<PAGE>
MUNICIPAL ADVANTAGE FUND INC.
December 18, 1998
Dear Shareholder:
We are pleased to report on the excellent performance of the Municipal
Advantage Fund in the fiscal year ended October 31, 1998. The Fund's common
shares provided a 9.7% total return on net asset value (NAV) in the year,
surpassing both the 8.0% total return of the Lehman Brothers Municipal Bond
Index (Lehman Index) and the average total return of 8.4% for leveraged
closed-end general municipal bond funds monitored by Lipper Analytical Services,
Inc. Total return consists of dividends plus change in NAV per share and assumes
reinvestment of dividends. The Fund's performance ranked fourth among the 46
funds in this Lipper category.
The Fund's total return at market--that is, dividends plus the price change
of the Fund's common shares on the New York Stock Exchange, assuming
reinvestment of dividends--was an even stronger 13.6% in the fiscal year.
FOURTH QUARTER PERFORMANCE
The Fund performed well not only in the year, but also in the fourth fiscal
quarter ended October 31, 1998. Its total return at NAV was 3.2% in the quarter,
exceeding the 2.8% total return of the Lehman Index and the 2.9% average total
return for the funds in the Lipper leveraged closed-end general municipal bond
fund category. The Fund's quarterly performance was 13th among the 47 funds in
this Lipper universe. The Fund provided a total return at market of 4.7% in the
quarter.
DIVIDEND PAYMENTS AND YIELD
With the aid of leverage from its preferred shares, the Fund continued to
meet its objective of providing holders of its common shares with a high level
of income exempt from regular federal income tax. The Fund paid regular monthly
dividends of 6.65 cents per common share, or a total of 79.8 cents per common
share for the fiscal year.
At fiscal year-end, the yield on the Fund's common shares was 5.6%, based
on the $14.125 per share closing market price at the end of October and the
annualized current monthly dividend rate of 6.65 cents per common share. For an
investor in the top federal tax bracket of 39.6%, the Fund's yield was
equivalent to 9.4% on a taxable basis.
FAVORABLE MARKET CONDITIONS
The Fund achieved these results in a favorable environment for fixed-income
investing. Bond prices rose during the fiscal year, driven by low inflation,
declining interest rates and moderate economic growth. In the latter part of the
year, quality municipal securities benefited as well from a flight to
safety--i.e., a preference among many investors, in the face of global economic
uncertainty, for owning securities with a high degree of stability and low
credit risk.
We believe we have remained disciplined in our investment philosophy,
capitalizing on these trends. In buying securities for the Fund, we identify
those 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-rated bonds,
including insured bonds. Because the yields available on lower-rated municipals
are only modestly greater than those available at this time on higher-rated
issues, we believe there is little incentive to own lower-rated securities
except in specific instances where we find attractive value. As of October 31,
1998, 92.7% of the long-term securities owned by the Fund were rated A or better
by Standard & Poor's or Moody's.
In addition, we maintained a strategy of selling bonds in the Fund's
portfolio as their market prices reached par (face value), reinvesting the
proceeds in either non-callable issues or 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.
<PAGE>
PORTFOLIO ANALYSIS
The Fund owns a diverse group of quality municipal securities. At the end
of October 1998, 99.9% of the Fund's portfolio was invested in long-term
securities and 0.1% in cash and cash equivalents.
The Fund's five largest portfolio positions by state at the end of October
were: New York, representing 12.8% of the Fund's net assets; California, 9.6%;
Texas, 8.5%; Massachusetts, 6.5%; and Michigan, 6.4%. The five largest market
sectors were: health and hospital, representing 21.5% of the Fund's net assets;
housing, 17.1%; general obligation, 15.3%; water and sewer, 13.2%; and airline
and airport, 9.7%.
The average maturity of the portfolio was 21.4 years as of October 31,
1998, down slightly from 21.7 years at the end of the third fiscal quarter.
PREFERRED STOCK COSTS
At the latest auction on December 7, 1998, the Fund sold 28-day auction
rate preferred stock at an annual dividend rate of 3.45%, compared with 3.20% on
the previous issue, which had a term of seven days. Proceeds from the preferred
stock are invested in municipal bonds that currently 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.
DISCOUNT
Although the Fund's common shares trade at a discount to their NAV, as is
true of many closed-end municipal bond funds, the discount narrowed during the
year, reflecting the fact that the Fund's market price rose more than the Fund's
NAV. The discount was 7.3% at the end of October. We are pleased with this
narrowing, because it enables shareholders to buy and sell the Fund's common
shares at a price closer to NAV.
We believe that 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.
PORTFOLIO MANAGER CHANGE
On December 14, 1998, Robert J. Bluestone resigned from his position as
Executive Vice President of the Fund. Mr. Bluestone has assumed other
responsibilities with Oppenheimer Capital, the parent of the Investment Adviser.
