<PAGE> PAGE 1
000 B000000 10/31/97
000 C000000 0000897951
000 D000000 N
000 E000000 NF
000 F000000 Y
000 G000000 Y
000 H000000 N
000 I000000 3.0.a
000 J000000 A
001 A000000 MUNICIPAL ADVANTAGE FUND
001 B000000 811-7532
001 C000000 2126677422
002 A000000 ONE WORLD FINANCIAL CENTER
002 B000000 NEW YORK
002 C000000 NY
002 D010000 10281
003 000000 N
004 000000 N
005 000000 N
006 000000 N
007 A000000 N
007 B000000 0
007 C010100 1
007 C010200 2
007 C010300 3
007 C010400 4
007 C010500 5
007 C010600 6
007 C010700 7
007 C010800 8
007 C010900 9
007 C011000 10
010 A000001 OPCAP ADVISORS
010 B000001 801-27180
010 C010001 NEW YORK
010 C020001 NY
010 C030001 10281
019 B000000 0
020 C000001 0
020 C000002 0
020 C000003 0
020 C000004 0
020 C000005 0
020 C000006 0
020 C000007 0
020 C000008 0
020 C000009 0
020 C000010 0
021 000000 0
022 A000001 MERRILL LYNCH, PIERCE, FENNER, & SMITH
022 B000001 13-5674085
<PAGE> PAGE 2
022 C000001 52012
022 D000001 47629
022 A000002 BEAR STEARNS & CO.
022 B000002 13-3299429
022 C000002 11292
022 D000002 6582
022 A000003 SMITH BARNEY
022 B000003 13-1912900
022 C000003 11713
022 D000003 5989
022 A000004 A.H. WILLIAMS & CO.
022 B000004 23-2177819
022 C000004 5225
022 D000004 6836
022 A000005 BELLE HAVEN INVESTMENTS
022 B000005 06-1325829
022 C000005 5403
022 D000005 6414
022 A000006 FIRST ALBANY
022 B000006 14-1391446
022 C000006 1928
022 D000006 5005
022 A000007 COWEN & COMPANY
022 B000007 13-5616116
022 C000007 1927
022 D000007 4292
022 A000008 HOUGH, WILLIAM R. & CO.
022 B000008 59-2246010
022 C000008 0
022 D000008 4710
022 A000009 FIRST UNION
022 B000009 56-1252143
022 C000009 0
022 D000009 1555
022 A000010 MORGAN STANLEY
022 B000010 13-2655998
022 C000010 976
022 D000010 0
023 C000000 90475
023 D000000 89119
024 000000 N
025 D000001 0
025 D000002 0
025 D000003 0
025 D000004 0
025 D000005 0
025 D000006 0
025 D000007 0
025 D000008 0
026 A000000 N
026 B000000 N
<PAGE> PAGE 3
026 C000000 N
026 D000000 Y
026 E000000 N
026 F000000 N
026 G010000 N
026 G020000 N
026 H000000 N
027 000000 N
028 A010000 0
028 A020000 0
028 A030000 0
028 A040000 0
028 B010000 0
028 B020000 0
028 B030000 0
028 B040000 0
028 C010000 0
028 C020000 0
028 C030000 0
028 C040000 0
028 D010000 0
028 D020000 0
028 D030000 0
028 D040000 0
028 E010000 0
028 E020000 0
028 E030000 0
028 E040000 0
028 F010000 0
028 F020000 0
028 F030000 0
028 F040000 0
028 G010000 0
028 G020000 0
028 G030000 0
028 G040000 0
028 H000000 0
030 A000000 0
030 B000000 0.00
030 C000000 0.00
031 A000000 0
031 B000000 0
032 000000 0
033 000000 0
035 000000 0
036 B000000 0
038 000000 0
042 A000000 0
042 B000000 0
042 C000000 0
042 D000000 0
<PAGE> PAGE 4
042 E000000 0
042 F000000 0
042 G000000 0
042 H000000 0
043 000000 0
044 000000 0
048 000000 0.000
048 A010000 0
048 A020000 0.000
048 B010000 0
048 B020000 0.000
048 C010000 0
048 C020000 0.000
048 D010000 0
048 D020000 0.000
048 E010000 0
048 E020000 0.000
048 F010000 0
048 F020000 0.000
048 G010000 0
048 G020000 0.000
048 H010000 0
048 H020000 0.000
048 I010000 0
048 I020000 0.000
048 J010000 0
048 J020000 0.000
048 K010000 0
048 K020000 0.000
061 000000 0
062 A000000 Y
062 B000000 0.0
062 C000000 0.0
062 D000000 0.0
062 E000000 0.0
062 F000000 0.0
062 G000000 0.0
062 H000000 0.0
062 I000000 0.0
062 J000000 0.0
062 K000000 0.0
062 L000000 0.0
062 M000000 0.0
062 N000000 0.0
062 O000000 98.4
062 P000000 0.0
062 Q000000 0.0
062 R000000 0.0
063 A000000 0
063 B000000 21.8
066 A000000 N
<PAGE> PAGE 5
070 A010000 Y
070 A020000 N
070 B010000 N
070 B020000 N
070 C010000 Y
070 C020000 N
070 D010000 N
070 D020000 N
070 E010000 Y
070 E020000 Y
070 F010000 N
070 F020000 N
070 G010000 Y
070 G020000 N
070 H010000 N
070 H020000 N
070 I010000 N
070 I020000 N
070 J010000 N
070 J020000 N
070 K010000 N
070 K020000 N
070 L010000 N
070 L020000 N
070 M010000 N
070 M020000 N
