<PAGE>
HIGH INCOME ADVANTAGE TRUST
Two World Trade Center
New York, New York 10048
DEAR SHAREHOLDER:
- --------------------------------------------------------------------------------
The fiscal year ended September 30, 1994 began on a positive note, with the
high-yield bond market benefiting from the lower interest rate environment, as
well as from continuing improvement in the corporate credit quality of issuing
companies. This credit-quality improvement, which was driven by the economic
recovery as well as corporate refinancing and deleveraging activity, helped to
boost the underlying values of most high-yield issues. As a result, High Income
Advantage Trust's total return for the first six-month period ended March 31,
1994 was 6.13 percent, based on its $6.125 closing market price per share on the
New York Stock Exchange (NYSE). Based on its net asset value (NAV) of $6.14 per
share on March 31, 1994, the Trust's total return for the six-month period was
8.79 percent.
In sharp contrast, the second half of the Trust's fiscal year was
disappointing for all fixed-income markets, including the high-yield bond
market. Questions concerning the strength of the economy, inflation prospects,
interest rate levels and possible Federal Reserve Board actions created an
uncomfortable level of uncertainty for the financial markets. High-yield
investors, worried about rising interest rate levels and possible further
tightening moves by the Federal Reserve Board, were not immune to the
fixed-income market's volatility.
The high-yield bond market's weakness during the second half of the fiscal
year was reflected in the Trust's performance. For the six-month period ended
September 30, 1994, the Trust's total return was -3.36 percent, based on its
$5.625 closing market price per share on the New York Stock Exchange (NYSE).
Based on its net asset value (NAV) of $5.32 per share on September 30, 1994, the
Trust's total return for the six-month period was -8.82 percent. For the full
fiscal year ended September 30, 1994, the Trust's total return was 2.56 percent,
based on the closing NYSE market price per share quoted above and -0.81 percent
based on the NAV at the end of the period. As of September 30, 1994, the Trust's
net assets exceeded $159 million. Over the past twelve months, the Trust
continued to distribute regular income dividends at a rate of $0.05 per share
per month. For the full twelve-month period, income dividends totaled $0.6717
per share, including an extra income dividend of $0.0717 per share paid on
December 23, 1993.
INVESTMENT STRATEGY
The Trust began 1994 positioned defensively. Rising U.S. Treasury security
yields had begun to reduce the relative attractiveness of high-yield market
yields, narrowing their yield advantage. In addition, given the strength in the
high-yield market early in the fiscal year, attractively priced discount issues
were becoming more difficult to find. In light of this, the Trust positioned
itself with close to half of its assets in very defensive, high-coupon,
short-duration paper, which helped to cushion the Trust during the market's
first quarter decline.
The Trust became a buyer during the early part of the second quarter of
1994, as a correction pushed the market back to more attractive levels. Despite
the fact that corporate credit quality in most cases remained strong, B-rated
issues could now be purchased at 12 percent to 13 percent yield levels vs. the
10 percent levels that existed earlier in the fiscal year and at significant
discounts to par
<PAGE>
(face value). As of the end of the reporting period, the high-yield market, as
well as the bond market in general, remained weak.
MARKET OUTLOOK
Given our outlook for slower, but continued growth in the economy, we find
today's B-rated issues (now yielding more than 600 basis points, six percent,
over U.S. Treasury securities and trading at steep discounts) offer excellent
long-term return potential. Over the near-term, we expect continued volatility
in the financial markets, as investors attempt to assess the economy's strength,
the level of interest rates and possible Federal Reserve Board actions. However,
despite this possible short-term weakness, we find today's high-yield market to
be an attractive long-term opportunity for investors. Current issues provide an
exceptionally large yield advantage over U.S. Treasury securities, with the
opportunity for substantial capital appreciation if the high-yield market
rebounds.
We would like to remind you that the Trustees have approved a procedure
whereby the Trust, when appropriate, may repurchase shares in the open market or
in privately negotiated transactions at a price not above market value or net
asset value, whichever is lower at the time of purchase.
