<PAGE> 1
HIGH INCOME ADVANTAGE TRUST II
Two World Trade Center
New York, New York 10048
DEAR SHAREHOLDER:
- --------------------------------------------------------------------------------
The fiscal year ended July 31, 1994 began on a positive note, with the
high-yield bond market benefiting from the lower interest rate environment, as
well as from continuing improvement in corporate credit quality. This
credit-quality improvement, which was driven by the economic recovery as well as
corporate refinancing and deleveraging activity, helped to boost the underlying
values of most high-yield issues.
In sharp contrast, the second half of the Trust's fiscal year was
disappointing for all fixed-income markets, including the high-yield market.
Questions concerning the strength of the economy, inflation prospects, interest
rate levels and possible Federal Reserve Board actions created an uncomfortable
level of uncertainty for the financial markets. High-yield investors, worried
about rising interest rates and possible further tightening moves by the Federal
Reserve Board, were not immune to the fixed-income market's volatility.
The high-yield bond market's weakness during the first half of the year was
reflected in High Income Advantage Trust II's performance for the six-month
period ended July 31, 1994, the Trust's total return was -4.65 percent, 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 $6.31 per share on July 31, 1994,
the Trust's total return for the six-month period was -6.26 percent. For the
fiscal year ended July 31, 1994, the Trust's total return was 0.90 percent,
based on the closing NYSE market price per share quoted above and 6.11 percent,
based on the NAV quoted above.
As of July 31, 1994, the Trust's net assets exceeded $224 million. Over the
past six months, the Trust continued to distribute regular income dividends at a
rate of $0.0525 per share per month. For the 12-month period, income dividends
totaled approximately $0.70 per share, including an extra income dividend of
$0.0725 per share paid on December 23, 1993.
INVESTMENT STRATEGY
The Trust began 1994 positioned defensively. Rising U.S. Treasury security
yields had begun to reduce the relative attractiveness of high-yield securities,
narrowing their yield advantage. In addition, given the high-yield market's
strength early in the year, attractively priced discount issues were becoming
more difficult to find. In light of this, the Trust positioned nearly half of
its assets in very defensive, high coupon, short duration paper, which helped to
cushion the Trust during the market's first quarter decline.
The Trust became a buyer during the early part of the second quarter, as a
correction pushed the market back to more attractive levels. Despite the fact
that corporate credit quality in most cases remained strong, B-rated issues
could then be purchased at 12 percent to 13 percent yield levels, versus the 10
percent levels that existed earlier in the year and at significant discounts to
par (face) value. As of the end of the reporting period, the high-yield market,
as well as the bond market in general, remained weak.
<PAGE> 2
MARKET OUTLOOK
Given our outlook for slower, but continued growth in the economy, we find
today's B-rated issues (now yielding more than 600 basis points, six percent,
over U.S. Treasuries and trading at steep discounts) offer excellent long-term
return potential. Over the near term, we expect continued volatility in the
financial markets as investors attempt to assess the economy's strength, the
level of interest rates and possible Federal Reserve Board actions. However,
despite this possible short-term weakness, we consider today's high-yield market
to be an attractive long-term opportunity for investors. Current issues provide
an exceptionally large yield advantage over U.S. Treasury securities, with the
opportunity for substantial capital appreciation if the high-yield market
rebounds.
We would like to remind you that the Trustees have approved a procedure
whereby the Trust, when appropriate, may repurchase shares in the open market or
in privately negotiated transactions at a price not above market value or net
asset value, whichever is lower at the time of purchase.
We thank you for your continued support of High Income Advantage Trust II,
and look forward to continuing to serve your investment needs.
Very truly yours,
Charles A. Fiumefreddo
Chairman of the Board
<PAGE> 3
HIGH INCOME ADVANTAGE TRUST II
PORTFOLIO OF INVESTMENTS July 31, 1994
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Amount (in Coupon Maturity
thousands) Rate Date Value
- ----------- ------ -------- ------------
<C> <S> <C> <C> <C>
CORPORATE BONDS (82.3%)
AEROSPACE (2.6%)
$ 6,000 Sabreliner Corp.
