<PAGE> 1
HIGH INCOME ADVANTAGE TRUST Two World Trade Center, New York, New York 10048
LETTER TO THE SHAREHOLDERS March 31, 1997
DEAR SHAREHOLDER:
The high-yield bond market turned in a mixed performance during the six-month
period ended March 31, 1997. The period began with the high-yield market posting
solid returns but ended with it undergoing a correction.
Early in 1996, investors were anticipating a recession, due to concern over a
then-weakening economy. U.S. Treasury yields were lower than today's levels,
while yields in the high-yield market were higher. As 1996 played out, we saw
the economy bounce back, corporate earnings hold up, the equity markets reach
all-time highs and recession fears ease. The result was a somewhat weak and
volatile U.S. Treasury market, while the high-yield market held up quite well,
given the stronger-than-expected economy.
More recently, a correction has been underway across most of the financial
markets, including the high-yield bond sector. On the heels of a credit
tightening by the Federal Reserve Board in late March, considerable nervousness
became evident in both the equity and fixed-income markets. Speculation as to
the timing and impact of further increases in interest rates has created
uncertainty on the part of many investors. The high-yield market has felt this
weakness as investors have attempted to discount a future potential slowing in
the economy resulting from today's higher interest rates.
PERFORMANCE AND PORTFOLIO STRATEGY
Against this backdrop, High Income Advantage Trust produced a total return of
4.12 percent for the six-month period ended March 31, 1997, based on its closing
market price on the New York Stock Exchange (NYSE) of $5.875 per share. Based on
its net asset value (NAV) of $5.02 per share, the Trust's total return for this
period was 2.26 percent. Over the past six months, the Trust continued to
distribute income dividends at a rate of $0.05 per share per month. For the full
six-month period, the Trust's dividends totaled approximately $0.37 per share,
<PAGE> 2
HIGH INCOME ADVANTAGE TRUST
LETTER TO THE SHAREHOLDERS March 31, 1997, continued
including an extra income dividend of $0.0733 per share paid on December 20,
1996. On March 31, 1997, the Trust's net assets exceeded $150 million.
As the economy has continued to expand over the past few years, we have tended
to concentrate on B-rated issues. In a growing economy, one can find
undervalued, "upgrade" candidates in this sector of the market that provide
attractive yields as well as appreciation potential. We therefore continue to
feel that many of these issues are very attractive long-term investments.
However, given today's higher interest rate environment and a potentially
slowing economy down the road, we have recently taken some defensive steps with
the portfolio. Over the past six to nine months, we have upgraded the portfolio
by increasing our allocation to the higher-quality end of the market (BB-rated
issues or higher) from 10 percent to 25 percent. We also sold many of our
heavily cyclical positions and are now focused mainly on the more predictable
recession-resistant or growth sectors of the economy. These are areas that would
tend to hold up well in an economic slowdown. In certain of these sectors, such
as media and telecommunications, we expect to see continued consolidation, which
should bode well for most industry participants, including many of the
portfolio's current holdings.
LOOKING AHEAD
Overall, we continue our primary focus on discounted B-rated investments
yielding 10 percent or higher, which we feel possess appreciation potential as
well as an attractive yield. In addition, while we are not expecting a recession
in 1997, we have begun to take a more defensive approach in case of any economic
slowing down the road as a result of today's higher interest rate environment.
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,
/s/ CHARLES A. FIUMEFREDDO
CHARLES A. FIUMEFREDDO
Chairman of the Board
<PAGE> 3
HIGH INCOME ADVANTAGE TRUST
RESULTS OF ANNUAL MEETING (unaudited)
* * *
On December 27, 1996, an annual meeting of the Trust's shareholders was held for
the purpose of voting on three separate matters, the results of which were as
follows:
(1) ELECTION OF TRUSTEES:
<TABLE>
<S> <C>
Dr. Manuel H. Johnson
For.......................................................... 18,604,076
Withheld..................................................... 392,442
John L. Schroeder
For.......................................................... 18,599,404
Withheld..................................................... 397,114
</TABLE>
The following Trustees were not standing for reelection at this meeting:
Michael Bozic, Charles A. Fiumefreddo, Edwin J. Garn, John R. Haire,
Michael E. Nugent and Philip J. Purcell.