We thank you for your continued 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>
HIGH INCOME ADVANTAGE TRUST
PORTFOLIO OF INVESTMENTS SEPTEMBER 30, 1994
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT (IN COUPON MATURITY
THOUSANDS) RATE DATE VALUE
- ---------- ----------- --------- ---------------
<C> <S> <C> <C> <C>
CORPORATE BONDS (85.3%)
AEROSPACE (2.9%)
$ 5,000 Sabreliner Corp. (Series B)...................................... 12.50% 4/15/03 $ 4,625,000
---------------
AIRLINE (4.2%)
8,000 GPA Delaware, Inc................................................ 8.75 12/15/98 6,720,000
---------------
AUTOMOTIVE (2.4%)
2,000 Envirotest Systems Corp.......................................... 9.625 4/ 1/03 1,840,000
2,000 Harvard Industries, Inc.......................................... 12.00 7/15/04 2,040,000
---------------
3,880,000
---------------
CABLE & TELECOMMUNICATION (1.4%)
4,000 Marcus Cable Co.................................................. 13.50++ 8/ 1/04 2,200,000
---------------
CHEMICAL (1.3%)
2,000 Georgia Gulf Corp................................................ 15.00 4/15/00 2,080,000
---------------
COMPUTER EQUIPMENT (2.8%)
4,000 Unisys Corp...................................................... 13.50 7/ 1/97 4,400,000
---------------
CONSUMER PRODUCTS (3.3%)
2,000 J.B. Williams Holdings, Inc. - 144A**............................ 12.50* 3/ 1/04 1,960,000
6,000 Revlon Worldwide Corp. (Series B)................................ 0.00 3/15/98 2,790,000
500 Thermoscan, Inc. (Units)+++ - 144A**............................. 11.50* 8/15/01 505,000
---------------
5,255,000
---------------
CONTAINER (1.1%)
4,000 Ivex Holdings Corp. (Series B)................................... 13.25++ 3/15/05 1,820,000
---------------
ELECTRICAL & ALARM SYSTEMS (1.6%)
4,000 Mosler, Inc...................................................... 11.00 4/15/03 2,480,000
---------------
ENTERTAINMENT, GAMING & LODGING (13.0%)
1,000 Fitzgeralds Gaming Corp. - 144A**................................ 13.00* 3/15/96 645,000
4,000 Hollywood Casino Corp. (Series B)................................ 14.00 4/ 1/98 4,000,000
4,000 Motels of America, Inc........................................... 12.00 4/15/04 4,480,000
6,253 Spectravision, Inc............................................... 11.65+ 12/ 1/02 3,235,928
4,000 Treasure Bay Gaming & Resort, Inc. - 144A**...................... 12.25 11/15/00 1,285,000
4,000 Trump Castle Funding, Inc........................................ 11.75 11/15/03 2,300,000
7,362 Trump Plaza Holding Assoc........................................ 12.50+ 6/15/03 4,785,226
---------------
20,731,154
---------------
</TABLE>
<PAGE>
HIGH INCOME ADVANTAGE TRUST
PORTFOLIO OF INVESTMENTS SEPTEMBER 30, 1994 (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT (IN COUPON MATURITY
THOUSANDS) RATE DATE VALUE
- ---------- FOOD & BEVERAGES (4.1%) ---------- --------- -------------
<C> <S> <C> <C> <C>
$ 4,000 Envirodyne Industries, Inc....................................... 10.25% 12/ 1/01 $ 3,220,000
9,000 Specialty Foods Acquisition Corp. (Series B)..................... 13.00++ 8/15/05 3,285,000
-------------
6,505,000
-------------
FOREST & PAPER PRODUCTS (2.5%)
4,000 Fort Howard Corp................................................. 14.125++ 11/ 1/04 3,990,000
-------------
MANUFACTURING (7.2%)
4,000 Berry Plastics Corp. (Units)+++................................... 12.25 4/15/04 3,960,000
6,000 MS Essex Holdings, Inc........................................... 16.00++ 5/15/04 5,700,000
2,000 Uniroyal Technology Corp......................................... 11.75 6/ 1/03 1,800,000
-------------
11,460,000
-------------
MANUFACTURING--DIVERSIFIED (4.2%)
4,000 Interlake Corp................................................... 12.125 3/ 1/02 3,650,000
2,000 J.B. Poindexter, Inc............................................. 12.50 5/15/04 1,965,000
