<PAGE> 1
HIGH INCOME ADVANTAGE TRUST
Two World Trade Center
New York, New York 10048
DEAR SHAREHOLDER:
- - --------------------------------------------------------------------------------
The high-yield bond market proved very rewarding for investors in 1993.
Benefiting from the general decline in interest rates that characterized the
first 10 months of the year, as well as the continued improvement in corporate
credit quality, the high-yield market concluded 1993 as one of the fixed-income
market's top performers. What's more, 1993 marked the third successive year of
excellent returns for this market.
However, more recently, a rapidly growing economy has created fears of
rising inflation to which the Federal Reserve Board responded by raising the
federal-funds rate -- the interest rate banks charge each other for overnight
loans -- by a total of 50 basis points, from 3.00 percent to 3.50 percent, in
two separate moves. (On April 18, following the close of the period under
review, the Federal Reserve Board, continuing its war on potential inflationary
pressure, again nudged the federal-funds rate by 25 basis points.) Although
these moves were presented as pre-emptive strikes against inflation, investors
interpreted them as the beginning of trend toward gradually rising interest
rates. This scenario resulted in a correction throughout the financial markets,
including the high-yield sector. Despite the weaker market environment,
high-yield bonds remained one of the better-performing asset classes during the
first quarter. The market's higher yields and sensitivity to the economy's
underlying strength have helped to cushion the negative impact of rising rates.
The high-yield market's strength in 1993 and early 1994 was reflected in
High Income Advantage Trust's performance. For the six-month period ended March
31, 1994, the Trust produced a total return of 8.79 percent, based on a closing
net asset value (NAV) of $6.14 per share. This return includes the reinvestment
of income dividends totaling approximately $0.30 per share and an extra income
dividend of $0.0717 per share paid on December 23, 1993. Based on a closing New
York Stock Exchange (NYSE) market price of $6.125 per share and reinvestment of
dividends, the Trust's total return was 6.13 percent. The Trust's return for the
trailing 12-month period was an impressive 19.52 percent, based on the NAV.
Based on NYSE market price, the Trust's total return was 16.08 percent.
Over the past six months, the Trust continued to distribute regular monthly
income dividends at a rate of $0.05 per share. As of March 31, 1994, the Trust's
net assets exceeded $184 million.
INVESTMENT STRATEGY
Our outlook for the high-yield market entering 1993 was favorable, based on
an improving economy and a low-interest-rate environment; on this basis, the
Trust began the year positioned to take advantage of a rising market. As the
year began, we found many financially sound and fundamentally improving
companies still trading at sharply discounted prices within the B-rated sector
of the market. The Trust continued to maintain its focus on discounted, B-rated
bonds during the six-month period under review, as this sector offered the most
attractive return potential in our opinion. As the economic environment improved
in the second half of 1993, and as many issuers took steps toward upgrading
their credit quality, the Trust was rewarded by the above-average appreciation
realized in many of these discounted, B-rated issues. Some of the top performers
held by the Trust during the six-month period were Ivex
<PAGE> 2
Holdings, Gaylord Container Corp. and Stone Container Corp. In most cases, as
the issuer's prospects have improved, so too have their bond prices.
During the six-month period, the Trust also was able to capitalize on the
ability of bond issuers to strengthen their credit quality by refinancing debt
in the prevailing low-interest-rate environment. As this trend has accelerated,
the Trust has experienced significant capital appreciation. Among the Trust's
current holdings, several issuers have recently completed refinancings,
including American Standard, Inc., Container Corp. and Fort Howard Corp.
Finally, the Trust's focus on financially sound issuers with improving credit
trends, coupled with the strengthening economic environment, kept credit
disappointments during the six-month period to a minimum. This, in turn,
resulted in greater appreciation for the Trust's shareholders, as well as a
steady level of income throughout the period.
MARKET OUTLOOK
Over the near-term, we remain cautious given the sharp rise in interest
rates and the recent weakness seen in all of the financial markets. Looking out
over the next 12 to 18 months, however, we remain optimistic about the prospects
for the high-yield bond market, based on our expectations for continued moderate
growth in the economy and further improvements in corporate credit quality. We
would expect more high-yield issuers to either tap the equity markets in order
to pay down debt or refinance their existing high-coupon debt at lower rates. If
the economy continues to recover as we expect, and high-yield issuers work
toward strengthening their balance sheets, we would anticipate that the
attractive yields available today will provide investors not only with a healthy
yield advantage over alternative fixed-income products, but also with an
excellent opportunity for further capital appreciation in the event interest
rates decline.
