<PAGE>
MUNICIPAL ADVANTAGE FUND INC.
December 9, 1999
Dear Shareholder:
We are pleased to report on the investment activities and results of the
Municipal Advantage Fund Inc. (the 'Fund') for the fiscal year ended October 31,
1999. The year was a challenging period for investors in fixed income
securities, as interest rates rose and bond prices fell due to investor concerns
about the outlook for inflation. Seeking to prevent economic overheating and
keep inflation in check, the Federal Reserve (the 'Fed') raised short-term
interest rates twice during the fiscal year--at the end of June 1999 and again
in mid-August. On November 16, 1999, after the end of the fiscal year, the Fed
raised short-term rates further. Each increase was by one-quarter percentage
point.
Reflecting these conditions, the Lehman Brothers Municipal Bond Index (the
'Index') decreased 1.8% in the fiscal year, while the Fund declined 8.1%. The
Fund's return is based on the change in net asset value ('NAV') of the common
shares plus dividends, assuming reinvestment of those dividends.
The Fund uses leverage from its issuance of preferred stock to generate
additional income for holders of the Fund's common shares. This leverage often
causes the Fund to underperform the Index in a declining market and outperform
the Index when bond prices rise. In addition, the Fund's results were dampened
by its holdings of long-term securities, which tend to decrease more in price
than do shorter issues when the market weakens.
The Fund's performance compared with an average decline of 6.5% for the
leveraged closed-end general municipal bond funds monitored by Lipper Analytical
Services, Inc. The Fund's return was 37th among the 46 funds in this Lipper
category.
Based on total return at market--that is, price change for the Fund's common
shares on the New York Stock Exchange plus reinvested dividends--the Fund
declined 11.6% in the fiscal year.
FOURTH QUARTER RESULTS
Tax-exempt municipal bonds had an especially difficult time during the Fund's
fiscal fourth quarter ended October 31, 1999. During this period, municipals
underperformed nearly all other types of fixed income securities, as many of the
traditional corporate and institutional buyers of municipals pulled back
temporarily from the market for various reasons. For instance, municipal bond
mutual funds had only limited cash inflows during the quarter and therefore
lacked the resources to increase their holdings of municipal bonds. Moreover,
some insurance companies increased their holdings of corporate bonds while
reducing their holdings of municipal bonds because of the insurers' particular
investment needs at this time. In addition, because of technical provisions of
federal tax laws, some deeply discounted municipal bonds are partially subject
to ordinary income tax on their accretion to par. This has caused a repricing of
these securities as major purchasers of municipals consider this tax provision.
The Index was down 1.8% in the fourth quarter, while the Fund's NAV and market
price declined 5.7% and 7.2%, respectively, after adjusting for the reinvestment
of dividends.
PERFORMANCE OVER LONGER PERIODS
<TABLE>
<CAPTION>
Average for
leveraged
closed-end municipal
Average annual total bond funds monitored
return for periods Municipal Advantage Fund Lehman Brothers by Lipper Analytical
ended October 31, 1999 (net asset value) Municipal Bond Index Services
- ------------------------------------------------- ------------------------ -------------------- --------------------
<S> <C> <C> <C>
Three years...................................... 3.8% 4.8% 3.8%
Five years....................................... 8.3% 6.9% 7.3%
Since Fund's inception on April 30, 1993......... 4.8% 5.5% --
</TABLE>
Among the funds in the Lipper leveraged closed-end municipal bond fund category,
the Fund's performance ranked 28th among 44 funds for three years and 10th among
43 funds for five years.
<PAGE>
CURRENT MARKET CONDITIONS
In the wake of the fourth quarter's price declines, we believe quality municipal
securities are inexpensive relative to other types of fixed income securities
and offer attractive yields. Some triple-A long-term municipals are currently
trading at tax-exempt yields equal to the taxable yields on treasury securities
of comparable maturity. Moreover, despite periodic investor concerns about the
possibility of economic overheating and inflation, recent economic data indicate
that inflation, in fact, remains low. Quality municipal securities continue to
provide tax-exempt yields well above the inflation rate.
We continue to be rigorous in our investment philosophy and process, investing
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. We believe there are attractive
values in healthcare and housing securities, which offer somewhat higher yields
than other tax-exempt bonds of comparable quality and maturity. In addition,
because the yield differences between higher-rated and lower-rated municipal
securities remain relatively small, we see little incentive to own lower-rated
bonds except in specific instances where we find good value. At the end of
October 1999, approximately 94% of the Fund's net assets were invested in
securities rated single-A or higher by Standard & Poor's and/or Moody's.
DIVIDEND PAYMENTS AND YIELD
The Fund continues to meet its objective of providing holders of its common
shares with a high level of income which is exempt from regular federal income
tax, consistent with the preservation of capital. During the fiscal year, the
Fund paid regular monthly dividends of 6.65 cents per common share, or a total
of 79.8 cents per common share for the year.
At October 31, 1999, the yield on the Fund's common shares was 6.8%, based on
the $11.75 per share closing market price at the end of October and the
annualized current monthly dividend rate of 6.65 cents per common share. For an
investor in the top federal tax bracket of 39.6%, the Fund's yield was
equivalent to 11.3% on a taxable basis.
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 October 31, 1999, 97.0% of the Fund's portfolio
was invested in long-term securities and 3.0% in short-term securities.
We seek to control risk and maximize returns not only by emphasizing investment
quality, but also by diversifying the Fund's portfolio across states and market
sectors. The Fund's five largest portfolio positions by state at the end of
October were New York, representing 12.1% of the Fund's net assets; California,
9.8%; Texas, 9.7%; Michigan, 7.7%; and Massachusetts, 6.1%. The five largest
market sectors were health and hospital, representing 20.7% of the Fund's net
assets; housing, 16.1%; general obligation, 14.2%; airline and airport, 12.6%;
and water and sewer, 11.5%.
The average maturity of the portfolio was 20.8 years at the end of October 1999,
down slightly from 21.2 years at the end of July 1999.