2,000 Jordan Industries, Inc........................................... 11.75++ 8/ 1/05 1,130,000
-------------
6,745,000
-------------
OIL & GAS (6.8%)
2,000 Deeptech International, Inc...................................... 12.00 12/15/00 1,900,000
4,000 Empire Gas Corp. (Units)+++...................................... 7.00++ 7/15/04 3,080,000
6,000 Presidio Oil Co. (Series B)...................................... 13.90*** 7/15/02 6,000,000
-------------
10,980,000
-------------
PUBLISHING (5.9%)
4,000 Affiliated Newspapers Inv., Inc.................................. 13.25++ 7/ 1/06 2,060,000
3,800 BFP Holdings, Inc. (Series B).................................... 13.50++ 4/15/04 1,919,000
2,000 Garden State Newspapers, Inc..................................... 12.00 7/ 1/04 1,980,000
4,000 United States Bancorp............................................ 10.375 6/ 1/02 3,460,000
-------------
9,419,000
-------------
RESTAURANTS (8.0%)
8,000 American Restaurant Group Holdings, Inc.......................... 14.00++ 12/15/05 3,840,000
4,000 Carrols Corp..................................................... 11.50 8/15/03 3,760,000
6,000 Flagstar Corp.................................................... 11.25 11/ 1/04 5,160,000
-------------
12,760,000
-------------
RETAIL (6.1%)
4,000 Cort Furniture Rental Corp....................................... 12.00 9/ 1/00 3,920,000
2,000 County Seat Stores Co............................................ 12.00 10/ 1/01 1,980,000
4,000 Thrifty Payless Holdings, Inc.................................... 12.25 4/15/04 3,920,000
-------------
9,820,000
-------------
</TABLE>
<PAGE>
HIGH INCOME ADVANTAGE TRUST
PORTFOLIO OF INVESTMENTS SEPTEMBER 30, 1994 (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT (IN COUPON MATURITY
THOUSANDS) RATE DATE VALUE
- ---------- RETAIL--FOOD CHAINS (4.1%) ---------- --------- -------------
<C> <S> <C> <C> <C>
$ 2,000 Food 4 Less Holdings, Inc........................................ 15.25%++ 12/15/04 $ 1,400,000
34,000 Grand Union Capital Corp. (Series A)............................. 0.00 1/15/07 1,657,500
4,000 Purity Supreme, Inc. (Series B).................................. 11.75 8/ 1/99 3,570,000
-------------
6,627,500
-------------
TEXTILES (2.4%)
273 Farley, Inc. (Conv.)............................................. 0.00 1/ 1/12 26,497
5,034 JPS Textiles Group, Inc.......................................... 10.85 6/ 1/99 3,888,765
-------------
3,915,262
-------------
TOTAL CORPORATE BONDS (IDENTIFIED COST $153,994,292).................................... 136,412,916
-------------
U.S. GOVERNMENT OBLIGATION (3.8%)
6,000 U.S. Treasury Note (Identified Cost $6,106,875).................. 11.625 11/15/94 6,044,063
-------------
<CAPTION>
NUMBER OF
SHARES
- ----------
<C> <S> <C>
COMMON STOCKS(A)(5.7%)
BUILDING & CONSTRUCTION (1.9%)
145,483 USG Corp. (b)............................................................................. 3,000,587
--------------
COMPUTER EQUIPMENT (0.2%)
191,107 Memorex Telex Corp. (ADR) (b)............................................................. 334,437
--------------
ENTERTAINMENT, GAMING & LODGING (0.6%)
66,281 Buckhead American Corp.................................................................... 563,389
4,000 Motels of America, Inc. - 144A**.......................................................... 340,000
44,701 Spectravision, Inc. (Class B)............................................................. 97,783
--------------
1,001,172
--------------
FOOD & BEVERAGES (0.1%)
90,000 Specialty Foods Acquisition Corp. - 144A**................................................ 90,000
--------------
MANUFACTURING - DIVERSIFIED (2.5%)
346,812 Thermadyne Holdings Corp. (b)............................................................. 3,988,338
--------------
PUBLISHING (0.2%)