We would like to remind you that the Trustees have approved a procedure
whereby the Trust, when appropriate, may attempt to reduce or eliminate a market
value discount from net asset value by repurchasing shares in the open market or
in privately negotiated transactions at a price not above market value, if any
or net asset value, whichever is lower at the time of purchase.
We appreciate your support of High Income Advantage Trust and look forward
to continuing to serve your investment needs.
Very truly yours,
Charles A. Fiumefreddo
Chairman of the Board
<PAGE> 3
HIGH INCOME ADVANTAGE TRUST
PORTFOLIO OF INVESTMENTS March 31, 1994 (unaudited)
- - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Amount (in Coupon Maturity
thousands) Rate Date Value
- - ---------- ---------- -------- ------------
<S> <C> <C> <C> <C>
CORPORATE BONDS (88.4%)
AEROSPACE (2.8%)
$ 5,000 Sabreliner Corp. (Series B) - 144A**......................... 12.50 % 4/15/03 $ 5,100,000
------------
AIRLINES (5.0%)
8,000 GPA Delaware, Inc............................................ 8.75 12/15/98 6,560,000
7,569 Trans World Airlines, Inc.................................... 8.00 + 11/ 3/00 2,649,212
------------
9,209,212
------------
AUTOMOTIVE (1.0%)
2,000 Envirotest Systems Corp...................................... 9.625 4/ 1/03 1,910,000
------------
BUILDING & CONSTRUCTION (3.4%)
6,000 American Standard, Inc....................................... 14.25 6/30/03 6,240,000
------------
CABLE & TELECOMMUNICATIONS (1.1%)
2,000 Marcus Cable Co.............................................. 11.875 10/ 1/05 1,980,000
------------
CHEMICALS (3.5%)
6,000 Georgia Gulf Corp............................................ 15.00 4/15/00 6,457,500
------------
COMPUTER EQUIPMENT (4.4%)
6,959 Memorex Telex Corp.(b)....................................... 10.00 + 2/15/98 1,266,119
6,000 Unisys Corp.................................................. 15.00 * 7/ 1/97 6,780,000
------------
8,046,119
------------
CONSUMER PRODUCTS (2.1%)
4,000 Revlon Worldwide Corp. (Series B)............................ 0.00 3/15/98 1,830,000
2,000 J.B. Williams Holdings, Inc. - 144A**........................ 12.50 3/ 1/04 2,010,000
------------
3,840,000
------------
CONTAINERS (1.1%)
1,000 Ivex Holdings Corp. (Series B)............................... 13.25 ++ 3/15/05 475,000
1,900 Silgan Holdings, Inc......................................... 13.25 ++ 12/15/02 1,453,500
------------
1,928,500
------------
ELECTRICAL & ALARM SYSTEMS (1.0%)
2,000 Mosler, Inc. (Series A)...................................... 11.00 4/15/03 1,860,000
------------
ENTERTAINMENT, GAMING, & LODGING (17.7%)
6,000 Aztar Mortgage Funding, Inc.................................. 13.50 9/15/96 6,165,000
2,000 Belle Casinos, Inc. - 144A**................................. 12.00 10/15/00 1,960,000
10,883 Days Inns of America, Inc.(c)................................ 12.375 6/ 1/97 109
6,000 Fair Lanes, Inc.(b).......................................... 11.875 8/15/97 4,368,780
1,000 Fitzgeralds Gaming Corp - 144A**............................. 13.00 3/15/96 955,000
4,000 Hollywood Casino Corp. (Series B)............................ 14.00 4/ 1/98 4,460,000
2,000 SPI Holding, Inc............................................. 11.65 12/ 1/02 1,830,000
4,000 Treasure Bay Gaming & Resorts, Inc. - 144A**................. 12.25 11/15/00 3,780,000
4,000 Trump Castle Funding, Inc.................................... 11.75 11/15/03 3,560,000
6,000 Trump Plaza Holding Assoc.................................... 12.50 + 6/15/03 5,580,000
------------
32,658,889
------------
FOOD & BEVERAGE (2.2%)
8,000 Specialty Foods Acquisition Corp. (Series B)................. 13.00 ++ 8/15/05 4,080,000
------------
FOREST & PAPER PRODUCTS (6.3%)
3,000 Container Corp............................................... 15.50 ++ 12/ 1/04 5,992,500
6,000 Fort Howard Corp............................................. 14.125++ 11/ 1/04 5,700,000
------------
11,692,500
------------
</TABLE>
<PAGE> 4
HIGH INCOME ADVANTAGE TRUST
PORTFOLIO OF INVESTMENTS March 31, 1994 (unaudited) (continued)
- - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Amount (in Coupon Maturity
thousands) Rate Date Value
- - ---------- ---------- -------- ------------
<S> <C> <C> <C> <C>
HEALTHCARE PRODUCTS (4.9%)
$ 6,283 Alco Health Services Corp. .................................. 14.50 % 9/15/99 $ 6,817,055
2,065 Scherer R.P. Corp............................................ 14.00 11/ 1/99 2,168,250
------------
8,985,305
------------
MANUFACTURING (3.4%)
2,000 Snydergeneral Corp........................................... 14.25 11/15/00 4,200,000
4,000 Uniroyal Technology Corp..................................... 11.75 6/ 1/03 2,040,000
------------
6,240,000
------------
MANUFACTURING -- DIVERSIFIED INDUSTRIES (7.7%)
4,000 Interlake Corp............................................... 12.125 3/ 1/02 3,940,000
6,000 MS Essex Holdings, Inc....................................... 16.00 ++ 5/15/04 5,370,000
6,343 Thermadyne Industries, Inc.(b)............................... 12.75 +* 11/ 1/99 4,844,998
------------
14,154,998
------------
OIL & GAS (4.4%)
2,000 Deeptech International, Inc. ................................ 12.00 12/15/00 1,920,000
6,000 Presidio Oil Co. (Series B).................................. 13.925*** 7/15/02 6,210,000
------------
8,130,000
------------
RESTAURANTS (4.2%)
8,000 American Restaurant Group Holdings, Inc. .................... 14.00 ++ 12/15/05 3,920,000
4,000 Flagstar Corp................................................ 11.25 11/ 1/04 3,880,000
------------
7,800,000
------------
RETAIL (4.3%)
4,000 Cort Furniture Rental Corp................................... 12.00 9/ 1/00 3,980,000
4,000 County Seat Stores, Inc. (Units)............................. 12.00 10/ 1/01 3,920,000
------------
7,900,000
------------
RETAIL -- FOOD CHAINS (4.1%)
1,000 Food 4 Less Holdings, Inc.................................... 15.25 ++ 12/15/04 687,500
30,000 Grand Union Capital Corp. (Series A)......................... 0.00 1/15/07 3,112,500
4,000 Purity Supreme, Inc. (Series B).............................. 11.75 8/ 1/99 3,680,000
------------
7,480,000
------------
TEXTILES (3.3%)
273 Farley, Inc. (Conv.)......................................... 0.00 1/ 1/12 24,783
6,000 JPS Textiles Group, Inc...................................... 10.85 6/ 1/99 6,060,000
------------
6,084,783
------------
TRANSPORTATION (0.5%)
1,950 Transtar Holdings (Series A) - 144A**........................ 13.375++ 12/15/03 1,014,000
------------
TOTAL CORPORATE BONDS (IDENTIFIED COST $182,177,939)......... 162,791,806
------------
U.S. GOVERNMENT OBLIGATION (3.3%)
6,000 U.S. Treasury Note (Identified Cost $6,460,000).............. 13.125 5/15/94 6,060,938
------------
</TABLE>
<TABLE>
<CAPTION>
Number of
Shares
- - ----------
<S> <C> <C>
COMMON STOCKS(A)(3.1%)
BUILDING & CONSTRUCTION (2.4%)
145,483 USG Corp.(d)............................................................................ 4,419,046
------------
CONSUMER PRODUCTS (0.1%)
140,844 Triton Group, Ltd.(d)................................................................... 202,463
------------
ENTERTAINMENT, GAMING & LODGING (0.3%)
66,281 Buckhead America Corp.(d)............................................................... 364,546
44,701 SPI Holding, Inc. (Class B)(d).......................................................... 234,680
------------
599,226
------------
</TABLE>
<PAGE> 5
HIGH INCOME ADVANTAGE TRUST
PORTFOLIO OF INVESTMENTS March 31, 1994 (unaudited) (continued)
- - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Number of
Shares Value
- - ---------- ------------
<S> <C> <C>
FOOD & BEVERAGE (0.1%)
65,000 Specialty Foods Acquisition Corp. - 144A**.............................................. $ 130,000
------------
RESTAURANTS (0.2%)
8,000 American Restaurant Group Holdings, Inc. - 144A**....................................... 400,000
------------
TOTAL COMMON STOCKS (IDENTIFIED COST $22,675,522)....................................... 5,750,735
------------
PREFERRED STOCK(A)(D) (0.4%)
AIRLINES (0.4%)
269,624 Trans World Airlines, Inc. 12.00%+ (Identified Cost $3,581,120)......................... 657,209
