VAN KAMPEN AMERICAN CAPITAL ADVANTAGE MUNICIPAL INCOME TRUST, N-30D, 1996-12-30

VAN KAMPEN AMERICAN CAPITAL ADVANTAGE MUNICIPAL INCOME TRUST
N-30D, 1996-12-30

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<PAGE> 1

TABLE OF CONTENTS

<TABLE>
<S> <C>
Letter to Shareholders........................... 1
Performance Results.............................. 4
Portfolio of Investments......................... 5
Statement of Assets and Liabilities.............. 11
Statement of Operations.......................... 12
Statement of Changes in Net Assets............... 13
Financial Highlights............................. 14
Notes to Financial Statements.................... 15
Report of Independent Accountants................ 20
Dividend Reinvestment Plan....................... 21
</TABLE>

VKA ANR 12/96
<PAGE> 2

LETTER TO SHAREHOLDERS

December 10, 1996

Dear Shareholder,
The first ten months of 1996 have
been a mixed experience for most
municipal bond fund investors. The
continuation of the 1995 rally at the
beginning of this year was thwarted
early on as the economy gained [PHOTO]
momentum, causing the bond market to
sell off. But by the second half of the DENNIS J. MCDONNELL AND DON G. POWELL
year, the pattern reversed. Growth
slowed and bonds recovered much of
their earlier losses.
This kind of volatility is not
unusual, but it is difficult to predict and serves as a reminder to investors to
maintain their long-term outlook. Bailing out during price declines and
re-entering after market rebounds is often a losing strategy. We believe it is
time in the market, not timing the market, that potentially maximizes long-term
investment gains.
Additionally, we believe our recent acquisition by Morgan Stanley Group Inc.
will further help investors achieve their long-term goals. Morgan Stanley's
strong global presence and commitment to superior investment performance
complement our broad range of investment products, money management
capabilities, and high level of service that we currently offer.

ECONOMIC OVERVIEW
The economy has grown at a moderate pace this year, despite the second
quarter's 4.7 percent surge. By the third quarter, growth slowed to 2.0 percent,
near the level that prevailed early in the year. This moderation of economic
activity, coupled with continued low inflation, eased fears of an interest rate
hike by the Federal Reserve Board--fears that had dominated the market in early
summer and pushed long-term bond yields above 7.0 percent.
Once the market realized that the economy's pace had slowed, bond prices
rose from their 1996 lows and yields fell as they moved in the opposite
direction of bond prices. By the end of October, the 30-year Treasury bond yield
was near 6.5 percent.
During this recovery, municipal bonds rebounded even more than Treasuries,
due to a steady demand that outpaced supply. It is expected that on a nationwide
basis there will be little or no increase in the total number of municipal bonds
outstanding this year. The volume of new issues is expected to almost equal the
volume of bonds that were redeemed or called.

Continued on page two

<PAGE> 3

[CREDIT QUALITY GRAPH]

PORTFOLIO COMPOSITION BY CREDIT QUALITY AS OF OCTOBER 31, 1996

<TABLE>
<S> <C>
A...............19.9%
AA..............13.2%
AAA.............45.5%
B................0.6%
BB...............4.6%
BBB.............16.2%

Based upon credit quality ratings issued by Standard & Poor's. For securities
not rated by Standard & Poor's, the Moody's rating is used.

</TABLE>

PERFORMANCE SUMMARY

Many closed-end municipal bond funds, such as this one, are currently
offering higher after-tax yields than taxable income alternatives. The Trust
generated a tax-exempt distribution of 6.92 percent(3), based on the closing
stock price of $14.750 per common share as of October 31, 1996. For shareholders
in the federal income tax bracket of 36 percent, this distribution rate is
equivalent to a yield of 10.81 percent(4) on a taxable investment.
The Trust's one-year total return was 9.88 percent(1), including
reinvestment of all dividends, reflecting a 2.6 percent increase in market price
for the period ended October 31, 1996.

Top Five Portfolio Holdings by Industry as of October
31, 1996

Single-Family Housing............. 17.0%
Transportation.................... 11.5%
Health Care....................... 10.8%
Industrial Revenue................ 10.8%
Higher Education................... 8.7%

ECONOMIC OUTLOOK

We believe Fed policy will remain unchanged through the end of the year. We
look for the long Treasury bond to trade within a range of 6.25 and 6.75 percent
and the 5-year Treasury to trade between 5.75 percent and 6.25 percent for the
remainder of 1996. After that, interest rates could rise moderately if the
economy rebounds to a 3.0 percent annual growth rate and inflation edges higher.
Based upon this view of moderate growth and slightly higher inflation, we
believe the outlook for fixed-income markets remains positive.
Relatively stable interest rates early next year would be favorable for the
leveraged structure of our closed-end funds, which involves borrowing short-term
funds to purchase long-term municipal securities. Depending on the difference
between long-term and short-term market rates, this structure provides
opportunities for additional earnings over time.

Continued on page three

2
<PAGE> 4

The leveraged capital structure of the Trust continues to provide common
shareholders with above-market levels of dividend income. It should be noted,
however, that the rise in short-term rates would have an unfavorable effect on
common share performance.
The bond market should find continued support from the results of the recent
national elections. With a Democratic president and a Republican Congress, there
should be checks on potential spending increases and tax cuts so the budget
deficit does not balloon out of control. This split government should also help
minimize chances of major tax reform, which would likely affect investment
markets, including municipal bonds.
The stock market is another factor that could influence the performance of
the bond market in the coming year. If stocks suffer a protracted setback, the
demand for bonds, including municipals, could increase.
We will closely monitor any new developments in Washington and in the
financial markets in order to evaluate their potential impact on the Trust. We
believe that in the coming year, the municipal market will continue to be an
attractive investment choice for investors seeking high current income. Thank
you for your continued confidence in your investment with Van Kampen American
Capital and for the privilege of working with you to help you achieve your
financial goals.

Sincerely,

[SIG]
- ----------------------------------
Don G. Powell

Chairman
Van Kampen American Capital
Investment Advisory Corp.

[SIG]
- ----------------------------------
Dennis J. McDonnell

President
Van Kampen American Capital
Investment Advisory Corp.

3
<PAGE> 5

PERFORMANCE RESULTS FOR THE PERIOD ENDED OCTOBER 31, 1996

VAN KAMPEN AMERICAN CAPITAL ADVANTAGE MUNICIPAL INCOME TRUST
(NYSE TICKER SYMBOL--VKA)

<TABLE>
<CAPTION>
COMMON SHARE TOTAL RETURNS
<S> <C>
One-year total return based on market price(1)............ 9.88%
One-year total return based on NAV(2)..................... 7.22%

DISTRIBUTION RATES

Distribution rate as a % of closing common stock
price(3).................................................. 6.92%
Taxable-equivalent distribution rate as a % of closing
common stock price(4)..................................... 10.81%

SHARE VALUATIONS

Net asset value........................................... $ 15.68
Closing common stock price................................ $14.750
One-year high common stock price (02/13/96)............... $15.375
One-year low common stock price (07/15/96)................ $14.000
Preferred share (Series A) rate(5)........................ 3.385%
Preferred share (Series B) rate(5)........................ 3.384%
Preferred share (Series C) rate(5)........................ 3.400%
Preferred share (Series D) rate(5)........................ 3.374%
</TABLE>

(1)Total return based on market price assumes an investment at the market price
at the beginning of the period indicated, reinvestment of all distributions for
the period in accordance with the Trust's dividend reinvestment plan, and sale
of all shares at the closing common stock price at the end of the period
indicated.

