<PAGE>
MUNICIPAL ADVANTAGE FUND INC.
May 30, 1997
Dear Shareholder:
In a volatile bond market, the Municipal Advantage Fund performed well in
the second fiscal quarter ended April 30, 1997, exceeding its benchmark, the
Lehman Brothers Municipal Bond Index (Lehman Index). The Fund's objective is to
provide a high level of income exempt from regular federal income tax by
investing in a diversified portfolio of quality municipal securities. The Fund
uses leverage from its preferred shares to generate additional income.
The Fund paid regular monthly dividends of 6.65 cents per common share
during the quarter, or a total of 19.95 cents per share in the three-month
period. The yield on the Fund's common shares (based on the $12.125 per share
closing market price on April 30, 1997 and the annualized current monthly
dividend rate of 6.65 cents per common share) was 6.6% at the end of the
quarter, providing a significant real return above inflation. For an investor in
the top Federal tax bracket of 39.6%, the Fund's yield was equivalent to 10.9%
on a taxable basis.
The Fund's total return on net asset value (dividends plus change in net
asset value per share, assuming reinvestment of dividends) was 0.7% in the
quarter, exceeding both the 0.4% return of the Lehman Index and the average
total return of 0.5% for the leveraged closed-end general municipal bond funds
monitored by Lipper Analytical Services, Inc. The Fund's performance was 16th
among the 63 funds in this Lipper universe.
The Fund's return at its market price, rather than at its net asset value
(NAV), was 3.8% for the quarter, assuming reinvestment of dividends. This
reflects an increase in the price of the Fund's common shares on the New York
Stock Exchange and is the actual return received by shareholders.
The Fund's common shares trade in the market at a discount to NAV, as is
true of most closed-end municipal bond funds. With the market price of the
shares outpacing the NAV during the quarter, the Fund's discount narrowed to
12.3% at April 30, 1997 from 14.8% three months 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 well below NAV is by reinvesting dividends, as
many of the Fund's shareholders do.
SEMI-ANNUAL AND 12-MONTH PERFORMANCE
In the first fiscal half ended April 30, 1997, the Fund provided a total
return of 1.9% at NAV and 5.5% at market, compared with 2.0% for the Lehman
Index.
For the 12 months ended April 30, 1997, the Fund's total return was 9.1% at
NAV and 16.5% at market, exceeding the Lehman Index return of 6.6%. The Fund's
return at NAV for the period surpassed the average total return of 8.0% for the
63 leveraged closed-end general municipal bond funds monitored by Lipper. The
Fund ranked 11th among those funds for the 12-month period.
The Fund achieved these results by continuing its investment in a
diversified portfolio of quality municipal securities, and by selling bonds as
they reached par (face value) and reinvesting the proceeds in noncallable issues
and bonds trading at a discount to par. In a rising market, noncallable and
discount bonds tend to outperform issues trading at par or higher.
MARKET REVIEW
The investment environment continues to be characterized by ideal economic
conditions of low inflation and moderate economic growth. Nonetheless, bond
prices have been volatile in recent months because of investor concerns about
potential future inflation.
<PAGE>
A key event in the second fiscal quarter was the Federal Reserve's March
25th increase in its target Fed funds rate by one-quarter percentage point to
5.50%. With this rate boost, the Fed made clear it is taking an activist stance
in the fight against inflation, real or potential. Prices of nearly all types of
bonds fell in the days immediately following the Fed's action, but have
recovered since that time amid signs of a slowing economy.
Although we are not market forecasters, we think the odds are against the
bond market heading into a severe, protracted decline. Moreover, if the Fed's
preemptive strike against economic overheating works its purpose, the stage
could be set for a potentially strong bond market later this year.
In this environment of uncertainty about inflation and the economic
outlook, tax-exempt municipal securities were one of the better-performing
sectors of the bond market during the quarter. The fundamentals of the tax-
exempt market appear to be positive at this time. Supply is manageable, and
demand remains strong, including demand from the 'baby boomers' now in their
peak earning years.
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) 421-4777.
PORTFOLIO ANALYSIS
In managing the Fund, we look for sector, maturity and quality groups of
the municipal bond market that we believe provide the highest yield at the
lowest price with the least amount of risk. At April 30, 1997, almost the entire
portfolio--i.e., 99.8% of assets based on market value--was invested in
long-term securities, with the remainder in cash and cash equivalents. The
average maturity of the portfolio at April 30, 1997 was 21 years, unchanged from
January 31, 1997.
