VAN KAMPEN AMERICAN CAPITAL ADVANTAGE MUNICIPAL INCOME TRUST, N-30D, 1997-12-22

VAN KAMPEN AMERICAN CAPITAL ADVANTAGE MUNICIPAL INCOME TRUST
N-30D, 1997-12-22

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<PAGE> 1

TABLE OF CONTENTS

<TABLE>
<S> <C>
Letter to Shareholders........................... 1
Performance Results.............................. 5
Portfolio of Investments......................... 6
Statement of Assets and Liabilities.............. 13
Statement of Operations.......................... 14
Statement of Changes in Net Assets............... 15
Financial Highlights............................. 16
Notes to Financial Statements.................... 17
Report of Independent Accountants................ 22
Dividend Reinvestment Plan....................... 23
</TABLE>

VKA ANR 12/97
<PAGE> 2

LETTER TO SHAREHOLDERS

December 4, 1997

Dear Shareholder,

In the past year, we have been
participants in and witnesses to two
mergers that we believe have positioned
our company at the forefront of the
financial industry's evolution. Our
latest announcement continues our
forward progress. I am pleased to
announce that Philip N. Duff, formerly
the chief financial officer of Morgan
Stanley, has joined Van Kampen American
Capital as president and chief
executive officer. I will continue as chairman of the firm. Together, we will
continue to work to the benefit of our fund shareholders as Van Kampen American
Capital advances toward the next century.

ECONOMIC REVIEW
The last quarter of 1996 brought renewed strength and rumblings of
inflation, which continued to feed investors' uncertainties about the direction
of interest rates. This was reflected in the volatility of taxable yields, with
the 30-year Treasury ranging from a high of 6.70 percent to a low of 6.35
percent, and ending the period at 6.64 percent.
The economy grew at a brisk 3.9 percent annual rate during the first three
quarters of 1997. At the same time, the federal budget deficit fell to its
lowest level in 23 years, while consumer prices rose less than 2.0 percent on an
annual basis and producer prices declined 1.4 percent.
The bond market advanced in price during the first 10 months of 1997, but
its ascension was not a smooth ride. Bond prices fell early in the period as
economic growth soared, fueling concerns about rising inflation and a potential
interest rate hike by the Federal Reserve Board. When the Fed did raise interest
rates by a modest 0.25 percent in late March, bond prices fell further, sending
the yield of the 30-year U.S. Treasury bond above 7.0 percent for the first time
in six months. By mid-April, however, the market's mood had changed, reflecting
few signs of price pressures despite the economy's strength. Bonds also
benefited from continued heavy purchases by foreign investors and concerns that
the stock market rally was nearing an end. The 7.0 percent slump in the Dow
Jones Industrial Average on October 27 reinforced the benefit of owning bonds
for diversification. By the end of October, the yield on the 30-year Treasury
bond was near its lowest level in 20 months, at 6.15 percent.
Throughout 1997, municipal bond prices moved in the same direction as the
Treasury bond market, but gained less when Treasury prices rallied and lost less
when Treasuries fell. Between December 31, 1996 and October 31, 1997, the yield
on the long-term municipal revenue bond index fell 36 basis points as the yield
on the 30-year Treasury bond fell 48 basis points. Because yields move in the
opposite direction of prices, the smaller yield decline of municipal bonds
indicates that their prices did not rise as much as Treasuries.

Continued on page two

[photo]
DENNIS J. MCDONNELL AND DON G. POWELL
<PAGE> 3
[pie chart]

Portfolio Composition by Credit Quality*
as of October 31, 1997

TRUST STRATEGY

In managing the Trust, we used the following strategies:
We moderately increased the Trust's heavy weighting in AAA-rated bonds and
reduced its holdings of BBB-rated bonds. As of October 31, 53.0 percent of
long-term investments were rated AAA, the highest credit rating assigned to
bonds by the Standard & Poor's Ratings Group. The increase in AAA-rated
securities in the portfolio reflects the proliferation of insured bonds, which
currently comprise well over half of new issues in the municipal bond market.
AAA-rated bonds are extremely liquid and carry minimal credit risk. When
interest rates fall, as they did for most of the second half of the fiscal year,
AAA-rated bonds tend to outperform lower-rated securities.
Of the remaining long-term investments, 28.5 percent were rated AA or A, and
18.0 percent were rated BBB, the lowest investment-grade credit rating assigned
by Standard & Poor's. BBB-rated bonds tend to perform better when rates are
rising, and have the potential to provide additional income.
Portfolio turnover during the fiscal year was moderate due to market
conditions that afforded few opportunities to add value to existing holdings.
The average yield of bonds in the Trust's portfolio was higher than average
market yields. As a result, there was little incentive to replace bonds in the
portfolio, because such trades would have reduced the Trust's dividend-paying
ability.
Trading was also restrained by tight spreads between yields of AAA-rated
bonds and lower-rated securities. These spreads compressed to historically
narrow levels due to the increasing number of insured bonds in the municipal
market. For example, when a new long-term California transportation issue was
sold in September, its BBB-rated portion provided a yield of only 20 basis
points more than the AAA-rated insured component in the same maturity. As a
result of the narrow yield spreads, there was often not enough incentive to
purchase lower-rated securities and assume the additional credit risk.
During the period, we focused on enhancing the Trust's call protection as
well as maintaining its dividend-paying ability. Because we hoped to limit the
number of bonds that could be "called" at any one time, we purchased long-term,
discount and par bonds that will not be callable for many years. A discount bond
sells at a price below par.

Continued on page three

2
<PAGE> 4

When searching for new securities for the Trust's portfolio, we try to
identify bonds that we believe will outperform within a particular sector and
that can be purchased at an attractive price. We believe this "bottom-up"
approach, supported by our research, provides significant added value to the
portfolio.
During the second half of the fiscal year, we lengthened the duration of the
portfolio in order to enhance the Trust's potential for price appreciation.
Duration, which is expressed in years, is a measure of a portfolio's sensitivity
to interest rate movements. Portfolios with long durations tend to perform
better when interest rates are falling, while portfolios with short durations
tend to do better when rates are rising. As of October 31, the duration of the
Trust's bond portfolio stood at 7.34 years, equal to that of the Lehman Brothers
Municipal Bond Index. Because of the longer-term nature of the Trust, the
calculation of this index's duration has been adjusted to eliminate bonds with
maturities of five years or less.