PREFERRED STOCK USE AND COSTS
The Fund issued 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 most recent auction on October 8, 1999, the Fund sold 105-day auction
rate preferred stock at an annual dividend rate of 4.10%, up from 3.50% on the
previous 28-day issue. Although we typically sell preferred stock with a 28-day
maturity, we decided to bear the higher costs on the latest issue to extend the
maturity into January 2000 as a precaution against the possibility of Year
2000-related temporary market disruptions at the end of December 1999 and
beginning of January 2000.
<PAGE>
DISCOUNT
The Fund's common shares trade at a discount to their NAV, as is true of many
closed-end municipal bond funds. The size of the discount has fluctuated over
time, based on the performance of the market price in comparison to the NAV. In
the latest quarter, when the market price underperformed the NAV, the discount
increased to 10.8% at the end of October from 9.4% at the end of July.
We believe that one way for owners of the Fund's common shares to capitalize on
the discount and acquire an interest in what we consider to be a diversified
portfolio of quality municipal 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 have traditionally used two digits rather than four to
identify the year, rendering them unable to 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 have
completed the necessary remediation and testing of the computer systems under
their control to deal with the Year 2000 issue. The Fund's transfer agent,
custodian and other service providers have reported that they are working on
dealing with the Year 2000 issue as well.
There can be no assurance that the problem will be corrected in all respects or
that it will not have a negative effect on the Fund's operations or results. Of
course, we never have and cannot guarantee investment performance. Likewise, we
cannot guarantee that Year 2000 will not result in any portfolio losses.
However, be assured that our analysts and portfolio managers take Year 2000 into
account when they make investment decisions, such as choosing counterparties and
evaluating other risks associated with the purchase or sale of securities. The
type of evaluation conducted can vary depending on the type of issuer. Our
portfolio manager's job is a difficult one because the amount and type of
information available on issuers and counterparties often varies substantially
and there is often little or no assurance of its accuracy or completeness.
RECORDED UPDATE
For a recorded periodic update reviewing the municipal bond markets and
containing specific information regarding the Fund and its portfolio, including
largest holdings, asset allocation, NAV, performance and other information,
please call our toll-free number (800) 223-2413.
SUMMARY
We remain focused on providing holders of the Fund's common shares with a high
level of income which is exempt from regular federal income tax, consistent with
the preservation of capital. Although the municipal bond market has recently
experienced some difficult conditions, we believe that quality municipal bonds
will continue to provide excellent tax-exempt yields over time.
We at the Fund, together with PIMCO Advisors L.P., the Fund's investment
manager, and OpCap Advisors, which provides advisory and administrative services
to the Fund, thank you for investing with us. As always, we are dedicated to
serving your investment needs.
Sincerely,
/s/ Stephen Treadway
--------------------
Stephen Treadway
Chairman
<PAGE>
MUNICIPAL ADVANTAGE FUND INC.
SCHEDULE OF INVESTMENTS
OCTOBER 31, 1999
<TABLE>
<CAPTION>
CREDIT
PRINCIPAL RATING*
AMOUNT (MOODY'S/S&P) VALUE**
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
LONG-TERM INVESTMENTS--95.6%
ALABAMA--2.6%
$1,000,000 Alabama State Docks Department Facility Revenue
(MBIA insured),
6.15%, 10/1/14............................................ Aaa/AAA $ 1,015,710
1,250,000 Alabama State Public School & College Authority
(FSA insured),
4.25%, 11/1/18............................................ Aaa/AAA 985,950
2,000,000 DCH Health Care Authority, Health Care Facilities Revenue,
5.70%, 6/1/15............................................. A1/A+ 1,898,940
----------
3,900,600
----------
CALIFORNIA--9.8%
1,000,000 Burbank Redevelopment Agency,
6.00%, 12/1/13............................................ Baa1/A- 1,002,460
2,500,000 California Health Facilities Financing Authority Revenue,
6.25%, 3/1/21............................................. A3/A 2,500,475
1,000,000 California State Public Works Board, Lease Revenue,
6.30%, 10/1/10 (Pre-refunded @ 102, 10/1/04)+............. A1/A+ 1,097,970
1,000,000 Foothill/Eastern Corridor Agency, Toll Road Revenue,
5.75%, 1/15/40............................................ BBB-/Baa3 918,040
1,000,000 Lafayette Elementary School District (FSA insured),
5.90%, 5/15/17............................................ Aaa/AAA 1,009,310
4,000,000 Los Angeles Harbor Department Revenue,
5.375%, 11/1/23........................................... Aa3/AA 3,604,440
1,000,000 Los Angeles Regional Airports Revenue,
6.70%, 1/1/22............................................. NR/A- 1,029,100
1,000,000 Madera County Certificates of Participation (MBIA insured),
6.125%, 3/15/23 (Pre-refunded @ 102, 3/15/05)+............ Aaa/AAA 1,091,530
1,000,000 San Mateo County JT Powers Authority (MBIA insured),
5.00%, 7/1/21............................................. Aaa/AAA 890,640
2,000,000 Tustin, California University School District Special Tax
(FSA insured),
4.50%, 9/1/24............................................. Aaa/AAA 1,597,520
----------
14,741,485
----------
COLORADO--4.9%
3,085,000 Colorado Health Facilities Authority Revenue (MBIA insured),
5.95%, 5/15/12............................................ Aaa/AAA 3,144,571
Denver City & County Airport Revenue (MBIA insured),
1,500,000 5.60%, 11/15/25........................................... Aaa/AAA 1,382,565
3,000,000 5.75%, 11/15/17........................................... Aaa/AAA 2,885,970
----------
7,413,106
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 1,478,705
----------
</TABLE>
<PAGE>
MUNICIPAL ADVANTAGE FUND INC.