(Series B).......... 12.50 % 4/15/03 $ 5,760,000
------------
AIRLINES (3.7%)
10,000 GPA Delaware,
Inc. ............... 8.75 12/15/98 8,300,000
------------
AUTOMOTIVE (2.6%)
1,000 Doehler-Jarvis,
Inc. ............... 11.875 6/ 1/02 997,500
2,500 Envirotest Systems
Corp. .............. 9.625 4/ 1/03 2,368,750
2,500 Harvard Industries,
Inc. ............... 12.00 7/15/04 2,512,500
------------
5,878,750
------------
CABLE & TELECOMMUNICATIONS (1.4%)
3,500 Marcus Cable Co. .... 11.875 10/ 1/05 3,228,750
------------
COMPUTER EQUIPMENT (3.6%)
7,500 Unisys Corp. ........ 13.50 * 7/ 1/97 8,156,250
------------
CONSUMER PRODUCTS (1.9%)
2,500 J.B. Williams
Holdings,
Inc.- 144A**........ 12.50 * 3/ 1/04 2,431,250
5,000 Revlon Worldwide
Corp. (Series B).... 0.00 3/15/98 1,925,000
------------
4,356,250
------------
CONTAINERS (1.1%)
5,000 Ivex Holdings Corp.
(Series B).......... 13.25 ++ 3/15/05 2,500,000
------------
ELECTRICAL & ALARM SYSTEMS (1.5%)
5,000 Mosler, Inc. ........ 11.00 4/15/03 3,275,000
------------
ENTERTAINMENT, GAMING & LODGING (16.2%)
2,500 Belle Casino,
Inc. - 144A**....... 12.00 10/15/00 1,250,000
7,500 Fair Lanes,
Inc.(b)............. 11.875 8/15/97 5,442,225
1,000 Fitzgeralds Gaming
Corp. - 144A**...... 13.00 * 3/15/96 900,000
5,225 Hollywood Casino
Corp. .............. 14.00 4/ 1/98 5,643,000
5,000 Motels of America,
Inc. - 144A**....... 12.00 4/15/04 4,825,000
7,816 Spectravision,
Inc. ............... 11.65 + 12/ 1/02 3,908,000
5,000 Treasure Bay Gaming &
Resort,
Inc. - 144A**....... 12.25 11/15/00 4,350,000
5,000 Trump Castle Funding,
Inc. ............... 11.75 11/15/03 3,350,000
9,534 Trump Plaza Holding
Assoc. ............. 12.50 + 6/15/03 6,769,371
------------
36,437,596
------------
<CAPTION>
Principal
Amount (in Coupon Maturity
thousands) Rate Date Value
- ----------- ------ -------- ------------
<C> <S> <C> <C> <C>
FOOD & BEVERAGES (2.8%)
$ 2,394 Envirodyne
Industries, Inc. ... 10.25 % 12/ 1/01 $ 2,070,810
11,000 Specialty Foods
Acquisition Corp.
(Series B).......... 13.00 ++ 8/15/05 4,180,000
------------
6,250,810
------------
HOME BUILDING (1.1%)
2,500 Presley Cos.,
Inc. ............... 12.50 7/ 1/01 2,462,500
------------
INDUSTRIAL (0.0%)
2,500 Starcraft Corp. ..... 16.50 1/15/98 25
------------
MANUFACTURING (6.4%)
5,000 Berry Plastics Corp.
(Units)............. 12.25 4/15/04 5,150,000
7,500 MS Essex Holdings,
Inc. ............... 16.00 ++ 5/15/04 6,900,000
2,500 Uniroyal Technology
Corp. .............. 11.75 6/ 1/03 2,406,250
------------
14,456,250
------------
MANUFACTURING -- DIVERSIFIED (3.2%)
5,000 Interlake Corp. ..... 12.125 3/ 1/02 4,775,000
2,500 J.B. Poindexter,
Inc. ............... 12.50 5/15/04 2,462,500
------------
7,237,500
------------
OIL & GAS (6.5%)
3,000 Deeptech
International,
Inc. ............... 12.00 12/15/00 2,985,000
5,000 Empire Gas Corp.
(Units)............. 7.00 ++ 7/15/04 3,925,000
7,600 Presidio Oil Co.