(2) CONTINUANCE OF THE CURRENTLY EFFECTIVE INVESTMENT MANAGEMENT AGREEMENT WITH
DEAN WITTER INTERCAPITAL INC.:
<TABLE>
<S> <C>
For.......................................................... 18,045,597
Against...................................................... 335,174
Abstain...................................................... 615,747
</TABLE>
(3) RATIFICATION OF THE SELECTION OF PRICE WATERHOUSE LLP AS THE TRUST'S
INDEPENDENT ACCOUNTANTS:
<TABLE>
<S> <C>
For.......................................................... 18,407,352
Against...................................................... 152,563
Abstain...................................................... 436,603
</TABLE>
<PAGE> 4
HIGH INCOME ADVANTAGE TRUST
PORTFOLIO OF INVESTMENTS March 31, 1997 (unaudited)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- --------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
CORPORATE BONDS (95.1%)
Aerospace (1.4%)
$ 2,250 Sabreliner Corp. (Series B).......... 12.50% 04/15/03 $ 2,171,250
------------
Automotive (4.0%)
1,500 APS, Inc. ........................... 11.875 01/15/06 1,515,000
1,500 Envirotest Systems, Inc. ............ 9.125 03/15/01 1,410,000
3,000 Toyota Motor Credit Corp. ........... 15.00 09/26/97 3,129,150
------------
6,054,150
------------
Broadcast Media (3.2%)
1,500 Adams Outdoor Advertising L.P. ...... 10.75 03/15/06 1,586,250
1,500 Paxson Communications Corp. ......... 11.625 10/01/02 1,582,500
1,500 Spanish Broadcasting System, Inc. ... 7.50 06/15/02 1,612,500
------------
4,781,250
------------
Business Services (4.7%)
3,000 Anacomp, Inc. - 144A*................ 10.875 04/01/04 2,969,100
4,000 Xerox Credit Corp. .................. 15.00 06/10/97 4,068,480
------------
7,037,580
------------
Cable & Telecommunications (17.5%)
1,718 Adelphia Communications Corp. (Series
B).................................. 9.50+ 02/15/04 1,473,060
1,500 Adelphia Communications
Corp. - 144A*........................ 9.875 03/01/07 1,406,250
2,500 American Communications Services,
Inc. ................................ 13.00++ 11/01/05 1,512,500
1,775 American Communications Services,
Inc. ................................ 12.75++ 04/01/06 1,002,875
2,500 AT&T Capital Corp. .................. 15.00 05/05/97 2,520,175
1,500 Cablevision Systems Corp. ........... 9.875 04/01/23 1,432,500
1,500 Charter Communication South East L.P.
(Series B).......................... 11.25 03/15/06 1,560,000
3,208 Falcon Holdings Group L.P. (Series
B)................................... 11.00+ 09/15/03 2,935,312
1,500 FrontierVision Operating Partners
L.P. ................................ 11.00 10/15/06 1,496,250
5,000 Hyperion Telecommunication, Inc.
(Series B).......................... 13.00++ 04/15/03 2,725,000
11,200 In-Flight Phone Corp. (Series B)
(a).................................. 14.00++ 05/15/02 952,000
1,500 IXC Communications, Inc. (Series
B)................................... 12.50 10/01/05 1,635,000
1,500 Paging Network, Inc. ................ 10.125 08/01/07 1,353,750
1,500 Peoples Telephone Co., Inc. ......... 12.25 07/15/02 1,593,750
1,500 Rifkin Acquisition Partners L.P. .... 11.125 01/15/06 1,507,500
1,500 Shared Technology/Fairchild, Inc. ... 12.25++ 03/01/06 1,230,000
------------
26,335,922
------------
Computer Equipment (3.1%)
1,500 Unisys Corp. ........................ 15.00 07/01/97 1,533,750
2,775 Unisys Corp. (Conv.)................. 8.25 03/15/06 3,174,211
------------
4,707,961
------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE> 5
HIGH INCOME ADVANTAGE TRUST
PORTFOLIO OF INVESTMENTS March 31, 1997 (unaudited) continued
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- --------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
Consumer Products (2.6%)
