<PAGE>
HIGH INCOME ADVANTAGE TRUST II TWO WORLD TRADE CENTER, NEW YORK, NEW YORK
10048
LETTER TO SHAREHOLDERS
DEAR SHAREHOLDER:
The fiscal year ended July 31, 1995 began on a weak note, with all of the fixed
income markets reporting disappointing results during the second half of
calendar 1994. Questions concerning the strength of the economy, possible
Federal Reserve Board actions and inflation prospects created a great deal of
uncertainty during 1994's weak market environment.
However, in sharp contrast, the fixed income markets rebounded sharply during
the second half of the Trust's fiscal year, as economic growth slowed and
inflation fears began to subside. The high yield market recorded a strong 1995
first half, benefiting from the rally in the U.S. Treasury market, which drove
long-term interest rates significantly lower, as well as from the continued
strength in corporate earnings. As is typical in a decelerating economic
environment, high yield bonds have lagged the 1995 rally in U.S. Treasuries, as
concerns over the severity of the economic slowdown have offset some of the
benefit of lower interest rates.
For the twelve-month period ended July 31, 1995, the Trust's total return was
10.29 percent, based on its closing market price on the New York Stock Exchange
(NYSE) of $6.125 per share. Based on its net asset value (NAV) of $6.08 per
share on July 31, 1995, the Trust's total return for the twelve-month period was
8.44 percent. As of July 31, 1995, the Trust had net assets in excess of $216
million. Over the past twelve months, the Trust continued to distribute regular
income dividends at a rate of $0.0525 per share per month. For the full fiscal
year, income dividends totaled approximately $0.72 per share, including an extra
income dividend of $0.087 per share paid on December 23, 1994.
INVESTMENT STRATEGY
The Trust's overall investment strategy entering 1995 was to capitalize on the
opportunity created by the 1994 market correction by positioning its portfolio
for an eventual rebound in the market. Despite the fact that corporate credit
quality remained strong, the 1994 market correction pushed yields on many
B-rated issues 300-400 basis points higher (to
<PAGE>
HIGH INCOME ADVANTAGE TRUST II
LETTER TO SHAREHOLDERS, CONTINUED
the 13-14 percent range) and caused bond prices in some cases to decline by as
much as 15-20 percent. In light of this correction, the Trust sought to increase
its holdings in discounted issues during the second half of 1994, which should
provide more capital appreciation potential in the future. While the Trust's
portfolio is still positioned for further upside in the high-yield market, it
continues to maintain a sizable position in various defensive securities, in
order to provide the flexibility needed to take advantage of any interim
opportunities that may arise.
MARKET OUTLOOK
Given our outlook for continued, albeit slower economic growth, we find that
many of today's B-rated issues, yielding more than 600 basis points (6 percent)
above U.S. Treasury securities and trading at significant discounts, offer
excellent long-term return potential. Over the near term, we expect continued
volatility in the financial markets as investors assess the economy's strength,
the level of interest rates and possible Federal Reserve Board actions. However,
despite any potential short-term weakness, we consider today's high-yield market
to be an attractive long-term opportunity for investors. Many current high-yield
issues provide an exceptionally attractive yield advantage over U.S. Treasury
securities, with the potential for substantial capital appreciation if the
high-yield market continues its recovery.