(Series B).......... 14.125*** 7/15/02 7,676,000
------------
14,586,000
------------
PAPER & FOREST PRODUCTS (2.4%)
5,500 Fort Howard Corp. ... 14.125++ 11/ 1/04 5,362,500
------------
PUBLISHING (3.3%)
5,000 Affiliated Newspapers
Inv., Inc. ......... 13.25 ++ 7/ 1/06 2,600,000
4,800 BFP Holdings,
Inc. - 144A**....... 13.50 ++ 4/15/04 2,412,000
2,500 Garden State
Newspapers, Inc. ... 12.00 7/ 1/04 2,493,750
------------
7,505,750
------------
RESTAURANTS (7.2%)
10,000 American Restaurant
Group Holdings,
Inc. ............... 14.00 ++ 12/15/05 4,900,000
5,000 Carrols Corp. ....... 11.50 8/15/03 4,725,000
7,500 Flagstar Corp. ...... 11.25 11/ 1/04 6,468,750
------------
16,093,750
------------
</TABLE>
<PAGE> 4
HIGH INCOME ADVANTAGE TRUST II
PORTFOLIO OF INVESTMENTS July 31, 1994 (continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Amount (in Coupon Maturity
thousands) Rate Date Value
- ----------- ------ -------- ------------
<C> <S> <C> <C> <C>
RETAIL (6.7%)
$ 5,000 Cort Furniture Rental
Corp. .............. 12.00 % 9/ 1/00 $ 4,950,000
5,000 County Seat Stores,
Co. ................ 12.00 10/ 1/01 4,950,000
5,000 Thrifty Payless
Holdings, Inc. ..... 12.25 4/15/04 5,062,500
------------
14,962,500
------------
RETAIL -- FOOD CHAINS (4.6%)
2,500 Food 4 Less Holdings,
Inc. ............... 15.25 ++ 12/15/04 1,800,000
50,500 Grand Union Capital
Corp. (Series A).... 0.00 1/15/07 3,787,500
5,000 Purity Supreme, Inc.
(Series B).......... 11.75 8/ 1/99 4,725,000
------------
10,312,500
------------
TEXTILES -- APPAREL MANUFACTURER (3.0%)
7,524 JPS Textiles Group,
Inc. ............... 10.85 6/ 1/99 6,771,600
------------
TRANSPORTATION (0.5%)
1,000 Trans Ocean Container
Corp. .............. 12.25 7/ 1/04 1,010,000
------------
TOTAL CORPORATE BONDS
(IDENTIFIED COST $203,925,338).......... 184,904,281
------------
U.S. GOVERNMENT OBLIGATION (5.6%)
12,500 U.S. Treasury Note
(Identified Cost
$12,755,468)........ 12.625 8/15/94 12,537,109
------------
</TABLE>
<TABLE>
<CAPTION>
Number of
Shares
- -----------
<C> <S> <C>
COMMON STOCKS(A) (6.9%)
AUTOMOTIVE (1.4%)
227,500 Harvard Industries, Inc. (Class B)........ 3,156,563
------------
BUILDING & CONSTRUCTION (2.2%)
240,267 USG Corp.(c).............................. 5,045,607
------------
COMPUTER EQUIPMENT (0.4%)
222,958 Memorex Telex Corp. (ADR)(c).............. 829,135
------------
CONSUMER PRODUCTS (0.4%)
662,521 Triton Group, Ltd.(c) .................... 869,559
------------
<CAPTION>
Number of
Shares Value
- ----------- ------------
<C> <S> <C>
ENTERTAINMENT, GAMING & LODGING (0.3%)
5,000 Motels of America, Inc. - 144A**.......... $ 350,000
67,051 Spectravision, Inc. (Class B)............. 134,102
5,210 Trump Taj Mahal Holding Corp. (Class A)... 153,695
------------
637,797
------------
FOOD & BEVERAGE (0.0%)
105,000 Specialty Foods Acquisition
Corp. - 144A**........................... 105,000
------------
INDUSTRIAL (0.0%)
91 Norther n Holdings Corp.(c) -- 144A**..... 1
------------
MANUFACTURING - DIVERSIFIED (1.8%)
396,350 Thermadyne Holdings Corp.(c).............. 3,963,500
------------
PUBLISHING (0.2%)
5,000 Affiliated Newspapers Inv., Inc. ......... 125,000
38,400 BFP Holdings, Inc. - 144A**............... 326,400
------------
451,400
------------
RESTAURANT (0.1%)
10,000 American Restaurant Group
