<PAGE> 1
HIGH INCOME ADVANTAGE TRUST Two World Trade Center,
New York, New York 10048
LETTER TO THE SHAREHOLDERS September 30, 1996
DEAR SHAREHOLDER:
The fixed-income markets rebounded sharply during the second half of 1995, as
economic growth slowed and inflation fears subsided. This trend reversed itself
during the first nine months of 1996, as signs of an economic recovery caused
the U.S. Treasury market to retreat. The high-yield market, which performed
nicely during 1995's market rally, held up relatively well during the first nine
months of 1996, even as interest rates moved up sharply. While signs of an
economic recovery has led to a sharp increase in interest rates, this recovery
also bodes well for the future prospects of many corporate issuers in the
high-yield marketplace and helps erase some of the recession fears that had
plagued the high-yield market in late 1995.
Against this backdrop, High Income Advantage Trust produced a total return of
15.53 percent for the twelve-month period ended September 30, 1996, based on its
closing market price on the New York Stock Exchange (NYSE) of $6.00 per share.
Based on its net asset value (NAV) of $5.22 per share, the Trust's total return
for the same period was 9.58 percent. 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 fiscal year, the Trust's distributions totaled $0.60 per
share. On September 30, 1996, the Trust's net assets exceeded $156 million.
INVESTMENT STRATEGY
The Trust's investment strategy remained essentially unchanged over the past
year, with a continued emphasis on discounted B-rated issues. In today's market,
many of these issues can be purchased below par providing significant future
appreciation potential and an attractive yield versus comparable U.S. Treasuries
(in the 11 percent to 12 percent range). In light of the rebounding economy, we
feel quite comfortable with the earnings outlook for most of our B-rated
issuers. Recognizing that the economy may slow somewhat during the remainder of
1996, we have tried to limit the portfolio's volatility by focusing primarily on
<PAGE> 2
HIGH INCOME ADVANTAGE TRUST
LETTER TO THE SHAREHOLDERS September 30, 1996, continued
growth type, recession resistant industry sectors such as cable, media, food and
beverage and telecommunications.
During the fiscal year, several new issues were added to the portfolio,
including Adams Outdoor Advertising, American Media Operations, Inc., American
Communications Services, Inc., AMF Group, Inc., Boston Chicken, Inc., Intermedia
and Paxson Communications Corp.
MARKET OUTLOOK
Given our outlook for continued, albeit moderate economic growth, we find that
many of today's B-rated issues offer excellent long-term return potential. Over
the near term, there could be continued volatility in the financial markets as
investors assess the economy's strength, possible Federal Reserve Board actions
and the upcoming Presidential election. However, despite any potential
short-term weakness, we consider today's high-yield market to be an attractive
long-term opportunity for investors.
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 appreciate your support of High Income Advantage Trust and look forward to
continuing to serve your investment needs.
Very truly yours,
/s/ CHARLES A. FIUMEFREDDO
CHARLES A. FIUMEFREDDO
Chairman of the Board
<PAGE> 3
HIGH INCOME ADVANTAGE TRUST
PORTFOLIO OF INVESTMENTS September 30, 1996
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- -------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
CORPORATE BONDS (94.2%)
Aerospace (2.8%)
$ 5,000 Sabreliner Corp. (Series B)....... 12.50 % 04/15/03 $ 4,400,000
----------
Automotive (4.3%)
800 APS, Inc. ........................ 11.875 01/15/06 874,000
2,850 Envirotest Systems, Inc. ......... 9.125 03/15/01 2,622,000
3,000 Toyota Motor Credit Corp. ........ 15.00 09/26/97 3,263,220
----------
6,759,220
----------
Broadcast Media (3.0%)
1,500 Adams Outdoor Advertising......... 10.75 03/15/06 1,567,500
1,500 Paxson Communications Corp. ...... 11.625 10/01/02 1,578,750
1,500 Spanish Broadcasting System,
Inc. ............................. 7.50 06/15/02 1,567,500
----------
4,713,750
----------
Business Services (4.7%)
3,000 Anacomp, Inc. .................... 13.00+ 06/04/02 3,090,000
4,000 Xerox Credit Corp. ............... 15.00 06/10/97 4,245,280
----------
7,335,280
----------
Cable & Telecommunications (16.2%)
3,072 Adelphia Communications Corp.
