FUND INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
OCTOBER 31, 1997
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
(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.
Original issue discounts or premiums on debt securities purchased are accreted
or amortized daily to non-taxable interest income. Market discounts, if any, are
accreted daily to taxable income.
(E) DIVIDENDS AND DISTRIBUTIONS--COMMON STOCK
The Fund declares dividends from net investment income monthly to holders
of common stock. Distributions of net capital gains, if any, are paid at least
annually. The Fund records dividends and distributions to its shareholders on
the ex-dividend date. The amount of dividends and distributions from net
investment income and net realized capital gains are determined in accordance
with Federal income tax regulations, which may differ from generally accepted
accounting principles. These 'book-tax' differences are either considered
temporary or permanent in nature. To the extent these differences are permanent
in nature, such amounts are reclassified within the capital accounts based on
their Federal income tax treatment; temporary differences do not require
reclassification. To the extent dividends and/or distributions exceed current
and accumulated earnings and profits for Federal income tax purposes, they are
reported as dividends and/or distributions of paid-in-capital or tax return of
capital. At October 31, 1997, the Fund did not have any permanent book-tax
differences.
(F) FUTURES ACCOUNTING POLICIES
A futures contract is an agreement between two parties to buy and sell a
financial instrument at a set price on a future date. Upon entering into such a
contract, the Fund is required to pledge to the broker an amount of cash or
securities equal to the minimum 'initial margin' requirements of the exchange.
Pursuant to the contracts, the Fund agrees to receive from or pay to the broker
an amount of cash equal to the daily fluctuation in the value of the contracts.
Such receipts or payments are known as 'variation margin' and are recorded by
the Fund as unrealized appreciation or depreciation. When the contracts are
closed, the Fund records a realized gain or loss equal to the difference between
the value of the contracts at the time they were opened and the value at the
time they were closed. Any unrealized appreciation or depreciation recorded is
simultaneously reversed. The Fund invests in futures contracts solely for the
purpose of hedging its existing portfolio securities, or securities the Fund
intends to purchase against fluctuations in value caused by changes in
prevailing market interest rates. The use of futures transactions involves the
risk of imperfect correlation in movements in the price of futures contracts,
interest rates and the underlying hedged assets, and the possible inability of
counterparties to meet the terms of their contracts. There were no futures
contracts open at October 31, 1997.
(G) EXPENSES OFFSET
The Fund benefits from an expense offset arrangement with its custodian
bank where uninvested cash balances earn credits that reduce monthly expenses.
Had these cash balances been invested in income producing securities, they would
have generated income for the Fund.
(H) CHANGE IN BY-LAWS
In response to recent amendments to Maryland corporate law, the Board of
Directors received various corporate governance provisions in the Fund's By-Laws
and approved amendments to (1) increase the percentage of stockholder voting
power that is required to call a special meeting of its stockholders to a
majority of the votes entitled to be cast at the meeting and (2) reduce the
minimum permissible board committee size to one director.
<PAGE>
MUNICIPAL ADVANTAGE FUND INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
OCTOBER 31, 1997
2. INVESTMENT MANAGEMENT FEE
The Fund pays the Investment Manager a monthly fee at an annual rate of
.60% of the Fund's average weekly net assets for its services, and the
Investment Manager pays the Investment Adviser a monthly fee at an annual rate
of .36% of the Fund's average weekly net assets for its services. The Investment
Manager informed the Fund that it paid the Investment Adviser $567,436 for the
year ended October 31, 1997.
3. PURCHASES AND SALES OF SECURITIES
For the year ended October 31, 1997, purchases and sales of investment
securities, other than short-term securities, aggregated $69,259,221 and
$68,898,172, 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 net asset and
liquidation value of $50,000 per share plus accrued dividends.
Dividends are accumulated daily at an annual rate set through auction
procedures and have been reset and paid every ninety-one days during the year
ended October 31, 1997. The annualized dividend rate ranged from 3.50% to 3.85%
during the year and was 3.75% at October 31, 1997. Distributions of net realized
capital gains, if any, are paid at least annually.
The Fund is subject to certain limitations and restrictions while Preferred
Stock is outstanding. Failure to comply with these limitations and restrictions
could preclude the Fund from declaring any dividends or distributions to common
shareholders or repurchasing common shares and/or could trigger the mandatory
redemption of Preferred Stock at its 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.