(2)Total return based on net asset value (NAV) assumes an investment at the
beginning of the period indicated, reinvestment of all distributions for the
period, and sale of all shares at the end of the period, all at NAV.

(3)Distribution rate represents the monthly annualized distributions of the
Trust at the end of the period and not the earnings of the Trust.

(4)The taxable-equivalent distribution rate is calculated assuming a 36% federal
income tax bracket.

(5)See "Notes to Financial Statements" footnote #5, for more information
concerning Preferred Share reset periods.

A portion of the interest income may be taxable for those investors subject to
the federal alternative minimum tax (AMT).

Past performance does not guarantee future results. Investment return, stock
price and net asset value will fluctuate with market conditions. Trust shares,
when sold, may be worth more or less than their original cost.

4
<PAGE> 6

PORTFOLIO OF INVESTMENTS

October 31, 1996
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- ---------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
MUNICIPAL BONDS
ALABAMA 1.2%
$ 6,050 Alabama Wtr Pollutn Ctl Auth Revolving Fund Ln
Ser A (AMBAC Insd)............................... 5.000% 08/15/15 $ 5,634,244
------------
ALASKA 1.8%
10,000 Alaska St Hsg Fin Corp Ser A Rfdg................ 5.000 12/01/18 8,941,800
------------
ARIZONA 1.0%
4,585 Pima Cnty, AZ Indl Dev Auth Indl Rev Lease Oblig
Irvington Proj Tucson Ser A Rfdg (FSA Insd)...... 7.250 07/15/10 5,088,020
------------
CALIFORNIA 4.3%
4,215 California Hlth Fac Fin Auth Rev Kaiser
Permanente Med Cent.............................. 5.450 10/01/13 4,068,107
5,000 California St Pub Wks Brd Lease Rev Var CA St
Univ Projs Ser A................................. 5.250 12/01/13 4,748,300
2,500 Los Angeles Cnty, CA Pub Wks Fin Auth Rev Cap
Constr Rfdg (AMBAC Insd)......................... 5.000 03/01/11 2,390,100
7,500 Los Angeles Cnty, CA Tran Comm Sales Tax Rev Prop
C Ser A (Prerefunded @ 07/01/02)................. 6.500 07/01/20 8,401,050
1,500 Orange Cnty, CA Recovery Ctfs Ser A (MBIA
Insd)............................................ 6.000 07/01/07 1,623,375
------------
21,230,932
------------
COLORADO 3.9%
8,500 Arapahoe Cnty, CO Cap Impt Trust Fund Hwy Rev
E-470 Proj Ser C................................. * 08/31/26 1,000,110
2,595 Colorado Hsg Fin Auth Single Family Pgm Sr Ser
B1............................................... 7.900 12/01/25 2,937,981
1,700 Colorado Hsg Fin Auth Single Family Pgm Sr Ser D1
Rfdg............................................. 8.000 12/01/24 1,922,853
5,695 Colorado Hsg Fin Auth Single Family Pgm Sr Ser E. 8.125 12/01/24 6,390,701
2,000 Denver, CO City & Cnty Arpt Rev Ser B............ 7.500 11/15/25 2,089,080
3,215 Denver, CO City & Cnty Arpt Rev Ser C............ 6.350 11/15/01 3,395,908
1,000 Meridian Metro Dist CO Peninsular & Oriental
Steam Navig Co Rfdg.............................. 7.500 12/01/11 1,101,000
------------
18,837,633
------------
DISTRICT OF COLUMBIA 1.1%
5,000 District of Columbia Rev Howard Univ Ser A (MBIA
Insd)............................................ 7.250 10/01/20 5,522,050
------------
GEORGIA 1.1%
1,000 Atlanta, GA Spl Purp Fac Rev Delta Airls Ser B... 7.900 12/01/18 1,065,770
3,770 Monroe Cnty, GA Dev Auth Pollutn Ctl Rev
Oglethorpe Pwr Corp Scherer Ser A................ 6.800 01/01/12 4,261,043
------------
5,326,813
------------
HAWAII 1.5%
5,045 Hawaii St Arpt Sys Rev 2nd Ser (FGIC Insd)....... 7.500 07/01/20 5,538,451
1,705 Hawaii St Hsg Fin & Dev Corp Single Family Mtg
Purp Rev Ser A (FHA Gtd)......................... 8.125 07/01/17 1,780,429
------------
7,318,880
------------
</TABLE>

See Notes to Financial Statements

5
<PAGE> 7

PORTFOLIO OF INVESTMENTS (CONTINUED)

October 31, 1996
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- -----------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
ILLINOIS 6.7%
$ 1,620 Aurora, IL Single Family Mtg Rev Ser B Rfdg (GNMA
Collateralized).................................. 8.050% 09/01/25 $ 1,819,892
4,000 Chicago, IL O'Hare Intl Arpt Rev Genl Arpt Second
Lien Ser A (AMBAC Insd).......................... 5.500 01/01/16 3,828,480
3,000 Chicago, IL O'Hare Intl Arpt Spl Fac Rev American
Airls Inc Proj Ser B............................. 7.875 11/01/25 3,235,560
5,000 Chicago, IL O'Hare Intl Arpt Spl Fac Rev Intl
Terminal (MBIA Insd)............................. 6.750 01/01/18 5,361,000
5,000 Chicago, IL Sch Fin Auth Ser A (MBIA Insd) (c)... 5.000 06/01/09 4,788,000
3,000 Cicero, IL (MBIA Insd)........................... 6.500 12/01/14 3,295,230
3,545 Illinois Edl Fac Auth Rev Lake Forest College
(FSA Insd)....................................... 6.750 10/01/21 3,878,478
5,000 Regional Tran Auth IL Ser B (AMBAC Insd)......... 8.000 06/01/17 6,495,200
------------
32,701,840
------------
INDIANA 2.2%
4,000 Indiana Hlth Fac Fin Auth Hosp Rev Cmnty Hosp
Proj
(MBIA Insd)...................................... 6.850 07/01/22 4,405,720
2,000 Indiana Hlth Fac Fin Auth Hosp Rev Columbus Regl
Hosp Rfdg (FSA Insd)............................. 7.000 08/15/15 2,331,620
4,000 Saint Joseph Cnty, IN Edl Fac Rev Univ Notre Dame
Du Lac Proj...................................... 5.550 03/01/26 3,883,520
------------
10,620,860
------------
KANSAS 2.2%
5,500 Burlington, KS Pollutn Ctl Rev KS Gas & Elec Co
Proj Rfdg (MBIA Insd)............................ 7.000 06/01/31 6,067,600
1,395 Sedgwick & Shawnee Cntys, KS Single Family Rev
Coll Mtg Ser A Rfdg (GNMA Collateralized)........ 8.050 05/01/24 1,556,932
2,936 Sedgwick Cnty, KS Single Family Mtg Rev Coll Ser
A Rfdg (GNMA Collateralized)..................... 8.125 05/01/24 3,277,133
------------
10,901,665
------------
KENTUCKY 2.1%
3,750 Kenton Cnty, KY Arpt Brd Arpt Rev Spl Fac Delta
Airls Proj Ser A................................. 7.125 02/01/21 3,944,475
2,000 Kentucky Hsg Corp Hsg Rev Ser E.................. 6.300 01/01/28 2,027,840
4,450 Louisville & Jefferson Cnty, KY Metro Swr Dist
Drainage Rev Rfdg (MBIA Insd).................... 5.300 05/15/19 4,255,491
------------
10,227,806
------------
LOUISIANA 2.0%
1,500 Ernest N Morial New Orleans Louisiana Exhibition
Hall Auth Spl Tax (MBIA Insd).................... 5.600 07/15/25 1,475,655
1,950 Louisiana Hsg Fin Agy Mtg Rev Multi-Family
Emerald Pointe Apts (FHA Gtd).................... 7.100 11/01/33 2,045,238
2,515 Louisiana Hsg Fin Agy Mtg Rev Single Family
Access Pgm Ser B (GNMA Collateralized)........... 8.000 03/01/25 2,842,830
</TABLE>