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,
[SIGNATURE]
CHARLES A. FIUMEFREDDO
CHAIRMAN OF THE BOARD
<PAGE>
HIGH INCOME ADVANTAGE TRUST II
PORTFOLIO OF INVESTMENTS JULY 31, 1995
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ----------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
CORPORATE BONDS (87.4%)
AEROSPACE (2.5%)
$ 6,000 Sabreliner Corp. (Series B).................... 12.50 % 04/15/03 $ 5,340,000
---------------
AIRLINES (4.4%)
10,500 GPA Delaware, Inc.............................. 8.75 12/15/98 9,607,500
---------------
AUTOMOTIVE (2.8%)
7,900 Envirotest Systems, Inc........................ 9.625 04/01/03 5,964,500
---------------
CABLE & TELECOMMUNICATIONS (3.2%)
2,619 Adelphia Communications Corp. (Series B)....... 9.50+ 02/15/04 2,199,750
8,000 In-Flight Phone Corp. (Units)+++ - 144A**...... 14.00++ 05/15/02 4,640,000
---------------
6,839,750
---------------
COMPUTER EQUIPMENT (8.0%)
8,000 IBM Credit Corp................................ 15.00 06/13/96 8,584,160
8,000 Unisys Corp.................................... 13.50 07/01/97 8,800,000
---------------
17,384,160
---------------
CONSUMER PRODUCTS (1.4%)
2,500 J.B. Williams Holdings, Inc.................... 12.00 03/01/04 2,500,000
500 Thermoscan, Inc. - 144A**...................... 13.50* 08/15/01 510,000
---------------
3,010,000
---------------
CONTAINERS (2.3%)
9,000 Ivex Holdings Corp. (Series B)................. 13.25++ 03/15/05 4,905,000
---------------
ELECTRICAL & ALARM SYSTEMS (2.2%)
6,000 Mosler, Inc.................................... 11.00 04/15/03 4,800,000
---------------
ENTERTAINMENT/GAMING & LODGING (6.2%)
2,000 Fitzgeralds Gaming Corp. - 144A**.............. 14.00* 03/15/96 1,460,000
4,800 Motels of America, Inc. (Series B)............. 12.00 04/15/04 4,848,000
2,500 Six Flags Theme Parks Corp. - 144A**........... 12.25++ 06/15/05 1,868,750
19,229 Spectravision, Inc. (c)........................ 11.65 12/01/02 1,224,112
5,000 Trump Castle Funding, Inc...................... 11.75 11/15/03 4,075,000
---------------
13,475,862
---------------
FOODS & BEVERAGES (12.9%)
1,000 Envirodyne Industries, Inc. - 144A**........... 12.00 06/15/00 992,500
10,244 Envirodyne Industries, Inc..................... 10.25 12/01/01 8,297,640
8,000 PepsiCo Inc.................................... 15.00 06/14/96 8,594,400
2,500 Seven Up/RC Bottling Co. Southern California,
Inc............................................ 11.50 08/01/99 1,625,000
16,000 Specialty Foods Acquisition Corp. (Series B)... 13.00++ 08/15/05 8,480,000
---------------
27,989,540
---------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
HIGH INCOME ADVANTAGE TRUST II
PORTFOLIO OF INVESTMENTS JULY 31, 1995, CONTINUED
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ----------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
MANUFACTURING (4.7%)
$ 4,000 Berry Plastics Corp............................ 12.25 % 04/15/04 $ 4,200,000
2,000 Cabot Safety Corp. - 144A**.................... 12.50 07/15/05 2,085,000
2,000 Terex Corp. (Units)+++ - 144A**................ 13.75 05/15/02 1,560,000
2,500 Uniroyal Technology Corp....................... 11.75 06/01/03 2,300,000
---------------
10,145,000
---------------
MANUFACTURING - DIVERSIFIED (7.0%)
4,500 Foamex L.P..................................... 11.875 10/01/04 4,432,500
4,000 Interlake Corp................................. 12.125 03/01/02 4,020,000
2,500 J.B. Poindexter & Co., Inc..................... 12.50 05/15/04 2,443,775
7,000 Jordan Industries, Inc......................... 11.75++ 08/01/05 4,235,000
