<PAGE>
MUNICIPAL ADVANTAGE FUND INC.
May 30, 2000
Dear Shareholder:
We are pleased to report on the investment activities and results of the
Municipal Advantage Fund (the "Fund") for the six months ended April 30, 2000.
The Fund performed well in the period, generating a net asset value ("NAV")
total return of 3.5% (based on the change in NAV for its common shares plus
reinvested dividends), exceeding the 3.3% return of its benchmark, the Lehman
Brothers Municipal Bond Index. The Fund's market value total return (the price
change of the Fund's common shares on the New York Stock Exchange plus
reinvested dividends) was 0.7%.
REDUCTION IN DIVIDEND RATE
The Fund issues auction rate preferred stock to generate additional income for
the holders of its common shares. Proceeds from sale of the preferred stock are
invested in municipal bonds that yield more than the cost of the preferred
stock, with the Fund's common shares realizing the difference in income.
As short-term interest rates have escalated in recent months, the interest rate
paid by the Fund on its preferred stock has also increased, reducing the amount
of income available for distribution to common shareholders. At the most recent
auction on May 22, 2000, the Fund sold 28-day auction rate preferred stock at an
annual dividend rate of 4.50%, compared with a rate of 3.75% on a 28-day issue
in January 2000.
As a result of these higher borrowing costs, on May 22, 2000 the Fund's
directors announced their intention to reduce the monthly dividend to 6.00 cents
per common share from 6.35 cents per common share. This followed a previous
reduction to 6.35 cents per common share from 6.65 cents per common share
effective with the dividend declared in March 2000.
We are disappointed that it has been necessary to reduce the common stock
dividend rate. However, we want to assure you that we will continue to do all we
can to deliver high tax-exempt income and total returns, consistent with the
Fund's goal of preserving capital. Although the outlook for short-term interest
rates is uncertain, we believe the interest rate on the Fund's preferred stock
is likely to decrease, which should benefit the holders of the Fund's common
shares, in the event that short-term rates decline. Meanwhile, the Fund's use of
leverage through its issuance of preferred stock continues to generate
additional income for the common shareholders, although less so at this time
than in the past.
BOND MARKET CONDITIONS AND INVESTMENT ACTIVITIES
Since January 2000, the market for long-term municipal bonds has improved
somewhat following a difficult year in 1999. This improvement has been driven by
increased investor confidence that the Federal Reserve is keeping inflation
under control and by demand for bonds from bargain hunters seeking to capitalize
on the significant opportunities they see in the municipal bond market. However,
many institutional and corporate investors continue to shy away from municipal
securities. Some property casualty insurance companies, for instance,
experienced significant earnings declines in 1999 and in the first quarter of
2000. With less need for tax-exempt investment income, they have reduced their
purchases of municipal bonds.
During 1999, bond prices fell sharply due to investor concerns regarding the
strength of the U.S. economy and the possibility that inflation might increase.
Although quality municipals have now recovered some of their 1999 losses, we
believe they continue to be inexpensive relative to taxable bonds, including
Treasury securities. Certain triple-A long-term municipals are trading at yields
equal to the yields of Treasuries of comparable maturity even though the
interest income from municipals is exempt from federal income tax.
In managing the Fund, we continue to be disciplined 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--the highest
yield at the lowest price with the least amount of risk. The Fund's performance
during the six months ended April 30, 2000 was bolstered by its relatively long
duration, aided by leverage; its sizable holdings of discount bonds, which tend
to perform well in a rising market; and the overall high quality of the
portfolio. At the end of April 2000, 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.
<PAGE>
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, 2000, the Fund was fully invested in
long-term tax-exempt 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
April were New York, representing 12.2% of the Fund's net assets; Texas, 10.3%;
California, 9.8%; Michigan, 7.8%; and Nevada, 7.0%. The five largest market
sectors were health and hospitals, representing 20.5% of the Fund's net assets;
housing, 16.1%; general obligations, 15.0%; water and sewer, 12.9%; and airlines
and airports, 12.5%. There were no major changes in allocation during the
six-month period.
The average maturity of the portfolio was 19.5 years at the end of April 2000,
down from 20.8 years six months earlier, reflecting our efforts to temper risk
in an uncertain market environment.