Holdings, Inc. - 144A**.................. 210,000
------------
RETAIL (0.1%)
95,000 Thrifty Payless Holdings, Inc. (Class
C)....................................... 285,000
------------
TOTAL COMMON STOCKS
(IDENTIFIED COST $44,699,109)............. 15,553,562
------------
</TABLE>
<TABLE>
<CAPTION>
Number of Expiration
Warrants Date
- ----------- -----------
<C> <S> <C> <C>
WARRANTS(A) (1.0%)
AEROSPACE (0.1%)
6,000 Sabreliner Corp. .......... 4/15/03 108,000
-------------
BUILDING & CONSTRUCTION (0.5%)
100,306 USG Corp.(c)............... 5/ 5/98 1,128,442
-------------
CONTAINERS (0.1%)
5,000 Crown Packaging Holdings,
Ltd. - 144A**............. 10/15/03 225,000
-------------
ENTERTAINMENT, GAMING & LODGING (0.2%)
2,500 Belle Casino,
Inc. - 144A**............. 10/15/03 175,000
3,263 Casino America, Inc. ...... 11/15/96 3,263
1,000 Fitzgeralds Gaming
Corp. - 144A**............ 3/15/99 65,588
25,000 Treasury Bay Gaming &
Resorts, Inc. - 144A**.... 11/15/98 150,000
200 Trump Plaza Holding
Assoc. ................... 6/18/96 140,000
-------------
533,851
-------------
</TABLE>
<PAGE> 5
HIGH INCOME ADVANTAGE TRUST II
PORTFOLIO OF INVESTMENTS July 31, 1994 (continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Number of Expiration
Warrants Date Value
- ----------- ----------- -------------
<C> <S> <C> <C>
MANUFACTURING (0.0%)
25,000 Uniroyal Technology
Corp...................... 6/ 1/03 $ 68,750
-------------
RETAIL (0.1%)
5,000 County Seat Holdings
Co. ...................... 10/15/98 65,000
165,000 New Cort Holdings Corp. ... 9/ 1/98 247,500
-------------
312,500
-------------
RETAIL -- FOOD CHAIN (0.0%)
17,327 Purity Supreme, Inc. - 144A** 8/ 6/97 866
-------------
TOTAL WARRANTS
(IDENTIFIED COST $1,475,049)............. 2,377,409
-------------
</TABLE>
<TABLE>
<CAPTION>
Principal
Amount (in
thousands) Value
- ----------- -------------
<C> <S> <C> <C>
COMMERCIAL PAPER(D) (2.2%)
AUTOMOTIVE FINANCE (2.2%)
$ 4,865 Ford Motor Credit Co. 4.201% due 8/1/94
(Amortized Cost $4,865,000)............. $ 4,865,000
-------------
TOTAL INVESTMENTS
(IDENTIFIED COST $267,719,964)(E)....... 98.0% 220,237,361
CASH AND OTHER ASSETS
IN EXCESS OF LIABILITIES................ 2.0 4,443,827
----------- -------------
NET ASSETS............................... 100.0% $224,681,188
========== ===============
</TABLE>
- ---------------
ADR -- American Depository Receipt
* Adjustable rate. Rate shown is the rate in effect at July 31, 1994.
** Resale is restricted to qualified institutional investors.
*** Base interest rate is 13.25%, additional interest if any, is linked to the
Gas Index. Rate shown is the rate in effect at July 31, 1994.
+ Payment in kind securities.
++ Currently zero coupon bond and will pay interest at the rate shown at a
future specified date.
(a) Non-income producing security.
(b) Non-income producing, issuer in bankruptcy.
(c) Acquired through exchange offer.
(d) Commercial paper was purchased on a discount basis. The interest rate shown
has been adjusted to reflect a bond equivalent yield.
(e) The aggregate cost for federal income tax purposes is $268,000,374; the
aggregate gross unrealized appreciation is $5,526,764 and the aggregate
gross unrealized depreciation is $53,289,777, resulting in net unrealized
depreciation of $47,763,013.
