<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
Dividend Reinvestment Plan....................... 22
</TABLE>
VKA SAR 6/97
<PAGE> 2
LETTER TO SHAREHOLDERS
June 5, 1997
Dear Shareholder,
As mentioned in your previous
report, VK/AC Holding, Inc., the parent
company of Van Kampen American Capital,
Inc., was acquired by Morgan Stanley
Group Inc., a world leader in asset
management. More recently, on February [PHOTO]
5, 1997, Morgan Stanley Group Inc. and
Dean Witter, Discover & Co. announced
their agreement to merge, and you DENNIS J. MCDONNELL AND DON G. POWELL
received a proxy in April. The merger
was completed on May 31, 1997, creating
the combined company of Morgan Stanley, Dean Witter, Discover & Co. This
preeminent global financial services firm boasts a market capitalization of $21
billion and leading market positions in securities, asset management, and credit
services. As the financial industry continues to witness unprecedented
consolidations and new partnerships, we believe that those firms that are
leaders in all facets of their business will be able to offer investors the
greatest opportunities and services as we move into the next century. We are
confident that this merger will provide investors with those benefits.
ECONOMIC REVIEW
Bond prices were volatile during the six months ended April 30, 1997. Prices
initially rose as the economy slowed, erasing fears of an interest rate hike by
the Federal Reserve Board. The November election of a Democratic president and
Republican Congress was positive for bonds because the split government was
viewed as a restraint on spending increases that could potentially swell the
budget deficit. In addition, support diminished for radical tax reform that
could threaten the tax-free status of municipal bonds.
By the beginning of 1997, the situation changed. Bond prices began to fall
as the economy picked up speed, culminating in a 5.60 annualized percent growth
rate in the first quarter. This strength, coupled with warnings by Fed Chairman
Alan Greenspan that tighter monetary policy might be appropriate, reignited
fears of a rate hike. On March 25, the Fed raised short-term rates by a modest
0.25 percent, which sent the 30-year Treasury bond yield above 7.00 percent for
the first time in six months. By the end of April, the 30-year Treasury bond
yield slipped back below 7.00 percent as the market turned its attention to
positive news about inflation, and bonds recovered some of their earlier losses.
Throughout most of the six months ended April 30, municipal bonds generally
outperformed Treasuries. Between October 31 and April 30, yields on long-term
municipal revenue bonds rose 21 basis points, while yields on 30-year Treasury
bonds jumped
Continued on page two
1
<PAGE> 3
31 basis points. Because bond yields move in the opposite direction of prices,
the smaller increase in municipal yields meant that municipal bond prices did
not fall as sharply as Treasury bond prices did. A relatively stable supply of
new issues, combined with an increase in retail demand, contributed to the
improved performance of municipal bonds.
FUND STRATEGY
In managing the Trust, we maintained a concentration in high-quality bonds.
As of April 30, approximately 48 percent of the Trust's long-term investments
were rated AAA, the highest credit rating assigned to bonds by the Standard &
Poor's Ratings Group. Most of the AAA-rated bonds are insured securities, which
are extremely liquid and provide the potential for safety of principal. These
bonds have tended to perform better when interest rates are falling, which was
not the case for most of the period. In addition, approximately 27 percent of
long-term investments were rated AA or A, and approximately 25 percent were
rated BBB or below. BBB is the lowest credit rating Standard & Poor's assigns to
bonds in the investment-grade category.
[CREDIT QUALITY GRAPH]
Portfolio Composition by Credit Quality as Percentage of Long-Term
Investments as of April 30, 1997
<TABLE>
<S> <C>
AAA.......... 47.6%
AA........... 12.7%
A............ 14.4%
BBB.......... 19.3%
BB........... 5.6%
B............ 0.4%
</TABLE>
Based upon credit quality issued by Standard & Poor's. For securities not
rated by Standard & Poor's, the Moody's rating is used.
Portfolio turnover during the reporting period was minimal because market
conditions offered few opportunities to add value over existing holdings. The
average yields of bonds in the portfolio were higher than current market yields.
Activity was also limited by the tight spreads between yields of AAA-rated bonds
and lower-rated bonds. These spreads remained narrow due to the increasing
number of insured bonds in the municipal market. As a result, there was often
not enough yield reward to justify the additional credit risk associated with
purchasing lower-rated securities.
Activity focused on purchasing AAA-rated intermediate-term new issues and
selling bonds that we believed had achieved their upside potential. By the end
of the period, the percentage of AAA-rated bonds in the portfolio rose 2
percent. When buying new securities for the portfolio, we attempt to identify
those 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.
Continued on page three
2
<PAGE> 4
We maintained a slightly short duration during this period of rising
interest rates in order to potentially reduce the Trust's volatility to rate
increases. Duration, which is expressed in years, is a measure of a portfolio's
sensitivity to interest rate movements. Portfolios with long durations have
tended to perform better when rates are falling, and portfolios with short
durations have tended to perform better when rates are rising. At the end of the
period, the Trust's duration stood at 7.33 compared to 8.10 years for the Lehman
Brothers Municipal Bond Index benchmark.