We continue to stress investments in housing and health/hospital bonds and
in the general obligation bonds of states with improving economies, such as New
York, Texas and California. The five largest market sectors in the portfolio as
of April 30, 1997 were: general obligation, 17.7%; housing, 17.2%; health and
hospital, 16.1%; water and sewer, 13.6%; and airline and airport, 9.0%. The five
largest portfolio positions by state were: New York, 17.6%; Texas, 10.7%;
California, 9.7%; Illinois, 6.1%; and Colorado, 5.8%.
In the second quarter, we continued to increase the Fund's investments in
higher rated securities, since lower rated municipals offer relatively little
additional value at this time. As of April 30, 1997, of the long-term securities
owned by the Fund, 84.2% of the assets were rated A or better by Standard &
Poor's or Moody's, up from 83.8% three months earlier and 80.7% three months
before that.
PREFERRED STOCK COSTS
At the latest auction on May 23, 1997, the Fund sold 91-day auction rate
preferred stock at an annual dividend rate of 3.85%, up from 3.50% 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.
RECENT DEVELOPMENT
As discussed in the Fund's first quarter report, on February 14, 1997,
Oppenheimer Group, Inc., the ultimate parent of Advantage Advisers, Inc., the
Fund's investment manager, and an affiliate of OpCap Advisors, the Fund's
investment adviser, entered into an agreement to sell the stock of the
investment manager and a controlling interest in the investment adviser to PIMCO
Advisors, L.P. and its affiliates.
<PAGE>
On April 1, 1997, the Board of Directors of the Fund approved, subject to
the vote of the Fund's shareholders, a new investment management and investment
advisory agreement for the Fund with the investment manager and the investment
adviser. The agreements are substantially identical to the existing agreements
and would take effect upon shareholder approval and the closing of the proposed
transaction. The closing of the transaction is also subject to certain
additional closing conditions.
SUMMARY
Quality municipal securities appear to offer attractive investment value at
this time, providing tax-exempt yields well in excess of inflation. Thank you
for investing with us. We at the Fund, along with the Fund's manager, Advantage
Advisers, Inc., and its adviser, OpCap Advisors, remain dedicated to serving
your investment needs.
Sincerely,
/s/ Mark C. Biderman
--------------------------------
Mark C. Biderman
President
<PAGE>
MUNICIPAL ADVANTAGE FUND INC.
SCHEDULE OF INVESTMENTS (UNAUDITED)
APRIL 30, 1997
<TABLE>
<CAPTION>
Principal Credit Rating
Amount (Moody's/S&P) Value
- - ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
LONG-TERM INVESTMENTS--98.4%
ALABAMA--3.2%
$1,000,000 Alabama State Docks Department Facility Revenue
(MBIA insured),
6.15%, 10/1/14............................................ Aaa/AAA $ 1,030,560
2,000,000 DCH Health Care Authority, Health Care Facilities Revenue,
5.70%, 6/1/15............................................. A1/A+ 1,967,560
1,000,000 Huntsville Madison County Airport Authority Revenue
(MBIA insured),
5.40%, 7/1/19............................................. Aaa/AAA 936,170
1,155,000 Jefferson County Sewer Revenue (FGIC insured),
5.375%, 2/1/27............................................ Aaa/AAA 1,090,378
------------
5,024,668
------------
CALIFORNIA--9.7%
1,000,000 Burbank Redevelopment Agency,
6.00%, 12/1/13............................................ Baa1/A- 1,003,260
2,500,000 California Health Facilities Financing Authority Revenue,
6.25%, 3/1/21............................................. Aa3/AA 2,538,725
1,000,000 California State Public Works Board, Lease Revenue,
6.30%, 10/1/10............................................ A/A 1,061,170
1,000,000 Lafayette Elementary School District (FSA insured),
5.90%, 5/15/17............................................ Aaa/AAA 1,008,850
4,000,000 Los Angeles Harbor Department Revenue,
5.375%, 11/1/23........................................... Aa/AA 3,705,200
1,250,000 Los Angeles Public Works Finance Authority (MBIA insured),
5.25%, 9/1/15............................................. Aaa/AAA 1,181,000
1,000,000 Los Angeles Regional Airports Revenue,
6.70%, 1/1/22............................................. NR/A- 1,045,720
1,000,000 Madera County Certificates of Participation (MBIA insured),
6.125%, 3/15/23........................................... Aaa/AAA 1,021,080
1,000,000 San Francisco City & County Certificates of Participation
(FSA insured),
5.60%, 4/1/16............................................. Aaa/AAA 972,680
1,500,000 Student Education Loan Marketing Corporation,
Student Loan Revenue,
7.00%, 7/1/10............................................. NR/A 1,572,045
------------
15,109,730
------------
COLORADO--5.8%
3,085,000 Colorado Health Facilities Authority Revenue (MBIA insured),
5.95%, 5/15/12............................................ Aaa/AAA 3,144,849
Denver City & County Airport Revenue (MBIA insured),
1,500,000 5.60%, 11/15/25............................................. Aaa/AAA 1,418,460
4,500,000 5.75%, 11/15/17............................................. Aaa/AAA 4,414,860
------------
8,978,169
------------
</TABLE>
4
<PAGE>
MUNICIPAL ADVANTAGE FUND INC.