(Series B)........................ 9.50+ 02/15/04 2,764,743
1,500 American Communications Services,
Inc. ............................. 13.00++ 11/01/05 855,000
1,500 American Communications Services,
Inc. ............................. 12.75++ 04/01/06 795,000
4,000 AT&T Capital Corp. ............... 15.00 05/05/97 4,207,960
1,500 Charter Communication South East
L.P. (Series B)................... 11.25 03/15/06 1,535,625
3,041 Falcon Holdings Group L.P.
(Series B)........................ 11.00+ 09/15/03 2,805,092
3,000 Hyperion Communication
(Series B)........................ 13.00++ 04/15/03 1,830,000
14,700 In-Flight Phone Corp.
(Series B)........................ 14.00++ 05/15/02 5,880,000
1,500 IXC Communications Inc.
(Series B)........................ 12.50 10/01/05 1,582,500
1,500 Peoples Telephone Co., Inc. ...... 12.25 07/15/02 1,560,000
1,500 Rifkin Acquisition Partners
L.P. ............................. 11.125 01/15/06 1,552,500
----------
25,368,420
----------
Computer Equipment (4.1%)
1,500 Advanced Micro Devices............ 11.00 08/01/03 1,552,500
1,500 Unisys Corp. ..................... 15.00 07/01/97 1,578,750
3,000 Unisys Corp. (Conv.).............. 8.25 03/15/06 3,345,000
----------
6,476,250
----------
Consumer Products (1.5%)
2,317 J.B. Williams Holdings, Inc. ..... 12.00 03/01/04 2,345,962
----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE> 4
HIGH INCOME ADVANTAGE TRUST
PORTFOLIO OF INVESTMENTS September 30, 1996, continued
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- -------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
Containers (1.6%)
$ 1,500 Ivex Holdings Corp. (Series B).... 13.25++% 03/15/05 $ 1,020,000
1,500 Mail-Well Corp. .................. 10.50 02/15/04 1,485,000
----------
2,505,000
----------
Electrical & Alarm Systems (2.9%)
5,000 Mosler, Inc. ..................... 11.00 04/15/03 4,500,000
----------
Entertainment/Gaming & Lodging (9.2%)
1,500 AMF Group Inc. (Series B)......... 10.875 03/15/06 1,537,609
10,883 Days Inns of America, Inc. (a).... 12.375 06/01/97 --
2,000 Fitzgeralds Gaming Corp.
(Units)+++........................ 13.00 12/31/02 1,600,000
1,500 Lady Luck Gaming Finance Corp. ... 11.875 03/01/01 1,485,000
4,250 Motels of America, Inc.
(Series B)........................ 12.00 04/15/04 3,676,250
1,500 Players International, Inc. ...... 10.875 04/15/05 1,492,500
1,500 Plitt Theaters, Inc. (Canada)..... 10.875 06/15/04 1,522,500
13,514 Spectravision, Inc. (a)........... 11.65 12/01/02 1,631,270
1,500 Station Casinos, Inc. ............ 9.625 06/01/03 1,455,000
----------
14,400,129
----------
Financial (2.1%)
3,000 Household Finance Corp. .......... 15.00 09/25/97 3,262,470
----------
Foods & Beverages (8.7%)
7,800 Envirodyne Industries, Inc. ...... 10.25 12/01/01 7,195,500
15,500 Specialty Foods Acquisition Corp.
(Series B)........................ 13.00++ 08/15/05 6,510,000
----------
13,705,500
----------
Healthcare (1.5%)
3,000 Unilab Corp. ..................... 11.00 04/01/06 2,355,000
----------
Manufacturing (5.3%)
1,500 Alpine Group, Inc. ............... 12.25 07/15/03 1,560,000
1,500 Berry Plastics Corp. ............. 12.25 04/15/04 1,627,500
1,500 Exide Electronics Group, Inc.