[DIVIDEND HISTORY GRAPH]
Six-month Dividend History
For the Period Ended April 30, 1997
Distribution
per Share
------------
Nov 1996...................... $.085
Dec 1996...................... $.080
Jan 1997...................... $.080
Feb 1997...................... $.080
Mar 1997...................... $.080
Apr 1997...................... $.080
The dividend history represents past performance of the Trust and does
not predict the Trust's future distributions.
PERFORMANCE SUMMARY
For the six-month period ended April 30, 1997, the Van Kampen American
Capital Advantage Municipal Income Trust generated a total return at market
price of -0.10 percent(1). The Trust offered a tax-exempt distribution rate of
6.74 percent(3), based on the closing common stock price of $14.25 per share on
April 30, 1997. Because income from the Trust is exempt from federal income tax,
this distribution rate represents a yield equivalent to a taxable investment
earning 10.53 percent(4) (for investors in the 36 percent federal income tax
bracket). At the end of the reporting period, the closing share price of the
Trust traded at a 7.90 percent discount to its net asset value of $15.47.
During the period, the earnings of the Trust fell below the distribution
rate. As a result, the Board of Trustees approved a slight decrease in its
monthly dividend from $0.085 to $0.080 per common share, payable December 31,
1996.
Continued on page four
3
<PAGE> 5
Top Five Portfolio Industry Holdings by Sector as of April 30, 1997*
Single-Family Housing.................................. 16.9%
Transportation......................................... 13.0%
Industrial Revenue..................................... 12.3%
Health Care............................................ 10.9%
Higher Education....................................... 9.0%
*As a Percentage of Long-Term Investments
MUNICIPAL MARKET OUTLOOK
We continue to see signs of a strong economy, although we do not expect the
unusually brisk growth rate of the first quarter to be sustained throughout the
year. As a result, we believe the Fed will monitor the economy closely and take
aggressive action to control growth if inflation picks up or the high growth
rate is sustained. However, if growth slows, we believe the Fed will leave rates
unchanged. Given this outlook, we expect that yields on the 30-year Treasury
bond will range between 6.75 and 7.40 percent for the remainder of the year,
with higher levels occurring early and lower yields dominating the second half
of 1997. Although short-term interest rates have risen, this has not had a
significant impact on the leveraged structure of the Trust.
We believe the Trust is positioned to perform well in the coming months, and
we do not anticipate major structural changes in the portfolio. In light of our
expectations for interest rates, we will continue to maintain a slightly
defensive posture by keeping a relatively short duration for the portfolio and
adjusting the duration when prudent. We will also continue to seek a balance
between the Trust's total return and its dividend income, as well as to add
value through security selection. Thank you for your continued confidence in Van
Kampen American Capital and your Trust's team of managers.
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.
Please see footnotes on page five
4
<PAGE> 6
PERFORMANCE RESULTS FOR THE PERIOD ENDED APRIL 30, 1997
VAN KAMPEN AMERICAN CAPITAL ADVANTAGE MUNICIPAL INCOME TRUST
(NYSE TICKER SYMBOL--VKA)
<TABLE>
<CAPTION>
COMMON SHARE TOTAL RETURNS
<S> <C>
Six-month total return based on market price(1)........... (.10%)
Six-month total return based on NAV(2).................... 1.75%
DISTRIBUTION RATES
Distribution rate as a % of closing common stock
price(3).................................................. 6.74%
Taxable-equivalent distribution rate as a % of closing
common stock price(4)..................................... 10.53%
SHARE VALUATIONS
Net asset value........................................... $ 15.47
Closing common stock price................................ $14.250
Six-month high common stock price (11/06/96).............. $15.000
Six-month low common stock price (12/18/96)............... $13.750
Preferred share (Series A) rate(5)........................ 3.750%
Preferred share (Series B) rate(5)........................ 3.570%
Preferred share (Series C) rate(5)........................ 3.600%
Preferred share (Series D) rate(5)........................ 3.750%
</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.
Market forecasts provided in this report may not necessarily come to pass.