2,500 Starcraft Industrial Corp. (c)................. 16.50 01/15/98 --
---------------
15,131,275
---------------
OIL & GAS (3.0%)
3,000 Deeptech International, Inc.................... 12.00 12/15/00 2,400,000
5,000 Empire Gas Corp................................ 7.00 07/15/04 4,162,500
---------------
6,562,500
---------------
PUBLISHING (7.2%)
9,000 Affiliated Newspapers Investments, Inc......... 13.25++ 07/01/06 5,220,000
5,800 BFP Holdings, Inc. (Series B).................. 13.50++ 04/15/04 3,893,250
2,500 Garden State Newspapers, Inc................... 12.00 07/01/04 2,500,000
5,000 United States Banknote Corp.................... 10.375 06/01/02 4,050,000
---------------
15,663,250
---------------
RESTAURANTS (9.9%)
12,500 American Restaurant Group Holdings, Inc........ 14.00++ 12/15/05 5,937,500
6,000 Carrols Corp................................... 11.50 08/15/03 5,865,000
11,500 Flagstar Corp.................................. 11.25 11/01/04 9,660,000
---------------
21,462,500
---------------
RETAIL (4.7%)
5,000 Cort Furniture Rental Corp..................... 12.00 09/01/00 5,000,000
2,500 County Seat Stores Co.......................... 12.00 10/01/02 2,475,000
2,500 Thrifty Payless, Inc........................... 12.25 04/15/04 2,612,500
---------------
10,087,500
---------------
TEXTILES - APPAREL MANUFACTURERS (3.9%)
7,813 JPS Textile Group, Inc......................... 10.85 06/01/99 7,578,610
1,000 U.S. Leather Inc............................... 10.25 07/31/03 860,000
---------------
8,438,610
---------------
TRANSPORTATION (1.1%)
4,000 Transtar Holdings L.P. (Series B).............. 13.375++ 12/15/03 2,440,000
---------------
TOTAL CORPORATE BONDS
(IDENTIFIED COST $203,314,459)........................................ 189,246,947
---------------
U.S. GOVERNMENT OBLIGATION (2.0%)
4,250 U.S. Treasury Note
(IDENTIFIED COST $4,380,313)................... 11.50 11/15/95 4,322,383
---------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
HIGH INCOME ADVANTAGE TRUST II
PORTFOLIO OF INVESTMENTS JULY 31, 1995, CONTINUED
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- ------------------------------------------------------------------------------------------------------
<C> <S> <C>
COMMON STOCKS (a) (7.1%)
AUTOMOTIVE (0.0%)
91 Northern Holdings Industrial Corp. - 144A** (b)......................... $ --
---------------
BUILDING & CONSTRUCTION (2.6%)
220,350 USG Corp. (b)........................................................... 5,563,837
---------------
COMPUTER EQUIPMENT (0.1%)
222,958 Memorex Telex NV (ADR) (Netherlands) (b)................................ 341,416
---------------
CONSUMER PRODUCTS (0.0%)
6,500 Thermoscan, Inc. - 144A**............................................... 45,500
---------------
ENTERTAINMENT/GAMING & LODGING (0.2%)
5,000 Motels of America, Inc. - 144A**........................................ 450,000
5,210 Trump Taj Mahal, Inc. (Class A)......................................... 72,940
---------------
522,940
---------------
FOODS & BEVERAGES (0.3%)
225,000 Specialty Foods Acquisition Corp. - 144A**.............................. 618,750
---------------
MANUFACTURING - DIVERSIFIED (2.9%)
396,350 Thermadyne Holdings Corp. (b)........................................... 6,242,513
---------------
PUBLISHING (0.7%)
9,000 Affiliated Newspapers Investments, Inc. (Class B)....................... 270,000
38,400 BFP Holdings, Inc. - 144A** (Class D)................................... 1,152,000
---------------
1,422,000
