<PAGE>
MUNICIPAL ADVANTAGE FUND INC.
June 1, 1999
Dear Shareholder:
During the fiscal quarter ended April 30, 1999, the municipal bond market
was down slightly, as indicated by a 0.1% decline for the Lehman Brothers
Municipal Bond Index (Lehman Index). While continuing its strong performance
over longer periods, the Fund decreased 0.9% in the fiscal quarter, based on
change in net asset value (NAV) for its common shares plus dividends, assuming
reinvestment of those dividends. The Fund's results compared with an average
decline of 0.3% for the leveraged closed-end general municipal bond funds
monitored by Lipper Analytical Services, Inc. The Fund's performance was 39th
among the 47 funds in this Lipper category. Based on 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--the Fund
declined 4.0% in the quarter.
The Fund's results were dampened by its holdings of long-term securities,
which tend to decrease more in price than do short-term issues when the bond
market weakens. Late in the quarter, we reduced the duration of the Fund's
portfolio to moderate its exposure to any further erosion of municipal security
prices.
For the six months ended April 30, 1999, the Fund had a total return on NAV
of 0.8%, compared with a 1.8% return for the Lehman Index.
STRONG PERFORMANCE OVER LONGER PERIODS
The Fund's excellent results over time are demonstrated by its performance
for the one- , three- and five-year periods ended April 30, 1999 and since its
inception:
FUND PERFORMANCE AT NAV VERSUS BENCHMARKS
<TABLE>
<CAPTION>
Average for leveraged
closed-end municipal
Average annual total bond funds monitored
return for periods Municipal Lehman Brothers by Lipper Analytical
ended April 30, 1999: Advantage Fund Municipal Bond Index Services, Inc.
<S> <C> <C> <C>
One year 7.2% 7.0% 7.0%
Three years 9.6% 7.6% 8.7%
Five years 9.2% 7.5% 8.3%
Since inception (April 30, 1993) 6.9% 6.6% --
</TABLE>
Among the funds in the Lipper leveraged closed-end municipal bond fund
category, the Fund's performance ranked 17th among 46 funds for one year, sixth
among 44 funds for three years and eighth among 43 funds for five years.
We have achieved these results by remaining disciplined in our value
philosophy. We invest in those sector, maturity and quality groups of the
municipal bond market that we believe offer the best relative value--that is,
the highest yield at the lowest price with the least amount of risk. Although we
would like to outperform our benchmarks every quarter, we recognize that would
be virtually impossible. We seek instead to control risk and generate favorable
returns over the long term.
DIVIDEND PAYMENTS AND YIELD
During the fiscal quarter ended April 30, 1999, the Fund continued to meet
its objective of providing holders of its common shares with a high level of
current income that is exempt from regular federal income taxes, consistent with
the preservation of capital. The Fund paid regular monthly dividends of 6.65
cents per common share, or a total of 19.95 cents per common share for the
quarter.
<PAGE>
As of April 30, 1999, the yield on the Fund's common shares was 6.0%, based
on the $13.25 per share closing market price at the end of April 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 10.0% on a taxable basis, which we believe is highly competitive
in relation to other quality investments.
MARKET ENVIRONMENT
Interest rates rose in the latest quarter, causing bond prices to fall. To
some degree, the bond market simply paused to catch its breath following the
dramatic reductions in long-term interest rates during 1998. In addition, there
was growing concern among investors that a continued strong economy might cause
inflation to resurge. There have been periodic inflation scares of this type
over the past few years. All of these scares have, to date, proved unfounded. In
fact, inflation has remained extremely low for an extended period, benefiting
the bond market. Whether inflation will turn upward in the coming months remains
to be seen.
In the quarter, tax-exempt municipal bonds held their value better than
most other types of fixed-income securities, recapturing some of the ground they
had lost in 1998. Although prices of municipal securities decreased, U.S.
government and corporate bonds fell more sharply. In that regard, municipals
were one of the best-performing categories of fixed-income securities in the
quarter.
We remained focused, as always, on maximizing the Fund's yield without
taking undue risk. We continue to find attractive value in healthcare and
housing securities, which offer somewhat higher yields than other tax-exempt
bonds of comparable quality. In addition, because the yield differences between
higher-rated and lower-rated municipal securities remain relatively narrow at
this time, we see little incentive to own lower-rated bonds except in specific
instances where we find good value. At April 30, 1999, 93.7% of the Fund's net
assets were invested in securities rated single-A or higher by Standard & Poor's
and/or Moody's.