Top Five Portfolio Industry Holdings by Sector as of October 31, 1997*
Single-Family Housing............. 15.5%
Transportation.................... 14.3%
Industrial Revenue................ 12.6%
Health Care....................... 11.8%
Higher Education................... 9.5%

*As a Percentage of Long-Term
Investments

PERFORMANCE SUMMARY

For the one-year period ended October 31, 1997, the Van Kampen American
Capital Advantage Municipal Income Trust generated a total return at market
price of 8.96 percent(1). The Trust offered a tax-exempt distribution rate of
6.17 percent(3), based on the closing common stock price on October 31, 1997. At
the end of the reporting period, the closing share price of the Trust traded at
$15.0625, a 7.87 percent discount to its net asset value of $16.35. Because
income from the Trust is exempt from federal income taxes, this distribution
rate represents a yield equivalent to a taxable investment earning 9.64
percent(4) (for investors in the 36 percent federal income tax bracket).
Due to declining interest rates and a number of positions that were called
from the Trust, the earnings power of the Trust declined. As a result, the Board
of Trustees approved a decrease in its monthly dividend from $0.0850 to $0.0800
per common share, paid December 31, 1996, and from $0.0800 to $0.0775, payable
September 30, 1997.

Continued on page four

3
<PAGE> 5
TWELVE-MONTH DIVIDEND HISTORY
FOR THE PERIOD ENDED OCTOBER 31, 1997

<TABLE>
<CAPTION>
Distribution per Common Share
-----------------------------

Nov. Dec. Jan. Feb. Mar. Apr. May June July Aug. Sep. Oct.
1996 1996 1997 1997 1997 1997 1997 1997 1997 1997 1997 1997
------- ------- ------- ------- ------ ------ ------ ------- ------- ------- ------ -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$0.0850 $0.0800 $0.0800 $0.0800 $0.800 $0.800 $0.800 $0.0800 $0.0800 $0.0800 $.0775 $0.0775

The dividend history represents past performance of the Trust and does not predict the Trust's future distributions.
</TABLE>

OUTLOOK

We expect the economy to remain strong in the coming months, although the
growth rate might slow to a more moderate pace. The weakness in the Far East,
which was the impetus for the recent volatility in world stock markets, will
most likely reduce U.S. exports to the region. In turn, this could trim U.S.
economic growth as well as the earnings of many U.S. companies. As a result, we
believe there is little chance that the Fed will raise interest rates in the
coming months. A rate hike reemerges as a possibility if inflation picks up, or
if growth continues at its current brisk pace.
As a result of this outlook, we expect that the yield on the 30-year
Treasury bond will trade within a range of 5.75 percent and 6.50 percent for the
next six months, possibly falling further in mid-1998. A decline in rates would
not only boost the prices of long-term investments in the portfolio, but could
also positively affect the Trust as a result of its leveraged structure. That
structure, which involves borrowing short-term funds to purchase long-term
municipal bonds, provides common shareholders with above-market levels of
dividend income. It should be noted, however, that if short-term rates rise,
borrowing costs would increase; this would negatively impact the income and
performance of common shares.
We will continue to seek a balance between the Trust's total return and its
dividend income, and to add value through our investment strategies and bond
selection. Thank you for your continued confidence in Van Kampen American
Capital and your Trust's portfolio manager.

Sincerely,

Don G. Powell
Don G. Powell
Chairman
Van Kampen American Capital
Investment Advisory Corp.
Dennis J. McDonnell
Dennis J. McDonnell
President
Van Kampen American Capital
Investment Advisory Corp.

Please see footnotes on page five

4
<PAGE> 6

PERFORMANCE RESULTS FOR THE PERIOD ENDED OCTOBER 31, 1997

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)........... 8.96%
One-year total return based on NAV(2).................... 10.74%

DISTRIBUTION RATES

Distribution rate as a % of closing common stock
price(3)................................................. 6.17%
Taxable-equivalent distribution rate as a % of closing
common stock price(4).................................... 9.64%

SHARE VALUATIONS

Net asset value.......................................... $ 16.35
Closing common stock price............................... $15.0625
One-year high common stock price (08/05/97).............. $15.5625
One-year low common stock price (12/18/96)............... $13.7500
Preferred share (Series A) rate(5)....................... 3.571%
Preferred share (Series B) rate(5)....................... 3.511%
Preferred share (Series C) rate(5)....................... 3.539%
Preferred share (Series D) rate(5)....................... 3.530%
</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.