070 N010000 Y
070 N020000 N
070 O010000 Y
070 O020000 N
070 P010000 N
070 P020000 N
070 Q010000 Y
070 Q020000 N
070 R010000 Y
070 R020000 N
071 A000000 69259
071 B000000 68898
071 C000000 155516
071 D000000 44
072 A000000 12
072 B000000 9261
072 C000000 0
072 D000000 0
072 E000000 0
072 F000000 946
072 G000000 0
072 H000000 0
072 I000000 23
072 J000000 46
072 K000000 0
<PAGE> PAGE 6
072 L000000 50
072 M000000 27
072 N000000 0
072 O000000 0
072 P000000 0
072 Q000000 0
072 R000000 69
072 S000000 62
072 T000000 0
072 U000000 18
072 V000000 0
072 W000000 183
072 X000000 1424
072 Y000000 2
072 Z000000 7839
072AA000000 664
072BB000000 0
072CC010000 4273
072CC020000 0
072DD010000 7855
072DD020000 0
072EE000000 0
073 A010000 0.7980
073 A020000 0.0000
073 B000000 0.0000
073 C000000 0.0000
074 A000000 29
074 B000000 0
074 C000000 0
074 D000000 158713
074 E000000 0
074 F000000 0
074 G000000 0
074 H000000 0
074 I000000 0
074 J000000 105
074 K000000 0
074 L000000 2753
074 M000000 27
074 N000000 161627
074 O000000 0
074 P000000 82
074 Q000000 0
074 R010000 0
074 R020000 0
074 R030000 0
074 R040000 326
074 S000000 55000
074 T000000 106219
074 U010000 7257
074 U020000 0
<PAGE> PAGE 7
074 V010000 14.64
074 V020000 0.00
074 W000000 0.0000
074 X000000 450
074 Y000000 0
075 A000000 0
075 B000000 102621
076 000000 13.19
077 A000000 Y
077 B000000 Y
077 C000000 Y
077 Q010000 Y
078 000000 N
080 A000000 ICI MUTUAL INSURANCE
080 C000000 6250
081 A000000 Y
081 B000000 11
082 A000000 Y
082 B000000 50000
083 A000000 N
083 B000000 0
084 A000000 N
084 B000000 0
085 A000000 Y
085 B000000 N
086 A010000 0
086 A020000 0
086 B010000 0
086 B020000 0
086 C010000 0
086 C020000 0
086 D010000 0
086 D020000 0
086 E010000 0
086 E020000 0
086 F010000 0
086 F020000 0
SIGNATURE BERNARD GARIL
TITLE PRESIDENT
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
The annual report for the year ended October 31,1997.
</LEGEND>
<CIK> 0000897951
<NAME> MUNICIPAL ADVANTAGE FUND
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> OCT-31-1997
<PERIOD-START> NOV-01-1997
<PERIOD-END> OCT-31-1997
<INVESTMENTS-AT-COST> 150,648,353
<INVESTMENTS-AT-VALUE> 158,712,893
<RECEIVABLES> 2,857,872
<ASSETS-OTHER> 55,708
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 161,626,473
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 407,953
<TOTAL-LIABILITIES> 407,953
<SENIOR-EQUITY> 55,000,000
<PAID-IN-CAPITAL-COMMON> 100,625,610
<SHARES-COMMON-STOCK> 7,257,093
<SHARES-COMMON-PRIOR> 7,257,093
<ACCUMULATED-NII-CURRENT> 318,579
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (2,790,209)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 8,064,540
<NET-ASSETS> 161,218,520
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 9,261,410
<OTHER-INCOME> 0
<EXPENSES-NET> (1,422,481)
<NET-INVESTMENT-INCOME> 7,838,929
<REALIZED-GAINS-CURRENT> 664,126
<APPREC-INCREASE-CURRENT> 4,273,177
<NET-CHANGE-FROM-OPS> 12,776,232
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 7,855,011
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 4,921,221
<ACCUMULATED-NII-PRIOR> 334,661
<ACCUMULATED-GAINS-PRIOR> (3,454,335)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 945,727
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,424,239
<AVERAGE-NET-ASSETS> 102,621,213
<PER-SHARE-NAV-BEGIN> 13.96
<PER-SHARE-NII> 1.08
<PER-SHARE-GAIN-APPREC> .68
<PER-SHARE-DIVIDEND> 1.08
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 14.64
<EXPENSE-RATIO> 1.39<F1>
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
<FN>
<F1>Ratios calculated on the basis of income and expenses applicable to both
common and preferred shares relative to average net assets of common
shareholders. (Tag 64)
</FN>
</TABLE>
SIMPSON THACHER & BARTLETT
A PARTNERSHIP WHICH INCLUDES PROFESSIONAL CORPORATIONS
MEMORANDUM TO THE DIRECTORS OF MUNICIPAL ADVANTAGE FUND INC.
