<PAGE> 1
HIGH INCOME ADVANTAGE TRUST Two World Trade Center, New York, New York 10048
LETTER TO THE SHAREHOLDERS September 30, 1997
DEAR SHAREHOLDER:
During the twelve-month period ended September 30, 1997, the high-yield market,
benefiting from a healthy economy, improved credit quality and a relatively
favorable interest-rate environment, posted strong returns relative to other
sectors of the fixed-income market. This sector's overall vitality came despite
some market weakness in April following the Federal Reserve Board's rate hike on
March 25.
Continued strength in the economy has resulted in solid earnings improvements on
the part of many high-yield companies during the first two quarters of 1997 and
has provided the fuel for the sharp equity market advance experienced over the
past year. Many high-yield companies have taken advantage of higher equity
valuations to raise equity and strengthen their individual balance sheets. The
resulting credit quality improvement has helped keep the high-yield market's
performance strong relative to many of the other fixed-income markets.
PERFORMANCE AND PORTFOLIO STRATEGY
Against this backdrop, High Income Advantage Trust produced a total return of
16.26 percent for the twelve-month period ended September 30, 1997, based on its
closing market price on the New York Stock Exchange (NYSE) of $6.25 per share.
Based on its net asset value (NAV) of $5.18 per share, the Trust's total return
for this period was 10.75 percent. Over the past twelve months, the Trust
continued to distribute income dividends at a rate of $0.05 per share per month.
For the full twelve-month period, the Trust's distributions totaled
approximately $0.67 per share, including an extra income dividend of $0.0733 per
share paid on December 20, 1996. On September 30, 1997, the Trust's net assets
exceeded $155 million.
As the economy has continued to expand over the past few years, the Trust has
tended to concentrate on B-rated issues. In a growing economy one can generally
find undervalued upgrade candidates in this sector of the market that provide
attractive yields as well as appreciation potential.
<PAGE> 2
HIGH INCOME ADVANTAGE TRUST
LETTER TO THE SHAREHOLDERS September 30, 1997, continued
We continue to feel that many of these issues are very attractive long-term
investments. However, given the lower market yields available today and the
potential for a modest Federal Reserve rate tightening down the road, we have
taken some defensive steps with the portfolio. These include increasing our
allocation to the higher-quality end of the market (BB-rated issues or higher).
We feel that these holdings will better protect shareholders during a
potentially nervous market environment, as well as provide the liquidity and
portfolio flexibility needed to take advantage of future opportunities. In
addition, the Trust continues to limit its exposure to cyclical industries and
remains focused on more-predictable, recession-resistant or growth sectors of
the economy, such as broadcasting, media, cable, telecommunications and food and
beverages. In some of these sectors, such as media and telecommunications, we
expect to see continued consolidation, which may bode well for many of the
Trust's individual holdings.
LOOKING AHEAD
The one- to two-year outlook for the high-yield market remains favorable, given
our expectations for continued growth in the economy and generally improving
credit quality in the high-yield marketplace. We caution, however, that during
this period the possibility exists for another round of investor nervousness
given the potential for Federal Reserve Board moves. As discussed above, the
Trust is well positioned to take advantage of any potential market disruptions
given its more conservative positioning today. Assuming the longer-term market
outlook remains unchanged, these market disruptions would likely be viewed as
buying opportunities, allowing the Trust to lock in attractive yields and prices
for its shareholders.
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 SPECIAL MEETING (unaudited)
* * *
On May 20, 1997, a special meeting of the Trust's shareholders was held for the
purpose of voting on two separate matters, the results of which were as follows:
(1) ELECTION OF TRUSTEE:
<TABLE>
<S> <C>
Wayne E. Hedien
For................................................................ 24,193,836
Withheld........................................................... 538,871
</TABLE>
The following Trustees were not standing for reelection at this meeting:
Michael Bozic, Charles A. Fiumefreddo, Edwin J. Garn, John R. Haire,
Dr. Manuel H. Johnson, Michael E. Nugent, Philip J. Purcell and
John L. Schroeder.