Matthew Greenwald, who has managed the Fund's portfolio under Mr. Bluestone's
oversight since the Fund's inception, continues to manage the Fund.
AMENDMENTS TO THE FUND'S BY-LAWS
The Board of Directors of the Fund recently reviewed and approved various
amendments to the Fund's by-laws. For example, the by-law provision relating to
timely notice for proposals to be brought before an annual meeting of
stockholders (other than a proposal under rule 14a-8 under the Securities
Exchange Act of 1934 to be included in the Fund's proxy statement) have been
amended. As amended, a stockholder's notice must be delivered to the Fund not
less than 60 days nor more than 90 days prior to the first anniversary of the
preceding year's annual meeting. An exception applies in the event the date of
the annual meeting is substantially advanced or delayed from the anniversary
date. The Board believes that the amended timely notice provisions will provide
greater certainty to stockholders because previously, timely notice keyed off
the date of the current year's meeting or the date public disclosure of the
current year's meeting is made. In addition, the provisions provide that any
business to be brought before a special meeting of stockholders must be
specified in the notice of meeting or otherwise properly brought before the
meeting by or at the direction of the Board of Directors. Finally, upon
recommendation of the Fund's Maryland counsel, other changes to certain by-law
provisions were made to conform to the by-law provisions of more recently
organized Maryland companies.
<PAGE>
YEAR 2000 PROCESSING ISSUE
Many computer programs in use today use two digits rather than four to
identify the year and cannot distinguish the year 2000 from the year 1900. The
Year 2000 issue affects virtually all companies and organizations. The Fund's
investment manager and investment adviser are working on necessary changes to
their computer systems to deal with the Year 2000 issue. The Fund's transfer
agent, custodian and other service providers have reported that they are working
on dealing with the Year 2000 issue as well. There can be no assurance that the
problem will be corrected in all respects or that it will not have a negative
effect on the Fund's operations or results. In addition, state and local
government entities whose securities are owned by the Fund could be adversely
affected by the Year 2000 issue, which could have a negative effect on the
Fund's investment return.
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.
SUMMARY
We are generally positive in our view of the municipal bond market.
Inflation continues to be low and the budgetary conditions of most states are
strong. In addition, we believe that municipals currently offer attractive
yields relative to other securities. At the end of October, yields on long-term
triple-A tax-exempt municipal securities were equal to about 93% of the yield on
long U.S. Government bonds, compared with an historic ratio of about 80%.
In managing the Fund, we will continue to do what we do best--seek to
generate a high level of income exempt from federal income tax by investing in a
diversified portfolio of quality municipal bonds chosen for their attractive
value. We at the Fund, together with Value Advisors LLC, the Fund's investment
manager, and OpCap Advisors, which provides advisory and administrative services
to the Fund, thank you for the trust you have placed in us. We remain dedicated
to serving your investment needs.
Sincerely,
/s/ Stephen Treadway
--------------------
Stephen Treadway
Chairman
<PAGE>
MUNICIPAL ADVANTAGE FUND INC.
SCHEDULE OF INVESTMENTS
OCTOBER 31, 1998
<TABLE>
<CAPTION>
Credit
Principal Rating*
Amount (Moody's/S&P) Value
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
LONG-TERM INVESTMENTS--98.2%
ALABAMA--1.9%
1,000,000 Alabama State Docks Department Facility Revenue
(MBIA insured),
6.15%, 10/1/14........................................................ Aaa/AAA $ 1,115,390
2,000,000 DCH Health Care Authority, Health Care Facilities Revenue,
5.70%, 6/1/15......................................................... A1/A+ 2,118,840
------------
3,234,230
------------
CALIFORNIA--9.6%
1,000,000 Burbank Redevelopment Agency,
6.00%, 12/1/13........................................................ Baa1/A- 1,062,060
2,500,000 California Health Facilities Financing Authority Revenue,
6.25%, 3/1/21......................................................... A3/A 2,638,000
1,000,000 California State Public Works Board, Lease Revenue,
6.30%, 10/1/10 (Pre-refunded 10/1/04) (A)............................. A1/A 1,150,260
1,000,000 Lafayette Elementary School District (FSA insured),
5.90%, 5/15/17........................................................ Aaa/AAA 1,097,840
4,000,000 Los Angeles Harbor Department Revenue,
5.375%, 11/1/23....................................................... Aa3/AA 4,139,240
1,000,000 Los Angeles Regional Airports Revenue,
6.70%, 1/1/22......................................................... NR/A- 1,071,150
1,000,000 Madera County Certificates of Participation
(MBIA insured),
6.125%, 3/15/23 (Pre-refunded 3/15/05) (A)............................ Aaa/AAA 1,146,830
1,000,000 Modesto Irrigation Distribution Financing Authority
(AMBAC insured),
4.75%, 9/1/22......................................................... Aaa/AAA 965,340
1,000,000 San Mateo County JT Powers Authority (MBIA insured),
5.00%, 7/1/21......................................................... Aaa/AAA 1,017,660
1,500,000 Student Education Loan Marketing Corporation,
Student Loan Revenue,
7.00%, 7/1/10......................................................... NR/A 1,654,695
------------
15,943,075
------------
COLORADO--4.9%
3,085,000 Colorado Health Facilities Authority Revenue (MBIA insured),
5.95%, 5/15/12........................................................ Aaa/AAA 3,357,128
Denver City & County Airport Revenue (MBIA insured),
1,500,000 5.60%, 11/15/25....................................................... Aaa/AAA 1,565,235
3,000,000 5.75%, 11/15/17....................................................... Aaa/AAA 3,179,910
------------
8,102,273
------------
CONNECTICUT--0.8%
1,215,000 Connecticut General Obligation Bonds,
5.25%, 3/15/14........................................................ Aa3/AA 1,276,771
------------
</TABLE>
<PAGE>
MUNICIPAL ADVANTAGE FUND INC.