4,000 Affiliated Newspapers Inv., Inc. (Class B)................................................ 100,000
30,400 BFP Holdings, Inc. - 144A** (Class D)..................................................... 258,400
--------------
358,400
--------------
RESTAURANT (0.1%)
8,000 American Restaurant Group Holdings, Inc. - 144A**......................................... 176,000
--------------
RETAIL (0.1%)
76,000 Thrifty Payless Holdings, Inc. (Class C).................................................. 228,000
--------------
TOTAL COMMON STOCKS (IDENTIFIED COST $24,337,112)......................................... 9,176,934
--------------
<CAPTION>
NUMBER OF EXPIRATION
WARRANTS DATE
- ---------- --------------
<C> <S> <C> <C>
WARRANTS(A)(0.9%)
AEROSPACE (0.0%)
5,000 Sabreliner Corp. (b)...................................................... 4/15/03 50,000
--------------
BUILDING & CONSTRUCTION (0.5%)
67,917 USG Corp. (b)............................................................. 5/ 5/98 739,228
--------------
CONTAINER (0.1%)
4,000 Crown Packaging Holdings, Ltd. - 144A**................................... 10/15/03 176,000
--------------
</TABLE>
<PAGE>
HIGH INCOME ADVANTAGE TRUST
PORTFOLIO OF INVESTMENTS SEPTEMBER 30, 1994 (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NUMBER OF EXPIRATION
WARRANTS DATE VALUE
- ---------- ENTERTAINMENT, GAMING & LODGING (0.1%) ---------- -------------
<C> <S> <C> <C>
3,263 Casino America, Inc....................................................... 11/15/96 $ 3,263
1,000 Fitzgeralds Gaming Corp. - 144A**......................................... 3/15/99 43,000
20,000 Treasure Bay Gaming & Resorts, Inc. - 144A**.............................. 11/15/98 20,000
200 Trump Plaza Holding Assoc................................................. 6/18/96 110,000
-------------
176,263
-------------
MANUFACTURING (0.0%)
20,000 Uniroyal Technology Corp.................................................. 6/ 1/03 20,000
-------------
RETAIL (0.2%)
4,000 County Seat Holdings Co................................................... 10/15/98 60,000
132,000 New Cort Holdings Corp.................................................... 9/ 1/98 198,000
-------------
258,000
-------------
RETAIL - FOOD CHAINS (0.0%)
13,861 Purity Supreme, Inc. - 144A**............................................. 8/ 6/97 693
-------------
TOTAL WARRANTS (IDENTIFIED COST $1,113,359)........................................... 1,420,184
-------------
<CAPTION>
PRINCIPAL
AMOUNT (IN
THOUSANDS)
- ----------
<C> <S> <C>
SHORT-TERM INVESTMENT(C)(1.9%)
COMMERCIAL PAPER (1.9%)
$ 3,000 General Electric Co. 4.60% due 10/3/94 (Amortized Cost $2,999,233).......................2,999,233
-----------
TOTAL INVESTMENTS (IDENTIFIED COST $188,550,871)(D).................................... 97.6% 156,053,330
OTHER ASSETS IN EXCESS OF LIABILITIES.................................................. 2.4 3,782,106
-------- -----------
NET ASSETS............................................................................. 100.0% $159,835,436
-------- -----------
-------- -----------
<FN>
- ------------------
ADR AMERICAN DEPOSITORY RECEIPT
* ADJUSTABLE RATE. RATE SHOWN IS THE RATE IN EFFECT AT SEPTEMBER 30, 1994.
** RESALE IS RESTRICTED TO QUALIFIED INSTITUTIONAL INVESTORS.
*** BASE INTEREST RATE IS 13.25%, ADDITIONAL INTEREST IF ANY, IS LINKED TO
THE GAS INDEX. RATE SHOWN IS THE RATE IN EFFECT AT SEPTEMBER 30, 1994.
+++ CONSISTS OF MORE THAN ONE CLASS OF SECURITIES TRADED TOGETHER AS A UNIT;
GENERALLY BONDS WITH ATTACHED STOCKS/WARRANTS.
+ PAYMENT-IN-KIND SECURITIES.
++ CURRENTLY ZERO COUPON BOND AND WILL PAY INTEREST AT THE RATE SHOWN AT A
FUTURE SPECIFIED DATE.
(A) NON-INCOME PRODUCING SECURITY.
(B) ACQUIRED THROUGH EXCHANGE OFFER.
(C) COMMERCIAL PAPER WAS PURCHASED ON A DISCOUNT BASIS. THE INTEREST RATE SHOWN
HAS BEEN ADJUSTED TO REFLECT A BOND EQUIVALENT YIELD.