---------------
RESTAURANTS (0.1%)
12,500 American Restaurant Group Holdings, Inc. - 144A**....................... 187,500
---------------
RETAIL (0.2%)
95,000 Thrifty Payless Holdings, Inc. (Class C)................................ 439,375
---------------
TOTAL COMMON STOCKS
(IDENTIFIED COST $36,490,961)........................................... 15,383,831
---------------
</TABLE>
<TABLE>
<CAPTION>
NUMBER OF EXPIRATION
SHARES DATE VALUE
- ----------------------------------------------------------------------------------------------------
<C> <S> <C> <C>
WARRANTS (a) (0.4%)
AEROSPACE (0.0%)
6,000 Sabreliner Corp.......................................... 04/15/03 60,000
---------------
CONTAINERS (0.1%)
5,000 Crown Packaging Holdings, Ltd. - 144A** (Canada)......... 11/01/03 275,000
---------------
ENTERTAINMENT/GAMING & LODGING (0.0%)
3,263 Casino America, Inc...................................... 11/15/96 2,039
2,000 Fitzgeralds Gaming Corp. - 144A**........................ 03/15/99 20,000
---------------
22,039
---------------
MANUFACTURING (0.1%)
5,000 BPC Holdings Corp........................................ 04/15/04 62,500
25,000 Uniroyal Technology Corp................................. 06/01/03 62,500
---------------
125,000
---------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
HIGH INCOME ADVANTAGE TRUST II
PORTFOLIO OF INVESTMENTS JULY 31, 1995, CONTINUED
<TABLE>
<CAPTION>
NUMBER OF EXPIRATION
SHARES DATE VALUE
- ----------------------------------------------------------------------------------------------------
<C> <S> <C> <C>
OIL & GAS (0.0%)
6,900 Empire Gas Corp.......................................... 07/15/04 $ 69,000
---------------
RETAIL (0.2%)
5,000 County Seat Holdings Co.................................. 10/15/98 112,500
165,000 New Cort Holdings Corp................................... 09/01/98 288,750
---------------
401,250
---------------
RETAIL - FOOD CHAINS (0.0%)
19,512 Grand Union Co. (Series 1) (b)........................... 06/16/00 17,073
39,026 Grand Union Co. (Series 2) (b)........................... 06/16/00 13,659
---------------
30,732
---------------
TOTAL WARRANTS
(IDENTIFIED COST $678,737)............................................ 983,021
---------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ----------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
SHORT-TERM INVESTMENT (0.6%)
REPURCHASE AGREEMENT
$ 1,257 The Bank of New York (dated 07/31/95;
proceeds $1,257,323, collateralized by
$441,350 Federal
Home Loan Bank 6.075% due 10/25/96
valued at $441,350 and $855,850 U.S.
Treasury Note 6.375% due 01/15/99 valued at
$865,426) (Identified Cost $1,257,120)...... 5.8125 % 08/01/95 1,257,120
---------------
TOTAL INVESTMENTS
(IDENTIFIED COST $246,121,590) (D)........... 97.5% 211,193,302
OTHER ASSETS IN EXCESS OF LIABILITIES........ 2.5 5,412,074
----- ------------
NET ASSETS................................... 100.0% $216,605,376
----- ------------
----- ------------
<FN>
- ---------------------
ADR American Depository Receipt.
* Adjustable rate. Rate shown is the rate in effect at July 31, 1995.
** Resale is restricted to qualified institutional investors.
++ Consist of one or more class of securities traded together as a unit;
generally bonds with attached stocks/warrants.
+ Payment in kind security.
+++ Currently a zero coupon bond and will pay interest at the rate shown at a
future specified time.
(a) Non-income producing security.
(b) Acquired through exchange offer.
(c) Non-income producing security, issuer in bankruptcy.