(2) APPROVAL OF A NEW INVESTMENT MANAGEMENT AGREEMENT BETWEEN THE TRUST AND DEAN
WITTER INTERCAPITAL INC. IN CONNECTION WITH THE MERGER OF MORGAN STANLEY
GROUP INC. WITH DEAN WITTER, DISCOVER & CO.:
<TABLE>
<S> <C>
For................................................................ 23,443,567
Against............................................................ 467,574
Abstain............................................................ 821,566
</TABLE>
<PAGE> 4
HIGH INCOME ADVANTAGE TRUST
PORTFOLIO OF INVESTMENTS September 30, 1997
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- --------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
CORPORATE BONDS (93.3%)
Aerospace (1.0%)
$ 1,500 Sabreliner Corp. (Series B).......... 12.50 % 04/15/03 $ 1,560,000
------------
Automotive (4.3%)
3,000 APS, Inc. ........................... 11.875 01/15/06 2,820,000
3,500 Toyota Motor Credit Corp. ........... 15.00 09/25/98 3,804,885
------------
6,624,885
------------
Broadcast Media (7.1%)
1,500 Adams Outdoor Advertising L.P. ...... 10.75 03/15/06 1,638,750
1,500 Australis Holdings Ltd.
(Australia)......................... 15.00 ++ 11/01/02 1,230,000
1,500 Echostar DBS Corp. - 144A*........... 12.50 07/01/02 1,650,000
1,500 Echostar Satellite Broadcasting...... 13.125++ 03/15/04 1,252,500
1,500 Paxson Communications Corp. ......... 11.625 10/01/02 1,642,500
1,500 Spanish Broadcasting System, Inc. ... 12.50 06/15/02 1,710,000
3,000 TCI Satellite Entertainment,
Inc. - 144A*........................ 12.25 ++ 02/15/07 1,965,000
------------
11,088,750
------------
Business Services (2.0%)
3,000 Anacomp, Inc. ....................... 10.875 04/01/04 3,150,000
------------
Cable & Telecommunications (17.5%)
1,500 Adelphia Communications, Inc.
(Series B).......................... 9.875 03/01/07 1,548,750
1,500 Advanced Radio Telecom Corp. ........ 14.00 02/15/07 1,275,000
2,000 American Communications Services,
Inc. - 144A*........................ 13.75 07/15/07 2,305,000
1,775 American Communications Services,
Inc. ............................... 12.75 ++ 04/01/06 1,255,813
1,500 Cablevision Systems Corp. ........... 9.875 04/01/23 1,620,000
1,500 Charter Communication South East L.P.
(Series B).......................... 11.25 03/15/06 1,650,000
1,583 Falcon Holdings Group L.P.
(Series B).......................... 11.00 + 09/15/03 1,629,966
1,500 FrontierVision Operating Partners,
L.P. ............................... 11.00 10/15/06 1,635,000
750 GST Equipment Funding
Corp. - 144A*....................... 13.25 05/01/07 870,000
5,000 Hyperion Telecommunication, Inc.
(Series B).......................... 13.00 ++ 04/15/03 3,512,499
17,700 In-Flight Phone Corp. (Series B)
(a)................................. 14.00 ++ 05/15/02 1,681,500
1,500 IXC Communications, Inc.