(D) THE AGGREGATE COST FOR FEDERAL INCOME TAX PURPOSES IS $188,775,417; THE
AGGREGATE GROSS UNREALIZED APPRECIATION IS $3,019,498 AND THE AGGREGATE
GROSS UNREALIZED DEPRECIATION IS $35,741,585, RESULTING IN NET UNREALIZED
DEPRECIATION OF $32,722,087.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
HIGH INCOME ADVANTAGE TRUST
FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
SEPTEMBER 30, 1994
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS:
Investments in securities, at value
(identified cost $188,550,871) (Note
1)..................................... $ 156,053,330
Receivable for:
Interest............................... 4,026,778
Investments sold....................... 313,625
Prepaid expenses and other assets........ 13,916
--------------
TOTAL ASSETS..................... 160,407,649
--------------
LIABILITIES:
Payable for:
Investments purchased.................. 304,569
Investment management fee (Note 2)..... 116,065
Payable to bank.......................... 5,272
Accrued expenses (Note 3)................ 146,307
--------------
TOTAL LIABILITIES................ 572,213
--------------
NET ASSETS:
Paid-in-capital.......................... 288,883,672
Net unrealized depreciation on
investments............................ (32,497,541)
Accumulated undistributed net investment
income................................. 3,609,169
Accumulated net realized loss on
investments............................ (100,159,864)
--------------
NET ASSETS....................... $ 159,835,436
--------------
--------------
NET ASSET VALUE PER SHARE, 30,017,252
shares outstanding (unlimited
authorized shares of $.01 par value)...
$5.32
--------------
--------------
</TABLE>
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED SEPTEMBER 30, 1994
<TABLE>
<S> <C>
INVESTMENT INCOME:
INTEREST INCOME......................... $ 20,528,807
-------------
EXPENSES
Investment management fee (Note 2).... 1,342,557
Transfer agent fees and expenses (Note
3).................................. 161,355
Professional fees..................... 90,834
Shareholder reports and notices (Note
3).................................. 50,905
Custodian fees........................ 36,623
Trustees' fees and expenses (Note
3).................................. 30,891
Registration fees..................... 30,183
Other................................. 9,936
-------------
TOTAL EXPENSES.................... 1,753,284
-------------
NET INVESTMENT INCOME........... 18,775,523
-------------
NET REALIZED AND UNREALIZED LOSS ON
INVESTMENTS (Note 1):
Net realized loss on investments...... (26,559,960)
Net change in unrealized depreciation
on investments...................... 8,035,914
-------------
NET LOSS ON INVESTMENTS........... (18,524,046)
-------------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS..... $ 251,477
-------------
-------------
</TABLE>
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE FOR THE
YEAR ENDED YEAR ENDED
SEPTEMBER 30, 1994 SEPTEMBER 30, 1993
------------------- -------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
Operations:
Net investment income............................................... $ 18,775,523 $ 20,913,480
Net realized loss on investments.................................... (26,559,960) (15,564,258)
Net change in unrealized depreciation on investments................ 8,035,914 24,577,211
------------------- -------------------
Net increase in net assets resulting from operations................ 251,477 29,926,433
Dividends to shareholders from net investment income.................. (20,162,588) (24,619,347)
Net decrease from transactions in shares of beneficial interest (Note
4)................................................................... -0- (273,070)
------------------- -------------------
Total increase (decrease)....................................... (19,911,111) 5,034,016
NET ASSETS:
Beginning of period................................................... 179,746,547 174,712,531
------------------- -------------------
END OF PERIOD (including undistributed net investment income of
$3,609,169 and $4,996,234, respectively)............................. $ 159,835,436 $ 179,746,547
------------------- -------------------
------------------- -------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
High Income Advantage Trust
Notes to Financial Statements
- --------------------------------------------------------------------------------
1. ORGANIZATION AND ACCOUNTING POLICIES--High Income Advantage Trust (the
"Trust") is registered under the Investment Company Act of 1940, as amended, as
a diversified, closed-end management investment company. The Trust was organized
as a Massachusetts business trust on June 17, 1987 and commenced operations on
October 29, 1987.