As you know, the Fund is organized as a Maryland corporation. The
Maryland General Corporation Law (the "MGCL") was recently amended to
make changes which are intended to modernize Maryland corporate law. This
memorandum summarizes certain of these changes. At the Board meeting to be
held on September 8, 1997, you will be asked to consider adoption of proposed
amendments to the Fund's By-Laws that are required to implement these changes.
1. Increase the Percentage of Stockholder Voting Power Required
to Call a Special Meeting of Stockholders. The Fund's By-Laws currently
provide, as formerly required by the MGCL, that the Fund call a special
stockholders' meeting on the written request of stockholders entitled to cast
at least 25 percent of the votes. However, the quorum to hold such a meeting
is a majority of stockholders entitled to vote. Thus, fewer than a quorum of
the stockholders could force the Fund to expend the time and money to call a
meeting without any assurance that a quorum of stockholders would attend and
that the meeting would be held. Given the Fund's relatively small size, the
impact of an expensive proxy solicitation process on the expense ratio could
be significant. Under the amended MGCL, the Fund's By-Laws may require a
higher or lower percentage of votes to be cast in order to call a special
stockholders' meeting, so long as that percentage is not more than a majority.
The proposed amendments to the By-Laws would increase the requisite
percentage to a majority.
We would also note that, under Delaware law, stockholders may be
completely precluded from calling a stockholders' meeting, and many Delaware
corporations include such a provision in their charter.
2. Reduce the Minimum Permissible Board Committee Size.
The Fund's By-Laws, consistent with the old Maryland law, permit the Board
of Directors of the Fund to appoint a committee so long as that committee has
at least two directors. Under the amended MGCL, the Board may appoint a
committee composed of a single director. This change would provide the Fund
with added flexibility in operational matters. The actual size of the
committee could always be more than one director and would be determined
at the time the Board creates the committee.
There are a number of other recent revisions to the MGCL which the
Fund can take advantage of without having to amend its By-Laws. For example,
the MGCL now permits a Board to delegate to a board committee (including
a committee of one) the power to authorize any distributions to stockholders
that are not dividends, including stock buy-backs and other distributions or
payments. In addition, the Board can delegate certain stock issuance powers
to a Board committee. Since the Fund's By-Laws currently allow delegation
"to the extent permitted by law", no changes are necessary to permit the Fund
to avail itself of these provisions.
Attached to this memo are the relevant sections from the Fund's By-Laws
marked to reflect the changes necessary to increase the percentage of
stockholder voting power required to call a special meeting and to permit
Board committees composed of a single director.
Under our interpretation of the U.S. federal securities laws, these changes
need to be disclosed to the Fund's stockholders. Accordingly, if the Board
adopts these changes, we would suggest that the Fund's next annual shareholder
report, dated as of October 31, 1997, include a brief summary of these changes.
We propose that language along the following lines be included:
"In response to recent amendments to Maryland corporate law, the
Board of Directors reviewed various corporate governance provisions in the
Fund's By-Laws and approved amendments to the Fund's By-Laws to (1) increase
the percentage of stockholder voting power that is required to call a special
meeting of its stockholders to a majority of the votes entitled to be cast at
the meeting and (2) reduce the minimum permissible board committee size to
one director."
Please call Sarah E. Cogan (212-455-3575) or Cynthia Cobden (212-455-2659)
if you have any questions about this memorandum.
SIMPSON THACHER & BARTLETT
??
1
071924\0002\02516\978SFKJP.CLI
071924\0002\02516\978SFKJP.CLI
2
071924\0002\02516\978SFKJP.CLI
INVESTMENT ADVISORY AND ADMINISTRATION AGREEMENT
Value Advisors LLC
c/o PIMCO Funds Distribution Company
2187 Atlantic Street
Stamford, Connecticut 06902
, 1997
OpCap Advisors
Oppenheimer Tower
One World Financial Center
200 Liberty Street
New York, New York 10281
Dear Sirs:
This will confirm the agreement between the undersigned (the "Investment
Manager") and you (the "Investment Adviser") as follows:
1. The Investment Manager has been employed by
Municipal Advantage Fund Inc. (the "Fund") pursuant to a management agreement
dated, 1997 (the "Management Agreement"). The Fund is a closed-end,
diversified management investment company registered under the Investment
Company Act of 1940, as amended (the "1940 Act"). The Fund engages in the
business of investing and reinvesting its assets in the manner and in
accordance with the investment objective and limitations specified in the
Fund's Articles of Incorporation, as amended from time to time (the
"Articles"), in the Registration Statement on Form N-2, as in effect from time
to time (the "Registration Statement"), filed with the Securities and Exchange
Commission (the "SEC") by the Fund under the 1940 Act and the Securities
Act of 1933, as amended, and in such manner and to such extent as may from
time to time be authorized by the Board of Directors of the Fund. Copies of
the documents referred to in the preceding sentence have been furnished to
the Investment Adviser. Any amendments to these documents shall be
furnished to the Investment Adviser.