SCHEDULE OF INVESTMENTS (UNAUDITED)(CONTINUED)
APRIL 30, 1997
<TABLE>
<CAPTION>
Principal Credit 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 $1,811,880
----------
GEORGIA--1.5%
1,000,000 Savannah Hospital Authority Revenue,
6.125%, 7/1/12............................................ A2/NR 1,035,940
1,260,000 Toombs County Hospital Authority Revenue,
7.00%, 12/1/17............................................ NR/BBB 1,308,459
----------
2,344,399
----------
HAWAII--1.0%
1,500,000 Hawaii General Obligation Bonds,
5.125%, 2/1/09............................................ Aa3/A+ 1,477,125
----------
ILLINOIS--6.1%
3,500,000 Du Page Water Commission, Water Revenue,
5.25%, 5/1/14............................................. Aa1/AA 3,359,370
2,800,000 Illinois Health Facilities Authority Revenue,
9.00%, 11/15/15........................................... Baa1/BBB 3,160,780
2,885,000 Illinois Housing Development Authority Revenue,
6.70%, 8/1/25............................................. Aa3/AA 2,972,762
----------
9,492,912
----------
KENTUCKY--.7%
1,000,000 Louisville & Jefferson Counties Metropolitan Sewer District
(AMBAC insured),
6.50%, 5/15/24............................................ Aaa/AAA 1,067,320
----------
LOUISIANA--1.0%
1,500,000 New Orleans General Obligation Bonds (AMBAC insured),
6.125%, 10/1/16........................................... Aaa/AAA 1,543,680
----------
MAINE--.7%
1,000,000 Maine State Housing Authority, Mortgage Purchase,
7.55%, 11/15/22........................................... Aa2/AA 1,049,700
----------
MARYLAND--1.2%
1,820,000 Maryland State Community Development Administration
(FHA insured),
7.60%, 4/1/23............................................. Aa/NR 1,881,971
----------
MASSACHUSETTS--3.5%
2,250,000 Massachusetts State Health & Education Facilities Authority
Revenue,
6.25%, 12/1/22............................................ A1/A 2,304,090
1,175,000 Massachusetts State Water Pollution Abatement Trust,
6.375%, 2/1/15............................................ Aa3/AA+ 1,240,530
</TABLE>
5
<PAGE>
MUNICIPAL ADVANTAGE FUND INC.
SCHEDULE OF INVESTMENTS (UNAUDITED)(CONTINUED)
APRIL 30, 1997
<TABLE>
<CAPTION>
Principal Credit Rating
Amount (Moody's/S&P) Value
- - -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
LONG-TERM INVESTMENTS (CONT'D)
MASSACHUSETTS (CONT'D)
$2,000,000 Massachusetts State Water Resource Authority,
5.25%, 3/1/13............................................. A/A $1,896,800
----------
5,441,420
----------
MICHIGAN--5.2%
1,000,000 Alpena Public Schools (MBIA insured),
5.70%, 5/1/14............................................. Aaa/AAA 999,130
1,700,000 Dearborn School District,
6.00%, 5/1/14............................................. Aa2/AA 1,733,031
1,000,000 Grand Rapids Water Supply Systems Revenue (FGIC insured),
6.50%, 1/1/15............................................. Aaa/AAA 1,064,240
2,000,000 Michigan State Hospital Finance Authority Revenue,
8.125%, 10/1/21........................................... Baa2/BBB 2,274,200
1,000,000 Michigan State Pollution Control Revenue,
6.20%, 9/1/20............................................. A3/A- 1,016,290
1,000,000 University of Michigan Student Fees Revenue,
5.25%, 4/1/15............................................. Aa1/AA+ 952,000
----------
8,038,891
----------
MINNESOTA--4.8%
Minnesota State Housing Finance Agency,
1,620,000 6.00%, 2/1/14............................................... Aa2/AA+ 1,634,499
2,905,000 6.10%, 8/1/22............................................... Aa2/AA+ 2,923,360
1,975,000 6.25%, 8/1/22............................................... Aa/AA+ 1,991,116
1,000,000 Monticello Independent School District No. 882,
5.40%, 2/1/15............................................. Aaa/AAA 971,900
----------