(d) The aggregate cost for federal income tax purposes is $246,629,031; the
aggregate gross unrealized appreciation is $6,769,284 and the aggregate
gross unrealized depreciation is $42,205,013, resulting in net unrealized
depreciation of $35,435,729.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
HIGH INCOME ADVANTAGE TRUST II
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
JULY 31, 1995
<TABLE>
<S> <C>
ASSETS:
Investments in securities, at value
(identified cost $246,121,590)............................ $211,193,302
Receivable for:
Investments sold........................................ 3,516,875
Interest................................................ 4,144,714
Prepaid expenses and other assets........................... 35,794
------------
TOTAL ASSETS........................................... 218,890,685
------------
LIABILITIES:
Payable for:
Investments purchased................................... 1,991,337
Investment management fee............................... 136,981
Accrued expenses and other payables......................... 156,991
------------
TOTAL LIABILITIES...................................... 2,285,309
------------
NET ASSETS:
Paid-in-capital............................................. 344,428,742
Net unrealized depreciation................................. (34,928,288)
Accumulated undistributed net investment income............. 3,082,684
Accumulated net realized loss............................... (95,977,762)
------------
NET ASSETS............................................. $216,605,376
------------
------------
NET ASSET VALUE PER SHARE,
35,611,307 SHARES OUTSTANDING
(UNLIMITED SHARES AUTHORIZED OF $.01 PAR VALUE)...........
$6.08
------------
------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
HIGH INCOME ADVANTAGE TRUST II
FINANCIAL STATEMENTS, CONTINUED
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED JULY 31, 1995
<TABLE>
<S> <C>
NET INVESTMENT INCOME:
INTEREST INCOME............................................. $ 26,903,639
------------
EXPENSES
Investment management fee................................... 1,583,461
Transfer agent fees and expenses............................ 159,576
Professional fees........................................... 119,020
Shareholder reports and notices............................. 33,951
Trustees' fees and expenses................................. 28,580
Custodian fees.............................................. 21,625
Registration fees........................................... 14,049
Other....................................................... 9,182
------------
TOTAL EXPENSES......................................... 1,969,444
------------
NET INVESTMENT INCOME.................................. 24,934,195
------------
NET REALIZED AND UNREALIZED GAIN (LOSS):
Net realized loss........................................... (20,031,015)
Net change in unrealized depreciation....................... 12,554,315
------------
NET LOSS............................................... (7,476,700)
------------
NET INCREASE................................................ $ 17,457,495
------------
------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
HIGH INCOME ADVANTAGE TRUST II
FINANCIAL STATEMENTS, CONTINUED
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
FOR THE YEAR FOR THE YEAR
ENDED ENDED
JULY 31, JULY 31,
1995 1994
- -----------------------------------------------------------------------------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income....................................... $ 24,934,195 $ 24,813,347
Net realized loss........................................... (20,031,015) (19,165,908)
Net change in unrealized depreciation....................... 12,554,315 9,011,697
------------ ------------
NET INCREASE........................................... 17,457,495 14,659,136
------------ ------------
Dividends to shareholders from net investment income........ (25,533,307) (25,016,824)
------------ ------------
TOTAL DECREASE.......................................... (8,075,812) (10,357,688)
NET ASSETS:
Beginning of period......................................... 224,681,188 235,038,876
------------ ------------
END OF PERIOD
(INCLUDING UNDISTRIBUTED NET INVESTMENT INCOME OF
$3,082,684 AND $3,681,796, RESPECTIVELY)................ $216,605,376 $224,681,188
------------ ------------
------------ ------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
HIGH INCOME ADVANTAGE TRUST II
NOTES TO FINANCIAL STATEMENTS JULY 31, 1995
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, 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 the identified cost method.
Discounts and premiums on securities purchased are amortized 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.
<PAGE>
HIGH INCOME ADVANTAGE TRUST II
NOTES TO FINANCIAL STATEMENTS JULY 31, 1995, CONTINUED
D. DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS -- The Trust records dividends
and distributions to its shareholders on the record date. The amount of
dividends and distributions from net investment income and net realized capital
gains are determined in accordance with federal income tax regulations which may
differ from generally accepted accounting principles. These "book/tax"
differences are either considered temporary or permanent in nature. To the
extent these differences are permanent in nature, such amounts are reclassified
within the capital accounts based on their federal tax-basis treatment;
temporary differences do not require reclassification. Dividends and
distributions which exceed net investment income and net realized capital gains
for financial reporting purposes but not for tax purposes are reported as
dividends in excess of net investment income or distributions in excess of net
realized capital gains. To the extent they exceed net investment income and net
realized capital gains for tax purposes, they are reported as distributions of
paid-in-capital.