(Series B).......................... 12.50 10/01/05 1,732,500
1,500 NextLink Communications, Inc. ....... 12.50 04/15/06 1,732,500
1,500 Paging Network, Inc. ................ 10.125 08/01/07 1,560,000
1,500 Peoples Telephone Co., Inc. ......... 12.25 07/15/02 1,571,250
1,500 Rifkin Acquisition Partners L.P. .... 11.125 01/15/06 1,635,000
------------
27,214,778
------------
Consumer Products (3.5%)
2,317 J.B. Williams Holdings, Inc. ........ 12.00 03/01/04 2,432,850
3,000 Renaissance Cosmetics, Inc. ......... 11.75 02/15/04 3,037,500
------------
5,470,350
------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE> 5
HIGH INCOME ADVANTAGE TRUST
PORTFOLIO OF INVESTMENTS September 30, 1997, continued
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
<C> <S> <C> <C> <C>
Containers (2.0%)
$ 1,500 Mail - Well Corp. ................... 10.50 % 02/15/04 $ 1,616,250
1,500 Packaging Resources, Inc. ........... 11.625 05/01/03 1,560,000
------------
3,176,250
------------
Electrical & Alarm Systems (1.9%)
3,500 Mosler, Inc. ........................ 11.00 04/15/03 2,992,500
------------
Entertainment/Gaming & Lodging (13.6%)
1,500 AMF Group Inc. (Series B)............ 10.875 03/15/06 1,661,250
1,500 California Hotel Finance Corp. ...... 11.00 12/01/02 1,569,375
2,250 Fitzgeralds Gaming Corp. (Units)**... 13.00 12/31/02 2,227,500
3,000 Lady Luck Gaming Finance Corp. ...... 11.875 03/01/01 3,015,000
5,500 Motels of America, Inc. (Series B)... 12.00 04/15/04 5,307,500
1,500 Players International, Inc. ......... 10.875 04/15/05 1,608,750
1,500 Plitt Theaters, Inc. (Canada)........ 10.875 06/15/04 1,601,250
1,500 Station Casinos, Inc. ............... 9.625 06/01/03 1,492,500
3,000 Stuart Entertainment, Inc.
(Series B).......................... 12.50 11/15/04 2,610,000
------------
21,093,125
------------
Finance (4.4%)
3,000 General Electric Capital Corp. ...... 13.50 01/20/98 3,070,410
3,500 Household Finance Corp. ............. 15.00 09/25/98 3,808,350
------------
6,878,760
------------
Foods & Beverages (8.6%)
1,500 Envirodyne Industries, Inc. ......... 10.25 12/01/01 1,507,500
1,500 General Mills, Inc. ................. 13.50 01/21/98 1,535,760
4,250 PepsiCo, Inc. ....................... 15.00 08/06/98 4,579,035
14,025 Specialty Foods Acquisition Corp.
(Series B).......................... 13.00 ++ 08/15/05 5,750,250
------------
13,372,545
------------
Healthcare (3.1%)
1,500 Unilab Corp. ........................ 11.00 04/01/06 1,507,500
3,775 Unison Healthcare Corp. - 144A*...... 12.25 11/01/06 3,359,750
------------
4,867,250
------------
Manufacturing (4.6%)
1,500 Berry Plastics Corp. ................ 12.25 04/15/04 1,653,750
1,500 Exide Electronics Group, Inc.