PORTFOLIO ANALYSIS
The Fund invests substantially all of its assets in long-term tax-exempt
securities that are rated "investment grade" at the time of purchase by at least
one recognized rating agency. At April 30, 1999, the Fund was fully invested in
long-term securities.
We seek to control risk not only through investment quality, but also
through portfolio diversity. The Fund's five largest portfolio positions by
state at the end of April 1999 were: New York, representing 12.0% of the Fund's
net assets; California, 9.2%; Michigan, 8.7%; Texas, 8.5%; and Massachusetts,
7.1%. The five largest market sectors were: health and hospital, representing
20.8% of the Fund's net assets; housing, 16.7%; general obligation, 15.8%; water
and sewer, 12.6%; and airline and airport, 12.1%. There were no significant
changes in allocation, either by state or market sector, during the quarter.
The average maturity of the portfolio was 21.3 years at the end of April
1999, down slightly from three months earlier.
PREFERRED STOCK COSTS
The Fund issues preferred stock to generate additional income for holders
of the Fund's common shares. 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 from the preferred shares tends to magnify the capital
appreciation of the common shares in a rising bond market and magnify their
capital losses in a declining market.
At the latest auction on May 24, 1999, the Fund sold 28-day auction rate
preferred stock at an annual dividend rate of 3.20%, down from 3.25% on the
previous issue.
<PAGE>
DISCOUNT
The Fund's common shares trade at a discount to their NAV, as is true of
many closed-end municipal bond funds. Because the market price of the Fund's
common shares declined more than the Fund's NAV in the latest quarter, the
discount widened to 11.4% at the end of April 1999 from 8.5% three months
earlier. 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.
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 and expect to be
compliant by June 30, 1999. 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.
OUTLOOK
In mid-May, after the end of the fiscal quarter, the Federal Reserve noted
that inflation remained "quite subdued." The Fed also said, however, that it was
concerned about "the potential for a buildup of inflationary imbalances" and
indicated it might raise its target federal funds rate in the coming months. If
the Fed were to raise rates, it is likely that bond prices would decline.
In managing the Fund, we have been through periods of rising (and falling)
interest rates before, and we feel comfortable with our ability to continue to
deliver a high level of tax-exempt income through a variety of market
conditions. Since it is difficult, if not impossible to predict changes in
market direction, our advice for investors is to stick with a diversified
portfolio of high-quality securities over the market cycle. Consistent long-term
investment is, in our view, the best way to make money without taking large
risks.
We remain dedicated, as always, to serving your need for a high level of
income which is exempt from regular federal income tax through the ownership of
a diversified portfolio of quality municipal securities, consistent with the
preservation of capital. 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 investing with the Fund. We
appreciate the trust you have placed in us.
Sincerely,
/s/ Stephen Treadway
Stephen Treadway
Chairman
<PAGE>
MUNICIPAL ADVANTAGE FUND INC.
SCHEDULE OF INVESTMENTS (UNAUDITED)
APRIL 30, 1999
<TABLE>
<CAPTION>
Principal Credit Rating
Amount (Moody's/S&P) Value
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
LONG-TERM INVESTMENTS--98.3%
ALABAMA--2.6%
$1,000,000 Alabama State Docks Department Facility Revenue
(MBIA insured),
6.15%, 10/1/14............................................ Aaa/AAA $1,097,460
1,250,000 Alabama State Public School & College Authority
(FSA insured),
4.25%, 11/1/18............................................ Aaa/AAA 1,115,413
2,000,000 DCH Health Care Authority, Health Care Facilities Revenue,
5.70%, 6/1/15............................................. A1/A+ 2,106,540
----------
4,319,413
----------
CALIFORNIA--9.2%
1,000,000 Burbank Redevelopment Agency,
6.00%, 12/1/13............................................ Baa1/A- 1,055,480
2,500,000 California Health Facilities Financing Authority Revenue,
6.25%, 3/1/21............................................. A3/A 2,613,575
1,000,000 California State Public Works Board, Lease Revenue,
6.30%, 10/1/10 (Pre-refunded 10/1/04) (A)................. A1/A 1,139,270
1,000,000 Lafayette Elementary School District (FSA insured),
5.90%, 5/15/17............................................ Aaa/AAA 1,084,250
4,000,000 Los Angeles Harbor Department Revenue,
5.375%, 11/1/23........................................... Aa3/AA 4,069,960
1,000,000 Los Angeles Regional Airports Revenue,
6.70%, 1/1/22............................................. NR/A- 1,058,910
1,000,000 Madera County Certificates of Participation (MBIA insured),
6.125%, 3/15/23 (Pre-refunded 3/15/05) (A)................ Aaa/AAA 1,135,100
1,000,000 San Mateo County JT Powers Authority (MBIA insured),
5.00%, 7/1/21............................................. Aaa/AAA 1,003,930
2,000,000 Tustin California University School District Special Tax
(FSA insured),
4.50%, 9/1/24............................................. Aaa/AAA 1,819,680
----------
14,980,155
----------
COLORADO--4.9%
3,085,000 Colorado Health Facilities Authority Revenue (MBIA insured),
5.95%, 5/15/12............................................ Aaa/AAA 3,332,263
Denver City & County Airport Revenue (MBIA insured),
1,500,000 5.60%, 11/15/25............................................. Aaa/AAA 1,549,275
3,000,000 5.75%, 11/15/17............................................. Aaa/AAA 3,142,050
----------
8,023,588
----------
CONNECTICUT--0.8%
1,215,000 Connecticut General Obligation Bonds,
5.25%, 3/15/14............................................ Aa3/AA 1,273,721
----------
<PAGE>
MUNICIPAL ADVANTAGE FUND INC.
SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED)
APRIL 30, 1999
<CAPTION>
Principal Credit Rating
Amount (Moody's/S&P) Value
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
LONG-TERM INVESTMENTS (CONTINUED)
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 $1,699,151
----------
FLORIDA--0.8%
1,500,000 Florida State Board of Education (FSA insured),
4.50%, 6/1/22............................................. Aaa/AAA 1,372,935
----------
GEORGIA--2.6%
1,750,000 Cherokee County Water & Sewer Authority Revenue
(MBIA Insured),
5.50%, 8/1/23............................................. Aaa/AAA 1,872,027
1,000,000 Savannah Hospital Authority Revenue,
6.125%, 7/1/12 (Pre-refunded 7/1/03) (A).................. A3/NR 1,101,410
1,260,000 Toombs County Hospital Authority Revenue,
7.00%, 12/1/17............................................ NR/BBB 1,349,725
----------
4,323,162
----------
ILLINOIS--4.1%
1,000,000 Chicago Water Revenue (FGIC insured),
5.25%, 11/1/17............................................ Aaa/AAA 1,014,520
1,000,000 Illinois Educational Facilities Authority Revenue,
5.25%, 9/1/24............................................. NR/A- 955,450
2,670,000 Illinois Health Facilities Authority Revenue,
9.00%, 11/15/15........................................... Baa1/AAA 2,945,063
1,710,000 Illinois Housing Development Authority Revenue,
6.70%, 8/1/25............................................. Aa2/AA 1,818,363
----------
6,733,396
----------
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 1,144,580
----------
LOUISIANA--1.0%
1,500,000 New Orleans General Obligation Bonds (AMBAC insured),
6.125%, 10/1/16........................................... Aaa/AAA 1,661,715
----------
MAINE--0.4%
555,000 Maine State Housing Authority, Mortgage Purchase,
7.55%, 11/15/22........................................... Aa2/AA 581,551
----------
MARYLAND--0.9%
1,360,000 Maryland State Community Development Administration
(FHA insured),
7.60%, 4/1/23............................................. Aa2/NR 1,415,542
----------
<PAGE>
MUNICIPAL ADVANTAGE FUND INC.
SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED)
APRIL 30, 1999
</TABLE>
<TABLE>
<CAPTION>
Principal Credit Rating
Amount (Moody's/S&P) Value
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
LONG-TERM INVESTMENTS (CONTINUED)
MASSACHUSETTS--7.1%
Massachusetts Bay Transportation Authority Revenue,
$1,000,000 Ser. A, 5.00%, 3/1/27 (FGIC insured)........................ Aaa/AAA $ 967,830
3,000,000 Ser. D, 5.00%, 3/1/27....................................... Aa3/AA- 2,903,490
Massachusetts State Health & Education Facilities Authority
Revenue,
1,000,000 5.125%, 7/1/19.............................................. A1/AA- 972,370
2,250,000 6.25%, 12/1/22.............................................. A1/A 2,428,020
1,175,000 Massachusetts State Water Pollution Abatement Trust,
6.375%, 2/1/15............................................ Aa3/AA+ 1,300,584
3,250,000 Massachusetts State Water Resource Authority (FSA insured),
4.50%, 8/1/22............................................. Aaa/AAA 2,948,953
----------
11,521,247
----------
MICHIGAN--8.7%
1,000,000 Dearborn School District,
6.00%, 5/1/14 (Pre-refunded 5/1/01) (A)................... Aa2/AA+ 1,064,190
1,000,000 Michigan Municipal Bond Authority Revenue,
4.75%, 10/1/18............................................ Aa1/AA+ 961,910
Michigan State Hospital Finance Authority Revenue,
1,000,000 5.50%, 10/1/18.............................................. Baa2/BBB 974,350
2,000,000 8.125%, 10/1/21 (Pre-refunded 10/1/05) (A).................. Baa2/AAA 2,481,680
1,000,000 Michigan State Pollution Control Revenue,
6.20%, 9/1/20............................................. A2/A 1,074,500
Wayne County Airport Revenue (MBIA insured),
4,000,000 5.00%, 12/1/22.............................................. Aaa/AAA 3,854,960