See Notes to Financial Statements
<PAGE> 6
HIGH INCOME ADVANTAGE TRUST II
FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
STATEMENT OF ASSETS AND LIABILITIES
July 31, 1994
- -----------------------------------------
ASSETS:
Investments in securities, at value
(identified cost $267,719,964)......... $ 220,237,361
Cash..................................... 1,986
Receivable for:
Interest............................... 5,123,038
Investments sold....................... 1,499,082
Prepaid expenses and other assets........ 17,053
-------------
TOTAL ASSETS..................... 226,878,520
-------------
LIABILITIES:
Payable for:
Investments purchased.................. 1,852,500
Investment management fee (Note 2)..... 173,329
Accrued expenses (Note 3)................ 171,503
-------------
TOTAL LIABILITIES................ 2,197,332
-------------
NET ASSETS:
Paid-in-capital.......................... 344,428,742
Accumulated net realized loss on
investments............................ (75,946,747)
Net unrealized depreciation on
investments............................ (47,482,603)
Accumulated undistributed net investment
income................................. 3,681,796
-------------
NET ASSETS....................... $ 224,681,188
=============
NET ASSET VALUE PER SHARE,
35,611,307 shares outstanding
(unlimited authorized shares of $.01
par value)............................. $6.31
-----
-----
STATEMENT OF OPERATIONS
For the year ended July 31, 1994
- -----------------------------------------
INVESTMENT INCOME:
INTEREST INCOME......................... $ 27,076,170
-------------
EXPENSES
Investment management fee (Note 2)..... 1,806,552
Transfer agent fees and expenses (Note
3)................................... 192,905
Professional fees...................... 91,249
Shareholder reports and notices........ 52,844
Custodian fees......................... 40,870
Registration fees...................... 31,810
Trustees' fees and expenses (Note 3)... 29,461
Organizational expenses (Note 1)....... 1,216
Other.................................. 15,916
-------------
TOTAL EXPENSES....................... 2,262,823
-------------
NET INVESTMENT INCOME.............. 24,813,347
-------------
NET REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS (NOTE 1):
Net realized loss on investments....... (19,165,908)
Net change in unrealized depreciation
on
investments.......................... 9,011,697
-------------
NET LOSS ON INVESTMENTS.............. (10,154,211)
-------------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS........ $ 14,659,136
=============
</TABLE>
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the For the
year ended year ended
July 31, 1994 July 31, 1993
------------------- -----------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
Operations:
Net investment income.................................................. $ 24,813,347 $ 27,329,742
Net realized loss on investments....................................... (19,165,908) (4,075,639)
Net change in unrealized depreciation on investments................... 9,011,697 15,177,573
------------------- -----------------
Net increase in net assets resulting from operations............... 14,659,136 38,431,676
Dividends to shareholders from net investment income..................... (25,016,824) (32,501,092)
Net decrease from transactions in shares of beneficial interest (Note
4)..................................................................... -- (174,651)
------------------- -----------------
Total increase (decrease).......................................... (10,357,688) 5,755,933
NET ASSETS:
Beginning of period...................................................... 235,038,876 229,282,943
------------------- -----------------
END OF PERIOD (including undistributed net investment income of
$3,681,796 and $3,885,273, respectively)................................ $ 224,681,188 $ 235,038,876
=================== =================
</TABLE>
See Notes to Financial Statements
<PAGE> 7
HIGH INCOME ADVANTAGE TRUST II
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
1. ORGANIZATION AND ACCOUNTING POLICIES -- High Income Advantage Trust II (the
"Trust") is registered under the Investment Company Act of 1940, as amended, as
a diversified, closed-end management investment company. The Trust was organized
as a Massachusetts business trust on July 7, 1988 and commenced operations on
September 30, 1988.
