<PAGE> 1
HIGH INCOME ADVANTAGE TRUST Two World Trade Center, New York, New York 10048
LETTER TO THE SHAREHOLDERS March 31, 1998
DEAR SHAREHOLDER:
As the six-month period ended March 31, 1998 began, investor concern over the
foreign market crisis and its impact on the U.S. economy resulted in a
high-yield market correction, depressing results for the period. More recently,
the financial markets, including the high-yield bond sector, have improved as
economic conditions remained strong. Continued strength in the economy has
resulted in solid earnings improvements on the part of many high-yield companies
and has provided the fuel for the equity market advance experienced during the
period. Many high-yield companies took advantage of these higher equity
valuations to raise equity and strengthen their own balance sheets, resulting in
further credit quality improvement during the period.
Continuing the trend of recent years, high-yield bonds remained one of the
better-performing sectors of the fixed-income market over the past year.
Benefiting from a healthy economy, improved credit quality and a relatively
favorable interest-rate environment, the high-yield market posted a strong
double-digit return for the trailing twelve-month period.
PERFORMANCE AND PORTFOLIO STRATEGY
As discussed, the high-yield market weakness, a direct result of the foreign
market crisis, did depress results somewhat during the period. In this context,
High Income Advantage Trust produced a total return of 1.48 percent for the
six-month period ended March 31, 1998, based on its month-end closing market
price on the New York Stock Exchange (NYSE) of $6.00 per share. Based on its net
asset value (NAV) of $5.06 per share, the Trust's total return for the same
period was 3.26 percent. Over the past six months, the Trust continued to
distribute regular income dividends at a rate of $0.05 per share per month. For
the full six-month period, the Trust's distributions totaled $0.3433 per share,
including an extra income dividend of $0.0433 per share paid on December 19,
1997. On March 31, 1998, the Trust's net assets exceeded $151.9 million.
<PAGE> 2
HIGH INCOME ADVANTAGE TRUST
LETTER TO THE SHAREHOLDERS March 31, 1998, continued
Because 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. Given our
expectation for continued growth in the economy this year, we feel that many of
these issues remain very attractive investments. However, in light of the lower
market yields available today and the potential for another correction in the
market, we continue to maintain our relatively conservative posture in the
Trust. This includes maintaining our significant allocation to the shorter-term,
higher-quality end of the market (BB-rated issues or higher). We feel that these
holdings may better protect shareholders during a potentially nervous market
environment, as well as provide the portfolio flexibility to take advantage of
higher, more attractive market yields in the future.
In addition, the Trust has sold many of its heavily cyclical positions and is
now focused mainly on more-predictable, recession-resistant and growth sectors
of the economy, such as food and beverage, health care, telecommunications, and
media and cable. 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. In the past twelve months, we have seen many of the
Trust's investments appreciate as a result of either a pending combination or
the undertaking of an equity offering, both of which bode well for the
underlying company's financial strength. Among these are Adelphia
Communications, Advanced Radio, American Communications, Cablevision Systems,
Echostar, Mail Well, Nextlink Communications, Stations Casinos and TCI
Satellite. Finally, in keeping with our more conservative posture, we continue
to limit our exposure to foreign high-yield markets, given the potential risk
associated with the ongoing foreign market crisis.
LOOKING AHEAD
The one- to two-year outlook for the high-yield market remains favorable, with
our expectations for continued economic growth. We caution, however, that during
this period the possibility exists for another round of investor nervousness in
reaction to potential Federal Reserve Board moves or another disruption in the
foreign markets.
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.
2
<PAGE> 3
HIGH INCOME ADVANTAGE TRUST
LETTER TO THE SHAREHOLDERS March 31, 1998, continued
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
3
<PAGE> 4
HIGH INCOME ADVANTAGE TRUST
RESULTS OF ANNUAL MEETING (unaudited)
* * *
On December 18, 1997, 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>
Edwin J. Garn
For......................................................... 24,172,915
Withheld.................................................... 525,748
John R. Haire
For......................................................... 24,129,108
Withheld.................................................... 569,555
Michael E. Nugent
For......................................................... 24,186,941
Withheld.................................................... 511,722
Philip J. Purcell
For......................................................... 24,179,266
Withheld.................................................... 519,397
</TABLE>
The following Trustees were not standing for reelection at this meeting:
Michael Bozic, Charles A. Fiumefreddo, Wayne E. Hedien, Dr. Manuel H. Johnson,
and John L. Schroeder.