5
<PAGE> 7

PORTFOLIO OF INVESTMENTS

October 31, 1997
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- ---------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
MUNICIPAL BONDS 101.7%
ALABAMA 1.2%
$ 6,050 Alabama Wtr Pollutn Ctl Auth Revolving Fund Ln
Ser A (AMBAC Insd)............................... 5.000% 08/15/15 $ 5,835,346
------------
ALASKA 1.9%
10,000 Alaska St Hsg Fin Corp Ser A Rfdg (b)............ 5.000 12/01/18 9,368,200
------------
ARIZONA 1.0%
4,570 Pima Cnty, AZ Indl Dev Auth Indl Rev Lease Oblig
Irvington Proj Tucson Ser A Rfdg (FSA Insd)
(b).............................................. 7.250 07/15/10 5,113,007
------------
CALIFORNIA 4.3%
4,215 California Hlth Fac Fin Auth Rev Kaiser
Permanente Med Cent.............................. 5.450 10/01/13 4,232,745
5,000 California St Pub Wks Brd Lease Rev Var CA St
Univ Projs
Ser A............................................ 5.250 12/01/13 4,999,750
2,500 Los Angeles Cnty, CA Pub Wks Fin Auth Rev Cap
Constr Rfdg (AMBAC Insd)......................... 5.000 03/01/11 2,501,350
7,500 Los Angeles Cnty, CA Tran Comm Sales Tax Rev Prop
C Ser A (Prerefunded @ 07/01/02)................. 6.500 07/01/20 8,369,175
1,500 Orange Cnty, CA Recovery Ctfs Ser A (MBIA
Insd)............................................ 6.000 07/01/07 1,663,515
------------
21,766,535
------------
COLORADO 4.2%
8,500 Arapahoe Cnty, CO Cap Impt Trust Fund Hwy Rev
E-470 Proj Ser C (Prerefunded @ 08/31/05)........ * 08/31/26 1,248,055
2,320 Colorado Hsg Fin Auth Single Family Pgm Sr Ser
B1............................................... 7.900 12/01/25 2,604,734
1,510 Colorado Hsg Fin Auth Single Family Pgm Sr Ser D1
Rfdg............................................. 8.000 12/01/24 1,712,415
4,756 Colorado Hsg Fin Auth Single Family Pgm Sr Ser
E................................................ 8.125 12/01/24 5,265,272
2,000 Denver, CO City & Cnty Arpt Rev Ser B
(Prerefunded @ 11/15/97)......................... 7.500 11/15/25 2,044,900
3,215 Denver, CO City & Cnty Arpt Rev Ser C............ 6.350 11/15/01 3,429,923
4,000 E-470 Pub Hwy Auth CO Rev Cap Apprec Sr Ser B
Rfdg (MBIA Insd)................................. * 09/01/22 1,057,400
2,500 E-470 Pub Hwy Auth CO Rev Sr Ser A Rfdg (MBIA
Insd)............................................ 5.000 09/01/21 2,405,525
1,000 Meridian Metro Dist CO Peninsular & Oriental
Steam Navig Co Rfdg.............................. 7.500 12/01/11 1,099,890
------------
20,868,114
------------
CONNECTICUT 0.2%
1,000 Connecticut St Dev Auth Wtr Fac Rev Brdgeport
Hydraulic........................................ 6.150 04/01/35 1,059,220
------------
DISTRICT OF COLUMBIA 1.1%
5,000 Dist of Columbia Rev Howard Univ Ser A (MBIA
Insd)............................................ 7.250 10/01/20 5,486,900
------------
FLORIDA 0.4%
2,000 Dade Cnty, FL Aviation Rev Miami Intl Arpt (FSA
Insd)............................................ 5.125 10/01/22 1,919,760
------------
</TABLE>

See Notes to Financial Statements

6
<PAGE> 8

PORTFOLIO OF INVESTMENTS (CONTINUED)

October 31, 1997
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- ---------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
GEORGIA 1.1%
$ 1,000 Atlanta, GA Spl Purp Fac Rev Delta Airls Ser B... 7.900% 12/01/18 $ 1,076,750
3,770 Monroe Cnty, GA Dev Auth Pollutn Ctl Rev
Oglethorpe Pwr Corp Scherer Ser A................ 6.800 01/01/12 4,393,520
------------
5,470,270
------------
HAWAII 1.4%
5,045 Hawaii St Arpt Sys Rev 2nd Ser (FGIC Insd)....... 7.500 07/01/20 5,489,162
1,530 Hawaii St Hsg Fin & Dev Corp Single Family Mtg
Purp Rev Ser A (FHA Gtd)......................... 8.125 07/01/17 1,577,552
------------
7,066,714
------------
ILLINOIS 6.6%
1,505 Aurora, IL Single Family Mtg Rev Ser B Rfdg (GNMA
Collateralized).................................. 8.050 09/01/25 1,708,626
3,000 Chicago, IL O'Hare Intl Arpt Spl Fac Rev American
Airls Inc Proj Ser B............................. 7.875 11/01/25 3,296,340
5,000 Chicago, IL O'Hare Intl Arpt Spl Fac Rev Intl
Terminal (MBIA Insd)............................. 6.750 01/01/18 5,426,100
5,000 Chicago, IL Sch Fin Auth Ser A (MBIA Insd) (b)... 5.000 06/01/09 5,007,950
3,000 Cicero, IL (MBIA Insd)........................... 6.500 12/01/14 3,353,610
3,000 Illinois Dev Fin Auth Solid Waste Disposal Rev... 5.950 12/01/24 3,159,150
3,545 Illinois Edl Fac Auth Rev Lake Forest College
(FSA Insd)....................................... 6.750 10/01/21 3,891,914
5,000 Regional Tran Auth IL Ser B (AMBAC Insd)......... 8.000 06/01/17 6,684,300
1,150 Will Cnty, IL Cmnty Sch Dist 365U Vly View Ser B
(FSA Insd) (a)................................... * 11/01/15 436,874
------------
32,964,864
------------
INDIANA 1.4%
4,000 Indiana Hlth Fac Fin Auth Hosp Rev Cmnty Hosp
Proj (MBIA Insd)................................. 6.850 07/01/22 4,411,840
2,000 Indiana Hlth Fac Fin Auth Hosp Rev Columbus Regl
Hosp Rfdg (FSA Insd)............................. 7.000 08/15/15 2,407,780
------------
6,819,620
------------
KANSAS 2.2%
5,500 Burlington, KS Pollutn Ctl Rev KS Gas & Elec Co
Proj Rfdg (MBIA Insd)............................ 7.000 06/01/31 6,011,280
1,395 Sedgwick & Shawnee Cntys, KS Single Family Rev
Coll Mtg Ser A Rfdg (GNMA Collateralized)........ 8.050 05/01/24 1,557,950
2,955 Sedgwick Cnty, KS Single Family Mtg Rev Coll Ser
A Rfdg (GNMA Collateralized)..................... 8.125 05/01/24 3,280,405
------------
10,849,635
------------
</TABLE>