The following is a summary of significant accounting policies:
A. Valuation of Investments -- (1) an equity security listed or traded on
the New York or American Stock Exchange is valued at its latest sale price
on that exchange prior to the time when assets are valued (if there were no
sales that day, the security is valued at the latest bid price); (2) all
other portfolio securities for which over-the-counter market quotations are
readily available are valued at the latest available bid price prior to the
time of valuation; (3) when market quotations are not readily available,
portfolio securities are valued at their fair value as determined in good
faith under procedures established by and under the general supervision of
the Trustees; (4) certain of the Trust's portfolio securities may be valued
by an outside pricing service approved by the Trustees. The pricing service
utilizes a matrix system incorporating security quality, maturity and
coupon as the evaluation model parameters, and/or research and evaluations
by its staff, including review of broker-dealer market price quotations, in
determining what it believes is the fair valuation of the portfolio
securities value by such pricing service; and (5) short-term debt
securities having a maturity date of more than sixty days are valued on a
mark-to-market basis, that is, at prices based on market quotations for
securities of a similar type, yield, quality and maturity, until sixty days
prior to maturity and thereafter at amortized cost. 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 on the identified cost
method. In computing net investment income, the Trust does not amortize
premiums or accrue discounts on fixed income securities, except those
original issue discounts for which amortization is required for federal
income tax purposes. Dividend income is recorded on the ex-dividend date.
Interest income is accrued daily except where collection is not expected.
C. Repurchase Agreements -- The Trust's custodian takes possession on
behalf of the Trust of the collateral pledged for investments in repurchase
agreements. It is the policy of the Trust to value the underlying
collateral daily on a mark-to-market basis to determine that the value,
including accrued interest, is at least equal to the repurchase price plus
accrued interest. In the event of default of the obligation to repurchase,
the Trust has the right to liquidate the collateral and apply the proceeds
in satisfaction of the obligation.
D. Federal Income Tax Status -- It is the Trust's policy to comply with the
requirements of the Internal Revenue Code applicable to regulated
investment companies and to distribute all of its taxable income to its
shareholders. Accordingly, no federal income tax provision is required.
<PAGE> 8
HIGH INCOME ADVANTAGE TRUST II
NOTES TO FINANCIAL STATEMENTS (continued)
- --------------------------------------------------------------------------------
E. Dividends and Distributions to Shareholders -- The Trust records
dividends and distributions to its shareholders on the ex-dividend date.
The amount of dividends and distributions from net investment income and
net realized capital gains are determined in accordance with federal income
tax regulations which may differ from generally accepted accounting
principles. These "book/tax" 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.
F. Organizational Expenses -- The Trust's Investment Manager paid
organizational expenses of the Trust in the amount of $36,000. The Trust
reimbursed the Investment Manager for these expenses which were fully
amortized as of September 30, 1993.
2. INVESTMENT MANAGEMENT AGREEMENT -- Pursuant to an Investment Management
Agreement with Dean Witter InterCapital Inc. (the "Investment Manager"), the
Trust pays the Investment Manager a monthly management fee, calculated weekly,
by applying the following annual rates to the Trust's average weekly net assets:
0.75% of the portion of the average weekly net assets not exceeding $250
million; 0.60% to the portion of average weekly net assets exceeding $250
million but not exceeding $500 million; 0.50% to the portion of average weekly
net assets exceeding $500 million but not exceeding $750 million; 0.40% to the
portion of average weekly net assets exceeding $750 million but not exceeding $1
billion; and 0.30% to the portion of average weekly net assets exceeding $1
billion.
Under the terms of the Agreement, in addition to managing the Trust's
investments, the Investment Manager maintains certain of the Trust's books and
records and furnishes, at its own expense, office space, facilities, equipment,
clerical, bookkeeping and certain legal services and pays the salaries of all
personnel, including officers of the Trust who are employees of the Investment
Manager. The Investment Manager also bears the cost of telephone services, heat,
light, power and other utilities provided to the Trust.
3. SECURITY TRANSACTIONS AND TRANSACTIONS WITH AFFILIATES -- The cost of
purchases and proceeds from sales of portfolio securities, excluding short-term
investments, for the year ended July 31, 1994 aggregated $258,766,999 and
$260,143,608, respectively, including purchases and sales of U.S. Government
securities of $23,298,828 and $18,009,375, respectively.
Dean Witter Trust Company, an affiliate of the Investment Manager, is the
Trust's transfer agent. At July 31, 1994, the Trust had transfer agent fees and
expenses payable of approximately $28,000.
On April 1, 1991, the Trust established an unfunded noncontributory defined
benefit pension plan covering all independent Trustees of the Trust who will
have served as an independent Trustee for at least five years at the time of
retirement. Benefits under this plan are based on years of service and
compensation during the last five years of service. Aggregate pension costs for
the year ended July 31, 1994, included in Trustees' fees and expenses in the
Statement of Operations, amounted to $9,859. At July 31, 1994, the Trust had an
accrued pension liability of $43,775 which is included in accrued expenses in
the Statement of Assets and Liabilities.