(Series B)........................ 11.50 03/15/06 1,582,500
1,500 International Wire Group, Inc. ... 11.75 06/01/05 1,597,500
2,000 Uniroyal Technology Corp. ........ 11.75 06/01/03 1,940,000
----------
8,307,500
----------
Manufacturing - Diversified (6.7%)
1,500 Foamex L.P. ...................... 11.875 10/01/04 1,590,000
1,500 Interlake Corp. .................. 12.125 03/01/02 1,567,500
2,000 J.B. Poindexter & Co., Inc. ...... 12.50 05/15/04 1,960,000
2,000 Jordan Industries, Inc. .......... 10.375 08/01/03 1,940,000
4,500 Jordan Industries, Inc. .......... 11.75++ 08/01/05 3,510,000
----------
10,567,500
----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE> 5
HIGH INCOME ADVANTAGE TRUST
PORTFOLIO OF INVESTMENTS September 30, 1996, continued
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- -------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
Oil & Gas (1.1%)
$ 2,000 Empire Gas Corp. ................. 7.00 % 07/15/04 $ 1,755,000
----------
Publishing (3.4%)
3,000 Affiliated Newspapers Investments,
Inc. ............................. 13.25++ 07/01/06 2,295,000
1,500 American Media Operations,
Inc. ............................. 11.625 11/15/04 1,575,000
1,500 United States Banknote Corp. ..... 10.375 06/01/02 1,425,000
----------
5,295,000
----------
Restaurants (8.2%)
9,500 American Restaurant Group
Holdings, Inc. ................... 14.00++ 12/15/05 3,467,500
1,250 Boston Chicken Inc. (Conv.)....... 4.50 02/01/04 1,601,563
1,500 Carrols Corp. .................... 11.50 08/15/03 1,569,375
1,500 Flagstar Corp. ................... 10.75 09/15/01 1,335,000
2,250 Flagstar Corp. ................... 10.875 12/01/02 1,996,875
4,850 Flagstar Corp. ................... 11.25 11/01/04 2,910,000
----------
12,880,313
----------
Retail (2.3%)
1,671 Cort Furniture Rental Corp. ...... 12.00 09/01/00 1,758,728
7,550 County Seat Stores Co. ........... 12.00 10/01/02 1,887,500
----------
3,646,228
----------
Retail - Food Chains (2.9%)
1,500 Jitney-Jungle Stores.............. 12.00 03/01/06 1,597,500
1,500 Pathmark Stores, Inc. ............ 9.625 05/01/03 1,470,000
1,500 Ralphs Grocery Co. ............... 10.45 06/15/04 1,518,750
----------
4,586,250
----------
Textiles (1.7%)
273 Farley Inc. (Conv.)............... 0.00 01/01/12 29,328
3,000 U.S. Leather, Inc. ............... 10.25 07/31/03 2,520,000
----------
2,549,328
----------
TOTAL CORPORATE BONDS
(Identified Cost $169,879,314)............................... 147,714,100
----------
</TABLE>
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------
<C> <S> <C>
COMMON STOCKS (b) (1.6%)
Automotive (0.0%)
113 Northern Holdings Industrial Corp. (Restricted) (c)....... --
----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE> 6
HIGH INCOME ADVANTAGE TRUST
PORTFOLIO OF INVESTMENTS September 30, 1996, continued
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------
<C> <S> <C>
Computer Equipment (0.1%)
191,107 Memorex Telex NV (ADR) (Netherlands) (c).................. $ 197,079
----------
Entertainment/Gaming & Lodging (0.2%)
4,000 Motels of America, Inc. - 144A*........................... 280,000
----------
Foods & Beverages (1.1%)
140,000 Seven-Up/RC Bottling Co. Southern California, Inc. (c).... 1,470,000
180,000 Specialty Foods Acquisition Corp. - 144A*................. 270,000
----------
1,740,000
----------
Publishing (0.2%)
7,000 Affiliated Newspapers Investments, Inc. (Class B)......... 280,000
----------
Restaurants (0.0%)
9,500 American Restaurant Group Holdings, Inc. - 144A*.......... 76,000
----------
TOTAL COMMON STOCKS
(Identified Cost $14,776,829)............................. 2,573,079
----------
PREFERRED STOCK (b) (1.2%)
Entertainment/Gaming & Lodging
80,000 Fitzgeralds Gaming Corp. (Units)+++
(Identified Cost $2,000,000).............................. 1,760,000
----------
</TABLE>
<TABLE>
<CAPTION>
NUMBER OF EXPIRATION
WARRANTS DATE VALUE
- ------------------------------------------------------------------------------------------
<C> <S> <C> <C>
WARRANTS (b) (0.2%)
Aerospace (0.0%)
5,000 Sabreliner Corp. - 144A*...................... 04/15/03 50,000
----------
Cable & Telecommunications (0.1%)
1,500 Hyperion Communication - 144A*................ 04/01/01 60,000
10,000 In-Flight Phone Corp. - 144A*................. 08/31/02 80,000
----------
140,000
----------
Containers (0.0%)
4,000 Crown Packaging Holdings, Ltd.