<PAGE>
MUNICIPAL ADVANTAGE FUND INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
OCTOBER 31, 1997
6. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
Net Increase
Realized and (Decrease)
Unrealized in Net Assets
Net Gain (Loss) on Resulting from
Investment Income Investment Income Investments-Net Operations
-------------------- -------------------- --------------------- ---------------------
Per Per Per Per
Common Common Common Common
Quarter Ended Total Share Total Share Total Share Total Share
- ---------------------- ---------- ------ ---------- ------ ----------- ------ ----------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
January 31, 1997...... $2,319,442 $0.32 $1,962,718 $0.27 $ (215,768) $(0.03) $ 1,746,950 $0.24
April 30, 1997........ 2,318,411 0.32 1,970,841 0.27 (816,728) (0.11) 1,154,113 0.16
July 31, 1997......... 2,315,868 0.32 1,957,595 0.27 6,965,992 0.96 8,923,587 1.23
October 31, 1997...... 2,307,689 0.32 1,947,775 0.27 (996,193) (0.14) 951,582 0.13
---------- ------ ---------- ------ ----------- ------ ----------- ------
$9,261,410 $1.28 $7,838,929 $1.08 $ 4,937,303 $0.68 $12,776,232 $1.76
---------- ------ ---------- ------ ----------- ------ ----------- ------
---------- ------ ---------- ------ ----------- ------ ----------- ------
January 31, 1996...... $2,317,542 $0.32 $1,965,199 $0.27 $ 4,006,198 $0.55 $ 5,971,397 $0.82
April 30, 1996........ 2,307,130 0.32 1,966,485 0.27 (6,640,914) (0.91) (4,674,429) (0.64)
July 31, 1996......... 2,320,887 0.32 1,983,890 0.28 1,916,810 0.26 3,900,700 0.54
October 31, 1996...... 2,328,294 0.32 1,962,659 0.27 1,976,186 0.27 3,938,845 0.54
---------- ------ ---------- ------ ----------- ------ ----------- ------
$9,273,853 $1.28 $7,878,233 $1.09 $ 1,258,280 $0.17 $ 9,136,513 $1.26
---------- ------ ---------- ------ ----------- ------ ----------- ------
---------- ------ ---------- ------ ----------- ------ ----------- ------
</TABLE>
7. CAPITAL LOSS CARRYFORWARD
For the fiscal year ended October 31, 1997, the Fund will utilize $664,126
of net capital loss carryforward. The Fund's accumulated net realized capital
losses available as a reduction against future net realized capital gains were
$2,790,209 of which $595,331, $1,732,476 and $462,402 will expire in 2002, 2003
and 2004, respectively. To the extent that these capital loss carryforwards are
used to offset future net capital gains, it is possible that gains so offset
will not be distributed to shareholders.
8. SUBSEQUENT EVENTS
On November 3, 1997, a dividend of $.0665 per share was declared to common
shareholders payable December 1, 1997 to shareholders of record on November 17,
1997.
At the last auction on November 24, 1997, the Fund sold 91-day auction rate
preferred stock at an annual rate of 3.90% with pay dates of January 2, 1998,
February 2, 1998 and February 24, 1998.
On December 1, 1997, a dividend of $.0665 per share was declared to common
shareholders payable December 31, 1997 to shareholders of record on December 16,
1997.
<PAGE>
MUNICIPAL ADVANTAGE FUND INC.