2. The Investment Manager employs the Investment Adviser,
subject to the direction and control of the directors of the Fund, including
without limitation any approval of the directors of the Fund required by the
1940 Act, to (a) make, in consultation with the Investment Manager and the
Fund's Board of Directors, investment strategy decisions for the Fund,
(b) manage the investing and reinvesting of the Fund's assets as specified
in paragraph 1, (c) place purchase and sale orders on behalf of the Fund,
(d) provide research and statistical data to the Fund in relation to investing
and other matters within the scope of the investment objective and limitations
of the Fund and (e) provide the following services for the Fund:
(A) compliance with the rules and regulations of the SEC, including record
keeping, reporting requirements and preparation of registration statements
and proxies; (B) supervision of Fund operations, including coordination of
functions of the transfer agent, custodian, accountants, counsel and other
parties performing services or operational functions for the Fund,
(C) administrative and clerical services, including accounting services and
maintenance of books and records; and (D) services to Fund shareholders,
including responding to shareholder inquiries and maintaining a flow of
information to shareholders. The Investment Adviser shall have the sole
ultimate discretion over investment decisions for the Fund.
3. (a) The Investment Adviser shall, at its expense,
provide the Fund with office space, office facilities and personnel reasonably
necessary for performance of the services to be provided by the Investment
Adviser pursuant to this Agreement.
(a) Except as provided in subparagraph 3.(a) hereof
and Section 1 of the Management Agreement between the Fund and the
Investment Manager, the Fund shall be responsible for all of the Fund's
expenses and liabilities, including organizational and offering expenses
(which include out-of-pocket expenses, but not overhead or employee costs
of the Investment Adviser); expenses for legal, accounting and auditing
services; taxes and governmental fees; dues and expenses incurred in
connection with membership in investment company organizations; fees and
expenses incurred in connection with listing the Fund's shares on any stock
exchange; costs of printing and distributing shareholder reports, proxy
materials, prospectuses, stock certificates and distribution of dividends;
charges of the Fund's custodians, sub-custodians, registrars, transfer agents,
dividend-paying agents and dividend reinvestment plan agents; payment for
portfolio pricing services to a pricing agent, if any; registration and filing
fees of the SEC; expenses of registering or qualifying securities of the Fund
for sale in the various states; freight and other charges in connection with
the shipment of the Fund's portfolio securities; fees and expenses of
non-interested directors; travel expenses or an appropriate portion thereof of
directors and officers of the Fund who are directors, officers or employees of
the Investment Adviser or the Investment Manager to the extent that such
expenses relate to attendance at meetings of the Board of Directors or any
committee thereof; costs of shareholders meetings; insurance; interest;
brokerage costs; expenses in connection with the offering and issuance of and,
if applicable, auctions of any shares of preferred stock issued by the Fund;
litigation and other extraordinary or non-recurring expenses.
4. The Investment Adviser shall make investments for the
Fund's account in accordance with the investment objective and limitations
set forth in the Articles, the Registration Statement, the 1940 Act, the
provisions of the Internal Revenue Code of 1986, as amended, relating to
regulated investment companies and policy decisions adopted by the Fund's
Board of Directors from time to time. The Investment Adviser shall advise the
Fund's officers and Board of Directors, at such times as the Fund's Board of
Directors may specify, of investments made for the Fund's account and shall,
when requested by the Fund's officers or Board of Directors, supply the
reasons for making such investments.
5. The Investment Adviser may contract with or consult with
such banks, other securities firms, brokers or other parties, without
additional expense to the Fund, as it may deem appropriate regarding
investment advice, research and statistical data, clerical assistance,
accounting services or otherwise.
6. The Investment Adviser is authorized on behalf of the Fund,
from time to time when deemed to be in the best interests of the Fund and to
the extent permitted by applicable law, to purchase and/or sell securities in
which the Investment Adviser or the Investment Manager or any of their
affiliates underwrites, deals in and/or makes a market and/or may perform or
seek to perform investment banking services for issuers of such securities.
The Investment Adviser is further authorized, to the extent permitted by
applicable law, to select brokers affiliated with the Investment Adviser or
the Investment Manager for the execution of trades for the Fund.
7. The Investment Adviser is authorized, for the purchase
and sale of the Fund's portfolio securities, to employ such dealers and
brokers as may, in the judgment of the Investment Adviser, implement the
policy of the Fund to obtain the best net results taking into account such
factors as price, including dealer spread, the size, type and difficulty of
the transaction involved, the firm's general execution and operational
facilities and the firm's risk in positioning the securities involved.