<PAGE> 9
HIGH INCOME ADVANTAGE TRUST II
NOTES TO FINANCIAL STATEMENTS (continued)
- --------------------------------------------------------------------------------
4. SHARES OF BENEFICIAL INTEREST -- Transactions in shares of beneficial
interest were as follows:
<TABLE>
<CAPTION>
Par Capital Paid
Value of in Excess of
Shares Shares Par Value
---------- -------- ------------
<S> <C> <C> <C>
Balance, July 31, 1992........................ 35,641,307 $356,413 $344,248,167
Purchase of treasury shares (weighted average
discount 5.42%)*............................ (30,000) (300) (174,351)
---------- -------- ------------
Balance, July 31, 1993 and July 31, 1994...... 35,611,307 $356,113 $344,073,816
========== ========= =============
</TABLE>
- ---------------
* The Trustees have voted to retire the shares repurchased.
5. DIVIDENDS -- The Trust declared the following dividends from net investment
income --
<TABLE>
<CAPTION>
Amount
Declaration per Record Payable
Date Share Date Date
------------------------------------------------------- -------- --------- --------
<S> <C> <C> <C>
July 26, 1994.......................................... $.0525 8/5/94 8/19/94
August 30, 1994........................................ $.0525 9/9/94 9/23/94
</TABLE>
6. FEDERAL INCOME TAX STATUS -- At July 31, 1994, the Trust had approximate net
capital loss carryovers which may be used to offset future capital gains to the
extent provided by regulations as follows:
<TABLE>
<CAPTION>
Available through July 31,
- -----------------------------------------------------------------------
1998 1999 2000 2002 Total
- -------- ------------ ------------ ----------- ------------
<S> <C> <C> <C> <C>
$28,000 $20,947,000 $29,353,000 $8,200,000 $58,528,000
======== ============ ============ ========== ============
</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 $17,156,000 during fiscal 1994. To the extent that these carryover
losses are used to offset future capital gains, it is probable that the gains so
offset will not be distributed to shareholders.
At July 31, 1994, the Trust had temporary book/tax differences primarily
attributable to Post-October losses.
7. SELECTED QUARTERLY FINANCIAL DATA -- (unaudited)
<TABLE>
<CAPTION>
Quarters Ended*
----------------------------------------------------------------------------
7/31/94 4/30/94 1/31/94 10/31/93
--------------- ---------------- --------------- ---------------
Per Per Per Per
Total Share Total Share Total Share Total Share
------- ----- -------- ----- ------- ----- ------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Total investment income..... $ 6,876 $ .19 $ 6,444 $ .18 $ 6,727 $ .19 $ 7,029 $ .20
Net investment income....... 6,326 .18 5,876 .16 6,132 .17 6,479 .18
Net realized and unrealized
gain (loss) on investments .. (16,859) (.47) (11,031) (.31) 12,043 .34 5,693 .16
</TABLE>
<TABLE>
<CAPTION>
Quarters Ended*
----------------------------------------------------------------------------
7/31/93 4/30/93 1/31/93 10/31/92
--------------- ---------------- --------------- ---------------
Per Per Per Per
Total Share Total Share Total Share Total Share
------- ----- -------- ----- ------- ----- ------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Total investment income..... $ 8,360 $ .23 $ 6,769 $ .19 $ 7,237 $ .20 $ 7,107 $ .20
Net investment income....... 7,883 .22 6,221 .18 6,683 .19 6,543 .18
Net realized and unrealized
gain (loss) on
investments............... 6,493 .17 5,748 .16 4,901 .14 (6,040) (.16)
</TABLE>
- ---------------
* Totals expressed in thousands of dollars.