See Notes to Financial Statements

7
<PAGE> 9

PORTFOLIO OF INVESTMENTS (CONTINUED)

October 31, 1997
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- ---------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
KENTUCKY 2.9%
$ 7,750 Kenton Cnty, KY Arpt Brd Arpt Rev Spl Fac Delta
Airls Proj Ser A................................. 7.125% 02/01/21 $ 8,467,185
1,755 Kenton Cnty, KY Arpt Brd Rev Cincinnati/Northn KY
Intl Arpt Ser A Rfdg (MBIA Insd) (a)............. 5.850 03/01/04 1,871,795
4,450 Louisville & Jefferson Cnty, KY Metro Swr Dist
Drainage Rev Rfdg (MBIA Insd).................... 5.300 05/15/19 4,382,494
------------
14,721,474
------------
LOUISIANA 1.6%
1,950 Louisiana Hsg Fin Agy Mtg Rev Multi-Family
Emerald Pointe Apts (FHA Gtd).................... 7.100 11/01/33 2,068,443
2,515 Louisiana Hsg Fin Agy Mtg Rev Single Family
Access Pgm Ser B (GNMA Collateralized)........... 8.000 03/01/25 2,875,701
3,000 Saint Charles Parish, LA Enviromental Impt Rev LA
Pwr & Lt Co Ser A (AMBAC Insd)................... 6.875 07/01/24 3,356,670
------------
8,300,814
------------
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 9,344,340
------------
MASSACHUSETTS 2.7%
2,500 Chelsea, MA Sch Proj Ln Act 1948 (AMBAC Insd).... 6.500 06/15/12 2,766,000
3,955 Massachusetts Bay Tran Auth MA Genl Tran Sys Ser
A Rfdg........................................... 5.500 03/01/12 4,140,885
2,250 Massachusetts Bay Tran Auth MA Genl Tran Sys Ser
B Rfdg (MBIA Insd) (b)........................... 6.000 03/01/10 2,407,185
3,500 Massachusetts Muni Whsl Elec Co Pwr Supply Sys
Rev Ser A Rfdg (AMBAC Insd)...................... 5.000 07/01/10 3,486,770
1,000 Massachusetts St Hlth & Edl Fac Auth Rev Saint
Mem Med Cent Ser A............................... 6.000 10/01/23 965,570
------------
13,766,410
------------
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 1,895,729
3,350 Michigan St Hosp Fin Auth Rev Hosp Mid-MI Oblig
Group............................................ 6.800 12/01/14 3,671,265
10,900 Michigan St Hsg Dev Auth Rental Hsg Rev Ser A
Rfdg............................................. 6.600 04/01/12 11,516,068
3,000 Michigan St Strategic Fund Ltd Oblig Rev Ser CC
Rfdg (FGIC Insd)................................. 6.950 09/01/21 3,287,550
------------
20,370,612
------------
</TABLE>

See Notes to Financial Statements

8
<PAGE> 10

PORTFOLIO OF INVESTMENTS (CONTINUED)

October 31, 1997
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- ---------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
MISSISSIPPI 2.7%
$ 6,795 Mississippi Home Corp Single Family Rev Mtg
Access Pgm Ser B (GNMA Collateralized) (b)....... 7.900% 03/01/25 $ 7,588,520
2,285 Mississippi Home Corp Single Family Rev Mtg
Access Pgm Ser C (GNMA Collateralized)........... 8.125 12/01/24 2,550,563
3,262 Mississippi Home Corp Single Family Rev Mtg
Access Pgm Ser E (GNMA Collateralized)........... 8.100 12/01/25 3,653,929
------------
13,793,012
------------
MISSOURI 0.5%
2,100 Kansas City, MO Arpt Rev Genl Impt Ser A (FSA
Insd)............................................ 6.900 09/01/10 2,335,620
------------
NEW HAMPSHIRE 0.2%
1,000 New Hampshire St Business Fin Auth Wtr Fac Rev
Pennichuck Wtrwks Inc (AMBAC Insd)............... 6.300 05/01/22 1,071,040
------------
NEW JERSEY 5.4%
10,000 New Jersey Econ Dev Auth St Contract Econ
Recovery (MBIA Insd)............................. 5.900 03/15/21 10,968,600
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 8,984,960
2,000 New Jersey St Hwy Auth Garden St Pkwy Genl Rev Sr
Pkwy............................................. 6.250 01/01/14 2,150,460
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 5,161,825
------------
27,265,845
------------
NEW YORK 26.7%
1,500 Broome Cnty, NY Ctfs Partn Pub Safety Fac (MBIA
Insd) (b)........................................ 5.250 04/01/15 1,486,425
1,500 Metropolitan Tran Auth NY Commuter Fac Rev Ser A
(MBIA Insd)...................................... 5.625 07/01/27 1,537,950
3,000 Metropolitan Tran Auth NY Tran Fac Rev Svcs
Contract Ser R Rfdg (a).......................... 5.500 07/01/17 2,897,370
1,500 Metropolitan Tran Auth NY Trans Fac Rev Ser K
Rfdg............................................. 6.250 07/01/11 1,587,855
4,250 New York City Indl Dev Agy Civic Fac Rev USTA
Natl Tennis Cent Proj (FSA Insd)................. 6.375 11/15/14 4,687,793
1,300 New York City Indl Dev Civic YMCA Greater NY
Proj............................................. 5.800 08/01/16 1,330,147
5,500 New York City Muni Wtr Fin Auth Wtr & Swr Sys Rev
Ser B............................................ 5.750 06/15/26 5,649,215
10 New York City Ser A.............................. 8.000 08/15/19 11,291
1,145 New York City Ser B1............................. 7.000 08/15/16 1,294,823
180 New York City Ser B1 (Prerefunded @ 08/15/04).... 7.000 08/15/16 209,396
1,170 New York City Ser C.............................. 7.125 08/15/12 1,264,782
480 New York City Ser C (Prerefunded @ 08/15/01)..... 7.125 08/15/12 528,931
2,040 New York City Ser C.............................. 7.250 08/15/24 2,220,642
835 New York City Ser C (Prerefunded @ 08/15/01)..... 7.250 08/15/24 925,898
2,225 New York City Ser F Rfdg......................... 6.000 08/01/11 2,343,726
</TABLE>