SCHEDULE OF INVESTMENTS
OCTOBER 31, 1999
(CONTINUED)
<TABLE>
<CAPTION>
CREDIT
PRINCIPAL RATING*
AMOUNT (MOODY'S/S&P) VALUE**
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
LONG-TERM INVESTMENTS (CONTINUED)
GEORGIA--2.7%
$1,750,000 Cherokee County Water & Sewer Authority Revenue
(MBIA Insured),
5.50%, 8/1/23............................................. Aaa/AAA $ 1,671,740
1,000,000 Savannah Hospital Authority Revenue,
6.125%, 7/1/12 (Pre-refunded @ 102, 7/1/03)+.............. A3/NR 1,065,730
1,260,000 Toombs County Hospital Authority Revenue,
7.00%, 12/1/17............................................ NR/BBB 1,302,210
----------
4,039,680
----------
HAWAII--1.9%
3,000,000 Hawaii Department of Budget & Finance,
5.75%, 12/1/18............................................ Aaa/AAA 2,882,340
----------
ILLINOIS--3.7%
1,000,000 Chicago Water Revenue (FGIC insured),
5.25%, 11/1/17............................................ Aaa/AAA 909,910
1,000,000 Illinois Educational Facilities Authority Revenue,
5.25%, 9/1/24............................................. NR/A 828,740
2,595,000 Illinois Health Facilities Authority Revenue,
9.00%, 11/15/15........................................... Baa1/AAA 2,778,363
1,100,000 Illinois Housing Development Authority Revenue,
6.70%, 8/1/25............................................. Aa2/AA 1,123,760
----------
5,640,773
----------
KENTUCKY--0.7%
1,000,000 Louisville & Jefferson Counties Metropolitan Sewer District
(AMBAC insured),
6.50%, 5/15/24 (Pre-refunded @ 102, 11/15/04)+............ Aaa/AAA 1,098,640
----------
LOUISIANA--1.0%
1,500,000 New Orleans General Obligation Bonds (AMBAC insured),
6.125%, 10/1/16........................................... Aaa/AAA 1,523,970
----------
MARYLAND--0.6%
815,000 Maryland State Community Development Administration
(FHA insured),
7.60%, 4/1/23............................................. Aa2/NR 832,311
----------
MASSACHUSETTS--6.1%
Massachusetts Bay Transportation Authority Revenue,
1,000,000 Series A, 5.00%, 3/1/27 (FGIC insured) Aaa/AAA 854,470
3,000,000 Series D, 5.00%, 3/1/27..................................... Aa3/AA- 2,535,420
Massachusetts State Health & Education Facilities Authority
Revenue,
1,000,000 5.125%, 7/1/19.............................................. A1/AA- 867,440
2,250,000 6.25%, 12/1/22.............................................. A1/A 2,220,098
1,175,000 Massachusetts State Water Pollution Abatement Trust,
6.375%, 2/1/15............................................ Aa3/AA+ 1,243,561
1,750,000 Massachusetts State Water Resource Authority (FSA insured),
4.50%, 8/1/22............................................. Aaa/AAA 1,400,472
----------
9,121,461
----------
</TABLE>
<PAGE>
MUNICIPAL ADVANTAGE FUND INC.
SCHEDULE OF INVESTMENTS
OCTOBER 31, 1999
(CONTINUED)
<TABLE>
<CAPTION>
CREDIT
PRINCIPAL RATING*
AMOUNT (MOODY'S/S&P) VALUE**
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
LONG-TERM INVESTMENTS (CONTINUED)
MICHIGAN--7.7%
$1,000,000 Dearborn School District,
6.00%, 5/1/14 (Pre-refunded @ 102, 5/1/01)+............... Aa2/AA+ $ 1,044,630
1,000,000 Michigan Municipal Bond Authority Revenue,
4.75%, 10/1/18............................................ Aa1/AA+ 851,630
Michigan State Hospital Finance Authority
Revenue,
1,000,000 5.50%, 10/1/18.............................................. Baa2/NR 955,810
2,000,000 8.125%, 10/1/21 (Pre-refunded @ 102, 10/1/05)+.............. Baa2/AAA 2,365,500
1,000,000 Michigan State Pollution Control Revenue,
6.20%, 9/1/20............................................. A2/A 968,010
Wayne County Airport Revenue (MBIA insured),
4,000,000 5.00%, 12/1/22.............................................. Aaa/AAA 3,388,640
2,500,000 5.00%, 12/1/28.............................................. Aaa/AAA 2,086,225
----------
11,660,445
----------
MINNESOTA--3.9%
Minnesota State Housing Finance Agency,
1,410,000 6.00%, 2/1/14............................................... Aa2/AA 1,424,171
2,530,000 6.10%, 8/1/22............................................... Aa2/AA 2,541,866
1,865,000 6.25%, 8/1/22............................................... Aa2/AA 1,873,579
----------
5,839,616
----------
NEVADA--5.9%
2,000,000 Clark County General Obligation Bonds (MBIA insured),
6.00%, 6/1/13 (Pre-refunded @ 101, 6/1/04)+............... Aaa/AAA 2,125,660
1,000,000 Clark County Industrial Development Revenue,
5.60%, 10/1/30............................................ NR/BBB 839,640
2,000,000 Clark County Passenger Facility Charge Revenue
(MBIA insured),
5.75%, 7/1/23............................................. Aaa/AAA 1,893,580
2,400,000 Henderson Nevada Water & Sewer Revenue (FGIC insured),
4.75%, 9/1/18............................................. Aaa/AAA 2,035,128
Nevada Housing Division Revenue (FHA insured),
1,055,000 6.20%, 4/1/17............................................... Aaa/AAA 1,067,344
990,000 6.20%, 10/1/28.............................................. Aaa/NR 995,326
----------
8,956,678
----------
NEW HAMPSHIRE--1.8%
1,000,000 New Hampshire Higher Educational & Health Facilities
Authority Revenue,
6.125%, 10/1/13........................................... Baa1/NR 966,810
New Hampshire State Housing Finance Authority,
810,000 6.50%, 7/1/14............................................... Aa3/NR 824,572
940,000 6.90%, 7/1/19............................................... Aa2/NR 964,572
----------
2,755,954
----------
NEW JERSEY--0.7%
1,000,000 New Jersey Economic Development Authority,
Heating & Cooling Revenue,
6.20%, 12/1/07............................................ NR/BBB- 991,980
----------
</TABLE>
<PAGE>
MUNICIPAL ADVANTAGE FUND INC.