$ 2,317 J.B. Williams Holdings, Inc. ........ 12.00% 03/01/04 $ 2,392,302
1,500 Renaissance Cosmetics,
Inc. - 144A*......................... 11.75 02/15/04 1,515,000
------------
3,907,302
------------
Containers (2.1%)
1,500 Mail - Well Corp. ................... 10.50 02/15/04 1,545,000
1,500 Packaging Resources, Inc. ........... 11.625 05/01/03 1,545,000
------------
3,090,000
------------
Electrical & Alarm Systems (2.2%)
3,500 Mosler, Inc. ........................ 11.00 04/15/03 3,290,000
------------
Entertainment/Gaming & Lodging (11.1%)
1,500 AMF Group Inc. (Series B)............ 10.875 03/15/06 1,563,750
10,883 Days Inns of America, Inc. (a)....... 12.375 06/01/97 109
2,250 Fitzgeralds Gaming Corp. (Units)**... 13.00 12/31/02 1,918,125
3,000 Lady Luck Gaming Finance Corp. ...... 11.875 03/01/01 2,932,500
5,000 Motels of America, Inc. (Series B)... 12.00 04/15/04 4,350,000
1,500 Players International, Inc. ......... 10.875 04/15/05 1,552,500
1,500 Plitt Theaters, Inc. (Canada)........ 10.875 06/15/04 1,530,000
1,500 Station Casinos, Inc. (Series B)..... 9.625 06/01/03 1,425,000
1,500 Stuart Entertainment, Inc. - 144A*... 12.50 11/15/04 1,380,000
------------
16,651,984
------------
Financial (4.2%)
3,000 General Electric Capital Corp. ...... 13.50 01/20/98 3,171,120
3,000 Household Finance Corp. ............. 15.00 09/25/97 3,128,940
------------
6,300,060
------------
Foods & Beverages (7.8%)
3,150 Envirodyne Industries, Inc. ......... 10.25 12/01/01 3,118,500
1,500 General Mills, Inc. ................. 13.50 01/21/98 1,583,925
15,150 Specialty Foods Acquisition Corp.
(Series B).......................... 13.00++ 08/15/05 6,969,000
------------
11,671,425
------------
Healthcare (4.0%)
4,000 Unilab Corp. ........................ 11.00 04/01/06 3,040,000
3,775 Unison Healthcare Corp. - 144A*...... 12.25 11/01/06 3,057,750
------------
6,097,750
------------
Manufacturing (4.5%)
1,500 Berry Plastics Corp. ................ 12.25 04/15/04 1,650,000
1,500 Exide Electronics Group, Inc. (Series
B).................................. 11.50 03/15/06 1,601,250
1,500 International Wire Group, Inc. ...... 11.75 06/01/05 1,586,250
2,000 Uniroyal Technology Corp. ........... 11.75 06/01/03 2,000,000
------------
6,837,500
------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE> 6
HIGH INCOME ADVANTAGE TRUST
PORTFOLIO OF INVESTMENTS March 31, 1997 (unaudited) continued
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- --------------------------------------------------------------------------------------------
<C> <S> <C> <C>
Manufacturing - Diversified (7.2%)
$ 1,500 Foamex L.P. ......................... 11.875% 10/01/04 $ 1,616,250
1,500 Interlake Corp. ..................... 12.125 03/01/02 1,567,500
1,500 J.B. Poindexter & Co., Inc. ......... 12.50 05/15/04 1,531,875
2,000 Jordan Industries, Inc. ............. 10.375 08/01/03 1,990,000
7,300 Jordan Industries, Inc. - 144A*...... 11.75++ 04/01/09 4,133,990
------------
10,839,615
------------
Oil & Gas (1.8%)
2,500 TransTexas Gas Corp. ................ 11.50 06/15/02 2,756,250
------------
Publishing (2.1%)
1,500 American Media Operations, Inc. ..... 11.625 11/15/04 1,620,000
1,500 United States Banknote Corp. ........ 10.375 06/01/02 1,496,250
------------
3,116,250
------------
Restaurants (4.7%)
9,140 American Restaurant Group Holdings,
Inc. ............................... 14.00++ 12/15/05 3,998,750
1,500 Carrols Corp. ....................... 11.50 08/15/03 1,575,000
1,500 FRD Acquisition Corp. (Series B)..... 12.50 07/15/04 1,567,500
------------
7,141,250
------------
Retail (2.3%)
7,550 County Seat Stores Co. (b)........... 12.00 10/01/02 3,435,250
------------
Retail - Food Chains (2.0%)
1,500 Jitney-Jungle Stores of America,