(2) RATIFICATION OF THE SELECTION OF PRICE WATERHOUSE LLP AS THE TRUST'S
INDEPENDENT ACCOUNTANTS:
<TABLE>
<S> <C>
For......................................................... 23,960,296
Against..................................................... 179,386
Abstain..................................................... 558,981
</TABLE>
(3) ELIMINATION OF THE TRUST'S FUNDAMENTAL POLICY REGARDING INVESTMENTS IN
RESTRICTED SECURITIES:
<TABLE>
<S> <C>
For......................................................... 13,215,712
Against..................................................... 931,185
Abstain..................................................... 1,524,489
</TABLE>
The shareholders of the Trust voted to eliminate a fundamental policy of the
Trust which provided that the Trust could not invest more than 10 percent of its
total assets in restricted securities which policy could only be changed by
shareholder vote. The elimination of this fundamental policy enables the Trust
to participate more fully in investment opportunities in the high-yield market.
The Trust's current policy with respect to restricted securities is
non-fundamental with investment limits in such securities set by the Board of
Trustees of the Trust in response to changes in the markets for such securities.
4
<PAGE> 5
HIGH INCOME ADVANTAGE TRUST
PORTFOLIO OF INVESTMENTS March 31, 1998 (unaudited)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
CORPORATE BONDS (91.8%)
Aerospace (1.4%)
$ 2,000 Sabreliner Corp. (Series B).......... 12.50% 04/15/03 $ 2,115,000
------------
Automotive (3.1%)
1,500 Speedy Muffler King, Inc............. 10.875 10/01/06 1,050,000
3,500 Toyota Motor Credit Corp............. 15.00 09/25/98 3,654,420
------------
4,704,420
------------
Broadcast Media (4.1%)
1,000 Adams Outdoor Advertising L.P........ 10.75 03/15/06 1,100,000
1,500 Australis Holdings Property Ltd.
(Australia)......................... 15.00++ 11/01/02 525,000
1,000 Echostar DBS Corp.................... 12.50 07/01/02 1,132,500
1,000 Paxson Communications Corp........... 11.625 10/01/02 1,080,000
1,500 Spanish Broadcasting System, Inc..... 12.50 06/15/02 1,725,000
1,000 TCI Satellite Entertainment, Inc..... 12.25++ 02/15/07 720,000
------------
6,282,500
------------
Business Services (6.6%)
3,000 Anacomp, Inc. (Series B)............. 10.875 04/01/04 3,195,000
3,000 Comforce Operating, Inc.............. 12.00 12/01/07 3,202,500
3,500 Xerox Credit Corp.................... 15.00 10/07/98 3,664,010
------------
10,061,510
------------
Cable & Telecommunications (16.6%)
1,000 21st Century Telecom Group - 144A*... 12.25++ 02/15/08 592,500
1,000 Adelphia Communications, Inc. (Series
B).................................. 9.875 03/01/07 1,090,000
3,000 Advanced Radio Telecom Corp.......... 14.00 02/15/07 3,300,000
1,000 American Communications Services,
Inc................................. 13.75 07/15/07 1,200,000
1,000 Charter Communication South East L.P.
(Series B).......................... 11.25 03/15/06 1,111,250
1,000 Clearnet Communications, Inc.
(Canada)............................ 14.75++ 12/15/05 827,500
982 Falcon Holdings Group L.P. (Series
B).................................. 11.00 09/15/03 1,056,178
1,000 FrontierVision Operating Partners,
L.P................................. 11.00 10/15/06 1,112,500
1,000 FWT, Inc. - 144A*.................... 9.875 11/15/07 955,000
1,000 GST Equipment Funding, Inc........... 13.25 05/01/07 1,195,000
1,000 Hyperion Telecommunication, Inc.