(Series B)........................... 11.50 03/15/06 1,755,000
1,500 International Wire Group, Inc. ...... 11.75 06/01/05 1,642,500
2,000 Uniroyal Technology Corp. ........... 11.75 06/01/03 2,060,000
------------
7,111,250
------------
Manufacturing - Diversified (5.6%)
1,500 Foamex L.P. ......................... 11.875 10/01/04 1,590,000
1,500 Interlake Corp. ..................... 12.125 03/01/02 1,571,250
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE> 6
HIGH INCOME ADVANTAGE TRUST
PORTFOLIO OF INVESTMENTS September 30, 1997, continued
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- --------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
$ 1,500 J.B. Poindexter & Co., Inc. ......... 12.50 % 05/15/04 $ 1,605,000
7,050 Jordan Industries, Inc. ............. 11.75 ++ 04/01/09 3,983,250
------------
8,749,500
------------
Publishing (2.1%)
1,500 American Media Operations, Inc. ..... 11.625 11/15/04 1,638,750
1,500 United States Banknote Corp. ........ 10.375 06/01/02 1,582,500
------------
3,221,250
------------
Restaurants (6.3%)
9,140 American Restaurant Group Holdings,
Inc. ............................... 14.00 ++ 12/15/05 3,119,025
1,500 Boston Chicken Inc. (Conv.).......... 4.50 02/01/04 1,121,070
3,000 Boston Chicken Inc. (Conv.).......... 0.00 06/01/15 647,340
1,500 Carrols Corp. ....................... 11.50 08/15/03 1,597,500
3,000 FRD Acquisition Corp. (Series B)..... 12.50 07/15/04 3,240,000
------------
9,724,935
------------
Retail (2.7%)
7,550 County Seat Stores Inc. (b).......... 12.00 10/01/12 4,152,500
------------
Retail - Food Chains (1.9%)
3,000 Pathmark Stores, Inc. ............... 9.625 05/01/03 2,970,000
------------
Textiles (1.1%)
3,000 U.S. Leather, Inc. .................. 10.25 07/31/03 1,770,000
------------
TOTAL CORPORATE BONDS
(Identified Cost $152,615,678)................................ 145,188,628
------------
NUMBER OF
SHARES
- ---------
COMMON STOCKS (c) (1.0%)
Automotive (0.0%)
113 Northern Holdings Industrial Corp. (d)*....................... --
------------
Entertainment/Gaming & Lodging (0.0%)
4,000 Motels of America, Inc. - 144A*............................... 60,000
------------
Foods & Beverages (0.1%)
180,000 Specialty Foods Acquisition Corp. - 144A*..................... 180,000
------------
Manufacturing - Diversified (0.9%)
44,800 Thermadyne Holdings Corp. (d)................................. 1,332,800
------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE> 7
HIGH INCOME ADVANTAGE TRUST
PORTFOLIO OF INVESTMENTS September 30, 1997, continued
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- --------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
Restaurants (0.0%)
9,500 American Restaurant Group Holdings, Inc. - 144A*.............. $ 9,500
------------
TOTAL COMMON STOCKS
(Identified Cost $9,464,151).................................. 1,582,300
------------
PREFERRED STOCK (1.6%)
Entertainment/Gaming & Lodging
80,000 Fitzgerald Gaming Corp. (Units)**
(Identified Cost $2,000,000)................................. 2,480,000
------------
</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
------------
Broadcast Media (0.0%)
1,500 Australis Holdings Ltd. - 144A* (Australia)... 10/30/01 --
------------
Cable & Telecommunications (0.1%)
1,500 Hyperion Telecommunication, Inc. (Series
B) - 144A*................................... 04/15/01 60,095
------------
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*................ 12/31/02 --
------------
2,023
------------
Manufacturing (0.0%)
20,000 Uniroyal Technology Corp. .................... 06/01/03 60,000
------------
Retail (0.0%)
4,000 County Seat Holdings Co. ..................... 10/15/98 --
------------
TOTAL WARRANTS
(Identified Cost $485,235)................................. 172,118
------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE> 8
HIGH INCOME ADVANTAGE TRUST
PORTFOLIO OF INVESTMENTS September 30, 1997, continued
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- --------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
SHORT-TERM INVESTMENT (e) (3.7%)
U.S. GOVERNMENT AGENCY
$ 5,700 Federal Home Loan Mortgage Corp.
(Identified Cost $5,700,000)......... 6.05% 10/01/97 $ 5,700,000
------------
TOTAL INVESTMENTS
(Identified Cost $170,265,064) (f).................... 99.7% 155,123,046
OTHER ASSETS IN EXCESS OF LIABILITIES.................. 0.3 416,560
----- ------------
NET ASSETS............................................ 100.0% $155,539,606
===== ============
</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) Security was purchased on a discount basis. The interest rate shown has
been adjusted to reflect a money market equivalent yield.