Inc. ................................ 12.00 03/01/06 1,590,000
1,500 Pathmark Stores, Inc. ............... 9.625 05/01/03 1,413,750
------------
3,003,750
------------
Textiles (2.6%)
1,500 Reeves Industries, Inc. ............. 11.00 07/15/02 1,406,250
3,000 U.S. Leather, Inc. .................. 10.25 07/31/03 2,580,000
------------
3,986,250
------------
TOTAL CORPORATE BONDS
(Identified Cost $160,057,324)................................ 143,212,749
------------
</TABLE>
<TABLE>
<CAPTION>
NUMBER OF
SHARES
- ---------
<C> <S> <C>
COMMON STOCKS (c) (0.4%)
Automotive (0.0%)
113 Northern Holdings Industrial Corp. (d).................... --
------------
Entertainment/Gaming & Lodging (0.1%)
4,000 Motels of America, Inc. - 144A*........................... 100,000
------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE> 7
HIGH INCOME ADVANTAGE TRUST
PORTFOLIO OF INVESTMENTS March 31, 1997 (unaudited) continued
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------
<C> <S> <C>
Foods & Beverages (0.1%)
180,000 Specialty Foods Acquisition Corp. - 144A*................. $ 180,000
------------
Manufacturing - Diversified (0.2%)
10,000 Thermadyne Holdings Corp. (d)............................. 271,250
------------
Restaurants (0.0%)
9,500 American Restaurant Group Holdings, Inc. - 144A*.......... 9,500
------------
TOTAL COMMON STOCKS
(Identified Cost $8,519,751).............................. 560,750
------------
PREFERRED STOCK (1.2%)
Entertainment/Gaming & Lodging
80,000 Fitzgeralds Gaming Corp. (Units)** (Identified Cost
$2,000,000).............................................. 1,840,000
------------
</TABLE>
<TABLE>
<CAPTION>
NUMBER OF EXPIRATION
WARRANTS DATE
- --------- ---------
<C> <S> <C> <C>
WARRANTS (c) (0.1%)
Aerospace (0.0%)
5,000 Sabreliner Corp. - 144A*...................... 04/15/03 50,000
------------
Cable & Telecommunications (0.0%)
1,500 Hyperion Telecommunication, Inc. (Series B) -
144A*........................................ 04/01/01 45,000
------------
Containers (0.0%)
4,000 Crown Packaging Holdings, Ltd. - 144A*........ 11/01/03 --
------------
Entertainment/Gaming & Lodging (0.0%)
2,000 Fitzgeralds Gaming Corp. ..................... 12/19/98 2,023
2,250 Fitzgeralds South Inc. - 144A*................ 03/15/99 --
------------
2,023
------------
Manufacturing (0.1%)
1,500 Exide Electronics Group, Inc. - 144A*......... 03/15/06 60,080
20,000 Uniroyal Technology Corp. .................... 06/01/03 20,000
------------
80,080
------------
Retail (0.0%)
4,000 County Seat Holdings Co. ..................... 10/15/98 --
------------
TOTAL WARRANTS
(Identified Cost $524,331)................................. 177,103
------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE> 8
HIGH INCOME ADVANTAGE TRUST
PORTFOLIO OF INVESTMENTS March 31, 1997 (unaudited) continued
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ---------------------------------------------------------------------------------------------
<C> <S> <C> <C>
SHORT-TERM INVESTMENT (1.4%)
REPURCHASE AGREEMENT
$ 2,091 The Bank of New York (dated 03/31/97;
proceeds $2,091,038; collateralized
by $1,770,269 U.S. Treasury Note
5.875% due 02/15/00 valued at
$1,749,767 and $388,747 U.S.
Treasury Note 5.625% due 11/30/00
valued at $382,774) (Identified Cost
$2,090,726)......................... 5.375% 04/01/97 $ 2,090,726
------------
TOTAL INVESTMENTS
(Identified Cost $173,192,132) (e)..................... 98.2% 147,881,328
OTHER ASSETS IN EXCESS OF LIABILITIES.................. 1.8 2,684,216
----- ------------
NET ASSETS............................................ 100.0% $150,565,544
===== ============
</TABLE>
- ---------------------
* Resale is restricted to qualified institutional investors.