------------
</TABLE>
<TABLE>
<CAPTION>
Number of Expiration
Warrants Date
- - ---------- --------
<S> <C> <C> <C>
WARRANTS & RIGHTS(A) (1.2%)
AEROSPACE (0.1%)
5,000 Sabreliner Corp............................................................ 4/15/03 100,000
------------
BUILDING & CONSTRUCTION (0.6%)
67,917 USG Corp.(d)............................................................... 5/ 5/98 1,137,609
------------
COMPUTER EQUIPMENT (0.00%)
631,268 Memorex Telex Corp. (Rights)(d)............................................ 631
------------
ENTERTAINMENT, GAMING & LODGING (0.3%)
2,000 Belle Casinos Inc. - 144A**................................................ 10/15/03 220,000
3,263 Casino America, Inc........................................................ 11/15/96 52,208
1,000 Fitzgeralds Gaming Corp. - 144A**.......................................... 3/15/99 65,000
20,000 Treasure Bay Gaming & Resorts, Inc. - 144A**............................... 11/15/98 120,000
200 Trump Plaza Holding Assoc.................................................. 6/18/96 170,000
------------
627,208
------------
FOREST & PAPER PRODUCTS (0.1%)
4,000 Crown Packaging Holdings, Ltd. - 144A**.................................... 10/15/03 140,000
------------
MANUFACTURING (0.0%)
20,000 Uniroyal Technology Corp................................................... 6/ 1/03 55,000
------------
MANUFACTURING -- DIVERSIFIED (0.0%)
788,000 Thermadyne Industries, Inc.(d)............................................. 12/31/00 55,160
------------
RETAIL (0.1%)
132,000 New Cort Holdings Corp..................................................... 9/ 1/98 165,000
------------
RETAIL -- FOOD CHAINS (0.00%)
13,861 Purity Supreme, Inc........................................................ 8/ 1/97 693
------------
TOTAL WARRANTS & RIGHTS (IDENTIFIED COST $1,053,688).................................... 2,281,301
------------
</TABLE>
<PAGE> 6
HIGH INCOME ADVANTAGE TRUST
PORTFOLIO OF INVESTMENTS March 31, 1994 (unaudited) (continued)
- - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Amount (in
thousands) Value
- - ---------- ------------
<S> <C> <C> <C>
SHORT-TERM INVESTMENTS (1.4%)
U.S. GOVERNMENT AGENCY(E) (1.1%)
$ 2,000 Federal Home Loan Bank 3.451% due 4/4/94
(Amortized Cost $1,999,425)........................................................... $ 1,999,425
------------
REPURCHASE AGREEMENT (0.3%)
649 The Bank of New York 3.50% due 4/4/94 (dated 3/31/94;
proceeds $648,664; collateralized by $681,483 U.S. Treasury
Note 6.25% due 2/15/03 valued at $661,637) (Identified
Cost $648,664)........................................................................ 648,664
------------
TOTAL SHORT-TERM INVESTMENTS (IDENTIFIED COST $2,648,089)............................... 2,648,089
------------
TOTAL INVESTMENTS (IDENTIFIED COST $218,596,358)(F)........................ 97.8% 180,190,078
OTHER ASSETS IN EXCESS OF LIABILITIES...................................... 2.2 3,988,321
------ ------------
NET ASSETS................................................................. 100.0% $184,178,399
------ ------------
------ ------------
</TABLE>
- - ---------------
<TABLE>
<S> <C>
* Adjustable rate. Rate shown is the rate in effect at March 31, 1994.
** Resale is restricted to qualified institutional investors.
*** Floating rate. Coupon is linked to the Gas Index. Rate shown is the rate in effect at March 31, 1994.
+ Payment in kind securities.
++ Currently zero coupon under terms of the initial offering.
(a) Non-income producing.
(b) Non-income producing, bond in default.
(c) Non-income producing, issuer in bankruptcy.
(d) Acquired through exchange offer.
(e) U.S. Government Agency was purchased on a discount basis. The interest rate shown has been adjusted to reflect
a bond equivalent yield.
(f) The aggregate cost for federal income tax purposes is $218,656,389; the aggregate gross unrealized
appreciation is $3,676,057 and the aggregate gross unrealized depreciation is $42,142,368, resulting in net
unrealized depreciation of $38,466,311.