See Notes to Financial Statements

9
<PAGE> 11

PORTFOLIO OF INVESTMENTS (CONTINUED)

October 31, 1997
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- ---------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>

NEW YORK (CONTINUED)
$ 1,000 New York City Subser A1 (Embedded Swap).......... 5.915% 08/01/12 $ 1,023,720
2,525 New York St Dorm Auth Lease Rev Muni Hlth Fac
Impt Pgm Ser A (FSA Insd)........................ 5.500 05/15/25 2,539,948
3,970 New York St Dorm Auth Rev City Univ Ser F........ 5.000 07/01/14 3,784,045
2,600 New York St Dorm Auth Rev Cons City Univ Sys 2nd
Genl Res Ser A................................... 5.750 07/01/13 2,724,670
5,050 New York St Dorm Auth Rev Cons City Univ Sys 2nd
Genl Res Ser B................................... 5.375 07/01/07 5,220,791
3,100 New York St Dorm Auth Rev Cons City Univ Sys Ser
A................................................ 5.625 07/01/16 3,203,323
4,050 New York St Dorm Auth Rev Court Fac Lease Ser
A................................................ 5.300 05/15/07 4,143,312
2,550 New York St Dorm Auth Rev Mental Hlth Services
Fac Ser B Rfdg................................... 5.750 08/15/11 2,707,590
5,000 New York St Dorm Auth Rev St Univ Edl Fac........ 5.125 05/15/27 4,769,650
5,000 New York St Dorm Auth Rev St Univ Edl Fac Ser A
Rfdg............................................. 5.500 05/15/08 5,271,900
2,000 New York St Dorm Auth Rev St Univ Edl Fac Ser B
Rfdg............................................. 7.500 05/15/11 2,419,060
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 3,194,640
1,055 New York St Med Care Fac Fin Agy Rev Mental Hlth
Ser B............................................ 7.375 02/15/14 1,122,942
1,150 New York St Med Care Fac Fin Agy Rev Mental Hlth
Ser B (Prerefunded @ 08/15/99)................... 7.375 02/15/14 1,248,935
1,560 New York St Med Care Fac Fin Agy Rev Mental Hlth
Services Fac Ser A............................... 7.500 02/15/21 1,730,415
2,615 New York St Med Care Fac Fin Agy Rev Mental Hlth
Services Fac Ser A (Prerefunded @ 02/15/01)...... 7.500 02/15/21 2,927,623
5,000 New York St Med Care Fac Fin Agy Rev NY Downtown
Hosp Ser A....................................... 6.800 02/15/20 5,443,350
6,750 New York St Med Care Fac Fin Agy Rev NY Hosp Mtg
Ser A (AMBAC Insd) (b)........................... 6.300 08/15/06 7,554,600
7,000 New York St Med Care Fac Fin Agy Rev NY Hosp Mtg
Ser A (AMBAC Insd)............................... 6.400 08/15/07 7,849,520
2,000 New York St Med Care Fac Fin Agy Rev NY Hosp Mtg
Ser A (AMBAC Insd)............................... 6.600 02/15/11 2,248,400
3,000 New York St Pwr Auth Rev & Genl Purp Ser Y....... 6.750 01/01/18 3,260,190
5,695 New York St Thruway Auth Svc Contract Rev Loc Hwy
& Brdg........................................... 5.750 04/01/08 6,019,330
7,500 New York St Thruway Auth Svc Contract Rev Loc Hwy
& Brdg........................................... 5.250 04/01/13 7,390,650
3,550 New York St Urban Dev Corp Rev Correctional Cap
Fac Ser 7........................................ 5.700 01/01/27 3,590,612
12,500 Port Auth NY & NJ Spl Oblig Rev Spl Proj JFK Intl
Arpt Terminal 6 (MBIA Insd)...................... 5.750 12/01/25 12,797,000
2,000 Triborough Brdg & Tunl Auth NY Rev Genl Purp Ser
X................................................ 6.500 01/01/19 2,185,580
------------
134,348,040
------------
</TABLE>

See Notes to Financial Statements

10
<PAGE> 12

PORTFOLIO OF INVESTMENTS (CONTINUED)

October 31, 1997
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- ---------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>