(Canada) - 144A*.............................. 11/01/03 --
----------
Entertainment/Gaming & Lodging (0.0%)
3,263 Casino America, Inc. ......................... 11/15/96 --
2,000 Fitzgeralds Gaming Corp. ..................... 12/19/98 9,115
2,250 Fitzgeralds South Inc. - 144A*................ 03/15/99 --
----------
9,115
----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE> 7
HIGH INCOME ADVANTAGE TRUST
PORTFOLIO OF INVESTMENTS September 30, 1996, continued
<TABLE>
<CAPTION>
NUMBER OF EXPIRATION
WARRANTS DATE VALUE
- ------------------------------------------------------------------------------------------
<C> <S> <C> <C>
Manufacturing (0.1%)
1,500 Exide Electronics Group, Inc. - 144A*......... 03/15/06 $ 52,500
20,000 Uniroyal Technology Corp. .................... 06/01/03 27,500
----------
80,000
----------
Oil & Gas (0.0%)
5,520 Empire Gas Corp. ............................. 07/15/04 55,200
----------
Retail (0.0%)
4,000 County Seat Holdings Co. ..................... 10/15/98 --
----------
TOTAL WARRANTS
(Identified Cost $1,081,291)............................... 334,315
----------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- -------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
SHORT-TERM INVESTMENT (2.8%)
REPURCHASE AGREEMENT
$ 4,375 The Bank of New York (dated 09/30/96;
proceeds $4,375,712; collateralized
by $4,475,193 U.S. Treasury Note
6.357% due 03/31/01 valued at
$4,462,606)
(Identified Cost $4,375,104)..............5.00% 10/01/96 4,375,104
----------
TOTAL INVESTMENTS
(Identified Cost $192,112,538) (d).................. 100.0% 156,756,598
LIABILITIES IN EXCESS OF OTHER ASSETS............... -- (18,805)
---- ----------
NET ASSETS.......................................... 100.0% $156,737,793
==== ==========
</TABLE>
- ---------------------
ADR American Depository Receipt.
* Resale is restricted to qualified institutional investors.
+++ Consists of one or more class of securities traded together as a unit;
generally bonds with attached stocks/warrants.
+ Payment-in-kind security.
++ Currently a zero coupon bond and will pay interest at the rate shown at a
future specified date.
(a) Non-income producing security; issuer in bankruptcy.
(b) Non-income producing securities.
(c) Acquired through exchange offer.
(d) The aggregate cost for federal income tax purposes approximates identified
cost. The aggregate gross unrealized appreciation was $6,088,160 and the
aggregate gross unrealized depreciation was $41,444,100, resulting in net
unrealized depreciation of $35,355,940.
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE> 8
HIGH INCOME ADVANTAGE TRUST
FINANCIAL STATEMENTS
<TABLE>
<S> <C>
STATEMENT OF ASSETS AND LIABILITIES
September 30, 1996
ASSETS:
Investments in securities, at value
(identified cost $192,112,538)......... $ 156,756,598
Receivable for:
Interest............................ 3,765,073
Investments sold.................... 2,572,333
Prepaid expenses and other assets....... 4,638
-----------
TOTAL ASSETS........................ 163,098,642
-----------
LIABILITIES:
Payable for:
Investments purchased............... 6,155,029
Investment management fee........... 99,282
Accrued expenses........................ 106,538
-----------
TOTAL LIABILITIES................... 6,360,849
-----------
NET ASSETS:
Paid-in-capital......................... 288,883,672
Net unrealized depreciation............. (35,355,940)
Accumulated undistributed net investment
income................................. 4,540,049
Accumulated net realized loss........... (101,329,988)
-----------
NET ASSETS.......................... $ 156,737,793
===========
NET ASSET VALUE PER SHARE,
30,017,252 shares outstanding
(unlimited
shares authorized of $.01 par value)... $5.22
====
STATEMENT OF OPERATIONS
For the year ended September 30, 1966
NET INVESTMENT INCOME:
INTEREST INCOME......................... $ 21,239,973
-----------
EXPENSES
Investment management fee............... 1,187,218
Transfer agent fees and expenses........ 130,183
Shareholder reports and notices......... 41,971
Registration fees....................... 35,296
Custodian fees.......................... 29,690
Trustees' fees and expenses............. 18,148
Professional fees....................... 6,382
Other................................... 8,155
-----------
TOTAL EXPENSES...................... 1,457,043
-----------
NET INVESTMENT INCOME............... 19,782,930
-----------
NET REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain....................... 1,570,993
Net change in unrealized depreciation... (5,772,927)
-----------
NET LOSS............................ (4,201,934)
-----------
NET INCREASE............................ $ 15,580,996