5
<PAGE> 7
PORTFOLIO OF INVESTMENTS
April 30, 1997 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- ----------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
MUNICIPAL BONDS
ALABAMA 1.4%
$ 6,050 Alabama Wtr Pollutn Ctl Auth Revolving Fund Ln
Ser A (AMBAC Insd)............................... 5.000% 08/15/15 $ 5,546,519
1,500 Huntsville-Madison Cnty, AL Arpt Auth Arpt
Terminal Rev (MBIA Insd)......................... 5.400 07/01/19 1,408,650
------------
6,955,169
------------
ALASKA 1.8%
10,000 Alaska St Hsg Fin Corp Ser A Rfdg (c)............ 5.000 12/01/18 8,875,400
------------
ARIZONA 1.0%
4,570 Pima Cnty, AZ Indl Dev Auth Indl Rev Lease Oblig
Irvington Proj Tucson Ser A Rfdg (FSA Insd)
(c).............................................. 7.250 07/15/10 5,040,664
------------
CALIFORNIA 4.3%
4,215 California Hlth Fac Fin Auth Rev Kaiser
Permanente Med Cent.............................. 5.450 10/01/13 4,027,685
5,000 California St Pub Wks Brd Lease Rev Var CA St
Univ Projs Ser A................................. 5.250 12/01/13 4,737,300
2,500 Los Angeles Cnty, CA Pub Wks Fin Auth Rev Cap
Constr Rfdg (AMBAC Insd)......................... 5.000 03/01/11 2,365,925
7,500 Los Angeles Cnty, CA Tran Comm Sales Tax Rev Prop
C Ser A (Prerefunded @ 07/01/02)................. 6.500 07/01/20 8,221,500
1,500 Orange Cnty, CA Recovery Ctfs Ser A (MBIA
Insd)............................................ 6.000 07/01/07 1,597,380
------------
20,949,790
------------
COLORADO 3.7%
8,500 Arapahoe Cnty, CO Cap Impt Trust Fund Hwy Rev
E-470 Proj Ser C................................. * 08/31/26 1,044,820
2,500 Colorado Hsg Fin Auth Single Family Pgm Sr Ser
B1............................................... 7.900 12/01/25 2,771,675
1,660 Colorado Hsg Fin Auth Single Family Pgm Sr Ser D1
Rfdg............................................. 8.000 12/01/24 1,866,388
5,130 Colorado Hsg Fin Auth Single Family Pgm Sr Ser
E................................................ 8.125 12/01/24 5,617,094
2,000 Denver, CO City & Cnty Arpt Rev Ser B............ 7.500 11/15/25 2,066,420
3,215 Denver, CO City & Cnty Arpt Rev Ser C............ 6.350 11/15/01 3,361,443
1,000 Meridian Metro Dist CO Rfdg...................... 7.500 12/01/11 1,093,690
------------
17,821,530
------------
CONNECTICUT 0.2%
1,000 Connecticut St Dev Auth Wtr Fac Rev Brdgeport
Hydraulic........................................ 6.150 04/01/35 1,001,610
------------
DISTRICT OF COLUMBIA 1.1%
5,000 District of Columbia Rev Howard Univ Ser A (MBIA
Insd)............................................ 7.250 10/01/20 5,423,050
------------
GEORGIA 1.1%
1,000 Atlanta, GA Spl Purp Fac Rev Delta Airls Ser B... 7.900 12/01/18 1,072,380
3,770 Monroe Cnty, GA Dev Auth Pollutn Ctl Rev
Oglethorpe Pwr Corp Scherer Ser A................ 6.800 01/01/12 4,186,095
------------
5,258,475
------------
</TABLE>
See Notes to Financial Statements
6
<PAGE> 8
PORTFOLIO OF INVESTMENTS (CONTINUED)
April 30, 1997 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- ----------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
HAWAII 1.5%
$ 5,045 Hawaii St Arpt Sys Rev 2nd Ser (FGIC Insd)....... 7.500% 07/01/20 $ 5,486,135
1,705 Hawaii St Hsg Fin & Dev Corp Single Family Mtg
Purp Rev Ser A (FHA Gtd)......................... 8.125 07/01/17 1,767,505
------------
7,253,640
------------
ILLINOIS 6.5%
1,620 Aurora, IL Single Family Mtg Rev Ser B Rfdg (GNMA
Collateralized).................................. 8.050 09/01/25 1,790,716
3,000 Chicago, IL O'Hare Intl Arpt Spl Fac Rev American
Airls Inc Proj Ser B............................. 7.875 11/01/25 3,230,820
5,000 Chicago, IL O'Hare Intl Arpt Spl Fac Rev Intl
Terminal (MBIA Insd)............................. 6.750 01/01/18 5,336,750
5,000 Chicago, IL Sch Fin Auth Ser A (MBIA Insd) (c)... 5.000 06/01/09 4,785,400
3,000 Cicero, IL (MBIA Insd)........................... 6.500 12/01/14 3,231,450
3,000 Illinois Dev Fin Auth Solid Waste Disposal Rev... 5.950 12/01/24 2,946,780
3,545 Illinois Edl Fac Auth Rev Lake Forest College
(FSA Insd)....................................... 6.750 10/01/21 3,820,907
5,000 Regional Tran Auth IL Ser B (AMBAC Insd)......... 8.000 06/01/17 6,410,800
------------
31,553,623
------------
INDIANA 1.4%
4,000 Indiana Hlth Fac Fin Auth Hosp Rev Cmnty Hosp
Proj (MBIA Insd)................................. 6.850 07/01/22 4,334,960
2,000 Indiana Hlth Fac Fin Auth Hosp Rev Columbus Regl
Hosp Rfdg (FSA Insd)............................. 7.000 08/15/15 2,291,500
------------
6,626,460
------------
KANSAS 2.2%
5,500 Burlington, KS Pollutn Ctl Rev KS Gas & Elec Co
Proj Rfdg (MBIA Insd)............................ 7.000 06/01/31 5,948,030
1,395 Sedgwick & Shawnee Cntys, KS Single Family Rev