See Notes to Financial Statements

6
<PAGE> 8

PORTFOLIO OF INVESTMENTS (CONTINUED)

October 31, 1996
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- ----------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
LOUISIANA (CONTINUED)
$ 3,000 Saint Charles Parish, LA Environmental Impt Rev
LA Pwr & Lt Co Ser A (AMBAC Insd)................ 6.875% 07/01/24 $ 3,319,380
------------
9,683,103
------------
MARYLAND 1.9%
9,000 Maryland St Cmnty Dev Admin Dept Hsg & Cmnty Dev
Single Family Pgm 3rd Ser (FHA Gtd).............. 7.375 04/01/26 9,307,890
------------
MASSACHUSETTS 3.1%
2,500 Chelsea, MA Sch Proj Ln Act 1948 (AMBAC Insd).... 6.500 06/15/12 2,733,525
3,955 Massachusetts Bay Tran Auth MA Genl Tran Sys Ser
A Rfdg........................................... 5.500 03/01/12 3,968,922
2,250 Massachusetts Bay Tran Auth MA Genl Tran Sys Ser
B Rfdg (MBIA Insd)(c)............................ 6.000 03/01/10 2,349,405
3,500 Massachusetts Muni Whsl Elec Co Pwr Supply Sys
Rev Ser A Rfdg (AMBAC Insd)...................... 5.000 07/01/10 3,347,715
3,250 Massachusetts St Hlth & Edl Fac Auth Rev Saint
Mem Med Cent Ser A............................... 6.000 10/01/23 2,700,652
------------
15,100,219
------------
MICHIGAN 4.1%
1,680 Michigan Higher Edl Fac Auth Rev Ltd Oblig Hope
College Proj Rfdg (Connie Lee Insd).............. 7.000 10/01/14 1,873,133
3,350 Michigan St Hosp Fin Auth Rev Hosp Mid-MI Oblig
Group............................................ 6.800 12/01/14 3,546,913
10,900 Michigan St Hsg Dev Auth Rental Hsg Rev Ser A
Rfdg............................................. 6.600 04/01/12 11,285,860
3,000 Michigan St Strategic Fund Ltd Oblig Rev Ser CC
Rfdg (FGIC Insd)................................. 6.950 09/01/21 3,285,240
------------
19,991,146
------------
MISSISSIPPI 2.9%
6,795 Mississippi Home Corp Single Family Rev Mtg
Access Pgm Ser B (GNMA Collateralized)........... 7.900 03/01/25 7,585,938
2,510 Mississippi Home Corp Single Family Rev Mtg
Access Pgm Ser C (GNMA Collateralized)........... 8.125 12/01/24 2,799,403
3,560 Mississippi Home Corp Single Family Rev Mtg
Access Pgm Ser E (GNMA Collateralized)........... 8.100 12/01/25 3,963,704
------------
14,349,045
------------
MISSOURI 0.5%
2,100 Kansas City, MO Arpt Rev Genl Impt Ser A (FSA
Insd)............................................ 6.900 09/01/10 2,336,145
------------
NEW JERSEY 5.4%
10,000 New Jersey Econ Dev Auth St Contract Econ
Recovery (Embedded Cap) (MBIA Insd).............. 5.900 03/15/21 10,364,700
8,000 New Jersey Econ Dev Auth Wtr Fac Rev NJ American
Wtr Co Inc Proj Ser A (FGIC Insd)................ 6.875 11/01/34 8,827,120
2,000 New Jersey St Hwy Auth Garden St Pkwy Genl Rev Sr
Pkwy............................................. 6.250 01/01/14 2,084,660
4,650 Salem Cnty, NJ Indl Pollutn Ctl Fin Auth Rev Pub
Svc Elec & Gas Ser D Rfdg (MBIA Insd)............ 6.550 10/01/29 5,065,664
------------
26,342,144
------------
</TABLE>

See Notes to Financial Statements

7
<PAGE> 9

PORTFOLIO OF INVESTMENTS (CONTINUED)