2. INVESTMENT MANAGEMENT AGREEMENT
Pursuant to an Investment Management Agreement with Dean Witter InterCapital
Inc. (the "Investment Manager"), the Trust pays its Investment Manager a
management fee, calculated weekly and payable monthly, by applying the following
annual rates to the Trust's average weekly net assets: 0.75% to the portion of
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 book 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, 1995, aggregated
$131,971,323 and $130,303,591, respectively.
<PAGE>
HIGH INCOME ADVANTAGE TRUST II
NOTES TO FINANCIAL STATEMENTS JULY 31, 1995, CONTINUED
Dean Witter Trust Company, an affiliate of the Investment Manager, is the
Trust's transfer agent. At July 31, 1995, the Trust had transfer agent fees and
expenses payable of approximately $15,000.
The Trust established 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 July 31, 1995
included in Trustees' fees and expenses in the Statement of Operations amounted
to $7,972. At July 31, 1995, the Trust had an accrued pension liability of
$50,403 which is included in accrued expenses in the Statement of Assets and
Liabilities.
4. SHARES OF BENEFICIAL INTEREST
<TABLE>
<CAPTION>
CAPITAL PAID
PAR VALUE OF IN EXCESS OF
SHARES SHARES PAR VALUE
------------ -------------- --------------
<S> <C> <C> <C>
Balance, July 31, 1994 and July 31, 1995......................... 35,611,307 $ 356,113 $ 344,072,629
------------ -------------- --------------
------------ -------------- --------------
</TABLE>
5. DIVIDENDS
The Trust has declared the following dividends from net investment income:
<TABLE>
<CAPTION>
AMOUNT RECORD PAYABLE
DECLARATION DATE PER SHARE DATE DATE
- ------------------------- ----------- -------------------- --------------------
<S> <C> <C> <C>
August 1, 1995 0.$0525 August 11, 1995 August 25, 1995
August 29, 1995 0.$0525 September 8, 1995 September 22, 1995
</TABLE>
6. FEDERAL INCOME TAX STATUS
At July 31, 1995, the Trust had a net capital loss carryover which may be used
to offset future capital gains to the extent provided by regulations of
approximately:
<TABLE>
<CAPTION>
AMOUNTS IN THOUSANDS
-------------------------------------------------------------------------------------
1998 1999 2000 2002 2003 TOTAL
------------ ------------ ------------ ----------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Available through July 31,.... $ 28 $ 20,947 $ 29,353 $ 8,200 $ 23,309 $ 81,837
------------ ------------ ------------ ----------- ----------- ------------
------------ ------------ ------------ ----------- ----------- ------------
</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 $13,651,000 during fiscal 1995.
At July 31, 1995, the Trust had temporary book/tax differences primarily
attributable to post-October losses and capital loss deferrals on wash sales.
<PAGE>
HIGH INCOME ADVANTAGE TRUST II
NOTES TO FINANCIAL STATEMENTS JULY 31, 1995, CONTINUED
7. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
QUARTERS ENDED
-------------------------------------------------------------------------------------
7/31/95 4/30/95 1/31/95 10/31/94
------------------- ------------------- ------------------- -------------------
PER PER PER PER
TOTAL* SHARE TOTAL* SHARE TOTAL* SHARE TOTAL* SHARE
--------- ------- --------- ------- --------- ------- --------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Total investment income................. $ 7,062 $ 0.20 $ 6,541 $ 0.18 $ 6,184 $ 0.17 $ 7,117 $ 0.20
Net investment income................... 6,499 0.18 6,117 0.17 5,715 0.16 6,603 0.19
Net realized and unrealized gain
(loss)................................. 5,411 0.15 5,881 0.17 (6,800) (0.19) (11,969) (0.34)
<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 $ 0.19 $ 6,444 $ 0.18 $ 6,727 $ 0.19 $ 7,029 $ 0.20
Net investment income................... 6,326 0.18 5,876 0.16 6,132 0.17 6,479 0.18
Net realized and unrealized gain
(loss)................................. (16,859) (0.47) (11,031) (0.31) 12,043 0.34 5,693 0.16
<FN>
- ---------------------
* Amounts in thousands.