4,000,000 5.00%, 12/1/28.............................................. Aaa/AAA 3,827,320
----------
14,238,910
----------
MINNESOTA--3.7%
Minnesota State Housing Finance Agency,
1,410,000 6.00%, 2/1/14............................................... Aa2/AA 1,474,014
2,530,000 6.10%, 8/1/22............................................... Aa2/AA 2,644,483
1,865,000 6.25%, 8/1/22............................................... Aa2/AA 1,887,473
----------
6,005,970
----------
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 2,206,480
1,000,000 Clark County Industrial Development Revenue,
5.60%, 10/1/30............................................ NR/BBB 1,006,180
2,000,000 Clark County Passenger Facility Charge Revenue
(MBIA insured),
5.75%, 7/1/23............................................. Aaa/AAA 2,092,620
2,400,000 Henderson Nevada Water & Sewer Revenue (FGIC insured),
4.75%, 9/1/18............................................. Aaa/AAA 2,303,040
</TABLE>
<PAGE>
MUNICIPAL ADVANTAGE FUND INC.
SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED)
APRIL 30, 1999
<TABLE>
<CAPTION>
Principal Credit Rating
Amount (Moody's/S&P) Value
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
LONG-TERM INVESTMENTS (CONTINUED)
NEVADA (CONTINUED)
Nevada Housing Division Revenue (FHA insured),
$1,055,000 6.20%, 4/1/17............................................... Aaa/AAA $ 1,117,899
990,000 6.20%, 10/1/28.............................................. Aaa/NR 1,044,826
----------
9,771,045
----------
NEW HAMPSHIRE--1.8%
1,000,000 New Hampshire Higher Educational & Health Facilities
Authority Revenue,
6.125%, 10/1/13........................................... Baa1/NR 1,027,660
New Hampshire State Housing Finance Authority,
855,000 6.50%, 7/1/14............................................... Aa3/NR 909,421
1,000,000 6.90%, 7/1/19............................................... Aa2/NR 1,062,380
----------
2,999,461
----------
NEW JERSEY--0.6%
1,000,000 New Jersey Economic Development Authority,
Heating & Cooling Revenue,
6.20%, 12/1/07............................................ NR/BBB- 1,046,490
----------
NEW YORK--12.0%
1,000,000 Long Island Power Authority, Electric System Revenue,
5.50%, 12/1/29............................................ Baa1/A- 1,026,770
1,000,000 Municipal Assistance Corporation, City of Troy
(MBIA insured),
5.00%, 1/15/16............................................ Aaa/AAA 1,002,980
New York City General Obligation Bonds,
2,000,000 5.75%, 2/1/17............................................... A3/A- 2,125,320
1,500,000 5.75%, 2/1/19............................................... A3/A- 1,585,095
1,000,000 5.875%, 3/15/18............................................. A3/A- 1,071,260
1,000,000 6.00%, 8/1/14............................................... A3/A- 1,093,380
1,000,000 6.00%, 8/1/16............................................... A3/A- 1,086,520
1,000,000 6.95%, 8/15/12 (MBIA insured) (Pre-refunded 8/15/04) (A).... Aaa/AAA 1,153,150
2,140,000 7.00%, 10/1/09 (Pre-refunded 10/1/02) (A)................... A3/A- 2,393,847
3,000,000 New York City Industrial Development Agency,
Special Facilities Revenue,
6.125%, 1/1/24............................................ A3/A 3,179,940
1,500,000 New York State Dormitory Authority Revenue,
5.75%, 5/15/24 (Pre-refunded 5/15/04) (A)................. Aaa/AAA 1,628,730
New York State Medical Care Facilities,
Finance Agency Revenue,
15,000 6.50%, 8/15/24.............................................. A3/A- 16,748
985,000 6.50%, 8/15/24 (Pre-refunded 8/15/04) (A)................... A3/A- 1,116,793
1,080,000 New York State Urban Development Corporation,
Correctional Capital Facility,
5.375%, 1/1/25............................................ Baa1/BBB+ 1,092,225
----------
19,572,758
----------
<PAGE>
MUNICIPAL ADVANTAGE FUND INC.
SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED)
APRIL 30, 1999
</TABLE>
<TABLE>
<CAPTION>
Principal Credit Rating
Amount (Moody's/S&P) Value
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
LONG-TERM INVESTMENTS (CONTINUED)
NORTH CAROLINA--1.3%
North Carolina Medical Care Community Hospital Revenue,
$1,000,000 4.75%, 12/1/28.............................................. Aa3/AA- $ 911,320
1,250,000 4.75%, 12/1/28 (MBIA insured)............................... Aaa/AAA 1,165,462
----------
2,076,782
----------
NORTH DAKOTA--0.9%
1,495,000 North Dakota State Housing Finance Agency,
5.50%, 7/1/18............................................. Aa3/NR 1,511,041
----------
PENNSYLVANIA--5.2%
2,000,000 Allegheny County Hospital Development Authority
(MBIA insured),
6.00%, 7/1/23............................................. Aaa/AAA 2,233,340
1,750,000 Philadelphia Hospitals & Higher Facilities Authority Revenue
(AMBAC insured),
5.125%, 5/15/18........................................... Aaa/AAA 1,732,133
1,500,000 Philadelphia Water and Wastewater Revenue (MBIA insured),
5.25%, 6/15/23............................................ Aaa/AAA 1,506,915
3,000,000 Southeastern Pennsylvania Transit Authority Revenue
(FGIC insured),
5.375%, 3/1/22............................................ Aaa/AAA 3,065,310
----------
8,537,698
----------
SOUTH CAROLINA--0.9%
1,450,000 York County Industrial Revenue,
5.70%, 1/1/24............................................. A2/A+ 1,474,374
----------
SOUTH DAKOTA--0.7%
1,000,000 Heartland Consumers Power District Revenue,
7.00%, 1/1/16............................................. Aaa/AAA 1,199,580
----------
TENNESSEE--1.3%
2,000,000 Tennessee Housing Development Agency,
6.375%, 7/1/22............................................ Aa2/AA 2,134,900
----------
TEXAS--8.5%
1,000,000 Alliance Airport Authority Revenue,
6.375%, 4/1/21............................................ Baa2/BBB 1,076,980
1,195,000 Arlington General Obligation Bonds,
5.00%, 8/15/16............................................ Aa3/AA 1,195,717
1,000,000 Denton County General Obligation Bonds (AMBAC insured),
5.00%, 7/15/16............................................ Aaa/AAA 1,001,120
1,000,000 Harlandale Independent School District,
4.50%, 8/15/23............................................ Aaa/NR 911,710
1,500,000 Harris County Port Authority General Obligation Bonds,
5.75%, 10/1/17............................................ Aa2/AA 1,578,450
785,000 Harris County Toll Road Subordinated Lien,
6.50%, 8/15/15............................................ Aa2/AA 857,919
</TABLE>
<PAGE>
MUNICIPAL ADVANTAGE FUND INC.
SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED)
APRIL 30, 1999
<TABLE>
<CAPTION>
Principal Credit Rating
Amount (Moody's/S&P) Value
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
LONG-TERM INVESTMENTS (CONTINUED)
TEXAS (CONTINUED)
$1,000,000 Houston Independent School District,
4.75%, 2/15/26............................................ Aaa/AAA $ 938,010
Houston Water Conveyance System, Certificates of
Participation
(AMBAC insured),
1,000,000 6.25%, 12/15/14............................................. Aaa/AAA 1,156,850
1,400,000 7.50%, 12/15/15............................................. Aaa/AAA 1,817,144
2,500,000 Houston Water & Sewer Systems Revenue (FGIC insured),
5.00%, 12/1/25............................................ Aaa/AAA 2,417,800
1,000,000 North East Independent School District,
4.50%, 2/1/16............................................. Aaa/AAA 944,740
----------
13,896,440
----------
UTAH--0.8%
Utah Housing Finance Agency (FHA insured),
910,000 6.35%, 7/1/11............................................... Aa2/NR 965,738
300,000 6.55%, 7/1/26............................................... Aa2/AAA 318,063
----------
1,283,801
----------
VERMONT--0.9%
1,475,000 Vermont Housing Finance Agency (FHA insured),
7.85%, 12/1/29............................................ A1/A- 1,507,361
----------
VIRGINIA--3.3%
4,200,000 Virginia Housing Development Authority,
Commonwealth Mortgage,
6.50%, 1/1/13............................................. Aa1/AA+ 4,407,312
1,000,000 Virginia Housing Development Authority, Multi-Family
Housing,
5.20%, 11/1/15............................................ Aa1/AA+ 1,015,480
----------
5,422,792
----------
WASHINGTON--0.7%
1,000,000 Seattle Museum Development Authority,
6.30%, 7/1/13............................................. Aa1/AA+ 1,089,330
----------
WEST VIRGINIA--1.9%
Braxton County Solid Waste Disposal Revenue,
1,000,000 6.125%, 4/1/26.............................................. A2/A 1,047,760
1,000,000 6.50%, 4/1/25............................................... A2/A 1,084,480
1,000,000 West Virginia General Obligation Bonds, (FGIC insured),
4.50%, 6/1/23............................................. Aaa/AAA 910,830
----------
3,043,070
----------
WISCONSIN--3.0%
1,500,000 Wisconsin General Obligation Bonds,
5.30%, 5/1/23............................................. Aa2/AA 1,500,000
</TABLE>
<PAGE>
MUNICIPAL ADVANTAGE FUND INC.
SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED)
APRIL 30, 1999
<TABLE>
<CAPTION>
Principal Credit Rating
Amount (Moody's/S&P) Value
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
LONG-TERM INVESTMENTS (CONTINUED)
WISCONSIN (CONTINUED)
$3,500,000 Wisconsin Health & Educational Facilities Authority Revenue
(MBIA insured),
5.25%, 8/15/27............................................ Aaa/AAA $ 3,448,970
------------
4,948,970
------------
Total Long-Term Investments (cost--$152,905,118)............ 160,810,929
------------
Total Investments (cost--$152,905,118)*..................... 98.3% $160,810,929
Other Assets in Excess of Liabilities.......................
1.7 2,725,728
------------- ------------
Total Net Assets............................................ 100.0% $163,536,657
------------- ------------
------------- ------------
</TABLE>
- --------------------------------------------------------------------------------
* Aggregate unrealized appreciation for securities in which there is an excess
of value over tax cost is $8,340,620, aggregate gross unrealized
depreciation for securities in which there is an excess of tax cost over
value is $434,809 and net unrealized appreciation for Federal income tax
purposes is $7,905,811. The cost basis of portfolio securities for Federal
income tax purposes is $152,905,118.
(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.
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
<PAGE>
MUNICIPAL ADVANTAGE FUND INC.
STATEMENT OF ASSETS AND LIABILITIES (UNAUDITED)
APRIL 30, 1999
<TABLE>
<S> <C>
ASSETS
Investments, at value (cost--$152,905,118)............................................................. $160,810,929
Cash................................................................................................... 41,741
Interest receivable.................................................................................... 2,709,093
Receivable from investments called..................................................................... 620,000
Prepaid expenses....................................................................................... 25,502
------------
Total Assets........................................................................................ 164,207,265
------------
LIABILITIES
Dividends payable attributable to common shares........................................................ 482,597
Investment management fee payable...................................................................... 80,884
Dividends payable attributable to preferred shares..................................................... 19,861
Other payables and accrued expenses.................................................................... 87,266
------------
Total Liabilities................................................................................... 670,608
------------
Total Net Assets.................................................................................. $163,536,657
------------
------------
COMPOSITION OF NET ASSETS
Preferred stock ($.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.................................................................... 322,469
Accumulated net realized loss on investments and futures transactions.................................. (317,233)
Net unrealized appreciation on investments............................................................. 7,905,811
------------
Net assets applicable to common shareholders........................................................ 108,536,657
------------
Total Net Assets.................................................................................. $163,536,657
------------
------------
Net asset value per common share.................................................................. $14.96
------------
------------
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
<PAGE>
MUNICIPAL ADVANTAGE FUND INC.
STATEMENT OF OPERATIONS (UNAUDITED)
SIX MONTHS ENDED APRIL 30, 1999
<TABLE>
<S> <C>
INVESTMENT INCOME
Interest................................................................................................. $ 4,574,122
------------
OPERATING EXPENSES
Investment management fee................................................................................ 490,510
Auction fees and commissions............................................................................. 72,836
Auditing and tax return preparation fees................................................................. 37,805
Reports and notices to shareholders...................................................................... 25,416
Custodian fees........................................................................................... 24,200
Legal fees............................................................................................... 21,685
Directors' fees and expenses............................................................................. 12,366
Transfer and dividend disbursing agent fees.............................................................. 11,137
Stock exchange listing fee............................................................................... 8,019
Miscellaneous............................................................................................ 3,456
------------
Total operating expenses.............................................................................. 707,430
Less: Expenses offset............................................................................... (511)
------------
Net operating expenses.............................................................................. 706,919
------------
Net investment income............................................................................ 3,867,203
------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS--NET
Net realized gain on investments......................................................................... 140,337
Net realized loss on futures transactions................................................................ (87,850)
------------
Net realized gain on investments and futures transactions............................................. 52,487
Net change in unrealized appreciation (depreciation) on investments...................................... (2,150,421)
------------
Net realized gain and change in unrealized appreciation (depreciation) on investments................. (2,097,934)
------------
Net increase in net assets resulting from operations....................................................... $ 1,769,269
------------
------------
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
<PAGE>
MUNICIPAL ADVANTAGE FUND INC.