Coll Mtg Ser A Rfdg (GNMA Collateralized)........ 8.050 05/01/24 1,543,665
2,955 Sedgwick Cnty, KS Single Family Mtg Rev Coll Ser
A Rfdg (GNMA Collateralized)..................... 8.125 05/01/24 3,249,377
------------
10,741,072
------------
KENTUCKY 2.9%
1,755 Kenton Cnty, KY Arpt Brd Arpt Rev Rfdg
Cincinnati/Nrthn KY Intl Ser A (MBIA Insd) (b)... 5.850 03/01/04 1,774,919
7,750 Kenton Cnty, KY Arpt Brd Arpt Rev Spl Fac Delta
Airls Proj Ser A................................. 7.125 02/01/21 8,211,357
4,450 Louisville & Jefferson Cnty, KY Metro Swr Dist
Drainage Rev Rfdg (MBIA Insd).................... 5.300 05/15/19 4,156,701
------------
14,142,977
------------
</TABLE>
See Notes to Financial Statements
7
<PAGE> 9
PORTFOLIO OF INVESTMENTS (CONTINUED)
April 30, 1997 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- ----------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
LOUISIANA 1.7%
$ 1,950 Louisiana Hsg Fin Agy Mtg Rev Multi-Family
Emerald Pointe Apts (FHA Gtd).................... 7.100% 11/01/33 $ 2,037,146
2,515 Louisiana Hsg Fin Agy Mtg Rev Single Family
Access Pgm Ser B (GNMA Collateralized)........... 8.000 03/01/25 2,803,269
3,000 Saint Charles Parish, LA Environmental Impt Rev
LA Pwr & Lt Co Ser A (AMBAC Insd)................ 6.875 07/01/24 3,269,910
------------
8,110,325
------------
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 9,280,440
------------
MASSACHUSETTS 2.9%
2,500 Chelsea, MA Sch Proj Ln Act 1948 (AMBAC Insd).... 6.500 06/15/12 2,685,650
3,955 Massachusetts Bay Tran Auth MA Genl Tran Sys Ser
A Rfdg........................................... 5.500 03/01/12 3,944,757
2,250 Massachusetts Bay Tran Auth MA Genl Tran Sys Ser
B Rfdg (MBIA Insd)............................... 6.000 03/01/10 2,332,957
3,500 Massachusetts Muni Whsl Elec Co Pwr Supply Sys
Rev Ser A Rfdg (AMBAC Insd)...................... 5.000 07/01/10 3,318,420
2,250 Massachusetts St Hlth & Edl Fac Auth Rev Saint
Mem Med Cent Ser A............................... 6.000 10/01/23 1,980,608
------------
14,262,392
------------
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 1,853,208
3,350 Michigan St Hosp Fin Auth Rev Hosp Mid-MI Oblig
Group............................................ 6.800 12/01/14 3,602,088
10,900 Michigan St Hsg Dev Auth Rental Hsg Rev Ser A
Rfdg............................................. 6.600 04/01/12 11,364,449
3,000 Michigan St Strategic Fund Ltd Oblig Rev Ser CC
Rfdg (FGIC Insd)................................. 6.950 09/01/21 3,240,090
------------
20,059,835
------------
MISSISSIPPI 2.9%
6,795 Mississippi Home Corp Single Family Rev Mtg
Access Pgm Ser B (GNMA Collateralized) (c)....... 7.900 03/01/25 7,496,108
2,445 Mississippi Home Corp Single Family Rev Mtg
Access Pgm Ser C (GNMA Collateralized)........... 8.125 12/01/24 2,706,273
3,410 Mississippi Home Corp Single Family Rev Mtg
Access Pgm Ser E (GNMA Collateralized)........... 8.100 12/01/25 3,784,725
------------
13,987,106
------------
MISSOURI 0.5%
2,100 Kansas City, MO Arpt Rev Genl Impt Ser A (FSA
Insd)............................................ 6.900 09/01/10 2,307,417
------------
NEW HAMPSHIRE 0.2%
1,000 New Hampshire St Business Fin Auth Wtr Fac Rev
Pennichuck Wtrwks Inc (AMBAC Insd) (b)........... 6.300 05/01/22 1,020,690
------------
</TABLE>
See Notes to Financial Statements
8
<PAGE> 10
PORTFOLIO OF INVESTMENTS (CONTINUED)
April 30, 1997 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- ----------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
NEW JERSEY 5.4%
$10,000 New Jersey Econ Dev Auth St Contract Econ
Recovery (Embedded Cap) (MBIA Insd).............. 5.900% 03/15/21 $ 10,258,300
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 8,715,920
2,000 New Jersey St Hwy Auth Garden St Pkwy Genl Rev Sr
Pkwy............................................. 6.250 01/01/14 2,114,020
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 4,996,099
------------
26,084,339
------------
NEW YORK 26.0%
1,500 Broome Cnty, NY Ctfs Partn Pub Safety Fac (MBIA
Insd) (c)........................................ 5.250 04/01/15 1,423,140
1,500 Metropolitan Tran Auth NY Commuter Fac Rev Ser A
(MBIA Insd)...................................... 5.625 07/01/27 1,467,900
1,500 Metropolitan Tran Auth NY Tran Fac Rev Ser K
Rfdg............................................. 6.250 07/01/11 1,540,320
1,000 New York City Adjusted Subser A 1 (Embedded
Cap)............................................. 4.640 08/01/12 940,000
4,250 New York City Indl Dev Agy Civic Fac Rev USTA
Natl Tennis Cent Proj (FSA Insd)................. 6.375 11/15/14 4,531,223
10 New York City Ser A.............................. 8.000 08/15/19 11,161
1,300 New York City Ser B.............................. 7.000 08/15/16 1,386,931