The following is a summary of significant accounting policies:
A. VALUATION OF INVESTMENTS--(1) an equity security listed or traded on the
New York or American Stock Exchange is valued at its latest sale price on
that exchange prior to the time when assets are valued (if there were no
sales that day, the security is valued at the latest bid price); (2) all
other portfolio securities for which over-the-counter market quotations are
readily available are valued at the latest available bid price prior to the
time of valuation; (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 debt 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 of 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 value by such pricing service; (5) short-term
debt securities having a maturity date of more than sixty days are valued on
a mark-to-market basis, that is, at prices based on market quotations for
securities of a similar type, yield, quality and maturity, until sixty days
prior to maturity and thereafter at amortized cost using their value on the
61st day. Short-term debt securities having a maturity date of sixty days or
less at the time of purchase are valued at amortized cost; 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). Realized gains and
losses on security transactions are determined on the identified cost method.
Dividend income is recognized on the ex-dividend date. Interest income is
recognized on an accrual basis. Discounts on securities purchased are
amortized over the life of the respective securities. The Trust does not
amortize premiums on securities purchased.
C. REPURCHASE AGREEMENTS--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.
D. 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.
E. DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS--The Trust records dividends
and distributions to its shareholders on the ex-dividend date. The amount of
dividends and distributions from net investment income and net realized
capital gains are determined in accordance with federal income tax
regulations which may differ from generally accepted accounting principles.
These "book/tax"
<PAGE>
High Income Advantage Trust
Notes to Financial Statements (CONTINUED)
- --------------------------------------------------------------------------------
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 reclassification.
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 investment income and net realized capital gains for tax purposes,
they are reported as distributions of paid-in-capital.
2. INVESTMENT MANAGEMENT AGREEMENT--Pursuant to an Investment Management
Agreement with Dean Witter InterCapital Inc. (the "Investment Manager"), the
Trust pays its Investment Manager a monthly management fee, calculated weekly,
by applying the following annual rates to the Trust's average weekly net assets:
0.75% of the portion of average weekly net assets not exceeding $250 million;
0.60% to the portion of average weekly net assets exceeding $250 million but not
exceeding $500 million; 0.50% to the portion of average weekly net assets
exceeding $500 million but not exceeding $750 million; 0.40% to the portion of
average weekly net assets exceeding $750 million but not exceeding $1 billion;
and 0.30% to 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 Trust's books and
records and furnishes, at its own expense, office space, facilities, equipment,
clerical, bookkeeping and certain legal services and pays the salaries of all
personnel, including officers of the Trust 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 proceeds from sales of portfolio securities, excluding short-term
investments, for the year ended September 30, 1994 aggregated $175,329,942 and
$186,548,869, respectively, including purchases and sales of U.S. Government
securities of $20,665,313 and $19,821,797, respectively.
Dean Witter Trust Company, an affiliate of the Investment Manager, is the
Trust's transfer agent. At September 30, 1994, the Trust had transfer agent fees
and expenses payable of approximately $18,000.
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 an 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 costs for
the year ended September 30, 1994, included in Trustees' fees and expenses in
the Statement of Operations, amounted to $9,180. At September 30, 1994, the
Trust had an accrued pension liability of $45,998 which is included in accrued
expenses in the Statement of Assets and Liabilities.
Bowne & Co., Inc. is an affiliate of the Trust by virtue of a common Trustee
and Director of Bowne & Co., Inc. During the year ended September 30, 1994, the
Trust paid Bowne & Co., Inc. $5,279 for printing of shareholder reports.
<PAGE>
High Income Advantage Trust
Notes to Financial Statements (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
Treasury shares purchased and retired (weighted average discount
5.7%)*................................................................ (52,000) (520) (272,550)
------------- ----------- -----------------
Balance, September 30, 1993 and September 30, 1994..................... 30,017,252 $ 300,172 $ 288,583,500
------------- ----------- -----------------
------------- ----------- -----------------
<FN>
- ---------
* THE TRUSTEES HAVE VOTED TO RETIRE THE SHARES REPURCHASED.