SCHEDULE OF INVESTMENTS
OCTOBER 31, 1999
(CONTINUED)
<TABLE>
<CAPTION>
CREDIT
PRINCIPAL RATING*
AMOUNT (MOODY'S/S&P) VALUE**
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
LONG-TERM INVESTMENTS (CONTINUED)
NEW YORK--12.1%
$1,000,000 Long Island Power Authority, Electric System Revenue,
5.50%, 12/1/29............................................ Baa1/A- $ 897,530
1,000,000 Municipal Assistance Corporation, City of Troy
(MBIA insured),
5.00%, 1/15/16............................................ Aaa/AAA 900,040
New York City General Obligation Bonds,
2,000,000 5.75%, 2/1/17............................................... A3/A- 1,938,160
1,500,000 5.75%, 2/1/19............................................... A3/A- 1,442,475
1,000,000 5.875%, 3/15/18............................................. A3/A- 979,580
1,000,000 6.00%, 8/1/14............................................... A3/A- 1,007,230
1,000,000 6.00%, 8/1/16............................................... A3/A- 997,800
1,000,000 6.95%, 8/15/12 (MBIA insured) (Pre-refunded @ 101,
8/15/04)+................................................. Aaa/AAA 1,105,940
2,140,000 7.00%, 10/1/09 (Pre-refunded @ 101.5, 10/1/02)+............. A3/A- 2,317,962
3,000,000 New York City Industrial Development Agency,
Special Facilities Revenue,
6.125%, 1/1/24............................................ A3/A 2,994,060
1,500,000 New York State Dormitory Authority Revenue,
5.75%, 5/15/24 (Pre-refunded @ 100, 5/15/04)+............. Aaa/AAA 1,568,100
New York State Medical Care Facilities,
Finance Agency Revenue,
15,000 6.50%, 8/15/24.............................................. A3/A- 15,403
985,000 6.50%, 8/15/24 (Pre-refunded @ 102, 8/15/04)+............... A3/A- 1,071,562
1,080,000 New York State Urban Development Corporation,
Correctional Capital Facility,
5.375%, 1/1/25............................................ Baa1/BBB+ 949,676
----------
18,185,518
----------
NORTH CAROLINA--1.1%
North Carolina Medical Care Community Hospital Revenue,
1,000,000 4.75%, 12/1/28.............................................. Aa3/AA- 794,410
1,000,000 4.75%, 12/1/28 (MBIA insured)............................... Aaa/AAA 803,400
----------
1,597,810
----------
NORTH DAKOTA--0.9%
1,480,000 North Dakota State Housing Finance Agency,
5.50%, 7/1/18............................................. Aa3/NR 1,387,959
----------
PENNSYLVANIA--3.3%
2,000,000 Allegheny County Hospital Development Authority
(MBIA insured),
6.00%, 7/1/23............................................. Aaa/AAA 1,997,300
1,750,000 Philadelphia Hospitals & Higher Facilities Authority Revenue
(AMBAC insured),
5.125%, 5/15/18........................................... Aaa/AAA 1,542,555
1,500,000 Philadelphia Water and Wastewater Revenue (MBIA insured),
5.25%, 6/15/23............................................ Aaa/AAA 1,353,525
----------
4,893,380
----------
</TABLE>
<PAGE>
MUNICIPAL ADVANTAGE FUND INC.
SCHEDULE OF INVESTMENTS
OCTOBER 31, 1999
(CONTINUED)
<TABLE>
<CAPTION>
CREDIT
PRINCIPAL RATING*
AMOUNT (MOODY'S/S&P) VALUE**
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
LONG-TERM INVESTMENTS (CONTINUED)
SOUTH CAROLINA--1.5%
$1,000,000 South Carolina Public Service Authority Revenue,
5.75%, 1/1/15............................................. Aaa/AAA $ 989,940
1,450,000 York County Industrial Revenue,
5.70%, 1/1/24............................................. Baa2/BBB 1,285,309
----------
2,275,249
----------
SOUTH DAKOTA--0.7%
1,000,000 Heartland Consumers Power District Revenue,
7.00%, 1/1/16............................................. Aaa/AAA 1,125,800
----------
TENNESSEE--1.4%
2,000,000 Tennessee Housing Development Agency,
6.375%, 7/1/22............................................ Aa2/AA 2,035,060
----------
TEXAS--9.1%
1,000,000 Alliance Airport Authority Revenue,
6.375%, 4/1/21............................................ Baa2/BBB 957,230
1,195,000 Arlington General Obligation Bonds,
5.00%, 8/15/16............................................ Aa3/AA 1,075,369
1,000,000 Denton County General Obligation Bonds (AMBAC insured),
5.00%, 7/15/16............................................ Aaa/AAA 898,230
1,000,000 Harlandale Independent School District,
4.50%, 8/15/23............................................ Aaa/NR 791,950
785,000 Harris County Toll Road Subordinated Lien,
6.50%, 8/15/15............................................ Aa1/AA 824,956
1,250,000 Houston General Obligation Bonds,
5.00%, 3/1/13............................................. Aa3/AA- 1,170,037
1,000,000 Houston Independent School District,
4.75%, 2/15/26............................................ Aaa/AAA 816,330
Houston Water Conveyance System, Certificates of
Participation
(AMBAC insured),
1,000,000 6.25%, 12/15/14............................................. Aaa/AAA 1,045,860
1,400,000 7.50%, 12/15/15............................................. Aaa/AAA 1,630,874
2,500,000 Houston Water & Sewer Systems Revenue (FGIC insured),
5.00%, 12/1/25............................................ Aaa/AAA 2,137,275
1,000,000 North East Independent School District,
4.50%, 2/1/16............................................. Aaa/AAA 838,200
1,500,000 Port Houston Authority, Harris County, Obligation Bonds,
5.75%, 10/1/17............................................ Aa1/AA 1,460,685
----------
13,646,996
----------
UTAH--0.7%
Utah Housing Finance Agency (FHA insured),
795,000 6.35%, 7/1/11............................................... Aa1/NR 810,471
265,000 6.55%, 7/1/26............................................... Aa2/AAA 269,976
----------
1,080,447
----------
VERMONT--1.0%
1,475,000 Vermont Housing Finance Agency (FHA insured),
7.85%, 12/1/29............................................ A1/A- 1,506,373
----------
</TABLE>
<PAGE>
MUNICIPAL ADVANTAGE FUND INC.