SCHEDULE OF INVESTMENTS (CONTINUED)
OCTOBER 31, 1998
<TABLE>
<CAPTION>
Credit
Principal Rating*
Amount (Moody's/S&P) Value
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
LONG-TERM INVESTMENTS (CONT'D.)
DISTRICT OF COLUMBIA--1.0%
$1,850,000 Washington D.C. Convention Center Authority Tax Revenue
(AMBAC insured),
4.75%, 10/1/28........................................................ Aaa/AAA $ 1,732,266
------------
FLORIDA--2.7%
1,500,000 Florida State Board of Education (FSA insured),
4.50%, 6/1/22......................................................... Aaa/AAA 1,402,650
3,160,000 Tampa Health Systems Revenue (MBIA insured),
4.75%, 11/15/18....................................................... Aaa/AAA 3,064,536
------------
4,467,186
------------
GEORGIA--2.6%
1,750,000 Cherokee County Water & Sewer Authority Revenue (MBIA Insured),
5.50%, 8/1/23......................................................... Aaa/AAA 1,902,128
1,000,000 Savannah Hospital Authority Revenue,
6.125%, 7/1/12 (Pre-refunded 7/1/03) (A).............................. A3/NR 1,111,240
1,260,000 Toombs County Hospital Authority Revenue,
7.00%, 12/1/17........................................................ NR/BBB 1,368,473
------------
4,381,841
------------
ILLINOIS--4.5%
1,000,000 Chicago Water Revenue (FGIC insured),
5.25%, 11/1/17........................................................ Aaa/AAA 1,022,660
1,000,000 Illinois Educational Facilities Authority Revenue,
5.25%, 9/1/24......................................................... NR/A- 977,790
2,670,000 Illinois Health Facilities Authority Revenue,
9.00%, 11/15/15....................................................... Baa1/NR 3,002,068
2,220,000 Illinois Housing Development Authority Revenue,
6.70%, 8/1/25......................................................... Aa3/AA 2,375,289
------------
7,377,807
------------
KENTUCKY--0.7%
1,000,000 Louisville & Jefferson Counties Metropolitan Sewer District
(AMBAC insured),
6.50%, 5/15/24 (Pre-refunded 11/15/04) (A)............................ Aaa/AAA 1,154,570
------------
LOUISIANA--1.0%
1,500,000 New Orleans General Obligation Bonds (AMBAC insured),
6.125%, 10/1/16....................................................... Aaa/AAA 1,665,840
------------
MAINE--0.6%
1,000,000 Maine State Housing Authority, Mortgage Purchase,
7.55%, 11/15/22....................................................... Aa2/AA 1,055,630
------------
</TABLE>
<PAGE>
MUNICIPAL ADVANTAGE FUND INC.
SCHEDULE OF INVESTMENTS (CONTINUED)
OCTOBER 31, 1998
[CAPTION]
<TABLE>
Credit
Principal Rating*
Amount (Moody's/S&P) Value
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
LONG-TERM INVESTMENTS (CONT'D.)