</TABLE>
5. 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>
September 27, 1994 $.05 October 7, 1994 October 21, 1994
</TABLE>
6. FEDERAL INCOME TAX STATUS--At September 30, 1994, the Trust had net capital
loss carryovers of approximately $73,164,000 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, $95,000 will be
available through September 30, 2001 and $15,205,000 will be available through
September 30, 2002 to offset future capital gains to the extent provided by
regulations. Any net capital losses incurred after October 31 ("post-October
losses") within the 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
such net capital losses of approximately $26,771,000 during such period in
fiscal 1994. To the extent that these carryover losses are used to offset future
capital gains, it is probable that the gains so offset will not be distributed
to shareholders. At September 30, 1994, the Trust had temporary book/tax
differences primarily attributable to post-October losses.
7. SELECTED QUARTERLY FINANCIAL DATA--(UNAUDITED)
<TABLE>
<CAPTION>
QUARTERS ENDED*
----------------------------------------------------------------------------------------------
9/30/94 6/30/94 3/31/94 12/31/93
---------------------- ---------------------- ---------------------- ----------------------
<CAPTION>
PER PER PER PER
TOTAL SHARE TOTAL SHARE TOTAL SHARE TOTAL SHARE
--------- ----------- --------- ----------- --------- ----------- --------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Total investment income....... $5,277 $.18 $5,137 $.17 $5,117 $.17 $4,998 $.17
Net investment income......... 4,861 .16 4,685 .16 4,672 .15 4,558 .15
Net realized and unrealized
gain (loss) on investments... (12,366) (.41) (12,517) (.42) (1,030) (.04) 7,389 .25
<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
Net investment income......... 6,002 .20 5,012 .17 5,005 .17 4,894 .16
Net realized and unrealized
gain (loss) on investments... 542 .02 5,375 .18 11,111 .37 (8,015) (.27)
<FN>
- ------------
* TOTALS EXPRESSED IN THOUSANDS OF DOLLARS.
</TABLE>
<PAGE>
High Income Advantage Trust
Financial Highlights
- --------------------------------------------------------------------------------
Selected ratios and per share data for a share of beneficial interest
outstanding throughout each period:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED SEPTEMBER 30,
--------------------------------------------------------------------
1994 1993 1992 1991 1990
------------ ------------ ------------ ------------ ------------
<S> <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
------------ ------------ ------------ ------------ ------------
Net investment income................................. .62 .70 .84 .69 1.07
Net realized and unrealized gain (loss) on
investments......................................... (.62) .30 .33 .27 (2.66)
------------ ------------ ------------ ------------ ------------
Total from investment operations...................... 0.00 1.00 1.17 .96 (1.59)
Dividends from net investment income.................. (.67) (.82) (.59) (.69) (1.13)
------------ ------------ ------------ ------------ ------------
Net asset value, end of period........................ $5.32 $5.99 $5.81 $5.23 $4.96
------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------
Market value, end of period........................... $5.625 $6.125 $5.75 $4.625 $3.625
------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------
TOTAL INVESTMENT RETURN+.............................. 2.56 % 22.41 % 38.06 % 50.89 % (43.28 )%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in thousands).............. $ 159,835 $ 179,747 $ 174,713 $ 162,002 $ 158,454
Ratio of expenses to average net assets............... .98 % .97 % 1.00 % 1.07 % 1.01 %
Ratio of net investment income to average net
assets.............................................. 10.52 % 12.14 % 14.72 % 14.80 % 17.46 %
Portfolio turnover rate............................... 102 % 140 % 108 % 149 % 20 %
<FN>
- ------------
+ 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.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
Report of Independent Accountants
- --------------------------------------------------------------------------------
To the Shareholders and Trustees of
High Income Advantage Trust
In our opinion, the accompanying statement of assets and liabilities, including
the portfolio of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of High Income Advantage Trust (the
"Trust") at September 30, 1994, the results of its operations for the year then
ended, the changes in its net assets for each of the two years in the period
then ended and the financial highlights for each of the five years in the period
then ended, in conformity with generally accepted accounting principles. These
financial statements and financial highlights (hereafter referred to as
"financial statements") are the responsibility of the Trust's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these financial statements in accordance
with generally accepted auditing standards which require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits, which included confirmation of securities owned at
September 30, 1994 by correspondence with the custodian and brokers, provide a
reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
New York, New York
October 17, 1994
<PAGE>
HIGH
INCOME
ADVANTAGE
TRUST
ANNUAL REPORT
SEPTEMBER 30, 1994
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
INDEPENDENT ACCOUNTANTS
Price Waterhouse LLP
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