NORTH CAROLINA 2.4%
$11,000 North Carolina Muni Pwr Agy No 1 Catawba Elec Rev
(MBIA Insd)...................................... 6.000% 01/01/12 $ 12,147,520
------------
OHIO 0.2%
1,000 Marion Cnty, OH Hosp Impt Rev Cmnty Hosp Rfdg.... 6.375 05/15/11 1,054,520
------------
OKLAHOMA 0.2%
1,100 Oklahoma City, OK Indl & Cultural Fac Trust Rev
Dist Heating & Cooling Trigen.................... 6.750 09/15/17 1,132,956
------------
PENNSYLVANIA 4.3%
5,000 Beaver Cnty, PA (MBIA Insd) (a).................. 5.150 10/01/17 4,964,700
2,900 Indiana Cnty, PA Indl Dev Auth Pollutn Ctl Rev
Metro Edison Co Proj A (AMBAC Insd).............. 5.950 05/01/27 3,017,653
4,000 Pennsylvania Intergovt Coop Auth Spl Tax Rev
Philadelphia Funding Pgm (Prerefunded @ 06/15/05)
(FGIC Insd) (b).................................. 6.750 06/15/21 4,587,560
3,755 Philadelphia, PA Wtr & Wstwtr Ser A (AMBAC Insd)
(a).............................................. 5.000 08/01/15 3,655,605
5,200 Randor Twp, PA Sch Dist.......................... 5.750 03/15/26 5,386,264
------------
21,611,782
------------
RHODE ISLAND 1.6%
7,800 Rhode Island Hsg & Mtg Fin Corp Homeownership
Oppty Ser 5...................................... 6.400 04/01/24 8,121,282
------------
TENNESSEE 1.0%
5,000 Tennessee Hsg Dev Agy Homeownership Proj T....... 7.375 07/01/23 5,289,650
------------
TEXAS 7.1%
2,000 Austin, TX Utility Sys Rev Rfdg (FSA Insd)....... 5.125 11/15/16 1,983,880
1,000 Brazos, TX Higher Edl Auth Inc Student Ln Rev
Subser A2 Rfdg................................... 6.800 12/01/04 1,076,870
1,084 Brazos, TX Higher Edl Auth Inc Student Ln Rev
Subser C2 Rfdg................................... 7.100 11/01/04 1,178,731
5,000 Dallas-Fort Worth, TX Intl Arpt Fac Impt Corp Rev
American Airls Inc............................... 7.250 11/01/30 5,565,700
5,340 Dallas-Fort Worth, TX Intl Arpt Fac Impt Corp Rev
Delta Airls Inc.................................. 7.625 11/01/21 5,919,924
1,500 Dallas-Fort Worth, TX Intl Arpt Fac Impt Corp Rev
Delta Airls Inc.................................. 7.125 11/01/26 1,608,660
5,140 Little Elm, TX Indpt Sch Dist Rfdg (PSFG Insd)... 6.750 08/15/29 5,763,225
8,500 Plano, TX Hlth Fac Dev Corp TX Hlth Res Sys Ser C
(MBIA Insd)...................................... 5.000 02/15/22 8,053,240
2,000 Tarrant Cnty, TX Jr College Dist................. 5.050 02/15/10 2,016,080
2,000 Texas St Dept Hsg & Cmnty Affairs Single Family
Rev Mtg Jr Lien Ser A Rfdg....................... 8.100 09/01/15 2,275,900
------------
35,442,210
------------
</TABLE>

See Notes to Financial Statements

11
<PAGE> 13

PORTFOLIO OF INVESTMENTS (CONTINUED)

October 31, 1997
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- ---------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
UTAH 0.6%
$ 1,500 Intermountain Pwr Agy UT Pwr Supply Rev Ser B
Rfdg (MBIA Insd)................................. 5.750% 07/01/19 $ 1,558,050
1,525 Salt Lake City, UT Arpt Rev Delta Airls Inc
Proj............................................. 7.900 06/01/17 1,618,422
------------
3,176,472
------------
WASHINGTON 1.4%
1,400 King Cnty, WA Hsg Auth Hsg Rev Pooled Sr Ser A
Rfdg............................................. 6.700 03/01/15 1,481,410
2,000 Washington St Hlthcare Fac Varginia Mason Med
Cent Ser A Rfdg (MBIA Insd)...................... 5.125 08/15/17 1,945,320
3,450 Washington St Pub Pwr Supply Sys Nuclear Proj No
2 Rev Ser B Rfdg (Prerefunded @ 07/01/00) (FSA
Insd)............................................ 7.000 07/01/12 3,759,672
------------
7,186,402
------------
WEST VIRGINIA 2.5%
2,500 Berkeley Cnty, WV Bldg Comm Hosp Rev City Hosp
Proj............................................. 6.500 11/01/22 2,625,875
5,000 Marshall Cnty, WV Pollutn Ctl Rev OH Pwr Co Proj
Ser C Rfdg (MBIA Insd)........................... 6.850 06/01/22 5,514,600
2,000 West Virginia St Hsg Dev Fund Hsg Fin Ser A...... 5.550 05/01/17 2,005,380
2,410 West Virginia St Hsg Dev Fund Hsg Fin Ser A...... 5.450 11/01/21 2,410,000
------------
12,555,855
------------
WISCONSIN 1.7%
5,000 Madison, WI Indl Dev Rev Madison Gas & Elec Co
Proj Ser A....................................... 6.750 04/01/27 5,385,850
3,000 Wisconsin Hsg & Econ Dev Auth Homeownership Rev
Ser A............................................ 6.450 03/01/17 3,157,470
------------
8,543,320
------------
WYOMING 0.5%
2,150 Wyoming Cmnty Dev Auth Insd Single Family Mtg Ser
B................................................ 6.700 06/01/17 2,277,302
------------
PUERTO RICO 2.5%
1,000 Puerto Rico Comwlth Hwy & Tran Auth Hwy Rev Ser V
Rfdg............................................. 5.750 07/01/18 1,014,180
10,000 Puerto Rico Comwlth Hwy & Tran Auth Hwy Rev Ser Y
Rfdg (Embedded Cap)(FSA Insd).................... 5.730 07/01/21 11,487,000
------------
12,501,180
------------
TOTAL INVESTMENTS 101.7%
(Cost $470,507,542).......................................................... 510,945,843
LIABILITIES IN EXCESS OF OTHER ASSETS (1.7%).................................. (8,455,532)
------------
NET ASSETS 100.0%............................................................. $502,490,311
============
</TABLE>

* Zero coupon bond

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

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

See Notes to Financial Statements

12
<PAGE> 14

STATEMENT OF ASSETS AND LIABILITIES

October 31, 1997
- --------------------------------------------------------------------------------