DIVIDEND YIELD
The Fund's objective is to provide holders of its common shares with a high
level of income exempt from regular federal income tax, consistent with the
preservation of capital. The Fund paid dividends of 39.3 cents per common share
in the six months ended April 30, 2000.
The yield on the Fund's common shares was 6.7% at April 30, 2000, based on the
$11.44 per share closing market price at the end of April and the annualized
monthly dividend rate of 6.35 cents per common share in effect at that time. For
an investor in the top federal tax bracket of 39.6%, the Fund's yield was
equivalent to 11.0% on a taxable basis. Based on the new monthly dividend rate
of 6.00 cents per common share, the yield at April 30, 2000 would have been
6.3%, equivalent to 10.4% on a taxable basis for an investor in the top federal
tax bracket of 39.6%. We believe this yield continues to be attractive relative
to other quality fixed income investments.
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. At
April 30, 2000, the discount was 13.2%. 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.
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
The municipal bond market has recovered somewhat since early calendar 2000,
helping the Fund deliver a favorable total return during the fiscal first half
ended April 30, 2000. We believe there are excellent values in the municipal
bond market at this time, and we seek to capitalize on those values through the
rigorous application of our investment process. We remain focused on providing
holders of the Fund's common shares with a high level of income exempt from
regular federal income tax, consistent with the preservation of capital.
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.
Sincerely,
/s/ Stephen Treadway
Stephen Treadway
Chairman
<PAGE>
MUNICIPAL ADVANTAGE FUND INC.
SCHEDULE OF INVESTMENTS
APRIL 30, 2000
(UNAUDITED)
<TABLE>
<CAPTION>
Principal Credit Rating
Amount (Moody's/S&P) Value*
-----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
MUNICIPAL BONDS--98.6%
ALABAMA--2.6%
$1,000,000 Alabama State Docks Department Facility Revenue
(MBIA insured),
6.15%, 10/1/14.......................................................... Aaa/AAA $ 1,029,450
1,250,000 Alabama State Public School & College Authority (FSA insured), 4.25%,
11/1/18................................................................. Aaa/AAA 1,006,275
2,000,000 DCH Health Care Authority, Health Care Facilities Revenue,
5.70%, 6/1/15........................................................... A1/A+ 1,899,760
------------
3,935,485
------------
CALIFORNIA--9.8%
1,000,000 Burbank Redevelopment Agency,
6.00%, 12/1/13.......................................................... Baa1/A- 1,016,520
2,500,000 California Health Facilities Financing Authority Revenue,
6.25%, 3/1/21........................................................... A3/A 2,501,025
1,000,000 California State Public Works Board, Lease Revenue
(MBIA insured),
6.30%, 10/1/10 (Pre-refunded @ 102, 10/1/04)+........................... A1/A+ 1,074,000
1,000,000 Foothill/Eastern Corridor Agency, Toll Road Revenue,
5.75%, 1/15/40.......................................................... BBB-/Baa3 921,240
1,000,000 Lafayette Elementary School District (FSA insured),
5.90%, 5/15/17.......................................................... Aaa/AAA 1,023,870
4,000,000 Los Angeles Harbor Department Revenue,
5.375%, 11/1/23......................................................... Aa3/AA 3,677,680
1,000,000 Los Angeles Regional Airports Revenue,
6.70%, 1/1/22........................................................... NR/A- 1,015,770
1,000,000 Madera County Certificates of Participation (MBIA insured),
6.125%, 3/15/23 (Pre-refunded @ 102, 3/15/05)+.......................... Aaa/AAA 1,073,750
1,000,000 San Mateo County JT Powers Authority (MBIA insured),
5.00%, 7/1/21........................................................... Aaa/AAA 898,590
2,000,000 Tustin, California University School District Special Tax
(FSA insured),
4.50%, 9/1/24........................................................... Aaa/AAA 1,611,900
------------
14,814,345
------------
COLORADO--5.0%
3,085,000 Colorado Health Facilities Authority Revenue (MBIA insured),
5.95%, 5/15/12.......................................................... Aaa/AAA 3,157,066
Denver City & County Airport Revenue (MBIA insured),
1,500,000 5.60%, 11/15/25......................................................... Aaa/AAA 1,397,985
3,000,000 5.75%, 11/15/17......................................................... Aaa/AAA 2,944,680
------------
7,499,731
------------
CONNECTICUT--0.8%
1,175,000 Connecticut State General Obligation Bonds,
5.875%, 11/1/14......................................................... Aa3/AA 1,222,364
------------
FLORIDA--0.7%
1,000,000 Jacksonville Port Authority Airport Revenue (FGIC insured),
6.25%, 10/1/24.......................................................... Aaa/AAA 1,014,150
------------
</TABLE>
<PAGE>
MUNICIPAL ADVANTAGE FUND INC.