7,520,875
----------
NEVADA--4.6%
2,000,000 Clark County General Obligation Bonds (MBIA insured),
6.00%, 6/1/13............................................. Aaa/AAA 2,051,340
2,000,000 Clark County Passenger Facility Charge Revenue (MBIA
insured),
5.75%, 7/1/23............................................. Aaa/AAA 1,941,920
1,000,000 Las Vegas General Obligation Bonds (FGIC insured),
6.60%, 10/1/12 (A)........................................ Aaa/AAA 1,091,070
Nevada Housing Division Revenue (FHA insured),
1,055,000 6.20%, 4/1/17............................................... Aaa/NR 1,069,970
1,000,000 6.20%, 10/1/28.............................................. Aaa/NR 1,000,750
----------
7,155,050
----------
NEW HAMPSHIRE--2.0%
1,000,000 New Hampshire Higher Educational & Health Facilities
Authority Revenue,
6.125%, 10/1/13........................................... Baa2/NR 995,640
</TABLE>
6
<PAGE>
MUNICIPAL ADVANTAGE FUND INC.
SCHEDULE OF INVESTMENTS (UNAUDITED)(CONTINUED)
APRIL 30, 1997
<TABLE>
<CAPTION>
Principal Credit Rating
Amount (Moody's/S&P) Value
- - -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
LONG-TERM INVESTMENTS (CONT'D)
New Hampshire State Housing Finance Authority,
$ 995,000 6.50%, 7/1/14............................................. Aa/NR $1,024,721
1,000,000 6.90%, 7/1/19............................................. Aa/NR 1,037,670
----------
3,058,031
----------
NEW JERSEY--2.2%
1,000,000 New Jersey Economic Development Authority,
Heating & Cooling Revenue,
6.20%, 12/1/07............................................ NR/BBB- 1,013,070
2,670,000 North Hudson Sewer Authority Revenue (FGIC insured),
5.125%, 8/1/22............................................ Aaa/AAA 2,472,287
----------
3,485,357
----------
NEW YORK--17.6%
1,750,000 Metropolitan Transportation Authority, Transportation
Facilities Revenue,
6.00%, 7/1/14............................................. Baa1/BBB+ 1,738,712
1,000,000 Municipal Assistance Corporation, City of Troy (MBIA
insured),
5.00%, 1/15/16............................................ Aaa/AAA 920,020
New York City General Obligation Bonds,
2,000,000 5.75%, 2/1/17............................................. Baa1/BBB+ 1,906,820
1,500,000 5.75%, 2/1/19............................................. Baa1/BBB+ 1,423,230
1,000,000 5.875%, 3/15/18........................................... Baa1/BBB+ 965,550
1,000,000 6.00%, 8/1/14............................................. Baa1/BBB+ 985,120
1,000,000 6.00%, 8/1/16............................................. Baa1/BBB+ 981,990
1,000,000 6.95%, 8/15/12 (MBIA insured)............................. Aaa/AAA 1,099,080
2,270,000 7.00%, 10/1/09............................................ Baa1/BBB+ 2,411,262
3,000,000 New York City Industrial Development Agency,
Special Facilities Revenue,
6.125%, 1/1/24............................................ A/A 2,993,820
3,550,000 New York City Municipal Water Finance Authority,
Water & Sewer Systems Revenue,
6.00%, 6/15/25............................................ A2/A- 3,552,378
New York State Dormitory Authority Revenue,
1,500,000 5.75%, 5/15/24............................................ Baa1/BBB+ 1,419,465
500,000 6.25%, 7/1/25............................................. Baa1/BBB 501,065
1,500,000 6.75%, 7/1/24 (MBIA insured) (B).......................... Aaa/AAA 1,686,165
1,000,000 7.65%, 8/1/30 (FHA insured)............................... NR/AAA 1,086,750
1,500,000 New York State Local Government Assistance Corporation,
6.50%, 4/1/20............................................. A3/A 1,591,140
1,000,000 New York State Medical Care Facilities,
Finance Agency Revenue,
6.50%, 8/15/24............................................ Baa1/BBB+ 1,043,790
</TABLE>
7
<PAGE>
MUNICIPAL ADVANTAGE FUND INC.