Consistent with this policy, the Investment Adviser is authorized to direct
the execution of the Fund's portfolio transactions to dealers and brokers
furnishing statistical information or research deemed by the Investment
Adviser to be useful or valuable to the performance of its investment
advisory functions for the Fund. Information so received will be in addition
to and not in lieu of the services required to be performed by the Investment
Adviser. It is understood that the expenses of the Investment Adviser will
not necessarily be reduced as a result of the receipt of such information or
research.
8. In consideration of the services to be rendered by the
Investment Adviser under this agreement, the Investment Manager shall pay
the Investment Adviser a monthly fee in United States dollars on the fifth
business day of each month for the previous month at an annual rate of .36%
of the Fund's average weekly net assets (i.e. the average weekly value of the
Fund's assets less its liabilities exclusive of common and preferred stock
and surplus). If the fee payable to the Investment Adviser pursuant to this
paragraph 8 begins to accrue before the end of any month or if this agreement
terminates before the end of any month, the fee for the period from such date
to the end of such month or from the beginning of such month to the date of
termination, as the case may be, shall be prorated according to the proportion
which such period bears to the full month in which such effectiveness or
termination occurs.
9. The Investment Adviser represents and warrants that it
is duly registered and authorized as an investment adviser under the 1940 Act,
and the Investment Adviser agrees to maintain effective and requisite
registrations, authorizations and licenses, as the case may be, until the
termination of this Agreement.
10. The Investment Adviser shall exercise its best judgment in
rendering the services in accordance with the terms of this agreement. The
Investment Adviser shall not be liable for any error of judgment or mistake
of law or for any act or omission or any loss suffered by the Fund or the
Investment Manager in connection with the matters to which this agreement
relates, provided that nothing herein shall be deemed to protect or purport to
protect the Investment Adviser against any liability to the Fund or the
Investment Manager to which the Investment Adviser would otherwise be subject
by reason of willful misfeasance, bad faith or gross negligence on its part in
the performance of its duties or from reckless disregard by it of its
obligations and duties under this agreement ("disabling conduct"). The
Fund will indemnify the Investment Adviser against, and hold it harmless
from, any and all losses, claims, damages, liabilities or expenses (including
reasonable counsel fees and expenses), including any amounts paid in
satisfaction of judgments, in compromise or as fines or penalties, not
resulting from disabling conduct by the Investment Adviser. Indemnification
pursuant to the foregoing sentence shall be made only following: (i) a final
decision on the merits by a court or other body before whom the proceeding
was brought that the Investment Adviser was not liable by reason of disabling
conduct, or (ii) in the absence of such a decision, a reasonable determination,
based upon a review of the facts, that the Investment Adviser was not liable
by reason of disabling conduct by (a) the vote of a majority of a quorum of
directors of the Fund who are neither "interested persons" of the Fund nor
parties to the proceeding ("disinterested non-party directors") or (b) an
independent legal counsel in a written opinion. The Investment Adviser shall
be entitled to advances from the Fund for payment of the reasonable expenses
incurred by it in connection with the matter as to which it is seeking
indemnification in the manner and to the fullest extent permissible under law.
Prior to any such advance, the Investment Adviser shall provide to the Fund
a written affirmation of its good faith belief that the standard of conduct
necessary for indemnification by the Fund has been met and a written
undertaking to repay any such advance if it should ultimately be determined
that the standard of conduct has not been met. In addition, at least one of
the following additional conditions shall be met: (a) the Investment Adviser
shall provide security in form and amount acceptable to the Fund for its
undertaking; (b) the Fund is insured against losses arising by reason of the
advance; or (c) a majority of a quorum of disinterested non-party directors,
or independent legal counsel, in a written opinion, shall have determined,
based on a review of facts readily available to the Fund at the time the
advance is proposed to be made, that there is reason to believe that the
Investment Adviser will ultimately be found to be entitled to indemnification.
11. This agreement shall continue in effect until
, 1999 and thereafter for successive annual periods, provided that
such continuance is specifically approved at least annually (a) by the vote
of a majority of the Fund's outstanding voting securities (as defined in the
1940 Act) or by the Fund's Board of Directors and (b) by the vote, cast in
person at a meeting called for the purpose, of a majority of the Fund's
directors who are not parties to this agreement or "interested persons" (as
defined in the 1940 Act) of any such party. This agreement may be terminated
at any time, without the payment of any penalty, by a vote of a majority of
the Fund's outstanding voting securities (as defined in the 1940 Act) or by a
vote of a majority of the Fund's entire Board of Directors or by the Investment
Manager or the Investment Adviser on 60 days' written notice to each party
hereto. This agreement shall terminate automatically in the event of its
assignment (as defined in the 1940 Act). This agreement may only be
terminated in accordance with the provisions of this paragraph 11; provided,
however, that nothing contained in this agreement shall prohibit the ability
of the Investment Manager, in the exercise of its fiduciary duty, to recommend
to the Fund that the Fund take action to terminate this agreement as provided
in this paragraph 11.
12. Nothing herein shall be deemed to limit or restrict the
right of the Investment Adviser, or any affiliate of the Investment Adviser,
or any employee of the Investment Adviser, to engage in any other business
or to devote time and attention to the management or other aspects of any
other business, whether of a similar or dissimilar nature, or to render
services of any kind to any other corporation, firm, individual or association.