</TABLE>
See Notes to Financial Statements
<PAGE> 7
HIGH INCOME ADVANTAGE TRUST
FINANCIAL STATEMENTS
- - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
STATEMENT OF ASSETS AND LIABILITIES
March 31, 1994 (unaudited)
- - --------------------------------------------
<S> <C>
ASSETS:
Investments in securities, at value
(identified cost $218,596,358) (Note 1)... $ 180,190,078
Receivable for:
Investments sold.......................... 8,613,026
Interest.................................. 4,629,195
Prepaid expenses and other assets........... 15,094
-------------
TOTAL ASSETS.......................... 193,447,393
-------------
LIABILITIES:
Payable for:
Investments purchased..................... 9,054,572
Investment management fee (Note 2)........ 131,670
Accrued expenses (Note 3)................... 82,752
-------------
TOTAL LIABILITIES..................... 9,268,994
-------------
NET ASSETS:
Paid-in-capital............................. 288,883,672
Accumulated net realized loss on
investments............................... (69,377,647)
Net unrealized depreciation on
investments............................... (38,406,280)
Accumulated undistributed net investment
income.................................... 3,078,654
-------------
NET ASSETS............................ $ 184,178,399
-------------
-------------
NET ASSET VALUE PER SHARE,
30,017,252 shares outstanding (unlimited
authorized shares of $.01 par value)..... $6.14
------
------
</TABLE>
<TABLE>
<CAPTION>
STATEMENT OF OPERATIONS For the six months
ended March 31, 1994 (unaudited)
- - --------------------------------------------
<S> <C>
INVESTMENT INCOME:
INTEREST INCOME........................... $ 10,114,948
-------------
EXPENSES
Investment management fee (Note 2)...... 694,688
Transfer agent fees and expenses........ 77,350
Professional fees....................... 35,317
Shareholder reports and notices......... 19,774
Custodian fees.......................... 18,200
Trustees' fees and expenses (Note 3).... 16,088
Registration fees....................... 15,777
Other................................... 7,353
-------------
TOTAL EXPENSES...................... 884,547
-------------
INVESTMENT INCOME - NET........... 9,230,401
-------------
NET REALIZED AND UNREALIZED GAIN
ON INVESTMENTS (Note 1):
Net realized gain on investments.......... 4,231,689
Net change in unrealized depreciation on
investments.............................. 2,127,175
-------------
NET GAIN ON INVESTMENTS............. 6,358,864
-------------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS....... $ 15,589,265
-------------
-------------
</TABLE>
STATEMENT OF CHANGES IN NET ASSETS
- - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the six months For the
ended March 31, 1994 year ended
(unaudited) September 30, 1993
--------------------- ------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
Operations:
Net investment income.............................................. $ 9,230,401 $ 20,913,480
Net realized gain (loss) on investments............................ 4,231,689 (15,564,258)
Net change in unrealized depreciation on investments............... 2,127,175 24,577,211
--------------------- ------------------
Net increase in net assets resulting from operations............. 15,589,265 29,926,433
Dividends to shareholders from net investment income................. (11,157,413) (24,619,347)
Net decrease from transactions in shares of beneficial interest (Note
4).................................................................. -0- (273,070)
--------------------- ------------------
Total increase................................................... 4,431,852 5,034,016
NET ASSETS:
Beginning of period.................................................. 179,746,547 174,712,531
--------------------- ------------------
END OF PERIOD (including undistributed net investment income of
$3,078,654 and $5,005,666, respectively)........................... $ 184,178,399 $ 179,746,547
--------------------- ------------------
--------------------- ------------------
</TABLE>
See Notes to Financial Statements
<PAGE> 8
HIGH INCOME ADVANTAGE TRUST
NOTES TO FINANCIAL STATEMENTS (unaudited)
- - --------------------------------------------------------------------------------
1. ORGANIZATION AND ACCOUNTING POLICIES -- High Income Advantage Trust (the
"Trust") is registered under the Investment Company Act of 1940, as amended (the
"Act"), as a diversified, closed-end management investment company. It was
organized on June 17, 1987 as a Massachusetts business trust and commenced
operations on October 29, 1987.