SCHEDULE OF INVESTMENTS (UNAUDITED)(CONTINUED)
APRIL 30, 1997
<TABLE>
<CAPTION>
Principal Credit Rating
Amount (Moody's/S&P) Value
- - -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
LONG-TERM INVESTMENTS (CONT'D)
NEW YORK (CONT'D)
New York State Urban Development Corporation,
Correctional Capital Facility,
$ 500,000 5.375%, 1/1/25............................................ Baa1/BBB $ 452,415
565,000 5.625%, 1/1/07............................................ Baa1/BBB 563,910
----------
27,322,682
----------
NORTH CAROLINA--2.0%
3,500,000 North Carolina Municipal Power Agency, No. 1 Catawba
Electric Revenue (MBIA insured),
5.00%, 1/1/18............................................. Aaa/AAA 3,145,590
----------
OHIO--1.6%
2,500,000 Lucas County Hospital Revenue (MBIA insured),
5.45%, 8/15/14............................................ Aaa/AAA 2,427,325
----------
PENNSYLVANIA--.9%
1,500,000 Philadelphia Water and Wastewater Revenue (MBIA insured),
5.25%, 6/15/23............................................ Aaa/AAA 1,376,415
----------
SOUTH CAROLINA--.9%
1,450,000 York County Industrial Revenue,
5.70%, 1/1/24............................................. A2/A+ 1,408,863
----------
SOUTH DAKOTA--.7%
1,000,000 Heartland Consumers Power District Revenue,
7.00%, 1/1/16............................................. Aaa/AAA 1,144,960
----------
TENNESSEE--2.0%
1,020,000 Shelby County General Obligation Bonds,
5.80%, 4/1/19............................................. Aa/AA+ 1,026,171
2,000,000 Tennessee Housing Development Agency,
6.375%, 7/1/22............................................ Aa2/AA 2,022,880
----------
3,049,051
----------
TEXAS--10.7%
1,000,000 Alliance Airport Authority Revenue,
6.375%, 4/1/21............................................ Baa2/BBB 1,006,580
1,000,000 Austin Hotel Occupancy Tax Revenue (AMBAC insured),
5.125%, 11/15/19.......................................... Aaa/AAA 907,500
4,000,000 Brownsville Utility System Revenue (AMBAC insured),
5.25%, 9/1/15............................................. Aaa/AAA 3,787,880
2,300,000 Carrollton Independent School District,
5.00%, 2/15/17............................................ Aaa/AAA 2,123,038
1,500,000 Harris County Port Authority General Obligation Bonds,
5.75%, 10/1/17............................................ Aa/AA 1,464,720
1,000,000 Harris County Toll Road Subordinated Lien,
6.50%, 8/15/15............................................ Aa3/AA 1,079,440
</TABLE>
8
<PAGE>
MUNICIPAL ADVANTAGE FUND INC.
SCHEDULE OF INVESTMENTS (UNAUDITED)(CONTINUED)
APRIL 30, 1997
<TABLE>
<CAPTION>
Principal Credit Rating
Amount (Moody's/S&P) Value
- - -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
LONG-TERM INVESTMENTS (CONT'D)
Houston Water Conveyance System, Contract Certificates of
Participation (AMBAC insured),
$1,000,000 6.25%, 12/15/14........................................... Aaa/AAA $1,069,810
1,400,000 7.50%, 12/15/15........................................... Aaa/AAA 1,680,420
2,500,000 San Antonio Electric & Gas Revenue,
6.00%, 2/1/14............................................. Aa1/AA 2,536,800
1,000,000 Texas Turnpike Authority Revenue (FGIC insured),
5.25%, 1/1/23............................................. Aaa/AAA 933,250
----------
16,589,438
----------
UTAH--1.0%
Utah Housing Finance Agency (FHA insured),
1,105,000 6.35%, 7/1/11............................................. Aa2/NR 1,136,559
420,000 6.55%, 7/1/26............................................. Aa2/NR 434,272
----------
1,570,831
----------
VERMONT--1.1%
1,690,000 Vermont Housing Finance Agency (FHA insured),
7.85%, 12/1/29............................................ A1/A- 1,769,683
----------
VIRGINIA--2.8%
4,200,000 Virginia Housing Development Authority,
6.50%, 1/1/13............................................. Aa1/AA+ 4,358,172
----------
WASHINGTON--.8%
1,160,000 Seattle Museum Development Authority,
6.30%, 7/1/13............................................. Aa1/AA+ 1,205,913
----------
WEST VIRGINIA--.6%
1,000,000 Braxton County Solid Waste Disposal Revenue,
6.125%, 4/1/26............................................ A2/A 994,970
----------
WISCONSIN--1.3%
2,000,000 Janesville Pollution Control Revenue,
5.55%, 4/1/09............................................. A3/A- 1,974,200
----------
Total Long-Term Investments (cost--$150,058,368)............ $152,819,271
----------
SHORT-TERM INVESTMENTS--.2%
SOUTH CAROLINA--.1%
$ 200,000 South Carolina Jobs Economic Development Revenue, VRDN,
3.80%, 5/1/97............................................. VMIG1/A1+ $ 200,000
----------
</TABLE>
9
<PAGE>
MUNICIPAL ADVANTAGE FUND INC.