MARYLAND--0.9%
$1,505,000 Maryland State Community Development Administration
(FHA insured),
7.60%, 4/1/23......................................................... Aa2/NR $ 1,576,141
------------
MASSACHUSETTS--6.5%
Massachusetts Bay Transportation Authority Revenue,
1,000,000 Ser. A, 5.00%, 3/1/27 (FGIC insured).................................... Aaa/AAA 985,030
3,000,000 Ser. D, 5.00%, 3/1/27................................................... Aa3/AA- 2,937,480
2,250,000 Massachusetts State Health & Education Facilities Authority Revenue,
6.25%, 12/1/22........................................................ A1/A 2,470,343
1,175,000 Massachusetts State Water Pollution Abatement Trust,
6.375%, 2/1/15........................................................ Aa3/AA+ 1,310,783
3,250,000 Massachusetts State Water Resource Authority (FSA insured),
4.50%, 8/1/22......................................................... Aaa/AAA 3,033,907
------------
10,737,543
------------
MICHIGAN--6.4%
1,000,000 Dearborn School District,
6.00%, 5/1/14 (Pre-refunded 5/1/01) (A)............................... Aa2/AA+ 1,074,990
1,000,000 Michigan Municipal Bond Authority Revenue,
4.75%, 10/1/18........................................................ Aa1/AA+ 974,810
Michigan State Hospital Finance Authority Revenue,
1,000,000 5.50%, 10/1/18........................................................ Baa2/BBB 1,003,700
2,000,000 8.125%, 10/1/21 (Pre-refunded 10/1/05) (A)............................ Baa2/AAA 2,520,520
1,000,000 Michigan State Pollution Control Revenue,
6.20%, 9/1/20......................................................... A2/A 1,082,040
4,000,000 Wayne County Airport Revenue (MBIA insured),
5.00%, 12/1/22........................................................ Aaa/AAA 3,879,960
------------
10,536,020
------------
MINNESOTA--4.1%
Minnesota State Housing Finance Agency,
1,620,000 6.00%, 2/1/14......................................................... Aa2/AA 1,702,264
2,905,000 6.10%, 8/1/22......................................................... Aa2/AA 3,052,022
1,955,000 6.25%, 8/1/22......................................................... Aa2/AA 1,978,616
------------
6,732,902
------------
NEVADA--6.0%
2,000,000 Clark County General Obligation Bonds (MBIA insured),
6.00%, 6/1/13 (Pre-refunded 6/1/04) (A)............................... Aaa/AAA 2,222,900
1,000,000 Clark County Industrial Development Revenue,
5.60%, 10/1/30........................................................ NR/BBB- 1,004,050
2,000,000 Clark County Passenger Facility Charge Revenue
(MBIA insured),
5.75%, 7/1/23......................................................... Aaa/AAA 2,112,960
2,400,000 Henderson Nevada Water & Sewer Revenue (FGIC insured),
4.75%, 9/1/18......................................................... Aaa/AAA 2,345,568
Nevada Housing Division Revenue (FHA insured),
1,055,000 6.20%, 4/1/17......................................................... Aaa/AAA 1,124,641
995,000 6.20%, 10/1/28........................................................ Aaa/NR 1,057,028
------------
9,867,147
------------
</TABLE>
<PAGE>
MUNICIPAL ADVANTAGE FUND INC.
SCHEDULE OF INVESTMENTS (CONTINUED)
OCTOBER 31, 1998
<TABLE>
<CAPTION>
Credit
Principal Rating*
Amount (Moody's/S&P) Value
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
LONG-TERM INVESTMENTS (CONT'D.)
NEW HAMPSHIRE--1.9%
$1,000,000 New Hampshire Higher Educational & Health Facilities
Authority Revenue,
6.125%, 10/1/13....................................................... Baa1/NR $ 1,042,220
New Hampshire State Housing Finance Authority,
900,000 6.50%, 7/1/14......................................................... Aa3/NR 963,873
1,000,000 6.90%, 7/1/19......................................................... Aa2/NR 1,068,860
------------
3,074,953
------------
NEW JERSEY--0.6%
1,000,000 New Jersey Economic Development Authority,
Heating & Cooling Revenue,
6.20%, 12/1/07........................................................ NR/BBB- 1,059,980
--------------
NEW YORK--12.8%
1,000,000 Long Island Power Authority, Electric System Revenue,
5.50%, 12/1/29........................................................ Baa1/A- 1,032,760
1,000,000 Municipal Assistance Corporation, City of Troy
(MBIA insured),
5.00%, 1/15/16........................................................ Aaa/AAA 1,009,490
New York City General Obligation Bonds,
2,000,000 5.75%, 2/1/17......................................................... A3/A- 2,124,920
1,500,000 5.75%, 2/1/19......................................................... A3/A- 1,593,690
1,000,000 5.875%, 3/15/18....................................................... A3/A- 1,071,460
1,000,000 6.00%, 8/1/14......................................................... A3/A- 1,092,210
1,000,000 6.00%, 8/1/16......................................................... A3/A- 1,085,870
1,000,000 6.95%, 8/15/12 (MBIA insured) (Pre-refunded 8/15/04) (A).............. Aaa/AAA 1,164,790
2,140,000 7.00%, 10/1/09 (Pre-refunded 10/1/02) (A)............................. A3/A- 2,421,089
3,000,000 New York City Industrial Development Agency,
Special Facilities Revenue,
6.125%, 1/1/24........................................................ A3/A 3,206,820
1,500,000 New York State Dormitory Authority Revenue,
5.75%, 5/15/24 (Pre-refunded 5/15/04) (A)............................. A3/AAA 1,633,170
1,000,000 New York State Medical Care Facilities,
Finance Agency Revenue,
6.50%, 8/15/24........................................................ A3/A- 1,138,350
New York State Urban Development Corporation,
Correctional Capital Facility,
1,500,000 5.00%, 1/1/28......................................................... Baa1/BBB+ 1,448,550
1,080,000 5.375%, 1/1/25........................................................ Baa1/BBB+ 1,093,565
------------
21,116,734
------------
NORTH CAROLINA--0.6%
1,000,000 North Carolina Medical Care Community Hospital Revenue,
4.75%, 12/1/28........................................................ Aa3/AA- 934,770
------------
NORTH DAKOTA--0.9%
1,500,000 North Dakota State Housing Finance Agency,
5.50%, 7/1/18......................................................... Aa3/NR 1,524,435
------------
</TABLE>
<PAGE>
MUNICIPAL ADVANTAGE FUND INC.