(f) The aggregate cost for federal income tax purposes approximates identified
cost. The aggregate gross unrealized appreciation is $9,015,497 and the
aggregate gross unrealized depreciation is $24,157,515, resulting in net
unrealized depreciation of $15,142,018.
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE> 9
HIGH INCOME ADVANTAGE TRUST
FINANCIAL STATEMENTS
<TABLE>
<S> <C>
STATEMENT OF ASSETS AND LIABILITIES
September 30, 1997
ASSETS:
Investments in securities, at value
(identified cost $170,265,064)...................................... $ 155,123,046
Receivable for:
Interest......................................................... 3,513,509
Investments sold................................................. 2,010,000
Prepaid expenses and other assets.................................... 12,085
------------
TOTAL ASSETS..................................................... 160,658,640
------------
LIABILITIES:
Payable for:
Investments purchased............................................ 3,939,563
Investment management fee........................................ 101,396
Payable to bank...................................................... 952,781
Accrued expenses and other payables.................................. 125,294
------------
TOTAL LIABILITIES................................................ 5,119,034
------------
NET ASSETS....................................................... $ 155,539,606
============
COMPOSITION OF NET ASSETS:
Paid-in-capital...................................................... $ 287,779,310
Net unrealized depreciation.......................................... (15,142,018)
Accumulated undistributed net investment income...................... 3,362,294
Accumulated net realized loss........................................ (120,459,980)
------------
NET ASSETS....................................................... $ 155,539,606
============
NET ASSET VALUE PER SHARE,
30,017,252 shares outstanding
(unlimited shares authorized of $.01 par value)..................... $5.18
=====
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE> 10
HIGH INCOME ADVANTAGE TRUST
FINANCIAL STATEMENTS, continued
<TABLE>
<S> <C>
STATEMENT OF OPERATIONS
For the year ended September 30, 1997
NET INVESTMENT INCOME:
INTEREST INCOME....................................................... $ 20,448,996
------------
EXPENSES
Investment management fee............................................. 1,148,751
Transfer agent fees and expenses...................................... 108,576
Professional fees..................................................... 54,106
Shareholder reports and notices....................................... 37,926
Registration fees..................................................... 24,887
Custodian fees........................................................ 15,965
Trustees' fees and expenses........................................... 15,668
Other................................................................. 10,679
------------
TOTAL EXPENSES.................................................... 1,416,558
------------
NET INVESTMENT INCOME............................................. 19,032,438
------------
NET REALIZED AND UNREALIZED GAIN (LOSS):
Net realized loss..................................................... (20,234,354)
Net change in unrealized depreciation................................. 20,213,922
------------
NET LOSS.......................................................... (20,432)
------------
NET INCREASE.......................................................... $ 19,012,006
============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE> 11
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, 1997 SEPTEMBER 30, 1996
--------------------------------------------------------------------------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income............................ $ 19,032,438 $ 19,782,930
Net realized gain (loss)......................... (20,234,354) 1,570,993
Net change in unrealized depreciation............ 20,213,922 (5,772,927)
------------ ------------
NET INCREASE................................. 19,012,006 15,580,996
Dividends from net investment income............. (20,210,193) (18,010,351)
------------ ------------
NET DECREASE................................. (1,198,187) (2,429,355)
NET ASSETS:
Beginning of period.............................. 156,737,793 159,167,148
------------ ------------
END OF PERIOD
(Including undistributed net investment
income of $3,362,294 and $4,540,049,
respectively)................................ $155,539,606 $156,737,793
============ ============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE> 12
HIGH INCOME ADVANTAGE TRUST
NOTES TO FINANCIAL STATEMENTS September 30, 1997
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.
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> 13
HIGH INCOME ADVANTAGE TRUST
NOTES TO FINANCIAL STATEMENTS September 30, 1997, 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 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> 14
HIGH INCOME ADVANTAGE TRUST
NOTES TO FINANCIAL STATEMENTS September 30, 1997, 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, 1997 aggregated
$181,132,321 and $191,425,890, respectively.