SCHEDULE OF INVESTMENTS
APRIL 30, 2000
(UNAUDITED) (CONTINUED)
<TABLE>
<CAPTION>
Principal Credit Rating
Amount (Moody's/S&P) Value*
-----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
MUNICIPAL BONDS (CONTINUED)
GEORGIA--2.7%
$1,750,000 Cherokee County Water & Sewer Authority Revenue
(MBIA insured),
5.50%, 8/1/23........................................................... Aaa/AAA $ 1,694,105
1,000,000 Savannah Hospital Authority Revenue,
6.125%, 7/1/12 (Pre-refunded @ 102, 7/1/03)+............................ A3/NR 1,048,760
1,260,000 Toombs County Hospital Authority Revenue,
7.00%, 12/1/17.......................................................... NR/BBB 1,259,509
------------
4,002,374
------------
HAWAII--1.9%
3,000,000 Hawaii Department of Budget & Finance (AMBAC insured),
5.75%, 12/1/18.......................................................... Aaa/AAA 2,926,290
------------
ILLINOIS--4.1%
1,000,000 Chicago Waste Water Transmission Revenue (MBIA insured),
6.00%, 1/1/17........................................................... Aaa/AAA 1,019,640
1,000,000 Chicago Water Revenue (FGIC insured),
5.25%, 11/1/17.......................................................... Aaa/AAA 931,690
1,000,000 Illinois Educational Facilities Authority Revenue,
5.25%, 9/1/24........................................................... NR/A- 794,780
2,595,000 Illinois Health Facilities Authority Revenue,
9.00%, 11/15/15......................................................... Baa1/AAA 2,710,140
710,000 Illinois Housing Development Authority Revenue,
6.70%, 8/1/25........................................................... Aa2/AA 718,932
------------
6,175,182
------------
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 1,077,130
------------
LOUISIANA--1.0%
1,500,000 New Orleans General Obligation Bonds (AMBAC insured),
6.125%, 10/1/16......................................................... Aaa/AAA 1,536,240
------------
MARYLAND--0.5%
725,000 Maryland State Community Development Administration
(FHA insured),
7.60%, 4/1/23........................................................... Aa2/NR 735,505
------------
MASSACHUSETTS--3.8%
Massachusetts State Health & Education Facilities Authority Revenue,
1,000,000 5.125%, 7/1/19.......................................................... A1/AA- 847,500
2,250,000 6.25%, 12/1/22.......................................................... A1/A 2,168,235
1,175,000 Massachusetts State Water Pollution Abatement Trust,
6.375%, 2/1/15.......................................................... Aa3/AA+ 1,236,723
1,750,000 Massachusetts State Water Resource Authority (FSA insured),
4.50%, 8/1/22........................................................... Aaa/AAA 1,402,275
------------
5,654,733
------------
</TABLE>
<PAGE>
MUNICIPAL ADVANTAGE FUND INC.