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
Six months
ended Year ended
April 30, October 31,
1999(1) 1998
------------ ------------
<S> <C> <C>
OPERATIONS
Net investment income................................................................. $ 3,867,203 $ 7,755,423
Net realized gain on investments and futures transactions............................. 52,487 2,420,489
Net change in unrealized appreciation (depreciation) on investments................... (2,150,421) 1,991,692
------------ ------------
Net increase in net assets resulting from operations............................... 1,769,269 12,167,604
------------ ------------
DIVIDENDS TO SHAREHOLDERS
Dividends to preferred shareholders from net investment income........................ (892,493) (2,039,506)
Dividends to common shareholders from net investment income........................... (2,895,580) (5,791,157)
------------ ------------
Total dividends to shareholders.................................................... (3,788,073) (7,830,663)
------------ ------------
Total increase (decrease) in net assets.......................................... (2,018,804) 4,336,941
NET ASSETS
Beginning of period................................................................... 165,555,461 161,218,520
------------ ------------
End of period (including undistributed net investment income of $322,469 and $243,339,
respectively)...................................................................... $163,536,657 $165,555,461
------------ ------------
------------ ------------
</TABLE>
(1) Unaudited
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
<PAGE>
MUNICIPAL ADVANTAGE FUND INC.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
APRIL 30, 1999
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) 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.
(D) 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
<PAGE>
MUNICIPAL ADVANTAGE FUND INC.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
APRIL 30, 1999
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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.
(E) 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 April 30, 1999.
(F) 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 $294,306 for the
six months ended April 30, 1999.
3. PURCHASES AND SALES OF SECURITIES
For the six months ended April 30, 1999, purchases and sales of investment
securities, other than short-term securities, aggregated $16,943,055 and
$16,747,306, respectively.
4. CAPITAL
There are 100 million shares of $.001 par value common stock authorized.
The Fund's charter provides that the Board of Directors may classify or
reclassify any unissued shares of capital stock into one or more additional
classes or series, with rights determined by the Board of Directors. The Fund's
Board of Directors has authorized the reclassification of 1,100 shares of common
stock to Auction Rate Preferred Stock ("Preferred Stock").
<PAGE>
MUNICIPAL ADVANTAGE FUND INC.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
APRIL 30, 1999
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 3.05% to 3.50% during the
period and was 3.25% at April 30, 1999. 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
<TABLE>
<CAPTION>
Realized and
Unrealized Net Increase
Gain (Loss) on (Decrease)
Investments and in Net Assets
Net Futures Resulting from
Investment Income Investment Income Transactions--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, 1999....... $2,257,991 $0.31 $1,907,125 $0.26 $ 468,378 $0.07 $ 2,375,503 $ 0.33
April 30, 1999......... 2,316,131 0.32 1,960,078 0.27 (2,566,312) (0.35) (606,234) (0.08)
---------- ------ ---------- ------ ------------ ------ ----------- ------
$4,574,122 $0.63 $3,867,203 $0.53 ($ 2,097,934) ($0.28) $ 1,769,269 $ 0.25
---------- ------ ---------- ------ ------------ ------ ----------- ------
---------- ------ ---------- ------ ------------ ------ ----------- ------
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
---------- ------ ---------- ------ ------------ ------ ----------- ------
---------- ------ ---------- ------ ------------ ------ ----------- ------
</TABLE>
7. SUBSEQUENT EVENTS
On May 3, 1999, a dividend of $.0665 per share was declared to common
shareholders payable June 1, 1999 to shareholders of record on May 14, 1999.
On May 24, 1999, the Fund sold 28-day auction rate preferred stock at an
annual rate of 3.20% with a pay date of June 22, 1999.
On June 1, 1999, a dividend of $.0665 per share was declared to common
shareholders payable July 1, 1999 to shareholders of record on June 16, 1999.
<PAGE>
MUNICIPAL ADVANTAGE FUND INC.