Dean Witter Trust FSB, an affiliate of the Investment Manager, is the Trust's
transfer agent. At September 30, 1997, the Trust had transfer agent fees and
expenses payable of approximately $4,200.
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, 1997
included in Trustees' fees and expenses in the Statement of Operations amounted
to $2,065. At September 30, 1997, the Trust had an accrued pension liability of
$47,923 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, 1996 and 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>
September 23, 1997 $0.05 October 3, 1997 October 17, 1997
October 28, 1997 $0.05 November 7, 1997 November 21, 1997
</TABLE>
<PAGE> 15
HIGH INCOME ADVANTAGE TRUST
NOTES TO FINANCIAL STATEMENTS September 30, 1997, continued
6. FEDERAL INCOME TAX STATUS
At September 30, 1997, the Trust had a net capital loss carryover of
approximately $105,013,000, to offset future capital gains to the extent
provided by regulations, available through September 30 of the following years:
<TABLE>
<CAPTION>
AMOUNTS IN THOUSANDS
- --------------------------------------------------------------------------
1998 1999 2000 2001 2002 2003 2005
- ------ ------- ------- ---- ------- ------- ------
<S> <C> <C> <C> <C> <C> <C>
$5,723 $27,667 $23,411 $109 $15,205 $26,684 $6,214
</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 $13,051,000 during fiscal 1997.
At September 30, 1997, the Trust had temporary book/tax differences primarily
attributable to post-October losses and capital loss deferrals on wash sales and
permanent book/tax differences attributable to an expired net capital loss
carryover. To reflect reclassifications arising from the permanent differences,
paid-in-capital was charged and accumulated net realized loss was credited
$1,104,362.
<PAGE> 16
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
----------------------------------------------------
1997 1996 1995 1994 1993
<S> <C> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period....................................... $5.22 $5.30 $5.32 $ 5.99 $ 5.81
----- ----- ----- ------ ------
Net investment income...................................................... 0.63 0.66 0.61 0.62 0.70
Net realized and unrealized gain (loss).................................... -- (0.14) 0.01 (0.62) 0.30
----- ----- ----- ------ ------
Total from investment operations........................................... 0.63 0.52 0.62 -- 1.00
Dividends from net investment income....................................... (0.67) (0.60) (0.64) (0.67) (0.82)
----- ----- ----- ------ ------
Net asset value, end of period............................................. $5.18 $5.22 $5.30 $ 5.32 $ 5.99
===== ===== ===== ====== ======
Market value, end of period................................................ $6.25 $6.00 $5.75 $5.625 $6.125
===== ===== ===== ====== ======
TOTAL INVESTMENT RETURN+................................................... 16.26% 15.53% 14.59% 2.56% 22.41%
RATIOS TO AVERAGE NET ASSETS:
Expenses................................................................... 0.92% 0.92% 1.01% 0.98% 0.97%
Net investment income...................................................... 12.43% 12.50% 11.79% 10.52% 12.14%
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands.................................... $155,540 $156,738 $159,167 $159,835 $179,747
Portfolio turnover rate.................................................... 124% 117% 63% 102% 140%
</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> 17
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, 1997, 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, 1997 by correspondence with the custodian and brokers and the
application of alternative auditing procedures where confirmations from brokers
were not received, provide a reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
1177 Avenue of the Americas
New York, New York 10036
November 10, 1997
<PAGE> 18
(This Page Intentionally Left Blank)
<PAGE> 19
(This Page Intentionally Left Blank)
<PAGE> 20
TRUSTEES
- ------------------------------------
Michael Bozic
Charles A. Fiumefreddo
Edwin J. Garn
John R. Haire
Wayne E. Hedien
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 FSB
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
TRUST
Annual Report
September 30, 1997