10,000 New York City Ser B (Embedded Cap)............... 7.590 10/01/16 10,353,800
25 New York City Ser B (Prerefunded @ 08/15/04)..... 7.000 08/15/16 28,253
2,730 New York City Ser C.............................. 7.250 08/15/24 2,912,801
1,170 New York, NY Ser C............................... 7.125 08/15/12 1,244,190
145 New York City Ser C (Prerefunded @ 08/15/01)..... 7.250 08/15/24 159,294
480 New York, NY Ser C (Prerefunded @ 08/15/01)...... 7.125 08/15/12 523,646
5,000 New York City Ser I.............................. 6.000 04/15/12 4,975,450
2,525 New York St Dorm Auth Lease Rev Muni Hlth Fac
Impt Pgm Ser A (FSA Insd)........................ 5.500 05/15/25 2,418,925
2,550 New York St Dorm Auth Rev Mental Hlth Services
Fac Ser B........................................ 5.750 08/15/11 2,513,153
3,970 New York St Dorm Auth Rev City Univ Sys Ser F.... 5.000 07/01/14 3,499,277
2,000 New York St Dorm Auth Rev City Univ Sys Ser F.... 5.000 07/01/20 1,716,660
2,600 New York St Dorm Auth Rev Cons City Univ Sys 2nd
Genl Ser A....................................... 5.750 07/01/13 2,576,834
5,050 New York St Dorm Auth Rev Cons City Univ Sys 2nd
Genl Ser B....................................... 5.375 07/01/07 4,956,625
3,100 New York St Dorm Auth Rev Cons City Univ Sys Ser
A................................................ 5.625 07/01/16 3,004,365
4,050 New York St Dorm Auth Rev Court Fac Lease Ser
A................................................ 5.300 05/15/07 3,951,464
5,000 New York St Dorm Auth Rev St Univ Edl Fac Ser A
Rfdg............................................. 5.500 05/15/08 4,967,200
2,000 New York St Dorm Auth Rev St Univ Edl Fac Ser B
Rfdg............................................. 7.500 05/15/11 2,309,860
</TABLE>
See Notes to Financial Statements
9
<PAGE> 11
PORTFOLIO OF INVESTMENTS (CONTINUED)
April 30, 1997 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- ----------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
NEW YORK (CONTINUED)
$ 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 $ 3,152,880
2,615 New York St Med Care Fac Fin Agy Rev (Prerefunded
@ 02/15/01)...................................... 7.500 02/15/21 2,912,587
1,090 New York St Med Care Fac Fin Agy Rev Mental Hlth
Ser B............................................ 7.375 02/15/14 1,152,446
1,150 New York St Med Care Fac Fin Agy Rev Mental Hlth
Ser B (Prerefunded @ 08/15/99)................... 7.375 02/15/14 1,238,044
1,560 New York St Med Care Fac Fin Agy Rev Mental Hlth
Services Fac Ser A............................... 7.500 02/15/21 1,717,466
5,000 New York St Med Care Fac Fin Agy Rev NY Downtown
Hosp Ser A....................................... 6.800 02/15/20 5,225,700
6,750 New York St Med Care Fac Fin Agy Rev NY Hosp Mtg
Ser A (AMBAC Insd) (c)........................... 6.300 08/15/06 7,335,090
7,000 New York St Med Care Fac Fin Agy Rev NY Hosp Mtg
Ser A (AMBAC Insd)............................... 6.400 08/15/07 7,642,180
2,000 New York St Med Care Fac Fin Agy Rev NY Hosp Mtg
Ser A (AMBAC Insd)............................... 6.600 02/15/11 2,161,900
3,000 New York St Pwr Auth Rev & Genl Purp Ser Y....... 6.750 01/01/18 3,253,830
5,695 New York St Thruway Auth Svc Contract Rev Loc Hwy
& Brdg........................................... 5.750 04/01/08 5,712,996
7,500 New York St Thruway Auth Svc Contract Rev Loc Hwy
& Brdg........................................... 5.250 04/01/13 6,913,425
7,405 New York St Urban Dev Corp Rev Correctional Cap
Fac Ser 6........................................ 5.250 01/01/11 6,956,997
5,500 Port Auth NY & NJ Spl Oblig Spl Proj JFK Intl
Arpt Terminal 6 (MBIA Insd) (b).................. 5.750 12/01/25 5,367,835
2,000 Triborough Brdg & Tunl Auth NY Rev Genl Purp Ser
X................................................ 6.500 01/01/19 2,129,560
------------
126,285,408
------------
NORTH CAROLINA 2.4%
11,000 North Carolina Muni Pwr Agy No 1 Catawba Elec Rev
(MBIA Insd)...................................... 6.000 01/01/12 11,656,150
------------
OHIO 0.2%
1,000 Marion Cnty Ohio Hosp Impt Rev Rfdg Cnty Hosp.... 6.375 05/15/11 1,016,440
------------
OKLAHOMA 1.1%
3,465 Cent Oklahoma Tran & Pkg Auth Rfdg Pkg Sys (FSA
Insd)............................................ 5.250 07/01/16 3,278,514
2,000 Oklahoma City, OK Indl & Cultural Fac Trust Rev
Dist Heating & Cooling Trigen.................... 6.750 09/15/17 2,049,380
------------
5,327,894
------------
</TABLE>
See Notes to Financial Statements
10
<PAGE> 12
PORTFOLIO OF INVESTMENTS (CONTINUED)
April 30, 1997 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- ----------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
PENNSYLVANIA 3.0%
$ 3,000 Northeastern, PA Hosp & Edl Auth (AMBAC Insd).... 5.250% 01/01/26 $ 2,764,620