(Series B).......................... 12.25 09/01/04 1,130,000
17,700 In-Flight Phone Corp. (Series B)
(a)................................. 14.00++ 05/15/02 2,478,000
1,000 IXC Communications, Inc. (Series
B).................................. 12.50 10/01/05 1,199,940
1,000 NextLink Communications, Inc......... 12.50 04/15/06 1,155,000
1,000 Paging Network, Inc.................. 10.125 08/01/07 1,050,000
1,500 Peoples Telephone Co., Inc........... 12.25 07/15/02 1,597,500
1,000 Price Communications Cellular
Holdings............................ 13.50++ 08/01/07 695,000
1,000 Rifkin Acquisition Partners L.P...... 11.125 01/15/06 1,110,000
1,000 USA Mobile Communications, Inc....... 14.00 11/01/04 1,112,500
1,500 Winstar Communications, Inc.......... 14.00++ 10/15/05 1,260,000
------------
25,227,868
------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
5
<PAGE> 6
HIGH INCOME ADVANTAGE TRUST
PORTFOLIO OF INVESTMENTS March 31, 1998 (unaudited) continued
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
Computer Equipment (2.7%)
$ 2,800 IBM Credit Corp...................... 15.00% 02/02/99 $ 3,009,412
1,000 Unisys Corp. (Series B).............. 12.00 04/15/03 1,130,000
------------
4,139,412
------------
Consumer Products (1.6%)
2,317 J.B. Williams Holdings, Inc.......... 12.00 03/01/04 2,421,265
------------
Containers (0.7%)
1,000 Mail-Well Corp....................... 10.50 02/15/04 1,075,000
------------
Electrical & Alarm Systems (1.2%)
2,000 Mosler, Inc.......................... 11.00 04/15/03 1,790,000
------------
Entertainment/Gaming & Lodging (12.2%)
1,000 AMF Bowling Worldwide, Inc. (Series
B).................................. 10.875 03/15/06 1,101,250
1,500 Fitzgerald Gaming Corp. - 144A*...... 12.25 12/15/04 1,530,000
3,000 Lady Luck Gaming Finance Corp........ 11.875 03/01/01 3,090,000
3,750 Motels of America, Inc. (Series B)... 12.00 04/15/04 3,656,250
1,000 Players International, Inc........... 10.875 04/15/05 1,087,500
1,000 Plitt Theaters, Inc. (Canada)........ 10.875 06/15/04 1,085,000
1,000 Resort At Summerlin - 144A*.......... 13.00+ 12/15/07 1,035,000
1,000 Station Casinos, Inc................. 9.625 06/01/03 1,037,500
1,500 Stuart Entertainment, Inc. (Series
B).................................. 12.50 11/15/04 1,185,000
3,500 Walt Disney Co....................... 15.00 12/14/98 3,725,050
------------
18,532,550
------------
Finance (4.4%)
2,800 General Electric Capital Corp........ 15.00 01/21/99 3,003,700
3,500 Household Finance Corp............... 15.00 09/25/98 3,650,185
------------
6,653,885
------------
Foods & Beverages (10.5%)
3,000 Envirodyne Industries, Inc........... 10.25 12/01/01 2,992,500
2,800 General Mills, Inc................... 15.00 01/29/99 3,014,536
4,250 PepsiCo, Inc......................... 15.00 08/06/98 4,388,210
1,000 Sparkling Spring Water - 144A*
(Canada)............................ 11.50 11/15/07 1,050,000
10,350 Specialty Foods Acquisition Corp.
(Series B).......................... 13.00++ 08/15/05 4,502,250
------------
15,947,496
------------
Healthcare (2.2%)
1,500 Unilab Corp.......................... 11.00 04/01/06 1,597,500
3,025 Unison Healthcare Corp. - 144A*...... 12.25 11/01/06 1,754,500
------------
3,352,000
------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
6
<PAGE> 7
HIGH INCOME ADVANTAGE TRUST
PORTFOLIO OF INVESTMENTS March 31, 1998 (unaudited) continued
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
Industrials (1.4%)
$ 1,000 Harris Chemical North America,
Inc................................. 10.75% 10/15/03 $ 1,057,500
1,000 Outsourcing Services Group,
Inc. - 144A*........................ 10.875 03/01/06 1,025,000
------------
2,082,500
------------
Manufacturing (3.2%)
1,500 Berry Plastics Corp.................. 12.25 04/15/04 1,642,500
1,000 International Wire Group, Inc........ 11.75 06/01/05 1,110,000
2,000 Uniroyal Technology Corp............. 11.75 06/01/03 2,110,000
------------
4,862,500
------------
Manufacturing - Diversified (5.0%)
1,500 Interlake Corp....................... 12.125 03/01/02 1,552,500
1,500 J.B. Poindexter & Co., Inc........... 12.50 05/15/04 1,485,000
7,050 Jordan Industries, Inc. (Series B)... 11.75++ 04/01/09 4,547,250
------------
7,584,750
------------
Oil & Gas (2.1%)
1,000 Texaco Capital, Inc.................. 15.00 01/13/99 1,070,410
2,000 Transamerican Refining Corp.