FINANCIAL HIGHLIGHTS
FOR A COMMON SHARE OUTSTANDING THROUGHOUT EACH PERIOD:
<TABLE>
<CAPTION>
April 30,
Year ended October 31, 1993 (1) to
------------------------------------------------------------------ October 31,
1997 1996 1995 1994 1993
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period..... $ 13.96 $ 13.77 $ 11.79 $ 14.75 $ 14.10
------------ ------------ ------------ ------------ ------------
Income from investment operations:
Net investment income.................... 1.08 1.09 1.08 1.05 0.43
Net realized and unrealized gain (loss)
on investments......................... 0.68 0.17 1.98 (2.89) 0.84
------------ ------------ ------------ ------------ ------------
Total income from investment
operations......................... 1.76 1.26 3.06 (1.84) 1.27
------------ ------------ ------------ ------------ ------------
Dividends and distributions to
shareholders:
Dividends to preferred shareholders from
net investment income.................. (0.28) (0.29) (0.30) (0.21) (0.07)
Dividends to common shareholders from net
investment income...................... (0.80) (0.78) (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....................... (1.08) (1.07) (1.08) (1.12) (0.38)
------------ ------------ ------------ ------------ ------------
Capital charge with respect to issuance
of preferred shares.................... -- -- -- -- (0.18)
Capital charge with respect to issuance
of common shares....................... -- -- -- -- (0.06)
------------ ------------ ------------ ------------ ------------
Total capital charges................ -- -- -- -- (0.24)
------------ ------------ ------------ ------------ ------------
Net asset value, end of period........... $ 14.64 $ 13.96 $ 13.77 $ 11.79 $ 14.75
------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------
Market value, end of period.............. $ 13.1875 $ 11.875 $ 11.625 $ 9.75 $ 14.125
------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------
Total investment return (2).......... 18.4% 9.2% 27.9% (25.7%) 2.4%(3)
------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------
Net assets applicable to common
shareholders, end of period (4)........ $106,218,520 $101,297,299 $ 99,908,385 $ 85,550,749 $107,057,409
------------ ------------ ------------ ------------ ------------
Ratio of operating expenses to average
net assets (6)......................... 1.39%(7) 1.40%(7) 1.44% 1.39% 1.17%(5)
------------ ------------ ------------ ------------ ------------
Ratio of net investment income to average
net assets (6)......................... 7.64% 7.88% 8.44% 7.85% 6.07%(5)
------------ ------------ ------------ ------------ ------------
Portfolio turnover rate.................. 44% 27% 36% 22% 9%
------------ ------------ ------------ ------------ ------------
</TABLE>
- --------------------------------------------------------------------------------
(1) Commencement of operations.
(2) Change in market price assuming reinvestment of dividends and distributions
to common shareholders on payable date (at market).
(3) Return does not reflect underwriters' discount.
(4) Preferred Shares asset coverage per unit was $146,251, $141,788, $140,680,
$127,619 and $147,285, 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
$102,621,213, $99,980,261, $93,172,629, $97,502,978 and $102,609,821,
respectively.
(7) Gross of expenses offset (see note 1g in Notes to Financial Statements). The
net ratios of operating expenses to average net assets were 1.39% and 1.40%
for the years ended October 31, 1997 and October 31, 1996, respectively.
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Board of Directors
of Municipal Advantage Fund Inc.
In our opinion, the accompanying statement of assets and liabilities, including
the schedule of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of Municipal Advantage Fund Inc. (the
'Fund') at October 31, 1997, the results of its operations 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 four years in the period
then ended and for the period April 30, 1993 (commencement of operations)
through October 31, 1993, in conformity with generally accepted accounting
principles. These financial statements and financial highlights (hereafter
referred to as 'financial statements') are the responsibility of the Fund's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these financial
statements in accordance with generally accepted auditing standards which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits, which included
confirmation of securities at October 31, 1997 by correspondence with the
custodian, provide a reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
1177 Avenue of the Americas
New York, New York 10036
December 19, 1997
<PAGE>
SPECIAL SHAREHOLDERS MEETING
- --------------------------------------------------------------------------------
The Fund held a special shareholders meeting on October 14, 1997. At the
meeting, common and preferred shareholders voted together on the approval of a
new management agreement between Value Advisors LLC and the Fund as well as the
approval of a new investment advisory and administration agreement among Value
Advisors LLC, OpCap Advisors and the Fund. The following table provides
information concerning the matters voted on at the meeting:
1. APPROVAL OF NEW MANAGEMENT AGREEMENT
<TABLE>
<CAPTION>
VOTES FOR VOTES AGAINST VOTES ABSTAINED BROKER NON-VOTES
- ------------- -------------- ---------------- -----------------
<S> <C> <C> <C>
4,781,857 63,410 163,601 1,687,369
</TABLE>
2. APPROVAL OF NEW ADVISORY AND ADMINISTRATION AGREEMENT
<TABLE>
<CAPTION>
VOTES FOR VOTES AGAINST VOTES ABSTAINED
- ------------- -------------- ----------------
<S> <C> <C>
6,483,323 51,553 161,361
</TABLE>
<PAGE>
TAX INFORMATION
We are required by Subchapter M of the Internal Revenue Code of 1986, as
amended, to advise you within 60 days of the Fund's fiscal year end (October 31,
1997) as to the Federal tax status of dividends and distributions received by
shareholders during such fiscal year. Accordingly, we are advising you that
substantially all dividends paid from net investment income during the fiscal
year ended October 31, 1997 were Federally exempt interest dividends, although
the Fund did invest in securities which paid interest subject to the Federal
alternative minimum tax during the fiscal year. The percentage of dividends paid
from net investment income subject to such tax was 24.4%. Additionally, the Fund
invested in market discount municipal bonds, whose accretion is taxable.