2,000 Pennsylvania Hsg Fin Agy Single Family Mtg Ser
57a.............................................. 6.150 04/01/27 1,999,880
4,000 Pennsylvania Intergovt Coop Auth Spl Tax Rev
Philadelphia Funding Pgm (Prerefunded @ 06/15/05)
(FGIC Insd) (c).................................. 6.750 06/15/21 4,463,840
5,200 Randor Township PA Sch Dist (b).................. 5.750 03/15/26 5,109,728
------------
14,338,068
------------
RHODE ISLAND 1.6%
7,800 Rhode Island Hsg & Mtg Fin Corp Homeownership
Oppty Ser 5...................................... 6.400 04/01/24 7,905,690
------------
TENNESSEE 1.1%
5,000 Tennessee Hsg Dev Agy Homeownership Proj T....... 7.375 07/01/23 5,211,100
------------
TEXAS 5.6%
1,000 Brazos, TX Higher Edl Auth Inc Student Ln Rev
Subser A2 Rfdg................................... 6.800 12/01/04 1,066,920
1,160 Brazos, TX Higher Edl Auth Inc Student Ln Rev
Subser C2 Rfdg................................... 7.100 11/01/04 1,250,689
5,000 Dallas-Fort Worth, TX Intl Arpt Fac Impt Corp Rev
American Airls Inc............................... 7.250 11/01/30 5,353,700
5,340 Dallas-Fort Worth, TX Intl Arpt Fac Impt Corp Rev
Delta Airls Inc.................................. 7.625 11/01/21 5,752,782
1,500 Dallas-Fort Worth, TX Intl Arpt Fac Impt Corp Rev
Delta Airls Inc.................................. 7.125 11/01/26 1,563,810
2,280 Houston, TX Arpt Sys Rev Spl Facs People Mover
Ser A (FSA Insd)................................. 5.375 07/15/12 2,176,100
5,140 Little Elm, TX Indpt Sch Dist Rfdg (PSFG Insd)... 6.750 08/15/29 5,607,329
2,000 Tarrant Cnty, TX Jr College Dist................. 5.050 02/15/10 1,927,720
2,000 Texas St Dept Hsg & Cmnty Affairs Single Family
Rev Mtg Jr Lien Ser A Rfdg....................... 8.100 09/01/15 2,248,300
------------
26,947,350
------------
UTAH 0.8%
1,500 Intermountain Pwr Agy UT Pwr Supply Rev Ser B
Rfdg (MBIA Insd)................................. 5.750 07/01/19 1,485,960
1,000 Saint George, UT Park & Rec (FGIC Insd).......... 5.375 08/01/21 945,560
1,525 Salt Lake City, UT Arpt Rev Delta Airls Inc
Proj............................................. 7.900 06/01/17 1,606,877
------------
4,038,397
------------
WASHINGTON 1.1%
1,400 King Cnty, WA Hsg Auth Pooled Sr Ser A Rfdg...... 6.700 03/01/15 1,454,992
3,450 Washington St Pub Pwr Supply Sys Nuclear Proj No
2 Rev Ser B Rfdg (FSA Insd)...................... 7.000 07/01/12 3,747,321
------------
5,202,313
------------
</TABLE>
See Notes to Financial Statements
11
<PAGE> 13
PORTFOLIO OF INVESTMENTS (CONTINUED)
April 30, 1997 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- ----------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
WEST VIRGINIA 2.5%
$ 2,500 Berkeley Cnty, WV Bldg Comm Hosp Rev City Hosp
Proj............................................. 6.500% 11/01/22 $ 2,530,425
5,000 Marshall Cnty, WV Pollutn Ctl Rev OH Pwr Co Proj
Ser C Rfdg (MBIA Insd)........................... 6.850 06/01/22 5,400,450
2,000 West Virginia St Hsg Dev Fund Hsg Fin Ser A...... 5.550 05/01/17 1,932,080
2,625 West Virginia St Hsg Dev Fund Hsg Fin Ser A...... 5.450 11/01/21 2,505,615
------------
12,368,570
------------
WISCONSIN 1.7%
5,000 Madison, WI Indl Dev Rev Madison Gas & Elec Co
Proj Ser A....................................... 6.750 04/01/27 5,252,150
3,000 Wisconsin Hsg & Econ Dev Auth Homeownership Rev
Ser A............................................ 6.450 03/01/17 3,093,300
------------
8,345,450
------------
WYOMING 0.5%
2,370 Wyoming Cmnty Dev Auth Insd Single Family Mtg Ser
B................................................ 6.700 06/01/17 2,471,104
------------
PUERTO RICO 2.4%
1,000 Puerto Rico Comwlth Hwy & Tran Auth Hwy Rev Ser V
Rfdg............................................. 5.750 07/01/18 982,500
10,000 Puerto Rico Comwlth Hwy & Tran Ser Y (Embedded
Cap) (FSA Insd).................................. 6.250 07/01/21 10,762,600
------------
11,745,100
------------
TOTAL LONG-TERM INVESTMENTS 98.7%
(Cost $455,194,836)........................................................... 479,615,038
SHORT-TERM INVESTMENTS 2.4%
(Cost $11,600,000) (a)........................................................ 11,600,000
LIABILITIES IN EXCESS OF OTHER ASSETS (1.1%)................................... (5,577,681)
------------
NET ASSETS 100.0%.............................................................. $485,637,357
============
</TABLE>
* Zero coupon bond
(a) At April 30, 1997, for federal income tax purposes cost of long- and
short-term investments is $466,794,836; the aggregate gross unrealized
appreciation is $27,472,776 and the aggregate gross unrealized depreciation
is $3,604,188, resulting in net unrealized appreciation including open
futures transactions of $23,868,588.