SCHEDULE OF INVESTMENTS
APRIL 30, 2000
(UNAUDITED) (CONTINUED)
<TABLE>
<CAPTION>
Principal Credit Rating
Amount (Moody's/S&P) Value*
-----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
MUNICIPAL BONDS (CONTINUED)
MICHIGAN--7.8%
$1,000,000 Dearborn School District,
6.00%, 5/1/14 (Pre-refunded @ 102, 5/1/01)+............................. Aa2/AA+ $ 1,034,220
1,000,000 Michigan Municipal Bond Authority Revenue,
4.75%, 10/1/18.......................................................... Aa1/AA+ 862,720
Michigan State Hospital Finance Authority Revenue,
1,000,000 5.50%, 10/1/18.......................................................... Aaa/NR 967,360
2,000,000 8.125%, 10/1/21 (Pre-refunded @ 102, 10/1/05)+.......................... Aaa/AAA 2,314,520
1,000,000 Michigan State Pollution Control Revenue,
6.20%, 9/1/20........................................................... A2/A 1,002,470
6,500,000 Wayne County Airport Revenue (MBIA insured),
5.00%, 12/1/22-12/1/28.................................................. Aaa/AAA 5,516,500
------------
11,697,790
------------
MINNESOTA--3.8%
5,805,000 Minnesota State Housing Finance Agency,
6.00%-6.25%, 2/1/14-8/1/22.............................................. Aa2/AA 5,798,734
------------
NEVADA--7.0%
2,000,000 Clark County General Obligation Bonds
(MBIA insured),
6.00%, 6/1/13 (Pre-refunded @ 101, 6/1/04)+............................. Aaa/AAA 2,089,420
1,000,000 Clark County Industrial Development Revenue,
5.60%, 10/1/30.......................................................... NR/BBB 827,830
2,000,000 Clark County Passenger Facility Charge Revenue
(MBIA insured),
5.75%, 7/1/23........................................................... Aaa/AAA 1,918,340
2,400,000 Henderson Nevada Water & Sewer Revenue (FGIC insured),
4.75%, 9/1/18........................................................... Aaa/AAA 2,054,568
Nevada Housing Division Revenue,
1,600,000 6.12%, 4/1/22........................................................... Aa2/AA 1,590,752
1,050,000 6.20%, 4/1/17 (AMBAC insured)........................................... Aaa/AAA 1,051,890
990,000 6.20%, 10/1/28 (FHA insured)............................................ Aaa/NR 980,803
------------
10,513,603
------------
NEW HAMPSHIRE--1.7%
1,000,000 New Hampshire Higher Educational & Health Facilities Authority Revenue,
6.125%, 10/1/13......................................................... Baa1/NR 926,610
New Hampshire State Housing Finance Authority,
760,000 6.50%, 7/1/14........................................................... Aa3/NR 766,399
850,000 6.90%, 7/1/19........................................................... Aa2/NR 864,374
------------
2,557,383
------------
NEW JERSEY--0.7%
1,000,000 New Jersey Economic Development Authority, Heating & Cooling Revenue,
6.20%, 12/1/07.......................................................... NR/BBB- 980,010
------------
NEW YORK--12.2%
1,000,000 Long Island Power Authority, Electric System Revenue,
5.50%, 12/1/29.......................................................... Baa1/A- 911,850
1,000,000 Municipal Assistance Corporation, City of Troy (MBIA insured),
5.00%, 1/15/16.......................................................... Aaa/AAA 917,180
</TABLE>
<PAGE>
MUNICIPAL ADVANTAGE FUND INC.
SCHEDULE OF INVESTMENTS
APRIL 30, 2000
(UNAUDITED) (CONTINUED)
<TABLE>
<CAPTION>
Principal Credit Rating
Amount (Moody's/S&P) Value*
-----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
MUNICIPAL BONDS (CONTINUED)
New York City General Obligation Bonds,
$6,500,000 5.75%-6.00%, 8/1/14-2/1/19.............................................. A3/A- $ 6,487,525
1,000,000 6.95%, 8/15/12 (MBIA insured)
(Pre-refunded @ 101, 8/15/04)+.......................................... Aaa/AAA 1,083,360
1,840,000 7.00%, 10/1/09 (Pre-refunded @ 101.5, 10/1/02)+......................... A3/A-2 1,954,834
3,000,000 New York City Industrial Development Agency, Special Facilities Revenue,
6.125%, 1/1/24.......................................................... A3/A 2,986,680
New York State Medical Care Facilities, Finance Agency Revenue,
15,000 6.50%, 8/15/24.......................................................... A3/A 15,450
985,000 6.50%, 8/15/24 (Pre-refunded @ 102, 8/15/04)+........................... A3/A 1,051,025
New York State Mortgage Agency Revenue,
2,000,000 5.35%-5.80%, 4/1/07-10/1/12............................................. Aa1/NR 2,002,670
1,080,000 New York State Urban Development Corporation, Correctional Capital
Facility,
5.375%, 1/1/25.......................................................... Baa1/A 973,069
------------
18,383,643
------------
NORTH CAROLINA--1.1%
North Carolina Medical Care Community Hospital Revenue,