** Consists of one or more class of securities traded together as a unit;
bonds or preferred stock with attached 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 security; bond in default.
(c) Non-income producing securities.
(d) Acquired through exchange offer.
(e) The aggregate cost for federal income tax purposes approximates identified
cost. The aggregate gross unrealized appreciation is $4,626,510 and the
aggregate gross unrealized depreciation is $29,937,314, resulting in net
unrealized depreciation of $25,310,804.
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE> 9
HIGH INCOME ADVANTAGE TRUST
FINANCIAL STATEMENTS
<TABLE>
<S> <C>
STATEMENT OF ASSETS AND LIABILITIES
March 31, 1997 (unaudited)
ASSETS:
Investments in securities, at value
(identified cost $173,192,132)......... $ 147,881,328
Receivable for:
Investments sold.................... 5,632,145
Interest............................ 3,457,760
Prepaid expenses and other assets....... 23,063
-------------
TOTAL ASSETS........................ 156,994,296
-------------
LIABILITIES:
Payable for:
Investments purchased............... 6,206,578
Investment management fee........... 96,834
Accrued expenses and other payables..... 125,340
-------------
TOTAL LIABILITIES................... 6,428,752
-------------
NET ASSETS:
Paid-in-capital......................... 288,883,672
Net unrealized depreciation............. (25,310,804)
Accumulated undistributed net investment
income................................. 2,467,744
Accumulated net realized loss........... (115,475,068)
-------------
NET ASSETS.......................... $ 150,565,544
=============
NET ASSET VALUE PER SHARE,
30,017,252 shares outstanding
(unlimited shares authorized of $.01
par value)............................. $5.02
=============
STATEMENT OF OPERATIONS
For the six months ended March 31, 1997
(unaudited)
NET INVESTMENT INCOME:
INTEREST INCOME......................... $ 9,849,863
-------------
EXPENSES
Investment management fee............... 576,822
Transfer agent fees and expenses........ 55,400
Professional fees....................... 29,884
Shareholder reports and notices......... 17,240
Registration fees....................... 16,573
Custodian fees.......................... 9,845
Trustees' fees and expenses............. 6,938
Other................................... 4,094
-------------
TOTAL EXPENSES...................... 716,796
-------------
NET INVESTMENT INCOME............... 9,133,067
-------------
NET REALIZED AND UNREALIZED GAIN
(LOSS):
Net realized loss....................... (14,145,080)
Net change in unrealized depreciation... 10,045,136
-------------
NET LOSS............................ (4,099,944)
-------------
NET INCREASE............................ $ 5,033,123
=============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE> 10
HIGH INCOME ADVANTAGE TRUST
FINANCIAL STATEMENTS, continued
<TABLE>
<CAPTION>
STATEMENT OF CHANGES IN NET ASSETS
FOR THE SIX
MONTHS ENDED FOR THE YEAR
MARCH 31, ENDED
1997 SEPTEMBER 30, 1996
- ------------------------------------------------------------------------------------------
(unaudited)
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income.............................. $ 9,133,067 $ 19,782,930
Net realized gain (loss)........................... (14,145,080) 1,570,993
Net change in unrealized depreciation.............. 10,045,136 (5,772,927)
----------- ------------
NET INCREASE................................... 5,033,123 15,580,996
Dividends from net investment income............... (11,205,372) (18,010,351)
----------- ------------
NET DECREASE................................... (6,172,249) (2,429,355)
NET ASSETS:
Beginning of period................................ 156,737,793 159,167,148
----------- ------------
END OF PERIOD
(Including undistributed net investment income
of $2,467,744 and $4,540,049, respectively).... $150,565,544 $156,737,793
============ ============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE> 11
HIGH INCOME ADVANTAGE TRUST
NOTES TO FINANCIAL STATEMENTS March 31, 1997 (unaudited)
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, American or other domestic or foreign 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 (in
cases where a security is traded on more than one exchange, the security is
valued on the exchange designated as the primary market pursuant to procedures
adopted 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 Dean Witter InterCapital Inc. (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 may utilize 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.
<PAGE> 12
HIGH INCOME ADVANTAGE TRUST
NOTES TO FINANCIAL STATEMENTS March 31, 1997 (unaudited) continued
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 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 the Investment Manager, the
Trust pays 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> 13
HIGH INCOME ADVANTAGE TRUST
NOTES TO FINANCIAL STATEMENTS March 31, 1997 (unaudited) 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 six months ended March 31, 1997 aggregated
$130,011,456 and $136,140,695, respectively.