(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
12
<PAGE> 14
STATEMENT OF ASSETS AND LIABILITIES
April 30, 1997 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS:
Long-Term Investments, at Market Value (Cost $455,194,836) (Note 1)................. $479,615,038
Short-Term Investments (Cost $11,600,000) (Note 1).................................. 11,600,000
Cash................................................................................ 95,839
Receivables:
Interest.......................................................................... 8,239,780
Securities Sold................................................................... 204,391
Unamortized Organizational Costs (Note 1)........................................... 3,202
Other............................................................................... 6,812
------------
Total Assets.................................................................. 499,765,062
------------
LIABILITIES:
Payables:
Securities Purchased.............................................................. 13,125,223
Income Distributions--Common and Preferred Shares................................. 331,368
Investment Advisory Fee (Note 2).................................................. 258,237
Administrative Fee (Note 2)....................................................... 79,457
Variation Margin on Futures (Note 4).............................................. 68,750
Affiliates (Note 2)............................................................... 16,700
Accrued Expenses.................................................................... 192,180
Deferred Compensation and Retirement Plans (Note 2)................................. 55,790
------------
Total Liabilities............................................................. 14,127,705
------------
NET ASSETS.......................................................................... $485,637,357
============
NET ASSETS CONSIST OF:
Preferred Shares ($.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........................................... 23,868,588
Accumulated Undistributed Net Investment Income..................................... 1,671,402
Accumulated Net Realized Loss on Securities......................................... (12,125,407)
------------
Net Assets Applicable to Common Shares............................................ 295,637,357
------------
NET ASSETS.......................................................................... $485,637,357
============
NET ASSET VALUE PER COMMON SHARE ($295,637,357 divided by 19,106,785 shares
outstanding)...................................................................... $ 15.47
============
</TABLE>
See Notes to Financial Statements
13
<PAGE> 15
STATEMENT OF OPERATIONS
For the Six Months Ended April 30, 1997 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest.................................................... $14,534,215
-----------
EXPENSES:
Investment Advisory Fee (Note 2)............................ 1,577,093
Administrative Fee (Note 2)................................. 485,259
Preferred Share Maintenance (Note 5)........................ 256,815
Trustees Fees and Expenses (Note 2)......................... 12,833
Custody..................................................... 12,780
Legal (Note 2).............................................. 13,032
Amortization of Organizational Costs (Note 1)............... 3,966
Other....................................................... 168,913
-----------
Total Expenses.......................................... 2,530,691
-----------
NET INVESTMENT INCOME....................................... $12,003,524
===========
NET REALIZED AND UNREALIZED GAIN/LOSS ON SECURITIES:
Realized Gain/Loss on Securities:
Investments............................................... $ 219,529
Futures................................................... (270,745)
-----------
Net Realized Loss on Securities............................. (51,216)
-----------
Net Unrealized Appreciation/Depreciation on Securities:
Beginning of the Period................................... 27,349,240
-----------
End of the Period:
Investments............................................... 24,420,202
Futures................................................... (551,614)
-----------
23,868,588
-----------
Net Unrealized Depreciation on Securities During the
Period.................................................... (3,480,652)
-----------
NET REALIZED AND UNREALIZED LOSS ON SECURITIES.............. $(3,531,868)
===========
NET INCREASE IN NET ASSETS FROM OPERATIONS.................. $ 8,471,656
===========
</TABLE>
See Notes to Financial Statements
14
<PAGE> 16
STATEMENT OF CHANGES IN NET ASSETS
For the Six Months Ended April 30, 1997 and the Year Ended
October 31, 1996 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months Ended Year Ended
April 30, 1997 October 31, 1996
- -----------------------------------------------------------------------------------------
<S> <C> <C>
FROM INVESTMENT ACTIVITIES:
Operations:
Net Investment Income.................................. $ 12,003,524 $ 24,696,497
Net Realized Gain/Loss on Securities................... (51,216) 1,803,355
Net Unrealized Appreciation/Depreciation on Securities
During the Period.................................... (3,480,652) 1,270,738
------------ ------------
Change in Net Assets from Operations................... 8,471,656 27,770,590
------------ ------------
Distributions from Net Investment Income:
Common Shares........................................ (9,266,541) (19,488,524)
Preferred Shares..................................... (3,253,623) (6,886,821)
------------ ------------
Total Distributions.................................... (12,520,164) (26,375,345)
------------ ------------
NET CHANGE IN NET ASSETS FROM INVESTMENT ACTIVITIES.... (4,048,508) 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 $1,671,402 and $2,188,042,
respectively)........................................ $485,637,357 $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. (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