SCHEDULE OF INVESTMENTS (CONTINUED)
OCTOBER 31, 1998
<TABLE>
<CAPTION>
Credit
Principal Rating*
Amount (Moody's/S&P) Value
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
LONG-TERM INVESTMENTS (CONT'D.)
PENNSYLVANIA--5.2%
$2,000,000 Allegheny County Hospital Development Authority (MBIA insured),
6.00%, 7/1/23......................................................... Aaa/AAA $ 2,269,200
1,750,000 Philadelphia Hospitals & Higher Facilities Authority Revenue
(AMBAC insured),
5.125%, 5/15/18....................................................... Aaa/AAA 1,752,222
1,500,000 Philadelphia Water and Wastewater Revenue (MBIA insured),
5.25%, 6/15/23........................................................ Aaa/AAA 1,516,620
3,000,000 Southeastern Pennsylvania Transit Authority Revenue (FGIC insured),
5.375%, 3/1/22........................................................ Aaa/AAA 3,106,890
------------
8,644,932
------------
SOUTH CAROLINA--0.9%
1,450,000 York County Industrial Revenue,
5.70%, 1/1/24......................................................... A2/A+ 1,485,409
------------
SOUTH DAKOTA--0.7%
1,000,000 Heartland Consumers Power District Revenue,
7.00%, 1/1/16......................................................... Aaa/AAA 1,216,570
------------
TENNESSEE--1.3%
2,000,000 Tennessee Housing Development Agency,
6.375%, 7/1/22........................................................ Aa2/AA 2,149,880
------------
TEXAS--8.5%
1,000,000 Alliance Airport Authority Revenue,
6.375%, 4/1/21........................................................ Baa2/BBB 1,078,080
1,195,000 Arlington General Obligation Bonds,
5.00%, 8/15/16........................................................ Aa3/AA 1,204,213
1,000,000 Denton County General Obligation Bonds (AMBAC insured),
5.00%, 7/15/16........................................................ Aaa/AAA 1,006,920
1,000,000 Harlandale Independent School District,
4.50%, 8/15/23........................................................ Aaa/NR 923,980
1,500,000 Harris County Port Authority General Obligation Bonds,
5.75%, 10/1/17........................................................ Aa2/AA 1,596,960
785,000 Harris County Toll Road Subordinated Lien,
6.50%, 8/15/15........................................................ Aa2/AA 865,400
Houston Water Conveyance System, Certificates of Participation
(AMBAC insured),
1,000,000 6.25%, 12/15/14....................................................... Aaa/AAA 1,166,350
1,400,000 7.50%, 12/15/15....................................................... Aaa/AAA 1,831,046
2,500,000 Houston Water & Sewer Systems Revenue (FGIC insured),
5.00%, 12/1/25........................................................ Aaa/AAA 2,459,800
1,000,000 North East Independent School District,
4.50%, 2/1/16......................................................... Aaa/AAA 957,080
1,000,000 San Antonio Electric & Gas Revenue,
6.00%, 2/1/14......................................................... Aa1/AA 1,021,420
------------
14,111,249
------------
UTAH--0.9%
Utah Housing Finance Agency (FHA insured),
1,030,000 6.35%, 7/1/11......................................................... Aa2/NR 1,100,205
335,000 6.55%, 7/1/26......................................................... Aa2/AAA 357,505
------------
1,457,710
------------
</TABLE>
<PAGE>
MUNICIPAL ADVANTAGE FUND INC.