1,000,000 4.75%, 12/1/28.......................................................... Aa3/AA- 789,060
1,000,000 4.75%, 12/1/28 (MBIA insured)........................................... Aaa/AAA 802,370
------------
1,591,430
------------
NORTH DAKOTA--1.5%
2,350,000 North Dakota State Housing Finance Agency,
5.50%-5.85%, 7/1/10-7/1/18.............................................. Aa3/NR 2,253,132
------------
OHIO--0.6%
885,000 Summit County General Obligation Bond (FGIC insured),
6.25%, 12/1/15.......................................................... Aaa/AAA 943,631
------------
PENNSYLVANIA--3.3%
2,000,000 Allegheny County Hospital Development Authority
(MBIA insured),
6.00%, 7/1/23........................................................... Aaa/AAA 2,024,900
1,750,000 Philadelphia Hospitals & Higher Facilities Authority Revenue (AMBAC
insured),
5.125%, 5/15/18......................................................... Aaa/AAA 1,570,100
1,500,000 Philadelphia Water and Wastewater Revenue (MBIA insured),
5.25%, 6/15/23.......................................................... Aaa/AAA 1,360,155
------------
4,955,155
------------
SOUTH CAROLINA--2.4%
1,250,000 Charleston County General Obligation Bond,
6.125%, 9/1/13.......................................................... Aa3/AA 1,318,450
1,000,000 South Carolina Public Service Authority Revenue
(MBIA insured),
5.75%, 1/1/15........................................................... Aaa/AAA 1,011,040
1,450,000 York County Industrial Revenue,
5.70%, 1/1/24........................................................... Baa2/BBB 1,271,128
------------
3,600,618
------------
</TABLE>
<PAGE>
MUNICIPAL ADVANTAGE FUND INC.
SCHEDULE OF INVESTMENTS
APRIL 30, 2000
(UNAUDITED) (CONTINUED)
<TABLE>
<CAPTION>
Principal Credit Rating
Amount (Moody's/S&P) Value*
-----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
MUNICIPAL BONDS (CONTINUED)
SOUTH DAKOTA--0.7%
$1,000,000 Heartland Consumers Power District Revenue,
7.00%, 1/1/16........................................................... Aaa/AAA $ 1,109,170
------------
TENNESSEE--2.0%
960,000 Memphis-Shelby County, Airport Authority Revenue
(AMBAC insured),
6.25%, 3/1/15........................................................... Aaa/AAA 997,450
2,000,000 Tennessee Housing Development Agency,
6.375%, 7/1/22.......................................................... Aa2/AA 2,014,320
------------
3,011,770
------------
TEXAS--10.3%
1,000,000 Alliance Airport Authority Revenue,
6.375%, 4/1/21.......................................................... Baa2/BBB 977,150
1,195,000 Arlington General Obligation Bonds,
5.00%, 8/15/16.......................................................... Aa3/AA 1,093,807
1,000,000 Denton County General Obligation Bonds (AMBAC insured),
5.00%, 7/15/16.......................................................... Aaa/AAA 914,600
1,000,000 Harlandale Independent School District,
4.50%, 8/15/23.......................................................... Aaa/NR 796,000
785,000 Harris County Toll Road Subordinated Lien,
6.50%, 8/15/15.......................................................... Aa1/AA 823,324
1,250,000 Houston General Obligation Bonds,
5.00%, 3/1/13........................................................... Aa3/AA- 1,178,600
2,400,000 Houston Water Conveyance System, Certificates of Participation (AMBAC
insured),
6.25%-7.50%, 12/15/14-12/15/15.......................................... Aaa/AAA 2,723,580
2,500,000 Houston Water & Sewer Systems Revenue (FGIC insured),
5.00%, 12/1/25.......................................................... Aaa/AAA 2,157,450
1,000,000 North East Independent School District,
4.50%, 2/1/16........................................................... Aaa/AAA 848,400
1,500,000 Port Houston Authority, Harris County, Obligation Bonds,
5.75%, 10/1/17.......................................................... Aa1/AA 1,477,230
2,550,000 Texas Water Development Board Revenue,
5.75%, 7/15/14-7/15/17.................................................. Aa1/AAA 2,572,368
------------
15,562,509
------------
UTAH--2.2%
Utah Housing Finance Agency (FHA insured),
490,000 6.35%, 7/1/11........................................................... Aa1/NR 495,170
2,800,000 6.55%, 1/1/22-7/1/26.................................................... Aaa/AAA 2,828,224
------------
3,323,394
------------
VERMONT--1.6%
Vermont Housing Finance Agency,
910,000 5.70%, 5/1/12 (MBIA insured)............................................ Aaa/AAA 903,439
1,475,000 7.85%, 12/1/29 (FHA insured)............................................ A1/A- 1,506,181
------------
2,409,620
------------
</TABLE>
<PAGE>
MUNICIPAL ADVANTAGE FUND INC.