===========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE> 9
HIGH INCOME ADVANTAGE TRUST
FINANCIAL STATEMENTS, continued
<TABLE>
<CAPTION>
STATEMENT OF CHANGES IN NET ASSETS
FOR THE YEAR FOR THE YEAR
ENDED ENDED
SEPTEMBER 30, SEPTEMBER 30,
1996 1995
- ----------------------------------------------------------------------------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income............................ $ 19,782,930 $ 18,429,377
Net realized gain (loss)......................... 1,570,993 (2,741,117)
Net change in unrealized depreciation............ (5,772,927) 2,914,528
----------- -----------
NET INCREASE................................. 15,580,996 18,602,788
Dividends from net investment income............. (18,010,351) (19,271,076)
----------- -----------
TOTAL DECREASE............................... (2,429,355) (668,288)
NET ASSETS:
Beginning of period.............................. 159,167,148 159,835,436
----------- -----------
END OF PERIOD
(Including undistributed net investment
income of $4,540,049 and $2,767,470,
respectively)................................ $ 156,737,793 $ 159,167,148
=========== ===========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE> 10
HIGH INCOME ADVANTAGE TRUST
NOTES TO FINANCIAL STATEMENTS September 30, 1996
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's primary investment objective is to earn a high
level of current income and, as a secondary objective, capital appreciation, but
only when consistent with its primary objective. The Trust was organized as a
Massachusetts business trust on June 17, 1987 and commenced operations on
October 29, 1987.
The preparation of financial statements in accordance with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts and disclosures. Actual results could differ from
those estimates. 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 or other domestic or foreign 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 (in cases where a security is traded on more than one exchange,
the security is valued on the exchange designated as the primary market by the
Trustees); (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, including circumstances under which it is determined by the
Investment Manager that sale and bid prices are not reflective of a security's
market value, 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; (4) certain of the 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, if available, in
determining what it believes is the fair valuation of the portfolio securities
valued by such pricing service; and (5) short-term debt securities having a
maturity date of more than sixty days at time of purchase are valued on a
mark-to-market basis until sixty days prior to maturity and thereafter at
amortized cost based on 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.
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 by
<PAGE> 11
HIGH INCOME ADVANTAGE TRUST
NOTES TO FINANCIAL STATEMENTS September 30, 1996, continued
the identified cost method. Discounts are accreted over the life of the
respective securities. 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 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 the Investment Manager a
management fee, accrued weekly and payable monthly, by applying the following
annual rates to the Trust's weekly net assets: 0.75% to the portion of weekly
net assets not exceeding $250 million; 0.60% to the portion of weekly net assets
exceeding $250 million but not exceeding $500 million; 0.50% to the portion of
weekly net assets exceeding $500 million but not exceeding $750 million; 0.40%
to the portion of weekly net assets exceeding $750 million but not exceeding $1
billion; and 0.30% to the portion of 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.
<PAGE> 12
HIGH INCOME ADVANTAGE TRUST
NOTES TO FINANCIAL STATEMENTS September 30, 1996, continued
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, 1996 aggregated
$173,636,836 and $178,035,964, respectively.
Dean Witter Trust Company, an affiliate of the Investment Manager, is the
Trust's transfer agent. At September 30, 1996, the Trust had transfer agent fees
and expenses payable of approximately $15,000.
The Trust has an unfunded noncontributory defined benefit pension plan covering
all independent Trustees of the Trust who will have served as independent
Trustees 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, 1996
included in Trustees' fees and expenses in the Statement of Operations amounted
to $708. At September 30, 1996, the Trust had an accrued pension liability of
$49,007 which is included in accrued expenses in the Statement of Assets and
Liabilities.