SCHEDULE OF INVESTMENTS
OCTOBER 31, 1999
(CONTINUED)
<TABLE>
<CAPTION>
CREDIT
PRINCIPAL RATING*
AMOUNT (MOODY'S/S&P) VALUE**
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
LONG-TERM INVESTMENTS (CONTINUED)
VIRGINIA--3.4%
$4,200,000 Virginia Housing Development Authority,
Commonwealth Mortgage,
6.50%, 1/1/13............................................. Aa1/AA+ $ 4,253,424
1,000,000 Virginia Housing Development Authority, Multi-Family
Housing,
5.20%, 11/1/15............................................ Aa1/AA+ 921,320
-----------
5,174,744
-----------
WASHINGTON--0.7%
1,000,000 Seattle Museum Development Authority,
6.30%, 7/1/13............................................. Aa1/AA+ 1,036,220
-----------
WEST VIRGINIA--1.8%
Braxton County Solid Waste Disposal Revenue,
1,000,000 6.125%, 4/1/26.............................................. A2/A 973,790
1,000,000 6.50%, 4/1/25............................................... A2/A 1,005,180
1,000,000 West Virginia General Obligation Bonds, (FGIC insured),
4.50%, 6/1/23............................................. Aaa/AAA 795,940
-----------
2,774,910
-----------
WISCONSIN--2.9%
1,500,000 Wisconsin General Obligation Bonds,
5.30%, 5/1/23 Aa2/AA 1,373,880
3,500,000 Wisconsin Health & Educational Facilities Authority Revenue
(MBIA insured),
5.25%, 8/15/27............................................ Aaa/AAA 3,031,420
-----------
4,405,300
-----------
Total Long-Term Investments (cost--$148,293,270)............ 144,003,510
-----------
SHORT-TERM INVESTMENTS--2.9%
DELAWARE--0.1%
100,000 Delaware Economic Development Authority Revenue, VRDN,
3.70%, 11/1/99............................................ VMIG1/A 100,000
-----------
NEW JERSEY--0.9%
1,400,000 New Jersey Economic Development Authority, Natural Gas
Facilities Revenue, VRDN,
3.65%, 11/1/99............................................ VMIG1/A1+ 1,400,000
-----------
OREGON--0.4%
600,000 Port of Portland Obligation Revenue, VRDN,
3.70%, 11/1/99............................................ NR/A1+ 600,000
-----------
PENNSYLVANIA--0.9%
1,400,000 Delaware County Industrial Development Authority,
Airport Facilities Revenue, VRDN,
3.60%, 11/1/99............................................ Aaa/A1+ 1,400,000
-----------
</TABLE>
<PAGE>
MUNICIPAL ADVANTAGE FUND INC.
SCHEDULE OF INVESTMENTS
OCTOBER 31, 1999
(CONCLUDED)
<TABLE>
<CAPTION>
CREDIT
PRINCIPAL RATING*
AMOUNT (MOODY'S/S&P) VALUE**
<S> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------
SHORT-TERM INVESTMENTS (CONTINUED)
TEXAS--0.6%
$ 900,000 Grapevine Industrial Development Revenue, VRDN,
3.65%, 11/1/99............................................ P1/NR $ 900,000
------------
Total Short-Term Investments (cost--$4,400,000)............. 4,400,000
------------
Total Investments (cost--$152,693,270++).................... 98.5% 148,403,510
Other assets less liabilities............................... 1.5 2,259,206
----- ------------
Total Net Assets............................................ 100.0% $150,662,716
===== ============
</TABLE>
- --------------------------------------------------------------------------------
* Unaudited
** Long-term debt securities are valued by an independent pricing service
authorized by the Board of Directors.
+ 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.
++ Aggregate gross unrealized appreciation for securities in which there is an
excess of value over tax cost is $2,371,690, aggregate gross unrealized
depreciation for securities in which there is an excess of tax cost over
value is $6,661,450 and net unrealized depreciation for federal income tax
purposes is $4,289,760. The cost basis of portfolio securities for federal
income tax purposes is $152,693,270.
Glossary:
AMBAC--American Municipal Bond Assurance Corp.
FGIC--Financial Guaranty Insurance Co.
FHA--Federal Housing Administration
FSA--Financial Security Assurance, Inc.
MBIA--Municipal Bond Investors Assurance
VRDN--Variable rate demand notes are instruments whose interest rates change on
a specified date (such as a coupon date or interest payment date) and/or whose
interest rates vary with changes in a designated base rate ( such as the prime
interest rate). Maturity date shown is the date of next rate change.
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
<PAGE>
MUNICIPAL ADVANTAGE FUND INC.
STATEMENT OF ASSETS AND LIABILITIES
OCTOBER 31, 1999
<TABLE>
<S> <C>
ASSETS:
Investments, at value (cost--$152,693,270)................ $ 148,403,510
Cash...................................................... 8,067
Interest receivable....................................... 2,636,702
Receivable for investments called......................... 330,000
Deposit with broker for futures contracts................. 81,000
Prepaid expenses and other assets......................... 36,077
---------------
Total Assets........................................... 151,495,356
---------------
LIABILITIES:
Dividends payable--common and preferred shares............ 607,879
Investment management fee payable......................... 77,311
Payable for variation margin on futures contracts......... 32,550
Other accrued expenses.................................... 114,900
---------------
Total Liabilities...................................... 832,640
---------------
Total Net Assets..................................... $ 150,662,716
===============
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....................... 253,072
Accumulated net realized loss............................. (864,181)
Net unrealized depreciation on investments and futures
contracts.............................................. (4,351,785)
---------------
Net assets applicable to common shareholders........... 95,662,716
---------------
Total Net Assets..................................... $ 150,662,716
===============
Net asset value per share of common stock................. $13.18
======
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
<PAGE>
MUNICIPAL ADVANTAGE FUND INC.