(Units)++ - 144A*................... 16.00 06/30/03 2,100,000
------------
3,170,410
------------
Publishing (0.7%)
1,000 American Media Operations, Inc....... 11.625 11/15/04 1,095,000
------------
Restaurants (7.8%)
1,000 American Restaurant Group,
Inc. - 144A*........................ 11.50 02/15/03 1,002,500
24,002 American Restaurant Group,
Inc. - 144A* (b).................... 0.00 12/15/05 4,740,296
2,550 Carrols Corp......................... 11.50 08/15/03 2,703,000
3,000 FRD Acquisition Corp. (Series B)..... 12.50 07/15/04 3,330,000
------------
11,775,796
------------
Retail - Food Chains (2.8%)
1,000 Mrs. Fields Original Cookies,
Inc. - 144A*........................ 10.125 12/01/04 1,000,000
750 Pantry, Inc.......................... 10.25 10/15/07 776,250
250 Pueblo Xtra International, Inc....... 9.50 08/01/03 243,750
2,250 Pueblo Xtra International, Inc.
(Series C).......................... 9.50 08/01/03 2,193,750
------------
4,213,750
------------
Textiles (0.9%)
3,000 U.S. Leather, Inc. (c)............... 10.25 07/31/03 1,440,000
------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
7
<PAGE> 8
HIGH INCOME ADVANTAGE TRUST
PORTFOLIO OF INVESTMENTS March 31, 1998 (unaudited) continued
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
Transportation (0.6%)
$ 1,000 Alpha Shipping PLC - 144A* (United
Kingdom)............................ 9.50% 02/15/08 $ 970,000
------------
TOTAL CORPORATE BONDS
(Identified Cost $146,195,443).......................... 139,497,612
------------
</TABLE>
<TABLE>
<CAPTION>
NUMBER OF
SHARES
- ---------
<C> <S> <C>
COMMON STOCKS (d) (3.6%)
Automotive (0.0%)
113 Northern Holdings Industrial Corp. (b)*................... --
------------
Entertainment/Gaming & Lodging (0.2%)
4,000 Motels of America, Inc. - 144A*........................... 220,095
------------
Foods & Beverages (0.1%)
180,000 Specialty Foods Acquisition Corp. - 144A*................. 180,000
------------
Restaurants (0.0%)
9,500 American Restaurant Group Holdings, Inc. - 144A*.......... --
------------
Retail (3.3%)
1,004,150 County Seat Stores, Inc. (b) (e).......................... 4,984,601
------------
TOTAL COMMON STOCKS
(Identified Cost $14,175,422)............................. 5,384,696
------------
</TABLE>
<TABLE>
<CAPTION>
NUMBER OF EXPIRATION
WARRANTS DATE
- --------- ----------
<C> <S> <C> <C>
WARRANTS (d) (0.2%)
Aerospace (0.1%)
5,000 Sabreliner Corp. - 144A*..................... 04/15/03 75,000
------------
Broadcast Media (0.0%)
1,500 Australis Holdings Property Ltd. - 144A*
(Australia)................................. 10/30/01 --
------------
Cable & Telecommunications (0.1%)
1,500 Hyperion Telecommunication, Inc. - 144A*..... 04/01/01 157,559
------------
Containers (0.0%)
4,000 Crown Packaging Holdings, Ltd. - 144A*....... 11/01/03 --
------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
8
<PAGE> 9
HIGH INCOME ADVANTAGE TRUST
PORTFOLIO OF INVESTMENTS March 31, 1998 (unaudited) continued
<TABLE>
<CAPTION>
NUMBER OF EXPIRATION
WARRANTS DATE VALUE
- -------------------------------------------------------------------------------------
<C> <S> <C> <C>
Entertainment/Gaming & Lodging (0.0%)
2,000 Fitzgeralds Gaming Corp...................... 12/19/98 $ 9,032
2,250 Fitzgeralds South Inc. - 144A*............... 03/15/99 --
1,000 Resort At Summerlin - 144A*.................. 12/15/07 --
------------
9,032
------------
Retail (0.0%)
4,000 County Seat Holdings Co...................... 10/15/98 --
------------
TOTAL WARRANTS
(Identified Cost $445,645)............................... 241,591
------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE
- --------- ------ ---------
<C> <S> <C> <C> <C>
SHORT-TERM INVESTMENTS (2.3%)
U.S. GOVERNMENT AGENCY (f) (1.8%)
$2,800 Federal Home Loan Mortgage Corp.