October 31, 1996
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- ----------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
NEW YORK 23.9%
$ 1,500 Broome Cnty, NY Ctfs Partn Pub Safety Fac (MBIA
Insd) (c)........................................ 5.250% 04/01/15 $ 1,439,250
1,500 Metropolitan Tran Auth NY Tran Fac Rev Ser K
Rfdg............................................. 6.250 07/01/11 1,549,110
4,250 New York City Indl Dev Agy Civic Fac Rev USTA
Natl Tennis Cent Proj (FSA Insd)................. 6.375 11/15/14 4,552,473
8,750 New York City Muni Wtr Fin Auth Ser A............ 5.500 06/15/24 8,384,250
2,700 New York City Muni Wtr Fin Auth Wtr & Swr Sys Rev
Ser A Rfdg....................................... 5.500 06/15/23 2,588,868
10 New York City Ser A.............................. 8.000 08/15/19 11,265
10,000 New York City Ser B (Embedded Cap)............... 6.600 10/01/16 10,231,200
1,650 New York City Ser C.............................. 7.125 08/15/12 1,751,030
1,325 New York City Ser C.............................. 7.000 08/15/16 1,427,966
2,800 New York City Ser C.............................. 7.250 08/15/24 2,979,928
75 New York City Ser C (Prerefunded @ 08/15/01)..... 7.250 08/15/24 83,465
3,970 New York St Dorm Auth Rev City Univ Ser F........ 5.000 07/01/14 3,523,018
2,600 New York St Dorm Auth Rev Cons City Univ Sys 2nd
Genl Ser A....................................... 5.750 07/01/13 2,591,498
5,050 New York St Dorm Auth Rev Cons City Univ Sys 2nd
Genl Ser B....................................... 5.375 07/01/07 4,937,486
2,000 New York St Dorm Auth Rev Cons City Univ Sys Ser
A................................................ 5.625 07/01/16 1,953,360
4,050 New York St Dorm Auth Rev Court Fac Lease Ser A.. 5.300 05/15/07 3,992,126
5,000 New York St Dorm Auth Rev St Univ Edl Fac Ser A
Rfdg............................................. 5.500 05/15/08 4,966,150
2,000 New York St Dorm Auth Rev St Univ Edl Fac Ser B
Rfdg............................................. 7.500 05/15/11 2,341,860
3,000 New York St Energy Resh & Dev Auth Elec Fac Rev
Cons Edison Co of NY Inc Proj Ser A.............. 6.750 01/15/27 3,133,860
15 New York St Med Care Fac Fin Agy Rev (Prerefunded
@ 02/15/01)...................................... 7.500 02/15/21 17,012
4,160 New York St Med Care Fac Fin Agy Rev Mental Hlth
Services Fac Ser A............................... 7.500 02/15/21 4,633,283
2,270 New York St Med Care Fac Fin Agy Rev Mental Hlth
Services Impt Ser B.............................. 7.375 02/15/14 2,437,889
5,000 New York St Med Care Fac Fin Agy Rev NY Downtown
Hosp Ser A....................................... 6.800 02/15/20 5,178,150
6,750 New York St Med Care Fac Fin Agy Rev NY Hosp Mtg
Ser A (AMBAC Insd)............................... 6.300 08/15/06 7,430,332
7,000 New York St Med Care Fac Fin Agy Rev NY Hosp Mtg
Ser A (AMBAC Insd)............................... 6.400 08/15/07 7,702,940
2,000 New York St Med Care Fac Fin Agy Rev NY Hosp Mtg
Ser A (AMBAC Insd)............................... 6.600 02/15/11 2,184,880
3,000 New York St Pwr Auth Rev & Genl Purp Ser Y....... 6.750 01/01/18 3,261,000
5,695 New York St Thruway Auth Svc Contract Rev Loc Hwy
& Brdg........................................... 5.750 04/01/08 5,746,880
7,500 New York St Thruway Auth Svc Contract Rev Loc Hwy
& Brdg........................................... 5.250 04/01/13 6,961,650
7,405 New York St Urban Dev Corp Rev Correctional Cap
Fac Ser 6........................................ 5.250 01/01/11 6,939,744
2,000 Triborough Brdg & Tunl Auth NY Rev Genl Purp Ser
X................................................ 6.500 01/01/19 2,159,620
------------
117,091,543
------------
</TABLE>

See Notes to Financial Statements

8
<PAGE> 10

PORTFOLIO OF INVESTMENTS (CONTINUED)

October 31, 1996
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- -------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
NORTH CAROLINA 5.4%
$10,000 North Carolina Eastn Muni Pwr Agy Pwr Sys Rev Ser
B Rfdg (Embedded Cap) (c)........................ 6.000% 01/01/14 $ 9,810,200
5,000 North Carolina Med Care Comm Cap Apprec Duke Univ
Hosp Ser C....................................... 5.250 06/01/21 4,764,450
11,000 North Carolina Muni Pwr Agy No 1 Catawba Elec Rev
(MBIA Insd)...................................... 6.000 01/01/12 11,741,290
------------
26,315,940
------------
OHIO 0.2%
1,000 Marion Cnty Ohio Hosp Impt Rev Rfdg Cnty Hosp.... 6.375 05/15/11 1,008,910
------------
OKLAHOMA 1.1%
3,465 Cent Oklahoma Tran & Pkg Auth Rfdg Pkg Sys (FSA
Insd)............................................ 5.250 07/01/16 3,335,236
2,000 Oklahoma City, OK Indl & Cultural Fac Trust Rev
Dist Heating & Cooling Trigen.................... 6.750 09/15/17 2,056,020
------------
5,391,256
------------
OREGON 0.5%
2,000 Emerald Peoples Util Dist OR Elec Sys Rev (FGIC
Insd)............................................ 7.350 11/01/11 2,423,880
------------
PENNSYLVANIA 0.9%
4,000 Pennsylvania Intergovt Coop Auth Spl Tax Rev
Philadelphia Funding Pgm (Prerefunded @ 06/15/05)
(FGIC Insd)...................................... 6.750 06/15/21 4,522,560
------------
RHODE ISLAND 1.6%
7,800 Rhode Island Hsg & Mtg Fin Corp Homeownership
Oppty Ser 5...................................... 6.400 04/01/24 7,920,978
------------
TENNESSEE 1.1%
5,000 Tennessee Hsg Dev Agy Homeownership Proj T....... 7.375 07/01/23 5,222,050
------------
TEXAS 6.6%
3,000 Austin, TX Util Sys Rev Rfdg Comb Ser B (MBIA
Insd)............................................ 5.625 11/15/25 2,978,700
4,000 Brazos River Auth TX Pollutn Ctl Rev Coll TX
Utils Elec Co Proj Ser A......................... 7.875 03/01/21 4,438,560
1,000 Brazos, TX Higher Edl Auth Inc Student Ln Rev
Subser A2 Rfdg................................... 6.800 12/01/04 1,087,940
1,160 Brazos, TX Higher Edl Auth Inc Student Ln Rev
Subser C2 Rfdg................................... 7.100 11/01/04 1,283,563
5,000 Dallas-Fort Worth, TX Intl Arpt Fac Impt Corp Rev
American Airls Inc............................... 7.250 11/01/30 5,346,450
5,340 Dallas-Fort Worth, TX Intl Arpt Fac Impt Corp Rev
Delta Airls Inc.................................. 7.625 11/01/21 5,759,991
1,500 Dallas-Fort Worth, TX Intl Arpt Fac Impt Corp Rev
Delta Airls Inc.................................. 7.125 11/01/26 1,564,560
5,140 Little Elm, TX Indpt Sch Dist Rfdg (PSFG Insd)... 6.750 08/15/29 5,774,893
2,000 Tarrant Cnty, TX Jr College Dist................. 5.050 02/15/10 1,938,300
2,000 Texas St Dept Hsg & Cmnty Affairs Single Family
Rev Mtg Jr Lien Ser A Rfdg....................... 8.100 09/01/15 2,209,240
------------
32,382,197
------------
</TABLE>

See Notes to Financial Statements

9
<PAGE> 11

PORTFOLIO OF INVESTMENTS (CONTINUED)

October 31, 1996
- --------------------------------------------------------------------------------

* Zero coupon bond

(a) At October 31, 1996, for federal income tax purposes, cost is $457,980,793,
the aggregate gross unrealized appreciation is $28,229,671 and the aggregate
gross unrealized depreciation is $963,731, resulting in net unrealized
appreciation of $27,265,940.