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED OCTOBER 31, 1999
<TABLE>
<CAPTION>
INVESTMENT INCOME:
<S> <C>
Interest.................................................. $ 9,092,936
---------------
EXPENSES:
Investment management fee................................. 966,173
Auction agent fees and commissions........................ 144,741
Audit and tax service fees................................ 76,902
Reports to shareholders................................... 58,155
Legal fees................................................ 57,819
Custodian fees............................................ 49,001
Directors' fees and expenses.............................. 25,648
Transfer agent fees....................................... 25,118
New York Stock Exchange listing fee....................... 16,170
Miscellaneous............................................. 22,124
---------------
Total expenses......................................... 1,441,851
Less: expense offset................................. (1,134)
---------------
Net expenses......................................... 1,440,717
---------------
Net investment income............................. 7,652,219
---------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND
FUTURES CONTRACTS:
Net realized gain (loss) on:
Investments............................................ (591,824)
Futures contracts...................................... 97,363
Net change in unrealized appreciation/depreciation of:
Investments............................................ (14,345,992)
Futures contracts...................................... (62,025)
---------------
Net realized and unrealized loss on investments
and futures contracts............................. (14,902,478)
---------------
Net decrease in net assets resulting from investment
operations................................................ $ (7,250,259)
===============
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
<PAGE>
MUNICIPAL ADVANTAGE FUND INC.
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
----------------------------
1999 1998
------------ ------------
<S> <C> <C>
INCOME (LOSS) FROM INVESTMENT OPERATIONS:
Net investment income......................... $ 7,652,219 $ 7,755,423
Net realized gain (loss) on investments and
futures contracts.......................... (494,461) 2,420,489
Net change in unrealized
appreciation/depreciation on investments
and futures contracts...................... (14,408,017) 1,991,692
------------ ------------
Net increase (decrease) in net assets
resulting from investment operations....... (7,250,259) 12,167,604
------------ ------------
DIVIDENDS TO SHAREHOLDERS:
Dividends to preferred shareholders from net
investment income.......................... (1,851,326) (2,039,506)
Dividends to common shareholders from net
investment income.......................... (5,791,160) (5,791,157)
------------ ------------
Total dividends to shareholders............ (7,642,486) (7,830,663)
------------ ------------
Total increase (decrease) in net
assets.................................. (14,892,745) 4,336,941
NET ASSETS:
Beginning of year............................. 165,555,461 161,218,520
------------ ------------
End of year (including undistributed net
investment income of $253,072
and $243,339, respectively)................ $150,662,716 $165,555,461
============ ============
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
<PAGE>
MUNICIPAL ADVANTAGE FUND INC.
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 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 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
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
The Fund intends to distribute all of its taxable income and to comply with the
other requirements of the U.S. Internal Revenue Code of 1986, as amended,
applicable to regulated investment companies. Accordingly, no provision for U.S.
federal income taxes is required. In addition, by distributing substantially all
of its ordinary income and long-term capital gains, if any during each calendar
year, the Fund intends not to be subject to U.S. federal excise tax.
At October 31, 1999, the Fund had a capital loss carryforward of $926,206
($369,720 of which will expire in 2004 and $556,486 which will expire in 2007)
available as a reduction, to the extent provided in the regulations, of any
future net realized capital gains. To the extent that these losses are used to
offset future net capital gains, such gains will not be distributed to
shareholders.
(C) INVESTMENT TRANSACTIONS AND INVESTMENT INCOME
Investment transactions are accounted for on the trade date. Realized gains and
losses on investments are determined on the identified cost basis. Interest
income is recorded on an accrual basis. 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 realized capital gains, if any, are paid at
least annually. The Fund records dividends and distributions to its shareholders
on the ex-dividend date. The amount of dividends and distributions from net
investment income and net realized capital gains are determined in accordance
with federal income tax regulations, which may differ from generally accepted
accounting principles. These 'book-tax' differences are either considered
temporary or permanent in nature. To the extent these differences are permanent
in nature, such amounts are reclassified within the capital accounts based on
their federal income tax treatment; temporary differences do not require
reclassification. At October 31, 1999, the Fund did not have any permanent
book-tax differences. 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.
<PAGE>
MUNICIPAL ADVANTAGE FUND INC.
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 1999
(CONTINUED)
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(E) FUTURES CONTRACTS
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.
At October 31, 1999, the Fund had the following open U.S. Treasury bond futures
contracts which were collateralized by $81,000.
<TABLE>
<CAPTION>
Cost on
Number of Expiration Origination Value Unrealized
Contracts Type Date Date October 31, 1999 Depreciation
- ---------- ------------------ ---------- ----------- ---------------- ------------
<S> <C> <C> <C> <C> <C>
Long: 30 U.S. Treasury Bond 12/31/99 $ 3,345,788 $3,407,813 $ 62,025
</TABLE>
(F) EXPENSE OFFSET
The Fund benefits from an expense offset arrangement with its custodian bank
whereby uninvested cash balances earn credits which reduce monthly custodian
expenses. Had these cash balances been invested in income producing securities,
they would have generated income for the Fund.
2. INVESTMENT MANAGER
On September 17, 1999 the Board of Directors of the Fund approved the assignment
of the Management Agreement between the Fund and Value Advisors LLC to PIMCO
Advisors L.P. (the 'Investment Manager'), the parent of Value Advisors LLC. The
assignment did not require the approval of the shareholders of the Fund.