Nothing herein shall be construed as constituting the Investment Adviser an
agent of the Investment Manager or of the Fund.
13. This Agreement shall be governed by the laws of the State
of New York, provided, however, that nothing herein shall be construed as
being inconsistent with the 1940 Act.
14. Notices. Any notice hereunder shall be in writing and
shall be delivered in person or by telex or facsimile (followed by delivery in
person) to the parties at the addresses set forth below.
If to the Investment Adviser:
OpCap Advisors
Oppenheimer Tower
One World Financial Center
200 Liberty Street
New York, New York 10281
Tel:(212) 667-7422
Fax:(212) 667-4846
Attn: Bernard Garil, President
If to the Investment Manager:
Value Advisors LLC
c/o PIMCO Funds Distribution Company
2187 Atlantic Street
Stamford, Connecticut 06902
Tel: (203) 352-4900
Fax: (203) 352-4919
Attn: Newton Schott
or to such other address as to which the recipient shall have informed
the other party in writing.
Unless specifically provided elsewhere, notice given as provided
above shall be deemed to have been given, if by personal delivery, on the
day of such delivery, and, if by telex or facsimile and mail, on the date on
which such telex or facsimile is sent.
15. Counterparts. This agreement may be executed in two
or more counterparts, each of which shall be deemed to be an original, but
all of which together shall constitute one and the same instrument.
If the foregoing correctly sets forth the agreement between the
Investment Manager and the Investment Adviser, please so indicate by
signing and returning to the Investment Manager the enclosed copy hereof.
Very truly yours,
VALUE ADVISORS LLC
By:________________________
Name:
Title:
ACCEPTED:
OPCAP ADVISORS
By:___________________________
Name:
Title:
Municipal Advantage Fund Inc. hereby
acknowledges and agrees to the
provisions of subparagraph 3.(b)
and paragraph 10 of this agreement.
MUNICIPAL ADVANTAGE FUND INC.
By:___________________________
Name:
Title:
??
1
071924\0045\02561\973KJ99Y.AGR
071924\0045\02561\973KJ99Y.AGR
1
071924\0045\02561\973KJ99Y.AGR
3
071924\0045\02561\973KJ99Y.AGR
MANAGEMENT AGREEMENT
Agreement dated and effective as of , 1997 between
MUNICIPAL ADVANTAGE FUND INC., a Maryland corporation (herein
referred to as the "Fund"), and Value Advisors LLC, a Delaware limited
liability company (the "Investment Manager").
1. Appointment of Investment Manager.
The Investment Manager hereby undertakes and agrees, upon the terms and
conditions herein set forth, to (i) supervise the Fund's investment program,
including advising and consulting with the Fund's board of directors and
OpCap Advisors (the "Investment Adviser") regarding the Fund's overall
investment strategy, (ii) advise the Fund and the Investment Adviser with
respect to all matters relating to the Fund's use of leveraging techniques,
including the extent and timing of the Fund's use of such techniques,
(iii) consult with the Investment Adviser on at least a weekly basis regarding
the Investment Adviser's specific decisions concerning the purchase, sale or
holding of particular securities, (iv) provide access on a continuous basis to
economic, financial and political information, research and assistance, (v) be
responsible for matters related to the corporate existence of the Fund,
(vi) monitor the performance of the Fund's outside service providers, including
the Fund's administrator, transfer agent and custodian and (vii) pay the
salaries, fees and expenses of such of the Fund's officers, directors or
employees as are directors, officers or employees of the Investment Manager
or any of its affiliates. In addition, the Investment Manager hereby
undertakes and agrees to appoint OpCap Advisors as investment adviser to
(a) make, in consultation with the Investment Manager and the Fund's Board
of Directors, investment strategy decisions for the Fund, (b) manage the
investing and reinvesting of the Fund's assets, (c) place purchase and sale
orders on behalf of the Fund, (d) provide research and statistical data to the
Fund in relation to investing and other matters within the scope of the
investment objective and limitations of the Fund and (e) provide the following
services: (i) compliance with the rules and regulations of the Securities and
Exchange Commission, including record keeping, reporting requirements and
preparation of registration statements and proxies; (ii) supervision of Fund
operations, including coordination of functions of the transfer agent,
custodian, accountants, counsel and other parties performing services or
operational functions for the Fund, (iii) administrative and clerical services,
including accounting services and maintenance of books and records and
(iv) services to Fund shareholders, including responding to shareholder
inquiries and maintaining a flow of information to shareholders. The
Investment Adviser shall have the sole ultimate discretion over investment
decisions for the Fund.
2. In connection herewith, the Investment Manager
agrees to (i) maintain a staff within its organization to furnish the above
services to the Fund and to the Investment Adviser and (ii) provide the
Fund with persons satisfactory to the Fund's Board of Directors to serve as
officers and employees of the Fund. The Investment Manager shall bear all
expenses arising out of its duties hereunder, except that the Board of
Directors may approve reimbursement for the time spent on Fund operations
of personnel who spend substantial time on the operations (other than the
provision of investment advice) of the Fund or other investment companies
advised by the Investment Manager.