(b) Securities purchased on a when issued or delayed delivery basis.

(c) Assets segregated as collateral for when issued or delayed delivery purchase
commitments and open futures transactions.

See Notes to Financial Statements

10
<PAGE> 12

STATEMENT OF ASSETS AND LIABILITIES

October 31, 1996
- --------------------------------------------------------------------------------

<TABLE>
<S> <C>
ASSETS:
Investments, at Market Value (Cost $457,897,493) (Note 1).............. $485,553,790
Receivables:
Interest............................................................. 8,354,919
Investments Sold..................................................... 2,626,547
Unamortized Organizational Expenses (Note 1)........................... 7,168
Other.................................................................. 7,037
------------
Total Assets..................................................... 496,549,461
------------
LIABILITIES:
Payables:
Securities Purchased................................................. 5,236,462
Income Distributions--Common and Preferred Shares.................... 481,848
Custodian Bank....................................................... 470,555
Investment Advisory Fee (Note 2)..................................... 269,220
Administrative Fee (Note 2).......................................... 82,837
Variation Margin on Futures (Note 4)................................. 40,625
Affiliates (Note 2).................................................. 35,228
Accrued Expenses....................................................... 201,982
Deferred Compensation and Retirement Plans (Note 2).................... 44,839
------------
Total Liabilities................................................ 6,863,596
------------
NET ASSETS............................................................. $489,685,865
============
NET ASSETS CONSIST OF:
Preferred Shares ($.01 par value, authorized 100,000,000 shares, 3,800
issued with liquidation preference of $50,000 per share) (Note 5).... $190,000,000
------------
Common Shares ($.01 par value with an unlimited number of shares
authorized,
19,106,785 shares issued and outstanding)............................ 191,068
Paid in Surplus........................................................ 282,031,706
Net Unrealized Appreciation on Securities.............................. 27,349,240
Accumulated Undistributed Net Investment Income........................ 2,188,042
Accumulated Net Realized Loss on Securities............................ (12,074,191)
------------
Net Assets Applicable to Common Shares............................... 299,685,865
------------
NET ASSETS............................................................. $489,685,865
===========
NET ASSET VALUE PER COMMON SHARE ($299,685,865 divided
by 19,106,785 shares outstanding).................................... $ 15.68
===========
</TABLE>

See Notes to Financial Statements

11
<PAGE> 13

STATEMENT OF OPERATIONS

For the Year Ended October 31, 1996
- --------------------------------------------------------------------------------

<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest............................................................... $ 29,817,705
------------
EXPENSES:
Investment Advisory Fee (Note 2)....................................... 3,172,711
Administrative Fee (Note 2)............................................ 976,219
Preferred Share Maintenance (Note 5)................................... 542,749
Legal (Note 2)......................................................... 26,352
Trustees Fees and Expenses (Note 2).................................... 23,590
Amortization of Organizational Expenses (Note 1)....................... 8,019
Other.................................................................. 371,568
------------
Total Expenses..................................................... 5,121,208
------------
NET INVESTMENT INCOME.................................................. $ 24,696,497
============
NET REALIZED AND UNREALIZED GAIN/LOSS ON SECURITIES:
Realized Gain/Loss on Securities:
Investments.......................................................... $ 1,827,609
Options.............................................................. (146,550)
Futures.............................................................. 122,296
------------
Net Realized Gain on Securities........................................ 1,803,355
------------
Net Unrealized Appreciation/Depreciation on Securities:
Beginning of the Period.............................................. 26,078,502
------------
End of the Period:
Investments.......................................................... 27,656,297
Futures.............................................................. (307,057)
------------
27,349,240
------------
Net Unrealized Appreciation on Securities During the Period............ 1,270,738
------------
NET REALIZED AND UNREALIZED GAIN ON SECURITIES......................... $ 3,074,093
============
NET INCREASE IN NET ASSETS FROM OPERATIONS............................. $ 27,770,590
============
</TABLE>

See Notes to Financial Statements

12
<PAGE> 14

STATEMENT OF CHANGES IN NET ASSETS

For the Years Ended October 31, 1996 and 1995
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
Year Ended Year Ended
October 31, 1996 October 31, 1995
- ------------------------------------------------------------------------------------------
<S> <C> <C>
FROM INVESTMENT ACTIVITIES:
Operations:
Net Investment Income.................................. $ 24,696,497 $ 25,402,707
Net Realized Gain/Loss on Securities................... 1,803,355 (6,748,931)
Net Unrealized Appreciation on Securities During the
Period............................................... 1,270,738 39,257,119
------------ ------------
Change in Net Assets from Operations................... 27,770,590 57,910,895
------------ ------------
Distributions from Net Investment Income:
Common Shares........................................ (19,488,524) (19,488,668)
Preferred Shares..................................... (6,886,821) (7,480,198)
------------ ------------
Total Distributions.................................... (26,375,345) (26,968,866)
------------ ------------
NET CHANGE IN NET ASSETS FROM INVESTMENT ACTIVITIES.... 1,395,245 30,942,029
NET ASSETS:
Beginning of the Period................................ 488,290,620 457,348,591
------------ ------------
End of the Period (Including undistributed net
investment income of $2,188,042 and $3,866,890,
respectively)........................................ $489,685,865 $488,290,620
============ ============
</TABLE>

See Notes to Financial Statements

13
<PAGE> 15

FINANCIAL HIGHLIGHTS

The following schedule presents financial highlights for one common share
of the Trust outstanding throughout the periods indicated.
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
September 25, 1992
(Commencement
Year Ended October 31 of Investment
------------------------------------- Operations) to
1996 1995 1994 1993 October 31, 1992 (a)
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of the
Period (a)........................ $15.612 $13.992 $17.177 $14.587 $ 14.771
-------- -------- -------- -------- --------
Net Investment Income............. 1.293 1.330 1.354 1.369 .056
Net Realized and Unrealized
Gain/Loss on Securities......... .159 1.701 (3.148) 2.408 (.237)
-------- -------- -------- -------- --------
Total from Investment Operations.... 1.452 3.031 (1.794) 3.777 (.181)
-------- -------- -------- -------- --------
Less:
Distributions from Net Investment
Income:
Paid to Common Shareholders..... 1.020 1.020 1.020 .884 -0-
Common Share Equivalent of
Distributions Paid to
Preferred Shareholders........ .360 .391 .285 .303 .003
Distributions from Net Realized
Gain on Securities: Paid to
Common Shareholders (Note 1).... -0- -0- .067 -0- -0-
Common Share Equivalent of
Distributions Paid to
Preferred Shareholders........ -0- -0- .019 -0- -0-
-------- -------- -------- -------- --------
Total Distributions................. 1.380 1.411 1.391 1.187 .003
-------- -------- -------- -------- --------
Net Asset Value, End of the
Period............................ $15.684 $15.612 $13.992 $17.177 $ 14.587
======== ======== ======== ======== ========
Market Price Per Share at End of the
Period............................ $14.750 $14.375 $12.750 $16.000 $ 13.875
Total Investment Return at Market
Price (b)......................... 9.88% 21.06% (14.17%) 22.08% (7.50%)*
Total Return at Net Asset Value
(c)............................... 7.22% 19.46% (12.71%) 24.24% (2.73%)*
Net Assets at End of the Period (In
millions)......................... $ 489.7 $ 488.3 $ 457.3 $ 518.2 $ 468.7
Ratio of Expenses to Average Net
Assets Applicable to Common
Shares............................ 1.72% 1.72% 1.64% 1.66% 1.12%
Ratio of Expenses to Average Net
Assets............................ 1.05% 1.03% 1.00% 1.03% 1.00%
Ratio of Net Investment Income to
Average Net Assets Applicable to
Common Shares (d)................. 5.99% 6.31% 6.81% 6.57% 3.52%
Portfolio Turnover.................. 37% 79% 133% 112% 15%*
</TABLE>