</TABLE>
<PAGE>
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 YEAR ENDED JULY 31
--------------------------------------------------------------------------------------------
1995 1994 1993 1992 1991
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of
period............................ $ 6.31 $ 6.60 $ 6.43 $ 5.68 $ 6.44
------ ----- ------ ----- ------
Net investment income.............. 0.70 0.69 0.77 0.91 0.77
Net realized and unrealized gain
(loss)............................ (0.21) (0.28) 0.31 0.50 (0.70)
------ ----- ------ ----- ------
Total from investment operations... 0.49 0.41 1.08 1.41 0.07
------ ----- ------ ----- ------
Less dividends and distributions:
Net investment income........... (0.72) (0.70) (0.91) (0.66) (0.77)
Net realized gain............... -- -- -- -- (0.06)
------ ----- ------ ----- ------
Total dividends and
distributions..................... (0.72) (0.70) (0.91) (0.66) (0.83)
------ ----- ------ ----- ------
Net asset value, end of period..... $ 6.08 $ 6.31 $ 6.60 $ 6.43 $ 5.68
------ ----- ------ ----- ------
------ ----- ------ ----- ------
Market value, end of period........ $ 6.125 $ 6.25 $ 6.875 $ 6.50 $ 5.125
------ ----- ------ ----- ------
------ ----- ------ ----- ------
TOTAL INVESTMENT RETURN+........... 10.29% 0.90% 22.16% 42.17% 3.03%
RATIOS TO AVERAGE NET ASSETS:
Expenses........................... 0.93% 0.94% 0.95% 0.98% 1.07%
Net investment income.............. 11.81% 10.33% 12.17% 14.83% 14.85%
SUPPLEMENTAL DATA:
Net assets, end of period, in
thousands......................... $216,605 $224,681 $235,039 $228,283 $210,595
Portfolio turnover rate............ 70% 113% 138% 99% 129%
<FN>
- ---------------------
+ 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.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
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, 1995, 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 July
31, 1995 by correspondence with the custodian and brokers, provide a reasonable
basis for the opinion expressed above.
PRICE WATERHOUSE LLP
NEW YORK, NEW YORK
SEPTEMBER 11, 1995
<PAGE>
TRUSTEES
- ---------------------------------------------
Jack F. Bennett
Michael Bozic
Charles A. Fiumefreddo HIGH
Edwin J. Garn INCOME
John R. Haire ADVANTAGE
Dr. Manuel H. Johnson TRUST II
Paul Kolton
Michael E. Nugent
Philip J. Purcell
John L. Schroeder
ANNUAL REPORT
OFFICERS JULY 31, 1995
- ---------------------------------------------
Charles A. Fiumefreddo
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
Sheldon Curtis
VICE PRESIDENT, SECRETARY AND GENERAL COUNSEL
Peter M. Avelar
VICE PRESIDENT
Thomas F. Caloia
TREASURER
TRANSFER AGENT
- ---------------------------------------------
Dean Witter Trust Company
Harborside Financial Center - Plaza Two
Jersey City, New Jersey 07311
INDEPENDENT ACCOUNTANTS
- ---------------------------------------------
Price Waterhouse LLP
1177 Avenue of the Americas
New York, New York 10036
INVESTMENT MANAGER
- ---------------------------------------------
Dean Witter InterCapital Inc.
Two World Trade Center
New York, New York 10048