SCHEDULE OF INVESTMENTS (UNAUDITED)(CONTINUED)
APRIL 30, 1997
<TABLE>
<CAPTION>
Principal Credit Rating
Amount (Moody's/S&P) Value
- - -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
SHORT-TERM INVESTMENTS (CONT'D)
TEXAS--.1%
$ 100,000 North Central Texas Health Facility Development Revenue,
VRDN,
3.90%, 5/1/97............................................. VMIG1/A1 $ 100,000
------------
$ 300,000
Total Short-Term Investments (cost--$300,000)...............
------------
Total Investments (cost--$150,358,368)...................... 98.6% $153,119,271
Other Assets in Excess of Liabilities....................... 1.4 2,177,793
------------- ------------
Total Net Assets............................................ 100.0% $155,297,064
============= ============
</TABLE>
- - --------------------------------------------------------------------------------
VRDN--Variable rate demand notes 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.
(A) Pre-refunded for April 1, 2002. Collateralized by U.S. Government securities
and cash 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.
(B) Pre-refunded for July 1, 2004. Collateralized by U.S. Government securities
and cash 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.
10
<PAGE>
MUNICIPAL ADVANTAGE FUND INC.
STATEMENT OF ASSETS AND LIABILITIES (UNAUDITED)
APRIL 30, 1997
<TABLE>
<S> <C>
ASSETS
Investments, at value (cost--$150,358,368)................ $ 153,119,271
Cash...................................................... 42,629
Interest receivable....................................... 2,773,722
Deferred organization expenses............................ 17,654
Prepaid expenses.......................................... 12,212
---------------
Total Assets........................................... 155,965,488
---------------
LIABILITIES
Dividends payable attributable to common shares........... 482,596
Investment management fee payable......................... 75,894
Other payables and accrued expenses....................... 109,934
---------------
Total Liabilities...................................... 668,424
---------------
Total Net Assets..................................... $ 155,297,064
---------------
---------------
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)................................................ $ 55,000,000
---------------
Common stock:
Par value ($.001 per share, applicable to 7,257,093
shares issued)........................................ 7,257
Paid-in-capital in excess of par....................... 100,618,353
Undistributed net investment income....................... 366,922
Accumulated net realized loss on investments and futures
transactions........................................... (3,456,371)
Net unrealized appreciation on investments................ 2,760,903
---------------
Net assets applicable to common shareholders........... 100,297,064
---------------
Total Net Assets..................................... $ 155,297,064
---------------
---------------
Net asset value per common share..................... $13.82
---------------
---------------
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
11
<PAGE>
MUNICIPAL ADVANTAGE FUND INC.
STATEMENT OF OPERATIONS (UNAUDITED)
FOR THE SIX MONTHS ENDED APRIL 30, 1997
<TABLE>
<CAPTION>
INVESTMENT INCOME
<S> <C>
Interest.................................................. $ 4,637,853
---------------
OPERATING EXPENSES
Investment management fee (note 2)........................ 464,556
Auction fees and commissions.............................. 74,257
Auditing, consulting and tax return preparation fees...... 34,316
Reports and notices to shareholders....................... 26,878
Legal fees................................................ 26,388
Custodian fees (note 2)................................... 23,194
Transfer and dividend disbursing agent fees............... 16,981
Directors' fees and expenses.............................. 13,116
Amortization of deferred organization expenses............ 8,719
Stock exchange listing fee................................ 7,997
Miscellaneous............................................. 8,970
---------------
Total operating expenses............................... 705,372
Less: Expense offset arrangement (note 2)............ (1,078)
---------------
Net operating expenses............................... 704,294
---------------
Net investment income............................. 3,933,559
---------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS--NET
Net realized gain on investments.......................... 59,035
Net realized loss on futures transactions (note 1f)....... (61,071)
---------------
Net realized loss on investments and futures
transactions.......................................... (2,036)
Net change in unrealized appreciation (depreciation) on
investments............................................ (1,030,460)
---------------
Net realized loss and change in unrealized appreciation
(depreciation) on investments......................... (1,032,496)
---------------
Net increase in net assets resulting from operations........ $ 2,901,063
---------------
---------------
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
12
<PAGE>
MUNICIPAL ADVANTAGE FUND INC.