<TABLE>
<S> <C>
ASSETS:
Total Investments (Cost $470,507,542)....................... $510,945,843
Receivables:
Interest.................................................. 8,947,711
Investments Sold.......................................... 1,526,766
Other....................................................... 3,045
------------
Total Assets.......................................... 521,423,365
------------
LIABILITIES:
Payables:
Investments Purchased..................................... 13,663,779
Custodian Bank............................................ 4,160,285
Income Distributions--Common and Preferred Shares......... 467,465
Investment Advisory Fee................................... 276,404
Administrative Fee........................................ 85,047
Variation Margin on Futures............................... 31,250
Affiliates................................................ 15,693
Accrued Expenses............................................ 160,709
Trustees' Deferred Compensation and Retirement Plans........ 72,422
------------
Total Liabilities..................................... 18,933,054
------------
NET ASSETS.................................................. $502,490,311
============
NET ASSETS CONSIST OF:
Preferred Shares ($.01 par value, authorized 100,000,000
shares, 3,800 issued with liquidation preference of
$50,000 per share)........................................ $190,000,000
------------
Common Shares ($.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................................. 40,118,744
Accumulated Undistributed Net Investment Income............. 1,297,978
Accumulated Net Realized Loss............................... (11,149,185)
------------
Net Assets Applicable to Common Shares.................... 312,490,311
------------
NET ASSETS.................................................. $502,490,311
============
NET ASSET VALUE PER COMMON SHARE ($312,490,311 divided
by 19,106,785 shares outstanding)......................... $ 16.35
============
</TABLE>

See Notes to Financial Statements

13
<PAGE> 15

STATEMENT OF OPERATIONS

For the Year Ended October 31, 1997
- --------------------------------------------------------------------------------

<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest.................................................... $29,238,274
-----------
EXPENSES:
Investment Advisory Fee..................................... 3,205,003
Administrative Fee.......................................... 986,155
Preferred Share Maintenance................................. 496,991
Trustees' Fees and Expenses................................. 35,067
Legal....................................................... 15,123
Custody..................................................... 8,485
Amortization of Organizational Costs........................ 7,168
Other....................................................... 286,887
-----------
Total Expenses.......................................... 5,040,879
-----------
NET INVESTMENT INCOME....................................... $24,197,395
===========
NET REALIZED AND UNREALIZED GAIN/LOSS:
Realized Gain/Loss:
Investments............................................... $ 1,958,354
Futures................................................... (1,033,348)
-----------
Net Realized Gain........................................... 925,006
-----------
Net Unrealized Appreciation/Depreciation:
Beginning of the Period................................... 27,349,240
-----------
End of the Period:
Investments............................................... 40,438,301
Futures................................................... (319,557)
-----------
40,118,744
-----------
Net Unrealized Appreciation During the Period............... 12,769,504
-----------
NET REALIZED AND UNREALIZED GAIN............................ $13,694,510
===========
NET INCREASE IN NET ASSETS FROM OPERATIONS.................. $37,891,905
===========
</TABLE>

See Notes to Financial Statements

14
<PAGE> 16

STATEMENT OF CHANGES IN NET ASSETS

For the Years Ended October 31, 1997 and 1996
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
Year Ended Year Ended
October 31, 1997 October 31, 1996
- -------------------------------------------------------------------------------------------
<S> <C> <C>
FROM INVESTMENT ACTIVITIES:
Operations:
Net Investment Income.................................. $ 24,197,395 $ 24,696,497
Net Realized Gain...................................... 925,006 1,803,355
Net Unrealized Appreciation During the Period.......... 12,769,504 1,270,738
------------ ------------
Change in Net Assets from Operations................... 37,891,905 27,770,590
------------ ------------
Distributions from Net Investment Income:
Common Shares........................................ (18,341,741) (19,488,524)
Preferred Shares..................................... (6,745,718) (6,886,821)
------------ ------------
Total Distributions.................................... (25,087,459) (26,375,345)
------------ ------------
NET CHANGE IN NET ASSETS FROM INVESTMENT ACTIVITIES.... 12,804,446 1,395,245
NET ASSETS:
Beginning of the Period................................ 489,685,865 488,290,620
------------ ------------
End of the Period (Including accumulated undistributed
net investment income of $1,297,978 and $2,188,042,
respectively)........................................ $502,490,311 $489,685,865
============ ============
</TABLE>

See Notes to Financial Statements

15
<PAGE> 17

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
1997 1996 1995 1994 1993 October 31, 1992 (a)
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of
the Period (a).............. $ 15.684 $15.612 $13.992 $17.177 $14.587 $ 14.771
-------- ------- ------- ------- ------- ----------
Net Investment Income....... 1.266 1.293 1.330 1.354 1.369 .056
Net Realized and Unrealized
Gain/Loss................. .717 .159 1.701 (3.148) 2.408 (.237)
-------- ------- ------- ------- ------- ----------
Total from Investment
Operations.................. 1.983 1.452 3.031 (1.794) 3.777 (.181)
-------- ------- ------- ------- ------- ----------
Less:
Distributions from Net
Investment Income:
Paid to Common
Shareholders.......... .960 1.020 1.020 1.020 .884 -0-
Common Share Equivalent
of Distributions Paid
to Preferred
Shareholders.......... .353 .360 .391 .285 .303 .003
Distributions from Net
Realized Gain
Paid to Common
Shareholders............ -0- -0- -0- .067 -0- -0-
Common Share Equivalent of
Distributions Paid to
Preferred
Shareholders............ -0- -0- -0- .019 -0- -0-
-------- ------- ------- ------- ------- ----------
Total Distributions.......... 1.313 1.380 1.411 1.391 1.187 .003
-------- ------- ------- ------- ------- ----------
Net Asset Value, End of the
Period...................... $ 16.354 $15.684 $15.612 $13.992 $17.177 $ 14.587
======== ======= ======= ======= ======= ==========
Market Price Per Share at End
of the Period............... $15.0625 $14.750 $14.375 $12.750 $16.000 $ 13.875
Total Investment Return at
Market Price (b)............ 8.96% 9.88% 21.06% (14.17%) 22.08% (7.50%)*
Total Return at Net Asset
Value (c)................... 10.74% 7.22% 19.46% (12.71%) 24.24% (2.73%)*
Net Assets at End of the
Period (In millions)........ $ 502.5 $ 489.7 $ 488.3 $ 457.3 $ 518.2 $ 468.7
Ratio of Expenses to Average
Net Assets Applicable to
Common Shares............... 1.66% 1.72% 1.72% 1.64% 1.66% 1.12%
Ratio of Expenses to Average
Net Assets.................. 1.02% 1.05% 1.03% 1.00% 1.03% 1.00%
Ratio of Net Investment
Income to Average Net Assets
Applicable to Common Shares
(d)......................... 5.76% 5.99% 6.31% 6.81% 6.57% 3.52%
Portfolio Turnover........... 49% 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

16
<PAGE> 18

NOTES TO FINANCIAL STATEMENTS

October 31, 1997
- --------------------------------------------------------------------------------

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

17
<PAGE> 19

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

October 31, 1997
- --------------------------------------------------------------------------------

the Trust's organization in the amount of $40,000. These costs were amortized on
a straight line basis over the 60 month period ending September 24, 1997.