4. SHARES OF BENEFICIAL INTEREST
<TABLE>
<CAPTION>
CAPITAL
PAID IN
PAR VALUE EXCESS OF
SHARES OF SHARES PAR VALUE
---------- --------- ------------
<S> <C> <C> <C>
Balance, September 30, 1994, 1995 and 1996..................................... 30,017,252 $300,172 $288,583,500
========== ======== ============
</TABLE>
5. DIVIDENDS
The Trust declared the following dividends from net investment income:
<TABLE>
<CAPTION>
DECLARATION AMOUNT RECORD PAYABLE
DATE PER SHARE DATE DATE
- ------------------- --------- ----------------- ------------------
<S> <C> <C> <C>
September 24, 1996. $0.05 October 4, 1996 October 18, 1996
October 30, 1996... $0.05 November 8, 1996 November 22, 1996
</TABLE>
<PAGE> 13
HIGH INCOME ADVANTAGE TRUST
NOTES TO FINANCIAL STATEMENTS September 30, 1996, continued
6. FEDERAL INCOME TAX STATUS
During the year ended September 30, 1996, the Trust utilized approximately
$20,000 of its net capital loss carryover. At September 30, 1996, the Trust had
a net capital loss carryover of approximately $99,828,000 to offset future
capital gains to the extent provided by regulations available through September
30 of the following years:
<TABLE>
<CAPTION>
AMOUNTS IN THOUSANDS
--------------------------------------------------------------------------------------
1997 1998 1999 2000 2001 2002 2003 Total
------ ------ ------- ------- ---- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
$1,094 $5,723 $27,616 $23,411 $95 $15,205 $26,684 $99,828
======= ======= ======== ======== ==== ======== ======== ========
</TABLE>
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 net capital losses of
approximately $1,267,000 during fiscal 1996.
As of September 30, 1996, the Trust had temporary book/tax differences
primarily attributable to post-October losses and capital loss deferrals on
wash sales.
<PAGE> 14
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
----------------------------------------------------------------
1996 1995 1994 1993 1992
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period........................ $ 5.30 $ 5.32 $ 5.99 $ 5.81 $ 5.23
----- ----- ----- ----- -----
Net investment income....................................... 0.66 0.61 0.62 0.70 0.84
Net realized and unrealized gain (loss)..................... (0.14) 0.01 (0.62) 0.30 0.33
----- ----- ----- ----- -----
Total from investment operations............................ 0.52 0.62 -- 1.00 1.17
Dividends from net investment income........................ (0.60) (0.64) (0.67) (0.82) (0.59)
----- ----- ----- ----- -----
Net asset value, end of period.............................. $ 5.22 $ 5.30 $ 5.32 $ 5.99 $ 5.81
===== ===== ===== ===== =====
Market value, end of period................................. $ 6.00 $ 5.75 $5.625 $6.125 $ 5.75
===== ===== ===== ===== =====
TOTAL INVESTMENT RETURN+.................................... 15.53% 14.59% 2.56% 22.41% 38.06%
RATIOS TO AVERAGE NET ASSETS:
Expenses.................................................... 0.92% 1.01% 0.98% 0.97% 1.00%
Net investment income....................................... 12.50% 11.79% 10.52% 12.14% 14.72%
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands..................... $156,738 $159,167 $159,835 $179,747 $174,713
Portfolio turnover rate..................................... 117% 63% 102% 140% 108%
</TABLE>
- ---------------------
+ Total investment return is based upon the current market value on the last
day of each period reported. Dividends are assumed to be reinvested at the
prices obtained under the Trust's dividend reinvestment plan. Total
investment return does not reflect brokerage commissions.
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE> 15
HIGH INCOME ADVANTAGE TRUST
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
("Trust") at September 30, 1996, the results of its operations for the year then
ended, the changes in its net assets for each of the two years in the period
then ended and the financial highlights for each of the 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 at
September 30, 1996 by correspondence with the custodian and brokers, provide a
reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
1177 Avenue of the Americas
New York, New York 10036
November 8, 1996
<PAGE> 16
TRUSTEES
Michael Bozic
Charles A. Fiumefreddo
Edwin J. Garn
John R. Haire
Dr. Manuel H. Johnson
Michael E. Nugent
Philip J. Purcell
John L. Schroeder
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
HIGH
INCOME
ADVANTAGE
ANNUAL REPORT
SEPTEMBER 30, 1996