Dean Witter Trust Company, an affiliate of the Investment Manager, is the
Trust's transfer agent. At March 31, 1997, the Trust had transfer agent fees and
expenses payable of approximately $5,400.
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 six months ended March 31, 1997
included in Trustees' fees and expenses in the Statement of Operations amounted
to $646. At March 31, 1997, the Trust had an accrued pension liability of
$48,079 which is included in accrued expenses in the Statement of Assets and
Liabilities.
4. SHARES OF BENEFICIAL INTEREST
<TABLE>
<CAPTION>
CAPITAL
PAR VALUE PAID IN
OF EXCESS OF
SHARES SHARES PAR VALUE
---------- --------- ------------
<S> <C> <C> <C>
Balance, September 30, 1995 and 1996, and March 31, 1997........................ 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>
March 25, 1997 $0.05 April 4, 1997 April 18, 1997
April 29, 1997 $0.05 May 9, 1997 May 23, 1997
</TABLE>
<PAGE> 14
HIGH INCOME ADVANTAGE TRUST
NOTES TO FINANCIAL STATEMENTS March 31, 1997 (unaudited) continued
6. FEDERAL INCOME TAX STATUS
At September 30, 1996, the Trust had an approximate net capital loss carryover,
which may be used to offset future capital gains to the extent provided by
regulations, which is available through September 30 in 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.
At September 30, 1996, the Trust had temporary book/tax differences primarily
attributable to post-October losses and capital loss deferrals on wash sales.
<PAGE> 15
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 SIX
MONTHS ENDED FOR THE YEAR ENDED SEPTEMBER 30
MARCH 31, -----------------------------------------------
1997 1996 1995 1994
- -----------------------------------------------------------------------------------------------------------------------------------
(unaudited)
<S> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period......................... $ 5.22 $ 5.30 $ 5.32 $ 5.99
-------- ---------- ---------- ----------
Net investment income........................................ 0.30 0.66 0.61 0.62
Net realized and unrealized gain (loss)...................... (0.13) (0.14) 0.01 (0.62)
-------- ---------- ---------- ----------
Total from investment operations............................. 0.17 0.52 0.62 --
Dividends from net investment income......................... (0.37) (0.60) (0.64) (0.67)
-------- ---------- ---------- ----------
Net asset value, end of period............................... $ 5.02 $ 5.22 $ 5.30 $ 5.32
======== ========== ========== ==========
Market value, end of period.................................. $ 5.875 $ 6.00 $ 5.75 $ 5.625
======== ========== ========== ==========
TOTAL INVESTMENT RETURN+..................................... 4.12%(1) 15.53% 14.59% 2.56%
RATIOS TO AVERAGE NET ASSETS:
Expenses..................................................... 0.93%(2) 0.92% 1.01% 0.98%
Net investment income........................................ 11.88%(2) 12.50% 11.79% 10.52%
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands...................... $150,566 $156,738 $159,167 $159,835
Portfolio turnover rate...................................... 88%(1) 117% 63% 102%
<CAPTION>
FOR THE YEAR ENDED SEPTEMBER 30
-------------------------------
1993 1992
-------------------------------
<S> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period......................... $ 5.81 $ 5.23
----------
Net investment income........................................ 0.70 0.84
Net realized and unrealized gain (loss)...................... 0.30 0.33
----------
Total from investment operations............................. 1.00 1.17
Dividends from net investment income......................... (0.82) (0.59)
----------
Net asset value, end of period............................... $ 5.99 $ 5.81
==========
Market value, end of period.................................. $ 6.125 $ 5.75
==========
TOTAL INVESTMENT RETURN+..................................... 22.41% 38.06%
RATIOS TO AVERAGE NET ASSETS:
Expenses..................................................... 0.97% 1.00%
Net investment income........................................ 12.14% 14.72%
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands...................... $179,747 $174,713
Portfolio turnover rate...................................... 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.
(1) Not annualized.
(2) Annualized.
SEE NOTES TO FINANCIAL STATEMENTS
<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
Barry Fink
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
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.
HIGH
INCOME
ADVANTAGE
TRUST
Semiannual Report
March 31, 1997