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR ENDED
APRIL 30, OCTOBER 31,
1997 (1) 1996
------------ ------------
<S> <C> <C>
OPERATIONS
Net investment income......................... $ 3,933,559 $ 7,878,233
Net realized loss on investments and futures
transactions............................... (2,036) (153,052)
Net change in unrealized appreciation
(depreciation) on investments.............. (1,030,460) 1,411,332
------------ ------------
Net increase in net assets resulting from
operations................................ 2,901,063 9,136,513
------------ ------------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS
Dividends to preferred shareholders from net
investment income.......................... (1,005,718) (2,076,179)
Dividends to common shareholders from net
investment income.......................... (2,895,580) (5,671,420)
------------ ------------
Total dividends to shareholders............ (3,901,298) (7,747,599)
------------ ------------
Total increase (decrease) in net
assets.................................... (1,000,235) 1,388,914
NET ASSETS
Beginning of period........................... 156,297,299 154,908,385
------------ ------------
End of period (including undistributed net
investment income of $366,922 and $334,661,
respectively).............................. $155,297,064 $156,297,299
------------ ------------
------------ ------------
</TABLE>
(1) Unaudited.
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
13
<PAGE>
MUNICIPAL ADVANTAGE FUND INC.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
APRIL 30, 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.
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 (the 'Investment Adviser'), pursuant to which the Investment Adviser
provides investment advisory and administrative services to the Fund. The
Investment Adviser is responsible for the management of the Fund's portfolio in
accordance with the Fund's investment objective and policies, for making
decisions to buy, sell, or hold particular securities and is responsible for the
day-to-day administration of the Fund.
The 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 were 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.
14
<PAGE>
MUNICIPAL ADVANTAGE FUND INC.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)(CONTINUED)
APRIL 30, 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 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 common shareholders on
the ex-dividend date.
(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 a 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 a 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 April 30, 1997.
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. The Investment Manager paid the Investment Adviser $278,734
for the six months ended April 30, 1997.
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 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, 1997, purchases and sales of investment
securities, other than short-term securities, aggregated $29,264,314 and
$28,519,925, respectively.
15
<PAGE>
MUNICIPAL ADVANTAGE FUND INC.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)(CONTINUED)
APRIL 30, 1997
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 net asset and
liquidation value of $50,000 per share plus any accumulated but unpaid
dividends.
Dividends are accumulated daily at an annual rate set through auction
procedures and recently have been reset every ninety-one days. The annualized
dividend rate ranged from 3.50% to 3.80% during the six months ended April 30,
1997 and was 3.50% at April 30, 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 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.
6. QUARTERLY RESULTS OF OPERATIONS
<TABLE>
<CAPTION>
Realized and
Net Increase
(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
---------- ------ ---------- ------ ----------- ------ ----------- ------
$4,637,853 $0.64 $3,933,559 $0.54 ($1,032,496) ($0.14) $ 2,901,063 $0.40
---------- ------ ---------- ------ ----------- ------ ----------- ------
---------- ------ ---------- ------ ----------- ------ ----------- ------
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>
16
<PAGE>
MUNICIPAL ADVANTAGE FUND INC.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)(CONTINUED)
APRIL 30, 1997
7. SUBSEQUENT EVENTS
On May 1, 1997, a dividend of $.0665 per share was declared to common
shareholders payable June 2, 1997 to shareholders of record on May 15, 1997.
At the last auction on May 23, 1997, the Fund sold 91-day auction rate
preferred stock at an annual rate of 3.85% with pay dates of July 1, 1997,
August 1, 1997 and August 26, 1997.
On June 2, 1997, a dividend of $.0665 per share was declared to common
shareholders payable July 1, 1997 to shareholders of record on June 16, 1997.