September 25, 1992
Six Months (Commencement
Ended Year Ended October 31 of Investment
April 30, ------------------------------------- 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........ .628 1.293 1.330 1.354 1.369 .056
Net Realized and Unrealized
Gain/Loss on Securities.... (.184) .159 1.701 (3.148) 2.408 (.237)
-------- ------- ------- ------- ------- --------
Total from Investment
Operations................... .444 1.452 3.031 (1.794) 3.777 (.181)
-------- ------- ------- ------- ------- --------
Less:
Distributions from Net
Investment Income:
Paid to Common
Shareholders........... .485 1.020 1.020 1.020 .884 -0-
Common Share Equivalent
of Distributions Paid
to Preferred
Shareholders........... .170 .360 .391 .285 .303 .003
Distributions from Net
Realized Gain on
Securities:
Paid to Common Shareholders
(Note 1)................. -0- -0- -0- .067 -0- -0-
Common Share Equivalent of
Distributions Paid to
Preferred Shareholders... -0- -0- -0- .019 -0- -0-
-------- ------- ------- ------- ------- --------
Total Distributions........... .655 1.380 1.411 1.391 1.187 .003
-------- ------- ------- ------- ------- -------
Net Asset Value, End of the
Period....................... $ 15.473 $15.684 $15.612 $13.992 $17.177 $ 14.587
======== ======= ======= ======= ======= ========
Market Price Per Share at End
of the Period................ $ 14.250 $14.750 $14.375 $12.750 $16.000 $ 13.875
Total Investment Return at
Market Price (b)............. (.10%)* 9.88% 21.06% (14.17%) 22.08% (7.50%)*
Total Return at Net Asset
Value (c).................... 1.75%* 7.22% 19.46% (12.71%) 24.24% (2.73%)*
Net Assets at End of the
Period (In millions)......... $ 485.6 $ 489.7 $ 488.3 $ 457.3 $ 518.2 $ 468.7
Ratio of Expenses to Average
Net Assets Applicable to
Common Shares................ 1.71% 1.72% 1.72% 1.64% 1.66% 1.12%
Ratio of Expenses to Average
Net Assets................... 1.04% 1.05% 1.03% 1.00% 1.03% 1.00%
Ratio of Net Investment Income
to Average Net Assets
Applicable to Common Shares
(d).......................... 5.90% 5.99% 6.31% 6.81% 6.57% 3.52%
Portfolio Turnover............ 22%* 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
April 30, 1997 (Unaudited)
- --------------------------------------------------------------------------------
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)
April 30, 1997 (Unaudited)
- --------------------------------------------------------------------------------
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 costs 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 October 31, 2003.
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.
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 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
(Illinois), counsel to the Trust, of which a trustee of the Trust is an
affiliated person.
18
<PAGE> 20
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
April 30, 1997 (Unaudited)
- --------------------------------------------------------------------------------
For the six months ended April 30, 1997, the Trust recognized expenses of
approximately $28,000 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 April 30, 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 $107,775,146 and $110,548,472,
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 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.
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
19
<PAGE> 21
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
April 30, 1997 (Unaudited)
- --------------------------------------------------------------------------------
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 Fund 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 six months ended April 30, 1997,
were as follows:
<TABLE>
<CAPTION>
CONTRACTS
- ----------------------------------------------------------------------
<S> <C>
Outstanding at October 31, 1996............................. 100
Futures Opened.............................................. 1,125
Futures Closed.............................................. (1,025)
-----
Outstanding at April 30, 1997............................... 200
=====
</TABLE>
The futures contracts outstanding as of April 30, 1997, and the description
and unrealized depreciation are as follows:
<TABLE>
<CAPTION>
Unrealized
Contracts Depreciation
- -------------------------------------------------------------------------
<S> <C> <C>
U.S. Treasury Long Bond Future June 1997--
Sells to Open (Current notional value of
$109,281 per contract).................... 200 $ 551,614
========= =========
</TABLE>
B. 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.
20
<PAGE> 22
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
April 30, 1997 (Unaudited)
- --------------------------------------------------------------------------------
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 April 30, 1997 was 3.663%. During
the six months ended April 30, 1997, the rates ranged from 3.33% to 3.75%.
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
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
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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
Growth Fund
Pace Fund
Growth & Income
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
MORGAN STANLEY FUND, INC.
Aggressive Equity Fund
American Value Fund
Asian Growth Fund
Emerging Markets Fund
Global Equity Allocation Fund
Global Fixed Income Fund
High Yield Fund
International Magnum Fund
Latin American Fund
U.S. Real Estate Fund
Worldwide High Income 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 weekdays from 7:00 a.m. to 7:00
p.m. Central time at 1-800-341-2911 for Van Kampen American Capital funds,
or 1-800-282-4404 for Morgan Stanley retail funds.
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<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.
(C) Van Kampen American Capital Distributors, Inc., 1997 All rights reserved.
(SM) denotes a service mark of Van Kampen American Capital Distributors, Inc.
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