The following is a summary of significant accounting policies:
A. Valuation of Investments -- (1) an equity portfolio security listed or
traded on the New York or American Stock Exchange is valued at its latest
sale price on that exchange (if there were no sales that day, the security
is valued at the closing bid price); (2) all other portfolio securities for
which over-the-counter market quotations are readily available are valued
at the latest bid price; (3) when market quotations are not readily
available, portfolio securities are valued at their fair value as
determined in good faith under procedures established by and under the
general supervision of the Trustees (valuation of securities for which
market quotations are not readily available may be based upon current
market prices of securities which are comparable in coupon, rating and
maturity or an appropriate matrix utilizing similar factors); (4) certain
of the Trust's portfolio securities may be valued by an outside pricing
service approved by the Trustees. The pricing service utilizes a matrix
system incorporating security quality, maturity and coupon as the
evaluation model parameters, and/or research and evaluations by its staff,
including review of broker-dealer market price quotations, in determining
what it believes is the fair valuation of the portfolio securities valued
by such pricing service; (5) short-term debt securities with remaining
maturities of 60 days or less at time of purchase are valued at amortized
cost; other short-term securities are on a mark-to-market basis until such
time as they reach a remaining maturity of 60 days, whereupon they will be
valued at amortized cost using their value on the 61st day; and (6) all
other securities and other assets are valued at their fair value as
determined in good faith under procedures established by and under the
supervision of the Trustees.
B. Accounting for Investments -- Security transactions are accounted for on
the trade date (date the order to buy or sell is executed). In computing
net investment income, the Trust does not amortize premiums or accrue
discounts on fixed income securities, except those original issue discounts
for which amortization is required for federal income tax purposes.
Additionally, with respect to market discount, a portion of any capital
gain realized upon disposition may be recharacterized as investment income.
Realized gains and losses on security transactions are determined on the
identified cost method. Dividend income and other distributions are
recorded on the ex-dividend date. Interest income is accrued daily except
where collection is not expected.
C. Federal Income Tax Status -- It is the Trust's policy to comply with the
requirements of the Internal Revenue Code applicable to regulated
investment companies and to distribute all of its taxable income to its
shareholders. Accordingly, no federal income tax provision is required.
D. Dividends and Distributions to Shareholders -- The Trust records
dividends and distributions to its shareholders on the record date. The
amount of dividends and distributions from net investment income and net
realized capital gains are determined in accordance with federal income tax
regulations, which may differ from generally accepted accounting
principles. These "book/tax" differences are either considered temporary or
permanent in nature. To the extent these differences are permanent in
nature, such amounts are reclassified within the capital accounts based on
their federal tax-basis treatment; temporary differences do not require
reclassifications. Dividends and distributions which exceed net investment
income and net realized capital gains for financial reporting purposes but
not for tax purposes are reported as dividends in excess of net investment
income or distributions in excess of net realized capital gains. To the
extent they exceed net
<PAGE> 9
HIGH INCOME ADVANTAGE TRUST
NOTES TO FINANCIAL STATEMENTS (unaudited) (continued)
- - --------------------------------------------------------------------------------
investment income and net realized capital gains for tax purposes, they are
reported as distributions of paid-in capital.
E. Organizational Expenses -- The Trust's Investment Manager paid the
organizational expenses of the Trust in the amount of $60,515. The Trust
reimbursed the Investment Manager for these costs which were fully
amortized as of October 28, 1992.
F. Repurchase Agreement -- When the Trust enters into a repurchase
agreement, the Trust's custodian takes possession on behalf of the Trust of
the collateral pledged for investments in repurchase agreements. It is the
policy of the Trust to value the underlying collateral daily on a mark-
to-market basis to determine that the value, including accrued interest, is
at least equal to the repurchase price plus accrued interest. In the event
of default of the obligation to repurchase, the Trust has the right to
liquidate the collateral and apply the proceeds in satisfaction of the
obligation.
2. INVESTMENT MANAGEMENT AGREEMENT -- Pursuant to an Investment Management
Agreement (the "Agreement") with Dean Witter InterCapital Inc. (the "Investment
Manager"), the Trust pays its Investment Manager a management fee, calculated
weekly and payable monthly, by applying the following annual rates to the
Trust's average weekly net assets: 0.75% of the portion of the average weekly
net assets not exceeding $250 million; 0.60% of the portion of average weekly
net assets exceeding $250 million but not exceeding $500 million; 0.50% of the
portion of average weekly net assets exceeding $500 million but not exceeding
$750 million; 0.40% of the portion of average weekly net assets exceeding $750
million but not exceeding $1 billion; and 0.30% of the portion of average weekly
net assets exceeding $1 billion. Under the terms of the Agreement, in addition
to managing the Trust's investments, the Investment Manager maintains certain of
the Fund's books and records and furnishes office space and facilities,
equipment, clerical, bookkeeping and certain legal services, and pays the
salaries of all personnel, including officers of the Fund, who are employees of
the Investment Manager. The Investment Manager also bears the cost of telephone
services, heat, light, power and other utilities provided to the Trust.