FINANCIAL HIGHLIGHTS
FOR A COMMON SHARE OUTSTANDING THROUGHOUT EACH PERIOD:
<TABLE>
<CAPTION>
Six months ended Year ended October 31,
April 30, --------------------------------------------------------
1999* 1998 1997 1996 1995 1994
----------------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period.......... $ 15.23 $ 14.64 $ 13.96 $ 13.77 $ 11.79 $ 14.75
--------- -------- -------- -------- -------- --------
Income from investment operations:
Net investment income......................... 0.53 1.07 1.08 1.09 1.08 1.05
Net realized and unrealized gain (loss) on
investments................................. (0.28) 0.60 0.68 0.17 1.98 (2.89)
--------- -------- -------- -------- -------- --------
Total income (loss) from investment
operations.............................. 0.25 1.67 1.76 1.26 3.06 (1.84)
--------- -------- -------- -------- -------- --------
Dividends and distributions to shareholders:
Dividends to preferred shareholders from net
investment income........................... (0.12) (0.28) (0.28) (0.29) (0.30) (0.21)
Dividends to common shareholders from net
investment income........................... (0.40) (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............................ (0.52) (1.08) (1.08) (1.07) (1.08) (1.12)
--------- -------- -------- -------- -------- --------
Net asset value, end of period................ $ 14.96 $ 15.23 $ 14.64 $ 13.96 $ 13.77 $ 11.79
--------- -------- -------- -------- -------- --------
--------- -------- -------- -------- -------- --------
Market value, end of period................... $ 13.250 $ 14.125 $13.1875 $ 11.875 $ 11.625 $ 9.75
--------- -------- -------- -------- -------- --------
--------- -------- -------- -------- -------- --------
Total investment return (1)................... (3.5%) 13.6% 18.4% 9.2% 27.9% (25.7%)
--------- -------- -------- -------- -------- --------
--------- -------- -------- -------- -------- --------
Net assets applicable to common shareholders,
end of period (000's) (2)................... $ 108,537 $110,555 $106,219 $101,297 $ 99,908 $ 85,551
--------- -------- -------- -------- -------- --------
Ratio of operating expenses to average weekly
net assets (3,4)............................ 1.30%(5) 1.31% 1.39% 1.40% 1.44% 1.39%
--------- -------- -------- -------- -------- --------
Ratio of net investment income to average
weekly net assets (3)....................... 7.10%(5) 7.13% 7.64% 7.88% 8.44% 7.85%
--------- -------- -------- -------- -------- --------
Portfolio turnover rate....................... 10% 44% 44% 27% 36% 22%
--------- -------- -------- -------- -------- --------
</TABLE>
- --------------------------------------------------------------------------------
* Unaudited
(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 $148,634, $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 $109,858,241, $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 1f in Notes to Financial Statements).
(5) Annualized
<PAGE>
ANNUAL SHAREHOLDERS MEETING
- --------------------------------------------------------------------------------
The Fund held its annual shareholders meeting on February 26, 1999. At the
meeting, preferred shareholders voted separately on the election of the nominee
proposed for election. Common and preferred shareholders voted together on the
election of the nominee proposed for election and ratified the selection of
PricewaterhouseCoopers LLP as the independent accountants of the Fund. The
following table provides information concerning the matters voted on at the
meeting:
1. ELECTION OF DIRECTORS
<TABLE>
<CAPTION>
Nominee Votes For Withheld Authority
- ---------------------------------------------------------------------------- --------- ------------------
<S> <C> <C>
Stephen J. Treadway*........................................................ 1,100 0
Raymond D. Horton........................................................... 6,239,164 123,786
</TABLE>
2. RATIFICATION OF PRICEWATERHOUSECOOPERS LLP AS THE INDEPENDENT ACCOUNTANTS OF
THE FUND
<TABLE>
<CAPTION>
Votes For Votes Against Votes Abstained
- ---------- -------------- ----------------
<S> <C> <C>
6,225,705 63,828 73,417
</TABLE>
The following table provides information concerning the Directors of the Fund:
<TABLE>
<CAPTION>
Director Term expiration
- --------------------------------------------- -------------------
<S> <C>
Jeswald W. Salacuse.......................... 2000 Annual Meeting
Robert L. Rosen*............................. 2001 Annual Meeting
Raymond D. Horton............................ 2002 Annual Meeting
Stephen J. Treadway*......................... 2002 Annual Meeting
</TABLE>
- ------------------
* Preferred Stock Director
<PAGE>
[This page intentionally left blank.]
<PAGE>
Municipal Advantage Fund Inc. Semi-Annual Report
April 30, 1999
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
Lawrence K. Becker
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
Municipal Advantage Fund Inc.
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.