(a) Net asset value at September 25, 1992, is adjusted for common and preferred
share offering costs of $.229 per common share.

(b) Total investment return at market price reflects the change in market value
of the common shares for the period indicated with reinvestment of dividends
in accordance with the Trust's dividend reinvestment plan.

(c) Total return at net asset value (NAV) reflects the change in value of the
Trust's assets with reinvestment of dividends based on NAV.

(d) Net investment income is adjusted for common share equivalent of
distributions paid to preferred shareholders.

* Non-Annualized

See Notes to Financial Statements

14
<PAGE> 16

NOTES TO FINANCIAL STATEMENTS

October 31, 1996
- --------------------------------------------------------------------------------

1. SIGNIFICANT ACCOUNTING POLICIES

Van Kampen American Capital Advantage Municipal Income Trust (the "Trust") is
registered as a diversified closed-end management investment company under the
Investment Company Act of 1940, as amended. The Trust's investment objective is
to provide a high level of current income exempt from federal income tax,
consistent with preservation of capital. In normal market conditions, the Trust
will invest substantially all of its net assets in municipal securities rated
investment grade at the time of investment. The Trust commenced investment
operations on September 25, 1992.

The following is a summary of significant accounting policies consistently
followed by the Trust in the preparation of its financial statements. The
preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.

A. SECURITY VALUATION--Investments are stated at value using market quotations
or, if such valuations are not available, estimates obtained from yield data
relating to instruments or securities with similar characteristics in accordance
with procedures established in good faith by the Board of Trustees. Short-term
securities with remaining maturities of 60 days or less are valued at amortized
cost.

B. SECURITY TRANSACTIONS--Security transactions are recorded on a trade date
basis. Realized gains and losses are determined on an identified cost basis. The
Trust may purchase and sell securities on a "when issued" or "delayed delivery"
basis, with settlement to occur at a later date. The value of the security so
purchased is subject to market fluctuations during this period. The Trust will
maintain, in a segregated account with its custodian, assets having an aggregate
value at least equal to the amount of the when issued or delayed delivery
purchase commitments until payment is made.

C. INVESTMENT INCOME--Interest income is recorded on an accrual basis. Bond
premium and original issue discount are amortized over the expected life of each
applicable security.

D. ORGANIZATIONAL EXPENSES--The Trust has reimbursed Van Kampen American Capital
Distributors, Inc. or its affiliates (collectively "VKAC") for costs incurred in

15
<PAGE> 17

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

October 31, 1996
- --------------------------------------------------------------------------------

connection with the Trust's organization in the amount of $40,000. These costs
are being amortized on a straight line basis over the 60 month period ending
September 24, 1997. Van Kampen American Capital Investment Advisory Corp. (the
"Adviser") has agreed that in the event any of the initial shares of the Trust
originally purchased by VKAC are redeemed during the amortization period, the
Trust will be reimbursed for any unamortized organizational expenses in the same
proportion as the number of shares redeemed bears to the number of initial
shares held at the time of redemption.

E. FEDERAL INCOME TAXES--It is the Trust's policy to comply with the
requirements of the Internal Revenue Code applicable to regulated investment
companies and to distribute substantially all of its taxable income to its
shareholders. Therefore, no provision for federal income taxes is required.

The Trust intends to utilize provisions of the federal income tax laws which
allow it to carry a realized capital loss forward for eight years following the
year of the loss and offset such losses against any future realized capital
gains. At October 31, 1996, the Trust had an accumulated capital loss
carryforward for tax purposes of $12,297,947, which will expire between October
31, 2002 and 2003. Accumulated net realized loss differs for financial and tax
reporting purposes primarily as a result of the deferral of losses for tax
purposes resulting from wash sales.

F. DISTRIBUTION OF INCOME AND GAINS--The Trust declares and pays dividends from
net investment income to common shareholders monthly. Net realized gains, if
any, are distributed annually on a pro rata basis to common and preferred
shareholders. Distributions from net realized gains for book purposes may
include short-term capital gains, which are included as ordinary income for tax
purposes.

For the year ended October 31, 1996, 98.7% of the income distributions made
by the Trust were exempt from federal income taxes. In January, 1997, the Trust
will provide tax information to shareholders for the 1996 calendar year.

2. INVESTMENT ADVISORY AGREEMENT AND OTHER TRANSACTIONS WITH AFFILIATES

Under the terms of the Trust's Investment Advisory Agreement, the Adviser will
provide investment advice and facilities to the Trust for an annual fee payable
monthly of .65% of the average net assets of the Trust. In addition, the Trust
will pay a monthly administrative fee to VKAC, the Trust's Administrator, at an
annual rate of .20% of the average net assets of the Trust. The administrative
services provided by the Administrator include

16
<PAGE> 18

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

October 31, 1996
- --------------------------------------------------------------------------------

record keeping and reporting responsibilities with respect to the Trust's
portfolio and preferred shares and providing certain services to shareholders.

Certain legal expenses are paid to Skadden, Arps, Slate, Meagher & Flom,
counsel to the Trust, of which a trustee of the Trust is an affiliated person.

For the year ended October 31, 1996, the Trust recognized expenses of
approximately $67,600 representing VKAC's cost of providing accounting and legal
services to the Trust.

Certain officers and trustees of the Trust are also officers and directors
of VKAC. The Trust does not compensate its officers or trustees who are officers
of VKAC.

The Trust has implemented deferred compensation and retirement plans for its
trustees. Under the deferred compensation plan, trustees may elect to defer all
or a portion of their compensation to a later date. The retirement plan covers
those trustees who are not officers of VKAC.

At October 31, 1996, VKAC owned 6,700 common shares of the Trust.

3. INVESTMENT TRANSACTIONS

During the period, the cost of purchases and proceeds from sales of investments,
excluding short-term investments, were $180,141,107 and $186,229,346,
respectively.

4. DERIVATIVE FINANCIAL INSTRUMENTS

A derivative financial instrument in very general terms refers to a security
whose value is "derived" from the value of an underlying asset, reference rate
or index.