Subsequent to the assignment, services are being provided by the same persons
who provided services on behalf of Value Advisors LLC. The Management Agreement
between Value Advisors LLC and the Fund was approved by the Fund's shareholders
on October 14, 1997 and became effective on November 5, 1997. Prior thereto,
Advantage Advisers, Inc., a wholly-owned subsidiary of CIBC Oppenheimer Inc.,
served as the Fund's investment manager. The Investment Manager, among other
things supervises the Fund's investment program, including advising and
consulting with OpCap Advisors, the Fund's investment adviser (the 'Adviser')
regarding the Fund's overall investment strategy. Pursuant to an Investment
Advisory Agreement, the Adviser is responsible on a day-to-day basis for
investing the Fund's portfolio in accordance with its investment objective and
policies. The Adviser is an indirect wholly-owned subsidiary of PIMCO Advisors
L.P. and was acquired by PIMCO Advisors L.P. on November 4, 1997.
For its services, the Investment Manager receives a monthly fee at an annual
rate of 0.60% of the Fund's average weekly net assets and the Adviser receives
from the Investment Manager a monthly fee at an annual rate of 0.36% of the
Fund's average weekly net assets. The Investment Manager informed the Fund that
it paid the Adviser $579,704 for the year ended October 31, 1999.
<PAGE>
MUNICIPAL ADVANTAGE FUND INC.
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 1999
(CONCLUDED)
3. INVESTMENTS IN SECURITIES
For the year ended October 31, 1999, aggregate purchases and sales of
investments, other than short-term securities, were $34,939,845 and
$35,643,072.48, 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').
During the years ended October 31, 1999 and 1998, there were no transactions in
shares of common stock.
5. AUCTION RATE PREFERRED STOCK
The Fund has issued 1,100 shares of Preferred Stock with a net asset and
liquidation value of $50,000 per share plus accrued dividends.
Dividends are accumulated daily at an annual rate set through auction
procedures. The annualized dividend rate ranged from 3.05% to 4.10% during the
period and was 4.10% at October 31, 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. SUBSEQUENT DIVIDEND DECLARATIONS
On November 1, 1999, a dividend of $.0665 per share was declared to common
shareholders payable December 1, 1999 to shareholders of record on November 16,
1999.
On December 1, 1999, a dividend of $.0665 per share was declared to common
shareholders payable December 31, 1999 to shareholders of record on December 16,
1999.
7. ACQUISITION OF INVESTMENT MANAGER AND ADVISER
On October 31, 1999, PIMCO Advisors Holdings L.P. ('PAH'), its operating
subsidiary and the Fund's Investment Manager, PIMCO Advisors L.P. ('PIMCO
Advisors'), and Allianz AG ('Allianz') announced that they have reached a
definitive agreement for Allianz, a German insurance company, to acquire
majority ownership of PIMCO Advisors, including all of the interests held by PAH
(the 'Allianz Transaction'). For the Fund, the change of control as a result of
the consummation of the Allianz Transaction (expected to close by the end of the
first quarter of 2000) will result in the automatic termination of the current
investment management agreement with PIMCO Advisors and the current investment
advisory/administration agreements with OpCap Advisors. Prior to consummation of
the Allianz Transaction, the Board of Directors will be asked to approve new
agreements with PIMCO Advisors and OpCap Advisors to become effective upon
consummation of the Allianz Transaction. If approved by the Board of Directors,
it is anticipated that the new agreements will be submitted for approval by the
stockholders of the Fund.
<PAGE>
MUNICIPAL ADVANTAGE FUND INC.
FINANCIAL HIGHLIGHTS
FOR A SHARE OF COMMON STOCK OUTSTANDING THROUGHOUT EACH YEAR:
<TABLE>
<CAPTION>
Year ended October 31,
----------------------------------------------------------------
1999 1998 1997 1996 1995
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year........................ $15.23 $14.64 $13.96 $13.77 $11.79
------ ------ ------ ------ ------
INCOME (LOSS) FROM INVESTMENT OPERATIONS:
Net investment income..................................... 1.05 1.07 1.08 1.09 1.08
Net realized and unrealized gain (loss) on investments and
futures contracts....................................... (2.04) 0.60 0.68 0.17 1.98
------ ------ ------ ------ ------
Total from investment operations...................... (0.99) 1.67 1.76 1.26 3.06
------ ------ ------ ------ ------
DIVIDENDS TO SHAREHOLDERS:
Dividends to preferred shareholders from net investment
income.................................................. (0.26) (0.28) (0.28) (0.29) (0.30)
Dividends to common shareholders from net investment
income.................................................. (0.80) (0.80) (0.80) (0.78) (0.78)
------ ------ ------ ------ ------
Total dividends to shareholders....................... (1.06) (1.08) (1.08) (1.07) (1.08)
------ ------ ------ ------ ------
Net asset value, end of year.............................. $13.18 $15.23 $14.64 $13.96 $13.77
====== ====== ====== ====== ======
Market price, end of year................................. $11.75 $14.125 $13.1875 $11.875 $11.625
====== ====== ====== ====== ======
TOTAL INVESTMENT RETURN (1)............................... (11.6)% 13.6% 18.4% 9.2% 27.9%
====== ====== ====== ====== ======
RATIOS/SUPPLEMENTAL DATA:
Net assets applicable to common shareholders, end of year
(in thousands).......................................... $95,663 $110,555 $106,219 $101,297 $99,908
Ratio of net expenses to average net assets (2,3)......... 1.36% 1.31% 1.39% 1.40% 1.44%
Ratio of net investment income to average net assets
(2,3)................................................... 7.22% 7.13% 7.64% 7.88% 8.44%
Asset coverage per share of preferred stock............... $136,768 $150,252 $146,251 $141,788 $140,680
Portfolio turnover........................................ 22% 44% 44% 27% 36%
</TABLE>
- --------------------------------------------------------------------------------
(1) Total investment return is calculated assuming a purchase of common stock at
the current market price on the first day and a sale at the current market
price on the last day of each year reported. Dividends are assumed, for
purposes of this calculation, to be reinvested at prices obtained under the
Fund's dividend reinvestment plan. Total investment return does not reflect
brokerage commissions or sales charges.