(Amortized Cost $2,800,000).......... 5.90% 04/01/98 2,800,000
------------
REPURCHASE AGREEMENT (0.5%)
743 The Bank of New York (dated
03/31/98; proceeds $743,553) (g)
(Identified Cost $743,442)........... 5.375 04/01/98 743,442
------------
TOTAL SHORT-TERM INVESTMENTS
(Identified Cost $3,543,442)............................ 3,543,442
------------
TOTAL INVESTMENTS
(Identified Cost $164,359,952) (h)............... 97.9% 148,667,341
OTHER ASSETS IN EXCESS OF LIABILITIES............. 2.1 3,257,233
----- ------------
NET ASSETS....................................... 100.0% $151,924,574
===== ============
</TABLE>
- ---------------------
<TABLE>
<C> <S>
* Resale is restricted to qualified institutional investors.
++ Consists of one or more classes of securities traded
together as a unit; bonds 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) Acquired through exchange offer.
(c) Non-income producing security; bond in default.
(d) Non-income producing securities.
(e) Includes 360,265 shares which are due from the issuer
pursuant to a reorganization.
(f) Security was purchased on a discount basis. The interest
rate shown has been adjusted to reflect a money market
equivalent yield.
(g) Collateralized by $712,280 U.S. Treasury Bond 6.375% due
08/15/27 valued at $758,311.
(h) The aggregate cost for federal income tax purposes
approximates identified cost. The aggregate gross unrealized
appreciation is $7,447,612 and the aggregate gross
unrealized depreciation is $23,140,223, resulting in net
unrealized depreciation of $15,692,611.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
9
<PAGE> 10
HIGH INCOME ADVANTAGE TRUST
FINANCIAL STATEMENTS
<TABLE>
<S> <C>
STATEMENT OF ASSETS AND LIABILITIES
March 31, 1998 (unaudited)
ASSETS:
Investments in securities, at value
(identified cost $164,359,952)............................. $148,667,341
Receivable for:
Interest................................................ 3,848,071
Investments sold........................................ 2,258,021
Prepaid expenses and other assets........................... 29,117
-----------
TOTAL ASSETS............................................ 154,802,550
-----------
LIABILITIES:
Payable for:
Investments purchased................................... 2,685,010
Investment management fee............................... 99,545
Accrued expenses and other payables......................... 93,421
-----------
TOTAL LIABILITIES....................................... 2,877,976
-----------
NET ASSETS.............................................. $151,924,574
===========
COMPOSITION OF NET ASSETS:
Paid-in-capital............................................. $287,779,310
Net unrealized depreciation................................. (15,692,611)
Accumulated undistributed net investment income............. 3,315,556
Accumulated net realized loss............................... (123,477,681)
-----------
NET ASSETS.............................................. $151,924,574
===========
NET ASSET VALUE PER SHARE,
30,017,252 shares outstanding
(unlimited shares authorized of $.01 par value)............ $5.06
============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
10
<PAGE> 11
HIGH INCOME ADVANTAGE TRUST
FINANCIAL STATEMENTS, continued
<TABLE>
<S> <C>
STATEMENT OF OPERATIONS
For the six months ended March 31, 1998 (unaudited)
NET INVESTMENT INCOME:
INTEREST INCOME............................................. $10,951,644
-----------
EXPENSES
Investment management fee................................... 569,956
Transfer agent fees and expenses............................ 48,329
Professional fees........................................... 26,470
Registration fees........................................... 16,184
Shareholder reports and notices............................. 11,106
Trustees' fees and expenses................................. 8,831
Custodian fees.............................................. 8,026
Other....................................................... 4,759
-----------
TOTAL EXPENSES.......................................... 693,661
-----------
NET INVESTMENT INCOME................................... 10,257,983
-----------
NET REALIZED AND UNREALIZED LOSS:
Net realized loss........................................... (3,017,701)
Net change in unrealized depreciation....................... (550,593)
-----------
NET LOSS................................................ (3,568,294)
-----------
NET INCREASE................................................ $ 6,689,689
===========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
11
<PAGE> 12
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
1998 SEPTEMBER 30, 1997
- --------------------------------------------------------------------------------------
(unaudited)
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income.............................. $10,257,983 $ 19,032,438
Net realized loss.................................. (3,017,701) (20,234,354)
Net change in unrealized depreciation.............. (550,593) 20,213,922
------------ ------------
NET INCREASE................................... 6,689,689 19,012,006
Dividends from net investment income............... (10,304,721) (20,210,193)
------------ ------------
NET DECREASE................................... (3,615,032) (1,198,187)
NET ASSETS:
Beginning of period................................ 155,539,606 156,737,793
------------ ------------
END OF PERIOD
(Including undistributed net investment income
of $3,315,556 and $3,362,294, respectively).... $151,924,574 $155,539,606
============ ============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
12
<PAGE> 13
HIGH INCOME ADVANTAGE TRUST
NOTES TO FINANCIAL STATEMENTS March 31, 1998 (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.