<PAGE> 10
HIGH INCOME ADVANTAGE TRUST II
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
Selected ratios and per share data for a share of beneficial interest
outstanding throughout each period:
<TABLE>
<CAPTION>
For the period
For the year ended July 31, September 30, 1988*
----------------------------------------------------------- through
1994 1993 1992 1991 1990 July 31, 1989
-------- -------- -------- -------- -------- -------------------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of
period........................... $ 6.60 $ 6.43 $ 5.68 $ 6.44 $ 8.76 $ 9.30
-------- -------- -------- -------- -------- ----------
Net investment income............ 0.69 0.77 0.91 0.77 1.13 0.98
Net realized and unrealized gain
(loss) on investments.......... (0.28) 0.31 0.50 (0.70) (2.26) (0.59)
-------- -------- -------- -------- -------- ----------
Total from investment operations... 0.41 1.08 1.41 0.07 (1.13) 0.39
-------- -------- -------- -------- -------- ----------
Less dividends, distributions and
other charges:
Dividends from net investment
income......................... (0.70) (0.91) (0.66) (0.77) (1.19) (0.92)
Distributions to shareholders
from paid in capital........... -0- -0- -0- (0.06) -0- -0-
Offering costs charged against
capital........................ -0- -0- -0- -0- -0- (0.01)
-------- -------- -------- -------- -------- ----------
Total dividends, distributions and
other charges.................... (0.70) (0.91) (0.66) (0.83) (1.19) (0.93)
-------- -------- -------- -------- -------- ----------
Net asset value, end of period..... $ 6.31 $ 6.60 $ 6.43 $ 5.68 $ 6.44 $ 8.76
========= ========= ========= ========= ========= ====================
Market value, end of period........ $ 6.25 $ 6.875 $ 6.50 $ 5.125 $ 6.00 $ 8.25
========= ========= ========= ========= ========= ====================
TOTAL INVESTMENT RETURN+............. 0.90% 22.16% 42.17% 3.03% (13.61)% (8.77)%(1)
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period
(in thousands)................... $224,681 $235,039 $228,283 $210,595 $251,793 $ 343,610
Ratio of expenses to average net
assets........................... 0.94% 0.95% 0.98% 1.07% 0.93% 0.85%(2)
Ratio of net investment income to
average net assets............... 10.33% 12.17% 14.83% 14.85% 15.74% 12.89%(2)
Portfolio turnover rate............ 113% 138% 99% 129% 31% 101%(1)
</TABLE>
- ---------------
* Commencement of operations.
+ Total investment return is based upon the current market value on the last
day of each period reported. Dividends and distributions are assumed to be
reinvested at the prices obtained under the Trust's dividend reinvestment
plan. Total investment return does not reflect sales charges or brokerage
commissions.
(1) Not Annualized.
(2) Annualized.
See Notes to Financial Statements
<PAGE> 11
HIGH INCOME ADVANTAGE TRUST II
REPORT OF INDEPENDENT ACCOUNTANTS
- --------------------------------------------------------------------------------
To the Shareholders and Trustees of
High Income Advantage Trust II
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 II (the
"Trust") at July 31, 1994, the results of its operations for the year then
ended, the changes in its net assets for each of the two years in the period
then ended and the financial highlights for each of the five years in the period
then ended and for the period September 30, 1988 (commencement of operations)
through July 31, 1989, in conformity with generally accepted accounting
principles. These financial statements and financial highlights (hereafter
referred to as "financial statements") are the responsibility of the Trust's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these financial
statements in accordance with generally accepted auditing standards which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits, which included
confirmation of securities owned at July 31, 1994 by correspondence with the
custodian and brokers, provide a reasonable basis for the opinion expressed
above.
PRICE WATERHOUSE LLP
New York, New York
September 15, 1994
<PAGE> 12
TRUSTEES
Jack F. Bennett
Michael Bozic
Charles A. Fiumefreddo
Edwin J. Garn
John R. Haire
Dr. John E. Jeuck
Dr. Manuel H. Johnson
Paul Kolton
Michael E. Nugent
Philip J. Purcell
John L. Schroeder
Edward R. Telling
OFFICERS
Charles A. Fiumefreddo
Chairman and Chief Executive Officer
Sheldon Curtis
Vice President, Secretary and General Counsel
Peter M. Avelar
Vice President
Thomas F. Caloia
Treasurer
TRANSFER AGENT
Dean Witter Trust Company
Harborside Financial Center - Plaza Two
Jersey City, New Jersey 07311
LEGAL COUNSEL
Sheldon Curtis
Two World Trade Center
New York, New York 10048
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 II
Annual Report
July 31, 1994