SCHEDULE OF INVESTMENTS (CONCLUDED)
OCTOBER 31, 1998
<TABLE>
<CAPTION>
Credit
Principal Rating*
Amount (Moody's/S&P) Value
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
LONG-TERM INVESTMENTS (CONCLUDED)
VERMONT--1.1%
$1,740,000 Vermont Housing Finance Agency (FHA insured),
7.85%, 12/1/29........................................................ A1/A- $ 1,799,421
------------
VIRGINIA--3.3%
4,200,000 Virginia Housing Development Authority, Commonwealth Mortgage,
6.50%, 1/1/13......................................................... Aa1/AA+ 4,434,822
1,000,000 Virginia Housing Development Authority, Multi-Family Housing,
5.20%, 11/1/15........................................................ Aa1/AA+ 1,019,460
------------
5,454,282
------------
WASHINGTON--1.3%
1,000,000 Seattle Museum Development Authority,
6.30%, 7/1/13......................................................... Aa1/AA+ 1,099,610
1,000,000 Washington General Obligation Bonds (FGIC insured),
5.00%, 1/1/22......................................................... Aaa/AAA 986,430
------------
2,086,040
------------
WEST VIRGINIA--1.9%
Braxton County Solid Waste Disposal Revenue,
1,000,000 6.125%, 4/1/26........................................................ A2/A 1,074,080
1,000,000 6.50%, 4/1/25......................................................... A2/A 1,099,500
1,000,000 West Virginia General Obligation Bonds (FGIC insured),
4.50%, 6/1/23......................................................... Aaa/AAA 932,330
------------
3,105,910
------------
WISCONSIN--2.1%
3,500,000 Wisconsin Health & Educational Facilities Authority Revenue
(MBIA insured),
5.25%, 8/15/27........................................................ Aaa/AAA 3,516,905
------------
Total Long-Term Investments (cost--$152,524,190)........................ 162,580,422
------------
SHORT-TERM INVESTMENTS--0.1%
NEVADA--0.1%
200,000 Reno Nevada Hospital Revenue, VRDN,
3.60%, 11/2/98
(cost--$200,000)...................................................... VMIG1/A-1+ 200,000
------------
Total Investments (cost--$152,724,190)**................................ 98.3% $162,780,422
Other Assets in Excess of Liabilities................................... 1.7 2,775,039
----------- ------------
Total Net Assets........................................................ 100.0% $165,555,461
----------- ------------
----------- ------------
</TABLE>
- --------------------------------------------------------------------------------
* Unaudited
** Aggregate unrealized appreciation for securities in which there is an excess
of value over tax cost is $10,178,924, aggregate gross unrealized
depreciation for securities in which there is an excess of tax cost over
value is $122,692 and net unrealized appreciation for Federal income tax
purposes is $10,056,232. The cost basis of portfolio securities for Federal
income tax purposes is $152,724,190.
(A) Bonds which are pre-refunded are collateralized by U.S. Government or other
eligible securities which are held in escrow and used to pay principal and
interest and retire the bonds at the earliest refunding date.
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 the date of next rate change.
See accompanying notes to financial statements.
<PAGE>
MUNICIPAL ADVANTAGE FUND INC.
STATEMENT OF ASSETS AND LIABILITIES
OCTOBER 31, 1998
ASSETS
Investments, at value (cost--$152,724,190)................ $ 162,780,422
Cash...................................................... 85,896
Interest receivable....................................... 2,693,801
Receivable from investments sold.......................... 505,815
Receivable from investments called........................ 283,518
Prepaid expenses.......................................... 10,966
---------------
Total Assets........................................... 166,360,418
---------------
LIABILITIES
Dividends payable attributable to common shares........... 482,597
Dividends payable attributable to preferred shares........ 139,028
Investment management fee payable......................... 84,759
Other payables and accrued expenses....................... 98,573
---------------
Total Liabilities...................................... 804,957
---------------
Total Net Assets..................................... $ 165,555,461
---------------
---------------
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....................... 243,339
Accumulated net realized loss on investments and futures
transactions........................................... (369,720)
Net unrealized appreciation on investments................ 10,056,232
---------------
Net assets applicable to common shareholders........... 110,555,461
---------------
Total Net Assets..................................... $ 165,555,461
---------------
---------------
Net asset value per common share..................... $15.23
------
------
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
<PAGE>
MUNICIPAL ADVANTAGE FUND INC.
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED OCTOBER 31, 1998
INVESTMENT INCOME
Interest.................................................. $ 9,180,948
---------------
OPERATING EXPENSES
Investment management fee................................. 982,571
Auction fees and commissions.............................. 146,927
Auditing and tax return preparation fees.................. 76,550
Legal fees................................................ 53,758
Custodian fees............................................ 47,201
Reports and notices to shareholders....................... 35,151
Directors' fees and expenses.............................. 24,937
Transfer and dividend disbursing agent fees............... 23,565
Stock exchange listing fee................................ 16,170
Amortization of deferred organization expenses............ 8,791
Miscellaneous............................................. 12,972
---------------
Total operating expenses............................... 1,428,593
Less: Expenses offset................................ (3,068)
---------------
Net operating expenses............................... 1,425,525
---------------
Net investment income............................. 7,755,423
---------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS--NET
Net realized gain on investments.......................... 2,352,604
Net realized gain on futures transactions................. 67,885
---------------
Net realized gain on investments and futures
transactions.......................................... 2,420,489
Net change in unrealized appreciation (depreciation) on
investments............................................ 1,991,692
---------------
Net realized gain and change in unrealized appreciation
(depreciation) on investments......................... 4,412,181
---------------
Net increase in net assets resulting from operations........ $ 12,167,604
---------------
---------------
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
<PAGE>
MUNICIPAL ADVANTAGE FUND INC.