Except as provided in Section 1 hereof and subparagraph
3.(a) of the Advisory Agreement (as defined below), the Fund shall be
responsible for all of the Fund's expenses and liabilities, including
organizational and offering expenses (which include out-of-pocket expenses,
but not overhead or employee costs of the Investment Manager and the Investment
Adviser); expenses for legal, accounting and auditing services; taxes and
governmental fees; dues and expenses incurred in connection with membership
in investment company organizations; fees and expenses incurred in connection
with listing the Fund's shares on any stock exchange; costs of printing and
distributing shareholder reports, proxy materials, prospectuses, stock
certificates and distributions of dividends; charges of the Fund's custodians,
sub-custodians, registrars, transfer agents, dividend-paying agents and
dividend reinvestment plan agents; payment for portfolio pricing services
to a pricing agent, if any; registration and filing fees of the Securities and
Exchange Commission; expenses of registering or qualifying securities of the
Fund for sale in the various states; freight and other charges in connection
with the shipment of the Fund's portfolio securities; fees and expenses of
non-interested directors; travel expenses or an appropriate portion thereof
of directors and officers of the Fund who are directors, officers or employees
of the Investment Manager or the Investment Adviser to the extent that such
expenses relate to attendance at meetings of the Board of Directors or any
committee thereof; costs of shareholders meetings; insurance; interest;
brokerage costs; expenses in connection with the offering and issuance of and,
if applicable, auctions of shares of any preferred stock issued by the Fund;
litigation and other extraordinary or non-recurring expenses.
3. Remuneration. In consideration of the services
to be rendered by the Investment Manager under this agreement, the Fund shall
pay the Investment Manager a monthly fee in United States dollars on the fifth
business day of each month for the previous month at an annual rate of .60% of
the Fund's average weekly net assets (i.e. the average weekly value of the
Fund's assets less its liabilities, exclusive of common and preferred stock
and surplus). If the fee payable to the Investment Manager pursuant to this
paragraph 3 begins to accrue before the end of any month or if this agreement
terminates before the end of any month, the fee for the period from such date
to the end of such month or from the beginning of such month to the date of
termination, as the case may be, shall be prorated according to the proportion
which such period bears to the full month in which such effectiveness or
termination occurs.
Compensation of the Investment Adviser for services
provided under the Advisory Agreement is the sole responsibility of the
Investment Manager.
Representations and Warranties. The Investment Manager represents
and warrants that it is duly registered and authorized as an investment
adviser under the Investment Advisers Act of 1940, as amended, and the
Investment Manager agrees to maintain effective all requisite registrations,
authorizations and licenses, as the case may be, until the termination of this
agreement.
Services Not Deemed Exclusive. The services provided hereunder by the
Investment Manager are not to be deemed exclusive and the Investment Manager
and any of its affiliates or related persons are free to render similar
services to others and to use the research developed in connection with this
agreement for other clients or affiliates. Nothing herein shall be construed
as constituting the Investment Manager an agent of the Investment Adviser
or of the Fund.
Limit of Liability. The Investment Manager shall exercise its best judgment
in rendering the services in accordance with the terms of this agreement. The
Investment Manager shall not be liable for any error of judgment or mistake of
law or for any act or omission or any loss suffered by the Fund in connection
with the matters to which this agreement relates, provided that nothing herein
shall be deemed to protect or purport to protect the Investment Manager against
any liability to the Fund or its shareholders to which the Investment Manager
would otherwise be subject by reason of willful misfeasance, bad faith or gross
negligence in the performance of its duties or from reckless disregard of its
obligations and duties under this agreement ("disabling conduct"). The Fund
will indemnify the Investment Manager against, and hold it harmless from, any
and all losses, claims, damages, liabilities or expenses (including reasonable
counsel fees and expenses), including any amounts paid in satisfaction of
judgments, in compromise or as fines or penalties, not resulting from disabling
conduct. Indemnification shall be made only following: (i) a final decision
on the merits by a court or other body before whom the proceeding was brought
that the Investment Manager was not liable by reason of disabling conduct or
(ii) in the absence of such a decision, a reasonable determination, based upon
a review of the facts, that the Investment Manager was not liable by reason of
disabling conduct by (a) the vote of a majority of a quorum of directors of
the Fund who are neither "interested persons" of the Fund nor parties to the
proceeding ("disinterested non-party directors") or (b) an independent legal
counsel in a written opinion. The Investment Manager shall be entitled to
advances from the Fund for payment of the reasonable expenses incurred by it
in connection with the matter as to which it is seeking indemnification in the
manner and to the fullest extent permissible under law. Prior to any such
advance, the Investment Manager shall provide to the Fund a written affirmation
of its good faith belief that the standard of conduct necessary for
indemnification by the Fund has been met and a written undertaking to repay
any such advance if it should ultimately be determined that the standard of
conduct has not been met. In addition, at least one of the following
additional conditions shall be met: (a) the Investment Manager shall provide
a security in form and amount acceptable to the Fund for its undertaking;
(b) the Fund is insured against losses arising by reason of the advance; or
(c) a majority of a quorum of disinterested non-party directors, or independent
legal counsel, in a written opinion, shall have determined, based on a review
of facts readily available to the Fund at the time the advance is proposed to
be made, that there is reason to believe that the Investment Manager will
ultimately be found to be entitled to indemnification.