17
<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 Year ended to
April 30, 1997* October 31, 1996 October 31, 1995 October 31, 1994 October 31, 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.......... 0.54 1.09 1.08 1.05 0.43
Net realized and unrealized
gain (loss) on investments... (0.14) 0.17 1.98 (2.89) 0.84
---------------- ---------------- ---------------- ---------------- ------------------
Total from investment
operations............... 0.40 1.26 3.06 (1.84) 1.27
---------------- ---------------- ---------------- ---------------- ------------------
Dividends and distributions to
shareholders:
Dividends to preferred
shareholders from net
investment income............ (0.14) (0.29) (0.30) (0.21) (0.07)
Dividends to common
shareholders from net
investment income............ (0.40) (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............. (0.54) (1.07) (1.08) (1.12) (0.38)
---------------- ---------------- ---------------- ---------------- ------------------
Capital charge in respect to
issuance of preferred
shares....................... -- -- -- -- (0.18)
Capital charge in respect to
issuance of common shares.... -- -- -- -- (0.06)
---------------- ---------------- ---------------- ---------------- ------------------
Total capital charges...... -- -- -- -- (0.24)
---------------- ---------------- ---------------- ---------------- ------------------
Net asset value, end of
period....................... $ 13.82 $ 13.96 $ 13.77 $ 11.79 $ 14.75
---------------- ---------------- ---------------- ---------------- ------------------
---------------- ---------------- ---------------- ---------------- ------------------
Market value, end of period.... $ 12.125 $ 11.875 $ 11.625 $ 9.75 $ 14.125
---------------- ---------------- ---------------- ---------------- ------------------
---------------- ---------------- ---------------- ---------------- ------------------
Total investment return
(2)...................... 5.5% 9.2% 27.9% (25.7%) 2.4%(3)
---------------- ---------------- ---------------- ---------------- ------------------
---------------- ---------------- ---------------- ---------------- ------------------
Net assets, end of period
(4).......................... $155,297,064 $156,297,299 $154,908,385 $140,550,749 $162,057,409
---------------- ---------------- ---------------- ---------------- ------------------
Ratio of net operating expenses
to average net assets (6).... 1.41%(5,7) 1.40%(7) 1.44% 1.39% 1.17%(5)
---------------- ---------------- ---------------- ---------------- ------------------
Ratio of net investment income
to average net assets (6).... 7.84%(5) 7.88% 8.44% 7.85% 6.07%(5)
---------------- ---------------- ---------------- ---------------- ------------------
Portfolio turnover............. 19% 27% 36% 22% 9%
---------------- ---------------- ---------------- ---------------- ------------------
</TABLE>
- - --------------------------------------------------------------------------------
* Unaudited.
(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 $141,179, $141,625, $140,600,
$127,521 and $147,265, 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
$101,135,278, $99,980,261, $93,172,629, $97,502,978 and $102,609,821,
respectively.
(7) Gross of expense offsets (see note 2 in Notes to Financial Statements).
18
<PAGE>
ANNUAL SHAREHOLDERS MEETING
- - --------------------------------------------------------------------------------
The Fund held its annual shareholders meeting on February 21, 1997. At the
meeting, common and preferred shareholders voted together on the election of the
nominees 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 DIRECTORS
<TABLE>
<CAPTION>
NOMINEE VOTES FOR VOTES AGAINST WITHHELD AUTHORITY
- - ----------------------------------------------------------------- ---------- -------------- ------------------
<S> <C> <C> <C>
Robert I. Kleinberg.............................................. 6,682,761 0 159,443
Jeswald W. Salacuse.............................................. 6,681,161 0 161,043
</TABLE>
2. RATIFICATION OF PRICE WATERHOUSE LLP AS THE INDEPENDENT ACCOUNTANTS OF THE
FUND
<TABLE>
<CAPTION>
VOTES FOR VOTES AGAINST VOTES ABSTAINED
---------- -------------- ------------------
<S> <C> <C> <C>
6,682,338 52,653 107,213
</TABLE>
The following table provides information concerning the Directors of the
Fund:
<TABLE>
<CAPTION>
DIRECTOR TERM EXPIRATION
- - ------------------------------------------- -------------------
<S> <C>
Robert L. Rosen *.......................... 1998 Annual Meeting
Mark C. Biderman *......................... 1999 Annual Meeting
Raymond D. Horton.......................... 1999 Annual Meeting
Robert I. Kleinberg........................ 2000 Annual Meeting
Jeswald W. Salacuse........................ 2000 Annual Meeting
</TABLE>
- - ------------------
* Preferred Stock Director
19
<PAGE>
MUNICIPAL ADVANTAGE FUND INC.
SEMI-ANNUAL REPORT
April 30, 1997
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.