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
----------------------------
1998 1997
------------ ------------
<S> <C> <C>
OPERATIONS
Net investment income......................... $ 7,755,423 $ 7,838,929
Net realized gain on investments and futures
transactions............................... 2,420,489 664,126
Net change in unrealized appreciation
(depreciation) on investments.............. 1,991,692 4,273,177
------------ ------------
Net increase in net assets resulting from
operations................................ 12,167,604 12,776,232
------------ ------------
DIVIDENDS TO SHAREHOLDERS
Dividends to preferred shareholders from net
investment income.......................... (2,039,506) (2,063,850)
Dividends to common shareholders from net
investment income.......................... (5,791,157) (5,791,161)
------------ ------------
Total dividends to shareholders............ (7,830,663) (7,855,011)
------------ ------------
Total increase in net assets............. 4,336,941 4,921,221
NET ASSETS
Beginning of year............................. 161,218,520 156,297,299
------------ ------------
End of year (including undistributed net
investment income of $243,339
and $318,579, respectively)................ $165,555,461 $161,218,520
------------ ------------
------------ ------------
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
<PAGE>
MUNICIPAL ADVANTAGE FUND INC.
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 1998
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 a management agreement with Value Advisors LLC (the
"Investment Manager") 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 has an investment advisory and administration
agreement with OpCap Advisors (the "Investment Adviser"), an affiliate of the
Investment Manager, 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. 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 have been
fully amortized to expense on a straight line basis over sixty months from
commencement of operations. Offering costs and underwriting discounts in
connection with the preferred share issuance were $303,393 and $962,500,
respectively, and were charged to capital attributable to common shares at the
time of issuance of such shares.
(D) SECURITY TRANSACTIONS AND OTHER INCOME
Security transactions are accounted for on the trade date. In determining
the gain or loss from the sale of securities, the cost of securities sold is
determined on the basis of identified cost. Interest income is accrued daily.
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.
<PAGE>
MUNICIPAL ADVANTAGE FUND INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
OCTOBER 31, 1998
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(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, 1998, 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, 1998.
(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.
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 $589,543 for the
year ended October 31, 1998.
3. PURCHASES AND SALES OF SECURITIES
For the year ended October 31, 1998, purchases and sales of investment
securities, other than short-term securities, aggregated $71,078,565 and
$71,464,322, respectively.
<PAGE>
MUNICIPAL ADVANTAGE FUND INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
OCTOBER 31, 1998
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. The annualized dividend rate ranged from 3.38% to 3.90% during the
year and was 3.50% at October 31, 1998. Distributions of net realized 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.
6. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
Realized and
Unrealized Net Increase
Gain (Loss) on (Decrease)
Investments and in Net Assets
Net Futures Transactions- Resulting from
Investment Income Investment Income 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, 1998...... $2,295,587 $0.32 $1,930,460 $0.26 $ 3,068,626 $ 0.42 $ 4,999,086 $ 0.68
April 30, 1998........ 2,287,484 0.31 1,941,780 0.27 (2,460,527) (0.34) (518,747) (0.07)
July 31, 1998......... 2,303,378 0.32 1,938,778 0.27 1,825,439 0.25 3,764,217 0.52
October 31, 1998...... 2,294,499 0.32 1,944,405 0.27 1,978,643 0.27 3,923,048 0.54
---------- ------ ---------- ------ ----------- ------ ----------- ------
$9,180,948 $1.27 $7,755,423 $1.07 $ 4,412,181 $ 0.60 $12,167,604 $ 1.67
---------- ------ ---------- ------ ----------- ------ ----------- ------
---------- ------ ---------- ------ ----------- ------ ----------- ------
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
---------- ------ ---------- ------ ----------- ------ ----------- ------
---------- ------ ---------- ------ ----------- ------ ----------- ------
</TABLE>
7. CAPITAL LOSS CARRYFORWARD
For the fiscal year ended October 31, 1998, the Fund will utilize
$2,420,489 of net capital loss carryforward. The Fund's accumulated net realized
capital losses available as a reduction against future net realized capital
gains is $369,720 which will expire in 2004. To the extent that capital loss
carryforwards are used to offset net capital gains, gains offset will not be
distributed to shareholders.
<PAGE>
MUNICIPAL ADVANTAGE FUND INC.
NOTES TO FINANCIAL STATEMENTS (CONCLUDED)
OCTOBER 31, 1998
8. SUBSEQUENT EVENTS
On November 2, 1998, a dividend of $.0665 per share was declared to common
shareholders payable December 1, 1998 to shareholders of record on November 16,
1998.