Duration and Termination. This agreement shall remain in effect until
, 1999 and shall continue in effect thereafter for successive annual
periods, but only so long as such continuance is specifically approved at least
annually by the affirmative vote of (i) a majority of the members of the Fund's
Board of Directors who are not parties to this Agreement or "interested
persons" (as defined in the Investment Company Act of 1940, as amended
(the "1940 Act")) of any such party, cast in person at a meeting called for
the purpose of voting on such approval and (ii) a majority of the Fund's Board
of Directors or the holders of a majority of the outstanding voting securities
(as defined in the 1940 Act) of the Fund.
Notwithstanding the above, this agreement (a) may
nevertheless be terminated at any time, without penalty, by the Fund's
Board of Directors, by vote of holders of a majority of the outstanding
voting securities (as defined in the 1940 Act) of the Fund or by the
Investment Manager, upon 60 days' written notice delivered to each party
hereto, and (b) shall automatically be terminated in the event of its
assignment (as defined in the 1940 Act). Any such notice shall be deemed
given when received by the addressee.
Governing Law. This Agreement shall be governed, construed and
interpreted in accordance with the laws of the State of New York, provided,
however, that nothing herein shall be construed as being inconsistent with
the 1940 Act. 9. Notices. Any notice hereunder shall
be in writing and shall be delivered in person or by telex or facsimile
(followed by delivery in person) to the parties at the addresses set forth
below.
If to the Fund:
Municipal Advantage Fund Inc.
Oppenheimer Tower
One World Financial Center
200 Liberty Street
New York, New York 10281
Tel: (212) 667-7422
Fax: (212) 667-4846
Attn: Bernard Garil
If to the Investment Manager:
Value Advisors LLC
c/o PIMCO Funds Distribution Company
2187 Atlantic Street
Stamford, Connecticut 06902
Tel: (203) 352-4900
Fax: (203) 352-4919
Attn: Newton Schott
or to such other address as to which the recipient shall have informed the
other party in writing.
Unless specifically provided elsewhere, notice given as
provided above shall be deemed to have been given, if by personal delivery,
on the day of such delivery, and, if by telex or facsimile and mail, on the
date on which such telex or facsimile is sent.
Counterparts. This agreement may be executed in two or more counterparts,
each of which shall be deemed to be an original, but all of which together
shall constitute one and the same instrument.
IN WITNESS WHEREOF, the parties hereto caused
their duly authorized signatories to execute this agreement as of the day
and year first written above.
MUNICIPAL ADVANTAGE FUND INC.
By:________________________________
Name:
Title:
VALUE ADVISORS LLC
By:________________________________
Name:
Title:
??
1
071924\0045\02561\973KJG8T.AGR
071924\0045\02561\973KJG8T.AGR
1
071924\0045\02561\973KJG8T.AGR
December 19, 1997
To the Board of Directors of
Municipal Advantage Fund Inc.
In planning and performing our audit of the financial statements of
Municipal Advantage Fund Inc. (the "Fund") for the year ended
October 31, 1997, we considered its internal control, including
control activities for safeguarding securities, in order to determine
our auditing procedures for the purpose of expressing our opinion
on the financial statements and to comply with the requirements of
Form N-SAR, not to provide assurance on internal control.
The management of the Fund is responsible for establishing
and maintaining internal control. In fulfilling this responsibility,
estimates and judgments by management are required to assess
the expected benefits and related costs of control activities.
Generally, control activities that are relevant to an audit pertain
to the entity's objective of preparing financial statements for
external purposes that are fairly presented in conformity with
generally accepted accounting principles. Those control
activities include the safeguarding of assets against unauthorized
acquisition, use or disposition. Because of inherent limitations in
internal control, errors or irregularities may occur and not be
detected. Also, projection of any evaluation of internal control to
future periods is subject to the risk that it may become inadequate
because of changes in conditions or that the effectiveness of the
design and operation may deteriorate. Our consideration of internal
control would not necessarily disclose all matters in internal control
that might be material weaknesses under standards established by
the American Institute of Certified Public Accountants. A
material weakness is a condition in which the design or
operation of any specific internal control components does
not reduce to a relatively low level the risk that errors or
irregularities in amounts that would be material in relation to
the financial statements being audited may occur and not be
detected within a timely period by employees in the normal
course of performing their assigned functions. However, we
noted no matters involving internal control, including control
activities for safeguarding securities, that we consider to be
material weaknesses as defined above as of October 31, 1997.
This report is intended solely for the information and use of
management and the Board of Directors of the Fund and the
Securities and Exchange Commission.
PRICE WATERHOUSE LLP