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, 1997, the Trust had an accumulated capital loss
carryforward for tax purposes of $11,385,441, which will expire between October
31, 2002 and October 31, 2003. Net realized gains or losses differ for financial
reporting and tax purposes as a result of losses from wash sales and gains or
losses recognized for tax purposes on open futures positions at October 31,
1997.

At October 31, 1997, for federal income tax purposes cost of long-term
investments is $470,590,842, the aggregate gross unrealized appreciation is
$40,447,092 and the aggregate gross unrealized depreciation is $92,091,
resulting in net unrealized appreciation of $40,355,001.

F. DISTRIBUTION OF INCOME AND GAINS--The Trust declares and pays monthly
dividends from net investment income to common shareholders. 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, 1997, 99.9% of the income distributions made
by the Trust were exempt from federal income taxes. In January, 1998, the Trust
will provide tax information to shareholders for the 1997 calendar year.

2. INVESTMENT ADVISORY AGREEMENT AND OTHER TRANSACTIONS WITH AFFILIATES

Under the terms of the Trust's Investment Advisory Agreement, Van Kampen
American Capital Investment Advisory Corp. (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 record keeping and

18
<PAGE> 20

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

October 31, 1997
- --------------------------------------------------------------------------------

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

For the year ended October 31, 1997, the Trust recognized expenses of
approximately $5,300 representing legal services provided by Skadden, Arps,
Slate, Meagher & Flom (Illinois), counsel to the Trust, of which a trustee of
the Trust is an affiliated person.

For the year ended October 31, 1997, the Trust recognized expenses of
approximately $136,200 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 who are not officers of VKAC. Under the deferred compensation plan,
trustees may elect to defer all or a portion of their compensation to a later
date. Benefits under the retirement plan are payable for a ten-year period and
are based upon each trustee's years of service to the Trust. The maximum annual
benefit under the plan is equal to the trustees' annual retainer fee, which is
currently $2,500.

At October 31, 1997, 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 $253,625,843 and $242,664,624,
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. Upon disposition, a realized gain or loss is
recognized accordingly, except when exercising an option contract or taking
delivery of a security underlying a futures contract. In these instances the
recognition of gain or loss is postponed until the disposal of the security
underlying the option or futures contract.

19
<PAGE> 21

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

October 31, 1997
- --------------------------------------------------------------------------------

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

A. 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.

Upon entering into futures contracts, the Trust maintains, in a segregated
account with its custodian, securities with a value equal to its obligation
under the futures contracts. During the period the futures contract is open,
payments are received from or made to the broker based upon changes in the value
of the contract (the variation margin).

Transactions in futures contracts for the year ended October 31, 1997, were
as follows:

<TABLE>
<CAPTION>
CONTRACTS
- ----------------------------------------------------------------------
<S> <C>
Outstanding at October 31, 1996............................. 100
Futures Opened.............................................. 1,225
Futures Closed.............................................. (1,225)
------
Outstanding at October 31, 1997............................. 100
======
</TABLE>

The futures contracts outstanding as of October 31, 1997, and the
description and unrealized depreciation are as follows:

<TABLE>
<CAPTION>
Unrealized
Contracts Depreciation
- -------------------------------------------------------------------------
<S> <C> <C>
Short Contracts -- U.S. Treasury Bond Futures
Dec. 1997
(Current notional value of $118,469 per
contract)................................. 100 $ 319,557
====== ============
</TABLE>

B. INDEXED SECURITIES--These instruments are identified in the portfolio of
investments. The price of these securities may be more volatile than the price
of a comparable fixed rate security.

An Embedded Cap security includes 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 Trust invests in these
instruments as a hedge against a rise in the short term interest rates which it
pays on its preferred shares.

20
<PAGE> 22

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

October 31, 1997
- --------------------------------------------------------------------------------

An Embedded Swap security includes a swap component such that the fixed
coupon component of the underlying bond is adjusted by the difference between
the security's fixed swap rate and the floating swap index. 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, 1997 was 3.538%.
During the year ended October 31, 1997, the rates ranged from 3.330% to 3.787%.

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.

21
<PAGE> 23

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, 1997, 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, 1997, 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, 1997,
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, 1997

22
<PAGE> 24

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

23
<PAGE> 25

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 (ILLINOIS)
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.

24
<PAGE> 26

RESULTS OF SHAREHOLDER VOTES

The Annual Meeting of Shareholders of the Trust was held on May 28, 1997,
where shareholders voted on a new investment advisory agreement, the election of
Trustees whose terms expired in 1997 and independent public accountants.

1) With regard to the approval of a new investment advisory agreement
between Van Kampen American Capital Investment Advisory Corp. and the Trust,
16,840,058 shares voted for the proposal, 174,819 shares voted against, 287,403
shares abstained and 1,000 shares represented broker non-votes.

2) With regard to the election of Rod Dammeyer as elected trustee by the
preferred shareholders of the Trust, 2,100 shares voted in his favor, 17 shares
withheld.

3) With regard to the election of Wayne W. Whalen as elected trustee by the
common shareholders of the Trust, 17,084,474 shares voted in his favor, 216,689
shares withheld.

4) With regard to the ratification of KPMG Peat Marwick LLP as independent
public accountants for its current fiscal year, 17,082,921 shares voted for the
proposal, 67,799 shares voted against, 16 shares abstained and 0 shares
represented broker non-votes.

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