On December 1, 1998, a dividend of $.0665 per share was declared to common
shareholders payable December 31, 1998 to shareholders of record on
December 16, 1998.
On November 2, 1998, the Fund sold 28-day auction rate preferred stock at
an annual rate of 3.36% with a pay date of December 1, 1998.
On November 30, 1998, the Fund sold seven-day auction rate preferred stock
at an annual rate of 3.20% with a pay date of December 8, 1998.
On December 7, 1998, the Fund sold 28-day auction rate preferred stock at
an annual rate of 3.45% with a pay date of January 5, 1999.
<PAGE>
MUNICIPAL ADVANTAGE FUND INC.
FINANCIAL HIGHLIGHTS
FOR A COMMON SHARE OUTSTANDING THROUGHOUT EACH YEAR:
<TABLE>
<CAPTION>
Year ended October 31,
------------------------------------------------------------------------------------
1998 1997 1996 1995 1994
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year.... $ 14.64 $ 13.96 $ 13.77 $ 11.79 $ 14.75
------------ ------------ ------------ ------------ ------------
Income from investment operations:
Net investment income................. 1.07 1.08 1.09 1.08 1.05
Net realized and unrealized gain
(loss) on investments............... 0.60 0.68 0.17 1.98 (2.89)
------------ ------------ ------------ ------------ ------------
Total income (loss) from
investment operations........... 1.67 1.76 1.26 3.06 (1.84)
------------ ------------ ------------ ------------ ------------
Dividends and distributions to
shareholders:
Dividends to preferred shareholders
from net investment income.......... (0.28) (0.28) (0.29) (0.30) (0.21)
Dividends to common shareholders from
net investment income............... (0.80) (0.80) (0.78) (0.78) (0.86)
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) (1.08) (1.07) (1.08) (1.12)
------------ ------------ ------------ ------------ ------------
Net asset value, end of year.......... $ 15.23 $ 14.64 $ 13.96 $ 13.77 $ 11.79
------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------
Market value, end of year............. $ 14.125 $ 13.1875 $ 11.875 $ 11.625 $ 9.75
------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------
Total investment return (1)........... 13.6% 18.4% 9.2% 27.9% (25.7%)
------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------
Net assets applicable to common
shareholders, end of
year (000's) (2).................... $ 110,555 $ 106,219 $ 101,297 $ 99,908 $ 85,551
------------ ------------ ------------ ------------ ------------
Ratio of operating expenses to average
weekly net assets (3)(4)............ 1.31% 1.39% 1.40% 1.44% 1.39%
------------ ------------ ------------ ------------ ------------
Ratio of net investment income to
average weekly net assets (3)....... 7.13% 7.64% 7.88% 8.44% 7.85%
------------ ------------ ------------ ------------ ------------
Portfolio turnover rate............... 44% 44% 27% 36% 22%
------------ ------------ ------------ ------------ ------------
</TABLE>
- --------------------------------------------------------------------------------
(1) Change in market price assuming reinvestment of dividends and distributions
to common shareholders on payable date (at market).
(2) Preferred Shares asset coverage per unit was $150,252, $146,251, $141,788,
$140,680, and $127,619 respectively.
(3) Ratios calculated on the basis of income and expenses applicable to both the
common and preferred shares relative to the average weekly net assets of
common shareholders. Average weekly net assets of common shareholders for
each period were $108,761,824, $102,621,213, $99,980,261, $93,172,629, and
$97,502,978, respectively.
(4) For fiscal periods ending after November 1, 1995, the ratios are calculated
to include expenses offset by earning credits from a custodian bank. (See
note 1g in Notes to Financial Statements).
<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, 1998, 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 five years in the period
then ended 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, 1998 by correspondence with the custodian, provide a reasonable
basis for the opinion expressed above.
PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, New York 10036
December 18, 1998
<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,
1998) 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, 1998 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 30.7%. Additionally, the Fund
invested in municipal bonds containing market discount, whose accretion is
taxable. Accordingly, 0.24% of the Fund's dividends paid during the fiscal year
are taxable. Per share dividends for the fiscal year ended October 31, 1998 were
as follows:
Dividends to common shareholders from net
investment income........................... $ 0.7980
Dividends to preferred shareholders from
net investment income....................... $1854.0964
Since the Fund's fiscal year is not the calendar year, another notification
will be sent with respect to calendar year 1998. In January 1999, you will be
advised on IRS Form 1099 DIV as to the Federal tax status of the dividends
received by you in calendar 1998. The amount that will be reported, will be the
amount to use on your 1998 Federal income tax return and may differ from the
amount which we must report for the Fund's fiscal year ended October 31, 1998.
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
and 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 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
Matthew Greenwald
Executive Vice President
Deborah Kaback
Secretary
Richard L. Peteka
Treasurer
Robert J. Brault
Assistant 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
PricewaterhouseCoopers 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, 1998
[MUNICIPAL ADVANTAGE FUND INC. LOGO]