SCHEDULE OF INVESTMENTS
APRIL 30, 2000
(UNAUDITED) (CONCLUDED)
<TABLE>
<CAPTION>
Principal Credit Rating
Amount (Moody's/S&P) Value*
-------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
MUNICIPAL BONDS (CONCLUDED)
VIRGINIA--0.6%
$1,000,000 Virginia Housing Development Authority, Multi-Family
Housing,
5.20%, 11/1/15............................................ Aa1/AA+ $ 920,910
------------
WASHINGTON--1.3%
1,000,000 Seattle Museum Development Authority,
6.30%, 7/1/13............................................. Aa1/AA+ 1,034,660
1,000,000 Spokane County School District (FGIC insured),
5.45%, 6/1/13............................................. Aaa/AAA 993,850
------------
2,028,510
------------
WEST VIRGINIA--1.3%
2,000,000 Braxton County Solid Waste Disposal Revenue,
6.125%-6.50%, 4/1/25-4/1/26............................... A2/A 1,953,130
------------
WISCONSIN--2.9%
1,500,000 Wisconsin General Obligation Bonds,
5.30%, 5/1/23............................................. Aa2/AA 1,352,640
3,500,000 Wisconsin Health & Educational Facilities Authority Revenue
(MBIA insured),
5.25%, 8/15/27............................................ Aaa/AAA 3,034,605
------------
4,387,245
------------
Total Municipal Bonds (cost--$151,965,540).................. 148,574,916
------------
Total Investments (cost--$151,965,540)...................... 98.6% 148,574,916
Other assets less liabilities............................... 1.4% 2,098,540
----- ------------
Net Assets.................................................. 100.0% $150,673,456
===== ============
</TABLE>
--------------------------------------------------------------------------------
* 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.
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
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
<PAGE>
MUNICIPAL ADVANTAGE FUND INC.
STATEMENT OF ASSETS AND LIABILITIES
APRIL 30, 2000
(UNAUDITED)
<TABLE>
<S> <C>
ASSETS:
Investments, at value (cost--$151,965,540)............................................................. $148,574,916
Cash................................................................................................... 38,713
Interest receivable.................................................................................... 2,763,116
Prepaid expenses....................................................................................... 22,902
------------
Total Assets......................................................................................... 151,399,647
------------
LIABILITIES:
Dividends payable--common and preferred shares......................................................... 546,227
Investment management fee payable...................................................................... 74,846
Accrued expenses....................................................................................... 105,118
------------
Total Liabilities.................................................................................... 726,191
------------
Net Assets........................................................................................ $150,673,456
============
COMPOSITION OF NET ASSETS:
Preferred stock ($.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.................................................................... 96,194
Accumulated net realized loss.......................................................................... (1,657,724)
Net unrealized depreciation of investments............................................................. (3,390,624)
------------
Net assets applicable to common shareholders......................................................... 95,673,456
------------
Net Assets........................................................................................ $150,673,456
============
NET ASSET VALUE PER COMMON SHARE.................................................................. $ 13.18
============
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
<PAGE>
MUNICIPAL ADVANTAGE FUND INC.