The Trust has a variety of reasons to use derivative instruments, such as to
attempt to protect the Trust against possible changes in the market value of its
portfolio and to manage the portfolio's effective yield, maturity and duration.
All of the Trust's portfolio holdings, including derivative instruments, are
marked to market each day with the change in value reflected in the unrealized
appreciation/depreciation on securities. Upon disposition, a realized gain or
loss is recognized accordingly, except for exercised option contracts where the
recognition of gain or loss is postponed until the disposal of the security
underlying the option contract.

Summarized below are the specific types of derivative financial instruments
used by the Trust.

A. OPTION CONTRACTS--An option contract gives the buyer the right, but not the
obligation to buy (call) or sell (put) an underlying item at a fixed exercise
price during a

17
<PAGE> 19

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

October 31, 1996
- --------------------------------------------------------------------------------

specified period. These contracts are generally used by the Trust to manage the
portfolio's effective maturity and duration.

Transactions in options for the year ended October 31, 1996, were as
follows:

<TABLE>
<CAPTION>
CONTRACTS PREMIUM
- -------------------------------------------------------------------------
<S> <C> <C>
Outstanding at October 31, 1995................. -0- $ -0-
Options Written and Purchased (Net)............. 250 (146,550)
Options Expired (Net)........................... (250) 146,550
---- ---------
Outstanding at October 31, 1996................. -0- $ -0-
=== =========
</TABLE>

B. FUTURES CONTRACTS--A futures contract is an agreement involving the delivery
of a particular asset on a specified future date at an agreed upon price. The
Trust generally invests in futures on U.S. Treasury Bonds and the Municipal Bond
Index and typically closes the contract prior to the delivery date. These
contracts are generally used to manage the portfolio's effective maturity and
duration.

The fluctuation in market value of the contracts is settled daily through a
cash margin account. Realized gains and losses are recognized when the contracts
are closed or expire.

Transactions in futures contracts for the year ended October 31, 1996, were
as follows:

<TABLE>
<CAPTION>
CONTRACTS
- ----------------------------------------------------------------------
<S> <C>
Outstanding at October 31, 1995............................. -0-
Futures Opened.............................................. 800
Futures Closed.............................................. (700)
====
Outstanding at October 31, 1996............................. 100
====
</TABLE>

The futures contracts outstanding as of October 31, 1996, and the
description and unrealized depreciation are as follows:

<TABLE>
<CAPTION>
UNREALIZED
CONTRACTS DEPRECIATION
- -------------------------------------------------------------------------
<S> <C> <C>
U.S. Treasury Long Bond Future Dec 1996--
Sells to Open.............................. 100 $307,057
=== ========
</TABLE>

18
<PAGE> 20

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

October 31, 1996
- --------------------------------------------------------------------------------

C. EMBEDDED CAPS--These securities, which are identified in the portfolio of
investments, include a cap strike level such that the coupon payment may be
supplemented by cap payments if the floating rate index upon which the cap is
based rises above the strike level. The price of these securities may be more
volatile than the price of a comparable fixed rate security. The Trust invests
in these instruments as a hedge against a rise in the short-term interest rates
which it pays on its preferred shares.

5. PREFERRED SHARES

The Trust has outstanding 3,800 Auction Preferred Shares ("APS") in four series.
Series A, B and C each contain 1,000 shares while Series D contains 800 shares.
Dividends are cumulative and the dividend rate is reset every 28 days through an
auction process. The average rate in effect on October 31, 1996 was 3.386%.
During the year ended October 31, 1996, the rates ranged from 3.33% to 4.50%.

The Trust pays annual fees equivalent to .25% of the preferred share
liquidation value for the remarketing efforts associated with the preferred
auctions. These fees are included as a component of Preferred Share Maintenance
expense.

The APS are redeemable at the option of the Trust in whole or in part at the
liquidation value of $50,000 per share plus accumulated and unpaid dividends.
The Trust is subject to certain asset coverage tests and the APS are subject to
mandatory redemption if the tests are not met.

19
<PAGE> 21

REPORT OF INDEPENDENT ACCOUNTANTS

The Board of Trustees and Shareholders of
Van Kampen American Capital Advantage Municipal Income Trust:

We have audited the accompanying statement of assets and liabilities of Van
Kampen American Capital Advantage Municipal Income Trust (the "Trust"),
including the portfolio of investments, as of October 31, 1996, and the related
statement of operations for the year then ended, the statement of changes in net
assets for each of the two years in the period then ended, and the financial
highlights for each of the periods presented. These financial statements and
financial highlights are the responsibility of the Trust's management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
October 31, 1996, by correspondence with the custodian and brokers. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of Van
Kampen American Capital Advantage Municipal Income Trust as of October 31, 1996,
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 periods presented, in conformity with generally
accepted accounting principles.

KPMG Peat Marwick LLP
Chicago, Illinois
December 4, 1996

20
<PAGE> 22

DIVIDEND REINVESTMENT PLAN

The Trust offers a dividend reinvestment plan (the "Plan") pursuant to which
Common Shareholders may elect to have dividends and capital gains distributions
reinvested in Common Shares of the Trust. The Trust declares dividends out of
net investment income, and will distribute annually net realized capital gains,
if any. Common Shareholders may join or withdraw from the Plan at any time.

If you decide to participate in the Plan, State Street Bank and Trust
Company, as your Plan Agent, will automatically invest your dividends and
capital gains distributions in Common Shares of the Trust for your account.

HOW TO PARTICIPATE

If you wish to participate and your shares are held in your own name, call
1-800-341-2929 for more information and a Plan brochure. If your shares are held
in the name of a brokerage firm, bank, or other nominee, you should contact your
nominee to see if it would participate in the Plan on your behalf. If you wish
to participate in the Plan, but your brokerage firm, bank or nominee is unable
to participate on your behalf, you should request that your shares be re-
registered in your own name which will enable your participation in the Plan.

HOW THE PLAN WORKS

Participants in the Plan will receive the equivalent in Common Shares valued on
the valuation date, generally at the lower of market price or net asset value,
except as specified below. The valuation date will be the dividend or
distribution payment date or, if that date is not a trading day on the national
securities exchange or market system on which the Common Shares are listed for
trading, the next preceding trading day. If the market price per Common Share on
the valuation date equals or exceeds net asset value per Common Share on that
date, the Trust will issue new Common Shares to participants valued at the
higher of net asset value or 95% of the market price on the valuation date. In
the foregoing situation, the Trust will not issue Common Shares under the Plan
below net asset value. If net asset value per Common Share on the valuation date
exceeds the market price per Common Share on that date, of if the Board of
Trustees should declare a dividend or capital gains distribution payable to the
Common Shareholders only in cash, participants in the Plan will be deemed to
have elected to receive Common Shares from the Trust valued at the market price
on that date. Accordingly, in this circumstance, the Plan Agent will, as agent
for the participants, buy the Trust's Common Shares in the open market for the
participants' accounts on or shortly after the payment date. If, before the Plan
Agent has completed its purchases, the market price exceeds the net asset value
per share of the Common Shares, the average per share purchase price paid by the
Plan Agent may exceed the net asset value of the Trust's Common Shares,
resulting in the acquisition of fewer Common Shares than if the dividend or
distribution had been paid in Common Shares issued by the Trust. All
reinvestments are in full and fractional Common Shares and are carried to three
decimal places.