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
13
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HIGH INCOME ADVANTAGE TRUST
NOTES TO FINANCIAL STATEMENTS March 31, 1998 (unaudited) 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.
14
<PAGE> 15
HIGH INCOME ADVANTAGE TRUST
NOTES TO FINANCIAL STATEMENTS March 31, 1998 (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, 1998 aggregated
$82,468,831 and $83,215,009, respectively.
Morgan Stanley Dean Witter Trust FSB, an affiliate of the Investment Manager, is
the Trust's transfer agent. At March 31, 1998, the Trust had transfer agent fees
and expenses payable of approximately $3,400.
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, 1998
included in Trustees' fees and expenses in the Statement of Operations amounted
to $2,293. At March 31, 1998, the Trust had an accrued pension liability of
$48,642 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, 1996, 1997 and March 31, 1998........ 30,017,252 $300,172 $287,479,138
========== ======== ============
</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 24,
1998......... $0.05 April 3, 1998 April 17, 1998
April 28,
1998......... $0.05 May 8, 1998 May 22, 1998
</TABLE>
15
<PAGE> 16
HIGH INCOME ADVANTAGE TRUST
NOTES TO FINANCIAL STATEMENTS March 31, 1998 (unaudited) 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>
AMOUNT 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.
16
<PAGE> 17
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 FOR THE YEAR ENDED SEPTEMBER 30
MONTHS ENDED ----------------------------------------------------
MARCH 31, 1998 1997 1996 1995 1994 1993
- ---------------------------------------------------------------------------------------------------------------------------------
(unaudited)
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period................... $ 5.18 $ 5.22 $ 5.30 $ 5.32 $ 5.99 $ 5.81
------ ------ ------ ------ ------ ------
Net investment income.................................. 0.34 0.63 0.66 0.61 0.62 0.70
Net realized and unrealized gain (loss)................ (0.12) -- (0.14) 0.01 (0.62) 0.30
------ ------ ------ ------ ------ ------
Total from investment operations....................... 0.22 0.63 0.52 0.62 -- 1.00
Dividends from net investment income................... (0.34) (0.67) (0.60) (0.64) (0.67) (0.82)
------ ------ ------ ------ ------ ------
Net asset value, end of period......................... $ 5.06 $ 5.18 $ 5.22 $ 5.30 $ 5.32 $ 5.99
====== ====== ====== ====== ====== ======
Market value, end of period............................ $ 6.00 $ 6.25 $ 6.00 $ 5.75 $5.625 $6.125
====== ====== ====== ====== ====== ======
TOTAL INVESTMENT RETURN+............................... 1.48%(1) 16.26% 15.53% 14.59% 2.56% 22.41%
RATIOS TO AVERAGE NET ASSETS:
Expenses............................................... 0.91%(2) 0.92% 0.92% 1.01% 0.98% 0.97%
Net investment income.................................. 13.50%(2) 12.43% 12.50% 11.79% 10.52% 12.14%
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands................ $151,925 $155,540 $156,738 $159,167 $159,835 $179,747
Portfolio turnover rate................................ 56%(1) 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.
(1) Not annualized.
(2) Annualized.
SEE NOTES TO FINANCIAL STATEMENTS
17
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<PAGE> 19
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<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
- -------------------------------------------------
Morgan Stanley 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
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, 1998