STATEMENT OF OPERATIONS
SIX MONTHS ENDED APRIL 30, 2000
(UNAUDITED)
<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest................................................................................................. $4,497,374
----------
EXPENSES:
Investment management fee................................................................................ 448,795
Auction agent fees and commissions....................................................................... 73,239
Audit and tax service fees............................................................................... 37,166
Reports to shareholders.................................................................................. 27,300
Custodian fees........................................................................................... 27,000
Legal fees............................................................................................... 24,934
Transfer agent fees...................................................................................... 14,410
Directors' fees and expenses............................................................................. 12,930
Miscellaneous............................................................................................ 16,881
----------
Total expenses........................................................................................ 682,655
Less: expense offset................................................................................ (3,052)
----------
Net expenses........................................................................................ 679,603
----------
Net investment income............................................................................ 3,817,771
----------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND FUTURES CONTRACTS:
Net realized loss on:
Investments........................................................................................... (713,981)
Futures contracts..................................................................................... (79,562)
Net change in unrealized appreciation/depreciation of:
Investments........................................................................................... 899,136
Futures contracts..................................................................................... 62,025
----------
Net realized and unrealized gain on investments and futures contracts................................. 167,618
----------
Net increase in net assets resulting from investment operations............................................ $3,985,389
==========
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
<PAGE>
MUNICIPAL ADVANTAGE FUND INC.
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
Six Months
ended
April 30, 2000 Year ended
(unaudited) October 31, 1999
-------------- ----------------
<S> <C> <C>
INCOME (LOSS) FROM INVESTMENT OPERATIONS:
Net investment income............................................................... $ 3,817,771 $ 7,652,219
Net realized loss on investments and futures contracts.............................. (793,543) (494,461)
Net change in unrealized appreciation/depreciation on investments
and futures contracts............................................................. 961,161 (14,408,017)
------------ ------------
Net increase (decrease) in net assets resulting from investment operations........ 3,985,389 (7,250,259)
------------ ------------
DIVIDENDS TO SHAREHOLDERS:
To preferred shareholders from net investment income................................ (1,122,611) (1,851,326)
To common shareholders from net investment income................................... (2,852,038) (5,791,160)
------------ ------------
Total dividends to shareholders................................................... (3,974,649) (7,642,486)
------------ ------------
Total increase (decrease) in net assets........................................ 10,740 (14,892,745)
NET ASSETS:
Beginning of year................................................................... 150,662,716 165,555,461
------------ ------------
End of period (including undistributed net investment income of $96,194
and $253,072, respectively)....................................................... $150,673,456 $150,662,716
============ ============
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
<PAGE>
MUNICIPAL ADVANTAGE FUND INC.
NOTES TO FINANCIAL STATEMENTS
APRIL 30, 2000
(UNAUDITED)
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.
(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. 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 in excess of par.
<PAGE>
MUNICIPAL ADVANTAGE FUND INC.
NOTES TO FINANCIAL STATEMENTS
APRIL 30, 2000
(UNAUDITED) (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. The Fund did not have any
futures contracts outstanding at April 30, 2000.
(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 Advisers
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 $269,277 for the six months ended April 30, 2000.
3. INVESTMENTS IN SECURITIES
For the six months ended April 30, 2000, aggregate purchases and sales of
investments, other than short-term securities, were $24,029,557 and $24,125,665,
respectively.
<PAGE>
MUNICIPAL ADVANTAGE FUND INC.
NOTES TO FINANCIAL STATEMENTS
APRIL 30, 2000
(UNAUDITED) (CONTINUED)
4. CAPITAL
There are 100 million shares of $.001 par value common stock authorized. The
Fund's charter provides that the Board of Directors may classify or reclassify
any unissued shares of capital stock into one or more additional classes or
series, with rights determined by the Board of Directors. The Fund's Board of
Directors has authorized the reclassification of 1,100 shares of common stock to
Auction Rate Preferred Stock ("Preferred Stock").
5. AUCTION RATE PREFERRED STOCK
The Fund has issued 1,100 shares of Preferred Stock with a net asset and
liquidation value of $50,000 per share plus accrued dividends.
Dividends are accumulated daily at an annual rate set through auction
procedures. The annualized dividend rate ranged from 3.75% to 4.30% during the
period and was 4.30% at April 30, 2000. Distributions of net realized gains, if
any, are paid 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 May 1, 2000, a dividend of $.0635 per share was declared to common
shareholders payable June 1, 2000 to shareholders of record on May 12, 2000.
On June 1, 2000, a dividend of $0.060 per share was declared to common
shareholders payable July 3, 2000 to shareholders of record on June 16, 2000.