3. SECURITY TRANSACTIONS AND TRANSACTIONS WITH AFFILIATES -- The cost of
purchases and the proceeds from sales of portfolio securities for the six months
ended March 31, 1994, excluding short-term investments, aggregated $99,446,026
and $107,181,404, respectively, including purchases and sales of U.S. Government
securities of $8,434,688 and $7,821,797, respectively.
On April 1, 1991, the Trust established an unfunded noncontributory defined
benefit pension plan covering all independent Trustees of the Trust who will
have served as Independent Trustee for at least five years at the time of
retirement. Benefits under this plan are based on years of service and
compensation during the last five years of service. Aggregate pension cost for
the six months ended March 31, 1994, included in Trustees' fees and expenses in
the Statement of Operations, amounted to $4,577. At March 31, 1994 the Trust had
an accrued pension liability of $40,820 which is included in accrued expenses in
the Statement of Assets and Liabilities.
Dean Witter Trust Company, an affiliate of the Investment Manager, is the
Trust's transfer agent. At March 31, 1994, the Trust had transfer agent fees and
expenses payable of approximately $5,600.
<PAGE> 10
HIGH INCOME ADVANTAGE TRUST
NOTES TO FINANCIAL STATEMENTS (unaudited) (continued)
- - --------------------------------------------------------------------------------
4. SHARES OF BENEFICIAL INTEREST -- Transactions in shares of beneficial
interest were as follows:
<TABLE>
<CAPTION>
Capital Paid
Par Value in Excess of
Shares of Shares Par Value
---------- --------- ------------
<S> <C> <C> <C>
Balance, September 30, 1992........................ 30,069,252 300,692 288,856,050
Purchase of treasury shares
(weighted average discount 5.7%)*................ (52,000) (520) (272,550)
---------- --------- ------------
Balance, September 30, 1993 and March 31, 1994..... 30,017,252 $ 300,172 $288,583,500
---------- --------- ------------
---------- --------- ------------
</TABLE>
- - ---------------
*The Trustees have voted to retire the shares repurchased.
5. FEDERAL INCOME TAX STATUS -- At September 30, 1993, the Trust had net
capital loss carryovers of approximately $57,959,000, of which $1,114,000 will
be available through September 30, 1997, $5,723,000 will be available through
September 30, 1998, $27,616,000 will be available through September 30, 1999,
$23,411,000 will be available through September 30, 2000 and $95,000 will be
available through September 30, 2001 to offset future capital gains, to the
extent provided by regulations. Capital losses incurred after October 31
"Post-October losses" within taxable year are deemed to arise on the first
business day of the Trust's next taxable year. The Trust incurred and will elect
to defer a net capital loss of approximately $15,581,000 during fiscal 1993. To
the extent that these loss carryovers are used to offset future capital gains,
it is probable that the gains so offset will not be distributed to shareholders.
As of September 30, 1993, the Trust had temporary book/tax differences which
were primarily attributable to Post-October losses.
6. DIVIDENDS -- The Trust declared the following dividend from net investment
income --
<TABLE>
<CAPTION>
Declaration Amount Record Payable
Date Per Share Date Date
- - --------------- --------- -------------- ---------------
<S> <C> <C> <C>
March 29, 1994 $ .05 April 8, 1994 April 22, 1994
April 26, 1994 $ .05 May 6, 1994 May 20, 1994
</TABLE>
7. SELECTED QUARTERLY FINANCIAL DATA --
<TABLE>
<CAPTION>
Quarters Ended*
--------------------------------
3/31/94 12/31/93
--------------- ---------------
Per Per
Total Share Total Share
------- ----- ------- -----
<S> <C> <C> <C> <C>
Total investment income................................................... $ 5,117 $ .17 $ 4,998 $ .17
Investment income - net................................................... 4,672 .16 4,558 .15
Realized and unrealized gain (loss) on investments - net.................. (1,070) (.04) 7,429 .25
</TABLE>
<TABLE>
<CAPTION>
Quarters Ended*
----------------------------------------------------------------
9/30/93 6/30/93 3/31/93 12/31/92
-------------- -------------- --------------- ---------------
Per Per Per Per
Total Share Total Share Total Share Total Share
------ ----- ------ ----- ------- ----- ------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Total investment income.................... $6,427 $ .21 $5,409 $ .18 $ 5,420 $ .18 $ 5,321 $ .18
Investment income - net.................... 6,002 .20 5,012 .17 5,005 .17 4,894 .16
Realized and unrealized gain (loss) on
investments - net........................ 542 .02 5,375 .18 11,111 .37 (8,015) (.27)
</TABLE>
- - ---------------
*Totals expressed in thousands of dollars.