Experience under the Plan may indicate that changes are desirable.
Accordingly, the Trust reserves the right to amend or terminate the Plan as
applied to any dividend or distribution paid subsequent to written notice of the
changes sent to all Common Shareholders of the Trust at least 90 days before the
record date for the dividend or distribution. The Plan also may be amended or
terminated by the Plan Agent by at least 90 days written notice to all Common
Shareholders of the Trust.

COSTS OF THE PLAN

The Plan Agent's fees for the handling of the reinvestment of dividends and
distributions will be paid by the Trust. However, each participant will pay a
pro rata share of brokerage commissions incurred with respect to the Plan
Agent's open market purchases in connection with the reinvestment of dividends
and distributions. No other charges will be made to participants for reinvesting
dividends or capital gains distributions, except for certain brokerage
commissions, as described above.

TAX IMPLICATIONS

You will receive tax information annually for your personal records and to help
you prepare your federal income tax return. The automatic reinvestment of
dividends and capital gains distributions does not relieve you of any income tax
which may be payable on dividends or distributions.

RIGHT TO WITHDRAW

Plan participants may withdraw at any time by calling 1-800-341-2929 or by
writing State Street Bank and Trust Company, P.O. Box 8200, Boston, MA 02266-
8200. If you withdraw, you will receive, without charge, a share certificate
issued in your name for all full Common Shares credited to your account under
the Plan and a cash payment will be made for any fractional Common Share
credited to your account under the Plan. You may again elect to participate in
the Plan at any time by calling 1-800-341-2929 or writing to the Trust at:
Van Kampen American Capital
Attn: Closed-End Funds
2800 Post Oak Blvd., Houston, TX 77056

21
<PAGE> 23

FUNDS DISTRIBUTED BY VAN KAMPEN AMERICAN CAPITAL

GLOBAL AND
INTERNATIONAL
Global Equity Fund
Global Government Securities Fund
Global Managed Assets Fund
Short-Term Global Income Fund
Strategic Income Fund

EQUITY
Growth
Aggressive Growth Fund
Emerging Growth Fund
Enterprise Fund
Pace Fund
Growth & Income
Balanced Fund
Comstock Fund
Equity Income Fund
Growth and Income Fund
Harbor Fund
Real Estate Securities Fund
Utility Fund

FIXED INCOME
Corporate Bond Fund
Government Securities Fund
High Income Corporate Bond Fund
High Yield Fund
Limited Maturity Government Fund
Prime Rate Income Trust
Reserve Fund
U.S. Government Fund
U.S. Government Trust for Income

TAX-FREE
California Insured Tax Free Fund
Florida Insured Tax Free
Income Fund
High Yield Municipal Fund
Insured Tax Free Income Fund
Intermediate Term Municipal
Income Fund
Municipal Income Fund
New Jersey Tax Free Income Fund
New York Tax Free Income Fund
Pennsylvania Tax Free Income Fund
Tax Free High Income Fund
Tax Free Money Fund

THE GOVETT FUNDS
Emerging Markets Fund
Global Income Fund
International Equity Fund
Latin America Fund
Pacific Strategy Fund
Smaller Companies Fund

Ask your investment representative for a prospectus containing more complete
information, including sales charges and expenses. Please read it carefully
before you invest or send money. Or call us direct at 1-800-341-2911 weekdays
from 7:00 a.m. to 7:00 p.m. Central time.

22
<PAGE> 24

VAN KAMPEN AMERICAN CAPITAL ADVANTAGE MUNICIPAL INCOME TRUST

BOARD OF TRUSTEES

DAVID C. ARCH
ROD DAMMEYER
HOWARD J KERR
DENNIS J. MCDONNELL*--Chairman
THEODORE A. MYERS
HUGO F. SONNENSCHEIN
WAYNE W. WHALEN*

OFFICERS

DENNIS J. MCDONNELL*
President

RONALD A. NYBERG*
Vice President and Secretary

EDWARD C. WOOD, III*
Vice President and Chief Financial Officer

CURTIS W. MORELL*
Vice President and Chief Accounting Officer

JOHN L. SULLIVAN*
Treasurer

TANYA M. LODEN*
Controller

PETER W. HEGEL*
Vice President

INVESTMENT ADVISER

VAN KAMPEN AMERICAN CAPITAL
INVESTMENT ADVISORY CORP.
One Parkview Plaza
Oakbrook Terrace, Illinois 60181

CUSTODIAN AND
TRANSFER AGENT

STATE STREET BANK
AND TRUST COMPANY
225 Franklin Street
P.O. Box 1713
Boston, Massachusetts 02105

LEGAL COUNSEL

SKADDEN, ARPS, SLATE,
MEAGHER & FLOM
333 West Wacker Drive
Chicago, Illinois 60606

INDEPENDENT ACCOUNTANTS

KPMG PEAT MARWICK LLP
Peat Marwick Plaza
303 East Wacker Drive
Chicago, Illinois 60601

* "Interested" persons of the Trust, as defined in the Investment Company Act of
1940.

(SM) denotes a service mark of Van Kampen American Capital Distributors, Inc.

RESULTS OF SHAREHOLDER VOTES

An Annual Meeting of Shareholders of the Trust was held on May 23, 1996, where
shareholders voted on the election of trustees and the selection of independent
public accountants. With regard to the election of David C. Arch as elected
trustee by the common shareholders of the Trust, 16,650,201 shares voted in his
favor, 176,529 withheld. With regard to the election of Howard J Kerr as elected
trustee by the common shareholders of the Trust, 16,646,820 shares voted in his
favor, 179,910 withheld. With regard to the election of Dennis J. McDonnell as
elected trustee by the common shareholders of the Trust, 16,650,188 shares voted
in his favor, 176,542 withheld. With regard to the ratification of KPMG Peat
Marwick LLP as independent public accountants for the Trust, 16,468,225 voted in
favor, 224,038 voted against and 137,795 abstained.

A Special Meeting of Shareholders of the Trust was held on October 23, 1996,
where shareholders voted on a new investment advisory agreement and changes to
investment policies. With regard to the approval of a new investment advisory
agreement between Van Kampen American Capital Investment Advisory Corp. and the
Trust, 15,563,460 shares voted for the proposal, 226,747 voted against and
377,855 abstained. With regard to the approval of certain changes to the Trust's
fundamental investment policies with respect to investment in other investment
companies, 7,185,958 shares voted for the proposal, 309,234 voted against and
409,644 abstained.

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VAN KAMPEN AMERICAN CAPITAL ADVANTAGE MUNICIPAL INCOME TRUST

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