7. ACQUISITION OF INVESTMENT MANAGER AND ADVISER
On May 5, 2000 the general partners of PIMCO Advisors closed the transactions
contemplated by the Implementation and Merger Agreement dated as of October 31,
1999 ("Implementation Agreement"), as amended March 3, 2000, with Allianz of
America, Inc., Pacific Asset Management LLC, PIMCO Partners LLC, PIMCO Holding
LLC, PIMCO Partners, G.P., and other parties to the Implementation Agreement. As
a result of completing these transactions, PIMCO Advisors is now majority-owned
indirectly by Allianz AG, with subsidiaries of Pacific Life Insurance Company
retaining a significant minority interest. Allianz AG is a German based insurer.
Pacific Life Insurance Company is a Newport Beach, California based insurer. For
the Fund, the change of control as a result of the closing of the Implementation
Agreement resulted 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 the closing of
the Implementation Agreement, the Board of Directors and stockholders of the
Fund approved new agreements with PIMCO Advisors and OpCap Advisors to become
effective upon the closing of the Implementation Agreement.
8. TRANSACTIONS WITH AFFILIATES
For the six months ended April 30, 2000, the Fund paid $7,500 to Deutsche Bank,
an affiliate of Allianz AG, for auction agent service fees in connection with
the Fund's Preferred Stock issuance.
<PAGE>
MUNICIPAL ADVANTAGE FUND INC.
FINANCIAL HIGHLIGHTS
FOR A SHARE OF COMMON STOCK OUTSTANDING THROUGHOUT EACH PERIOD:
<TABLE>
<CAPTION>
Six Months
ended Year ended October 31,
April 30, 2000 --------------------------------------------------------
(unaudited) 1999 1998 1997 1996 1995
-------------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of year................. $13.18 $15.23 $14.64 $13.96 $13.77 $11.79
-------- -------- -------- -------- -------- --------
INCOME (LOSS) FROM INVESTMENT OPERATIONS:
Net investment income.............................. 0.53 1.05 1.07 1.08 1.09 1.08
Net realized and unrealized gain (loss) on
investments and futures contracts................ 0.02 (2.04) 0.60 0.68 0.17 1.98
-------- -------- -------- -------- -------- --------
Total from investment operations............... 0.55 (0.99) 1.67 1.76 1.26 3.06
-------- -------- -------- -------- -------- --------
DIVIDENDS TO SHAREHOLDERS:
To preferred shareholders from net
investment income................................ (0.16) (0.26) (0.28) (0.28) (0.29) (0.30)
To common shareholders from net
investment income................................ (0.39) (0.80) (0.80) (0.80) (0.78) (0.78)
-------- -------- -------- -------- -------- --------
Total dividends to shareholders................ (0.55) (1.06) (1.08) (1.08) (1.07) (1.08)
-------- -------- -------- -------- -------- --------
Net asset value, end of period..................... $13.18 $13.18 $15.23 $14.64 $13.96 $13.77
======== ======== ======== ======== ======== ========
Market price, end of period........................ $11.4375 $11.75 $14.125 $13.1875 $11.875 $11.625
======== ======== ======== ======== ======== ========
TOTAL INVESTMENT RETURN (1)........................ 3.5% (11.6)% 13.6% 18.4% 9.2% 27.9%
======== ======== ======== ======== ======== ========
RATIOS/SUPPLEMENTAL DATA:
Net assets applicable to common shareholders,
end of period (000's)............................ $95,673 $95,663 $110,555 $106,219 $101,297 $99,908
Ratio of net expenses to average
net assets (2)(3)................................ 1.44% 1.36% 1.31% 1.39% 1.40% 1.44%
Ratio of net investment income to average
net assets (2)(3)................................ 8.05% 7.22% 7.13% 7.64% 7.88% 8.44%
Asset coverage per share of preferred stock........ $136,841 $136,768 $150,252 $146,251 $141,788 $140,680
Portfolio turnover................................. 16% 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>
SEMI-ANNUAL REPORT
APRIL 30, 2000
MUNICIPAL ADVANTAGE FUND INC.
DIRECTORS AND PRINCIPAL OFFICERS
Stephen J. Treadway
Director and Chairman of the Board
Robert E. Connor
Director
Raymond D. Horton
Director
Jeswald W. Salacuse
Director
Bernard H. Garil
President
Newton B. Schott, Jr.
Executive Vice President and Assistant Secretary
Matthew Greenwald
Executive Vice President
Brian S. Shlissel
Treasurer
Elliot M. Weiss
Secretary
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
1177 Avenue of the Americas
New York, NY 10036
[NYSE LOGO]
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.