Accordingly, 0.29% of the Fund's dividends paid during the fiscal year are
taxable. Per share dividends for the fiscal year ended October 31, 1997 were as
follows:
<TABLE>
<S> <C>
Dividends to common shareholders from net investment income........................... $ 0.7980
Dividends to preferred shareholders from net investment income........................ $ 1,876.2273
</TABLE>
Since the Fund's fiscal year is not the calendar year, another notification
will be sent with respect to calendar year 1997. In January 1998, you will be
advised on IRS Form 1099 DIV as to the Federal tax status of the dividends
received by you in calendar 1997. The amount that will be reported, will be the
amount to use on your 1997 Federal income tax return and may differ from the
amount which we must report for the Fund's fiscal year ended October 31, 1997.
Shareholders are advised to consult with their own tax advisers as to the
Federal, state and local tax status of the Fund's income received. A breakdown
of interest by state will also be provided which may be of value in reducing a
shareholder's state or local tax liability, if any.
DIVIDEND REINVESTMENT AND CASH PURCHASE PLAN
The Municipal Advantage Fund Inc. has a Dividend Reinvestment and Cash
Purchase Plan (the 'Plan') in which all dividends and distributions paid to
Common Stockholders are automatically reinvested in additional shares (unless a
shareholder elects to receive cash). BostonEquiServe L.P. ( the 'Plan Agent')
serves as agent for the holders of Common Stock in administering the Plan. After
the Fund pays a dividend and/or distribution, the Plan Agent, as agent for the
participants, receives the cash and uses it to buy Common Stock in the open
market, on the New York Stock Exchange or elsewhere, for the participants'
accounts. The Fund does not issue any new shares of Common Stock in connection
with the Plan. The Plan Agent's fees for the reinvestment of dividends and
distributions are paid for by the Fund. Each participant also pays a pro rata
share of the brokerage commission incurred with respect to the Plan Agent's open
market purchases in connection with the reinvestment. The receipt of dividends
or distributions under the Plan does not relieve participants of any income tax
which may be payable on such dividends or distributions. Participation in the
Plan may be terminated at any time by ten days advance written notice to the
Plan Agent. Participants also have an option to make additional cash payments to
the Plan Agent for the purchase of Common Stock with a minimum investment of
$250. All correspondence concerning the Plan including requests for additional
information or requests to be included or excluded from the Plan should be
addressed to the applicable bank, broker-dealer or other nominee or in the case
of shareholders whose shares are registered in their own name to BostonEquiServe
L.P., Post Office Box 8200, Boston, Massachusetts 02266 or telephone
1-800-426-5523.
<PAGE>
Municipal Advantage Fund Inc.
Directors and Principal Officers
Stephen J. Treadway
Director and Chairman of the Board
Raymond D. Horton
Director
Robert L. Rosen
Director
Jeswald W. Salacuse
Director
Bernard H. Garil
President
Newton B. Schott, Jr.
Executive Vice President and Assistant Secretary
Robert J. Bluestone
Executive Vice President
Matthew Greenwald
Executive Vice President
Deborah Kaback
Secretary
Richard L. Peteka
Treasurer
Investment Manager
Value Advisors LLC
800 Newport Center Drive
Newport Beach, CA 92660
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.
ANNUAL REPORT
October 31, 1997
Municipal Advantage Fund Inc.