<PAGE> 11
HIGH INCOME ADVANTAGE TRUST
FINANCIAL HIGHLIGHTS (unaudited)
- - --------------------------------------------------------------------------------
Selected ratios and per share data for a share of beneficial interest
outstanding throughout each period:
<TABLE>
<CAPTION>
For the six For the year ended September 30,
months ended ----------------------------------------------------
March 31, 1994 1993 1992 1991 1990 1989
-------------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of
period................................... $5.99 $5.81 $5.23 $4.96 $7.68 $9.19
-------------- -------- -------- -------- -------- --------
Net investment income...................... .31 .70 .84 .69 1.07 1.18
Net realized and unrealized gain (loss) on
investments.............................. .21 .30 .33 .27 (2.66) (1.44)
-------------- -------- -------- -------- -------- --------
Total from investment
operations............................... .52 1.00 1.17 .96 (1.59) (.26)
-------------- -------- -------- -------- -------- --------
Less dividends and distributions:
Dividends from net investment income..... (.37) (.82) (.59) (.69) (1.13) (1.20)
Distributions from net realized gains on
investments............................ -0- -0- -0- -0- -0- (.05)
-------------- -------- -------- -------- -------- --------
Total dividends and distributions.......... (.37) (.82) (.59) (.69) (1.13) (1.25)
-------------- -------- -------- -------- -------- --------
Net asset value, end of period............. $6.14 $5.99 $5.81 $5.23 $4.96 $7.68
-------------- -------- -------- -------- -------- --------
-------------- -------- -------- -------- -------- --------
Market value, end of period................ $6.125 $6.125 $5.75 $4.625 $3.625 $7.75
-------------- -------- -------- -------- -------- --------
-------------- -------- -------- -------- -------- --------
TOTAL INVESTMENT RETURN+..................... 6.13%(1) 22.41% 38.06% 50.89% (43.28)% (10.65)%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period
(in thousands)........................... $184,178 $179,747 $174,713 $162,002 $158,454 $247,874
Ratio of expenses to average net assets.... .95%(2) .97% 1.00% 1.07% 1.01% .90%
Ratio of net investment income to average
net assets............................... 9.91%(2) 12.14% 14.72% 14.80% 17.46% 13.60%
Portfolio turnover rate.................... 55% 140% 108% 149% 20% 44%
</TABLE>
- - ---------------
<TABLE>
<S> <C>
+ Total investment return is based upon the current market value on the first
and last day of each period reported. Dividends and distributions are
assumed to be reinvested at the prices obtained under the Trust's dividend
reinvestment plan. Total investment return does not reflect sales charges or
brokerage commissions.
(1) Not Annualized.
(2) Annualized.
</TABLE>
See Notes to Financial Statements
- - --------------------------------------------------------------------------------
The financial statements included herein have been taken from the records
of the Trust without examination by the independent accountants and accordingly
they do not express an opinion thereon.
<PAGE> 12
TRUSTEES
Jack F. Bennett
Michael Bozic
Charles A. Fiumefreddo
Edwin J. Garn
John R. Haire
Dr. John E. Jeuck
Dr. Manuel H. Johnson
Paul Kolton
Michael E. Nugent
Philip J. Purcell
John L. Schroeder
Edward R. Telling
OFFICERS
Charles A. Fiumefreddo
Chairman and Chief Executive Officer
Sheldon Curtis
Vice President, Secretary and General Counsel
Peter M. Avelar
Vice President
Thomas F. Caloia
Treasurer
TRANSFER AGENT
Dean Witter Trust Company
Harborside Financial Center - Plaza Two
Jersey City, New Jersey 07311
LEGAL COUNSEL
Sheldon Curtis
Two World Trade Center
New York, New York 10048
INDEPENDENT ACCOUNTANTS
Price Waterhouse
1177 Avenue of the Americas
New York, New York 10036
INVESTMENT MANAGER
Dean Witter InterCapital Inc.
Two World Trade Center
New York, New York 10048
HIGH
INCOME
ADVANTAGE
TRUST
Semiannual Report
March 31, 1994