(2) Calculated on the basis of income and expenses applicable to both common and
preferred shares relative to the average net assets of common shareholders.
(3) For fiscal years ended after October 31, 1995, ratios are calculated
inclusive of expenses offset by earning credits from custodian bank. (See
note 1f in Notes to Financial Statements).
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Board of Directors
of Municipal Advantage Fund Inc.
In our opinion, the accompanying statement of assets and liabilities, including
the schedule of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of Municipal Advantage Fund Inc. (the
'Fund') at October 31, 1999, the results of its operations for the year then
ended, the changes in its net assets for each of the two years in the period
then ended and the financial highlights for each of the five years in the period
then ended, in conformity with generally accepted accounting principles. These
financial statements and financial highlights (hereafter referred to as
'financial statements') are the responsibility of the Fund's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these financial statements in accordance
with generally accepted auditing standards which require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits, which included confirmation of securities at October
31, 1999 by correspondence with the custodian and brokers, provide a reasonable
basis for the opinion expressed above.
PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, New York 10036
December 10, 1999
<PAGE>
TAX INFORMATION
We are required by Subchapter M of the Internal Revenue Code of 1986, as
amended, to advise you within 60 days of the Fund's fiscal year end (October 31,
1999) as to the federal tax status of dividends and distributions received by
shareholders during such fiscal year. Accordingly, we are advising you that
substantially all dividends paid from net investment income during the fiscal
year ended October 31, 1999 were federally exempt interest dividends, although
the Fund did invest in securities which paid interest subject to the federal
alternative minimum tax during the fiscal year. The percentage of dividends paid
from net investment income subject to such tax was 29.1%.Additionally, the Fund
invested in municipal bonds containing market discount, whose accretion is
taxable. Accordingly, 0.29% of the Fund's dividends paid during the fiscal year
are taxable. Per share dividends for the fiscal year ended October 31, 1999 were
as follows:
Dividends to common shareholders from net investment income....... $0.798
Dividends to preferred shareholders from net investment income.... $1,683.02
Since the Fund's fiscal year is not the calendar year, another notification will
be sent with respect to calendar year 1999. In January 2000, you will be advised
on IRS Form 1099 DIV as to the federal tax status of the dividends received by
you in calendar 1999. The amount that will be reported, will be the amount to
use on your 1999 federal income tax return and may differ from the amount which
we must report for the Fund's fiscal year ended October 31, 1999. Shareholders
are advised to consult with their tax advisers as to the federal, state and
local tax status of the income received from the Fund. An allocation of interest
by state will also be provided which may be of value in reducing a shareholder's
state or local tax liability, if any.
- --------------------------------------------------------------------------------
DIVIDEND REINVESTMENT AND CASH PURCHASE PLAN
The Municipal Advantage Fund Inc. has a Dividend Reinvestment and Cash Purchase
Plan (the 'Plan') in which all dividends and distributions paid to Common
Stockholders are automatically reinvested in additional shares (unless a
shareholder elects to receive cash). EquiServe L.P. ( the 'Plan Agent') serves
as agent for the holders of Common Stock in administering the Plan. Subsequent
to the Fund paying a dividend and/or distribution, the Plan Agent, as agent for
the participants, receives the cash and uses it to purchase Common Stock in the
open market, on the New York Stock Exchange or elsewhere, for the participants'
accounts. The Fund does not issue any new shares of Common Stock in connection
with the Plan. The Plan Agent's fees for the reinvestment of dividends and
distributions are paid for by the Fund. Each participant also pays a pro rata
share of the brokerage commission incurred with respect to the Plan Agent's open
market purchases in connection with the reinvestment. The receipt of dividends
and distributions under the Plan does not relieve participants of any income tax
which may be payable on such dividends or distributions. Participation in the
Plan may be terminated at any time by written notice to the Plan Agent.
Participants also have an option to make additional cash payments to the Plan
Agent for the purchase of Common Stock with a minimum investment of $250. All
correspondence concerning the Plan including requests for additional information
or requests to be included or excluded from the Plan should be addressed to the
applicable bank, broker-dealer or other nominee or in the case of shareholders
whose shares are registered in their own name to EquiServe L.P., Post Office Box
8200, Boston, Massachusetts 02266 or by telephone at 1-800-426-5523.
- --------------------------------------------------------------------------------
OTHER INFORMATION
Since October 31, 1998, there have been no: (i) material changes in the Fund's
investment objectives or policies; (ii) changes to the Fund's charter or
by-laws; (iii) material changes in the principal risk factors associated with
investment in the Fund; or (iv) change in the person primarily responsible for
the day-to-day management of the Fund's portfolio.
<PAGE>
Municipal Advantage Fund Inc.
Directors and Principal Officers
Stephen J. Treadway
Director and Chairman of the Board
Raymond D. Horton
Director
Robert L. Rosen
Director
Jeswald W. Salacuse
Director
Bernard H. Garil
President
Newton B. Schott, Jr.
Executive Vice President and Assistant Secretary
Matthew Greenwald
Executive Vice President
Lawrence K. Becker
Treasurer
Elliot M. Weiss
Secretary
Brian S. Shlissel
Assistant Treasurer
Investment Manager
PIMCO Advisors L.P.
800 Newport Center Drive
Newport Beach, CA 92660
Investment Adviser
OpCap Advisors
1345 Avenue of the Americas
New York, NY 10105
Transfer Agent, Dividend Paying Agent and Registrar
EquiServe L.P.
Post Office Box 8200
Boston, MA 02266
Independent Accountants
PricewaterhouseCoopers LLP MAF
1177 Avenue of the Americas Listed
New York, NY 10036 NYSE
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.
Notice is hereby given in accordance with Section 23(c) of the Investment
Company Act of 1940, as amended, that from time to time the Fund may purchase
shares of its common stock in the open market.
Annual Report
October 31, 1999
Municipal Advantage Fund, Inc.
